1
Huggins Co. has identified an investment project with the following cash flows.
Year
Cash Flow
1
910
2
1,310
3
1,570
4
1,750
If the discount rate is 11 percent, what is the present value of these cash flows? (Do not round
intermediate calculations and r
1
SDJ, Inc., has net working capital of $3,190, current liabilities of $4,210, and inventory of $3,980.
What is the current ratio?
Current Assets/Current Liabilities (NWC +Liabilities = Current Assets)/Liabilities (3,190 + 4,210 = 7,400)/4,210 = 1.76
What
1
Income Statement
Balance Sheet
Sales $
6,900
Assets $
15,950
Debt $
6,350
Costs
4,360
Equity
9,600
Net income
$2,540
Total $
15,950
Total $
15,950
Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next years
sal
1
First City Bank pays 7 percent simple interest on its savings account balances, whereas Second City
Bank pays 7 percent interest compounded annually.
If you made a $56,000 deposit in each bank, how much more money would you earn from your
Second City Ba
1
0
Chapter
1
Intr
o
du c
tion
to C
o rp
ora
te F
inan
ce
Power Point Presentation designed by Dr. Sylvia C. Hudgins for Finance 323 at ODU
What is Finance?
The Four Basic Areas of Finance
Corporate Finance
Investments
Financial Institutions
Internatio
Finance 323 Acronyms
ROA
ROE
TAT
FAT
IT
CA
EBIT
EBITD
EBITDA
EPS
PE
Return on Assets
Return on Equity
Total Asset Turnover
Fixed Asset Turnover
Inventory Turnover
Current Assets
Earning Before Interest and Tax
Earning Before Interest Tax Depreciation and
1
0
Chapter
16
Fina
n
cial
Lev
era
ge
Power Point Presentation designed by Dr. Sylvia C. Hudgins for Finance 323 at ODU
Risk
2
Two types of Risk: Business Risk & Financial Risk
Business Risk (Chapter 11)
Risk Due to Operations
Measured by variability of E
Review for Exam One
Chapter One:
Capital Budgeting
Capital Structure
Working Capital Management
Sole proprietorship
Partnership: general; limited; partnership agreement
Corporation: articles of incorporation; bylaws;
Double Taxation
Limited liability
Goal
1
0 14
Chapter
Cos
to
f Ca
pita
l
Power Point Presentation designed by Dr. Sylvia C. Hudgins for Finance 323 at ODU
Required Return
2
The required return of a project, the
appropriate discount rate and now the cost
of capital are terms that we can use
int
1
0 11
Chapter
Proj
ec
t An
alys
is a
nd E
valu
a t io
n
Power Point Presentation designed by Dr. Sylvia C. Hudgins for Finance 323 at ODU
Risk in capital budgeting
2
Variances of cash flows from the estimated cash flows
used in decision models may result
1
0
Chapter
8
Sto
ck
Valu
atio
n
Power Point Presentation designed by Dr. Sylvia C. Hudgins for Finance 323 at ODU
Bonds and Stocks:
Similarities
Both provide long-term
funding for the organization
Both have future periodic
payments
Both can be purchas
1
0
Chapter
6
Disc
o
unt
ed C
a sh
Flow
Valu
atio
n
Power Point Presentation designed by Dr. Sylvia C. Hudgins for Finance 323 at ODU
2
Non-Annual Compounding
All equations and calculator solutions thus far have
assumed compounding occurs ONCE a year.
Ex
1
0 10
Chapter
Mak
in
gC
a pi t
al In
v es
tme
nt D
e c is
ions
Power Point Presentation designed by Dr. Sylvia C. Hudgins for Finance 323 at ODU
Relevant Cash Flows
2
The cash flows that should be included in a
capital budgeting analysis are those that
w
Consider the following simplified financial statements for the Yoo Corporation (assuming no income taxes):
Income Statement
Sales
$46,500
Costs
38,780
Net income
Assets
$ 7,720
Total
Balance Sheet
$20,500
Debt
Equity
$ 6,500
14,000
$20,500
$20,500
Total
T
Current Ratio = CA / CL
Quick Ratio = (CA Inventory) / CL
Cash Ratio = Cash / CL
NWC to Total Assets = NWC / TA
Interval Measure = CA / average daily operating costs
Total Debt Ratio = (TA TE) / TA
Debt/Equity = TD / TE
Equity Multiplier = EM
= TA / TE =
Review for Exam Two
Chapter Seven:
book value
market value
intrinsic value
coupon rate
par value/face value
premium bonds/discount bonds/par bonds
yield to maturity
interest rate risk/effects of maturity and coupon rate
debenture
indenture
note
sinking fu
1
0
Power Point Presentation designed by Dr. Sylvia C. Hudgins for Finance 323 at ODU
Compound Value
2
Future Value of a Lump Sum (one time payment):
Value at some time in the future of an investment
(FV)
Interest compounds: earn interest on interest in
Crystal Lake, Inc., has a total debt ratio of 0.39.
Required:
(a) What is its debt-equity ratio?
.64
(b) What is its equity multiplier?
1.64
rev: 09_17_2012
References
Worksheet
Learning Objective: 03-02
How to compute and, more
importantly, interpret som
Review for Exam Three
Chapter Eleven
Financial Risk
Business Risk
Accounting Break Even
Cash Break Even
Financial Break Even
Variable Costs
Fixed Costs
Comparison of DOL(accounting) and DOL(cash flow)
Degree of Operating Leverage(Cash Flow)
Capital Ration
Both Test and Opscan must be turned in
Finance 323 (Introductory Financial Management)
Instructor: Dr. S. C. Hudgins
Final Exam (Version A):
Name:
SSN:
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