FINAL EXAM REVIEW
1. Which of the following is an example of a
primary market transaction?
The answer IBM issues 2,000,000 shares
of new stock and sells them to the public
through an investment banker is a
Midterm I REVIEW
1. What should be the primary operating goal of a
publicly owned firm interested in serving its
Maximize the stock price per share over
the long run, which is the stocks intrinsic
The four step financial forecasting process is comprised of the following:
Step 1: Analyze the firm's most recent financial statements.
Step 2: Construct pro forma financial statements.
Step 3: Convert the pro forma financial statements into a
One should use expected cash flows rather than optimistic cash flows and discount these cash
flows at the appropriate risk-adjusted discount rate. This is the procedure that is theoretically
correct. In practice, mangers often hike up the disc
Growth rate for years 1-5
CAPEX for year 0
CAPEX for years 1-5
Debt Retirements for years 1-5
New working capital for years 1-5
- per year over and above annual deprec
FNCE 406 VALUATION
Case: Comparing different capital budgeting
Bleach White Corporation, a chemical company established in the 1950s has earned a
consistently high rate of return on its investments in the last years. The secret of its success
PROBLEM 3-1: Clayton Manufacturing Company
EBITDA (Year 1)
Growth Rate in EBITDA
Depreciation (Straight line) over
Estimated salvage value
Cost of capital
FNCE 406 Valuation and Investment Decisions
Bachelor of Commerce
Section OP-51 meets Wednesdays from 18:00 to 21:00 in room 5-259
Course: FNCE 406 VALUATION AND INVESTMENT DECISIONS
Distributions to Shareholders:
Dividends and Repurchases
SOLUTIONS TO END-OF-CHAPTER PROBLEMS
70% Debt; 30% Equity; Capital Budget = $3,000,000; NI = $2,000,000;
PO = ?
Equity retained = 0.3($3,000,000) = $900,000.
Chapter 8 Foreign Currency Derivatives and Swaps
1) A foreign currency _ contract calls for the future delivery of a standard amount of foreign
exchange at a fixed time, place, and price.
2) Futures contra
Mid-term I Review Questions
1. In December 1994 the government of Mexico officially changed the value of the Mexican peso
from 3.2 pesos per dollar to 5.5 pesos per dollar. What was the percentage change in its value?
Was this a depreciation, devaluation,
Review Questions Ch. 4 (more)
1. The "J-curve effect" shows:
A. the initial deterioration and the eventual improvement of a country's trade balance
following a currency depreciation
B. the initial improvement and the eventual depreciation of a country's t
1. It is characteristic of foreign exchange dealers to:
A) bring buyers and sellers of currencies together but never to buy and hold an inventory of
currency for resale.
B) act as market makers, willing to buy and sell the currencies in which they s
1) Which of the following is NOT a part of the Current Account of BOP?
A) net export/import of goods
B) balance of trade
C) net portfolio investment
D) net export/import of services
2) Which of the following is NOT an item to be considered in BOP ca
1) If an identical product can be sold in two different markets, and no restrictions exist on
the sale or transportation costs, the product's price should be the same in both markets.
This is known as:
A) relative purchasing power parity.
1) Under the gold standard of currency exchange that existed from 1879 to 1914, an ounce
of gold cost $20.67 in U.S. dollars and 4.2474 in British pounds. Therefore, the
exchange rate of pounds per dollar under this fixed exchange regime was: