Summary: Reken Maar

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

    This is a preview. There are 23 more flashcards available for chapter 1
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  • 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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