1
LESSON 4
PROBLEMS
PROBLEM (1) EARNINGS VARIABILITY/BUSINESS RISK
Hard working Construction (HWC) builds doors for homes in western Canada. Sales vary
with the general business cycle. The expected sales outcomes are presented as follows.
Probability
Sale

1
INSTRUCTOR COPY
*
LESSON 3
PROBLEMS
PROBLEM (1) EFFECTIVE ANNUAL RATE
A bank will lend you $3,000 for 50 days at a cost of $45 interest. What is the face value of the
loan? What is the effective annual rate?
FACE VALUE OF THE LOAN=$3,000
EAR=(1+Interest

Advanced Finance
Ch.02 Uncertainty (class)
Problem
(2002-06) An investor is considering purchasing common shares of two companies that manufacture
outdoor leisure items. RAIN Inc. produces lawn furniture, umbrella tarpaulins, and canvas awnings. SHINE
I

1
LESSON 2
1
PROBLEMS
INSTRUCTOR COPY
TOTAL RISK RETURN MODEL
John Smith is thinking of investing in two securities, X and Y. After some
analysis of these two prospects, he prepared the following exhibit. Each of
these two securities has the same initial

Advanced Finance
Ch.04 Capital structure (class)
Leverage
1. (2007-06) ABC Corp. increased its sales by 15% in the past year, but its earnings before interest and
taxes (EBIT) increased by only 5%. What is its degree of operating leverage?
a. 0.33
b. 0.

Fn2
Ch.01 Basic capital budgeting II (class)
Problems
Q3 (2003-06)
RBB Inc. produces lawn tractors, primarily for the residential market. The firm is evaluating an
investment in new production machinery. The new machine would allow RBB to manufacture l

LESSON 5
PROBLEMS
PROBLEM (1) Dividend Policy
You are the Chief Financial Officer (CFO) of Rexall Drug Company (RDC), and are reviewing
RDCs dividend policy. You have prepared a forecast of RDCs earnings after interest and
taxes and its investments needs

1
LESSON 5
PROBLEMS
PROBLEM (1) Dividend Policy
You are the Chief Financial Officer (CFO) of Rexall Drug Company (RDC), and are reviewing
RDCs dividend policy. You have prepared a forecast of RDCs earnings after interest and
taxes and its investments need

1
LESSON 4
PROBLEMS
PROBLEM (1) EARNINGS VARIABILITY/BUSINESS RISK
Hard working Construction (HWC) builds doors for homes in western Canada. Sales vary
with the general business cycle. The expected sales outcomes are presented as follows.
Probability
Sale

LESSON 2
1
PROBLEMS
TOTAL RISK RETURN MODEL
John Smith is thinking of investing in two securities, X and Y. After some
analysis of these two prospects, he prepared the following exhibit. Each of
these two securities has the same initial outlay $100,000.
E

1
LESSON 1
ASSIGNMENT
QUESTION(1) Capital Budgeting Methods
John Smith is an accountant of a small family owned business, which builds consumer
products. John has been asked by the owner to evaluate a number of new proposals. The
cost of capital is 10%. A

Advanced Finance
Ch.03 LT funds (class)
Term loans
Ex. 01.
Term loan (1-year)
Borrow $100 as a term loan for 1 year with stated interest 10%. What are the NOM & EFF rates?
Ex. 02.
Term loan with CB (1-year)
Borrow $100 as a term loan for 1 year with sta

Fn2
Ch.01 Basic capital budgeting I (class)
Examples
Consider two independent projects, A and B, with cash flows presented in Table 1. Assume that the
cost of capital, i.e. the required rate of return is 10%. Note the Year 0 cash flow represents the in

LESSON 1
ASSIGNMENT
QUESTION(1)
John Smith is an accountant of a small family owned business, which builds consumer
products. John has been asked by the owner to evaluate a number of new proposals. The
cost of capital is 10%. Assume that the projects are

LESSON 3
PROBLEMS
PROBLEM (1) EFFECTIVE ANNUAL RATE
A bank will lend you $3,000 for 50 days at a cost of $45 interest. What is the face value of the
loan? What is the effective annual rate?
PROBLEM (2) EFFECTIVE ANNUAL RATE
M. Exciting is going to pay 12%

Advanced Finance
Ch.05 Dividends (class)
Question 2
DEF Corp. is very successful in the high-tech industry. In fact, it was a pioneer in this industry. It
invented the first product and has been the industry standard-setter since. Over the past 20 years