Chapter 2 Problems
#1. Given below is financial information for Sullivans Slippery Slides Incorporated.
Sullivans Incorporated
Income Statement
For the Years Ended December 31, 2011 and 2010.
2011
2010
Sales
$3,550,000
$3,340,000
Cost of Goods Sold
1,750,
FIN 300 HW Yuzhe Li
1.
a. Expect return of A = -0.04*0.25+0.072*0.6+0.134*0.15 = 0.0533 = 5.33%
Expected return of B = 0.07*0.25+0.082*0.6+0.094*0.15 = 0.0808 = 8.08%
b.
Standard deviation = cfw_sum [pi*(xi - u)]0.5
Variance of A = cfw_0.25*(-0.04-0.0533)
Practice Exam 2, Fin 300
All questions are taken from Ross Westerfield Jaffe 10th edition (if you need, see ctools for scanned
copied of selected pages).
Complete in 80 minutes with the help of your cheat sheet.
Solutions have been posted on ctools (under
FIN 300- Financial Management Professor Piccioni
Problem Set #1 Due by beginning of Class, September 19th
Chapter 2 Problems
#1 Given below is financial information for Sullivans Slippery Slides Incorporated.
Sullivans Incorporated
Income Statement
For th
Practice Exam 3, Fin 300
All questions are taken from Ross Westerfield Jaffe 10th edition (if you need, see ctools for scanned
copied of selected pages).
Complete in 80 minutes with the help of your cheat sheet.
Solutions have been posted on ctools (under
Dividend Yield= Dt +1/Pt Capital Gains Yield= (Pt+1-Pt)/Pt Average Return of Investments Small Company Stocks- 17.5% Large Company Stocks- 12.4% Long-Term Corporate Bonds- 6.2% Long-Term Government Bonds- 3.8% Inflation- 3.1% Risk Premium- The excess
FI 300- Financial Management - Professor Piccioni
Problem Set #2 Due by beginning of class, October 10th.
Chapter 8 & 9 Problems
#1. Consider a pure-discount bond that matures in exactly 12 years and pays $1,000 at maturity
(with annual compounding).
(a)
Chapter 8 & 9 Problems
#1. Consider a pure-discount bond that matures in exactly 12 years and pays $1,000 at maturity
(with annual compounding).
(a) What is the value of the bond if the discount rate is 6%?
(b) What is the value of the bond if the discoun
Homework 1, Fin300
Question 1
Good news, youve just won the lottery ($1,000,000). Bad news, youll get the prize 80 years
from today. Whats the present value of the prize, if the discount rate is 9%?
a)
125.68
b) 1,013.63
c) 2,856.73
d) 6,589.41
e) 9,998.0
Finance 300- Financial Management - Professor Piccioni
Problem Set #3 Due by beginning of class, November 7th.
Chapter 10 Problems
#1 You purchased 1,000 shares of stock at a price of $74 per share one year ago. Your dividend
payment from these shares has
FIN 300 & FIN302 Homework Assignment #3
Due by 11.59pm on November 12
Chapter 11 Problems
#1. Consider the return behavior of the following two stocks:
State of Economy
Recession
Normal
Boom
Probability of State
.25
.60
.15
Return on Stock A
-4.0%
7.2%
13
FIN 300- Financial Management - Professor Piccioni
Problem Set #4 Due by the beginning of class, December 5th.
Chapter 16 Problems
#1. Spartan Corp. and Wolverine Corp. are identical in all respects except capital structure.
Spartan's bonds have a market
Chapter 10 Problems
#1 You purchased 1,000 shares of stock at a price of $74 per share one year ago. Your dividend
payment from these shares has been $4,000. The stock is now selling for a price of $76 per
share.
(a) What is your capital gain?
(b) What is
FIN 300 & FIN302 Homework Assignment #4
Due by 11.59pm on December 8
This homework assignment is to be submitted electronically via CTools. If you feel that a
question misses essential information, make a reasonable assumption and clearly state that
assum
Finance300Chapter9:StockValuation
I.
II.
III.
IV.
PresentValueofCommonStocks
a. DividendsVersusCapitalgains
a.i. Twokindsofcashflowsprovidedbystocks
a.i.1.
Dividends
a.i.2.
Salepriceofstocks
a.ii. Needtofindwhetherthepriceofashareofstockisequalto
a.ii.1.
Finance 300 Chapter 13: Risk, Cost of Capital, and Valuation
I.
II.
III.
IV.
The Cost of Capital
a. The Discount rate of a project should be the expected return on a financial
asset of comparable risk
b. Discount rate = required return = cost of capital
E
Finance 300 Chapter 8: Interest Rates and Bond Valuation
I.
Bonds and Bond Valuation
a. Bond Features and Prices
i. Bond: an interest-only loan, where interest is to be paid every
period, but the principle paid back at the end of the period
ii. Coupons: t
Finance 300 Chapter 1: Introduction to Corporate Finance
I.
II.
What is Corporate Finance?
a. The Balance Sheet Model of the Firm
i. Fixed assets: assets that will last a long time, like buildings
ii. Current assets: short life assets like inventory
iii.
Finance 300 Chapter 10: Risk and Return
I.
II.
III.
Returns
a. Dollar Returns
i. Two forms of return on your investment as a stockholder
1. Cash (dividend income) = income component
2. Capital gain/loss
a. If dividend price increases since you bought it,
Finance 300 Chapter 6: Making Capital Investment Decisions
I.
II.
III.
Incremental cash flows: the key to capital budgeting
a. Cash flowsnot accounting income
a.i. Always use cash flows, not earnings
b. Sunk Costs are not considered incremental costs
c. O
Finance 300 Chapter 5: Net Present Value and Other Investment Rules
I.
Why Use Net Present Value?
a. Basic Investment Rule (NPV rule)
a.i. Accept a project if NPV is positive
a.ii. Reject a project if NPV is negative
a.iii. Accepting positive NPV projects
I.
II.
III.
IV.
Finance 300 Chapter 4: Discounted Cash Flow Valuation
Valuation: The One-Period Case
a.
Present Value of Investment = Cash flow at date 1/(1+discount rate)
i. PV = C1/(1+r)
b.
Net Present Value = -cost +PV (or PV Cost)
The Multiperiod Case
I.
II.
III.
IV.
V.
Finance 300 Chapter 2: Financial Statements and Cash Flows
Balance Sheet: snapshot of the firms position at a particular point in time
a. States what the firm owns and how its financed
b. Assets = Liabilities + Stockholders Equity
c. Li
(PETROZUATA) CASE ANALYSIS:
Q1.
HOW SHOULD PDVSA FINANCE THE DEVELOPMENT OF THE ORINOCO BASIN? WHAT ARE THE
COSTS AND BENEFITS OF USING PROJECT FINANCE INSTEAD OF TRADITIONAL DEBT FINANCE?
Soln.
PDVSA should go for project financing for the development of
Fin 302: Making Financial Decision
Stocks
Road Map
Last (two) Class(es)
Financial Instruments: Debt and Equity (stock)
YTM and value or price of bond
Insights into interest rates
Today
Stocks and the Stock Market
Valuing Stocks
Stock Markets
Stocks themse
Fin 302: Making Financial Decision
Financial Instruments and
Bonds (part 1)
Last Class
Discounted Cash Flow applications
APR and Effective Rates
Annuity Due
Amortizing Loans
Todays Class
Over next 3 classes we will discuss how
value and the factors that i
Fin 302: Making Financial Decision
Bonds (part 2)
Road Map
Last time: Bonds
Pricing and yield
Interest Rate Risk
Today:
1.
2.
3.
4.
Bond Price Dynamics
Yield Curve
Bond Markets and the World
Credit and Default Risk
2
Bond Price Dynamics.
How do prices and
Chapter 1 and 2
Agency Relationship - agent (manager) hired by principal (shareholders) to run a firm in
the principals interest
Agents may have interests that conflict with the principals
Can fix the agency problem through monitoring the manager and a