FIN 302 EXAM 2 NOTES - Finance 302 Exam 2 Study Guide For...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Finance 302 Exam 2 Study Guide For Exam :- Covers: the rest of Ch. 6, Ch. 10, Ch. 12, and Ch. 22- Ch. 6: o Nothing complicated on NPV o Likely a problem with computing after tax sale price for sale of asset Use Net revenue from sale of asset formula o Likely a problem with valuing a project with unequal lives with spreadsheets, will give you the spreadsheet, you have to pick which one is set up right—the correct solution on which to accept the project o No after-tax CF calculations - Ch. 12: 15+ questions on agency costs- Ch. 10: Sensitivity analysis- Ch. 22: Real options - Problems: o Ch. 6: Sprockets, Gadgets, Widgets (solutions on BB) o Ch. 10: # 3(all except E), 4, 13, 14, 18 (don’t worry about #14) especially review #13 o Ch. 12: Review questions at end of study guide - Review on BB: o Solutions to Sprockets, Gadgets, Widgets o Monte Carlo Simulation Example o Supplemental Real Options Problems o Excel Real Options Solutions (understand a correctly set-up excel) Cont. Chapter 6 We left off at the end of Exam 1 material with valuation techniques and NVP analyses—review those notes. NPV = present value of inflows – present value of outflows Other Issues:- What to use: allocated vs. actual revenue use actual- You use overhead that is occurring as a result of your project being accepted that wouldn’t occur otherwise- use actual o Your initial outlay is depreciated so it cannot be expensed. Review—taxes from asset sale:- Initial outlay, change in NWC not subject to taxation 1- Asset sales revenue (at end of project) are taxable- but only the amount of the capital gain- Capital gain (sales price – book value) - Ex: if the book value is $500, yet you only sell it for $200—this is like a tax- savings because you sell it at a capital loss. Net Revenue from sale of asset = Sales Price – T c [Sales price – book value] Practice Problems See excel representations of each on BlackBoard Practice Problem 1: SPROCKETS Compute the NPV of the following project: A project to manufacture SPROCKETS is being considered. a) Initial outlay is $100,000 to be depreciated straight line down to $0 in 10 years. The machine will be sold in year 5 for 50,000 and the project will end at that time . b) Revenues are expected to be $50,000 in year 1, and decrease at a rate of 5% per year. c) Variable expenses associated with the project are expected to be 20% of sales (revenues) for each year. d) Working capital will increase by $15,000 at time 0, increase by another $13,000 in year 1, and decrease by $28,000 at the end of 5 years. e) This project will decrease the sales revenue of the WIDGET division by $10,000 (before tax) per year but will increase sales of the GADGET division by $20,000 per year (before tax). All expenses associated with these divisions will remain unchanged....
View Full Document

Page1 / 32

FIN 302 EXAM 2 NOTES - Finance 302 Exam 2 Study Guide For...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online