AFM 274
Practice Problem Set #4
Spring 2013
Suggested Solutions
1. 23.3 (a) The total number of shares will be 8,000,000/(1 .20) = 10,000,000. The venture capitalist will have
20% of these, or 2 million shares. Given the investment of $1 million, the impl

Question 1: 8 marks.
Firm C (a Canadian rm) has a book value of debt of $80, and its bonds are trading at Par. Book
value of equity is $120, and the rms Market Capitalization is $160. Its equity beta is estimated
at 1.2. The corporate tax rate is 35%. The

Question 1: 10 marks.
XYZ Corporation is considering an investment which costs $100 today and produces free cash
ows of $72 at the end of each of the next two years. The rm faces a corporate tax rate of 40%.
Its cost of levered equity is 26%, and it can b

AFM 274
Practice Problem Set #2
Spring 2016
Suggested Solutions
1. 19.1 (a) The value of equity equals the unlevered firm value, i.e. the expected future asset value discounted at
the risk-free rate of 5% (because the risk is assumed to be diversifiable).

[E/(E+D)]Re + [D/(E+D)]Rd(1-Tc)
= [E/(E+D)]Re + [D/(E+D)]Rd [D/
(D+E)](1-Tc)
(After tax)
(Before tax)
(After tax)
Value that the debt creates
Value of all equity firm
- what is the split between capital gains and dividends?
- TFSA
- taxes are only paid wh

Rwacc = Ru D/V*Rc*Tc
0.5 * 0.13 + 0.5*0.6*(1- 0.4)= 8.3%
-firms may save cost and finance all with one type of
instrument but will balance it out later
Rd

Pcum Pex = [(1-Td)/(1-Tg)] * Div
If firm pays dividend right away, shareholders end up with
1.03 million.
If firm invests and pays dividend, 1 mill (1.03)(1 Tc) <1.03
mill; so if just corporate taxes money should be paid out right
away.
Asymmetric informa

underwriter
primary
secondary
Agreement made with the firm by underwriter
-15% sold short
-If price increases, you can buy at IPO price
-If price decreases, you can buy at market price; making
profit and hedging risk
Can support price with the purchase

Restrictions on dividends and repos
Restrictions on new debt
Interest rates have gone down since the time the firm issued the bond.
Bond without potential for conversion
Option to convert

Trade credit partners have better information about a firms
ongoing business than banks
Better understanding of credit risk
Can get better resale value from collateral
The suppliers are in the same business
Bad credit vs good credit people; allow more p

Instructions:
1. Answer all questions in the space provided.
2. Show all of your calculations. Put your final answer in the space provided (if one is provided).
3. The examination has 13 pages (including this cover page). Verify that your copy is complete

AFM 274
Practice Problem Set #5
Spring 2016
Suggested Solutions
1. 26.2 An increase in a firms cash cycle does not necessarily mean that the firm has managed its cash poorly
because it may simply be reflecting part of managements strategy and operational

AFM 274
Practice Problem Set #1
Spring 2016
Suggested Solutions
1. 17.1 (a)
.5($130,000) + .5($180,000)
$100,000 = $29,166.67.
1.2
(b) The initial market value of unlevered equity is the present value of the future cash flows of the project,
which is $12

AFSA Education Notes for AFM 274 Spring 2015
Topic 1: Capital Structure in a Perfect Market
1. Background Information of a Perfect Market:
Perfect capital markets: all securities are fairly priced, there are no taxes or transaction costs, and
the total c

AFM 274
Practice Problem Set #3
Spring 2016
Suggested Solutions
1.
20.6
(a) The share price is ($500,000,000 $200,000,000) 10,000,000 = $30.
(b) The share price is ($500,000,000 $50,000,000 $200,000,000) 10,000,000 = $25.
(c) The number of shares left aft

MM1 in perfect markets firms value does NOT depend on capital structure,
MM2 cost of capital/beta/risk of levered equity increases with MV D/E ratio
Net Debt = debt excess cash & ST investments
Leveraged Recapitalization repurchase shares using debt to ra

MM1 in perfect markets firms value does NOT depend on capital structure,
MM2 cost of capital/beta/risk of levered equity increases with MV D/E ratio
Net Debt = debt excess cash & ST investments
Optimal Level of Leverage interest = EBIT, higher tax expense

AFM 272
Midterm Examination #2
Friday July 09, 2010
Prof. J. Thompson
Name:
Student Number:
Section Number:
Duration: 2 hours
Instructions:
1. Answer all questions in the space provided.
2. Show all of your calculations.
3. The examination has 10 pages (n

Question 1 (10 marks)
WSAF currently has an all-equity capital structure with 500,000 shares outstanding that have a price of $50 each.
Each year, there are two possible economic forecasts. Under Forecast #1, WSAFs EBIT is $3,000,000.
Under Forecast #2, i

UNIVERSITY OF WATERLOO
School of Accounting and Finance
AFM 274 - Managerial Finance 2
Course Outline - Spring 2016
Instructor:
Prof. James Thompson
Office:
HH 289D
Office hours:
Tuesdays 1:00 pm to 3:00 pm or by appointment
Email:
[email protected]
Tele

`
PV Annuity = C *
(
1
1
( 1+r )n
)
PV GAnnuity =
1+ g n
]
1+r
( )
[1
PV Perpetuity =
1
r
C
rg
C1
r g
*
General Formulae
Net Debt: Debt Excess Cash or ST
Investments
Enterprise Value = MV of Equity +
Debt Cash
FCF = After-Tax EBIT + Dep CAPEX
NWC
CAPM KE

Managerial Finance 2
Lesson 1
Introduction &
Overview
1
About Frank Hayes
Work Experience
30 Years Finance Experience
Worked with Tech Companies past 15 Yrs.
Previously Treasurer, Toromont Industries (TSX : TIH)
Previously Account Manager, BMO
Prior in mi

Managerial Finance 2
Lesson 3
Capital Structure Theory
Modigliani and Miller
Propositions I & II
AFM 274 Course Overview
(Schedule May Vary During Term)
L. 1&2 Intro; Review of Key Concepts from AFM 273;
L. 3-7 Capital Structure
L. 8-11 Payout Policy
L.12

AFM 231: Spring 2016
CLASS 3: DISPUTE RESOLUTION /
THE LEGAL ENVIRONMENT
MAY 9 & 10, 2016
Standard Form Contracts Exercise
You have been assigned a type of standard form
contract to find. You are to identify a standard form
contract of that type and prepa