True/False Questions: Circle the correct response.
1.
T
F
The New York Stock Exchange is an example of a secondary
market.
2.
T
F
The balance sheet represents a snapshot of a firms financial
position at a given point in time.
3.
T
F
If new bonds are sold
True/False Questions: Circle the correct response. (2 points each)
1.
T
F
Earnings that are paid out as dividends show up on the balance sheet as a
reduction in shareholders' equity.
2.
T
F
The government is an example of a firm stakeholder.
3.
T
F
The Na
True/False Questions: Circle the correct response. (2 points each)
1. T F
Dividends paid during the fiscal year are deducted from Operating income in
order to determine the Earnings before tax.
2.
T
F
Sole proprietorships have potentially infinite lives.
True/False Questions: Circle the correct response. (2 points each)
1.
T
2.
3.
4.
T
TF
TF
5.
TF
6.
TF
7.
TF
8.
TF
9.
TF
10.
TF
11.
T
12.
T
13.
T
14.
T
15.
T
16.
T
17.
T
F
An example of a bond covenant is that the firm must seek approval from
bondholders be
True/False Questions: Circle the correct response. (2 points each)
1.
T
F
2.
T
F
3.
4.
T
T
F
F
5.
6.
T
T
F
F
7.
8.
T
T
F
F
9.
T
F
10.
T
F
11.
T
F
12.
T
F
13.
T
F
14.
T
F
15.
T
F
16.
T
F
17.
T
F
18.
T
F
The private placement of a new issue of corporate bon
True/False Questions: Circle the correct response. (2 points each)
1.
T
F
If you own 51% of the voting common shares in a corporation, you
would prefer shareholders to have cumulative voting over straight
voting.
2.
T
F
Unlike the NYSE, the Nasdaq has sev
True/False Questions: Circle the correct response. (2 points each)
1.
T
F
Without investment research analysts, markets would be less efficient.
2.
T
F
A portfolio consisting of a single stock is unlikely to lie on the efficient
frontier.
3.
T
F
The price
True/False Questions: Circle the correct response. (2 points each)
1.
T
F
One of the benefits of organizing as a sole proprietorship is that the
interest paid on debt is tax deductible.
2.
T
F
An increase in fixed assets is a source of cash.
3.
T
F
If a f
True/False Questions: Circle the correct response. (2 points each)
1.
T
F
A broad decline in consumer spending would be an example of
systematic risk.
2.
T
F
If markets are strong form efficient, then laws against insider trading are
unnecessary.
3.
T
F
Y
True/False Questions: Circle the correct response. (2 points each)
1.
T
F
If markets are efficient, stock prices should rise and fall with expected seasonal variation
in earnings.
2.
T
F
Unlike the NYSE and Nasdaq, ECN's have no dealers or market makers.
1.
T
F
Subordinated debt will generally have a higher yield to maturity than
senior debt.
2.
T
F
You have a choice between annuity payment of $50,000 at the end of
each of the next 10 years, or a perpetuity that pays you $25,000
indefinitely. You are indi
True/False Questions: Circle the correct response. (2 points each)
1.
T
F
As a common shareholder in a firm, you generally have the right to vote
on important firm decisions like mergers and acquisitions.
2.
T
F
Adding more stocks to a portfolio generally
True/False Questions: Circle the correct response. (2 points each)
1.
T
F
In order to compare two different investment opportunities (each with
the same risk) that have interest rates reported in different manners, you
should convert each interest rate to
True/False Questions: Circle the correct response. (2 points each)
1.
T
2.
3.
T
TF
4.
TF
5.
TF
6.
TF
7.
TF
8.
9.
TF
TF
10.
11.
TF
T
12.
T
13.
T
14.
T
15.
16.
T
T
17.
T
18.
T
F
A bond with a face value of $1,000 has annual coupon payments of $100
and was i
Quiz 1 Sample 2
True/False Questions: Circle the correct response. (2 points each)
1.
T
F
In a large corporation, tying managers compensation to the performance of the stock
price is one way to help minimize agency costs.
If a firm has a PE ratio of 30, t
Bus 320: Quiz 3
Sample 1
True/False Questions: Circle the correct response. (2 points each)
1.
T
F
If markets are efficient, stock prices should rise and fall with expected seasonal variation
in earnings.
2.
T
F
Unlike the NYSE and Nasdaq, ECN's have no d
Bus 320: Quiz 2
Sample 1
True/False Questions: Circle the correct response. (2 points each)
1.
T
F
2.
3.
T
T
F
F
4.
T
F
5.
T
F
6.
T
F
7.
T
F
8.
9.
T
T
F
F
10.
11.
T
T
F
F
12.
T
F
13.
14.
15.
16.
T
T
T
T
F
F
F
F
17.
T
F
18.
T
F
19.
T
F
20.
T
F
A bond with
Green: Bus 320 Quiz 1 Sample 0
True/False Questions: Circle the correct response. (2 points each)
1.
T
F
For firms in growth industries, it is common for the book value of the
firm to be less than the market value.
2.
T
F
The replacement of an old, fully-
Time Value of Money
Where do interest rates come from?
Interest rates can be used to translate money at different
points in time.
How are interested rates quoted
Effective Rate Examples
*
If the nominal 3 year rate is 36%, what is the effective semi-a
Bond Rates and Yields
Bond price = $932.90
Maturity = 10 years.
Annual coupon = $70,
Par value = $1000
Coupon Rate = coupon payment / par value
Current Yield = coupon payment / price
Yield to Maturity = implied rate of return
Set discounted cash flows
42
Annuities
Pays a fixed sum each period for a specified number of
periods.
Examples:
Home mortgages
A
1 r
1
A
1 r
2
Car loans
A
1 r
3
L
State lotteries
A
1 r
t
1
1
t
1
r
A
r
Finding r
43
A finance company offers to loan you $1000 if you will
Test: Most problems are too easy
Valuing Stocks
Preferred Stocks
Pay constant dividend indefinitely
Use perpetuity formula
What if you sell it to someone else?
What about common stocks?
61
Decomposing Returns
The return from holding common stock con
Perpetuities
48
Pays a fixed amount evenly over time forever.
1
PVA = A
1
1 r
r
t
A
PVP =
r
Comparing cash flows
49
Two plans (both will make their first payment one year from today).
Plan X is a $4,500 annual perpetuity.
Plan Y is a 10-year, $15
Name: Shubh Agarwal
A-Cha
ID: 2165962
Estimate of Beta for ADVANCE AUTO PAR
Che-F
G-Kal
BBA (third floor)
Kam-Lin
Lio-No
Nu-Ryo
Ryu-Suc Suh-Will
Estimate of Beta (Slope of the Line)
Exchange
Student
Wils- Z
A-D
College (Basement)
E-Ji
Jo-M
N-S
T-Z
0.86
Es
Student Name: Shubh Agarwal
ID:
A-Cha
Che-F
G-Kal
BBA (third floor)
Kam-Lin
Lio-No
Nu-Ryo
Ryu-Suc Suh-Will
Dividend Discount Model for ADVANCE AUTO PAR
Approximation using 4000 years
Estimated Value for AAP
Year Growth
1 11.33%
2 11.33%
3 11.33%
4 11.33%
Investors expect to earn 12% YTM on a 10-year corporate bond with:
$1,000 face value
8% coupon rate paid annually
a. What is the price of the bond, and what is the current yield?
int = 12
PV =
CY = coupon/price
n = 10
fv = 1000
pmt = 80
b. If the bond tra
Pro Forma Financial Statements
Scenarios, not just one version
Forecast sales
How will this influence expenses and asset needs
How should we pay for new assets
The plug
TA = TL + TE
21
Another Example
Income Statement
(projected growth = 30%)
This year
Pr
FIN623QA: Corporate Finance, Fall 2016 Session 2
Instructor:
Kirk D Johnson
Office Location: Fulmer, third floor
Office Hours:
TR and by appointment
Phone:
campus: 302-225-6353; text: 302-423-2901
E-mail:
[email protected]
Credits:
3
Textbooks:
Corporate Fi