Corporate Finance Finals 2023 - Summary

<p>The board of directors (A)</p> Signup and view all the answers

<p>Elect the board of directors (C)</p> Signup and view all the answers

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

<p>To maximize profitability for stockholders (C)</p> Signup and view all the answers

<p>Benefit Corporation (B)</p> Signup and view all the answers

<p>Changing cash flows over time (B)</p> Signup and view all the answers

<p>The project should be accepted. (B)</p> Signup and view all the answers

<p>IRR is assumed to be constant (A)</p> Signup and view all the answers

<p>Costs already incurred for a project (C)</p> Signup and view all the answers

<p>PV = C / r (D)</p> Signup and view all the answers

<p>Potential revenues lost from alternative uses of an asset (B)</p> Signup and view all the answers

<p>Number of periods and discount rate. (B)</p> Signup and view all the answers

<p>The interest rate that makes NPV equal to zero. (C)</p> Signup and view all the answers

<p>Either erosion or synergy (C)</p> Signup and view all the answers

<p>Only incremental cash flows (A)</p> Signup and view all the answers

<p>When IRR exceeds the discount rate. (C)</p> Signup and view all the answers

<p>Only considered if they are incremental to the project (D)</p> Signup and view all the answers

<p>$71.59 (B)</p> Signup and view all the answers

<p>The present value increases. (C)</p> Signup and view all the answers

<p>IRR can indicate conflicting results due to timing and scale (D)</p> Signup and view all the answers

<p>Annuities generally last indefinitely. (C)</p> Signup and view all the answers

<p>EPS growth, interest rates, and perceived risk (C)</p> Signup and view all the answers

<p>Historical cost of assets minus liabilities (D)</p> Signup and view all the answers

<p>Market confidence in management's ability to create value (A)</p> Signup and view all the answers

<p>0.6 (C)</p> Signup and view all the answers

<p>Retention of earnings and return on investments (D)</p> Signup and view all the answers

<p>Indeterminate without more information (B)</p> Signup and view all the answers

<p>They may have little or no relationship (D)</p> Signup and view all the answers

<p>The potential worth of an investment at a specific time in the future (D)</p> Signup and view all the answers

<p>V = E + D (C)</p> Signup and view all the answers

<p>Determining the current worth of an expected future sum (B)</p> Signup and view all the answers

<p>The difference between the present value of cash flows and their market value (A)</p> Signup and view all the answers

<p>Divide the rate by 2 and multiply time by 2 (B)</p> Signup and view all the answers

<p>Compounding over time (B)</p> Signup and view all the answers

<p>$1992.56 (C)</p> Signup and view all the answers

<p>To determine how much current investment is needed to achieve a future goal (D)</p> Signup and view all the answers

<p>The market value of the security must reflect its discounted cash flows (A)</p> Signup and view all the answers

<p>Risk premium and investment risk (D)</p> Signup and view all the answers

<p>Standard deviation is the square root of variance. (B)</p> Signup and view all the answers

<p>It reduces overall portfolio risk. (B)</p> Signup and view all the answers

<p>It connects risk premium directly to the market portfolio beta. (C)</p> Signup and view all the answers

<p>Using expected and historical approaches. (C)</p> Signup and view all the answers

<p>The stock is undervalued. (B)</p> Signup and view all the answers

<p>Cost of debt and market value of equity and debt. (B)</p> Signup and view all the answers

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

The value of an investment at a future date, considering compound interest.

Interest earned on both the initial principal and the accumulated interest.

The current worth of a future sum of money or stream of cash flows.

Converting future cash flows into their present day equivalent.

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

A standardized interest rate that includes interest and other fees.

Interest rate that considers the effect of compounding over different periods.

The frequency at which interest is calculated and added to the principal.

A business owned by one person, where business income is taxed as personal income, and there's no separation between business and personal assets.

A business owned by two or more people. Profits are shared according to the agreement between partners, and it is taxed as personal income.

A distinct legal entity separate from its owners (stockholders).

Group elected by stockholders to oversee the corporation's management, make essential decisions.

The idea that a corporation's primary goal is to maximize shareholder value.

A newly emerging corporation type that considers the interests of all stakeholders, not just shareholders.

The process of managing a firm's financial resources.

Monitoring and overseeing financial activities, ensuring targets are met and processes are followed.

The total value created by an investment, calculated by subtracting the initial investment from the present value of future cash flows.

A stream of equal payments that continues forever.

A series of equal payments made over a fixed period of time.

A positive NPV indicates that the project is expected to generate more value than it costs, making it a good investment.

A negative NPV indicates that the project is expected to lose money, making it a bad investment.

The discount rate that makes the NPV of a project equal to zero.

If the IRR is higher than the discount rate, the project is expected to generate a higher return than the cost of capital, making it a good investment.

If the IRR is lower than the discount rate, the project is expected to generate a lower return than the cost of capital, making it a bad investment.

Cash flows that are directly caused by a project and would not exist without it. Only these cash flows should be considered when evaluating a project's profitability.

A cost that has already been incurred and cannot be recovered. It's irrelevant to future investment decisions.

The potential benefit that is lost when choosing one alternative over another. It's the value of the best alternative forgone.

When a new project reduces the sales and cash flows of existing products.

When a new project increases the cash flows of existing projects.

Costs that are shared across multiple projects. For capital budgeting, only incremental costs of the project should be considered, not allocated costs that would exist regardless of the project.

Cash flows represent the actual money coming in or going out of the business, while accounting income may include non-cash items like depreciation. When evaluating investments, we focus on real cash movement.

Discounting reflects the time value of money. A dollar today is worth more than a dollar in the future, due to the potential to earn interest. We need to adjust future cash flows to reflect their present value.

A valuation metric that compares a company's current share price to its earnings per share. It gives investors an idea of how much they are paying for each dollar of earnings.

The PER is influenced by factors like the expected growth rate of earnings (EPS growth), prevailing interest rates, and perceived risk of the company.

A valuation metric that compares a company's market value to its Earnings Before Interest and Taxes (EBIT). It reflects how much investors are willing to pay for each dollar of EBIT.

A valuation metric that compares a company's market value to its book value of equity. It indicates how much investors are willing to pay for each dollar of book value.

Book value is an accounting measure reflecting historical cost of assets less liabilities. Market value is determined by market transactions and represents investors' perception of a company's future value.

A PBR above 1 indicates that the market believes in management's ability to create value from assets. A low PBR suggests the market doubts management's ability.

Income stocks typically have a steady stream of dividends and low growth potential. Growth stocks have lower dividends but are expected to grow earnings significantly.

A higher expected growth rate in dividends or earnings will lead to a higher theoretical price for a company.

The extra return investors demand for taking on risk compared to a risk-free investment. This premium is higher for investments with greater potential for losses.

A measure of a security's volatility relative to the overall market. A beta of 1 means the security's price moves in line with the market, while a beta of 2 means it's twice as volatile.

A hypothetical portfolio containing all securities in the market, in proportion to their market value. It's a benchmark for diversification.

The minimum return an investor expects to receive for investing in a particular security. It accounts for both time value of money and risk.

A graphical representation of the relationship between risk (beta) and return. It shows the required rate of return for any security based on its risk level.

A stock that is trading at a price below its intrinsic value according to the CAPM. It's an opportunity for investors.

A stock that is trading at a price above its intrinsic value according to the CAPM. It might not be a good investment.

The average cost of all the capital used by a firm. It weighs the cost of debt and equity based on their proportions in the capital structure.