CHAPTER 4
Analysis of Financial
Statements
Ratio Analysis
Du Pont system
Effects of improving ratios
Limitations of ratio analysis
Qualitative factors
4-1
Balance Sheet: Assets
2006E
Cash
85,632
A/R
878,000
Inventories 1,716,480
Total Current Assets
2,68
Practice Test for MGMT 25 Test #3 (Ch. 10-13, 15)
1. D1 = $2, P0 = $40, and g = 5%. What is the cost of equity (retained earnings)
using the DCF approach?
2. Bond with 20 years to maturity, currently sells for $988 with a par value of
$1,000, coupon rate
i
.
Ken Williams Ventures' recently issued bonds that mature in 15
years. They have a par value of $1,000 and an annual coupon of
6%.
If the current market interest rate is 8%, at what price
should the bonds sell?
a.
b.
c.
d.
e.
ii
.
Highfield Inc's bonds
Study Guide for Test #2 (Chapters 6-9)
You should know the following:
1. Know how to solve for any of the elements in the interest rate formula:
a. r = r* + IP + DRP + LP + MRP
b. (r* + IP) also known as rRF
2. Know that Treasury securities do not have DR
#1 D. Rose Co. issued a $1,000 par value bond, with a coupon rate of 10%. There
are currently 8 years until the bond matures. Interest is paid semi-annually. The
current price of the bonds is $890. The bonds are callable in 4 years and have a call
price o
#1 D. Rose Co. issued a $1,000 par value bond, with a coupon rate of 10%. There
are currently 8 years until the bond matures. Interest is paid semi-annually. The
current price of the bonds is $890. The bonds are callable in 4 years and have a call
price o
#1 D. Rose Co. issued a $1,000 par value bond, with a coupon rate of 10%. There
are currently 8 years until the bond matures. Interest is paid annually. The current
price of the bonds is $1,100. The bonds are callable in 4 years and have a call price
of $
#1 D. Rose Co. issued a $1,000 par value bond, with a coupon rate of 10%. There
are currently 8 years until the bond matures. Interest is paid annually. The current
price of the bonds is $1,100. The bonds are callable in 4 years and have a call price
of $
Study Suggestions for Test #1 (Chapters 1-5):
Note: Might be a good idea to reference Appendix C to your text for ch. 4. It has a
nice synopsis of all formulas used in the chapter.
1. Know the definitions of Financial Management, Capital Markets, and
Inve
1.
Which of the following statements is CORRECT?
a. One disadvantage of operating as a corporation rather than as a
partnership is that corporate shareholders are exposed to more
personal liability than partners.
b. Relative to sole proprietorships, corpo
CHAPTER 6
Interest Rates
Determinants of interest
rates
The term structure and
yield curves
Investing overseas
6-1
What four factors affect the
level of interest rates?
Production
opportunities
Time preferences
for consumption
Risk
Expected inflation
6-2
CHAPTER 5
Time Value of Money
Future value
Present value
Annuities
Rates of return
Amortization
2-1
Time Value of Money
Central Rule: A dollar today is
worth more than a dollar tomorrow.
Why?
Simple vs. Compound Interest
Compounding periods
5-2
Future Val
Study Suggestions for Test #3
(Chapters 10-13, 15)
1. Know how to calculate the after tax cost of debt rd(1-T)
2. Know how to calculate the cost of equity (retained earnings), rs, using:
a. CAPM: rs = rRF + (RPM)b
b. DCF : rs = D1/P0 + g
3. Know how to ca