Ch.9 Capital Budgeting Lets assume two projects A and B. Initial outlay 1st year 2nd year 3rd year 4th year Project A -2,000 2000 3000 1000 1000 Project B - 2,000 1000 2000 3000 4000
1. Calculate the payback periods of each projects
2. Calculate discounte
Finance 314 Corporate Financial Management Fall 2008 Department of Accounting & Finance California State University, San Bernardino Professor: Dr. Taewon Yang Email: taewon@csusb.edu Tel: 909-537-5784 Office: JB 427 Class time & location: Office hours: 10
1-2) Historical Return and Variance Calculation
Stock A and B have annual returns during 2000 to 2002.
Year 2000 2001 2002
A -0.2 0.2 0.6
B -0.2 0.3 0.4
1) what is the arithmetic and geometric average historical annual returns of each stock?
2) what is th
Ch11. Project Analysis and Evaluation
1) Scenario and other what-if analyses
Actual cash flows and projected cash flows. Forecasting risks. (1) Scenario analysis. In order to handle the possible errors in estimating cash flows, re-estimate cash flows or
Ch9. The Basic of Capital Budgeting
Goal: To understand the advantage and disadvantage in different investment analyzing tools Tool: - Net Present Value (NPV) - Payback period - Discounted payback period - Internal Rate of Return (IRR) - Modified Interna
2.
a.
The shares outstanding increases by 10 percent, so: New shares outstanding = 20,000(1.10) = 22,000 New shares issued = 2,000 Since the par value of the new shares is $1, the capital surplus per share is $24. The total capital surplus is therefore: C
1.
a.
A table outlining the income statement for the three possible states of the economy is shown below. The EPS is the net income divided by the 4,000 shares outstanding. The last row shows the percentage change in EPS the company will experience in a r
1.
With the information given, we can find the cost of equity using the dividend growth model. Using this model, the cost of equity is: RE = [$2.60(1.06)/$60] + .06 = .1059 or 10.59%
2.
Here we have information to calculate the cost of equity using the CA
1.
a.
The value of the call is the stock price minus the present value of the exercise price, so: C0 = $55 [$45/1.062] = $12.63 The intrinsic value is the amount by which the stock price exceeds the exercise price of the call, so the intrinsic value is $1
1.
The portfolio weight of an asset is total investment in that a sset divided by the total portfolio value. First, we will find the portfolio value, which is: Total value = 100($40) + 130($22) = $6,860 The portfolio weight for each stock is: WeightA = 10
Ch 18 Dividends and Dividend Policy
1. Cash dividends and payment 1) Def: a payment made out of a firms earnings to shareholders (owners) 2) Types Regular cash dividends Extra cash dividends Special dividends Liquidating dividends
3) Dividend Payment: A
Ch 17 Financial Leverage and Capital Structure
1. Capital structure question
Financial managers want to set up a capital structure that will maximize the firm and stock value. Changing capital structure influences the cost of capital. Basing on discounte
Ch 15 Cost of Capital
In this chapter, the important fact to note is that the return an investor in a security receives is the cost of that security to the firm that issued it. 1) Cost of Equity (1) Dividend growth model D
1 P= 0 ( RE ) g
RE = 1 / P + D
CH 14. Options and Corporate Finance
1. Options: Basic A contract that gives its owner the right to buy or sell some asset at a fixed price on or before a given date. It is not the obligation for holders but obligation to issuers. The action of buying or
Ch 13. Return, Risk and Security Market Line (SML)
1. Expected Returns and Variance
Until now, we mainly concerned historical returns and risks. However, in this chapter, we will cover returns and variance in future. Without estimating returns and varian
Ch 12. Capital Market History
1) Return Measures
In this chapter, we want to understand the relationship between returns and risks. 1) How to measure returns? (1) Total dollar return = dividend income + capital gain (or loss) (2) Percentage return (Ri) =
1.
The return of any asset is the increase in price, plus any dividends or cash flows, all divided by the initial price. The return of this stock is: R = [($97 84) + 2.05] / $84 = .1792 or 17.92%
7.
The average return is the sum of the returns, divided by
1. a. The total variable cost per unit is the sum of the two variable costs, so: Total variable costs per unit = $4.68 + 2.27 Total variable costs per unit = $6.95 b. The total costs include all variable costs and fixed costs. We need to make sure we are
10. Making Capital Investment Decisions
1. Project cash flows
1) Incremental cash flows associated with the project: cash flows consist of any or all changes in the firms future cash flows that are a direct consequence of taking the project. Stand-alone p
1. The $5 million acquisition cost of the land six years ago is a sunk cost. The $5.3 million current aftertax value of the land is an opportunity cost if the land is used rather than sold off. The $11.6 million cash outlay and $425,000 grading expenses a
1. To calculate the payback period, we need to find the time that the project has recovered its initial investment. After two years, the project has created: $1,500 + 2,600 = $4,100 in cash flows. The project still needs to create another: $4,800 4,100 =