Business Finance Test 1
a bond's annual interest divided by its face value
coupon rate
bond ratings classify bonds based on
default risk
assets are listed this way on a balance sheet
depending order of liquidity
Computing the present value of a future cash flow to determine what that cash flow is worth today is called:
discount cash flow variation
Next year's expected dividend divided by the current market price per share
dividend yield
cash payments to shareholders
dividends
principal amount of a bond
face value
provides useful information that can serve as a basis for forecasting future performance
financial statement analysis
John is investing $5 today so he can have $50 later. the $50 is referred to as
future value
the comparison of a company's financial performance across time is known as
horizontal analysis
a company's required rate of return, typically its cost of capital is also called the
hurdle rate
any changes to a firm's projected future cash flows that are caused by adding a new project
incremental cash flows
an additional cost incurred only if a company pursues a particular course of action is an
incremental cost
the maximum growth rate that a firm can achieve without any additional external funding
internal growth rate
The rate that yields a net present value of zero for an investment
internal rate of return
the expected selling price of a firm and its assets given the current economic situation
market value
current assets minus current liabilities
net working capital
the cash a firm generates from its normal business activities
operating cash flow
the potential benefit lost by choosing a specific alternative course of action among two or more
opportunity cost
calculation that determines the length of time it takes an investment to generate sufficient cash flows to recover its initial cost
payback method
shareholders are granted the priority in the purchase of newly issued shares in an effort to maintain their current level of ownership
preemptive right
this type of stock rarely has voting rights
preferred stock
When a bond's yield to maturity is less than the bond's coupon rate, the bond:
premium
which ratio would you want to use to determine if a business can pay its bills given its current level of cash and accounts receivable
quick ratio
the measurement of key relationships among financial statement items is known as
ratio analysis
common size income statements present all income statement values as a percentage of
sales revenue
an account that is managed for the sole purpose of redeeming bonds
sinking fund
a firm has four positive NPV opportunities available but they have a mandate that they can only choose two a year. This is called
soft rationing
the amount by which a firm's tax bill is reduced as a result of the depreciation expense is referred to as the depreciation
tax shield
the relationship between nominal returns, real returns, and inflation
the Fischer effect
the financial statement that summarizes a firm's accounting value as of a particular date
the balance sheet
the accounting statement that measures the revenues, expenses, and net income of a firm over a period of time
the income statement
an estimate of an assets value to the company, calculated by discounting the future cash flows from the investment at the projects required rate of return and then subtracting the initial amount of the investment is known as
the net present value
Concept that means a dollar today is worth more than a dollar tomorrow
time value of money
common size financial statements present all balance sheet account values as a percentage of
total assets
these two capital budgeting concepts ignore the time value of money
average accounting return and payback
operating cash flows minus the change in net working capital minus net capital spending
cash flows from assets
dividends paid minus net new equity raised
cash flows to stockholders
this type of stock has voting rights but is last in line for money if the company goes bankrupt
common stock
the process of earning interest on prior interest earnings
compounding
average net income of a project divided by the project's average book value
average accounting return or accounting rate of return
a company has beginning retained earnings of $318,423. For the year, the company earned net income of $11,318 and paid dividends of $7500. Whats the value of the retained earnings account at the end of the year
$322,241
Lew's Auto Repair has cash of $18,600, accounts receivable of $34,500, accounts payable of $28,900, inventory of $97,800, long-term debt of $142,000, and net fixed assets of $363,800. The firm estimates that if it wanted to cease operations today it could sell the inventory for $85,000 and the fixed assets for $349,000. The firm could collect 100 percent of its receivables as they are secured. What is the market value of the firm's assets?
$487,100
Wilberton's has total assets of $537,800, net fixed assets of $412,400, long-term debt of $323,900, and total debt of $388,700. What is the current ratio?
1.94
written agreement that contains the specific details related to a bond issue
bond indenture
interest paid minus new net borrowing
cash flow to creditors
Lee pays 1 percent per month interest on his credit card account. When his monthly rate is multiplied by 12, the resulting answer is referred to as the:
annual percentage rate
an electronic network of securities dealers larger than the NYSE
NASDAQ
a cost that cannot be avoided or changed because it arises from a past decision, and is irrelevant to future decisions is
a sunk cost
an annuity with payments at the beginning of the period
annuity due
