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Flashcards in Final Exam Deck (27)
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1

4 useful things about EVA?

-can be used for divisions of company as well as for entire company
-used to determine managerial compensation
-EVA strongly correlated with firms stock price
-good measure of addition to shareholder value

2

If EVA is positive, what does that mean regarding the ROE?

ROE (return on equity) is greater than the Cost of Capital

3

Formula for EVA?

EBIT(1-T) - (Total Capital - AIP and Accruals) * (after-tax cost of Capital or WACC)

4

Which one is Cumulative, MVA or EVA?

MVA

5

Formula for MVA?

(# o/s shares) * (stock price) - Total Common Equity

6

Formula for:

Operating Working Capital

Net Operating Capital

Total Operating Capital

Operating Working Capital (OWC)
CA

Net Operating Working Capital (NOWC)
CA - (AIP + Accurals)

Total Operating Capital
NOWC + FA
(CA - (AIP + Accurals)) + FA

7

What happens to the U.S. value/Purchasing power when the Money Supply increases and decreases?

Money Supply Decreases
-U.S. dollar value Increases

Money Supply Increases
-U.S. dollar value Decreases

8

Market Expectations Theory

Says interest rates will remain the same from year to year, and the only difference is caused by inflation

*means MRP = 0

9

What is the relationship of interest rates to bond prices?

Interest Rate increases, Bond Price decreases

Interest Rate decreases, Bond Price increases

10

What is the relationship of interest rates to discount rates?

Discount Rate increases, Interest Rate increases

Discount Rate decreases, Interest Rate decreases

11

What is the relationship of Demand of Money and interest rates?

Demand of Money increases, Interest Rates increase

Demand of Money decreases, Interest Rates decrease

12

Difference between Money Markets and Capital Markets?

Money Markets
-short-term highly liquid debt securities

Capital Markets
-long-term debt securities
-bonds, notes, etc.

13

What is the largest Capital Market?

New York Stock Exchange

14

Which trades more volume of stock per day? Which trades more dollar-value of stock per day?

NASDAQ or New York Stock Exchange

NASDAQ
-trades more volume of shares

New York Stock Exchange
-trades more dollar-value per day

15

Are capital gains taxed?

If they are long-term capital gains

held for 1 year or longer

16

What is the formula for Total Yield?

DY + CGY

DY
D1/P0


CGY
(P1-P0) / P0

17

What is another way to say "KRF is 3.5%"

Short-term Treasure securities are 3.5%

18

Who cares about beta and Co-efficient of Variation? Non-diversified investors or Diversified Investors?

Non-Diversified Investors
-care about Coefficient of Variation
(σ / Expected Rate of Return or "K Hat")

Diversified Investors
-care about Beta

19

2 stock exchanges that have a physical location?

New York Stock Exchange (NYSE)
American Stock Exchange (AMEX)

20

NASDAQ

National Association of Securities Dealers Automated Quotation

-is a network of computers
-has no physical location

21

When did the American Stock Exchange (AMEX) and the NASDAQ merge and split?

Merged in 1988

Split in 2005

22

Black Knight

-buys majority of IPO
-when company is just first putting stock out
-tries to gain control of company

23

White Knight

-company that buys another company
-buys company to save company from being bought from third-party

24

If inflation increases, what will this do to the interest rate?

Interest Rate will increase

25

AMEX merged with ___ in 2008. However, they did not integrate until into ___ until ___

Merged with Euronext in 2008

Integrated into NYSE in 2009

26

What year was the NASDAQ created?

1971

27

Efficient Markets Hypothesis

-stocks are always in equilibrium
-it's impossible for investor to consistently beat the market