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
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
BUS 413 D100/E100 CORPORATE FINANCE
CHAPTER 20 IN-CLASS PROBLEMS
Problem 20.12
a. The put places a floor on value of investment, i.e., less risky than buying stock. The risk
reduction comes at the cost of the option premium.
b. Benefit from upside, but al
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 11
PROJECT ANALYSIS AND EVALUATION
Learning Objectives
LO1
LO2
LO3
LO4
LO5
How to perform and interpret a sensitivity analysis for a proposed investment.
How to perform and interpret a scenario analysis for a proposed investment.
How to determine
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 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
BUS 413 D100/E100 CORPORATE FINANCE
CHAPTER 21 AND 22 EXTRA PRACTICE PROBLEMS
Problem 21.21
a.
When you exercise a call, you purchase the stock for the exercise price.
Naturally, you want to maximize what you receive for this price, and so you
would exerc
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
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
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
Introduction to
Corporate Finance
Contact : 778.863.8693 Email : info@financetraining.ca
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 : info@financetraining.ca
Sources of Information
Statistics Canada and SEDAR:
balance sheets, income statements, selected
ratios
Dun and Bradstreet Canada:
key business ratios
The Finan
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
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)
CHAPTER12
SOME LESSONS FROM CAPITAL
MARKET HISTORY
Learning Objectives
LO1
LO2
LO3
LO4
How to calculate the return on investment.
The historical returns on various important types of investments.
The historical risks on various important types of investme
CHAPTER13
RETURN, RISK, AND THE SECURITY MARKET LINE
Learning Objectives
LO1
LO2
LO3
LO4
The calculation for expected returns and standard deviation for individual securities and portfolios.
The principle of diversification and the role of correlation.
Sy
BUS 413
Advanced Corporate Finance
Lecture VII
Risk and Return in Capital Markets
Victor Song, Beedie School of Business
CAPM
model
Summer 2016
Where Do We Stand?
Earlier chapters on capital budgeting focused on the appropriate size
and timing of cash fl
BUS 413
Advanced Corporate Finance
Lecture V
Victor Song, Beedie School of Business
Summer 2016
Agenda today
Stock Basics
The Dividend-Discount Model
The Discounted Free Cash Flow Model
Valuation Based on Comparable Firms
Information, Competition, an
BUS 413
Advanced Corporate Finance
Lecture IV
Victor Song, Beedie School of Business
Summer 2016
Last lecture
Resume topic on interest rate
Single cash flow
Multiple Cash flows
Perpetuity
Annuity
Growing Perpetuity
LO 2.1
Agenda today
Practice long
BUS 413
Advanced Corporate Finance
Lecture VI
Victor Song, Beedie School of Business
Summer 2016
Agenda today
The NPV Rule
Using the NPV Rule
Alternative Decision Rules
Choosing Between Projects
Evaluating Projects with Different Lives
Choosing Amon