Chapter 2 Solutions
How is the income statement related to the balance sheet? The earnings (less dividends) reported in the income statement is transferred to the ownership section of the balance sheet as retained earnings. Thus, what we earn in th
In $ millions.
Cost of Revenue
Research and Development
Selling and Marketing
General and Administration
Non Recurring Expenses
Total Operating Expenses
Other Operating Income/Expenses
MJOakes Nov 2014
Ratios and Other Items for F300 Exams
RATIOS AND FORMULAS FOR F300 EXAMINATIONS
NOTE: This is the only reference sheet authorized for use during the examination. Note that what is
included below is intended to be most but not all formulas
Introduction to Financial Management
Also income, sales. Key Q:
How fast is this growing?
Several different kinds. But the
basic idea is that this section is
costs. Key Q: Are
Define the capital markets
Understand why and how the capital market is THE source for capital on planet earth.
Be able to explain how households are able to supply funds to the capital market.
Be able to explain how security markets (excha
WARREN E. BUFFETT ON
Excerpts from Essays of Warren Buezt: Lessons for
Lawrence A. Cunningham 36 CUNNINGHAM
B. Full and Fair Disclosure6
At Berkshire, full reporting means giving you the information
that we would
A CFO Interview
For most of the past 16 years,
shareholder activist Nell Minow has felt like a cross
between Chicken Little and the Little Red Hen. Her
calls for reforming corporate governance have
often been spurned by companies and ignored by
Introduc)on to Financial Management
On what statement, and where, would these items show up, or be
The spreadsheet contains sample financial statements. It is
intended as an introduction to the basic components of financial
statements. It is not a comprehensive overview of all financial
It is also meant to be used in conjunction with o
Chapter 1 Solutions
1-3. In a corporation, what group has the ultimate responsibility for protecting and managing the stockholders' interests? The board of directors. 1-5. What issue does agency theory examine? Why is it important in a public corporation
Valuation of a financial asset is based on determining the PV of future cash flows(and
appropriate discount rate)
Req. Rate of Return (discount rate aka Yield to maturity): depends on markets perceived
level of risk(competitively determined)
Ch. 15 Investment Banking
Inv. Banker- responsible for designing and packaging a security offering to sell
Capital Concentration-allows large firms to take additional risks and satisfy growing
capital mkt. debt mkt is much larger than equity mkt.
Ch. 14 Capital Markets
Capital Markets: securities w/ maturities >1 year(bonds, CS, PS, conv. Sec)
Worldwide CMs-rise of capitalism, reduced tcomm costs, inc. in trade=more demand for
Govt Securities- treasury can sell securities when to finance a sho
Readings/Other Material for Test 3
Capital Allocation-Vital Q: What will this project commit us to if it is successful?
How to measure and analyze the results of investments./
Buffets Acquisition Criteria-1:>75m in earnings, 2. Consistent earning power, 3
Ch. 20 Expanding the Perspective of Corporate Finance
Merger: combo of 2 or more companies in which the resulting firm maintains the
identity of the acquiring company. can cause a desirable portfolio effect, and improve
Ch.13 Risk and Capital Budgeting
Risk: measured in terms of losses as well as uncertainty; a higher expected value or
return for risky inv.; Risk increases over time
Expected Value: a weighted average of the outcomes(D) times their probabilities(P)
Ch.12 The Capital Budgeting Process
Administrative Considerations in Cap Budgeting Decision:1-Search for and discovery
of investment opp. 2-Collection of data. 3-Evaluation of decision making. 4-Reevaluation
Cash flow- dep. Is not an actua
Cost of Debt: measured by the int. rate(YTM), paid to bondholders; to find current YTM
, use Finding Yield from bond price ^ formula. after finding this, use (Kd(cost of
debt)= Y(1-tax rate) to find after tax rate b/c int. is tax deductible.
Ch. 8 Sources of Short Term Financing
Prime Rate: rate a bank charges to its most creditworthy customers.
LIBOR: u.s. prime rate competes with it.
Compensating Balance: business customers either pay a fee for the service or maintain
min. avg acct balance.
Ch. 16 Long-Term Debt and Lease Financing
Coupon Rate-actual int. rate on the bond. If int. rates go above or below CR, the mkt
price will change from par.
Indenture- Covers every detail surrounding the bond issue.
Secured Debt- specific assets are pledge
Cash and Cash Equivalents
Other Current Assets
Total Current Assets