Corporate Finance - Ross, Westerfield Top Predicted Questions and CORRECT Answers (Updated)

Capital budgeting - the process of making and managing expenditures on long-lived assets. Capital structure - the proportions of the firm's financing from current and long-term debt and equity. General partnership - all partners agree to provide some fraction of the work and cash and to share the profits and losses. Limited partnerships - permit the liability of some of the partners to be limited to the amount of cash each has contributed to the partnership Stakeholders - someone other than a stockholder or creditor who potentially has a claim on the cash flows of the firm. Net working capital - current assets minus current liabilities Debt service - interest payments plus repayments of principal (that is, retirement of debt). Total cash flow of the firm or free cash flow - includes adjustments for capital spending and additions to net working capital. Common-size statements - A standardized financial statement presenting all items in percentage terms Financial ratios - Relationships determined from a firm's financial information and used for comparison purposes Asset management ratios or utilization ratios - give an idea of how efficiently the firm is using its assets. Standard Industrial Classification (SIC) codes - a system for classifying industries by a four digit code, used by government agencies to classify industry areas Percentage of sales approach - a financial planning protocol that specifies balance sheet and income statement items as a proportion of sales Stated annual interest rate or the Annual percentage rate (APR) - the annual interest rate without consideration of compounding. Effective annual rate (EAR) and effective annual yield (EAY) - Actual rate of return of all compounding periods during the year Continuous compounding - a situation in which interest is added continuously rather than at discrete points in time Growing perpetuity - An infinite cash flow stream that grows at a constant rate Pure discount bond, zero coupon bonds, zeros - promises a single payment at a date in the future (sold at a discount price because of interest)