There are many types of careers in the financial sector for finance. There are corporate
financing jobs, corporate banking, and investing, hedging, accounting, insurance, and financial
planning just to name a few broad categories of jobs. The jobs vary fo
Capital Market
History
Measuring Returns
Returns come in two possible forms:
Cash income from owning the investment (e.g. dividends,
coupon payments, rental income)
Change in the value of the investment (e.g. stock price,
bond price, resale value)
Not
Capital Structure
Choosing between debt and equity
Capital Structure
How the firm finances it assets how the pie is split between
debt and equity.
The reason managers care about capital structure is that the
choices they make can profoundly affect firm va
Cash Flow Estimation
& Risk Analysis
Accounting Income v. Cash
Flows
In evaluating projects, managers need to
consider the cash flows, not how accountants
keep track of things.
A project can be profitable in an accounting sense,
but still be a NPV projec
Cost of Capital
Overview Why WACC
matters.
Expected return of assets depends on the risk of assets.
Cost of capital provides an indication of how the market views
the risk of our assets (our business) do we have high
volatility of cash flows or low vola
Name:
*The given yellow boxes are where you should put your answers to each of the questions.
1. What is the annual interest rate, if $10,000 grows to $12,166 over 5 years?
2. What monthly annuity investment (deposit per month) is required to achieve $20,
Year Cash Flow (A) Cash Flow (B)
0
-50,000
-50,000
1
25,000
12,000
2
17,000
15,000
3
15,000
22,000
4
12,000
25,000
Weighted Average Cost of Capital = 11%
Problems #1-6 refer to the cash flows given above.
1.What is the NPV of each project?
2.What is the I
After each question you will see a yellow pre-formatted cell where your final solution will appear.
For problems where the solution is contained in one step, you can do your work in that yellow cell.
Where multiple steps are required, use any of the cells
After each question you will see a yellow pre-formatted cell where your final solution will appear.
For problems where the solution is contained in one step, you can do your work in that yellow cell.
Where multiple steps are required, use any of the cells
Finance 303 Exam 2
Name:
Rachell Robson
After each question youll see a yellow pre-formatted cell where your final solution will appear.
For most of the problems where the solution is contained in one step, you can do your work in that yellow cell.
Where
Note:
This file is for additional practice. It is not comprehensive. Practice the in class problems as well.
A company just paid an annual dividend of $1.20. Growth in dividends is expected to be constant at 3% indefinitely. The required return
on the sto
Group members: Robson, Castoro, McGuinness
Email Subject: 303 - Last name of each group member
1
A company just paid an annual dividend of $1.60 per share. Growth in dividends is expected to be constant at 6% indefinitely. The required return
on the stock
Group members:
Email 1 solution per group. Subject: 303 - Last name of each group member
Chapter 3 Problem set 2
A company will raise all of its new funds next year via Common Equity issuance. Debt will not change. Dollar amounts rounded to thousands.
Ass
Project assumptions: ($000)
Initial sales
Sales growth
Initial Investment Fixed Assets
Current Assets
Current Liabilities
COGS
Oper Expenses
Depreciation Expense
Terminal value year 5:
Equipment sale proceeds =
Liquidate working capital at book value
Weig
Group members:
Email 1 solution per group. Subject: 303 - Last name of each group member
Perez, McLaws, McGuinness, Orellana, Huffman
1. Calculate the future value of $2,250 invested today for 16 years at 10% interest.
$10,338.69
2. Calculate the present
Evaluating Cash
Flow (Chapter 3)
Cash Flow From Operations
Strength of profit margins and sales growth driving net
income (from ratio analysis of profitability)
Does net income comfortably fund any dividends or stock
repurchases (average about 2x)
Are the
CHAPTER 6
Bond Valuation and
Interest Rates
1
Example Bond
2
Key Features of a Bond
A bond is a debt instrument in which investors loan money to
an entity (corporate or governmental) for a period of time at a
pre-specified interest rate.
1. Par or Face va
Group members:
Email 1 solution per group. Subject: 303 - Last name of each group member
Robson, Castoro
Chapter 3 Problem set 1
1. Net working capital
Current assets
Inventory
Calculate the Current Ratio and Quick Ratio
Current ratio
Quick ratio
1,570
5,
1 Find the price of the following bond with semi-annual coupons:
YTM = 8%; Coupon rate = 6%
Maturity = 10 years
($864.10)
2 Solve for the coupon rate of this semi-annual bond:
Price = 1,040.55 YTM = 8%
Maturity = 5 years
$45.00
9.00%
3 Solve for this semi
Financial Analysis
Using Ratios
1
Analysis Categories
Evaluate performance relative to a peer
group, and period-over-period, to identify
strengths and weaknesses in four areas
Profitability
Asset
management
Liquidity
Debt management (solvency)
2
Key U
Group members:
Robson, Castoro, McGuinness
Email Subject: 303 - Last name of each group member
Obtain data for problems 1-11:
Go to the Yahoo Finance historical stock price link to obtain prices for Micron:
http:/finance.yahoo.com/q/hp?s=mu
Well run two y
Chapter 12-13
Return, Risk, and the Security
Market Line
Expected rate of return
pi = probability of economy being in state i
Ri = expected return on security in state i
n
E ( R ) pi Ri
i
1
Variance and Standard Deviation
Variance and standard deviation m
Principles of Finance
Finance 303
Fall 2013
Keith Harvey
Department of Marketing and Finance MBEB 2239
Email: [email protected] (put 303 in subject)
426-2391 Office
426-3356 Department
Office Hours:
Monday and Wednesday 1:00-1:30 p.m. and 2:453:45 p.
Chapter 12-13
Return, Risk, and the Security
Market Line
Expected rate of return
pi = probability of economy being in state i
Ri = expected return on security in state i
n
E ( R ) pi Ri
i
1
Variance and Standard Deviation
Variance and standard deviation m
Free Cash Flow
(Chapter 2)
1
Free Cash Flow
Free cash flow is the amount of cash
available to make payments to the
companys debt and stock investors
The market value of the company
depends on its projected free cash flow
Traditional Balance Sheet
Current