Corporate Finance
What is the main goal of a business?
To make a profit.
What do we call the process of deciding which long-term projects to invest in?
Capital budgeting.
What do we call the extra money earned from investing or saving?
Interest.
A bond is similar to what type of financial agreement?
A loan.
What does owning a stock represent?
Ownership in a company.
What do we call the money a company earns?
Revenue.
What is the process of choosing the best way to use money?
Budgeting.
What is the difference between simple and compound interest?
Compound interest earns interest on interest, while simple interest does not.
What do we call the amount a bondholder gets back when the bond matures?
Face value.
What do we call a person who owns stock in a company?
A shareholder.
What financial statement shows a company’s revenue and expenses?
The income statement.
What do companies use to decide if an investment is worth it?
Cost-benefit analysis.
What is the term for reducing future cash flows to present value?
Discounting.
What is the name for the interest payments a bondholder receives?
Coupon payments.
What do we call the portion of profits paid to shareholders?
Dividends.
What are the two main ways a company can raise money?
Borrowing (debt) and selling stock (equity).
Why do companies create budgets?
To manage spending and avoid losses.
If you put $100 in a bank account that pays 5% interest per year, how much will you have after one year?
$105.
If a company sells bonds to raise money, what are they doing?
Borrowing money.
What is the term for selling stock at a higher price than you paid for it?
Capital gain.
What financial ratio measures a company’s ability to pay short-term obligations?
The current ratio (Current Assets / Current Liabilities).
What do we call the percentage return a company expects to earn on an investment?
The internal rate of return (IRR).
If you invest $1,000 at 5% annual interest, how much will you have after 2 years?
$1,102.50 (FV = 1000(1.05)^2).
If interest rates in the economy go up, what usually happens to bond prices?
They go down.
If a company’s stock price goes up, what does that usually mean?
Investors expect the company to perform well.