FINE2000-Final-Exam-Slides-Ch1-to-15-2016 - FINE 2000 Yash...

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FINE 2000 Yash Patel February 3 rd , 2016
Chapter 1: Goals and Governance of the Firm
Chapter 1: Overview Separation of Investment decision: Risk vs. Reward Financing decision: Capital Structure Real vs. Financial asset Agency problems In Canada, over 80% of corporations are privately held
Chapter 2: Financial Markets and Institutions
Chapter 2: Financial Markets A financial system is crucial to the success of any business Links savers and borrowers Financial Market: Equity Market (Primary vs. Secondary) Fixed Income Capital Market Money Market FOREX Commodities Options & Derivatives ETFs vs. Mutual Funds
Chapter 2: Financial Intermediaries Different Financial Intermediaries: Investment Bank Hedge Fund Private Equity Pension Fund Functions of Financial Markets & Intermediaries Transport cash across time Risk transfer & diversification Liquidity Payment mechanism convenience for consumers Information provided helps markets be more efficient
Chapter 2: Cost of Capital Opportunity Cost of Capital: In theory: minimum acceptable rate of return on an investment In practice: “discount rate” How do we obtain this rate? Expected rate of return that investors can achieve in the financial market, at the same risk Why is this useful? Basis of risk vs. reward Determine NPV of projects Separate financing vs. investment decision
Chapter 14: Introduction to Corporate Financing and Governance
Chapter 14: Memorize the Key Terms additional paid-in capital 454 authorized share capital 454 callable bond 464 convertible bond 473 cumulative voting 456 floating-rate preferred 463 funded debt 464 internally generated funds 473 issued shares 454 lease 468 outstanding shares 454 preferred stock 461 prime rate 464 private placement 466 protective covenant 467 proxy contest 457 refunding 465 retained earnings 454 secured debt 466 sinking fund 464 subordinated debt 465 warrant 472
Chapter 3: Accounting and Finance
Chapter 3: Accounting Review Fundamental Equation: Assets = Liabilities + Equity Components of Liabilities: Bank debt Mezzanine debt Debenture Subordinated debt vs. Senior debt Components of Equity: Shareholder’s equity Retained Earnings Additional Paid-in Capital Other items (ex// Accumulated OCI) Book value vs. Market value Market cap (share price x outstanding shares) = MV assets MV liabilities
Chapter 3: Cash Flow How the three statements connect: Income Statement Statement of Cash Flow Balance Sheet Examples: $10 increase in depreciation $100 investment in equipment Statement of Cash Flow: CFO + CFF + CFI = Net Change in Cash Cash Flow from Assets = Free Cash Flow = CFO + CFI PP&E calculations: Change in net PP&E = Capital Expenditures Depreciation and Impairment Expenses
Chapter 3: Taxes Federally: Interest is treated as ordinary income Capital gains 50% is taxable Dividends is subject to gross-up and tax credit Provincially: Dividends are subject to gross-up and tax credit Taxes are calculated according to the Income Tax Act

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