Finalexaminfoandpractice_10Fall - F301 Financial Management...

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F301 – Financial Management Final Exam information There will be 15 or 16 multiple-choice questions on the Final Exam. Then there will be four or five written-answer problems. Approximately two-thirds of the exam will be based upon the new material (chapters 10, 11 and 12) and one-third will be on TVM, NPV and the key points of other material covered on the first two exams. You should focus your studying on the following types of problems: TVM – calculating EAR , FV, PV, interest rates, APR, payments Stock valuation – computing a stock price with the growing perpetuity equation Bonds – solving for a bond price, YTM on semiannual bonds Capital budgeting criteria – determining OCF, NWC and capital spending cash flows, and computing NPV and IRR from a given set of cash flows Return calculations – geometric average, arithmetic average, portfolio weighted average return Portfolio investment theory: diversification and portfolio risk, systematic risk and beta, computing a weighted average beta CAPM and the security market line – calculating the CAPM return, using the CAPM and the SML to make an accept-reject decision on a given project WACC – computing a weighted average cost of capital, how a project’s risk should affect the discount rate used for that project The best way to study for the problem-solving portion of the exam is to review (and rework) problems from the first two exams (and practice exams), the problem sets, and work the following practice problems (answers provided in italics). Especially try Problems 3, 7, 8, 15, 19, 25, 34 and An all equity firm is considering the following projects:. Problem 34 is a good WACC practice problem, and the detailed solution is shown on the last page of this document. F301
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F301 Final Exam Practice Problems 1. What is the return on the following portfolio? Asset Investment Return A $200 -8% B $300 10% C $500 15% 8.9% 2. Security Std. Dev. Beta X 10% 1.4 Y 14% 0.9 t-bills 0 Which security has the most total risk? Y – higher standard deviation Which security has the most systematic risk? X – higher beta Suppose you form a portfolio consisting of 60% in X, 30% in Y, and 10% in t-bills. If the expected return on the market is 13%, and the t-bill return is 5%, what would the expected return on your portfolio be? 13.88% 3. A firm has 2,000,000 shares of common stock outstanding with a market price of $2 per share. The firm also has 2,000 bonds outstanding with a market value of $1,200 per bond. The bonds have a 10% coupon rate (annual coupons) and mature in 15 years. The firm’s beta is 1.2, the t-bill rate is 5%, and the market risk premium is 7%. If the tax rate is 34%, what is the WACC? 10.285% 4. Dietz Oil’s last dividend was $3.00. Over the next three years, dividends are projected to grow at a rate of 7% per year, after which they will grow at a constant rate of 4%, forever. If the t-bill rate is 5%, the market risk premium is 8%, and Dietz Oil’s beta is .875, what should the stock sell for?
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This note was uploaded on 01/13/2011 for the course BUS A202 taught by Professor Tindall during the Spring '10 term at IUPUI.

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Finalexaminfoandpractice_10Fall - F301 Financial Management...

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