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Fin201 > Test 4 Terms > Flashcards

Test 4 Terms Flashcards

1
Q

Chapter 11

A

Definition

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2
Q

Additivity Problem

A

A possible problem when using IRR to choose combination of projects in a capital-constrained environment.

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3
Q

Capital-Constrained

A

When a firm does not have enough money to invest in all of its positive NPV projects.

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4
Q

Cash Flow Problem

A

A possible problem when using IRR to choose combination of projects in a capital-constrained environment.

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5
Q

Frequency Function

A

A financial calculator function for multiple cash flows.

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6
Q

Initial Outlay

A

The total dollar amount to begin a project.

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7
Q

IRR

A

A capital budgeting method that includes the time value of money, all of the cash flows, and has an objective decision rule.

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8
Q

IRR Decision Rule

A

If the computed IRR is greater than the hurdle rate, accept.

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9
Q

NPV

A

A capital budgeting method that includes the time value of money, all of the cash flows, and has an objective decision rule.

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10
Q

NPV Decision Rule

A

If the computed NPV is greater than zero, accept.

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11
Q

Payback

A

A capital budgeting method that does not include time value of money, all of the cash flows, or an objective decision rule.

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12
Q

Payback Decision Rule

A

If the computed payback is less than managements cutoff, accept.

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13
Q

Terminal Value

A

The final dollar amount from a project.

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14
Q

Chapter 13

A

Definition

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15
Q

Comparable Multiples

A

A technique to value an entire firm based on financial ratios of other firms or industries.

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16
Q

Control Premium

A

Increasing the value of a firm if the purchaser is getting a controlling interest.

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17
Q

DCF Firm Valuation

A

A technique to value an entire firm based on first estimating all future cash flows and second discounting them back to the present value.

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18
Q

Earnings Yield

A

The inverse of the PE ratio.

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19
Q

EBITDA Multiple

A

A comparable multiples approach for valuing entrepreneurial firms.

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20
Q

Fair Value of a Firm

A

Another name for the intrinsic value of a firm.

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21
Q

Going Concern Value

A

How much a firm is worth as an operating business.

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22
Q

House Appraisal

A

A document that values a house based upon replacement cost and comparable multiples.

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23
Q

Intrinsic Value of a Firm

A

The value of a firm when computed with an economic model.

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24
Q

Liquidation Value

A

How much a firm is worth if all of its assets were sold off to cover its debts with the residual going to shareholders.

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25
Q

Liquidity Discount

A

Reducing the value of a firm if it does not have liquid stock.

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26
Q

Market Value of a Firm

A

How much the firm sells for right now.

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27
Q

Replacement Cost Method

A

A technique to value an entire firm based upon estimating how much it would cost to rebuild the company from scratch.

28
Q

Salary Adjustment

A

Making sure a fair salary is deducted from future cash flows when valuing a small business.

29
Q

Chapter 14

A

Definition

30
Q

2 and 20 Shops

A

Private equity firms that receive a 2% annual fee as well as 20% of all investment increases.

31
Q

Angels

A

Wealthy individuals who invest in new ventures for the return, thrill, and to help entrepreneurs.

32
Q

Articles of Organization

A

Legal document for the formation of an LLC.

33
Q

Bootstrapping

A

Using inventive ways to limit expenses and to fund a new venture.

34
Q

Business Entity Structure

A

The choice of legal structure to organize a firm such as LLC or S-corporation.

35
Q

Capital Call

A

When venture capitalists call investors to receive installments of investments.

36
Q

C-Corp

A

A legal entity that offers limited liability with double taxation.

37
Q

Double Taxation

A

In a C-corporation when taxes are paid at the corporate and then the individual level.

38
Q

Entrepreneurial Finance

A

Field of finance that deals specifically with small businesses and high-growth ventures.

39
Q

Factoring

A

Selling the accounts receivable at a discount to receive immediate cash.

40
Q

Financial Harvest

A

Noun for harvesting.

41
Q

Give Birth to Company

A

When the article are filed and a checking account is opened in the name of the business.

42
Q

Harvesting

A

Selling a venture either through IPO or M&A.

43
Q

K-1

A

The IRS form that shows gains from a partnership or multi-member LLC.

44
Q

Lifestyle Business

A

A small business that maximizes utility and not necessarily wealth.

45
Q

Like-Kind

A

Income or losses from similar lines of business or investment that can offset each other for tax purposes.

46
Q

Limited Liability

A

Legal protection for one’s personal assets from business law suits.

47
Q

LLC

A

A legal entity that offers limited liability with single or double taxation.

48
Q

LLC Member

A

An “owner” of an LLC.

49
Q

Mingle Funds

A

Also comingle funds. Mixing personal and business assets resulting in destroying the limited liability protection.

50
Q

New Venture

A

A new business that targets high-growth and a big harvest.

51
Q

Partnership

A

A legal entity of two or more owners with unlimited liability and single taxation.

52
Q

Phantom Income

A

Income that must be taxed in a year even if the income is not distributed from the company.

53
Q

Pierce the Veil

A

When an attorney is able to destroy an owner’s limited liability protection such as when funds are mingled.

54
Q

Private Equity

A

Professionally managed investment capital that typically buys entire firms at a time.

55
Q

Schedule C

A

The self-employment IRS form.

56
Q

S-Corp

A

A legal entity that offers limited liability with single taxation.

57
Q

SEC

A

Securities and Exchange Commission of the US. Responsible for making sure enough information is publicly available for publicly traded firms.

58
Q

Seed Financing

A

Investing in very young, start-up ventures.

59
Q

Self Employment Taxes

A

Medicaid and social security taxes (FICA taxes) that must be paid for employees.

60
Q

Sole Proprietorship

A

A legal entity of one owner with unlimited liability and single taxation.

61
Q

Trade Credit

A

Accounts payable on the balance sheet. A way to bootstrap a start-up.

62
Q

Unlimited Liability

A

No legal protection for one’s personal assets from business law suits.

63
Q

Utility Function

A

Things that make a person happy.

64
Q

Venture Capital

A

Professionally managed investment capital that typically invests in very young new ventures.

65
Q

Wealth Function

A

Things that make a person wealthy.

Fin201 (3 decks)

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