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FIN 301 Final Exam
Terms in this set (25)
What is "heterogeneous" about a heterogeneous intertemporal cash flow?
Cash flows at different moments may not be all the same
according to your instructor, what is "reality" in finance?
the cash flow
when discussing cash flows, we spoke of "the principle of MSS." What does MSS stand for
more, sooner, safer
what does your instructor mean by saying that present value measures reality?
two cash flows with the same present value are equivalent
according to your instructor, what is compounding?
compounding is the periodic change in the base upon which interest accrues such that the new base includes accumulated interest
what are bond ratings?
Bond ratings are supposed to indicate how great is the risk of default
how do bond prices vary with interest rates?
Higher interest rates imply lower bond prices and lower interest rates imply higher bond prices
what is the defining assumption of the constant dividend growth model?
dividends will grow at a constant rate
according to your instructor, how do stock prices typically vary with expected dividends?
Stock prices and dividends tend to move in the same direction
the process of planning and evaluating long-term investment expenditures is...
what is IRR?
IRR is "the" discount rate that would set NPV to zero
according to your instructor, what do free cash flows represent?
free cash flows represent cash free to distribute the creditors and wonders of the enterprise
according to your instructor, why don't interest expenses appear in the calculation of free cash flows?
We separate investment and financing decisions
which of the following are components of current liabilities?
which is likely to be better for estimating next period's return on an asset, the arithmetic or the geometric average?
which is likely to be better for calculating past returns on an asset, the arithmetic or the geometric average?
what does WACC stand for?
weighted average cost of capital
what does CAPM stand for?
Capital Asset Pricing Model
does greater risk necessarily imply greater return?
systematic risk diversifiable? does it require a risk premium?
NOT diversifiable & risk premium IS required
unsystematic risk diversifiable? does it require a risk premium?
IS diversifiable & NO risk premium required
what does the CPAM model imply?
we all hold the market portfolio
why is there a tax advantage to debt financing?
Interest is tax deductible
what one word says it all when it comes to the future?
You never know
which is more important, the formula or the principle behind the formula?
Principle behind the formula
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