Finance Midterms

Front 1

FIXED COSTS

Back 1

A cost that is not dependent on the amount of goods or services produced during the period

Front 2

CAPITAL BUDGETING

Back 2

The decision making process for accepting or rejecting projects.

Front 3

Depreciation Tax Shield

Back 3

Portion of an investment that can be deducted from taxable income.

Front 4

Scenario Analysis

Back 4

Analysis of the effect on a project of different scenarios with each scenario involving many variable changes.

Front 5

MONTE CARLO SIMULATION

Back 5

An exercise that generates possible outcomes for a project based on a model of the underlying factors that drive project performance.

Front 6

BREAK EVEN ANALYSIS

Back 6

Analysis of the level of sales at which a project would earn zero profit.

Front 7

NET WORKING CAPITAL

Back 7

Current assets - current liabilities

Front 8

Which of the following is NOT a relevant cash flow and thus should not be reflected in the analysis of a capital budgeting project.

Back 8

Sunk costs that have been expensed for tax purposes

Front 9

DISCOUNTING

Back 9

Calculating the present value of a future amount

Front 10

FUTURE VALUE

Back 10

The value of the sum after investing it over one or more periods.

Front 11

COMPOUNDING

Back 11

the process of reinvesting each interest payment to earn more interest

Front 12

INTEREST RATE

Back 12

The price paid for borrowing money

Front 13

DISCOUNT RATE

Back 13

Used to calculate the PV of future cash flows

Front 14

PRESENT VALUE

Back 14

The value of a future cash stream discounted to present day.

Front 15

AMMORITIZED LOAN

Back 15

Requires the borrower to repay parts of the loan over time.

Front 16

ANNUAL PERCENTAGE RATE (APR)

Back 16

The interest rate without considering compounding.

Front 17

ANNUITY

Back 17

A level stream of equal dollar payments that last for a fixed time

Front 18

PERPETUITY

Back 18

A constant stream of cash flows without end.

Front 19

EFFECTIVE ANNUAL RATE

Back 19

An interest rate that reflect annualizing with compound figured in

Front 20

ANNUITY DUE

Back 20

An annuity with an immediate initial payment

Front 21

CONSOL

Back 21

A bond that never matures and carries a promise to pay a coupon forever.

Front 22

PAYBACK PERIOD

Back 22

The length of time it takes for a project to return to its initial investment

Front 23

INTERNAL RATE OF RETURN

Back 23

the discount rate at which the net present value of an investment is zero.

Front 24

MUTUALLY EXCLUSIVE INVESTMENTS

Back 24

Investments where the acceptance of one project precludes the acceptance of one or more alternative projects

Front 25

MODIFIED IRR

Back 25

an internal rate of return calculation method that changes cash flows such that only one IRR exists.

Front 26

SUSTAINABLE GROWTH RATE

Back 26

The maximum growth rate that can be achieved with no external equity financing while maintaining a constant debt equity ratio

Front 27

MARKET CAPITALIZATION

Back 27

Price per share of commons stock / number of shares outstanding

Front 28

FINANCIAL RATIO

Back 28

Ratio of two measures of firm status or performance.

Front 29

COMMON SIZE FINANCIAL STATEMENTS

Back 29

financial statements expressed in percentages instead of total dollars to allow for comparison

Front 30

ENTERPRISE VALUE

Back 30

The cost to purchase all share outstanding of a firm and pay off all debts less than the firm's cash holdings

Front 31

RETURN ON ASSETS

Back 31

Net income /total assets

Measures the profit per dollar of assets

Front 32

DUPONT IDENTITY

Back 32

States that return on equity (ROE) can be expressed as the product of profit margin, total asset turnover and the equity multiplier (1+ the debt to equity ratio)

Front 33

INTERNAL GROWTH RATE

Back 33

The maximum growth rate that can be achieved with no external financing of any kind.

Front 34

QUICK RATIO

Back 34

Used to measure short term solvency of a firm

Front 35

MARKET TO BOOK RATIO

Back 35

Market price per share of common stock / book value per share

Front 36

RETENTION TO RATIO

Back 36

RETAINED EARNINGS / NET INCOME

Front 37

TIME INTEREST EARNED

Back 37

EBIT / interest

Front 38

CAPITAL

Back 38

the capital intensity ratio is the amount of assets required per dollar of sales and it has a major impact on a firms __________ requirements

Front 39

PAYOUT RATIO

Back 39

If investors prefer firms that retain most of ttheir earnings, then a firm that wants to maximize its stock price should set a low ___________

Front 40

P/E RATIO

Back 40

A valuation ratio of a company's current share price compared to its per share earnings. this shows how much investors are willing to pay per dollar of reported profits and is also know as "price multiple" or "earnings multiple".

Front 41

RETURN ON EQUITY

Back 41

the amount of net income returned as a percentage of shareholders equity; it measure a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

Front 42

TOTAL ASSET TURNOVER

Back 42

an indicator of the efficiency with which a company is deploying its assets.

Front 43

CURRENT RATIO

Back 43

A liquidity ratio that indicates the extent to which current liabilities are covered by those asset expected to be converted to cash in the near future