BA 323 NIELANDER - Capital Structure - correct answer- - the mixtu...

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BA 323 – NIELANDER

EXAM WITH CORRECT SOLUTIONS.

Capital Structure - correct answer- - the mixture of debt and equity maintained by a firm

- Two concerns: How much to borrow, least expensive sources

of funds for the firm

Capital Budgeting - correct answer- - the process of planning and managing a firm's long-term investments

• Evaluating Time, Size risk of an expenditure

Working Capital Management - correct answer- - How do we manage the day-to-day finances of the firm?

• Ensures we have enough resources to continue operations

without interruptions

Order of Financial Management Decisions - correct answer- 1.Capital Structure

• Capital Budgeting
• Working Capital Management
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The Agency Problem - correct answer- - the possibility of conflict of interest between the stockholders and management of a firm

Two ways to fix the problem: Managerial compensation is tied

to stock value, Control of the firm the stockholders can get rid of management through a "proxy fight"

Sarbanes-Oxley Act - correct answer- - Driven by Corporate Scandals

• Intended to strengthen protection against accounting fraud

Operating Cash Flow - correct answer- - cash generated from a firm's normal business activities, tells us if inflows cover outflows

- Equation: EBIT + Dep - Taxes

cash flow from assets - correct answer- - total of cash flow to

creditors and stockholders, consisting of: operating cash flow,

capital spending, and change in net working capital

- Equation: CFA = OCF - Net capital spending - change in NWC

cash flow to creditors - correct answer- interest paid - net new borrowing

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