BA 323 - Nielander - Exam One (Chapters 1-3,16,17) Questions
With Complete Solutions.
Capital Structure - -- the mixture of debt
and equity maintained by a firm cash flow from assets - -- total of cash flow
- Two concerns: How much to borrow, least to creditors and stockholders, consisting of:
expensive sources of funds for the firm operating cash flow, capital spending, and
change in net working capital
- Equation: CFA = OCF - Net capital spending -
Capital Budgeting - -- the process of change in NWC
planning and managing a firm's long-term
investments
- Evaluating Time, Size risk of an expenditure cash flow to creditors - -interest paid - net
new borrowing
Working Capital Management - -- How do
we manage the day-to-day finances of the firm? Cash flow from stockholders - -Dividends
- Ensures we have enough resources to continue paid - net new equity raised
operations without interruptions
Market Value - -- The amount you could
Order of Financial Management Decisions - realistically sell an asset for today
-1. Capital Structure - Managers and investors want to know this
2. Capital Budgeting because its not on the balance sheet
3. Working Capital Management
Book Value - -- The amount an asset costs
The Agency Problem - -- the possibility of a company to purchase
conflict of interest between the stockholders and - GAAP has assets recorded at "historic cost" so
management of a firm its kept at book value
Two ways to fix the problem: Managerial
compensation is tied to stock value, Control of
the firm the stockholders can get rid of Cash Outflows - -- Payments of accounts
management through a "proxy fight" payable
- Wages, Taxes, other expenses
- Capital expenditures
Sarbanes-Oxley Act - -- Driven by - Long Term Financing
Corporate Scandals
- Intended to strengthen protection against
accounting fraud Why do we hold on to Cash? - --
Speculative and precautionary motives
- Transaction Motives
Operating Cash Flow - -- cash generated
from a firm's normal business activities, tells us if
inflows cover outflows Speculative Motives - -using cash to take
- Equation: EBIT + Dep - Taxes advantage of investment opportunities
1/2
With Complete Solutions.
Capital Structure - -- the mixture of debt
and equity maintained by a firm cash flow from assets - -- total of cash flow
- Two concerns: How much to borrow, least to creditors and stockholders, consisting of:
expensive sources of funds for the firm operating cash flow, capital spending, and
change in net working capital
- Equation: CFA = OCF - Net capital spending -
Capital Budgeting - -- the process of change in NWC
planning and managing a firm's long-term
investments
- Evaluating Time, Size risk of an expenditure cash flow to creditors - -interest paid - net
new borrowing
Working Capital Management - -- How do
we manage the day-to-day finances of the firm? Cash flow from stockholders - -Dividends
- Ensures we have enough resources to continue paid - net new equity raised
operations without interruptions
Market Value - -- The amount you could
Order of Financial Management Decisions - realistically sell an asset for today
-1. Capital Structure - Managers and investors want to know this
2. Capital Budgeting because its not on the balance sheet
3. Working Capital Management
Book Value - -- The amount an asset costs
The Agency Problem - -- the possibility of a company to purchase
conflict of interest between the stockholders and - GAAP has assets recorded at "historic cost" so
management of a firm its kept at book value
Two ways to fix the problem: Managerial
compensation is tied to stock value, Control of
the firm the stockholders can get rid of Cash Outflows - -- Payments of accounts
management through a "proxy fight" payable
- Wages, Taxes, other expenses
- Capital expenditures
Sarbanes-Oxley Act - -- Driven by - Long Term Financing
Corporate Scandals
- Intended to strengthen protection against
accounting fraud Why do we hold on to Cash? - --
Speculative and precautionary motives
- Transaction Motives
Operating Cash Flow - -- cash generated
from a firm's normal business activities, tells us if
inflows cover outflows Speculative Motives - -using cash to take
- Equation: EBIT + Dep - Taxes advantage of investment opportunities
1/2
