Section B: Corporate Finance

Question 1

Receivable days

Answer 1

365 / receivables turnover

Question 2

Inventory processing days

Answer 2

365 / inventory turnover

Question 3

Payables payment period

Answer 3

365 / payables turnover

Question 4

Cash Conversion Cycle

Answer 4

Receivables days
+ Inventory processing days
- Payables payment period

Question 5

A _________ delays the out outflow of cash?

Answer 5

draft (check)

Question 6

To be considered a cash equivalent, the investments need to have a maturity date ___________.

Answer 6

within three months

Question 7

What is the net realizable value of A/R?

Answer 7

Accounts Reveiable
- Allowance for Doubtful accounts

Question 8

_____________ generally provides the largest source of short-term credit for small firms

Answer 8

Trade credit

Question 9

Buyer’s opportunity cost of not accepting 3/10, net 45?

Answer 9

[Days in year / (terms less discount) ] * interest

360 / (45 - 10) = 10.2857
10.2857 * .03 = 31.81%

Question 10

White knight defense in corporate takeovers…

Answer 10

finds a friendly buyer to outbid potential acquirer

Question 11

Leveraged recapitalization

Answer 11

Strategy to avoid corporate takeover by taking out significant amount of debt and distributing large cash dividends

Question 12

Trading stocks

Answer 12

Ownership shares issued by parent company to monitor performance of t SBU

Question 13

Spin-off

Answer 13

When a firm forms a new company out of a portion of its current division or product lines

Question 14

Equity carve-out

Answer 14

Firm sells only a minority interest in the new firm

Question 15

Split-up

Answer 15

Takes on firm and splits it into two separately run firms

Question 16

Present Value Interest Factor (PVIF) is calculated:

Answer 16

PV / FV

Question 17

Floating/Flexible exchange rate

Answer 17

Set by market supply and demand for currencies

Question 18

Managed floating exchange rate

Answer 18

Combines features of fixed and floating exchange rates. Government can intervene when required, but market forces generally dictate exchange rates

Question 19

Fixed (static) exchange rate

Answer 19

Requires country to maintain its currency at or near benchmark value

Question 20

Letters of credit

Answer 20

Agreements sent from lender to exporter on behalf of importer, which guarantees the lender will accept a draft for payment from importer

Question 21

Time drafts

Answer 21

Bills that must be paid at a specific time or upon completion of an obligated action

Question 22

Sight drafts

Answer 22

Bills for imports payable upon receipts

Question 23

Bankers’ acceptance

Answer 23

Short-term financing instruments issued by a firm and guaranteed by a financial institution

Question 24

Consignment

Answer 24

Takes place when exporter sends goods to be sold to an importer. Importer pays exporter once goods are sold

Question 25

(Sales Price - VC) * X - FC = 0 X is __________

Answer 25

Breakeven point volume

Question 26

Time drafts

Answer 26

Bills that must be paid on a specific time upon completion of an obligated action

Question 27

Letters of credit

Answer 27

Agreement sent from a lender to an exporter on behalf of an importer guarantee the lender will accept a draft for payment from the importer

Question 28

Consignment

Answer 28

Takes place when an exporter sends good to be sold to an importer. The importer will pay the exporter once the goods are sold.

Question 29

Sight drafts

Answer 29

Bills for imports payable upon receipt

Question 30

Countertrading

Answer 30

Bartering; goods and services are exchange instead of cash

Question 31

CAPM is used to determine the cost of what?

Answer 31

Cost of Equity

Question 32

Risk free rate increasing will _________ the cost of capital

Answer 32

Increase

Question 33

Dividends in Arrears are…

Answer 33

Dividends owed to preferred stockholders that must be paid out before any dividends can be paid to common stockholders

Question 34

Strong form efficiency

Answer 34

Prices reflect all available information

Question 35

Semi-strong form efficiency

Answer 35

Prices reflect all public information, but not all private information.

Question 36

Discounted loans

Answer 36

Loans where interest is paid at the beginning of the loan

Question 37

Currency swap

Answer 37

Agreement between two parties to exchange cash flows in one currency for cash flows in another currency

Question 38

A bond with a call provision

Answer 38

Issuer of bond can repurchase the bond at a specified price before maturity

Question 39

Money markets invest in what type of securities?

Answer 39

Short-term, low-risk securities (Commercial paper, CD’s, banker’s acceptance)

Question 40

Weak form efficiency

Answer 40

Prices reflect all past information, but not all public or private information

Question 41

Dividend Discount Model formula

Answer 41

Question 43

An inverted/downward sloping yield curve indicates ______________

Answer 43

That a recession is coming

Question 44

Flat yield curve represents ___________

Answer 44

Stable growth and inflation

Question 45

An upward sloping yield curve indicates ____________

Answer 45

That an economic expansion is coming.

Question 46

Formula for PV (Present Value):

Answer 46

PV = FV / (1+ r) ^ n

Question 47

When market rate > stated rate, a note should be issued at a ____________

Answer 47

Discount

Question 48

When market rate < stated rate, a note should be issued at a ___________

Answer 48

Premium

Question 49

When market rate < stated rate,

Question 50

A capital market is a ___________

Answer 50

Secondary market where equities and long-term debt instruments are traded

Question 51

A market specialist who facilitates buying and selling securities from their own holdings is a _________

Answer 51

Dealer