NAME _
Northwestern University
April 29, 2014
Economics 360-1 Foundations of Corporate Finance Theory
Zhuo Chen
Midterm Exam Solution
Instructions
1) Please print your name at the top of this page.
2) This is a closed book, closed notes exam. You are allo
Corporate Finance
Lecture 1: Introduction
Mame Maloney
[email protected]
September 21, 2015
About Me
PhD student, Kellogg Finance department, 4th year
Research focus:
Empirical corporate finance
Healthcare finance
Non-profit capital
Corporate Finance
Lecture 6
Mame Maloney
[email protected]
Last time
Types of Bonds
Bond Pricing
Yield to Maturity
Yield Curve
Also known as Term Structure of Interest Rate
Lecture 6: Bond Valuation
2
Plan for today
Replication and
Corporate Finance
Lecture 5
Mame Maloney
[email protected]
Plan for today
Bonds
Bond Pricing
Time-Varying Discount Rates
Yield to Maturity
Yield Curve
Lecture 5: Bond Valuation
2
What is a bond?
Essentially a bond is a loan, usually
Corporate Finance
Lecture 7
Mame Maloney
[email protected]
Last time
Replication and Bond Arbitrage
Duration and Interest Rate Risk
Lecture 7: Bond Valuation
2
Plan for today
Default Risk
Forward Interest Rates
International Firms
Le
Corporate Finance
Lecture 8
Mame Maloney
[email protected]
Review of Last Time
International Firms
Forward Exchange Rates
Covered Interest Parity
Last 2 examples in the slides: work through on your own if
youd like extra practice. Sen
Corporate Finance
Lecture 10
Mame Maloney
[email protected]
Midterm
Grab your midterm up front
The mean/median/etc
Lecture 10: Risk and Return
2
Plan for Today
So far in the class, weve done:
How to caluclate NPV when CFs and discoun
Fall 2014
ECON 360-1: Corporate Finance
MIDTERM EXAM
READ THESE INSTRUCTIONS CAREFULLY BEFORE BEGINNING THE EXAM.
Make sure you have 9 pages.
BE NEAT AND SHOW YOUR WORK. Numerical answers without explanation will receive no
credit, but incorrect answers w
Corporate Finance
Lecture 3
Mame Maloney
[email protected]
Formulas to understand
Growing perpetuity:
C
PVGPt =0 =
if r > g
rg
Growing annuity:
PVGAt =0
1+ g
C
=
1
r g 1+ r
T
Important note: formulas calculate the present value at
Question 1 (22 points)
You are thirty years old with $100,000 in retirement saving with no debt. You just had a triplet
born. Given how expensive it is to raise even one kid these days, you think you will not be able
to save for your retirement next 20
Northwestern University
ECON 360-1: Corporate Finance
Sample Midterm Exam with Answers (2)
Masako Ueda
=
INSTRUCTIONS:
Please dont forget to write your name below.
This is a closed book, closed notes exam. You may
Question 1
Your company has been producing a line of winter boots for the past 10 years now. You are
thinking of investing in a new piece of machinery that would allow for higher boot production at
a higher quality.
The old machine was purchased ten
Northwestern University
ECON 360-1: Corporate Finance
Sample Midterm Exam (2)
Masako Ueda
=
INSTRUCTIONS:
Please dont forget to write your name below.
This is a closed book, closed notes exam. You may use a calcul
Sample Midterm (1) with answers
Question 1
Assuming time-varying interest rates. You are given the following information about three
bonds.
Bond A
Bond B
Bond C
Maturity
9
9
10
Price
1281.14
57.21
55.84
Question 1 (30 points)
Your firm produces water bottles and is considering replacing an old bottling machine with a
new one. The tax rate is 40% and the discount rate is 10% per year. Given the following
information, should you replace the machine?
Ne
Northwestern University
ECON 360-1: Corporate Finance
Sample Midterm Exam (2)
Masako Ueda
=
INSTRUCTIONS:
Please dont forget to write your name below.
This is a closed book, closed notes exam. You may use a calculator, but
not a laptop. You cannot have
Corporate Finance
Lecture 11
Mame Maloney
[email protected]
Optimal Portfolios
We characterized portfolio returns and variances as
a function of returns and variances of the individual
stocks
Main Questions:
How do we decide what stock
Corporate Finance
Lecture 12
Mame Maloney
[email protected]
Project Beta
When calculating the NPV of a project, we always
need to use the appropriate discount rate and beta of
that project, NOT the entire firm
E.g.: Suppose GM is consid
Problem Set 3
Econ 360-1 Corporate Finance
April 29, 2016
Question 1
1.a
First of all, you should not include survey cost to the calculation because the survey is already done regardless
of whether project is realized - it's a sunk cost. At t=0, the proje
Problem Set 2
Econ 360-1 Corporate Finance
April 21, 2016
Useful Formulas
IRR : PV(IRR)=0
n
Fisher Equation: 1 + rr = 1+r
1+i or rr ' rn i
MIRR: PV(FV(at cost of capital) of inows) = PV(at cost of capital) of outows
Question 1
1.1
The monthly interest rat
Economics 360
Lecture 4: Investment Rules
Jesse Davis
Last Lecture
Tracking principal and interest payments
APR and EAY
Inflation and inflation protection
Real and nominal cash flows and interest rates
Today
Decision-making tools for investment
NPV
IRR
Economics 360-1
Corporate Finance: Lecture 2
Jesse Davis
Last Time
What is finance?
What are two main roles of finance within the
corporation?
What makes a corporation unique?
Today
Defining cash flow streams
Future value v. present value
Perpetuity v.
Economics 360
Lecture 5: Capital Budgeting
Jesse Davis
Last Lecture
Investment Decision Tools
NPV
IRR
Profitability Index
Payback Period
Remember: NPV is always correct
This Lecture
Capital Budgeting:
Investment decisions with cash flows from many
Economics 360
Lecture 7: Stock Valuation
Jesse Davis
Stock Valuation (introduction)
Value of the Firm
Assets v. Liabilities/Equity
Real Assets v. Financial Assets
Stock Valuation
Capital Gains
Dividends
Balance Sheet
The balance sheet has two sides:
The
Economics 360
Lecture 6: Bond Valuation
Jesse Davis
This lecture
Types of bonds
Bond pricing
Time-varying discount rates
Calculating yields from
Zero-coupon bonds
Coupon bonds
Yield curve
Replication
Duration
Forward Rates
What is a bond?
Definition: a
Economics 360
Lecture 3: Interest and Inflation
Jesse Davis
Last Time
Present and Future Value
Annuities and Perpetuities
Growing Annuities and Perpetuities
Today
Review/Examples
Interest Rates: APR and EAR
Treating the time variable as periods othe
Problem Set 1
Econ 360-1 Corporate Finance
October 6, 2014
Useful Formulas
CF
PV: (1+r)
t
FV:CF (1 + r)t
Present Value of Annuity: c
1
1 (1+r)
t
r
Present Value of a growing perpetuity :
c
rg
Question 1
1.1
To compare the annuities, we need to nd the PV o
Northwestern University
ECON 360-1: Corporate Finance
Sample Midterm Exam (1)
Masako Ueda
=
INSTRUCTIONS:
There are many questions. Solve easy ones first and keep difficult ones
for later time.
If you have to use answers from a previous question but can
Final Exam Equation Sheet
1. Time Value of Money
a. Present Value of a Growing Perpetuity:
PVP=
C
if r > g
r g
b. Present Value of a Growing Annuity:
( 1+ g )N
C
PVGA=
1
if r g .
r g
( 1+ r )N
(
)
c. Future Value of a Growing Annuity:
PVGA ( 1+r ) N =
C
(
Northwestern University
ECON 360-1: Corporate Finance
Winter 2014
SAMPLE (1) - Final Exam
November 30 (Fri)
Masako Ueda
=
INSTRUCTIONS:
Please dont forget to write your name
Problem Set 6
Econ 360-1 Prof. Masako Ueda
Due Monday Mar 6, at the beginning of the class. Hand in a hard copy.
Question 1 (10pts)
You have $10 million invested in long-term corporate bonds. This bond portfolios expected
return is 9%, and the stan
Homework 7 Company Valuation Project 3
Econ 360-1 Prof. Masako Ueda
Due Monday Feb 27, at the beginning of the class.
In this last part of the company valuation project, you are supposed to value the assigned
company in three methods: 1. The dividend disc