Test Bank For Intermediate Financial Management 13th
Edition By Eugene F. Brigham; Phillip R. Daves 9781337395083
Chapter 1-27 Complete Guide .
Corporate finance provides the skills for managers need to: - ANSWER: 1. identify and select
corporate strategies and individual projects that add value to their firm
2. forecast the funding requirements of their company
Three business organization from start-up to a major corporation? - ANSWER: 1. sole proprietorship
2. partnerships
3. corporations
Advantages and disadvantages of sole proprietorship: - ANSWER: ad: tax ad, easy to start, cheaper
dis: unlimited liability, limited capital
Advantages and disadvantages of a corporation: - ANSWER: ad: limited liability, unlimited life, easier
to raise capital, easier to transfer ownership.
dis: double tax, harder to start, costly paper work requirements
Becoming a public corporation in 2 two ways? - ANSWER: 1. IPO -raises capital, allows found to "cash
out"
2. SEO - or issue debt
What is the agency problem? - ANSWER: managers do not always act in the best interest of the
owners
What is corporate governance? - ANSWER: is a set of rules that controls a company;s behavior
towards its directors, mangers, employees, shareholders, creditors, customers, competitors and
community.
What is the primary goal of any firm? - ANSWER: maximize shareholders wealth
Is maximizing stock price good for society, employees, and customers? - ANSWER: higher employment
growth: 1. that makes managers owners (LBO's), 2. privatized gov't firm
What three aspects of the CF's affect an investment's value? - ANSWER: 1. times of CF's (sooner)
2. amount of CF's (more)
3. risk of CF's (less)
Free Cash Flows = - ANSWER: sales rev - operating costs - operating taxes - required investments in
operating capital
WACC (weighted average cost of capital) - ANSWER: is the average required by investors
WACC is affected by ? (4) - ANSWER: 1. interest rate
2. capital structure
3. risk of firm
4. investors attitude towards risk
Intrinsic value? - ANSWER: is the sum of all the future expected free cashflows when converted into
todays dollars: FCF 1/ (1+WACC)^1 + FCF 2 (1+WACC)^2
, Types of security: money market and capital market securities ? - ANSWER: money market- maturity
is less than a year
capital market - maturity is more than one year
Financial markets do what ? - ANSWER: connect providers of capital (savers ) with users of capital
(borrowers )
Who are the providers (savers) and users (borrowers) of capital?
1. Households
2. Non-financial corporations:
3. Governments:
4. Financial corporations: - ANSWER: 1. net savers
2. not borrowers
3. net borrowers (may be wrong)
4. almost break even
Primary VS. Secondary markets - ANSWER: issuers receive sales proceeds, issuer receive no money
from transaction
They way buyers and sellers are matched : 2 - ANSWER: 1.open out cry: auction market
2.ESN (electronic communications networks)- ex: e trade
Instructions on how a transaction is to be completed: 2 - ANSWER: 1. Market order: buy or sell at a
current price
2. Limited Order: specific order
Auction Market? - ANSWER: the pits, you have to have a seat on the exchange. face to face
Dealer Markets? - ANSWER: keep inventory to buy & sell, they profit from the difference/
EX: car dealership
ECN? what do they do ? - ANSWER: computerized system matches order from buyers and sellers and
automatically executes transaction. low cost transaction
Over the counter (OTC) markets? - ANSWER: 1. computers equivalent of a bulletin board
2. poor liquidity
3. no dealers
Types of financial institutions ? - ANSWER: 1. commercial banks
2. investment banks
3. S& L's credit unions
4. life insurance CO's
5. mutual funds, pension funds
6. private equity, hedge funds `
Role of securitization? - ANSWER: take group of loans put them in pool and sell them as 1 security
What do we call the price, or cost, of debt capital? - ANSWER: interest rate
What do we call the price , or cost, of equity capital? - ANSWER: required rate of return
What four factors affect the cost of money? - ANSWER: 1. expected inflation
2. risk
3. time preferences for consumption
4. production opportunities
What economic conditions affect the cost of money? (4) - ANSWER: 1. fed policy
Edition By Eugene F. Brigham; Phillip R. Daves 9781337395083
Chapter 1-27 Complete Guide .
Corporate finance provides the skills for managers need to: - ANSWER: 1. identify and select
corporate strategies and individual projects that add value to their firm
2. forecast the funding requirements of their company
Three business organization from start-up to a major corporation? - ANSWER: 1. sole proprietorship
2. partnerships
3. corporations
Advantages and disadvantages of sole proprietorship: - ANSWER: ad: tax ad, easy to start, cheaper
dis: unlimited liability, limited capital
Advantages and disadvantages of a corporation: - ANSWER: ad: limited liability, unlimited life, easier
to raise capital, easier to transfer ownership.
dis: double tax, harder to start, costly paper work requirements
Becoming a public corporation in 2 two ways? - ANSWER: 1. IPO -raises capital, allows found to "cash
out"
2. SEO - or issue debt
What is the agency problem? - ANSWER: managers do not always act in the best interest of the
owners
What is corporate governance? - ANSWER: is a set of rules that controls a company;s behavior
towards its directors, mangers, employees, shareholders, creditors, customers, competitors and
community.
What is the primary goal of any firm? - ANSWER: maximize shareholders wealth
Is maximizing stock price good for society, employees, and customers? - ANSWER: higher employment
growth: 1. that makes managers owners (LBO's), 2. privatized gov't firm
What three aspects of the CF's affect an investment's value? - ANSWER: 1. times of CF's (sooner)
2. amount of CF's (more)
3. risk of CF's (less)
Free Cash Flows = - ANSWER: sales rev - operating costs - operating taxes - required investments in
operating capital
WACC (weighted average cost of capital) - ANSWER: is the average required by investors
WACC is affected by ? (4) - ANSWER: 1. interest rate
2. capital structure
3. risk of firm
4. investors attitude towards risk
Intrinsic value? - ANSWER: is the sum of all the future expected free cashflows when converted into
todays dollars: FCF 1/ (1+WACC)^1 + FCF 2 (1+WACC)^2
, Types of security: money market and capital market securities ? - ANSWER: money market- maturity
is less than a year
capital market - maturity is more than one year
Financial markets do what ? - ANSWER: connect providers of capital (savers ) with users of capital
(borrowers )
Who are the providers (savers) and users (borrowers) of capital?
1. Households
2. Non-financial corporations:
3. Governments:
4. Financial corporations: - ANSWER: 1. net savers
2. not borrowers
3. net borrowers (may be wrong)
4. almost break even
Primary VS. Secondary markets - ANSWER: issuers receive sales proceeds, issuer receive no money
from transaction
They way buyers and sellers are matched : 2 - ANSWER: 1.open out cry: auction market
2.ESN (electronic communications networks)- ex: e trade
Instructions on how a transaction is to be completed: 2 - ANSWER: 1. Market order: buy or sell at a
current price
2. Limited Order: specific order
Auction Market? - ANSWER: the pits, you have to have a seat on the exchange. face to face
Dealer Markets? - ANSWER: keep inventory to buy & sell, they profit from the difference/
EX: car dealership
ECN? what do they do ? - ANSWER: computerized system matches order from buyers and sellers and
automatically executes transaction. low cost transaction
Over the counter (OTC) markets? - ANSWER: 1. computers equivalent of a bulletin board
2. poor liquidity
3. no dealers
Types of financial institutions ? - ANSWER: 1. commercial banks
2. investment banks
3. S& L's credit unions
4. life insurance CO's
5. mutual funds, pension funds
6. private equity, hedge funds `
Role of securitization? - ANSWER: take group of loans put them in pool and sell them as 1 security
What do we call the price, or cost, of debt capital? - ANSWER: interest rate
What do we call the price , or cost, of equity capital? - ANSWER: required rate of return
What four factors affect the cost of money? - ANSWER: 1. expected inflation
2. risk
3. time preferences for consumption
4. production opportunities
What economic conditions affect the cost of money? (4) - ANSWER: 1. fed policy
