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Corporate Finance > Midterm, Fin 1 > Flashcards

Midterm, Fin 1 Flashcards

(60 cards)

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1
Q

Calculate profit margin.

A

Net income / sales

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2
Q

Calculate asset turnover ratio.

A

Sales / Total Assets

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3
Q

Calculate the Equity Multiplier.

A

Total Assets / Total Equity
OR
1 + Debt Equity Ratio

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4
Q

Calculate Inventory Turnover.

A

Costs of Goods Sold / Inventory

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5
Q

Calculate Days of Inventory

A

365 / Inventory Turnover

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6
Q

Calculate Current Ratio.

A

Current Assets / Current Liabilities

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7
Q

Calculate the Cash Coverage Ratio.

A

(EBIT + Depreciation) / Interest Expense.

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8
Q

Calculate the P/E Ratio

A

Price per share / Earnings per share

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9
Q

Calculate the Earnings per share

A

Net Income / Number of Shares outstanding

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10
Q

Calculate the Times Interest Earned Ratio.

A

EBIT / Interest Expense

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11
Q

Calculate the Effective Annual Rate.

A

[1+(Quote Rate/m)]^m-1

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12
Q

How do you calculate the Effective Annual Rate in Excel?

A

=EFFECT(nominal_rate, npery)

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13
Q

How do you calculate continuous Effective Annual Rate in Excel?

A

=EXP(number)-1

Number = APR

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14
Q

How do you calculate the PV of a loan?

A

=-PV(rate, nper, pmt, fv, type)

type can be zero

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15
Q

How do you calculate the price of a stock based on a dividend?

A

Dividend / Discount Rate

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16
Q

What are the 3 fundamental concerns of financial managers?

A
  1. Capital budgeting - cash flows
  2. Capital structure - debt and equity
  3. Working capital management
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17
Q

What do you decide when you make a capital budgeting decision?

A

Cash flows

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18
Q

What is the goal of a financial manager?

A

Maximize the current value per share of the existing stock

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19
Q

What are the roles of a corporation?

A

Board of Directors, owners = shareholders

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20
Q

Who are the stakeholders of a corporation?

A

someone other than a stockholder or a creditor who potentially has a claim on the cash flows of a firm

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21
Q

What is the agency problem?

A

Conflict of interest between the principal and the agent

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22
Q

What is double taxation?

A

Being taxed as a corporation and then taxed as an individual.

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23
Q

What are current assets?

A

Cash and accounts receivable, what has a life of less than one year

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24
Q

Why do we use ratios?

A

To compare different companies of different sizes.

To compare the same company at different times.

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25
What is the DuPont Identity?
Profit Margin X Total Asset Turnover X Equity Multiplier 1. operating efficiency (as measured by profit margin) 2. asset use efficiency (as measured by total asset turnover) 3. Financial leverage (as measured by the equity multiplier)
26
What is the time value of money?
A dollar in hand today is worth more than a dollar promised at some time in the future.
27
What does it mean to have more cash flows earlier in a project?
Higher PV, higher FV, worth more to you
28
What is not required to value a coupon bond?
Risk-free rate
29
In a fully diversified portfolio of securities, the only type of risk priced by the market is?
Systemic Risk
30
The risk of cash flows generated by an asset can be measured by what?
Standard deviation and beta
31
How do you calculate the PV of perpetuities?
PV = C/R = D/R
32
How do you calculate the Payment based on the PV?
=PMT(rate, nper, pv, fv) | FV can equal zero
33
How do you calculate the Average Price Today when you have the Average Past Price?
Average Past Price * (1+rate)^time
34
How do you calculate the average tax rate?
Find the taxes due for each rate. Add them together Divide by taxable income
35
What is the marginal tax rate?
The rate it would have to pay if it had another taxable dollar of income.
36
How do you calculate cash flow from assets?
CF from creditors/bondholders + CF from stockholders/owners
37
Calculate the Equity Multiplier
total assets / total equity
38
Calculate Number of Periods
=NPER(rate,pmt,-pv,fv)
39
How do you calculate PV for multiple different cash flows?
Calculate PV for each and add the result
40
How do we find the price of a bond today?
=PRICE(settlement, maturity, rate, YLD, redemption, frequency, basis)
41
How do you calculate current stock price?
Po=(D1+P1)/(1+R) | Zero Growth = D/R
42
How do you calculate the stock price if the growth rate is less than the discount rate?
Po = [Do*(1+g)]/(R-g)
43
Calculate NPV
=NPV(rate, value1:valuen) + Investment
44
Calculate Geometric Average Return
=[(1+R1)X(1+R2)...X(1+Rt)]^(1/t)-1 Holding Period Return^(1/t)-1 t = number of years not number of times
45
Calculate the Holding Return
=Ending Return - Beginning Return / Beginning Return
46
What do you have to do to YTM if payments are semiannual?
Divide YTM by the number payments in a year (2 for semi-annual)
47
Calculate Stock Growing in Perpetuity
Year 17/R-G
48
How do you find the PV of a perpetuity?
PV = C/R
49
How do you find the rate if you have the PV and the Payment?
C/PV
50
What don't you need to calculate the value of a bond?
risk-free rate
51
How do you calculate total holding period return?
find the return for each line, add one, multiple together, subtract 1
52
How do you calculate the geometric average holding period return?
Take the total holding period return, add one, to the (1/n) power, subtract one
53
Which is the preferred method for capital budgeting?
NPV
54
When is NPV better than IRR?
Mutually exclusive projects | Changing cash flows
55
What formula do you use if you have dividend just paid?
Po = Do*(1+g)/(r-g)
56
When your given a stock that you're asked to calculate in year 10, where do you go to PV?
D/R, PV of year 9
57
When you have a dividend growing at a certain percent for a few years and then growing in perpetuity, what do you do?
1) Calculate Dividends 2) Price in Year 3 3) PV Year 3= Price today 4) NPV of all div 5) SUM = Price of stock
58
How do you calculate OCF?
OCF = EBIT + Depreciation - taxes
59
What are the steps to OCF?
1) Recreate the income statement 2) Find EBIT using Revenues, Costs, Depreciation 3) Subtract taxes 4) Add depreciation
60
How do you calculate FCF or cash flow from assets?
FCF = OCF-CAPEX-change in NWC

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