How would you handle calculating the cost of capital if a firm were planning two
issue two different classes of common stock?
As the two different classes of common stock are likely to have different component
1. List and describe the purpose of each part of a time line with an initial cash inflow and
a future cash outflow. Which cash flows should be negative and which positive? Why?
The cash flow timeline is a visual depiction of inflows and outf
Chapter 2, Solutions
Cornett, Adair, and Nofsinger
CHAPTER 2 REVIEWING FINANCIAL STATEMENTS
1. List and describe the four major financial statements.
The four basic financial statements are:
1. The balance sheet reports a firms assets, liabi
CHAPTER 3 ANALYZING FINANCIAL STATEMENTS
1. Classify each of the following ratios according to a ratio category (liquidity ratio, asset
management ratio, debt management ratio, profitability ratio, or market value ratio).
a. Current rati
ISSUING CAPITAL AND THE INVESTMENT BANKING PROCESS
1. Describe the various sources of capital funding available to new and small firms.
Most new and small firms finance their business assets by borrowing funds from private
or public sources.
EMBA 710 7 Sample Test One
1. Assume you start investing for your retirement by opening a retirement account and
depositing money into a mutual fund on a yearly basis. These deposits consist of $20,000
per year and are in the form of a 35-year annuity due
The Cost of Capital
(def) - Cost of obtaining money to fund asset purchase - use as estimate of r (discount rate)
If we can earn more than the cost of capital (r) from a project than company should undertake.
Accept Project if:
actual return > c
1. Consider an asset that provides the same return no matter what economic state occurs.
What would be the standard deviation (or risk) of this asset? Explain.
Since this asset has no variation in its return, it will have no standard deviati
Capital Structure Decisions
Capital Structure (definitions)
MM without Taxes (1958)
MM with Taxes (1963)
Capital Structure Theory
Capital Structure (def) - The structure of
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Cox Communications, Inc. is building a new facility in Las Vegas and is nancing this
construction project with a loan in the amount of $20,000,000. This loan has a 15 year
maturity, calls for monthly payments, a
The Basics of Capital Budgeting: Evaluating Cash Flows
(1a) Discounted Payback Period
Net Present Value (NPV)
(2a) Profitability Index (PI)
Internal Rate of Return (IRR)
(3a) Modified Internal Rate of Return (MIRR)