ASU FIN 302 — Midterm 1 Full Study Guide

A detailed set of flashcards covering key concepts from Corporate Finance, Cash Flow, Ratios, Time Value of Money, Bonds, CAPM, Risk & Return, and Market Efficiency to assist in exam preparation.

C Corporations

Legal entities taxed separately with a flat federal rate of 21%.

Double Taxation

The process where corporate income is taxed at the corporate level and again at the shareholder level.

Tax Shield

The reduction in taxable income due to deductible expenses like interest.

Maximize Shareholder Wealth

The primary goal of corporate managers to increase stock price.

Executive Stock Options

Rights given to executives to buy shares at a predetermined price, aligning incentives.

Electronic Trading

A method where 80–90% of trades are executed electronically.

Operating Cash Flow (OCF)

Calculated as EBIT + Depreciation – Taxes or Net Income + Depreciation.

Non-cash Items

Expenses that do not involve cash outflow, such as depreciation and amortization.

Days Inventory Outstanding (DIO)

A metric to measure the average number of days inventory is held.

Days Sales Outstanding (DSO)

A metric to measure the average number of days it takes to collect payment.

Days Payable Outstanding (DPO)

A metric to measure the average number of days the company takes to pay its suppliers.

Cash Conversion Cycle (CCC)

A metric that represents the time taken to convert inventory into cash.

Current Ratio

A liquidity ratio calculated as Current Assets / Current Liabilities.

Debt Ratio

A leverage ratio calculated as Total Debt / Total Assets.

Return on Assets (ROA)

A profitability measure calculated as Net Income / Total Assets.

Future Value (FV)

The value of an investment at a specified date in the future, based on its growth rate.

Present Value (PV)

The current value of an amount that is to be received in the future, discounted at a specified rate.

Ordinary Annuity

A series of equal payments made at the end of each period.

Perpetuity

A financial instrument that pays a constant cash flow indefinitely.

Effective Annual Rate (EAR)

The interest rate that is adjusted for compounding over a given period.

Holding Period Return (HPR)

Total return on an investment over a specified period.

Risk

The uncertainty regarding the return of an asset.

Capital Asset Pricing Model (CAPM)

A model that describes the relationship between the expected return of an asset and its risk.

Beta (β)

A measure of the sensitivity of an asset's returns to market returns.

Bond Pricing

The calculation of the present value of future cash flows from a bond.

Yield to Maturity (YTM)

The total return anticipated on a bond if it is held until maturity.

Fisher Effect

A theory that describes the relationship between nominal interest rates, real interest rates, and inflation.

Efficient Markets Hypothesis (EMH)

The theory that asset prices fully reflect all available information.