FİN208U

İŞLETME FİNANSI II - Deneme Sınavı - 14

Ara Sınav 48220

Ana sayfa İŞLETME FİNANSI II Deneme Sınavları Deneme Sınavı - 14

Soru 1

What is included in internal cash flow?

Çözüm Açıklaması

Internal cash flow is generated from retained earnings and depreciation.

Soru 2

What is long term financing?

Çözüm Açıklaması

The long-term financial requirement means the finance needed to acquire land and building for business concern, purchase of plant and machinery and other fixed expenditures. Long-term loans (payback period over 5 years, up to about 30 years such as for mortgage credits.

Soru 3

What happens when you have an overdraft?

Çözüm Açıklaması

The bank overdraft is based on the same principle as the revolving loans, but the limit of the credit is set as a debit of a company’s current account. If the limit is overdrawn, the borrower pays a penalty interest rate. Loans are granted by financial institutions after a client presents anapplication form.

Soru 4

How do bank fees work?

Çözüm Açıklaması

Other fees and charges are determined depending on the type of loan and on the lender. Arrangement fees are commitment or administration charges payable to the lender to reserve the funds. Fees will vary depending on the complexity of the business, its size, and risk. Interest is charged and will vary dependingon risk of default.

Soru 5

What is differency between debt and equity?

Çözüm Açıklaması

The main differences between debt and equity are the following:

• Debt is not an ownership interest in the firm. Creditors do not generally have votingpower.

• The corporation’s payment of interest ondebt is considered a cost of doing business and is fully tax deductible. Dividends paid to stockholders are not tax deductible.

• Unpaid debt is a liability of the firm. If itis not paid, the creditors can legally claim the assets of the firm. This action can result in liquidation or reorganization, two of the possible consequences of bankruptcy. Thus, one of the costs of issuing debt is the possibility of financial failure. This possibility does not arise when equity is issued.

Soru 6

What do you mean by optimal capital structure?

Çözüm Açıklaması

The decision to issue security in the form of debt or stock depends on the optimal capital structure of a corporate. The capitalization of a company can be defined as the balance sheet value of stocks and bonds outstanding. In this framework, capital structure refers to the kinds of securities and the proportionate amounts that make up capitalization.

Soru 7

What is a Eurobond?

Çözüm Açıklaması

A Eurobond is a bond issued in multiple countries but denominated in a single currency and those bonds have become an important way to raise capital for many international companies and governments. A Eurobond was once defined as a debt instrument underwritten by an international syndicate and offered for sale immediately in a number of countries. Eurobonds are issued outside the restrictions that apply to domestic offerings and are syndicated and traded mostly from London. However, trading can and does take place anywhere there are buyers and sellers.

Soru 8

what is common stock?

Çözüm Açıklaması

Common stock, also named as equity shares, represents equity or an ownership position in a corporation. The conceptual structure of the corporation assumes that shareholders elect directors who, in turn, hire management to carry out their directives. Shareholders, therefore, control the corporation through the right to elect the directors.

Soru 9

What is the concept of leasing?

Çözüm Açıklaması

A lease is a contractual agreement between a lessee and lessor establishing that the lessee has the right to use an asset and in return must make periodic payments to the lessor who is the owner of the asset. The lessor is either the asset’s manufacturer or an independent leasing company.

Soru 10

How do floating rate bonds work?

Çözüm Açıklaması

The bonds conventionally have fixed interest payments up to maturity as calculated based on the fixed par value. However, by the time the changing interest environment in the international financial markets, floating-rate bonds (floaters) began to be issued in which, the coupon payments are adjustable. The adjustments are tied to an interest rate index such as the Treasury bill interest rate or the 30-year Treasury bond rate and the value of a floating-rate bond depends on exactly how the coupon payment adjustments are defined.

Soru 11

How does debt financing work?

Çözüm Açıklaması

Firms can either borrow from financial intermediaries such as banks or they can issue corporate bonds to raise debt financing. Debt financing occurs when a firm raises money for working capital or capital expenditures by issuing corporate bonds to raise debt financing.

Soru 12

What is the definition of equity financing?

Çözüm Açıklaması

Firms raise equity funds from their shareholders, who own a direct share of the net income and the net worth of the company. As shareholders hold residual claims on both the earnings and the assets of the business.

Soru 13

What are financial risks in business?

Çözüm Açıklaması

Financial risk is the additional risk borne by the stockholders when the company raises debt financing. As debt holders have prior claims in sharing the earnings and the assets of the firm, the use of debt capital (financial leverage) concentrates all of the business risks on the stockholders, putting equity capital to more risk than if the company were all equity financed. Therefore, financial leverage rises the cost of equity investments.

Soru 14

What is net income approach?

Çözüm Açıklaması

The net income approach advocates that a firm can boost its value by lowering its he weighted average cost of capital-WACC, which is possible by increasing financial leverage in its capital structure. In this approach, it is assumed that the cost of debt is always less than the cost of equity and that the increase in the debt ratio does not lead to a change in the risk perception of the investors.

Soru 15

What is traditional approach of capital structure?

Çözüm Açıklaması

A traditional approach is an intermediate model, compromising between the net income approach and the net operating income approach. Traditional approach assumes an optimal capital structure where the WACC is minimized and the value of the firm is maximized. The model suggests that up to a certain level of leverage, the use of debt financing reduces the WACC, but after that optimal level, the WACC escalates depressing the firm value. The cost of debt remains constant more or less up to a certain level, however, above that level, interest rate rises with the increase in the likelihood of financial distress.

Soru 16

What is the trade off theory of capital structure?

Çözüm Açıklaması

In MM’s world, there are no bankruptcy costs whereas in real life companies face severe costs in case of bankruptcy. High legal costs related to customer, supplier and employee settlements are incurred. Furthermore, a bankrupt firm’s assets will most probably be liquidated at cheaper prices, lowering the worth of its assets. Not only bankruptcy, but the possibility of financial distress can also create problems leading to higher interest rates, contractions in credit purchases, employee jump ship and loss of customers. Therefore, financial distress or bankruptcy costs refrain firms from abundant debt financing. Especially firms with higher business risk should rely less on debt financing.

Soru 17

How do you determine the optimal capital structure?

Çözüm Açıklaması

Mixing debt and equity in building up the capital structure of the firm is essential for value maximization. Estimating the optimal capital structure requires a careful analysis with repetitions. The managers normally start with a trial capital structure and evaluate shareholders’ wealth. They continue the same practice until they identify a capital structure maximizing the firm value. At each trial, the cost of debt and equity are projected in order to quantify the WACC. Then the forecasted free cash flows are capitalized at the calculated WACC to determine the firm value. As a final step, debt is deducted from the value of the firm to measure the value of the equity and the stock price.

Soru 18

What is meant by agency theory?

Çözüm Açıklaması

Agency theory suggests that agency problems may arise if managers (agents) pursue different objectives other than those of the shareholders (principals). Shareholders’ seek for wealth maximization which can be attained by the maximization of the value of the firm. However, managers often waste shareholders’ wealth by consuming perquisites or investing in pet projects. Hence, high debt levels can be a solution to prevent these agency problems, since higher borrowing costs discipline managers to funnel cash flows to interest payments.

Soru 19

What is the other factors affected by the capital structure of an enterprise

Çözüm Açıklaması

As the main goal of investors is wealth maximization, companies seek to attain an optimal capital structure which maximizes the firm value. However, there cannot be a prescribed optimal capital structure for any business because there are many different factors influencing the capital structure decisions. Even for a single company, the optimal capital mix might require variations in the level of financial leverage over time in relation to changing market forces as a , economic environment, industry specific factors and firm-specific factors.

Soru 20

How does the economic environment affect the business?

Çözüm Açıklaması

The economic conditions in general impact the investment and financing decisions simultaneously. The economic policies of the country where the company is established to determine the market conditions shaping up both the forces of demand and supply. The political and economic stability affect the level of risk at the macro and micro levels. The inflation rate leads to the interest rate. Furthermore, the tax rates directly impel the level of investments and financing mechanisms. Risk escalates in an economic

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