Recitation 2
Bo Zhou
A firm has common stock with face value of
$85, paid-in surplus of $210 (the money
common shareholder paid more than the face
value when IPO), total liabilities of $385,
current assets of $340, and fixed assets of
$550 and no other as

Financial Statements 5 Years Inputs
Income Statement
Year
1999
Revenues:
Sales*
Cost and expenses:
Cost of sales*
Selling, general and administrative expense (SG&A)*
Research and Development*
Depreciation*
Operating income
Interest
Interest expense*
Inter

Recitation 3
Bo Zhou
Suppose Rubik Inc. has 800,000 equipment, 100,000 cash,
100,000 material and 500,000 debt and 500,000 shareholders
equity at the beginning of this year.
The firm makes a net profit of 200,000 this year. They pay out
40% of the profit

PROBLEM SET I
1. Continue with the assumptions used in class for our Shoe Manufacturing Company regarding its
initial financial structure (i.e., its starting balance sheet) and its price per shoe and costs, etc.
But now, instead of 6,000 pairs, it sells 6

Recitation 11
Bo Zhou
1) 5 year bond, coupon rate is 5%, face value is 100
2) 10 year bond, coupon rate is 5%, face value is 100
If the yield to maturity (or the discount rate) is 5%
What is the price of the two bonds?
1) 5 year bond, coupon rate is 5%, f

Recitation 5
Bo Zhou
DuPonts identity (you can also see the definition of PROFIT MARGIN, ASSET
TURNOVER and leverage ratio in the 2 formulas below.
(if any)
Standard procedure for income statement
REVENUE
- VARIABLE COST
- NON-INTEREST FIX COST
- DEPRECIA

Exercise on
Time Value of Money and Bond
Bo Zhou
How do you calculate the center of weight of an
object?
Total weight=
Center of weight= )
Duration
You can think of duration as weighted average of
maturity. The weight is PV of each cash flow.
a rule of th

Recitation 10
Bo Zhou
1) What is the present value of $1,000 in two years
at an interest (discount) rate of 5% assuming:
a) annual compounding
b) semi-annual compounding
1) What is the present value of $1,000 in two years
at an interest (discount) rate of

Recitation 6
Bo Zhou
1. A bank makes a loan to a company. The loan is:
a)
b)
c)
d)
an asset of the bank, a liability of the company
an asset of the bank and an asset of the company
a liability of the bank, an asset of the company
a liability of the bank a

Recitation 13
Bo Zhou
1) For a given nominal two-year interest rate, the
lower the expected inflation rate for the next two
years, the
higher
lower
same
real interest rate.
1) For a given nominal two-year interest rate, the
lower the expected inflation ra

Recitation 9
Bo Zhou
1. You lend $1,100 for 1 year at 10%.
Calculate:
a) total proceeds
b) principal and interest
1. You lend $1,100 for 1 year at 10%.
Calculate:
a) total proceeds
b) principal and interest
1100* 1+10% =1210
Principal=1100
Interest=110
2.

PROBLEM SET II
Each question, except where otherwise noted, builds on the assumptions of the previous questions.
I
Youve opened your restaurant and its doing alright. You invested $50,000 and your friends
$60,000. You borrowed $40,000 from your bank at 6%

Recitation 4
Bo Zhou
Liability+shareholders equity:
Your money 50000
Your friends money 60000
Bank loan 40000
Assets:
Equipment 75000
Material 40000
Cash 35000
7500 customer spent $16 each
Cook and waiters salary 64000
Rent=15000, interest rate=6%, tax ra

Recitation 12
Bo Zhou
A mortgage
Total amount borrowed 400,000
interest rate 4%
20 years, what is the monthly payment?
A mortgage
Total amount borrowed 400,000
interest rate 4%
20 years, what is the monthly payment?
=pmt(0.04/12,20*12,400000)
=2423.92
A m

Recitation 8
Bo Zhou
All else the same, the greater the book value
of a company, the
LOWER
SAME
HIGHER
its ROE for a given amount of profit.
All else the same, the greater the book value
of a company, the
LOWER
SAME
HIGHER
its ROE for a given amount of pr

INTEREST RATES HOMEWORK
1. You lend $1,100 for 1 year at 10%. Calculate:
a) total proceeds
b) principal and interest
2. You lend $1,100 for 2 year at 10%. Calculate total proceeds, principal and interest assuming:
a) simple interest
b) compound interest
3

Recitation 1
Bo Zhou
REVENUE
Supplier, employee, utility, office rent
EBIT: earning before interest and tax
EBT: earning before tax
DEBT SERVICE
PREFERRED
DIVIDENDS
PROFITS
TAXES
COMM
ON
STOCKH
OLDER
S
C.O.G.S.
Profit, variable cost, fix cost
Preferred st

BA II PLUS
Time-Value-of-Money Calculations
Before doing a TVM calculation, press 2nd [QUIT] to return to
standard-calculator mode.
To clear the TVM worksheet, press 2ND[CLEAR TVM].
To enter a TVM value, key in a value and press:
[N] to enter number of pa