HOW DO CFOS MAKE
CAPITAL BUDGETING
AND CAPITAL STRUCTURE
DECISIONS?
by John Graham and
Campbell Harvey,
Duke University*
e recently conducted a comprehensive survey that analyzed the
current practice of corporate finance, with particular focus on the
area
Note
The following memorization cards are a compilation of
various topics you will need to know for the CFP Exam.
The cards cover the calculator, economics, and
investment topics.
You will want to use this format to add topics you need
to memorize for the
Exam 2 Review
February 24, 2016
Tips!
Reset your calculator after each problem!
Shift Clear and take out of Begin mode
Double check Payments/Year
Shift clear will tell you what you are set at
Perpetuities Know formula
PMT/I
Continuous Compounding K
Ch. 7:
Valuation
and
Characteristics
of
Characteristics of Bonds
Bonds pay fixed coupon (interest)
payments at fixed intervals (usually
every 6 months) and pay the par
value at maturity.
Characteristics of Bonds
Bonds pay fixed coupon (interest)
payment
FIN 3403 Module 7
Online Module Title: Cost of Capital
Primary Delivery Method: Web search of finance.yahoo.com
Primary Deliverable: WebCT quiz
Available Date: 10/28/2013
Deliverable Due Date: Webcourses Quiz by 11/5/2013 at 11:55 pm
Course:
Book:
Chapter
FIN 3403 Module 4
Online Module Title: Bond Characteristics
Primary Delivery Method: Web search
Primary Deliverable: Quiz
Available Date: 9/25/2013
Deliverable Due Date: Webcourses Quiz by 10/1/2013 at 11:55 pm
Course:
Book:
Chapter/Topic:
LOSs:
FIN 3403:
FV n = (PV) e
PV =
n
=
=
(k
i =1
i
in
PP
i
k )2
n 1
n
( k - k )
2
i
k j = k rf + j ( k m - k rf )
P( k i )
i=1
n
$ It
$M
+
t
(1 + k b )n
t = 1 (1 + k b )
Vb=
m
i
EAR = 1 + 1
m
V ps =
V cs =
D
k ps
D1
k cs - g
k ps =
D
P0
D1 + g
k cs =
P0
n
NPV =
ACF
FV n = (PV) e
PV =
n
=
=
(k
i =1
i
in
PP
i
k )2
n 1
n
( k - k )
2
i
k j = k rf + j ( k m - k rf )
P( k i )
i=1
n
$ It
$M
+
t
(1 + k b )n
t = 1 (1 + k b )
Vb=
m
i
EAR = 1 + 1
m
V ps =
V cs =
D
k ps
D1
k cs - g
k ps =
D
P0
D1 + g
k cs =
P0
n
NPV =
ACF
Practice Questions - Chapters 1 - 4
1.
The American Stock Exchange is an example of:
a) the over-the-counter market.
b) the primary market.
c) the secondary market.
2.
d) a and b.
e) a and c.
Which of the of the term structure theories would support the a
Practice Questions - Chapters 5 and 6
1.
How much money do you need to place into a bank account which pays a 6% annual rate in order
to have $500 at the end of 7 years?
a) $332.53
b) $751.82
c) $463.77
2.
How much money would you need to place in an acco
14.
A corporate bond has a 13% coupon rate, pays interest semiannually, and matures in 15
years. The bond's par value is $1,000. If the investors' annual required rate of return is
10%, the intrinsic value of the bond should be:
a) $1,830
b) $1,220
15.
e)
Practice Questions - Chapters 12 and 13
The following information is needed for the next two problems:
Sales
Variable costs
Fixed costs
1.
e) 2.43%
c) 8.17%
d) 19.83%
e) 7.0%
d) $1,160,000
e) $910,975
For the previous problem, if you are able to set fixed
Practice Questions - Chapters 9, 10, and 11
Consider the following cash flows for two mutually exclusive capital investment projects. The required
rate of return is 12%. Use this information for the next 5 questions.
Year
0
1
2
3
4
5
6
1.
What is the IRR
FIN 3403 Modules 8 and 9
Online Module Title: cost of capital, capital budgeting, and capital structure
Primary Delivery Method: Document (Article)
Primary Deliverable: Quizzes
Available Date: 11/1/2013
Deliverable Due Date: Webcourses Quizzes by 11/19/20
FIN 3403 TUTORING
Through the UCF Student Academic
Resource Center (SARC)
Tutoring with Karolina:
Tuesdays 1:30-3:30 pm
Wednesdays 12:30-2:30 pm
Thursdays 2:00-4:00 pm
Tutoring with Louis:
Fridays 12:30-2:30 pm
Where?
VARC at the UCF Arena (next to Jimmy
Ch. 5 - The Time Value of
Money - part 2
Example
Cash flows from an investment are
expected to be $40,000 per year at the
end of years 4, 5, 6, 7, and 8. If you
require a 20% rate of return, what is
the PV of these cash flows?
Example
Cash flows from an
Risk and Return
Required
rate of
return
=
Risk-free
rate of
return
market
risk
+
Risk
premium
companyunique risk
can be diversified
away
The CAPM equation:
kj = krf + j (km - krf )
where:
kj = the required return on
security j,
krf = the risk-free rate of
Welcome to Finance 3403
Welcome
Finance 3403
Finance
The most important, most relevant course in
The
your business core.
your
This course is designed for everyone, not just
This
for finance majors!
for
This course is not that difficult, but it requires a
Preparing for the
Final Exam
2007 Robert Sweo
Studying For Final
Pick out the most important ideas from each
module (following slides will help)
Dont try to memorize all country data. Get a
good feel for countries. Memorize most
critical features. Cluste
Equivalent Annual Annuity (EAA)
The Model: The EAA method is an alternative to the Replacement Chain method, for use in
evaluating projects with unequal lives. The EAA model derives a dollar value of the project that
represents the same financial value of
Outsourcing
When outside facilities are utilized to allow a company to become more profitable,
outsourcing occurs, especially when the resources within the company is not available to
undertake a new project; and the company does not want to hire a new fu