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Summary Reken maar

Course
- Corporate Finance
- -
- 2018 - 2019
- Erasmus Universiteit Rotterdam (Erasmus Universiteit Rotterdam, Rotterdam)
- International Business Administration
121 Flashcards & Notes
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A snapshot of the summary - Reken maar

  • 1 Introduction to Corporate finance: the cost of capital and long-term financing

  • What is the difference between debt and equity?
    Equity is debt that the company owns to shareholders, debt is what the company owes to external financers
  • What is an unlevered firm?
    A firm that is financed solely through equity
  • What 2 things can a company do with excess cash?
    1. Distribute it to shareholders in a form of cash dividend
    2. Invest money in project and distribute future cash flows of these projects to shareholders
  • What is the risk-free rate?
    The compensation for investors for the time value of money. It is the amount an investor will make if they invest in a risk-free project.
  • What does the beta signify?
    The degree of volatility of an effect, compared to the market
  • What 3 factors determine beta?
    1. Cyclicality of revenue (direct effect)
    2. Operating leverage (amplifies 1.)
    3. Financial leverage  (amplifies 1.)
  • What is cyclicality of revenue?
    It refers to the relation between firm performance and the business cycle. High degree of cyclicality --> high beta
  •  What is financial leverage?
    The degree to which a company uses debt to finance its activities. = the fixed cost of financing
  • What are brokerage fees?
    The costs that are incurred when executing a trade, as it involves a 3rd party
  • What is the bid-ask spread?
    The difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept
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