Corporate Finance
Carroll School of Management, Boston College
Prof. Vyacheslav Fos
Spring 2016
INTERCO
Due date: 8am (EST), February 15, 2016
Submission method: case write-ups (Word and Excel files) must be submitted by
email to fos@bc.edu.
Case Question
Problem 9-4
rps =
50(0.06)/50(1-0.05)
6.32%
Therefore, the component cost of preferred stock is 6.32%.
Problem 9-5
D 1 / P0 + g
re =
3/36 + 0.05
13.33%
Therefore, the cost of new common equity is 13.33%
Problem 9-6
rs = rRF + (RPM)b
= 0.06+0.055*0.8
10.40
Part 1 Input Dada
Building /cost Capital Cost
Equipment Cost
Net operatin WC/Sales
First Year Sales in Units
Growth Rate in units sold
sales price per unit
Variable cost per unit
fixed costs
Building CCA Rate
Equipment CCA Rate
12,000
8,000
10.0%
20,000
0
BUSINESS 4039
WHY ARE FINANCIAL INTERMEDIARIES SPECIAL
LAST CLASS
Course Outline
D2L site
Groups Formed
Term Paper
Need to credit sources of information (with a footnote)
whenever you use a thought, idea or fact that is not your
own (or common knowledge)
Offshore Financial
Centers
Business 4039
Key Questions You need to Be
able to answer
What is an offshore financial center?
List some common offshore financial centers by region of the world:
What are some common reasons why countries seek to develop
thems
Chapter 2
Deposit-Taking Institutions
Business 4039
Problem Solutions
Question 2 - 1
What are the differences between Schedule I,
Schedule II, and Schedule III banks?
Schedule I banks is the term applied to domestic Canadian
banks who are widely-held and
Chapter 5 Mathematics of
Diversification
Business 4179
Key Chapter Concepts
The expected return of a linear combination
is a weighted average of the component
expected returns.
The variance of a linear combination is not a
simple weighted average of the c
Chapter 9 Picking the
Equity Players
Business 4179
Key Terms
Blue chip
Cash dividend
Cyclical stock
Defensive stock
Dividend discount model
Dividend reinvestment plan
Forward split
Fundamental analyst
Growth investor
Growth stock
Income stock
Multi-stage
Portfolio Construction,
Management & Protection
Robert Strong
Chapter 6 Why Diversification is a Good Idea
Why Diversification is a Good
Idea
Chapter 6
Business 4179
Lecture Agenda
Learning Objectives
Important Terms
Measurement of Returns
Measuring Risk
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
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 5
INTRODUCTION TO VALUATION: THE TIME VALUE
OF MONEY
Learning Objectives
LO1
LO2
LO3
LO4
How to determine the future value of an investment made today.
How to determine the present value of cash to be received at a future date.
How to find the ret
CHAPTER 4
LONG-TERM FINANCIAL PLANNING
AND GROWTH
Learning Objectives
LO1
LO2
LO3
LO4
LO5
LO6
The objectives and goals of financial planning.
How to compute the external financing needed to fund a firms growth.
How to apply the percentage sales method.
Th
CHAPTER 8
STOCK VALUATION
Learning Objectives
LO1 How stock prices depend on future dividends and dividend growth.
LO2 The characteristics of common and preferred stocks.
LO3 The different ways corporate directors are elected to office.
LO4:The stock mark
CHAPTER 7
INTEREST RATES AND BOND VALUATION
Learning Objectives
LO1 Important bond features and types of bonds.
LO2 Bond values and yields and why they fluctuate.
LO3 Bond ratings and what they mean.
LO4 How are bond prices quoted.
LO5 The impact of infla
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
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
CHAPTER 6
DISCOUNTED CASH FLOW VALUATION
Learning Objectives
LO1
LO2
LO3
LO4
How to determine the future and present value of investments with multiple cash flows.
How loan payments are calculated and how to find the interest rate on a loan.
How loans are
CHAPTER 9
NET PRESENT VALUE AND OTHER INVESTMENT
CRITERIA
Learning Objectives
LO1
LO2
LO3
LO4
LO5
LO6
LO7
How to compute the net present value and why it is the best decision criterion.
The payback rule and some of its shortcomings.
The discounted payback
CHAPTER 3
WORKING WITH FINANCIAL
STATEMENTS
Learning Objectives
LO1
LO2
LO3
LO4
LO5
The sources and uses of a firms cash flows.
How to standardize financial statements for comparison purposes.
How to compute and, more importantly, interpret some common ra