B2 Finance management Flashcards
1
Q
how is market capitalization calculated?
A
FMV of stock
X #shares outstanding
do not include bonds or debt
2
Q
what is the optimal capitalization in a company measured by
A
lowest WACC to maximize shareholder equity
3
Q
what factors are relevant to determine risk premium?
A
liquidity-higher liquid less risk vice versa
senority-more senior less risk
lenght of maturity-more time,higher risk of getting cash back
4
Q
what should the hurdle rate be set at?
A
at or above the WACC to get a higher return than what we purchased for.
5
Q
equation for beta
A
%change in stock price/%change in market price
6
Q
what is unique about preferred stock?
A
dividends are not tax deductible, so IGNORE DIVIDENDS WHEN CALCULATING D/P
