# Corporate Finance (Português (Brasil)) — Intermediário (B1/B2) 1: Corporate Finance, Asset Valuation & Cost of Capital > [Português (Brasil)] Corporate Finance (Português (Brasil)): Equity and fixed income valuation, Capital Asset Pricing Model (CAPM), WACC, capital structure theorems, and working capital optimization - **Canonical URL:** https://flashcards.world/flashcards/sets/2c0c2f73-a6dc-4615-92d7-b9d2464a88f9/ - **Markdown URL:** https://flashcards.world/flashcards/sets/2c0c2f73-a6dc-4615-92d7-b9d2464a88f9.md - **Level:** intermediate - **Languages:** pt-br → pt-br - **Total Cards:** 32 ## Flashcards (32 Cards) | # | Front (Term / Prompt) | Back (Definition / Answer) | Example | Multiple-Choice Options | | :--- | :--- | :--- | :--- | :--- | | 1 | What is the Trade-Off Theory of Capital Structure? | Firms choose an optimal capital structure by trading off the tax shield benefits of debt financing against the increasing marginal costs of potential financial distress and bankruptcy. | | | | 2 | State the formula for the Cash Conversion Cycle (CCC). | CCC = DIO + DSO - DPO (Days Inventory Outstanding + Days Sales Outstanding - Days Payables Outstanding). | | | | 3 | Why is WACC the appropriate discount rate for evaluating new corporate projects only if they share typical firm risk? | Because WACC reflects the average risk of the existing asset pool; using WACC for high-risk projects overvalues them, and using it for low-risk projects undervalues and incorrectly rejects them. | | | | 4 | In a Discounted Cash Flow (DCF) model, how is the Terminal Value calculated using the Exit Multiple method? | Terminal Value = Terminal Year Forecasted Metric (e.g., Final Year EBITDA) * Selected Benchmark EV/EBITDA Multiple, which is then discounted back to present value. | | | | 5 | Compare coupon rate, current yield, and Yield to Maturity (YTM) for discount and premium bonds. | For discount bonds (Price < Par): Coupon Rate < Current Yield < YTM; for premium bonds (Price > Par): Coupon Rate > Current Yield > YTM. | | | | 6 | What is the after-tax Cost of Debt in corporate finance, and why is it adjusted for taxes? | After-Tax Cost of Debt = R_d * (1 - t), where t is the corporate marginal tax rate; adjusted because contractual interest expense is tax-deductible, creating an interest tax shield. | | | | 7 | How does a share repurchase program affect shares outstanding and Earnings Per Share (EPS)? | It reduces the total number of common shares outstanding, which increases EPS (assuming net income remains relatively constant) without altering total corporate operating income. | | | | 8 | State the formula for the Weighted Average Cost of Capital (WACC). | WACC = (E / V) * r_e + (D / V) * r_d * (1 - t) + (P / V) * r_p, where V = E + D + P is total firm capital. | | | | 9 | What is Financial Leverage and how is the Degree of Financial Leverage (DFL) calculated? | The extent to which contractual fixed financial costs (debt interest) are used in capital structure; DFL = % change in EPS / % change in EBIT = EBIT / (EBIT - Interest Expense). | | | | 10 | State the Capital Asset Pricing Model (CAPM) formula for the expected return on asset i. | E(R_i) = R_f + β_i * [E(R_m) - R_f], where R_f is the risk-free rate and [E(R_m) - R_f] is the market risk premium. | | | | 11 | What is the difference between unlevered beta (asset beta) and levered beta (equity beta)? | Unlevered beta measures the business risk of the firm's assets without debt; levered beta reflects both fundamental business risk and financial risk from debt leverage: β_L = β_U * [1 + (1 - t) * (D / E)]. | | | | 12 | What is zero-coupon bond pricing formula and why does it have no reinvestment risk? | Price = Face Value / (1 + y/m)^(m*t); it carries zero reinvestment risk because it pays no interim coupons, so its yield to maturity is completely locked in if held to redemption. | | | | 13 | State Modigliani-Miller Proposition I in a world without taxes or transaction costs. | The total market value of a firm is independent of its capital structure; firm value is determined entirely by the earning power of its real assets, not how financing is divided between debt and equity (V_L = V_U). | | | | 14 | Explain the fundamental inverse relationship between bond prices and market interest rates (yields). | When market interest rates rise, existing fixed-rate bonds paying lower coupons become less attractive, driving their market prices down until their yield matches prevailing market rates. | | | | 15 | What is the Sustainable Growth Rate (SGR) formula for a company? | SGR = ROE * (1 - Dividend Payout Ratio) = ROE * Retention Rate (b); it represents the maximum rate of growth a firm can achieve without issuing new external equity or altering financial leverage. | | | | 16 | What threshold separates Investment Grade bonds from High Yield (Junk) bonds according to major rating agencies? | Investment grade is rated BBB- / Baa3 or higher (Moody's, S&P, Fitch); speculative/high yield bonds are rated BB+ / Ba1 or below. | | | | 17 | What does Days Sales Outstanding (DSO) measure and how is it calculated? | DSO = (Accounts Receivable / Total Credit Sales) * 365; it measures the average number of days required to collect cash payments after a credit sale is made. | | | | 18 | How does an aggressive working capital policy differ from a conservative working capital policy? | An aggressive policy minimizes cash and inventory while financing temporary and part of permanent current assets with short-term debt (higher risk, higher profitability); a conservative policy holds large liquid buffers financed with long-term debt (lower risk, lower return). | | | | 19 | In corporate valuation, how does Enterprise Value (EV) differ from Market Capitalization (Equity Value)? | Market Cap is the value of common equity (Share Price * Shares Outstanding); EV reflects the entire operating enterprise: EV = Market Cap + Total Debt + Preferred Stock + Minority Interest - Cash and Cash Equivalents. | | | | 20 | What is Operating Leverage and how is the Degree of Operating Leverage (DOL) calculated? | The extent to which fixed operating costs are used in a firm's cost structure; DOL = % change in EBIT / % change in Sales = (Sales - Variable Costs) / EBIT. | | | | 21 | What is the Degree of Total Leverage (DTL)? | The combined effect of operating and financial leverage on earnings per share: DTL = DOL * DFL = % change in EPS / % change in Sales. | | | | 22 | Why is EV/EBITDA preferred over Price-to-Earnings (P/E) when comparing firms with differing capital structures? | Because Enterprise Value captures all capital sources and EBITDA is independent of debt financing and tax rates, making the ratio capital-structure and tax neutral across peer companies. | | | | 23 | What are the four primary risks faced by fixed income bond investors? | Interest rate risk (duration risk), Credit/default risk, Reinvestment risk (reinvesting coupons at lower yields), and Call/prepayment risk. | | | | 24 | What is the mathematical definition and formula for Beta in the Capital Asset Pricing Model? | Beta = Cov(R_i, R_m) / Var(R_m) = ρ_(i,m) * (σ_i / σ_m); it quantifies the sensitivity of an asset's returns relative to the overall market portfolio's returns. | | | | 25 | What is the Pecking Order Theory of corporate financing? | Due to information asymmetry between management and outside investors, firms finance investments hierarchically: first through internal cash flows, second through low-risk debt, and as a last resort through new equity issuance. | | | | 26 | What is Yield to Maturity (YTM) of a bond? | The total annualized internal rate of return expected on a bond if held until maturity, assuming all contractual coupon payments are made on time and reinvested at the YTM rate. | | | | 27 | What does Days Payables Outstanding (DPO) measure and how is it calculated? | DPO = (Accounts Payable / Cost of Goods Sold) * 365; it measures the average number of days a company takes to pay its trade creditors and suppliers. | | | | 28 | State the Gordon Growth Model (Constant Growth Dividend Discount Model) formula for equity share price. | P_0 = D_1 / (r_e - g) = [D_0 * (1 + g)] / (r_e - g), where D_1 is expected dividend next period, r_e is required return on equity, and g is sustainable perpetual dividend growth rate. | | | | 29 | How does corporate taxation modify Modigliani-Miller Proposition I? | With corporate taxes and deductible interest, the levered firm value exceeds unlevered firm value by the present value of the interest tax shield: V_L = V_U + t * D. | | | | 30 | In a DCF model, how is Terminal Value calculated using the Perpetual Growth Method? | Terminal Value = [FCFF_n * (1 + g)] / (WACC - g), where FCFF_n is final projection year cash flow, g is long-term sustainable GDP growth rate, and WACC > g. | | | | 31 | What is credit spread in bond markets and what does its widening indicate? | The yield difference between a corporate bond and a risk-free sovereign Treasury bond of identical maturity; widening credit spreads signal deteriorating corporate creditworthiness or heightened macroeconomic risk aversion. | | | | 32 | What is the difference between systematic risk and unsystematic (idiosyncratic) risk? | Systematic risk is non-diversifiable macroeconomic market risk affecting all assets (measured by Beta); unsystematic risk is firm-specific risk (e.g., strikes, product failures) that can be eliminated through portfolio diversification. | | | --- Study this deck interactively with FSRS-6 spaced repetition, audio review, and multiple-choice mode at [Flashcards World](https://flashcards.world/flashcards/sets/2c0c2f73-a6dc-4615-92d7-b9d2464a88f9/).