Chapter 10: Valuation and Rates of Return
Valuation and Rates of Return
How is valuation of any financial asset related to future cash flows?
The valuation of a financial asset is equal to the present value of future
Chapter 18: Dividend Policy and Retained Earnings
Dividend Policy and Retained Earnings
How does the marginal principle of retained earnings relate to the returns that a
stockholder may make in other investments?
Chapter 17: Common and Preferred Stock Financing
Common and Preferred Stock Financing
Why has corporate management become increasingly sensitive to the
desires of large institutional investors?
Corporate management ha
Chapter 15: Investment Banking: Public and Private Placement
Investment Banking: Public and Private Placement
In what way is an investment banker a risk taker?
The investment banker is a risk taker (underwriter) in th
Chapter 14: Capital Markets
In addition to U.S. corporations, what government groups compete for funds in
the U.S. capital markets?
The federal government, government agencies, and state and local gove
Chapter 16: Long-Term Debt and Lease Financing
Long-Term Debt and Lease Financing
Corporate debt has been expanding very dramatically in the last three decades.
What has been the impact on interest coverage, particula
Chapter 13: Risk and Capital Budgeting
Risk and Capital Budgeting
If corporate managers are risk-averse, does this mean they will not take risks?
Risk-averse corporate managers are not unwilling to take risks
Time Value of Money:
- Time value of Money: a dollar in hand today is worth more than a dollar promised at
some point in the future.
o One thing it depends on is the rate you can earn by investing.
Future value and compounding:
- Future Valu
Chapter 4 outline
Valuing stocks and bonds
7.1 Common stock valuation
- 3 reasons a common stock is more difficult to value than a bond:
1. With common stock, not even the promised cash flows are known in advance.
2. the life of the investment is essentia
=Chapter 8 outline: Net present value and other investment criteria
8.1 Net Present Value
- The financial manager must examine a potential investment in light of its likely effect
on the price of the firms shares. The most common procedure is
Exam 3 study guide:
Capital budgeting: determining whether or not to buy a certain fixed assets.
- Also face issues in deciding whether or not to launch a new product or enter a new market.
Capital budgeting is probably the most important issue in corpora
Chapter 6 outline
6.1 Bonds and Bond valuation
When a corporation or government wishes to borrow money form the public on a long term
basis, it does so by issuing or selling debt securities that are called bonds.
Bond Features and Prices
- A bond is norma
Bond Value = Present value of the coupons + Present value of the face amount
Bond value = C x (1-1/(1+r)t)/.08 + F/(1+r)t
For bond yields:
o =YIELD(settlement date, maturity date, annual coupon rate, bond
price (%of face value), face valu
Chapter 01: The Goals and Functions of Financial Management
Chapter 1 The Goals and Functions of Financial Management
1-1. How did the recession of 20072009 compare with other recessions since the Great Depression in terms of length?
Calculate Jensen's Alpha with Excel
This spreadsheet calculates the alpha of a portfolio with respect to a market index
Chapter 9: Capital Investment Decisions
- Follows up on chapter 8 by delving more into capital budgeting.
- Has two main tasks:
o Last chapter, we saw that cash flow estimates are the critical input into a net
present value analysis, but not
Chapter 5 outline finance
5.1 Future and present values with multiple cash flows
Future value with multiple cash flows: (two different ways, get same answer.)
Compound the accumulated balance forward one year at a time
- Suppose you deposit $100 today in
Simple vs Compound
- If you invest $500 at 10%, whats the amount after two years in both simple and
o Simple: $500 x .1 = $50. Times two year is $100 total. So the simple interest
amount would be $600.
o Compound: $500 x (1.1)2 = $605.
Chapter 02: Review of Accounting
Chapter 2 Review of Accounting
2-1. Discuss some financial variables that affect the price-earnings ratio. The price-earnings ratio will be influenced by the earnings and sales growth of the firm, the
Chapter 08: Sources of Short-Term Financing
Chapter 8 Sources of Short-Term Financing
8-1. Under what circumstances would it be advisable to borrow money to take a cash discount? It is advisable to borrow in order to take a cash disco
Chapter 05: Operating and Financial Leverage
Chapter 5 Operating and Financial Leverage
5-1. Discuss the various uses for break-even analysis. Such analysis allows the firm to determine at what level of operations it will break even (
Chapter 06: Working Capital and the Financing Decision
Chapter 6 Working Capital and the Financing Decision
6-1. Explain how rapidly expanding sales can drain the cash resources of a firm. Rapidly expanding sales will require a buildu
Chapter 04: Financial Forecasting
Chapter 4 Financial Forecasting
4-1. What are the basic benefits and purposes of developing pro forma statements and a cash budget? The pro-forma financial statements and cash budget enable the firm t
Chapter 07: Current Asset Management
Chapter 7 Current Asset Management
7-1. In the management of cash and marketable securities, why should the primary concern be for safety and liquidity rather than maximization of profit? Cash and
Chapter 03: Financial Analysis
Chapter 3 Financial Analysis
3-1. If we divide users of ratios into short-term lenders, long-term lenders, and stockholders, in which ratios would each group be most interested, and for what reasons? Sho
Chapter 09: Time Value of Money
Chapter 9 Time Value of Money
9-1. How is the future value (Appendix A) related to the present value of a single sum (Appendix B)? The future value represents the expected worth of a single amount, wher
Chapter 12: The Capital Budgeting Decision
The Capital Budgeting Decision
What are the important administrative considerations in the capital budgeting
Important administrative considerations relate to: the s
Chapter 11: Cost of Capital
Chapter 11 Cost of Capital
11-1. Why do we use the overall cost of capital for investment decisions even when only one source of capital will be used (e.g., debt)? Though an investment financed by low-cost
Chapter 19: Convertibles, Warrants, and Derivatives
Convertibles, Warrants, and Derivatives
What are the basic advantages to the corporation of issuing convertible
The advantages to the corporation of a co
Chapter 21: International Financial Management
International Financial Management
What risks does a foreign affiliate of a multinational firm face in todays
In addition to the normal risks that a domes