Download BUSI 7110 Finance Test 1: Questions and Answers and more Exams Financial Statement Analysis in PDF only on Docsity!
BUSI 7110 TEST 1 QUESTIONS AND CORRECT
ANSWERS 100% VERIFIED
Balance Sheet - ANSWER snapshot of the company's financials at one point in time Income Statement - ANSWER Shows revenues/losses of a company, but is not a cash flow Depreciation, net income - ANSWER These are listed on the income statement but are not cash flows liquidity - ANSWER how quickly we can turn assets into cash without a significant loss of value Book value - ANSWER historical cost- depreciation Market value - ANSWER the price you can buy or sell an asset at today Interest - ANSWER This is tax deductible Dividends - ANSWER This is not tax deductible Decreases - ANSWER When an asset increases, cash Increases - ANSWER When an asset decreases, cash Increases - ANSWER When liabilities/equity increases, cash
Decreases - ANSWER When liabilities/equity decreases, cash Average tax rate - ANSWER taxes owed/taxable income Marginal tax rate - ANSWER amount of taxes paid on the next dollar earned Simple interest - ANSWER interest earned only on the original principle Compound interest - ANSWER Interest earned on both initial principle and interest earned from prior periods down - ANSWER As time increases, PV goes up - ANSWER As time increases, FV goes down - ANSWER As interest increases, PV goes up - ANSWER As interest increases, FV goes down corporation - ANSWER legal entity separate from its owners and managers double taxation - ANSWER biggest disadvantage of a corporation unlimited liability - ANSWER biggest disadvantage of a sole proprietorship or partnership Agency problem - ANSWER Managers act in self-interest instead of doing what is best for the corporation corporate governance - ANSWER different tools to align incentives of managers and shareholders
derivatives - ANSWER stock options also known as this Net operating working capital + Operating long term assets - ANSWER Total net net operating captial EBIT x (1-t) - ANSWER NOPAT NOPAT - ANSWER It ignores interest expense and can help compare companies with different capital structures. It also gives profits from operations free cash flow - ANSWER Cash flows available to investors after necessary investment in fixed assets and working capital NOPAT - Net Investment in Total operating capital - ANSWER Free cash flow Net investment in operating capital - ANSWER change in operating capital from 1 year to the next ROIC>WACC - ANSWER Goal of a project (PPS x shares outstanding) - equity - ANSWER MVA liquidity - TYPE of ratio that measures ability to pay short term obligations asset management - TYPE ratio of how efficiently we are managing our assets debt management - TYPE ratio of ability to pay long term debt 1 + D/E ratio - EQUITY MULTIPLIER shortcut total liabilities + market value of equity - MARKET value of assets
PV of future cash flows - ANSWER The value of anything is the perpetuity - ANSWER level stream of cash flows that continue forever annuity - ANSWER level stream of cash flows for a fixed period of time APR - ANSWER Rate of return which should be changed to fit the number of compounding periods per year Annuity due - an annuity for which cash flows occur at the beginning of the period PV of annuity x (1+r) - PV of annuity due formula EAR - Effective Annual Rate of rate of return that takes in the account compounding interest coupon - The stated interest payment on a bond face value - the principle amount of bond aka par value coupon rate - annual coupon divided by the face value maturity - ANSWER specific date on which the principle amount of the bond is repiad YTM - ANSWER rate required in the market on the bond. quoted as an APR premium - ANSWER When the coupon rate is > YTM
Lottery redemption, purchase in market - 2 types of sinking fund provisions convertible bonds - bonds that can be converted into cash income bonds - type of bond where interest payments are made based on availability to pay inflation indexed bonds - government bonds adjusted for inflation Yield to Call - ANSWER rate of return up until when the bond can be called coupon payment/price of bond - ANSWER formula of yield to call indenture - ANSWER bond contract with a physical document or contract restrictive covenants - ANSWER restrictions on actions managers can take mortgage bonds - ANSWER bonds that have collateral pledged against them debentures - ANSWER bonds that do not have collateral pledged against them
