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Shareholders |only |receive |money |after |what |is |done? |- |correct |answer |✔suppliers |have |been |paid wages |to |workers |have |been |paid. interest |to |bondholders |have |been |paid. taxes |have |been |paid. Capital |Budgeting |- |correct |answer |✔The |process |of |determining |exactly |which |assets |to |invest |in |and |how |much |to |invest; |also |called |capital |expenditure |decision |or |capital |investment |decision. Future |Value |(FV) |- |correct |answer |✔the |amount |to |which |a |cash |flow |or |series |of |cash |flows |will |grow |over |a |given |period |of |time |when |compounded |at |a |given |interest |rate FV |Equation |- |correct |answer |✔FVt |= |PV |x |(1+r)t What |is |a |present |value? |- |correct |answer |✔the |amount |of |money |you |would |need |to |invest |today |in |order |to |duplicate |some |future |dollar |amount
PV |formula |- |correct |answer |✔CFsubt/(1+r)^t What |does |NPV |measure? |- |correct |answer |✔measures |the |value |created |for |shareholders |by |an |investment |project What |should |we |do |if |NPV |> |0? |Less |than |0? |- |correct |answer |✔If |NPV |> |0, |then |the |project |increases |shareholder |value |and |should |be |accepted If |NPV |< |0, |the |project |destroys |shareholder |value |and |should |be |rejected. Are |early |cash |flows |for |projects |typically |positive |or |negative? |- |correct |answer |✔Negative Is |replacement |investment |a |tool |for |evaluating |projects? |- |correct |answer |✔No What |are |three |tools |for |evaluating |projects? |- |correct |answer |✔NPV, |IRR, |Discounted |Payback |Period True |or |false |- |If |capital |projects |are |independent |and |consistent, |the |NPV |and |IRR |methods |should |result |in |"accept" |or |"reject" |decisions. |- |correct |answer |✔True What |does |it |mean |when |a |project |is |independent? |- |correct |answer |✔Acceptance |or |rejection |is |independent |of |the |acceptance |or |rejection |of |other |projects.
Nominal |return |- |correct |answer |✔the |percentage |change |in |the |amount |of |money |you |have. Real |return |- |correct |answer |✔the |percentage |change |in |the |amount |of |stuff |you |can |actually |buy. Fisher |Effect |equation |- |correct |answer |✔nominal |interest |rate |= |inflation |rate |+ |real |interest |rate What |are |the |three |types |of |stock |growth? |- |correct |answer |✔Zero, |constant, |and |differential Zero |Growth |Stock |Equation |- |correct |answer |✔P0= |Div0/R Constant |Stock |Growth |Equation |- |correct |answer |✔P0 |= |Div1/R-g Retention |Ratio |- |correct |answer |✔ 1 |-(Dividend |per |share/Earnings |per |share) An |increase |in |the |retention |rate |will... |- |correct |answer |✔-reduce |the |dividend |paid |to |shareholders -increase |the |firm's |growth |rate P/E |Ratio |- |correct |answer |✔Price |per |share/EPS
Enterprise |value |- |correct |answer |✔market |value |of |equity |+ |market |value |of |debt |- |cash Enterprise |Value |Ratio |- |correct |answer |✔EV |/ |EBITDA Estimated |growth |rate |of |stock |- |correct |answer |✔Retention |ratio |× |Return |on |retained |earnings Cost |of |Capital |- |correct |answer |✔rate |of |return |the |corporation |must |earn |on |its |invested |capital |in |order |to |compensate |for |the |time |value |of |money |and |risk WACC |- |correct |answer |✔Cost |of |Debt |x |(1-Tax |Rate) |x |(Debt/(Debt+Equity)) |+ |Cost |of |Equity |x |(Equity/(Debt+Equity)) What |are |the |most |important |factors |influencing |capital |structure? |- |correct |answer |✔Taxes Stability |of |cash |flows |and |earnings Financial |and |operating |flexibility Type |of |assets Cost |of |Debt |- |correct |answer |✔the |rate |of |interest |that |the |firm |would |pay |on |any |new |bank |borrowing |or |bond |issue Cost |of |Debt |Equation |- |correct |answer |✔Treasury |Bond |Rate |+ |Default |Premium
What |are |some |weaknesses |of |the |comparables |method? |- |correct |answer |✔cannot |value |private |firms |and |financial |information |may |be |unavailable Opportunity |Cost |of |Capital |- |correct |answer |✔the |rate |of |return |you |can |earn |on |securities |in |the |capital |markets |with |the |same |risk |as |your |investment |project. Are |economic |and |accounting |profits |the |same? |- |correct |answer |✔No Capital |Charge |equation |- |correct |answer |✔Capital |Charge |= |r |x |TC Does |Total |Capital |equal |net |assets? |- |correct |answer |✔Yes Capital |Turnover |- |correct |answer |✔Sales/Total |Capital Economic |Profit |Equation |- |correct |answer |✔Accounting |Profit |- |Capital |Charge When |do |companies |earn |a |positive |economic |profit? |- |correct |answer |✔only |if |the |Return |on |Total |Capital |(r*) |is |greater |than |its |Cost |of |Capital |( |r) What's |another |term |for |economic |profit? |- |correct |answer |✔Economic |Value |Added Are |EVA |streams |equal |to |NPV? |- |correct |answer |✔Yes
Market |Value |Added |equation |- |correct |answer |✔Market |Value |of |Equity |- |Book |Value |of |Equity What |are |three |ways |to |improve |economic |profit? |- |correct |answer |✔manage |(Increase |efficiency |of |existing |operations |and |thus |improve |the |spread |between |r* |and |r.), |build |(Invest |in |businesses |and |projects |with |positive |spreads |between |r* |and |r), |harvest |(Withdraw |capital |from |operations |or |activities |where |r* |is |less |than |r) Name |some |advantages |of |using |EVA |for |measuring |performance |- |correct |answer |✔Rewards |managers |for |what |shareholders |value |the |most |economic |profits; Accounts |for |all |the |costs |associated |with |running |a |business, |including |the |cost |of |capital. Gives |managers |the |incentive |to |improve |both |operating |efficiency |and |capital |efficiency. Provides |a |clear-cut |benchmark |for |evaluating |performance. T/F |- |BBB |rated |bonds |are |called |investment |grade |bonds |- |correct |answer |✔True PESTEL |and |the |Five |Forces |models |are |what |type |of |analysis? |- |correct |answer |✔External
Porter |Five |Forces |- |correct |answer |✔Threat |of |New |Entrants, |Intensity |of |Rivalry, |Pressure |from |Substitute |Products, |Bargaining |Power |of |Buyers, |Bargaining |Power |of |Suppliers forward |integration |- |correct |answer |✔occurs |when |a |firm |owns |or |controls |the |customers |or |distribution |channels |for |its |main |products backward |integration |- |correct |answer |✔when |a |company |expands |its |role |to |fulfill |tasks |formerly |completed |by |businesses |up |the |supply |chain Switching |cost |- |correct |answer |✔one-time |costs |that |a |buyer/supplier |faces |when |switching |from |one |supplier/buyer |to |another; |not |necessarily |monetary Cost |Leadership |- |correct |answer |✔the |positioning |strategy |of |producing |a |product |or |service |of |acceptable |quality |at |consistently |lower |production |costs |than |competitors |can, |so |that |the |firm |can |offer |the |product |or |service |at |the |lowest |price |in |the |industry Product |Differentiation |- |correct |answer |✔a |positioning |strategy |that |some |firms |use |to |distinguish |their |products |from |those |of |competitors Steps |in |investment |decision |framework |- |correct |answer |✔Identification, |Evaluation, |Selection, |Implementation Discount |rate/cost |of |capital |- |correct |answer |✔the |minimum |interest |rate |set |by |the |Federal |Reserve |for |lending |to |other |banks.
Opportunity |Cost |- |correct |answer |✔Cost |of |the |next |best |alternative |use |of |money, |time, |or |resources |when |one |choice |is |made |rather |than |another Compounding |Principles |- |correct |answer |✔ Future |Value |- |correct |answer |✔the |amount |of |money |in |the |future |that |an |amount |of |money |today |will |yield, |given |prevailing |interest |rates Net |present |value |- |correct |answer |✔the |present |value |of |current |and |future |benefits |minus |the |present |value |of |current |and |future |costs When |considering |projects |with |a |payback |period, |which |do |you |choose? |- |correct |answer |✔positive |and |quickest |payback |period Problems |with |payback |period |- |correct |answer |✔arbitrary |period |cutoff, |penalizes |long |term |projects, |ignores |cash |flows When |do |you |accept |IRR |projects? |- |correct |answer |✔when |IRR |> |cost |of |capital With |IRR, |which |project |do |you |choose? |- |correct |answer |✔highest |IRR |(if |mutually |exclusive) Profitability |Index |Equation |- |correct |answer |✔(CF0 |+ |NPV) |/ |CF Crossover |Rate |Calculation |- |correct |answer |✔IRR |A-B |or |B-A
g |(growth |rate) |- |correct |answer |✔retention |ratio |x |return |on |retained |earnings Cash |cow |- |correct |answer |✔in |the |portfolio |matrix, |a |business |unit |that |generates |more |cash |than |it |needs |to |maintain |its |market |share Alternative |Price |of |Stock |- |correct |answer |✔EPS/r |+ |NPVGO NPVGO |- |correct |answer |✔Consider |a |firm |that |has |forecasted |EPS |of |$5, |a |discount |rate |of |16%, |and |is |currently |priced |at |$75 |per |share. We |can |calculate |the |value |of |the |firm |as |a |cash |cow. EPS/r |= |5/.16 |= |$31. So, |NPVGO |must |be: |$75 |- |$31.25 |= |$43. What |is |the |primary |role |of |management? |- |correct |answer |✔planning What |other |roles |does |management |have? |- |correct |answer |✔organizing, |controlling, |and |leading Name |the |three |types |of |goals |- |correct |answer |✔strategic, |tactical, |operational
Three |elements |of |a |good |business |strategy |- |correct |answer |✔diagnose |competitive |challenge, |guiding |policy |to |address |it, |and |coherent |actions |to |implement |the |policy Core |values |- |correct |answer |✔the |primary |or |dominant |values |that |are |accepted |throughout |the |organization Top |down |analysis |approach |steps |- |correct |answer |✔external |analysis, |SWOT, |internal |analysis Top |down |approach |steps |- |correct |answer |✔analysis, |formulate, |implement residual |uncertainty |- |correct |answer |✔the |level |of |risk |that |remains |after |individuals |or |organizations |implement |their |risk |management |plans; |likely |unknowable |things PESTEL |Analysis |results |- |correct |answer |✔strategy, |monitor, |or |ignore An |industry |is |more |unattractive |when |- |correct |answer |✔competitive |conditions |approximate |perfect |competition Primary |impact |of |substitutes |- |correct |answer |✔limits |placed |on |pricing Four |types |of |ratios |- |correct |answer |✔asset |quality, |liquidity, |capital |adequacy, |earnings |+ |profitability
Can |some |drivers |be |used |to |simultaneously |increase |value |and |lower |costs? |- |correct |answer |✔yes, |product |quality, |mass |customization, |culture, |etc productivity |frontier |- |correct |answer |✔relationship |that |captures |the |result |of |performing |best |practices |at |any |given |time; |the |function |is |concave |(bulging |outward) |to |capture |the |trade-off |between |value |creation |and |production |cost
