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46 Cards in this Set
- Front
- Back
Used to detect serial correlation
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Durbin-Watson
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Fix serial correlation with
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Hansen method
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Used to detect conditional heteroskedasticity
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Breusch-Pagan
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Fix conditional heteroskedasticity with
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White correction
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Used to detect Multicollinearity
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Conflicting t and F statistics
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Fix Multicollinearity with
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drop one of the correlated variables
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Used to detect covariance stationary
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Dickey-Fuller test
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Two factors determine the demand/supply for a currency
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1. Interest rate
2. Expected future exchange rates |
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Reason to restrict trade that have some support
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1. National defense
2. Infant industries 3. anti-dumping |
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Purchasing power parity
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The same goods should cost the same in diff countries
once exchange rates have been factored in |
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Interest rate parity
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Exchange rates must change such that the return on investiments
with the same level of risk is the same in any currency |
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Central Bank Intervention can
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reduce short term exchange rate volatility
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3 factors that cause a country's currency to appreciate or depreciate
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1. income growth
2. inflation rate 3. real interest rates |
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Intercorporate investiments
ownership less than 20% use |
cost or market
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Intercorporate investiments
ownership 20% to 50% use |
Equity method
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Intercorporate investiments
ownership > 50% use |
Consolidation
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Equity vs. Consolidation, which produces higher
leverage? |
Consolidation
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Equity vs. Consolidation, which produces higher
net profit margin and ROA |
equity
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Equity/Consolidation and proportionate consolidation all
report the same? |
net income, equity and ROE
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Purchase vs. Pooling
What's higher under purchase method? |
Assets and equity.
But, net income/profit margin/ROA/ROE all lower |
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Trading Securities
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BALANCE SHEET
reported at fair market value INCOME STATEMENT report unrealized and realized |
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Available-for-sale
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BALANCE SHEET
reported at fair market value report unrealized losses/gains in comprehensive income in shareholders equity INCOME STATEMENT report only realized |
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Held-to-maturity debt
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BALANCE SHEET
reported at historical cost INCOME STATEMENT report only realized |
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Increase discount rate does what to PBO, ABO, VBO
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decrease
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Decrease rate of compensation does what to PBO, ABO, VBO?
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PBO - decrease
ABO - no effect VBO - no effect |
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Increase expected rate of return does what to PBO, ABO, VBO?
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No effect to any
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Flow effect
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change in exposure in LC * ( ending rate - average rate )
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Holding effect
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change in exposure in LC * ( ending rate - beginning rate )
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Translation gain/loss =
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flow effect + holding effect
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Temporal vs. All-Current
Appreciating currency under temporal |
GILTF all higher
Gross Profit margin Interest Coverage LTD-to-capital ratio Total Asset Turnover Fixed Asset Turnover Current Ratio down THINK: GILTF higher, Current Ratio lower |
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Project Risk Analysis
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1. Sensitivity analysis
2. Scenario analysis 3. Monte Carlo simulation |
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Capital Rationing should go to
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projects that maximize shareholder wealth
projects that have greatest total NPV |
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Business risk
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1. Sales risk
2. operating risk (proporion of total costs that are fixed) |
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Breakeven Quantity of sales
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F
------------------ P - VC F: fixed cost P: price VC: variable cost |
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net agency costs of equity
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1. Monitoring costs
2. Bonding costs 3. Residual losses |
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pecking order theory
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managers prefer financing choices that send the least
visible signals to investors, with internal capital being the most preferred, debt next |
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static trade-off theory
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managers to balance the benefits of debt (tax shield)
with the costs of financial distress |
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For double taxation and split rate systems the formula for effective tax is
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effective tax = corp tax + (1 - corp tax)(individual tax)
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Corp governance, What percent of board members to be independent
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75%
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Corp governance, What committees have only independant directors?
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1. Finance committee
2. Nominating committee |
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Merger consolidation
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Both companies cease to exist and form new company
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Subsidiary merger
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the target becomes a subsidiary of the aquirer
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Statutory merger
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the target ceases to exist and all assets and liabilities become part of the acquirer
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Herfindahl-Hirschman Index
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2
HHI = sigma 1 to n (MS * 100) |
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Pre-offer defence mechanisms
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Things that would make you not what to try to purchase
1. poison pills/poison puts 2. incorporation in a state with restrictive takeover laws 3. staggered board elections 4. restrictive voting rights 5. supermajority voting 6. fair price amendments 7. Golden parachutes |
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Post-offer defense mechanisms
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The cat is out of the bag
1. Just say no 2. Litigation, greenmail 3. share repurchase 4. leverage recap 5. Crown jewel defense 6. Pac Man defense 7. Finding a white night or white squire |