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Unformatted text preview: FIN 310 FINAL EXAM STUDY GUIDE FALL 2010 FIN 310 FINAL EXAM STUDY GUIDE FALL 2010 • STOCKS o Preferred vs. common stock: characteristics o How do you make a return when you invest in stocks? o How do you find the stock price? o Relationship between interest rate and price CAPITAL BUDGETING • What is capital budgeting? Why does a company do it? • Terms from first 9 slides of Chapter 11. • What are the three ways to determine value? What are the pros and cons of each method? o Payback o NPV o IRR COST OF CAPITAL • Calculate cost of DEBT o Before tax o After tax • Calculate cost of EQUITY o Dividend method (constant growth and no-growth methods) o CAPM o Pros and cons of each method • Why do we need to consider the weighted average cost of capital (WACC)? • Calculate WACC • How do we make the decision whether or not to make an investment? o Compare Projected returns (Capital Budgeting) to WACC...
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