Week 1

Question 1

CAPEX

Answer 1

Capital budgetting/ capital expenditure decisions

Question 2

Equity investors

Answer 2

shareholders, put up cash, hold shares

Question 3

Capital structure

Answer 3

Choice between debt and equity financing

Question 4

Payout decision

Answer 4

decision to pay dividend or repurchase shares

Question 5

Market cap

Answer 5

overall market value

Question 6

Corporation

Answer 6

legal entity that is owned by shareholders

Question 7

Closely held

Answer 7

shares are privately held

Question 8

Public companies

Answer 8

Shares are traded in public markets

Question 9

Hurdle rate/ cost of capital

Answer 9

minimum rate of return

Question 10

Agency problems

Answer 10

conflicts between shareholders’ and managers’ objectives

Question 11

Time value

Answer 11

A dollar today is worth more than a dollar tomorrow

Question 12

Compound rate

Answer 12

Interest calculated on initial principal

Question 13

Consols

Answer 13

Perpetuities, bonds that government is under no obligation to pay, fixed income for each year

Question 14

Annuity

Answer 14

Asset that pays a fixed sum each years for a specified number of years

Question 15

Annuity due

Answer 15

Level of stream of payments starting immediately

Question 16

Amortizing loans

Answer 16

Loans that involve a series of level payments

Question 17

Quoted annual interest rate

Answer 17

Total annual payment/ number of payments per year