# Business Finance 201 Test 1 Byu

US treasury bills – based on treasury bills with 1 month maturity. least volatile and no return
Secondary Markets – Marketers in which securities and other financial assets are traded among investors after they have been issued by corporations
Any subsequent sell after the primary market
four types of economic systems – market
mixed
command
Internal Rate of Return (IRR) – 1. Discount rate that equates the present value of a project's net cash flows with its initial cash outlay.

2. Discount rate that makes NPV=O

3. Compared to k (required rate of return)

4. If IRR>k, project should be undertaken.

5. 0=-9000 + 5090/(1+IRR) + 4500/(1+IRR)^2…

6. Assumes Cash flows reinvested at IRR, maybe unrealistic.

A project/investment with a positive NPV has an IRR above the required rate of return. A project/investment with a negative NPV returns less than the required rate of return. When the NPV is \$0, the project returns exactly the required rate of return.

Bad debt – Unpaid customer accounts that it is judged will not be paid. These will have to be 'written off' in the final accounts. Simply money owed that they did not collect.
Insurance on FHA loan – protects lender
Precise Machinery is analyzing a proposed project. The company expects to sell 2,100 units, give or take 5 percent. The expected variable cost per unit is \$260 and the expected fixed costs are \$589,000. Cost estimates are considered accurate within a plus or minus 4 percent range. The depreciation expense is \$129,000. The sales price is estimated at \$750 per unit, give or take 2 percent. The tax rate is 35 percent. The company is conducting a sensitivity analysis on the sales price using a sales price estimate of \$755. What is the operating cash flow based on this analysis?
Du Pont identity – Popular expression breaking ROE into 3 parts: profit margin, total asset turnover, and financial leverage
Loans – -Another debt instrument used by hospitality firms
-commercial banks
Judicial sale – -court orders the property sold to the highest bidder
-proceeds used to pay lien holders
*****What is a financial market? Give an example. – a financial market is a plcae where funds are exchanged. People and organizations wanting to borrow money are brought together with those who have surplus funds in the financial markets.
Capital Markets: the markets for intermediate or long term debt and corporate stocks (pg. 29)
The NYSE, wjhere the stocks of the largest U.S. corps are traded, is a prime example of a capital market.
Stock market: people who need \$ (businesses) connect with people who have \$ (investors)
Financing decisions – raise money from new/existing owners by selling more shares of stock or to borrow money instead
Triple taxation – get taxed at corporate, subsidiary and personal level for dividends
Net capital spending – End fixed assets –
Beg fixed assets +
Depreciation
Precise Mаchinery is аnаlyzing a prоpоsed prоject. The company expects to sell 2,100 units, give or take 5 percent. The expected variable cost per unit is \$260 and the expected fixed costs are \$589,000. Cost estimates are considered accurate within a plus or minus 4 percent range. The depreciation expense is \$129,000. The sales price is estimated at \$750 per unit, give or take 2 percent. The tax rate is 35 percent. The company is conducting a sensitivity analysis on the sales price using a sales price estimate of \$755. What is the operating cash flow based on this analysis?
Spread – The difference between what they buy and sell the stock for
Flexible budget – an operating budget for varying workload levels.
Most money market transactions are made in – marketable securities which are short-term debt instruments, such as U.S. Treasury bills, commercial paper, and negotiable certificates of deposit issued by government, business, and financial institutions, respectively.
Long-Term Liablilities – Long term Notes

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