Corporate Finance

Question 1

information asymmetry

Answer 1

information asymmetry between shareholders and managers decreases the ability of shareholders or non-executive directors to monitor and evaluate whether managers are acting in the best interests of shareholders

Question 2

Ordinary resolution – questions? simple or super majority?

Answer 2

approval of auditor and the election of directors, a simple majority of the votes cast.
Other resolutions (regarding a merger or takeover, amendment of corporate bylaws) =special resolutions – require a supermajority vote for passage (2/3 or 3/4 votes cast). Such special resolutions can also be addressed at extraordinary general meetings.

Question 3

types of general meetings

Answer 3

annual general meeting, extraordinary general meeting

Question 4

types of voting

Answer 4

majority and cumulative voting (shareholders can cast all their votes (shares times number of board position elections) for a single board candidate or divide them among board candidates)

Question 5

Activist shareholders tactics

Answer 5

by initiating shareholder lawsuits, proposing shareholder resolutions for a vote, proxy fight, tender offer

Question 6

proxy fight

Answer 6

In a proxy fight, the activist shareholders typically solicit (добиваться) proxy votes from other shareholders, which they then use to vote in favor of their proposals or nominees.

Question 7

tender offer

Answer 7

A tender offer is a public offer made by activist shareholders to purchase a significant portion or all of the outstanding shares of a publicly traded company, known as the “target company,” usually at a premium price to the market value.

Question 8

hostile takeover

Answer 8

replacement of senior managers or/and boards of directors

Question 9

collateral

Answer 9

a specific asset against which the bondholders will have a claim if the company defaults on the bond.

Question 10

Creditor committees

Answer 10

Creditor committees may form among bondholders to protect their interests when an issuer experiences financial distress

Question 11

responsible investing

Answer 11

a broad term for considering ESG factors in investment decisions

Question 12

sustainable investing

Answer 12

investing in companies or industries based on the perceived sustainability of their output

Question 13

socially responsible investing

Answer 13

choosing investments based on the investor’s moral or social values

Question 14

Full integration

Answer 14

Full integration refers to the inclusion of ESG factors or ESG scores in traditional fundamental analysis. A company’s ESG practices are included in the process of estimating fundamental variables, such as a company’s cost of capital or future cash flows.

Question 15

Thematic investing

Answer 15

Thematic investing refers to investing in sectors or companies in an attempt to promote specific ESG-related goals, such as more sustainable practices in agriculture, greater use of cleaner energy sources, improved management of water resources, or the reduction of carbon emissions.

Question 16

Engagement/active ownership

Answer 16

Engagement/active ownership investing refers to using ownership of company shares or other securities as a platform to promote improved ESG practices.

Question 17

Green finance

Answer 17

Green finance refers to producing economic growth in a more sustainable way by reducing emissions and better managing natural resource use.

Question 18

business model

Answer 18

business model offers detail about how a company proposes to make money

Question 19

financial plan

Answer 19

financial plan – detailed financial projections for revenue and expenses, as well as plans for financing the business.

Question 20

components of business model

Answer 20

Identify the firm’s potential customers
Describe the firm’s product or service
Explain how the firm will sell its product or service
Describe the key assets and suppliers of the firm
Explain its pricing strategy

Question 21

types of price discrimination

Answer 21

tiered pricing (volume of purchases), dynamic pricing (time), auction pricing (e.g., eBay)

Question 22

Bundling

Answer 22

Bundling—Where multiple products are complementary (e.g., a furnished apartment), bundling the products may be a profitable strategy

Question 23

Penetration pricing

Answer 23

Penetration pricing—A company offers a product at low margins or even at a loss for a period of time to grow market share and achieve greater scale of operations. Netflix has followed this strategy to grow its subscriber base rapidly.

Question 24

Other pricing models

Answer 24

Penetration pricing, Freemium pricing, Hidden revenue. + alternatives to outright purchase: Subscription model, Fractional ownership, Licensing, Franchising (similar to licensing, but a franchisee typically is permitted to sell in a specific area and pays a percentage of sales to the franchisor, which provides some level of product and marketing support).

Question 25

Other business models

Answer 25

Private label manufacturers—Companies produce products for others to market under their own brand name, for example, Costco’s Kirkland branded products.

Licensing agreements—A company brand is used by another company on its products for a fee, such as a lunch box branded with a Marvel character.

Value-added resellers—Offer such things as installation, service, support, or customization for complex equipment.

Question 26

E-commerce models

Answer 26

Affiliate marketing—Another company is paid a commission for measurable marketing results such as page views, leads, or sales.

Marketplace businesses—Provide a platform for buyers and sellers but do not own the goods being sold. The company eBay is a prime example of a marketplace business.

Aggregators—Provide a marketplace but sell products and services under its own brand name. Spotify is an example.

Network effects refer to the increase in the value of a network as its user base grows. There are many examples of this including WhatsApp, eBay, and Facebook. Network effects support an initial strategy of penetration pricing.

Question 27

value proposition VS value chain

Answer 27

A firm’s value proposition refers to how customers will value the characteristics of the product or service, given the competing products and their prices. How the firm executes its value proposition is referred to as its value chain.

Question 28

Industry risk factors include

Answer 28

Industry risk factors include cyclicality, industry structure, competitive intensity and dynamics, and long-term growth expectations.

Question 29

operating cash flow (formula)

Answer 29

CF(O) = NI + depr - div

Question 30

Terms of “2/15 net 45” – meaning

Answer 30

if an invoice is paid within 15 days, the customer receives a 2% discount. The full amount of the invoice must be paid within 45 days

Question 31

Uncommitted line of credit

Question 32

lines of credit

Answer 32

Uncommitted, committed + revolving – unsecured

Answer 33

Short-term financing is typically collateralized by receivables or inventory and longer-term loans are secured with a claim to fixed (longer-term) assets. The bank may also have a blanket lien, which gives it a claim to all current and future firm assets as collateral in case the primary collateral is insufficient and the borrowing firm defaults.

Question 34

Factoring

Answer 34

Secured (asset-backed) loans are backed by collateral, for example, fixed assets, receivables, or inventory. Factoring refers to the actual sale of receivables at a discount from their face value.

Question 35

Web-based lenders

Answer 35

Web-based and non-bank lenders typically lend to medium-to-small-size firms and typically charge fees in addition to interest charges.

Question 36

sources of ST financing for companies

Answer 36

lines of credit, debt

Question 37

2 types of debt companies can issue

Answer 37

public debt (trades on public markets) or private debt (provided by private entities and not actively traded).

Question 38

commercial paper: maturity, supplement

Answer 38

Maturities on commercial paper range from a few days to one year (272 days in the U.S.). The debt is unsecured and typically supplemented with a backup line of credit that will provide funds if markets for commercial paper are disrupted so that a company cannot replace maturing commercial paper with new paper.