function of an accounting system gives managers
information needed for daily operations and also for
long-range planning. Developing types of
information most relevant to specific managerial
decisions and interpreting that information i
What is corporate governance?
the system of internal controls and
procedures by which individual
companies are managed
In regards to a company's board,
investors and shareowners should?
1. determine is a majority of members
What are internal factors that affect working
1. company size and growth rates
2. organizational structure
3. sophistication of working capital management
4. borrowing and investing positions/ activities/
What are external factors that
Maximize shareholder wealth
The goal of financial management is to maximize the
current value per share of existing stock. This eliminates
ambiguity of short-term vs. long-term goals because
shareholders are the residual owners. In order for the
What percent of the observations are with 1,2 & 3
1 - 68%
2 - 95%
3 - 99%
What is skewness?
returns are not symmetric around the mean
What does a distribution look like if it is left
skewed (also negatively skewed) ?
Most of the distr
What is the asset beta?
an unlevered beta. It reflects the business risk of the
What do you calculate the beta of an asset?
= Beta of equity ( (1)/ (1 + (1-t)D/e)
How do you calculate the flotation costs per share?
cost of equity = (D1)/(Po -f) + g
What does it mean if markets are
the price in the market is an unbiased
estimate of all future discounted cash
What is systematic risk?
risk that cannot be avoided and is
inherent in the overall market
What is nonsystemati
How to you calculate the Average Accounting Rate
of Return (AAR)?
= (average net income) / (average book value)
What is the Profitability Index?
the present value of a project's future cash flows
divided by the initial investment
What is the formula for t
How do you calculate the degree of financial
= (% change in net income) / ( % change in
= (Q(P-V)-F / Q(P-V) - F -C
What is the degree of total leverage?
a measure of the sensitivity of the cash flows to
owners to chan
the mix of long-term debt and equity financing
process of changing the firm's capital structure without
changing its real assets.
MM's proposition I (debt irrelevance proposition)
the value of a firm is unaffected by its ca