WGU C214 Financial Mgmt Pass the OA

WGU C214 Financial Mgmt Pass the OA 12 studiers today 4.2 (12 reviews) Students also studied Terms in this set (160) Western Governors UniversityC 214 Save WGU C214 Concepts Only Multi Cho...222 terms ctcaw259Preview WGU C214 Concepts Only Multi Cho...Teacher 222 terms Lydia_Smith75 Preview WGU C211 - Global Economics for M...136 terms jasonmcnearPreview WGU - 55 terms Jrin Characteristics of preferred stock includes-dividends in arrears -dividends are cumulative -higher payoff claim in a BK (has first dibs in a BK) -considered "hybrid" (part stock/part bond) -no fixed maturity date -no voting rights -can skip dividend payments -dividends don't change year-after-year -used in start ups (IPO) Preferred stock dividendscan go without payment and pay in arrears the following year Characteristics of common stock are-voting rights -no maturity date -corporate governance -lower payoff claim in BK -variable returns -unlimited earnings potential -earnings are in dividends & the increase in price of stock New start up ventures often issuepreferred stock (in an IPO) What stock is considered a hybridpreferred stock One thing common stock and preferred stock have in common is both have no maturity date Which type of security has voting rightscommon stock

Debt covenants and restrictions help to ensure that management is meeting bond and shareholder expectations

NOTE: covenants are promises meant to be kept

What is true regarding bonds-when bond matures, bondholder gets lump sum back -coupon rate doesn't change -maturity is in years -PAR value is typically $1000 -Future value (same as PAR) is typically $1000 Bond sells at face value whenrequired rate of return is equal to the coupon rate Why are bonds the primary method for raising capital because bonds remove the intermediary costs

NOTE: IPO's require an intermediary known as a syndicate - a group of banks

underwriting the security issue What type of bond can be traded for stockconvertible bonds What is the interest rate for annual payments of a bond known as the coupon rate NOTE: coupon rate is the established interest rate for the life of the bond and will remain unchanged Coupon rate is the established rate of the bond and should never change Debentures aresecured bonds

NOTE: debentures are a debt instrument (bond) issued to raise cash, secured

against a company's assets and backed by credit, transferable by the holder, and may also be unsecured Secured loanhas collateral like a mortgage The amount repaid at the expiration date of a bond is PAR value

NOTE: expiration date is also known as maturity date PAR (or Face Value) is

typically $1000 Duration measuresthe market risk of a bond and is the percentage drop in price caused by a 1% increase in yield (rate)

NOTE: measurement of the drop in price after a rate increase

Maturity of bonds is calculated inyears A bond premium occurs whenbonds are issued for an amount greater than their face or maturity amount; caused by the bonds having a stated interest rate that is higher than the market interest rate for similar bonds Junk Bonds arehigh yield bonds without any stability "Leveraged" results inhaving more debt (bonds) than equity (stock) and lower stock prices

NOTE: recall that debt is safer and levels out risk in a portfolio

In current assets, inventory is theLEAST liquid of current assets

NOTE: current assets take less than 12 months to make liquid

Net fixed assets arelong term assets such as buildings, land, equipment, machinery

NOTE: assets that are not current

A/P represents money paid tosuppliers for what is bought on credit and amount owed by a business to suppliers by agreement

NOTE: A/P is supplies, inventory, or PP&E

Notes payable involvesan explicit interest bearing arrangement with the lender at interest cost

NOTE: notes payable is a long-term liability

Current liabilities are listed in order ofmaturity

NOTE: current liabilities are to be paid within 12 months

Two things you can do with net incomepay out as dividends or retain (plow back into the firm) On the Statement of Cash Flows, CFO's include-cash receipts from customers (inflow) -cash paid for inventory (outflow) -cash paid for wages (outflow)

NOTE: receipts of cash is inflow & what is paid out is outflow

Which is NOT considered an operating expense interest expense is NOT considered an operating expense On the Statement of Cash Flows, CFI includescash receipts from sale of property and equipment (inflow), cash paid for purchase of equipment (outflow)

NOTE: receipts of cash is inflow & what is paid out is outflow

Which of the following is true with respect to CFO an increase in inventory indicates a reduction in CFO

NOTE: there is a cost (reduction) to purchasing (increasing) inventory

The Statement of Cash Flows is not useful when addressing the financial health of a firm due to the impact of accrual accounting FALSE - the impact of accrual accounting is seen as MOST useful in relation to net income Which is true with respect to CFFan increase in notes payable indicates an increase in CFF Which is not a part of the Statement of Cash Flows cash flows from liquidating activities

NOTE: cash flows are operating, investing, and financing

The sum of CFO + CFI + CFF is equal tothe change in cash during the period Depreciation expense is a significant source of difference between net income and CFO because depreciation is a non-cash expense on the Income Statement associated with the acquisition of long-term assets Subordinated bondsare bonds not backed by collateral

For visualization purposes, CFI accounts are generally non-current assets on the bottom of the asset side of the Balance Sheet TRUE

NOTE: CFI is investing in PP&E and is considered long-term assets shown as

assets on the Balance Sheet Increases in operating assets and decreases in operating liabilities will decrease CFO

NOTE: an increase in PP&E (assets) consumes operating cash; decreases in

equipment (liabilities) also consumes operating cash (CFO) Unsecured loanhas no collateral

NOTE: a credit card is an example

Assuming no asset disposals, CFI isthe change in Gross PP&E -or- CFI is the change in NET PP&E plus depreciation expense Assuming no asset disposals, depreciation expense is equal to the change in ACCUMULATED depreciation Assets are financed byother people's money or equity Dividends are consideredCFF (financing section) A firm with positive CFO should be considered healthy FALSE

NOTE: a positive CFO can still be detrimental to the firm depending on other

factors The increase in yield (rate) causesthe bond prices to decrease (and vice-versa)

NOTE: when interest rates increase, bond prices decrease

A working capital increase caused by an increase in inventory will be a cash outflow

NOTE: capital increase is inventory purchased so money goes out

A firm can sustain negative CFO indefinitely by borrowing, selling equity, and/or by selling assets FALSE

NOTE: a firm can NOT sustain negative CFO forever

Which should NOT be included in the calculation of CFF a change in retained earnings Dividing CFO among the owners of a firm is a sustainable policy FALSE

NOTE: CFO doesn't allow for required reinvestment

Dividing CFO among owners of a firm is NOT a sustainable policy TRUE

NOTE: CFO doesn't allow for required reinvestment

A firm reports the following cash flow data CFO 1 million, CFI 750K, and CFF -100K. Is the firm sustainable Yes, the firm is sustainable. CFF may be due to paying down debt, buying back stock, or paying dividends