CORPORATE FINANCE
NAIN
6F 117
AMRITA
SAMPLE MIDTERM
TOTAL POINTS
TOTAL TIME
NAME
SECTION
:
:
50
75 minutes
:
:
9.30 / 11.30
(Circle your section)
INSTRUCTIONS
This is a closed book exam.
You may use
12-2.
Suppose the market portfolio has an expected return of 10% and a volatility of 20%, while
Microsofts stock has a volatility of 30%.
a.
b.
WhatwouldvebrfMicsqtyoaplbeu10%?
a.
No, volatility inclu
Key Concepts For Mini-Test on Thursday, February 9
Please make sure you understand and remember these key concepts. They will definitely
help you during my exams and in future Finance courses
Note: Ne
CORPORATE FINANCE LECTURE 1
Google and General Motors Example
Google
General Motors
$millions
Long Term Debt
Short Term Debt
Share Price
Total Assets
Total Liabilities
Cash
Short Term Investments
Shar
Feedback from Section 1 this morning suggested that the two least clear concepts today were
1. The difference between total risk and systematic risk
2. How is beta estimated? What does the Cisco/S&P 5
Key Concepts from Lecture 8
1. The main benefit of debt is the interest tax deductibility which reduces the effective cost of
debt
2. The value of the tax benefit of debt is calculated as the present
Key Concepts from Lecture 9
1. Free Cash Flow to the Firm (FCFF) is operating cash flow free to distribute to all
stakeholders of the firm after the firms reinvestment needs and operating expenses hav
6F117
CORPORATE FINANCE
AMRITA NAIN
FORMULA SHEET
1. Unlevered cost of capital or pre-
tax WACC is written as
!
!
! = ! ! + ! !
The same formula can be r
Key Concepts from Lecture 9 and 10
1. According to the WACC (weighted average cost of capital) method, levered enterprise
value is calculated as the present value of future free cash flows to the firm
P ERMNO
DAT E
COMPANY NAME
T ICKER
19502 20070131 WALGREEN CO
WAG
19502 20070228 WALGREEN CO
WAG
19502 20070330 WALGREEN CO
WAG
19502 20070430 WALGREEN CO
WAG
19502 20070531 WALGREEN CO
WAG
19502 2007
LECTURE 4: MORE EXAMPLES
Example 4
You need to estimate the cost of equity of a large manufacturing company for which you
require a beta. The firms beta available via Bloomberg is 1.2. This beta is es
Key Concepts for Mini Test on Feb 23
1. A firms unlevered cost of capital or asset cost of capital is independent of the tax benefits of
debt and is equal to
2. A firms unlevered beta or asset beta is
Market Leverage
Market-to-Book
PE Ratio
Current Ratio
Gross Margin
Operating Margin
Net Profit Margin
Return on Equity
Revenue Growth
2011
2010
2009
Walmart Target
Lowes
Best Buy Costco Home Depot McD
6F117
CORPORATE FINANCE
AMRITA NAIN
FORMULA SHEET
1. Market D/E ratio = Book Value of Debt/ Market Value of equity
2.
3.
4.
Gross M arg in =
Gross Profit
Sales
Operating M arg in =
Operating Income
Sa
Free Cash Flow Can Also be
Calculated as
FCF =
EBIT * (1-T)
+ Increase in non-interest bearing current liabilities
- Increase in non-cash current assets
- Capital Expenditures
+ Depreciation
FCF =
Pro
CORPORATE FINANCE
GROUP PROJECT: PART III
AMRITA NAIN
DUE DATE: APRIL 26, 2012 BEFORE THE START OF LECTURE
We will work on this project in class on April 19th. Please DO NOT skip project-work lectures
Concept Sheet for Lecture 6
Proposition I of Modigliani and Miller
(i) In perfect capital markets total value of a firm is equal to present value of total
cash flows generated by its assets
(ii) and
CORPORATE FINANCE
ASSIGNMENT 2
AMRITA NAIN
Group Project: Part II
(Due date: March 29, 2012)
The objective of this assignment is to estimate a cost of capital for your firm. I will provide the
histori
PLEASE LEARN THE FOLLOWING 5 FORMULAS / CONCEPTS FOR THE
FORMULA FUN SESSION ON JAN 24
Since this is the first game, the odds are in your favor. If 50% of the class scores 100% on the
test, the class
Example 4
Beta available from Bloomberg is no longer relevant because the firm's leverage has changed.
Beta is estimated using stock returns over the previous five years and, therefore, reflects past
LECTURE 4 EXAMPLES
Example 1: Cost of Capital
You are the CFO of a privately owned software business and are considering investing in
a new product. To evaluate the NPV of the project, you need an est
More examples for Lecture 7 (Modigliani Miller II)
1. Assume a Modigliani-Miller world with perfect capital markets ( no taxes, no
bankruptcy costs etc). A firm has a debt-equity ratio of 0.35. Its co
EXAMPLES OF VALUATION USING WACC METHOD
Example 1
A company had 2011 Free Cash Flow to the Firm (FCFF) of 200 million. FCFF is
expected to remain the same for the indefinite future. Cost of capital is
CORPORATE FINANCE
6 Fl17
AMRITANAIN
MIDTERM
March 6, 2012
Total Points: 5 0
Total Time: 75 minutes
NAME
SECTION
9 :30
I 1 1:00
(Circle your section)
INSTRUCTIONS
This is a closed bo
Example to understand the various inputs in a cost of equity calculation
You run a small company in the gourmet food industry and are considering expanding to
neighboring towns. You are seeking equity