Fin 301 exam - Study guides, Class notes & Summaries

Two main measures for Cost of Debt Capital for entities - Answer-1. Pre-tax - does not include effect in Income Statement (Does not include Tax Shield effect) 2. (Real world) Post-tax - includes effect on Income Statement. (Includes Tax Shield effect) rD, Post-tax - Answer-(1-Trate)*rD, pretax trate= Taxrate Due to the tax shield effect CAPM Assumptions - Answer-- Can't beat the market (Perfect Market) - Riskier projects require higher expected value payoffs (Risk averse investo...

low risk investments have... - Answer-lower expected returns high risk investments have... - Answer-higher expected returns the least risky investment - Answer-treasury bills the most risky investment - Answer-small company common stocks price/return volatility is a way to measure? - Answer-risk a rational investor requires a higher expected return to accept... - Answer-additional risk model that describes the trade off between risk and return... - Answer-capital asset pricing ...

While the goal of SOX is to provide greater protection against accounting fraud and financial​ misconduct, the demanding reporting requirements of SOX are quite costly and may inhibit firms from listing on U.S. stock markets. -SOX holds corporate advisors who have access to or influence on company​ decisions, legally accountable for any instances of misconduct. -The purpose of SOX is to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant t...

The process of finding the future value of dollar is called discounting. - Answer-False 1. The process of finding the future value of a dollar is called compounding. True False - Answer-True 1. For a series of equal flows over equal periods of time, those flows are called annuities. True False - Answer-True 1. When a series of equal flows over equal periods of time occur at the end of each of the periods, the annuity is called an ordinary annuity. True False - Answer-True 1....

One disadvantage of the corporate form of business ownership is the: A. double taxation of distributed profits B. firm's greater ability to raise capital than other forms of ownership. C. limited liability of its shareholders for the firm's debts. D. firm's potential for an unlimited life. - Answer-A Agency problems are most associated with: A. limited partnerships. B. corporations. C. general partnerships. D. sole proprietorships. - Answer-B Which one of the following actio...

In CAPM, the expected return on a stock is directly related to its _____? A. Alpha B. Beta C. Interest Rate D. WACC E. All of the above - Answer-B Which of the following is true about bonds? A. The longer the maturity of the bond, the higher the interest rate risk B. There is a positive relationship between market interest rate movements and bond prices C. The lower the default risk on the bond, the higher the yield of the bond D. A decrease in market interest rate will decrea...

Beta is used in the capital asset model primarily as a measure of - Answer-Risk According to the principles of finance, what should be management's goal when making corporate decisions? - Answer-Maximizing Shareholder Value The basic principles of finance dictate that in the short-run, stock prices are driven by - Answer-Supply & Demand All else equal, which of the following stocks should have the highest expected return? Stock A: Standard Deviation - 15% Stock B: Standard Deviat...

Discount - Answer-Multiply a number by less than one. Discount rate - Answer-A function of time and risk: discount rate=f(time, risk) Discount factor - Answer-A function of both time and the discount rate: [discount rate=f(time, discount)] Present value - Answer-of an investment is the sum of the expected cash flows multiplied by their respective discount rate. Three-Step Approach [DCF Valuation] - Answer-1. Develop a set of expected cash flows. 2. Estimate the discount rate and cal...

Capital Budgeting - Answer-the process of planning and managing a firm's long-term investments Capital Structure - Answer-the mixture of debt and equity maintained by a firm Working Capital - Answer-a firm's short-term assets and liabilities. Sole Proprietorship - Answer-a business owned by a single individual Partnership - Answer-a business formed by two or more individuals or entities Corporation - Answer-a business created as a distinct legal entity composed of one or more in...