Chapter 13-2: Capital Structure with Taxes and Bankruptcy Costs
Understand the impact of taxes and bankruptcy on capital structure choice
Corporate Taxes and Capital Structure
Interest is deductible from corporate taxes, dividends are not deductible Exam
Chapter 13-1: Capital Structure
Understand the effect of financial leverage on firm value and cost of capital
The Capital-Structure Question
The value of a firm is defined to be the sum of the value of the firms debt and the firms equity. V=D+E The Capita
Chapter 12: Cost of Capital
Know how to determine a firms cost of equity capital Know how to determine a firms overall cost of capital
Cost of Capital
Cost of capital and required return: The return to an investor is the same as the cost to the company W
Chapter 11 Risk and Return
Goals Understand the impact of diversification Understand the systematic risk principle Understand SML and CAPM
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Expected Returns
Expected returns are based on the probabilities of possible outcomes In this context, expected
Chapter 9 Making Investment Decisions
How to determine the relevant cash flows How to analyze a projects projected cash flows
Relevant Cash Flows
Always use cash flows rather than accounting figures in NPV calculations Always use incremental cash flows.
Chapter 8 Net Present Value and Other Investment Criteria
Understand the net present value rule and why it is the best decision criteria Understand other investment criteria and their drawbacks
Net Present Value
Definition: Difference between the market
Chapter 7 Valuing Stocks
Issues: Computing stock prices using the dividend growth model Features of common and preferred stocks
Cash Flows to Stockholders
If you buy a share of stock, you can receive cash in two ways The company pays dividends You sell y
Chapter 6 Bond Valuation
Issues: How to Value Bond Interest rate risk and Default Risk Effects of inflation on interest rates
Bond Definitions
Par value (face value): The principal amount of a bond that is repaid at the end of the term Coupon rate: The a
Chapter 5 Discounted Cash Flow Valuation
Issues: Valuation of Multiple Cash Flows Valuation of Level Cash Flows Understanding how interest rates are quoted
Future Value of Multiple Cash Flows
Example 1: suppose you invest $500 in a mutual fund today and
Chapter 4 Time value of Money
Future Values
Future value: the amount of money an investment will grow to over some period of time at a given interest rate Suppose you invest $1,000 for one year at 10% per year. What is the future value in one year? o Int
Chapter 3 Financial Statement Analysis
Issues: How to compute and interpret important financial ratios Problems and pitfalls in financial statement analysis
Ratio Analysis
Ratios allow for better comparison through time or between companies As we look at
Chapter 2 Financial Statements and Cash Flow
Issues: Book value vs. market value Accounting income vs. cash flow How to determine a firms cash flow from its financial statements
The Balance Sheet
A snapshot of firms assets and liabilities at a specific p
Chapter 1 Introduction to Financial Management
Issues: What is financial management? What is the goal of financial management?
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Basic Areas of Finance
Corporate finance Investments: value of financial assets, risk versus return, and asset allocation Fin