Test Review

Question 1

What is the Primary Market?

Answer 1

markets in which corprations raise new capital

Question 2

what is the secondary Market?

Answer 2

Markets in which existing arealding outstanding Securities are traded

Question 3

what are the types of Financial Institutions? (PICFM)

Answer 3

Pension Funds
Investment banks
commercial banks
 Financial Services Corportations
Mutual Funds (PICFM)

Question 4

Investment Banks?

Answer 4

type of financial insitiution that Investment banks traditionally help companies
raise capital. They (1) help corporations design
securities with features that are currently attractive
to investors, (2) buy these securities from the
corporation, and (3) resell them to savers.

Question 5

Commercial Banks?

Answer 5

such as Bank of America,
Citibank, Wells Fargo, and JP Morgan Chase, are the
traditional “department stores of finance” because
they serve a variety of savers and borrowers

Question 6

Financial Services Corporations?

Answer 6

large conglomerates
that combine many different financial institutions within
a single corporation
– Citigroup: commercial bank, IB, insurance, leasing

Question 7

Pension Funds

Answer 7

Pension funds are retirement plans funded by
corporations or government agencies for their
workers
– Administered primarily by the trust departments of
commercial banks or by life insurance companies.

Question 8

Mutual Funds?

Answer 8

corporations that accept money
from savers and then use these funds to buy stocks,
long-term bonds, or short-term debt instruments
issued by businesses or government units.
* Hedge fund, PEF : refer to the supplemental slide

Question 9

credit unions?

Answer 9

a type of financial Institution. cooperative associations whose
members are supposed to have a common bond, such
as being employees of the same firm.
– Cheap source of funds, e.g, UNO Federal Credit Union

Question 10

What are the advantages of a Proprietorship/Partnership?

Answer 10

Easy and inexpensive to form
Less Regulations
No Corporate Tax

Question 11

What are the disadvantages of Proprietorship/Partnership?

Answer 11

Hard to raise large sums (Capital
Unlimited Liability
Limited Lifetime

Question 12

Wht are the Advantages of a Corporation?

Answer 12

Easy to raise Capital
Limited Liability
Easy to transfer Ownership &Unlimited Life

Question 13

How Do Mitigate Stockersholder/Mangager/Bondholder Conflicts?

Answer 13

Managerial Compensation Packers, Direct Intervention by Shareholders, The Threat Of firing, The threat of Takeover

Question 14

How is capital transfered between borrowers and savers for Direct transfers

Answer 14

Bonds are sold from the business to the saver

Question 15

How is capital transfered between borrowers and savers for Investment Banks

Answer 15

Securities are treansfered to the investment Bank. the saver gives money to the investment bank. the investment. banks gives securites to the saver

Question 16

How is caopital transfered between borrowers and savers for Finacial Intermediaries

Answer 16

Business send securities to FI Svers give money to FI. the financial intermediary gives Intermediary Securities to saver

Question 17

What is Total Debt

Answer 17

STD and LTD

Question 18

Short term Debt includes?

Answer 18

Notes Payable

Question 19

Non-Interest Bearing Liability includes?

Answer 19

Accounts Payable; Accurals

Question 20

what is total Liability

Answer 20

Total Debt and Non-interest bearing Liability (Accounts Payable and Accuruals)

Question 21

What are the 5 major Catergories of Ratios and what equation is Used for the following(LADPM)(24262)

Answer 21

Liquidity: Can we make required payments? (Current and Quick)
Asset management: Right amount of assets vs. sales?(FA and TA tunover, DSO,Inventory turnover)

Debt management: Right mix of debt and equity?(TIE and Debt to capital)

Profitability: Do sales prices exceed unit costs, and are sales high enough as reflected in PM, ROE, and ROA?(Operating margin, profit marine, BEP, Return on TA,Common Equity,Invested Capital)

Market value: Do investors like what they see as reflected in P/E
and M/B ratios? (Price/eaning Ratio) (Market/Book Ratio)
24262 FOR CHEAT CHEAT

Question 22

Total Invested Capital Includes.

Answer 22

Long Term Debt, Short Term Debt, Notes Payable, an common stock

Question 23

whats the Dupont Equation

Answer 23

ROE = PM X TAT X EM
ROE= NI SALES TA OVERALL: NI/ EQUITY OR ROA X EM
SALES TA EQUITY

Question 24

How can you tell a companies financial position is weak or strong?

Answer 24

It can be difficult to tell whether a company is on balance in a strong or weak position BUT IF THE RATIO IS LESS THAN ONE IT’S POSITION IS WEAK

Question 25

MVA

Answer 25

(Shares outstanding x Stock Price) - Common quity (CS)

Question 26

EVA

Answer 26

Ebit(1-tax) - (Total Invested Capital(TD+CS) x % tax cost of capital)