Corporate Finance Concepts

Common to advanced corporate finance concepts.

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Last updated: December 7, 2025

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Hint	Answer
The purpose of a corporation is to ____ shareholder value	Maximize
The ____ equitation is: Assets = Liabilities + Owners Equity	Accounting
Shareholder value is represented by which part of the above equation?	Equity
Cash collected from operating a business	Revenue
Cash paid to operate a business (Costs)	Expenses
Cash left after paying expenses	Profit / Net Income
Costs that remained fixed	Fixed Expenses
Costs that are variable	Variable Expenses (COGS)
EBIT	Earnings Before Interest and Taxes
EBITDA	Earnings Before Interest, Taxes, Depreciation, Ammortization
The principle that a dollar in the future is worth less than a dollar today.	Time Value of Money/TVM
Present value is derived from ____ future cash flows	Discounting
Future value is derived from ____ present cash flows	Compounding
The rate at which present and future values are derived	Discount Rate / Rate of Return / Rate / Interest

Hint	Answer
The present value of inflows - outflows for a project	Net Present Value (NPV)
The discount rate at which PV of outflows = PV of inflows	Internal Rate of Return (IRR)
How quickly an investment pays back its initial costs	Payback Period
Weighted average cost of equity and debt	WACC
What is the mix of equity and debt called?	Capital Structure
When debt increases and equity remains the same, ____ increases	Leverage
What is it called when a company can not pay back it's debt?	Default
The tax benefit created by using debt is called	Tax Shield
The idea that capital structure does NOT affect firm value in a no-tax world is called what?	MM Proposition 1
The idea that more leverage increases equity risk is called what?	MM Proposition 2
What officer in a company is in charge of finances?	Chief Financial Officer (CFO)
What is it called when managers in a company act in their own interest and not in the shareholders?	Agency Problem/Risk
Cost that arises from conflicts between shareholders and debt holders?	Agency Cost of Debt
What is it called when managers reject good projects because most of the benefits go to debt holders?	Debt Overhang