Corporate Finance Samenvattingen, Aantekeningen en Examens

T/F: Modigliani and Miller published theoretical papers that changed the way people thought about financial leverage - ANSWER-True What assumptions underlie the MM and Miller Models? - ANSWER-+Firms can be grouped into homogeneous classes based on business risk. +Investors have identical expectations about firms' future earnings. + There are no transactions costs + No agency or financial distress There are two more assumptions that underlie the MM and Miller Models? - ANSWER-+...

holders of debt securities typically are rewarded by receiving interest on the funds loaned to a firm, and by sharing in the increased wealth of the firm as the firm profits - ANSWER-False the primary market for a security is one where the original offering of the firm's financial assets takes place - ANSWER-True in firms of moderate size or larger, the finance department is typically relieved of the trite "watchdog" responsibility of assessing ad managing the efficient use of the firm...

CFO - ANSWER-the top financial manager within a firm Treasurer - ANSWER-Oversees cash management, credit management, capital expenditures, and financial planning Controller - ANSWER-Oversees taxes, cost accounting, financial accounting and data processing Financial Management Decisions - ANSWER-Capital Budgeting Capital Structure Working Capital Management Capital Budgeting - ANSWER-the process of planning and managing a firms long term investments Capital Structure - ANSWER-the...

What are the parts of the cash flow statement? - ANSWER--Cash flow from Operating Activities -Cash flow from Investing Activities -Cash flow from Financing Activities What are cash inflows from financing activities? - ANSWER--debt issuance, common stock, preferred stock What are cash outflows from financing activities? - ANSWER--retirement of debt, common stock/preferred stock -payment of cash dividend What are cash outflows from investing activities? - ANSWER--purchase of plants and...

1.1 How do you understand the following statement: "Corporate Finance is focused". - ANSWER-Goals of the Corporation: Shareholders desired wealth maximization. 1.2 Who are the principal financial managers in a corporation? Write down their main responsibilities. - ANSWER-Chief Financial Officer (CFO): Supervises all financial functions and sets overall financial strategy. Treasurer: Responsible for financing, cash management, and relationships with banks and other financial institutions ...

Agency problem - ANSWER-When managers see no incentive to work towards the wills of the shareholders when that means working against their own self-interest Corporation - ANSWER-A judicial person separate from its owners - it can enter into contracts and own property Limited partnership - ANSWER-A partnership with a general partner and a limited partner S corporations - ANSWER-Companies that are exempt from the corporate tax rate, instead, profits are directly allocated to the sharehold...

Which question does the investment decision (capital budgeting/CAPEX) attempt to answer? - ANSWER-What investments should the business take on? Which questions does the financing (and dividend) decision (capital structure) attempt to answer? - ANSWER-How can finance be obtained to pay for the required investments? Should dividends be paid? If so, how much? Which question does the working capital management decision attempt to answer? - ANSWER-How much cash is needed (to be raised) to meet ...

Is there a clever way to finance firm that increase firm value? - ANSWER-MM capital structure irrelevance theorem states that it is only the expected CFs and risk of the project that determine firm value - capital structure is irrelevant MM Proposition I assumption - ANSWER-Firm's CFs are unaffected by D-E choice MM Proposition II states - ANSWER-The expected return on equity is positively related to leverage because the risk to equity holders increases with leverage. When D/E-ratio in...

Which one is WRONG? (a) Corporate finance in general answers 'what projects are beneficial to the firm and how the firm should get the money to do them' (b) Capital Budgeting answers 'which projects are beneficial to the firm and are worth investing in' (c) Capital Structure answers 'How the firm should get the money to invest or What source of money (debt, equity, ...) should be used' (d) Corporate Finance only answers the capital budgeting questions - ANSWER-d 1.2 Which form of th...

What is the NPV rule? - ANSWER-When making an investment decision, take the alternative with the highest NPV. Choosing this alternative is equivalent to receiving its NPV in cash today. What is the intuition behind the payback rule? What are some of its drawbacks? - ANSWER-When making an investment decision, take the alternative with the highest NPV. Choosing this alternative is equivalent to receiving its NPV in cash today. What is the difference between pro forma incremental earnings and...