Webinar Vocabulary Summary

Question 1

If the market rate equals the coupon rate then bonds will sell at…

Answer 1

Par Value

Question 2

If the market rate is greater than the coupon rate the bonds will sell at…

Answer 2

A Discount

Question 3

If the market rate is less than the coupon rate bonds will sell at…

Answer 3

A Premium

Question 4

Sustainable Growth Rate (SGR)

Answer 4

Return on Equity * (1-Dividend Payout Ratio)

Question 5

Weighted Average After Tax Cost of Debt

Answer 5

($Debt/$Equity)Cost of Debt Decimal(1-Tax Rate Decimal)

Question 6

Coupon Rate

Answer 6

The interest rate that a company promises to pay on bond

Question 7

Market Rate

Answer 7

The interest rate on other comparable bonds

Question 8

Par Value

Answer 8

The amount payable on maturity of the bond

Question 9

Market Rate is the same as…

Answer 9

Yield to Maturity

Question 10

Gordon Growth Model

Answer 10

Assumes stable growth rates and does not incorporate risk

Question 11

CAPM Model

Answer 11

Allows to determine expected return on stocks and incorporates risk

Question 12

Public companies maximize share holder value by…

Answer 12

Maximizing earnings per share

Question 13

Private companies maximize shareholder value by…

Answer 13

Keeping control within the company

Question 14

Positive credit ratings do what to cost of capital?

Answer 14

Lowers cost of capital

Question 15

What is cash flow from operating activities?

Answer 15

It is cash flow generated for sale of products and services

Question 16

What is the formula for retained earnings

Answer 16

Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends

Question 17

Is depreciation and salvage value on an asset precise or is it an estimate?

Answer 17

It is an estimate

Question 18

What is an example of accounting difference?

Answer 18

Companies using different accounting methods

Question 19

What is an example of a timing difference?

Answer 19

Companies using different fiscal years

Question 20

Do stock holders or bond holders have voting rights?

Answer 20

Stock holders have voting rights

Question 21

What factors are considered for the initial outlay of a new investment?

Answer 21

Purchase price of new equipment, shipping costs, and investment in working capital

Question 22

What is the risk associated with debt financing?

Answer 22

Too much debt can lead to bankruptcy

Question 23

What are inventory related costs?

Answer 23

Product costs, storage costs, and opportunity costs

Question 24

What statements are required to be filed with the SEC?

Answer 24

Annual audited financial statements

Question 25

What are the issues with understanding foreign financial statements?

Answer 25

Foreign financial statements use international financial reporting standards and they are different from US accounting standards

Question 26

What does cash flow from investing activities measure?

Answer 26

It measures investments in long term assets such as building, equipment, and machinery

Question 27

What does the efficient frontier measure?

Answer 27

It maximizes expected return for a given level of risk

Question 28

What is the objective of portfolio diversification?

Answer 28

The objective is to reduce risk

Question 29

What is the definition of a current asset and a current liability?

Answer 29

A current asset is a cash or any other asset that can be converted to cash within 12 months and a current liability is any liability that has to paid within 12 months

Question 30

What is differential cash flow?

Answer 30

It is the amount of net cash flow generated a new asset in a yearly basis

Question 31

What does the current ratio measure

Answer 31

It is a measure of short term liquidity to pay short term obligations

Question 32

What is the main role of SEC

Answer 32

It regulates public disclosures of entities that sell debt and equity to the public

Question 33

What leads to an increase in APY?

Answer 33

An increase in the frequency of compounding - like going from annual to monthly compounding

Question 34

What bonds are taxed at the federal level

Answer 34

Treasury Bonds

Question 35

What bonds are not taxed at a federal level

Answer 35

Municipal Bonds

Question 36

What are the two benefits of unbundling and offshoring?

Answer 36

a. It reduces costs and results in higher sales and employment b. It allows for sale intermediate and final goods at lower prices and increases employment

Question 37

What are the two basic types of financial instruments?

Answer 37

Stocks and Bonds

Question 38

What are primary and secondary markets?

Answer 38

Primary markets are where companies directly sell securities to investors and secondary markets are where securities are sold from third parties like the New York Stock Exchange

Question 39

Dodd-Frank regulates which segment of the U.S. Economy?

Answer 39

Banking Industry

Question 40

What does the Sarbanes-Oxley Act require companies to do?

Answer 40

Have Internal Control Audits

Question 41

What is included in the income statement and not included in the statement of cash flows?

Answer 41

Depreciation

Question 42

The Basic equation for the balance sheet is

Answer 42

Assets = Liabilities + Equity

Question 43

Revenues

Answer 43

Amount generated by sale of products and services

Question 44

Expenses

Answer 44

Amount incurred to manufacture products

Question 45

Income

Answer 45

The difference between revenues and expenses

Question 46

Assets

Answer 46

Items that are owned by the company

Question 47

Liabilities

Answer 47

Amounts owed by the company to others

Question 48

Equity

Answer 48

Amount invested in the company by shareholders

Question 49

Items reported in the income statement

Answer 49

Revenues, Expenses, Income

Question 50

Items reported in the balance sheet

Answer 50

Assets, Liabilities, Equity

Question 51

Statement of Cash Flows

Answer 51

The statement of cash flows shows the change in cash balance for a period of time

Question 52

Capital Budgeting

Answer 52

The process used in making financial decisions involving projects that generate cash flows over a multi-year time horizon

Question 53

Cash Flows Consist of

Answer 53

The cost of the asset, shipping cost, investment and working capital

Question 54

Differential Annual Cash Flows Consist of...

Answer 54

Incremental cash flow generated every year

Question 55

Terminal cash flow consists of...

Answer 55

After tax proceeds from the sale of an asset and release of working capital

Question 56

Net Present Value (NPV)

Answer 56

The present value after tax net cash flows. It is the most commonly used method in capital budgeting

Question 57

Internal Rate of Return (IRR)

Answer 57

The discount rate that results in a zero net present value

Question 58

What does Degree of Leverage mean?

Answer 58

DOL means that if there is a percent increase/decrease in sales it will lead to a DOL * % increase/decrease in EBIT

Question 59

Degree of Leverage is also known as

Answer 59

DOL is aka business risk

Question 60

What ratios do companies use to tell them if they are efficiently managing working capital?

Answer 60

Current Ratio Cash Ratio Receivables Turnover Ratio

Question 61

How can a firm speed up collection from customers?

Answer 61

Offer discounts if customers pay early and through electronic check

Question 62

Global Finance Risks

Answer 62

Exchange Rate Risk County Risk Political Risk

Question 63

To manage exchange rate risks companies use what tactic?

Answer 63

Hedging

Question 64

Devaluation of currency has what effect on exports and imports?

Answer 64

It makes exports cheaper and imports expensive

Question 65

What methods are used to determine exchange rates?

Answer 65

Free Floating Fixed Floating (Pegged) Managed (Dirty) Floating

Question 66

What costs are associated with international trade?

Answer 66

Taxes Tariffs Currency Restrictions

Question 67

What are the two US legislations that are associated with global trade?

Answer 67

NAFTA | TPP