C214 Final Exam Questions

Coupon Rate - correct answer The interest rate that a company promises to pay on bonds Market Rate - correct answer The interest rate on other comparable bonds Par Value - correct answer The amount payable on maturity of the bond Market rate - correct answer Same as YTM - Yield to Maturity Gordon Growth Model - correct answer Assumes stable growth rates and does not incorporate risk CAPM Model - correct answer Allows to determine expected return on stocks and incorporates risk How do public companies maximize shareholder value? - correct answer By maximizing Earnings Per Share How do private companies maximize shareholder value? - correct answer By keeping control within the company Positive credit rating has what effect on capital? - correct answer Lowers cost of capital What is cash flow from operating activities? - correct answer It is cash flow generated for sale of products and services What is the formula for retained earnings? - correct answer Ending retained earnings=Beginning retained earnings + Net Income = Dividends Is depreciation and salvage value on an asset precise or is it an estimate? - correct answer It is an estimate What is an example of accounting difference - correct answer Companies using different accounting methods What is an example of a timing difference? - correct answer Companies using different fiscal years Do stock holders or bond holders have voting rights? - correct answer Stock holders have voting rights What factors are considered for the initial outlay of a new investment? - correct answer Purchase price of new equipment, shipping costs, and investment in working capital What is the risk associated with debt financing? - correct answer Too much debt can lead to bankruptcy What are inventory related costs? - correct answer Product costs, storage costs, and opportunity costs What statements are required to be filed with the SEC - correct answer Annual audited financial statements What are the issues with understanding foreign financial statements? - correct answer Foreign financial statements use international financial reporting standards and they are different from US accounting standards What does cash flow from investing activities measure? - correct answer It measure investments in long term assets such as building, equipment, and machinery What does the efficient frontier measure? - correct answer It maximizes expected return for a given level of risk What is the objective of portfolio diversification? - correct answer The objective is to reduce risk