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A Tutorial on the Discounted Cash Flow
Model for Valuation of Companies
L. Peter Jennergren
Eighth revision, September 29, 2008
SSE/EFI Working Paper Series in Business Administration No. 1998:1
All steps of the discounted cash ow model are outli
FNCE 101 Finance
STUDY GUIDE FOR FINAL EXAM
Chapter 15: The Cost of Capital
Describe sources of capital
Why Cost of Capital is important?
Calculate Weighted Average Cost of Capital (WACC)
Before tax versus after tax cost of capital
Historical versus new (
The Lee Kong Chian School of Business
Academic Year 2011 / 12 Term 1
FNCE 101 Finance
: Lee Yen Teik
: Adjunct Faculty of Finance
: LKCSB Level 4, Room 4123
: Tuesday (1600-1800) & Wednesday (1
C apitalS tructure,D ividend P olicy,a nd W orking C apital M anagement
management rather than outside directors, this might result in the firm's retaining
more eamings than can be justified from the stockholders' point of view. Discuss
I nvestingi n L ong-Term ssets: apitalB udgeting
How should the capital structure weights used to calculate the WACC be determined?
S uppose a f irm e stimates i ts W ACC t o b e 1 0%. S hould t he W ACC b e u sed t o e valuate a ll o
R isk nd R ates f R eturn
has an expectedreturn
Is it possibleto construct a portfolio of real-world stocksthat
equal to the risk-free rate?
of expectedretums of
Stock A has an expectedretum of 7o/o, standatd deviatio
C hapter 1 0
S tocksa nd T heir V aluation
will then retain only 25"h of its earnings from that point forward. Retained earnings will be invested in projects with an expected return of 25% Per year. If Aspial's
equity c ost o f c apital i s 1 1o/", hen
S pecialTopicsn F inancial anagement
How can swaps be used to reduce the risks associatedwith debt contracts?
Give two reasonsstockholders might be indifferent between owning the stock of a
firm with volatile cashflows and the stock
A portfolio has 25% invested in Security C and 75%
invested in Security D. Security C has an expected return
of 8% and a standard deviation of 0.06. Security D has an
expected return of 10% and a standard deviation of 0.1.
Derivatives and Risk Management
a. Exercise value = $5.00.
b. Premium value = $2.00.
V = $27.
d1 = 0.32660; d2 = 0.08165; N(d1) = 0.62795;
N(d2) = 0.53252; V = ?
Using the Black-Scholes Option Pricing Model, you calcula
Capital Structure and Leverage
QBE = 500,000 units.
Because Jacksons stock price is maximized at a 30% debt ratio, the firms optimal capital structure
is 30% debt and 70% equity.
a. Expected EPS for Firm C:
E(EPSC) = $5.10.
The Basics of Capital Budgeting
Financial calculator solution: Input CF0 = -52125, CF1-8 = 12000, I/YR = 12, and then solve for NPV =
Financial calculator solution: Input CF0 = -52125, CF1-8 = 12000, and then solve for IRR
Chapter 11 Answers
Projects A, B, C, D, and E would be accepted since each projects return
is greater t
Chapter 7 Answers
=11.40%; = 26.69%; CV =2.34
a) b = 1
b) r =13%.
If Stock Y is less highly correlated with the market than