Advanced Corporate Finance Exam 1

Balance Sheet - answer-Financial Condition: stuff and who owns it - A = L + E - snapshot of firm at given point in time - most important information on this is the Date - change in equity equals change in assets minus change in liabilities - items listed in order of decreasing liquidity (cash is more liquid than marketable securities, which are more liquid than AR) Income Statement - answer-Revenues - Expenses = Earnings Cash Flow Statement - answer-Where is the money coming from and where is it going - Sources - Uses = Change in Cash - provides a reconciliation between the reported NI and the actual change in the company's cash balance - sources - you can't spend cash if you can't access cash - sources have to equal uses - most important financial statement Yes - answer-Finance focuses on Market Value (forward looking) and Cash Flow and the future cash flows and risk Enterprise Value - answer-Sale price of a firm - what the firm is worth right now if you were to buy it in its entirety - =equity+preferred stock-net debt (when acquired, acquired cash is used to pay down target's debt) - market value of financial claims against firm/sale price of firm Market Value of Equity - answer-The difference between market value of assets and market value of liabilities Yes - answer-Accountants focus on Book Value and Earnings and the past and the present Book Value - answer-What amount should be recorded for assets and liabilities under common accounting convention - whatever the accountants decide Yes - answer-Book Value does not equal Market Value...