week 1 - chptr 1 Flashcards
what is the fundamental assumption that we make while studying corp. fin. manag.?
a) the company wants to maximize profits in the short medium term
b) the company wants to maximize stakeholder value
c) the company wants to maximize shareholder value
d) the company wants to maximize long-term stakeholder value
c)
what are the two main risks a company faces when evaluating a project?
1° - the risk of the project itself
2° - the way in which the company is financed
which are the main poinsts that must be included in the articles of association, when creating a new corporation/company?
- Name of the proposed company.
- Types of activities it will pursue.
- Amount of capital share.
- Number of directors.
- Names and addresses of directors.
How does a company finance itself during its life?
1 - entrepreneurs usually provide all the resources to start the company
2 - then the ask for resources to family, friends, private investors, venture capitalists (“angel investors”)
3 - banks, long term debt, IPOs
what is the differenze between fundamental price and market price?
The fundamental price is the one calculated using the company’s accounts or other internal figuresa, while the market price is the share price that we observe in the financial markets.
what is the main driver of a company value? How can managers increase company’s value?
it is a company’s ability to generate cash flows now and in the future.
Remember: any financial asset is valuable only to the exent that it generates cash flows. Therefore, managers can increase their firm’s value by increasing the size of
the expected cash flows, by speeding up their receipt, and by reducing the risk without reducing the expected cash flows.
How transfers of capital between savers and those who need capital take place?
a) direct transactions: a business sells its shares or bonds to savers.
b) indirect transfers: through an investment banking house, which underwrite the issue
c) through borrowing from a financial intermediary
what is the difference between debt and equity? And derivates?
Debt has specified payments and specified maturity. If it matures in more than a year it is a capital market security, while if it matures in less than a year is a money market security.
Equity instruments, instead, are a claim upon residual value (no maturity date), equity is always a capital market security.
Derivatives are securities whose val-
ues depend on the values of some other traded assets.
what are the main factors that influence the cost of money?
1) production opportunities
2) time preferences for consumption
3) risk
4) inflation
what is country risk?
Country risk is the risk that arises from investing or doing business in a particular country. It depends on country’s economic, political and
social environment, tax rates, regulations, currency conversion and exchange rates, local production, sourcing and hiring practices.
what do investment banks do?
Raise capital, provide consulting and advisory services, M&A, investment management for wealthy individuals, brokerage services.
what types of investment funds exist?
a - mutual funds
b - hedge funds
c - PE funds
d - life insurance companies and pension funds
define the following terms used in financial markets:
-Physical asset markets
-Spot markets and futures markets
-Money markets
-Mortgage markets
-Primary markets
Secondary markets
-Private markets
pag 25-26
what are the contributions that the financial markets make to the society?
1) information processing
2) maturity transformation
3) risk transformation
4) liquidity
5) determining a price
6) diversification
7) market efficiency
8) law of one price
9) arbitrage
what are the three main type of share market transactions?
IPO
SEO (seasoned equity offerings)
