Chapter #1 Flashcards
(25 cards)
What does a simple percent change represent?
A change as part of the old or earlier value
How do you change a decimal to a percent and vice versa?
- Multiply decimal by 100 to get %
- Divide percent by 100 to get decimal
What does a smaller standard deviation show?
Less uncertainty
If both the bottom and top of a fraction increase, which direction will the value of the whole fraction change?
Depends on if the change in the numerator or denominator is larger
Which area deals with how a firm should be financed?
Capital Structure
Which area deals with how much of a firm’s assets should be held in cash, inventory, and accounts receivable?
Working Capital Management
What is the goal of a corporate financial manager?
To maximize the market share
What are the 3 major factors that determine stock prices?
- Future Cash Flows
- Timing of cash flows
- Risk
How can managers maximize stock prices?
- Minimize risk
- Keep costs down
- Generate as much cash as possible
What price do you pay when purchasing stock?
Ask (sell) price
Which is higher for dealers: ask or bid price?
Ask prices always exceed the bid prices
What is the total return on any investment?
Total Return = Capital Gain + Income
What is the process of planning, evaluating, selecting, and managing the financing of long term operating projects of the company (financing firm)?
Capital Budgeting
Company chooses new product to introduce to the market
Capital Budgeting
Company chooses to sell a bond to finance a new product
Capital Structure
Company sets production and inventory levels on a new product
Working Capital Management
What causes a fraction to increase?
- N increase, D decrease
- N increase, D no change
- N no change, D decrease
- N increase > D increase
- N decrease < D decrease
How much debt/equity do we want a company to have?
Capital Structure
Should we get rid of inventory?
Capital Management?
Should we buy a new company? Introduce a new product?
Capital Budgeting
How do we maximize Price per Share?
- Bigger cash flows
- Sooner timing of cash flows
- Little risk
What is a bid price?
- Buy price
- Price dealers are willing to buy
What is an ask price?
- Sell price
- Price dealers are willing to sell
What are the 2 components of the total return on any investment?
Interest, Dividends
