Finance Exam 2 Questions And Answers
2026 Update!!!
what are the 2 important sources of funding? debt and equity
bank:
senior term, subordinate term, revolver
cheaper, floating, pre-payment, heavy
covenants
you can borrow from the bank (private) or issue
bonds:
a bond (public), what’s the main differences?
more expensive, fixed, no pre-payment,
covenant-lite
options for convertible and callable
investment bank issues
less risky for the bank
what is a senior term?
lower interest rate
change in the firm’s overall future cash flow that
comes about as a direct consequence of the
what is a relevant cash flow for a project? decision to take that project
also called incremental cash flows
the difference between a firm’s future
cash flows with a project and those
without the project
what is an incremental cash flow?
consist of any and all changes in the
firm’s future cash flows that are a direct
consequence of taking the project
any cash flow that exists regardless of
what is not considered an incremental cash whether or not a project is undertaken is
flow? NOT relevant
ex: sunk costs
, the assumption that evaluation of a project may
what is the stand-alone principle
be based on the project’s incremental cash flows
sunk cost cost that has already been incurred and cannot
be removed and therefore should NOT be
2026 Update!!!
what are the 2 important sources of funding? debt and equity
bank:
senior term, subordinate term, revolver
cheaper, floating, pre-payment, heavy
covenants
you can borrow from the bank (private) or issue
bonds:
a bond (public), what’s the main differences?
more expensive, fixed, no pre-payment,
covenant-lite
options for convertible and callable
investment bank issues
less risky for the bank
what is a senior term?
lower interest rate
change in the firm’s overall future cash flow that
comes about as a direct consequence of the
what is a relevant cash flow for a project? decision to take that project
also called incremental cash flows
the difference between a firm’s future
cash flows with a project and those
without the project
what is an incremental cash flow?
consist of any and all changes in the
firm’s future cash flows that are a direct
consequence of taking the project
any cash flow that exists regardless of
what is not considered an incremental cash whether or not a project is undertaken is
flow? NOT relevant
ex: sunk costs
, the assumption that evaluation of a project may
what is the stand-alone principle
be based on the project’s incremental cash flows
sunk cost cost that has already been incurred and cannot
be removed and therefore should NOT be
