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Corporate Finance Essentials: Shareholder Rights, Market Efficiency, and WACC, Exams of Financial Statement Analysis

A concise overview of key concepts in corporate finance, focusing on shareholder rights, market efficiency, risk management, and the weighted average cost of capital (wacc). It includes definitions and explanations of essential terms such as voting rights, dividends, efficient market hypothesis, variance, standard deviation, beta, capm, and corporate governance mechanisms. The document also covers methods for estimating the cost of capital, factors influencing wacc, and strategies for aligning managerial incentives with shareholder interests. It serves as a useful study aid for understanding core principles in finance. Useful for students who want to review the main concepts of corporate finance. It is a good starting point for further research.

Typology: Exams

2024/2025

Available from 05/14/2025

tizian-kylan
tizian-kylan 🇺🇸

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BUSI 7110 TEST 2 QUESTIONS AND CORRECT
ANSWERS 100% VERIFIED
voting,
dividends,
new
shares,
proxy
-
ANSWER
4
Rights
of
shareholders
Proxy
statement
-
ANSWER
Vehicle
for
shareholders
to
vote
efficient
market
hypothesis
-
ANSWER
says
that
stock
prices
reflect
info
quickly
and
completely
weak
form
efficiency
-
ANSWER
says
that
stock
prices
reflect
all
past
information
semi-strong
efficiency
-
ANSWER
says
that
stock
prices
reflect
all
publicly
available
information
strong
form
efficiency
-
ANSWER
says
that
stock
prices
reflect
all
public
and
private
information
Variance
-
ANSWER
The
of
returns
is
a
measure
of
the
volatility
of
returns
Standard
deviation
-
ANSWER
the
explains
the
deviation
from
expected
returns
as
a
percentage
Coefficient
of
variation
-
ANSWER
Standard
deviation/
average
return
Covariance
-
ANSWER
This
tells
us
how
returns
of
different
securities
moves
together
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Download Corporate Finance Essentials: Shareholder Rights, Market Efficiency, and WACC and more Exams Financial Statement Analysis in PDF only on Docsity!

BUSI 7110 TEST 2 QUESTIONS AND CORRECT

ANSWERS 100% VERIFIED

voting, dividends, new shares, proxy - ANSWER 4 Rights of shareholders Proxy statement - ANSWER Vehicle for shareholders to vote efficient market hypothesis - ANSWER says that stock prices reflect info quickly and completely weak form efficiency - ANSWER says that stock prices reflect all past information semi-strong efficiency - ANSWER says that stock prices reflect all publicly available information strong form efficiency - ANSWER says that stock prices reflect all public and private information Variance - ANSWER The of returns is a measure of the volatility of returns Standard deviation - ANSWER the explains the deviation from expected returns as a percentage Coefficient of variation - ANSWER Standard deviation/ average return Covariance - ANSWER This tells us how returns of different securities moves together

unbounded - ANSWER Like variance, covariance is correlation coefficient - ANSWER A standardized measure of how returns move together risk - ANSWER uncertainty systematic - ANSWER risk that comes from market wide factors and affects a large number of assets Unsystematic - ANSWER risk that is asset specific diversification - ANSWER spreading your assets across different types of assets lower - ANSWER diversification will risk Beta - ANSWER measures the systematic risk of an asset 1 - ANSWER The beta risk of the market is 0 - ANSWER the beta of a risk-free asset is CAPM - ANSWER asset pricing model saying that return on an asset depends on time value of money and risk compensation up - ANSWER when there is an increase in inflation, we expect return to go up - ANSWER when there is an increase in risk aversion, we expect return to go

target capital structure - ANSWER Even if a firm has a capital structure, we will use their when calculating WACC Required rate of return - ANSWER WACC is the for the firm interest rates, market risk premium, taxes - ANSWER External factors to WACC capital structure, dividend policy, investment policy - ANSWER Internal factors to WACC cash flows - ANSWER Required rate of return reflects the risk of the Pure play method - ANSWER A company beta where the company operates in a single line of business accounting beta method - ANSWER Using accounting methods to measure beta WACC - ANSWER How do we calculate corporate value? Present value of future cash flows discounted at marketable securities, real estate investments, investments in other companies, excess cash - ANSWER Non operating assets include: operating assets + non operating assets - ANSWER Value of firm is equal to: Sales growth, operating profitability, capital requirements, wacc - ANSWER 4 drivers of firm growth: Sales growth - ANSWER Says that all else equal, an increase in sales will increase firm

value reduce - ANSWER If we can WACC, we can increase value corporate governance - ANSWER umbrella term referring to all tools we have to align incentives of managers with shareholders managerial entrenchment, compensation, board of directors - ANSWER 3 types of corporate governance: targeted share repurchase, shareholder rights provisions, restricted voting rights - ANSWER 3 ways we entrench managers and prevent hostile takeovers Targeted shares repurchase - ANSWER when a hostile entity acquires our stock, this allows the firm to buy back shares from the hostile bidder at a premium Greenmail Shareholder rights provisions - ANSWER allows the firm to sell shares of stock to existing shareholders at a discount Poison pills Restricted voting rights - ANSWER allows a firm to remove voting rights of a shareholder if they reach a certain % of ownership Stock options - ANSWER give the manager the right to purchase shares at a fixed price before a certain date WACC - ANSWER How do we calculate corporate value? Present value of future cash flows discounted at Employee Stock ownership program - ANSWER ESOP diversity - ANSWER The disadvantages of an ESOP is that it creates a lack of for employees inside directors, large board, Chairman and CEO duality, interlocking board, staggered