Study Guide FIN 331_fall2009

Study Guide FIN 331_fall2009 - Which budgeting criteria to...

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Study Guide FIN 331 – Business Finance Exam 3 Fall 2009 Format: Multiple-choice questions: 20-25 (75-80%) Short-answer questions: 2-4 (20-25%) Chapter 8. The Valuation and Characteristics of Stock 1. Preferred Stocks a. Characteristics b. Pricing preferred stocks 2. Common Stocks a. Characteristics b. Pricing common stocks i. Valuation using the present value of future dividend ii. Growth factor iii. Pricing stock when growth rate is constant iv. Valuation using the present value of free cash flow How to calculate FCF is not tested 3. Expected rate of return a. For common shareholders b. For preferred shareholders Chapter 9. Capital Budgeting Techniques 1. Capital budgeting criteria a. Payback period b. NPV c. PI c. IRR How to calculate each criteria How each criteria can be used What the pros and cons for each criteria The relation among those criteria 2. Capital rationing 3. Ranking mutually exclusive projects a. Size disparity b. Unequal-lives problem What kind of problem one might counter when facing those issues
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Unformatted text preview: Which budgeting criteria to use Chapter 11. Cost of Capital 1. Concept and definition of cost of capital 2. Determining cost of capital a. Cost of debt: (Using PowerPoint slide) b. Cost of preferred stocks c. Cost of common stocks: ii. Growth model iii. CAPM model 4. Weighted average cost of capital a. How to calculate b. How WACC change when capital structure change c. How to use WACC to evaluate new investment-Cost of capital can serve as the discount rate in evaluating new investment when the projects offer the same risk as the firm as a whole.If risk differs, it is better to calculate a different cost of capital for each division. Problem solving 1. Pricing stocks 2. Growth rate 3. Required rate of return for stocks 4. Capital budgeting problem. Calculating Payback, NPV, PI 5. Cost of debt and stock 6. Calculating WACC...
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Study Guide FIN 331_fall2009 - Which budgeting criteria to...

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