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57 Cards in this Set

  • Front
  • Back
What is Corporate Finance
The study of what investments to take on, how to finance these investments, and how to manage day to day operations.
three areas of the Financial Management Function
Investments, financing, payouts
What is Capital Budgeting
(Investing) identifying investment opportunities
Capital Structure:
Financing) The mixture of debt and equity a company has
How is an S-Corporation tested
like a partnership
How many owners can an S-Corporation have?
What 3 things affect capital budgeting decisions
Timing, Risk, SIze
3 ways companies proceed after successful investments
1) dividends
2) repurchase stock
3) Reinvest
What liability to general partners have after the company fails
What liability do limited partners have after company fails
What is the goal of financial Managements?
to maximize the current stock price(shareholder's wealth)
Continuous Compounding Equation
What is an Indenture
a statement that explains the bondholder's their rights
What is the key risks that bonds have
Credit Risk- the risk of default

(Bond Ratings solve this)
What are the 2 objects of value in a fixed coupon bond
PV of Bond and PV of all future coupon payments
What are the four well known credit rating agencies?
1) Moody's
2) S & P
3) Fitch
4) Duff & Phelps
Investment Grade Bonds
Baa or better
Speculative Grade Bonds
Baa or Worse
What types of Bonds are banks allowed to invest in?
Investment Grade
What are the 6 methods of assesing capital Budgeting
1) NPV
2) IRR
3) Payback
4) Discounted Payback
5) Profitability Index
6) Average Account Return
When are projects accepted under the profitability index
if it is greater than 1
When projects are mutually exclusive what decision making tool will lead to the right decision and what wont
NPV will. but, PI won't
When is the profitability index useful
when investment capital is limited
When should a project be accepted under the IRR rule
When the IRR is greater than the required return
When do NPV and IRR agree?
When projects are conventional and independent
What does it mean to have a mutually exclusive project
Accepting one prevents you from accepting another
Advantages of the Payback method
adjust for extra riskiness of long-term projects and favor investments that free up cash quicker
Disadvantages of the Payback method
biased against long-term projects
What is the average accounting return
Average net income/ Average Total Assets
What are the disadvantages of the Average Accounting Return Method?
1) does not consider the time value of money
2)requires an arbitrary cutoff
3) it is based on book values instead of cash flows or market values
Can flawed project evaluation methods help?
only if it helps confirm that NPv is right
Which of the following cash flows are included in a DCF

1) Sunk Costs
2) Opportunity Costs
3) Side/ Spillover effect (changes in the future cash flow of another project)
4) NWC Costs
5) Financing Costs
1) Opportunity Costs
2) Spillover costs
3) NWC
Are not:
1) Sunk Costs
2) Financing Costs
What does MACRS stand for
Modified Accelerated Cost Recovery System
What are the 3 types of classes of MACRS Depreciation
3, 5, 7 years
What is the implicit Assumption for MACRS Depreciation?
that the first and last year are .5 years. So, the objects are actually depreciated over 4,6,or 8 years.
What are the 3 types of stock valuation models
1) Zero growth
2) Constant Growth
3) Non-Constant growth
What is the terminal Value
PV of the future cash flows during constant growth period
What Firm valuation method is valuable for companies that don't pay dividends
Free Cash flow Approach
What is FCFF
Free Cash flow to the Firm
What is FCFE
Free Cash Flow to Equity Holders
If the capital structure of a firm will be changing in the future, should you used FCFE or FCFF
What is the discount rate for FCFF
What is the market Value of Equity
Firm value- market value of debt
What does Equity value per share equal
Market Value of Equity/ Number of Shares
What are the 4 important shareholder rights
1) right to vote for directors and on shareholder amtters
2) receive dividends
3) receive residual assets after liquidation
4) Premptive Right
What are the 4 rights of preferred Stockholders
1.Receive dividends before shareholders
2.Dividends are cumulative if not paid
3.Has stated liquidation value
4.Pays a fixed dividend
what is a bearer bond
whoever physically has coupon slip gets payments
what is a registered form bond
the registered person gets the coupon payments
Bonds that fall to junk bond status are called what?
fallen angels
what is the dividend yield
dividend/ current price
What is the capital Gains Yield?
rate at which the invest grows
What does FCFF stand for?
Free Cash flow to the firm- (Bondholders and shareholders)
WHat does FCFE stand for?
Free Cash Flow to Equity Holders
If capital structure will be changing in the future, do you use FCFE or FCFF
equation for market value of equity
Equity Value-market value of debt
In the FCFE Approach, specifically for calculating the monthly cash flow, do you use per share numbers or firm wide numbers
firm wide
R and D is an example of what kind of cost
sunk cost