Section B: Corporate Finance Flashcards
Receivable days
365 / receivables turnover
Inventory processing days
365 / inventory turnover
Payables payment period
365 / payables turnover
Cash Conversion Cycle
Receivables days
+ Inventory processing days
- Payables payment period
A _________ delays the out outflow of cash?
draft (check)
To be considered a cash equivalent, the investments need to have a maturity date ___________.
within three months
What is the net realizable value of A/R?
Accounts Reveiable
- Allowance for Doubtful accounts
_____________ generally provides the largest source of short-term credit for small firms
Trade credit
Buyer’s opportunity cost of not accepting 3/10, net 45?
[Days in year / (terms less discount) ] * interest
360 / (45 - 10) = 10.2857
10.2857 * .03 = 31.81%
White knight defense in corporate takeovers…
finds a friendly buyer to outbid potential acquirer
Leveraged recapitalization
Strategy to avoid corporate takeover by taking out significant amount of debt and distributing large cash dividends
Trading stocks
Ownership shares issued by parent company to monitor performance of t SBU
Spin-off
When a firm forms a new company out of a portion of its current division or product lines
Equity carve-out
Firm sells only a minority interest in the new firm
Split-up
Takes on firm and splits it into two separately run firms
Present Value Interest Factor (PVIF) is calculated:
PV / FV
Floating/Flexible exchange rate
Set by market supply and demand for currencies
Managed floating exchange rate
Combines features of fixed and floating exchange rates. Government can intervene when required, but market forces generally dictate exchange rates
Fixed (static) exchange rate
Requires country to maintain its currency at or near benchmark value
Letters of credit
Agreements sent from lender to exporter on behalf of importer, which guarantees the lender will accept a draft for payment from importer
Time drafts
Bills that must be paid at a specific time or upon completion of an obligated action
Sight drafts
Bills for imports payable upon receipts
Bankers’ acceptance
Short-term financing instruments issued by a firm and guaranteed by a financial institution
Consignment
Takes place when exporter sends goods to be sold to an importer. Importer pays exporter once goods are sold
(Sales Price - VC) * X - FC = 0
X is __________
Breakeven point volume
Time drafts
Bills that must be paid on a specific time upon completion of an obligated action
Letters of credit
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
Consignment
Takes place when an exporter sends good to be sold to an importer. The importer will pay the exporter once the goods are sold.
Sight drafts
Bills for imports payable upon receipt
Countertrading
Bartering; goods and services are exchange instead of cash
CAPM is used to determine the cost of what?
Cost of Equity
Risk free rate increasing will _________ the cost of capital
Increase
Dividends in Arrears are…
Dividends owed to preferred stockholders that must be paid out before any dividends can be paid to common stockholders
Strong form efficiency
Prices reflect all available information
Semi-strong form efficiency
Prices reflect all public information, but not all private information.
Discounted loans
Loans where interest is paid at the beginning of the loan
Currency swap
Agreement between two parties to exchange cash flows in one currency for cash flows in another currency
A bond with a call provision
Issuer of bond can repurchase the bond at a specified price before maturity
Money markets invest in what type of securities?
Short-term, low-risk securities
(Commercial paper, CD’s, banker’s acceptance)
Weak form efficiency
Prices reflect all past information, but not all public or private information
Dividend Discount Model formula
An inverted/downward sloping yield curve indicates ______________
That a recession is coming
Flat yield curve represents ___________
Stable growth and inflation
An upward sloping yield curve indicates ____________
That an economic expansion is coming.
Formula for PV (Present Value):
PV = FV / (1+ r) ^ n
When market rate > stated rate, a note should be issued at a ____________
Discount
When market rate < stated rate, a note should be issued at a ___________
Premium
When market rate < stated rate,
A capital market is a ___________
Secondary market where equities and long-term debt instruments are traded
A market specialist who facilitates buying and selling securities from their own holdings is a _________
Dealer
