BUS 413 D100/E100 CORPORATE FINANCE
SAMPLE MIDTERM EXAMINATION SOLUTIONS
Question 1
1. c
2. b
3. a
4. c
5. d
6. b
7. a
8. a
9. e
10. e
11. e
12. c
13. b
14. a
15. e
BUS 413 D100/E100 Spring 2012
Sample Midterm Examination Solutions
Question 2
a. Two poten
SIMON FRASER UNIVERSITY
Beedie School of Business
BUS 413 D100/E100 Corporate Finance
Sample Midterm Examination
Name:
_
Student Number:
_
Signature:
_
Instructions:
1. This midterm examination has a total of 9 pages (including this cover page).
2. There
Chapter 18 How Much Should
a Corporation Borrow?
BUS 413 E1 Summer 2014
1
Interest Tax Deduction
Corporations pay taxes on their profits after interest
payments are deducted
Thus, interest expense reduces the amount of corporate
taxes
This creates an ince
BUS 413 D100/E100 CORPORATE FINANCE
CHAPTER 19 IN-CLASS PROBLEMS
Problem 19.9
No. The more debt you use, the higher rate of return equity investors will require. (Lenders
may demand more also.) Thus there is a hidden cost of the cheap debt: It makes equit
Chapter 9 Risk and the Cost of
Capital
BUS 413 D1/E1 Spring 2012
1
Risk and the Cost of Capital
A firms cost of capital for a project is the
expected return that its investors could earn
on other investments with the same risk
Recall from the Capital Asse
Chapter 7 Introduction to Risk and
Return
BUS 413 D1/E1 Spring 2012
1
Risk and Return
2
All investments or portfolios of investments
can be characterized by their risk and return
The return of an investment can be defined as
the percentage of the profit o
Chapter 1 Goals and Governance
of the Firm
BUS 413 D1/E1 Spring 2012
1
Introduction
What are you going to learn in Corporate Finance?
Investing decisions
Financing decisions
What to do with the profits?
Valuation
2
How to finance the investments efficient
Chapter 4 The Value of Common
Stocks
BUS 413 D1/E1 Spring 2012
1
How Common Stocks Are Valued
Book value Net worth of the firm
according to the balance sheet
Dividend Periodic cash distribution from
the firm to the shareholders
Price-to-earnings (P/E) R
Chapter 10 Project Analysis
BUS 413 D1/E1 Spring 2012
1
How To Handle Uncertainty
2
When we are analyzing investment
opportunities, we rely on many estimates
The final outcomes of the investment
opportunities may be different from our initial
estimates
As
Chapter 5 Net Present Value and
Other Investment Criteria
BUS 413 D1/E1 Spring 2012
1
Investment Evaluation Technique
2
There are several methods in which a manager
can evaluate a potential investment:
Net present value
Book rate of return
Payback
Int
Chapter 8 Portfolio Theory and
the Capital Asset Pricing Model
BUS 413 D1/E1 Spring 2012
1
Portfolio Theory
2
What is the optimal portfolio that we should
choose?
As we learned in Chapter 7, diversification
allows us to reduce the risk of a portfolio
That
Chapter 2 How to Calculate
Present Values
BUS 413 D1/E1 Spring 2012
1
Present and Future Value
Present value is the value today of a future
cash flow
Future value is the amount to which an
investment will grow after earning interest
t
The future value
(FV
CHAPTER1
INTRODUCTIONTOCORPORATEFINANCE
Learning Objectives
LO1
LO2
LO3
LO4
LO5
The basic types of financial management decisions and the role of the financial manager.
The financial implications of the different forms of business organization.
The goal o
CHAPTER 2
FINANCIAL STATEMENTS, TAXES, AND CASH FLOWS
Learning Objectives
LO1
LO2
LO3
LO4
LO5
The difference between accounting value (or book value) and market value.
The difference between accounting income and cash flow.
The difference between average
CHAPTER 10
Making Capital Investment Decisions
Learning Objectives
LO1
LO2
LO3
LO4
LO5
LO6
LO7
LO8
How to determine relevant cash flows for a proposed project.
How to project cash flows and determine if a project is acceptable.
How to calculate operating
Chapter 2 How to Calculate
Present Values
BUS 413 D1/E1 Spring 2012
1
Present and Future Value
Present value is the value today of a future cash flow
Future value is the amount to which an investment will
grow after earning interest
The future value (FV)
Welcome to BUS 413
Advanced Corporate Finance
Victor Song, Beedie School of Business
Summer 2016
What is finance?
Mikes coffee store
wants to open a coffee shop and the total cost would be $1000
he borrowed $400 from a bank and his parents lent him $600
BUS 413 D100/E100 CORPORATE FINANCE
CHAPTER 31 IN-CLASS PROBLEMS
Problem 31.9
a. This is a version of the diversification argument. The high interest rates reflect the
risk inherent in the volatile industry. However, if the merger allows increased
borrowi
BUS 413 D100/E100 CORPORATE FINANCE
CHAPTER 21 IN-CLASS PROBLEMS
Problem 21.12
a.
The possible prices of Buffelhead stock and the associated call option values
(shown in parentheses) are:
220
(?)
110
(?)
55
(0)
440
(?)
220
(55)
880
(715)
Let p equal the p
BUS 413 D100/E100 CORPORATE FINANCE
CHAPTER 32 IN-CLASS PROBLEMS
Problem 32.9
There is always a chance that the company can recover, allowing creditors to be paid off and
leaving something for shareholders.
Problem 32.10
a.
True. Carve-out or spin-off of
Chapter 21 Valuing Options
BUS 413 D1/E1 Spring 2012
1
Valuing Options
In this chapter, we will talk about different
ways to value options
2
Portfolio replication
Risk-neutral valuation
Binominal method
The Black-Scholes Formula
Portfolio Replication
Cons
Chapter 31 Mergers
BUS 413 D1/E1 Spring 2012
1
Mergers
Horizontal mergers
Vertical mergers
Combinations of firms at different stages of
production
Conglomerate mergers
2
Combinations of firms in the same line of business
Combinations of firms in unrelated
Chapter 22 Firms as Portfolio
of Options and Real Options
BUS 413 D1/E1 Spring 2012
1
Options and Corporate Finance
Example
We start a new project and borrow $100 million to
finance it. Next year we sell our assets and repay
the debt. Assume no taxes or b
Chapter 20 Understanding
Options
BUS 413 D1/E1 Spring 2012
1
Options
2
A call option gives the owner the right to buy
the underlying asset (e.g.: stock) at a
specified exercise price (strike price) on or
before the maturity date (expiration date)
A put op
Chapter 19 Financing and
Valuation
BUS 413 D1/E1 Spring 2012
1
Financing and Valuation
2
In earlier chapters, we learned how to value a
capital investment project by calculating net
present value using the appropriate cost of
capital as the discount rate
Introduction to
Corporate Finance
Contact : 778.863.8693 Email : [email protected]
What is Corporate Finance?
LO1.1
Corporate Finance addresses the following
three questions:
1. In what long-lived assets should the firm invest?
2. How can the firm r
Accounting Statements
and Cash Flow
Contact : 778.863.8693 Email : [email protected]
Sources of Information
Statistics Canada and SEDAR:
balance sheets, income statements, selected
ratios
Dun and Bradstreet Canada:
key business ratios
The Finan