Nuts and Bolts Retail
Project Wired
Carolyn Tomasso, the CFO of Nuts and Bolts Inc. pondered the strategic rationale of several
capital investment proposals submitted by various regional executives. Her recommendations to
the CEO are due tomorrow and she

Practice Midterm Exam Problems
Capital Budgeting Problems
1. Assume ConstraintTronics is considering 7 independent projects, which have the following
net present values and employee requirements:
Project
A
B
C
D
E
F
G
Total
NPV
($millions)
17.7
22.7
8.1
1

Midterm Exam Review Questions
Capital Budgeting Methods
1. The length of time required for a project's discounted cash flows to equal the initial cost of the
project is called the:
A. net present value.
B. internal rate of return.
C. payback period.
D. di

1
Sources of Long-Term Capital
Common Stock
Corporate Long-Term Debt: The Basics
Preferred Stock
Patterns of Financing
Summary and Conclusions
2
Common Stock
Authorized versus Issued Common Stock
Capital Surplus
Retained Earnings
Market Value, Book Value,

Capital Structure - Limits to the Use of Debt - Articles
AutoNation Plans Buyback of Stock, Sale of Bonds
By JOHN D. STOLL
March 8, 2006; Page C5
AutoNation Inc. said it will buy back as much as 19% of its common stock and pay
for the shares partly by sel

Capital Structure - Limits to the Use of Debt - Handout
Conflicts between S/H and B/H Agency Costs of Debt
Stockholders may maximize their wealth at the expense of bondholders. Here are some examples:
o Increasing dividends significantly: When firms pay c

1
Capital Structure - Basic Concepts
The Capital-Structure Question and The Pie Theory
Maximizing Firm Value versus Maximizing Stockholder
Interests
Modigliani and Miller: Proposition I
Modigliani and Miller: Proposition II
Taxes
Summary and Conclusions
2

1
Costs of Financial Distress
Bankruptcy risk versus bankruptcy cost.
The possibility of bankruptcy has a negative effect
on the value of the firm.
However, it is not the risk of bankruptcy itself that
lowers value.
Rather, it is the costs associated

Capital Structure - Basic Concepts - Handout
Modigliani and Miller Proposition I (No Taxes)
When there are no taxes and we ignore the costs of financial distress and bankruptcy, the market value of a
company does not depend on its capital structure (pleas

Midterm Exam Review Questions & Solutions
Capital Budgeting Methods
1. The length of time required for a project's discounted cash flows to equal the initial cost of the
project is called the:
A. net present value.
B. internal rate of return.
C. payback p

Corporate Financial Management
SMG FE 449
Boston University
School of Management
Summer II 2014
Instructor: Rob James
E-Mail: jamesr@bu.edu
Class Meetings:
Section B1: Mondays and Wednesdays 1:30 p.m. - 5:00 p.m.; SMG 222
Office Hours:
Before or after cla

Capital Budgeting Methods - Handout
Four Basic Capital Budgeting Steps:
1. Estimate the projects expected cash flows.
2. Estimate the riskiness of the projects cash flows.
3. Determine an appropriate discount rate (WACC).
4. Apply a capital budgeting meth

1
Capital Budgeting Methods
The Net Present Value Rule
The Payback Period Rule
The Discounted Payback Period Rule
The Average Accounting Return
The Internal Rate of Return
Problems with the IRR Approach
The Modified Internal Rate of Return
The Profitabili

Capital Budgeting Methods - Practice Problems and Solutions
1. Denver Corporation is evaluating two mutually exclusive projects with the following cash flows:
Year
0
1
2
3
4
Project X
-$100,000
$50,000
$40,000
$30,000
$10,000
Project Z
-$100,000
$10,000
$

Capital Budgeting Methods - Calculator Inputs
Net Present Value (NPV) finds the present value of all the cash inflows and outflows and then
sums them.
Example:
Denver Corporation is evaluating a project with the following cash flows:
Year Project Fun
0
-$

Making Capital Budgeting Decisions - Handout
Estimating Cash Flows General Rules
o
o
o
o
o
Only incremental cash flows are relevant.
Ignore sunk costs.
Remember the impact of the project on net working capital.
Account for opportunity costs. The opportuni

Sources of Long-Term Capital - Handout
Debt Securities
o Tax deductibility of interest payments
o Debt is not an ownership interest in the firm.
o Firm is in financial distress if it is unable to service its debt.
o Restrictive (Protective) Covenants - pl

Sources of Long-Term Capital - Proxy Fight Articles
Walter Hewlett sets stage for proxy fight
By Ian Fried
http:/news.com.com/Walter+Hewlett+sets+stage+for+proxy+fight/2100-1001_3-275949.html
Story last modified Fri Nov 16 09:35:00 PST 2001
Walter Hewlett

Google chief's $334 million payday: Update
Posted by Colin Barr
January 20, 2011 4:58 pm
Like a harried regulator stepping into the revolving door to Wall Street, Google CEO Eric Schmidt
will spend the next year restocking his bank account.
Google (GOOG)

Classwork
Real options Chapter 22v
1) Which of the following statements is FALSE?
A) If there is a lot of uncertainty, the benefit of waiting is diminished.
B) In the real option context, the dividends correspond to any value from the investment that we
g

Boston University Study Abroad
Corporate Financial Management
SMG FE 449 (Elective A)
FALL 2016
Midterm exam A
Name, Surname
Evaluation
Please provide the answers in the table:
1
2
3
4
5
B
A
11
12
13
14
15
C
C
C
C
21
22
23
D
A
6
7
8
9
10
D
C
A
B
C
16
17
1

Class activity: Risk and return
1) Suppose that you want to use the 10 year historical average return on the Index to forecast the
expected future return on the Index. The 95% confidence interval for your estimate of the expect
return is closest to:
A) -9

Investment decision rules
Use the following information to answer the question(s) below.
Sarah Palin reportedly was paid a $11 million advance to write her book Going Rogue. The book
took one year to write. In the time she spent writing, Palin could have

Classwork activity: Estimating FCF
Use the information for the question(s) below.
Food For Less (FFL), a grocery store, is considering offering one hour photo developing in their
store. The firm expects that sales from the new one hour machine will be $15

Equations for Midterm exam:
Profitability Index
Value Created
NPV
Resource Consumed
Resource Consumed
Unlevered Net Income EBIT (1 c )
(Revenues Costs Depreciation) (1 c )
Net Working Capital Current Assets Current Liabilities
Cash Inventory Receivable

Making Capital Budgeting Decisions - In-Class Problem
Suppose you own a Try-N-Save and you are considering adding film development. You have the
opportunity to purchase the developing equipment for a cost of $112,000. You will also have to pay
shipping an

Economist.com
1 of 2
http:/www.economist.com/PrinterFriendly.cfm?story_id=5223124
Innovative securities
Chameleon bonds
Nov 24th 2005 | NEW YORK
From The Economist print edition
Wall Street's next big thing
CORPORATE finance is like being caught between t

Decision Trees
1
What are some examples
of
real options?
Investment timing (defer,
delay) options
Abandonment/shutdown
options
Growth/expansion options
2
Illustrating an investment
timing option
Assume we have a project called Project L. Its
initial outfl

Real Option Practice Problems and Solutions
1. A manager is considering a project that has a 50% chance of having a $1.2 million net present value and a 50% chance of having a $0 net
present value. The manager is considering conducting a focus group, whic

Boston University Study Abroad
Corporate Financial Management
SMG FE 449 (Elective A)
Fall 2016
Homework 1
Name, Surname
Evaluation
Please provide the answers in the table:
1
A
11
D
21
B
2
A
12
A
22
C
3
A
13
A
23
C
4
D
14
B
24
D
5
A
15
B
25
A
6
B
16
C
26