Corporate Structure
Sole Proprietorships Unlimited Liability Personal tax on profits Partnerships
Limited Liability Corporations Corporate tax on profits + Personal tax on dividends
Organizing a Business
Sole Partnership Proprietorship
Who owns the busine

Chapter 03 - Valuing Bonds
CHAPTER 3 Valuing Bonds Answers to Problem Sets
1.
a. b. c.
Does not change Price falls Yield rises. If the coupon rate is higher than the yield, then investors must be expecting a decline in the capital value of the bond over i

Chapter 04 - The Value of Common Stocks
CHAPTER 4 The Value of Common Stocks Answers to Problem Sets
3.
P0 = (5 + 110)/1.08 = $106.48 r = 5/40 = .125.
4.
5.
P0 = 10/(.08 - .05) = $333.33. By year 5, earnings will grow to $18.23 per share. Forecasted price

Chapter 05 - Net Present Value and Other Investment Criteria
CHAPTER 5 Net Present Value and Other Investment Criteria
Answers to Problem Sets 1. a. b. c. d. e. f. A = 3 years, B = 2 years, C = 3 years B A, B, and C B and C (NPVB = $3,378; NPVC = $2,405)

CHAPTER 6 Making Investment Decisions with the Net Present Value Rule
Answers to Problem Sets 1. a, b, d, g, h.
2.
Real cash flow = 100,000/1.04 = $96,154; real discount rate = 1.08/1.04 - 1 = .03846 PV =
96,154 $92,593 1.03846
3.
a. b. c. d.
False False

FM 2555/9555 ASSIGNMENT #1
Due Date: Tuesday November 4th, 2014 (in class)
You are given the hypothetical information in the attached chart (Exhibit A) regarding the
price on November 1, 2014 of U.S. Treasury $1,000 principal strips with maturity dates
1-

AS2555:CorporateFinanceMidtermTestI2013
Name:
Student Number:
Note: Each MC question is worth 10 marks. For MC questions, choose the closest number
from the list. If you choose none of the above, you need to show you result to get credits.
For short answe

ILLUSTRATING SPOT AND FORWARD INTEREST RATES
Learning Curve
August 2003
2
Practitioners in the bond markets need to determine the true interest rate for any period or
term to maturity, for a number of applications. Such interest rates are known as spot or

AS2555 midterm test I
Oct. 2, 2012
Name:
Student Number:
Note: Each MC question is worth 10 marks. For MC questions, choose the closest
number from the list. If you choose none of the above, you need to show you result to
get credits.
Multiple choice ques

Ch 17: Does debt policy matter?
18- 1
A firm's basic resource is the stream of cash flow produced by its assets. When the firm is financed entirely by common stock, all those cash flows belong to the shareholders. When it issues both debt and equity secur

16- 1
How corporations issue securities
Venture Capital The Initial Public Offering Other New-Issue Procedures Security Sales by Public Companies
Rights Issue
Private Placements and Public Issues
16- 2
Venture Capitals
Venture Capital
Equity investme

Ch2. The Net Present Value Rule
Corporate
Goals and Corporate Governance Introduction to Present Value
Goal and Governance of the firm
A large corporation may have thousands of shareholders. However, all shareholders have one common goal:
Increase value

3- 1
Ch2 continued
Valuing Long-Lived Assets Looking for Shortcuts Perpetuities and Annuities More Shortcuts Growing Perpetuities and Annuities Compound Interest & Present Values
Present Values
Recall that
3- 2
C1 PV = DF C1 = 1 + r1
r is the opportuni

4- 1
Chapter 3: Valuing Bonds
A bond has
Face value Term Coupon rate
Valuing a Bond
4- 2
1,000 + C N C1 C2 PV = + + . + 1 2 N (1 + r ) (1 + r ) (1 + r )
Valuing a Bond
In Europe, coupon is paid annually
4- 3
Example - Germany
In July 2006 you purchase

Ch 4:Valuing Common Stocks
This chapter studies what determine the share's value. A real example: GE
5- 1
Stocks & Stock Market
GE has about 10.6 billion shares outstanding and these shares are owned by about 5 million shareholders. If GE wishes to rais

Chapter 5: NPV and other investment Criteria
NPV and its Competitors The Payback Period Book Rate of Return Internal Rate of Return Profitability Capital Rationing
6- 1
Chapter 5: NPV and other investment Criteria
NPV depends on cash flow, not on book ret

Chapter 5: NPV and other investment Criteria
NPV and its Competitors The Payback Period Book Rate of Return Internal Rate of Return Profitability Capital Rationing
6- 1
Chapter 5: NPV and other investment Criteria
NPV depends on cash flow, not on book r

Making Investment decisions with NPV
Making investment decisions with the NPV rule
Forecasting cash flow?
How soon can get it into production? How many will be sold every year? How much to invest?
7- 1
These numbers need to be checked for accuracy and

Chapter 7 & 8: Risk and Return
Ch 7-9 essentially discuss how to determine the discount rate (opportunity cost of capital, cost of equity capital, investor's expected return). The expected return on a project is related to its risk level. The higher the

Return of individual stocks
Everyone holds the market portfolio, and beta measure each security's contribution to the market portfolio risk. Portfolios with the same Beta should have same expected return. We can construct portfolios with any beta using T

10- 1
Ch 9: Risk and cost of capital
Company and Project Costs of Capital Measuring the Cost of Equity Setting Discount Rates w/o Beta Certainty Equivalents Discount Rates for International Projects
Company Cost of Capital
It is the appropriate discount

Ch11: Investment, strategy and economic rents
12- 1
Investment Strategy
A manager who has learned about DCF is like a baby with a hammer.
We should not focus on the arithmetic of DCF and ignore the forecasts that are basis of every investment decision.

Ch 13: Financing decisions and market efficiency
So far our focus has been on the investment decision. Now we turn to the problem of paying for these investments.
Should it issue more stock or should it borrow? Should it borrow short term or long term S

Ch14 An overview of corporate financing
Patterns of Corporate Financing Common Stock Debt Financial Markets and Institutions
15- 1
Patterns of Corporate Financing
Firms may raise funds from external sources or plow back profits rather than distribute th