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Unit 2 (Module 1) What area of finance involves deciding which assets to invest in to create wealth in the future? - Unit 2 Investments (Investments are an area of finance that involves deciding which assets to invest in to create wealth in the future.) Hannah is the financial manager of a firm. A project that she has recommended has been approved and will cost $5 million. Since the company does not have enough cash on reserve, Hannah must figure out how to raise enough money to start t...

A company's officers and board of directors are selling their stocks in the firm at higher prices due to false accounting reports that made the stock seem more valuable than it truly was. Which ethical issue is occurring in this situation? - Agency problem due to conflicting interests (Correct! Accounting manipulation by management in pursuit of higher stock-related compensation is an example of an agency problem.) A financial analyst for the company Bobby's Books has been asked to evalua...

Interest Rate - the percentage of the principal that a lender charges a borrower for the use of assets. Annual precentage rate (APR) - The annual interest rate that is charged for borrowing money or that is earned through investment. Discount Rate - The name for interest rate when used in time value of money calculations. Cost of Capital - The cost to a firm to use an investor's capital; see interest rate 2 Types of interest - Simple and Compound Simple Interest - The interest earned onl...

Balance Sheet Forecasting - is typically done in conjunction with projecting in come statement. Helps understand future asset earning and potential of the company Sources and uses of funds Budgeting - is a detailed representation of the future results, financial position, and cash flows that management wants to achieve during a certain period. Includes variance analysis Budgeting Vs Forecasting (NOT THE SAME) - Budgeting - Where management wants to take the company. Quantifies the expected...

A company calculated variances of a budget and actual cash flows that indicate the firm's strengths and weaknesses in cash flows and its budgeting process. Which major use of cash budgeting is this an example of? Standardization Performance evaluation Assessment of future needs Corrective action - Performance evaluation A company is developing a financial forecast for the next year. The company plans to implement a new factory that will increase production and resulting sales by 20%. S...

Which area of finance deals with sources of funding and the capital structure of corporations and seeks to increase the value of a firm to its owners? - Business finance What is the primary difference between finance and accounting? - Finance focuses on the future, while accounting is generally backward-looking. Which subspecialty of finance primarily involves deciding which assets will create more wealth and earn positive returns? - Investments What is the primary goal of the financial ma...

Accounting - The system of recording, reporting, and summarizing past financial information and transactions. Accounts Receivable Turnover (AR Turnover) - An activity ratio found by credit sales divided by accounts receivable. Activity Ratios - A category of ratios that measure how well a company uses its assets to generate sales or cash, showing the firm's operational efficiency and profitability. Additional Funds Needed (AFN) - Another name for the discretionary financing needed or exte...

"A company is trying to decide which of four projects to invest in. - "W&H Company wants to create a cash budget to better manage its cash flows. The financial manager knows that the firm's labor costs and materials costs are too high for the level of sales each month. The firm also needs to keep better track of its cash flows to assess its need for additional financing through short-term loans. - A company called Bobby's Books is considering purchasing a new bookbinding machine. The ...

Ordinary annuities - a series of equal payments made at the end of consecutive periods over a fixed length of time Annuities due - a series of equal payments made at the beginning of consecutive periods Perpetuities - a constant stream of identical cash flows that continues forever Compounding - finding a future value given a present value Discounting - finding a present value given a future value. Time value of money - the idea that money that is available at the present time is worth mor...

Real Return - Rate of growth in purchasing power of goods and services Holding Period Return - Return over the entire period that an investor owns a financial security Beta - A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. standard deviation - Used to measure the total risk of securities annuity due - an annuity whose payments occur at the beginning of each period, consecutively Par Bond - When the bond's coupon rate eq...

A local start-up company just hit its five-year anniversary and is planning an initial public offering sometime this year. In order to issue public stock, which market will the company use? - Primary market When a company issues stock for the first time to raise capital, shares must initially be sold through a primary market. About a year ago, the short-term Treasury bill had 1.54% interest and the long-term Treasury note had 2.54% interest. This week, the 1-year Treasury bill has an inter...

Finance - the study of managing and allocating funds at the personal or business level; forward looking What are the subspecialties of finance? - business finance, investments, and financial institutions Corporate finance - an area of finance that involves activities used to increase shareholder wealth Investments - an area of finance that deals with investment allocation and asset pricing financial institutions - an area of finance that involves organizations that accept deposits, offer i...

20 years ago Mateo started an investment account with $2000. He then invested $100 into the account every month at the end of each month. Today, he has $46,528 I. The same account. What is the term for the $100 monthly cash flows? - Annuity A company calculated variances of a budget and actual cash flows that indicate the firm's strengths and weaknesses in cash flows and its budgeting process. Which major use of cash budgeting is this an example of? - performance evaluation A company is d...

what is the difference between finance and accounting - The easiest way to describe these differences is that finance is forward-looking, or focuses primarily on the future, while accounting is generally backward-looking and focuses on the past. There are three primary areas in the world of finance: - Business finance Investments Financial institutions This area involves deciding which assets to invest in to create wealth in the future. - Investment The process of valuing assets - ASSETS ...

Finance vs. Accounting - Finance ~ Forward thinking Accounting ~ Looking at the past Finance defintion - Management and allocation of capital with the objective of investing, forecasting, budgeting, saving, borrowing, lending, and so on. Business finance - area of finance that deals with sources of funding, the capital structure of corporations, the actions that managers take to increase the value of a firm for its owners, and the tools and analysis used to allocate financial resources. O...

Accounting - The system of recording, reporting, and summarizing past financial information and transactions. Accounts Receivable Turnover (AR Turnover) - An activity ratio found by credit sales divided by accounts receivable. Activity Ratios - A category of ratios that measure how well a company uses its assets to generate sales or cash, showing the firm's operational efficiency and profitability. Additional Funds Needed (AFN) - Another name for the discretionary financing needed or ex...

A company called Bobby's Books is considering purchasing a new bookbinding machine. The company calculates the hurdle rate of the project to be 9% and the IRR to be 11%. Should the company purchase the bookbinding machine? a) No, because the old bookbinding machine still works. b) Yes, because the IRR exceeds the cost of capital. c) No, because the hurdle rate is lower than the IRR. d) Yes, because newer models of equipment are always profitable investments. - b) Yes, because the IRR exc...

Which area of finance deals with sources of funding and the capital structure of corporations and seeks to increase the value of a firm to its owners? a) Financial institutions b) Real estate c) Investments d) Business finance - d) Business finance Business finance is the area of finance that deals with uses and sources of funding to increase the value of the firm. What is the primary difference between finance and accounting? a) Accounting involves investing and forecasting, while fina...

When can the discretionary financing needed (DFN) be determined? - After pro-forma financial statements are forecasted using the percent of sales method When evaluating a company's performance, what can variances on a company's cash budget indicate? - Variances show that certain managers or divisions are not meeting targets. How far into the future do cash budgets usually forecast? - Between one month and one year What are three principles of budgeting that are important to know before be...

=FV(rate, nper, pmt, [pv], [type]) - Returns future value, or cash balance you want after last payment is made. =IRR(values,[guess]) - Returns internal rate of return of series of future payments. =NPER(RATE, PMT, PV, [FV], [type]) - Returns number of payments that will be made to pay an annuity =NPV(rate,value1,[value2],...) - Returns net Present Value of a series of future payments with given rates. Used when payments are uneven. =PMT(rate,nper,pv,[fv],[type]) - Returns payment amount m...