100% satisfaction guarantee Immediately available after payment Both online and in PDF No strings attached
logo-home
Corporate Finance UPDATED Actual Exam Questions and CORRECT Answers $10.49   Add to cart

Exam (elaborations)

Corporate Finance UPDATED Actual Exam Questions and CORRECT Answers

 10 views  0 purchase
  • Course
  • Corporate Finance
  • Institution
  • Corporate Finance

Corporate Finance UPDATED Actual Exam Questions and CORRECT Answers Financial break-even - CORRECT ANSWER Financial break even NPV solved=0, OCF* for NPV=0 Q=(FC+OCF*)/ (P-v) v=variable cost per unit General Break-Even - CORRECT ANSWER Q=(FC+OCF) /(P-v) Constant Growth Model (infinite) - C...

[Show more]

Preview 4 out of 42  pages

  • September 14, 2024
  • 42
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers
  • Corporate Finance
  • Corporate Finance
avatar-seller
MGRADES
Corporate Finance UPDATED Actual
Exam Questions and CORRECT Answers
Financial break-even - CORRECT ANSWER✔✔ Financial break even
NPV solved=0, OCF* for NPV=0
Q=(FC+OCF*)/ (P-v)


v=variable cost per unit


General Break-Even - CORRECT ANSWER✔✔ Q=(FC+OCF) /(P-v)



Constant Growth Model (infinite) - CORRECT ANSWER✔✔ a widely cited dividend
valuation approach that assumes that dividends will grow at a constant rate, but a rate that is
less than the required return


Constant Growth Model (finite) - CORRECT ANSWER✔✔ Should include terminal value
(what you sell it for) @ end


To do so you calculate the non-constant growth rate until horizon date T...then calculate the
terminal value as you would in an infinite CGM w/ denominator raised to power T


expected rate of return (constant growth model) - CORRECT ANSWER✔✔ The rate of
return expected to be realized from an investment; the weighted average of the probability
distribution of possible results


capital gains yield - CORRECT ANSWER✔✔ the dividend growth rate, or the rate at which
the value of an investment grows


Dividend Yield - CORRECT ANSWER✔✔ a stock's expected cash dividend divided by its
current price


terminal value (Horizon Value) - CORRECT ANSWER✔✔ the sale price at the end of the
expected holding period

,Perpetual Growth Method - CORRECT ANSWER✔✔ dividing the last cash flow forecast by
the difference between the discount rate and terminal growth rate. The terminal value
calculation estimates the value of the company after the forecast period.


(FCF * (1 + g)) / (d - g)


Free Cash Flow Valuation Model - CORRECT ANSWER✔✔ A model that determines the
value of an entire company as the present value of its expected free cash flows discounted at
the firm's weighted average cost of capital, which is its expected average future cost of funds
over the long run.


FCF Constant Growth Model - CORRECT ANSWER✔✔ A variation of the constant growth
model


Market Multiple Analysis - CORRECT ANSWER✔✔ A method of valuing a target company
that applies a market determined multiple to net income, earnings per share, sales, book
value, and so forth.


Preferred Stock Dividends - CORRECT ANSWER✔✔ Fixed. Have priority over common
stock dividends.


convertible preferred stock - CORRECT ANSWER✔✔ Preferred stock with an option to
exchange it for common stock at a specified rate.


cumulative preferred stock - CORRECT ANSWER✔✔ Preferred stock on which undeclared
dividends accumulate until paid; common stockholders cannot receive dividends until
cumulative dividends are paid.


Free Cash Flow - CORRECT ANSWER✔✔ net operating profit after taxes (NOPAT), add in
depreciation expense, then subtract money set aside for capital expenditures and any need for
increasing working capital


Capital Asset Pricing Model (CAPM) - CORRECT ANSWER✔✔ a model that relates the
required rate of return on a security to its systematic risk as measured by beta

,call option - CORRECT ANSWER✔✔ the option to buy shares of stock at a specified time in
the future


put option - CORRECT ANSWER✔✔ the option to sell shares of stock at a specified time in
the future


Cash Conversion Cycle (CCC) - CORRECT ANSWER✔✔ the length of time funds are tied
up in working capital, or the length of time between paying for working capital and collecting
cash from the sale of the working capital


Return on Equity (ROE) - CORRECT ANSWER✔✔ Net Income/Total Equity



Weighted Average Cost of Capital (WACC) - CORRECT ANSWER✔✔ the weighted
average of the cost of equity and the aftertax cost of debt


Why is Equity more expensive than Debt? - CORRECT ANSWER✔✔ Because it comes w/
higher expected rate of return due to higher risk (residual claimant of the firm's cash flows)


Levered Beta - CORRECT ANSWER✔✔ The unlevered beta adjusted for financial risk due
to leverage


Unlevered Beta - CORRECT ANSWER✔✔ The firm's beta coefficient if it has no debt



working capital requirement - CORRECT ANSWER✔✔ (Current assets - inventory) -
current liabilities


Net Present Value (NPV) - CORRECT ANSWER✔✔ the sum of the present values of
expected future cash flows from an investment, minus the cost of that investment


Internal Rate of Return (IRR) - CORRECT ANSWER✔✔ the discount rate that makes the
NPV of an investment zero

, How do we value a share of stock? - CORRECT ANSWER✔✔ Collapse future earnings
down to present value equivalents


Disintermediation - CORRECT ANSWER✔✔ the long-term trend of moving away from
banks to markets for capital requirements


Risk-free rate - CORRECT ANSWER✔✔ No such thing...but many use 10 year Treasury
bonds as a proxy for the risk-free rate


Flotation Costs - CORRECT ANSWER✔✔ the transaction cost incurred when a firm raises
funds by issuing a particular type of security


Flotation Cost Adjustment - CORRECT ANSWER✔✔ the amount that must be added to cost
of retained earnings to account for flotation costs to find cost of new common stock


pure play method - CORRECT ANSWER✔✔ a method for estimating a project's or
division's beta that attempts to identify publicly traded firms engaged solely in the same
business as the project or division


Accounting Beta Method for Estimating Beta - CORRECT ANSWER✔✔ Run regression
between project's ROA and S&P Index ROA.


Accounting betas are correlated (0.5 - 0.6) with market betas.


But normally can't get data on new projects' ROAs before the capital budgeting decision has
been made.


effective rate of interest - CORRECT ANSWER✔✔ the annual rate of return that is actually
earned (or charged) during the period the funds are held (or borrowed) k=compounding
periods


Special Purpose Vehicle - CORRECT ANSWER✔✔ A legal entity to which the assets used
as collateral in an ABS issue are sold. This transaction separates the assets backing the ABS
from the other assets of the company that creates the SPV.

The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

Guaranteed quality through customer reviews

Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.

Quick and easy check-out

Quick and easy check-out

You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.

Focus on what matters

Focus on what matters

Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!

Frequently asked questions

What do I get when I buy this document?

You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.

Satisfaction guarantee: how does it work?

Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.

Who am I buying these notes from?

Stuvia is a marketplace, so you are not buying this document from us, but from seller MGRADES. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy these notes for $10.49. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

72042 documents were sold in the last 30 days

Founded in 2010, the go-to place to buy study notes for 14 years now

Start selling
$10.49
  • (0)
  Add to cart