Corporate Finance Fall 2024
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Questions and Answers

What does Present Value represent in financial concepts?

  • The value of money today compared to its value in the future (correct)
  • The future worth of cash investments
  • An estimate of future sales revenue
  • The total cash inflow expected from an investment

If a project has an NPV greater than zero, what should an investor do?

  • Reject the project or investment
  • Proceed with the project or investment (correct)
  • Reassess the risk factors
  • Seek additional funding sources

What is the effect of a higher level of risk on the expected rate of return?

  • It has no effect on the rate of return
  • It increases the required rate of return (correct)
  • It stabilizes the rate of return
  • It decreases the required rate of return

The future value of an investment is determined by which of the following?

<p>The interest rate and the time period (B)</p> Signup and view all the answers

Which statement correctly describes Net Present Value (NPV)?

<p>It is the difference between present values of inflows and outflows (A)</p> Signup and view all the answers

What does having certainty in expected cash flows imply?

<p>The future cash flows are guaranteed (C)</p> Signup and view all the answers

What is crucial for managers when evaluating a project using NPV?

<p>Choosing an appropriate discount rate (A)</p> Signup and view all the answers

What does the term 'Primary Market' refer to?

<p>Issuance of securities for the first time (D)</p> Signup and view all the answers

What warning does a 'Red Herring' include?

<p>That approval from the Securities Regulatory Authority is pending (B)</p> Signup and view all the answers

Which right allows someone to cancel their subscription due to misrepresentation?

<p>Right of Rescission (B)</p> Signup and view all the answers

What is a 'Right of Withdrawal'?

<p>A two-day period to cancel a security purchase (C)</p> Signup and view all the answers

What characterizes a 'Secondary Issue/Offering'?

<p>Sales from a 'control block' shareholder (A)</p> Signup and view all the answers

What does 'Secondary Market' refer to?

<p>Buying and selling of already issued securities (B)</p> Signup and view all the answers

What does the term 'misrepresentation' imply within the context of securities?

<p>All of the above (D)</p> Signup and view all the answers

In which market are shares traded after their initial offering?

<p>Secondary Market (B)</p> Signup and view all the answers

What does the demand curve do as global population increases?

<p>It flattens. (C)</p> Signup and view all the answers

Which mining method is typically chosen for extracting high-grade orebodys?

<p>Underground mining (D)</p> Signup and view all the answers

What is one of the roles of junior exploration companies?

<p>Find mineral deposits to sell or partner with senior companies. (D)</p> Signup and view all the answers

Which phase of mining typically lasts the longest?

<p>Exploration (C)</p> Signup and view all the answers

Net Smelter Returns (NSRs) primarily include deductions for which of the following?

<p>Transportation costs incurred by the operator. (C)</p> Signup and view all the answers

Which type of royalty is most commonly found in the mining sector?

<p>Net Smelter Returns (B)</p> Signup and view all the answers

What is the relationship of royalty holders to the operational costs of a mining property?

<p>Royalty holders do not share the liability or costs. (A)</p> Signup and view all the answers

What typically happens to global demand for metals as economies like China and India reach saturation levels?

<p>It levels out. (C)</p> Signup and view all the answers

Which aspect of net smelter rights is essential when drafting an NSR?

<p>Including future properties in the scope of the NSR. (C)</p> Signup and view all the answers

What characterizes the construction phase in mining?

<p>It lasts between 2 to 5 years. (D)</p> Signup and view all the answers

What is NOT considered a preparatory step when preparing for an IPO?

<p>Establishing an independent board of directors (D)</p> Signup and view all the answers

What is a disadvantage of going public?

<p>High cost of going public (C)</p> Signup and view all the answers

What is required for the approval of amendments to shareholders' agreements?

<p>Two-thirds approval of shareholders (C)</p> Signup and view all the answers

Which item is NOT typically included in the content of a prospectus?

<p>Market analysis and competition (A)</p> Signup and view all the answers

What is a characteristic of mezzanine debt?

<p>It often converts into equity. (B)</p> Signup and view all the answers

What condition is associated with insider reporting?

<p>Lock-up agreements (D)</p> Signup and view all the answers

Which statement best describes a pari-passu agreement?

<p>It involves multiple loans having equal rights of payment. (C)</p> Signup and view all the answers

Which committee is NOT required for a public company?

<p>Legal affairs committee (A)</p> Signup and view all the answers

What is the primary purpose of conducting a full due diligence review?

<p>Assess overall business health and readiness for IPO (D)</p> Signup and view all the answers

What is the purpose of a general security agreement?

<p>To grant the lender a security interest over all debtor's property. (C)</p> Signup and view all the answers

Under the guidance of NI 51-102, when must interim financial statements be filed?

<p>45 days after the fiscal quarter (C)</p> Signup and view all the answers

What is meant by 'perfected security'?

<p>It is the process of registering a security interest under applicable law. (B)</p> Signup and view all the answers

What defines a purchase money security interest (PMSI)?

<p>A security interest enabling priority for lenders financing goods acquisition. (D)</p> Signup and view all the answers

What significant change occurs post-IPO regarding the company's information disclosure?

<p>Material information must be publicly disclosed (D)</p> Signup and view all the answers

What should a company consider to enhance governance prior to an IPO?

<p>Implementing code of conduct policies (D)</p> Signup and view all the answers

Which of the following best explains leverage?

<p>Using borrowed funds to enhance investing capability. (D)</p> Signup and view all the answers

What is a critical factor when planning an IPO?

<p>Assembling a competent team including auditors and lawyers (C)</p> Signup and view all the answers

What is the nature of fixed-income securities?

<p>They represent debt securities with fixed returns. (A)</p> Signup and view all the answers

What is the main downside of mezzanine loans?

<p>They are typically shorter in duration and more costly. (D)</p> Signup and view all the answers

Which event is necessary to facilitate a successful IPO process?

<p>Completion of the public due diligence review (B)</p> Signup and view all the answers

Which is a primary advantage of going public?

<p>Increased market exposure and prestige (D)</p> Signup and view all the answers

What is one of the main drawbacks for a stream purchaser in a mining investment?

<p>They may face tax risks based on the investment structure. (D)</p> Signup and view all the answers

Which type of mining tenure does NOT confer ownership of the land itself?

<p>Unpatented mining claim (D)</p> Signup and view all the answers

What are the qualifications of a 'qualified person' under NI 43-101?

<p>An engineer or geoscientist with five years of relevant experience. (B)</p> Signup and view all the answers

Which standard is established by National Instrument 43-101?

<p>Disclosure standards for mineral projects. (D)</p> Signup and view all the answers

What distinguishes a Mineral License of Occupation from an unpatented mining claim?

<p>A Mineral License is granted directly by the government. (D)</p> Signup and view all the answers

Which major scandal influenced the creation of NI 43-101 standards?

<p>The Bre-X scandal (A)</p> Signup and view all the answers

Which of the following accurately describes a freehold interest in land in mining?

<p>Ownership of both surface and subsurface rights without limitations. (B)</p> Signup and view all the answers

What is the term for mining claims that are officially recorded but do not confer ownership of the land?

<p>Unpatented mining claims (B)</p> Signup and view all the answers

Flashcards

Present Value

The current worth of a future sum of money, given a specified rate of return.

Future Value

The value of an asset or cash at a specific future date, equivalent to a present sum.

Net Present Value (NPV)

The difference between the present value of cash inflows and outflows.

Market Efficiency (Weak Form)

Current market prices reflect all historical information.

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Market Efficiency (Semi-Strong Form)

Current prices reflect all historical and publicly available info.

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Market Efficiency (Strong Form)

Prices reflect all information, including non-public.

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Balance Sheet

Snapshot of a company's financial position at a specific time.

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Current Assets

Assets expected to be converted to cash within a year.

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Long-Term Assets

Assets expected to be used for more than a year.

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Accounts Receivable

Money owed to a company by its customers.

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Current Liabilities

Debts due within one year.

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Accounts Payable

Amounts owed by a company to its suppliers.

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Retained Earnings

Profits reinvested in the business.

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Income Statement

Shows a company's financial performance over a period.

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Total Revenues

Total sales for a given period.

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Gross Profit

Revenue minus cost of goods sold.

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EBITDA

Earnings before interest, taxes, depreciation, and amortization.

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GAAP

Generally Accepted Accounting Principles

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Public Corporation

Company whose shares are traded publicly.

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Private Corporation

Company that operates with restrictions on transfers and shareholders.

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Prospectus

Disclosure document for public offerings.

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Insider Trading

Trading securities based on material non-public information.

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Private Placement

Sale of securities to a limited set of investors without a prospectus.

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Time Value of Money

The idea that money received today is worth more than the same amount received in the future due to its potential to earn interest or grow.

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Discount Rate

The rate used to calculate the present value of future cash flows, reflecting the opportunity cost of capital and risk.

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What is NPV's role in decision making?

NPV is used to evaluate projects and investments by comparing the present value of future benefits (inflows) with the present value of costs (outflows). A positive NPV suggests the project is likely to be profitable, while a negative NPV suggests it might not be.

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Risk and Required Return

The higher the risk associated with an investment, the higher the expected return investors demand to compensate for that risk.

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What is a weighted average cost of capital (WACC)?

The average rate of return a company is expected to pay to its investors (both debt and equity holders) for financing its assets. It's a key input in NPV calculations.

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NPV Applications: More than just projects

Beyond investment projects, NPV is applied to value various assets like stocks, bonds, real estate, or even entire companies. It helps determine their worth in today's dollars, factoring in future cash flows.

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Primary Market

The market where securities are issued for the first time, directly from the issuer to investors.

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Red Herring

A preliminary prospectus with a warning (in red) that it's not yet approved by a regulatory authority.

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Right of Rescission

The right of an investor to cancel a security purchase if there were misrepresentations in the prospectus.

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Right of Withdrawal

The right of an investor to withdraw from a security purchase within two days of receiving the prospectus.

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Secondary Issue/Offering

The sale of securities by a major existing shareholder, usually a controlling block of shares.

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Secondary Market

The market where previously issued securities are traded, like on stock exchanges or over-the-counter markets.

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What is a prospectus?

A document that provides detailed information about a security offering, including the issuer's financial health and risk factors.

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What are the key differences between the primary market and secondary market?

The primary market is where securities are issued for the first time, while the secondary market is where previously issued securities are traded.

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Mining Claim

A legal right to explore and extract minerals on a specific piece of land in Ontario.

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Mining Lease

A longer-term agreement with the government allowing you to mine on a specific piece of land in Ontario.

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Freehold Interest (Patent)

Full ownership of the land and its mineral rights in Ontario.

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Unpatented Mining Claim

A mining claim that has been staked and recorded, but not yet granted full ownership.

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Mineral License of Occupation

Government-issued permit allowing mining activities on a specific piece of land in Ontario.

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NI 43-101

Ontario's regulatory standard governing the disclosure of mineral projects to the public.

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Qualified Person

An individual with specific qualifications and experience in mining who is authorized to prepare technical reports for mineral projects.

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Technical Report

A document prepared by a Qualified Person that provides detailed information about a mineral project.

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Metals Demand Curve

The relationship between the price of metals and the quantity demanded. It typically starts steep and flattens as people's basic needs are met and population grows.

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Saturation Levels in Economies

The point where a country's per capita consumption of goods, including metals, stops increasing despite rising income levels.

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Open-Pit Mining

A method of excavating ore from the surface, leaving a large pit.

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Underground Mining

Extracting ore from deep underground, using tunnels and shafts.

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Junior Exploration Companies

Small companies focused on finding mineral deposits and selling or partnering with larger mining companies.

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Senior (Major) Mining Companies

Large companies with resources to develop, construct, and operate mines.

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Exploration Phase in Mining

The early stage of mining where geologists search for and evaluate mineral deposits. It can take 5 to 30 years.

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Royalty Payments in Mining

Payments made to a royalty holder by a mining company based on a percentage of production or revenue.

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Net Smelter Returns (NSRs)

A type of mining royalty where payments are based on the gross revenue from a mine minus certain deductions.

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Importance of NSR Scope

It's crucial for an NSR to clearly define which properties are included, especially for future expansions or changes.

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Full Due Diligence

A thorough examination by underwriters of a company's financial records, operations, and legal compliance before a public offering.

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Public Company Level Audit

An independent audit of a company's financial statements by a qualified accountant, conducted according to specific standards for public companies.

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Three Years of Audited Statements

A company must provide three years of audited financial statements in its prospectus, giving investors a historical financial picture.

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Transition to IFRS

The process of converting a company's accounting standards to International Financial Reporting Standards, necessary for public listings.

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Future Life as Public Company

Understanding the ongoing continuous disclosure obligations, governance, and compliance requirements after a company goes public.

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Material Contracts

Contracts that have a significant impact on a company's business, such as those with key suppliers or customers.

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Related Party Transactions

Deals between a company and its affiliated entities, which require special scrutiny for potential conflicts of interest.

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Third Party Consents

Necessary approvals from third parties, like lenders or landlords, before going public.

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Outstanding Litigation

Any ongoing legal disputes that could affect a company's future, which need to be disclosed before going public.

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Independent Directors

Board members who are not employees of the company, providing independent oversight and expertise.

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Board Committees and Charters

Specialized groups within the board that focus on specific areas like audits, governance, and compensation.

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Adopt New Policies

Implementing new policies for a public company, such as insider trading regulations and ethical codes of conduct.

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Indemnification and D&O Insurance

A company's protection for its directors and officers from personal financial liability for business decisions.

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Disclosure Controls & Procedures (DC&P)

Processes and systems within a company to ensure timely and accurate public disclosures.

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Annual Shareholder Meetings

Regular meetings where shareholders vote on important company matters, like electing directors.

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Mezzanine Debt

A type of debt that sits between senior debt and equity ownership, offering higher risk and returns. Mezzanine loans often have shorter durations and can convert into equity.

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Pari-passu

This term refers to two or more loans or securities having equal rights of payment or seniority.

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Collateral

Assets or property pledged by a borrower to secure a loan.

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General Security Agreement

Agreement where the debtor grants the lender a security interest over all their present and future property.

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Perfected Security

Registration of a personal property security interest under the Personal Property and Security Act (PPSA).

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PMSI

A Purchase Money Security Interest is a priority claim on property used to finance its acquisition, giving the lender a superior position to other creditors.

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Leverage

Using borrowed money to increase investing power.

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Fixed-Income Securities

Debt securities that pay a fixed rate of interest to the holder.

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Study Notes

Corporate Finance Fall 2024

  • Course taught by Radhapriya Chawla
  • Includes lectures on financial theory and financial statements; closed systems; private placements; public offerings; debt and equity financing; corporate finance scandals; mergers and acquisitions; corporate governance; and alternative financing techniques.
  • Topics covered include time value of money, market efficiency, financial statements (balance sheets, income statements), different business structures (sole proprietorship, partnerships, corporations), and financial instruments like mergers, acquisitions, and derivatives.
  • Table of contents provides detailed overview of each lecture.
  • Lecture materials include YouTube links for additional learning resources.

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Description

Explore the intricacies of corporate finance in this comprehensive quiz. Dive into topics such as financial theory, statements, time value of money, and various financing techniques. Perfect for students aiming to understand the fundamentals of corporate finance and its real-world applications.

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