CHAPTER 5
INTRODUCTION TO VALUATION: THE TIME VALUE OF MONEY
QUESTIONS AND PROBLEMS
Basic (Questions 115)
1.
Simple Interest versus Compound Interest (LO1) Bank of Vancouver pays 7
percent simple interest on its savings account balances, whereas Bank of C
Chapter 12
Some Lessons from Capital Market History
Multiple Choice Questions
1. Last year, T-bills returned 2 percent while your investment in largecompany stocks earned an average of 5 percent. Which one of the
following terms refers to the difference b
Lecture 4 Deal Structure and Tax Impact
4.1) lntroductioa
If one ﬁrm buys another ﬁrm, the transaction may be taxable or tax free, depending on
the deal structure. In a taxable structure the shareholders of the target ﬁrm are considered
to have sold their
CHAPTER 9
NET PRESENT VALUE AND OTHER INVESTMENT
CRITERIA
Learning Objectives
LO1
LO2
LO3
LO4
LO5
LO6
LO7
How to compute the net present value and why it is the best decision criterion.
The payback rule and some of its shortcomings.
The discounted payback
CHAPTER 7
INTEREST RATES AND BOND VALUATION
Learning Objectives
LO1 Important bond features and types of bonds.
LO2 Bond values and yields and why they fluctuate.
LO3 Bond ratings and what they mean.
LO4 How are bond prices quoted.
LO5 The impact of infla
CHAPTER 5
INTRODUCTION TO VALUATION: THE TIME VALUE
OF MONEY
Learning Objectives
LO1
LO2
LO3
LO4
How to determine the future value of an investment made today.
How to determine the present value of cash to be received at a future date.
How to find the ret
CHAPTER 8
STOCK VALUATION
Learning Objectives
LO1 How stock prices depend on future dividends and dividend growth.
LO2 The characteristics of common and preferred stocks.
LO3 The different ways corporate directors are elected to office.
LO4:The stock mark
CHAPTER 1
INTRODUCTION TO CORPORATE FINANCE
Learning Objectives
LO1
LO2
LO3
LO4
LO5
The basic types of financial management decisions and the role of the financial manager.
The financial implications of the different forms of business organization.
The go
CHAPTER 6
DISCOUNTED CASH FLOW VALUATION
Learning Objectives
LO1
LO2
LO3
LO4
How to determine the future and present value of investments with multiple cash flows.
How loan payments are calculated and how to find the interest rate on a loan.
How loans are
Lecture 1 Introduction
1.1) Study of Finance
1.1.1
1.1.2
There are 2 main branches in the study of ﬁnance:
0 Corporate Finance
0 Investments
Corporate Finance
It deals with how companies (in this case we assume that it is a large public company
with share
Lecture 2 The Legal and Regulatogy Framework
Corporate Governance & Performance
2.1) Why Regulators?
M&A (takeovers) are carried out in securities markets and they can cause wide price ﬂuctuations
with such activities. These can be very harmful to certain
Lecture 3 Accounting Treatmentsof M&A Activities
3.1) Background
Accounting is very important in M&A as:
0 one needs to see “behind” the numbers in a M&A transaction
0 combining ﬁrms always results in substantial different financial statements
(see also L
Lecture 10 Going Private and Leverage Buyouts
10.] ) Deﬁnitions
Going Private refers to the transformation of a public corporation into a privately held ﬁrm.
A leverage buyout ( LBO ) is the purchase of a company by a small group of investors using
high p
Lecture 12 Takeover Defence
12.1) Why Defend against Takeover ?
Some takeovers are classiﬁed as Hostile Takeovers' in other words, it is an attempt by the
potential bidder to acquire the target against the latter’s will, either that of management or the
m
Lecture 11 Merger Arbitrage
11.1) What is Arbitrage ?
As we have learnt in other ﬁnance courses, arbitrage is an investment strategy to take advantage
of an opportunity in which:
I one can improve on the return
I one does not need to bear any additional r
Lecture 8 Valuation of Private Companies for M&A Activities
8.1) Introduction
In Lecture 7, we have looked into valuating public companies using 2 methods:
0 the Comparable Companies Analysis ( for both public and private companies)
0 the DCF Analysis
On
Lecture cl History of Merger Activig & Statistical
Observation of M&A Performance
9.1) Background
After going through all the theories and causes on M&As in the previous lectures, this lecture
attempts to see if all the empirical studies done on M&A activ
Lecture 7 Detailed Analysis of M&A Proiects when “Target”
Is a Public Company
7.1) Introduction
As discussed in Lecture 6, the ﬁrst step to determine whether a company is a potential
target is to go through a very thorough “ financial review “ to look at
Lecture 6 Valuation of Potential Target Financial Performance
6.1) Why do some M&A Projects erode Shareholder Value ?
Often, bidders tend to overestimate targets’ values. People are subjected to cognitive errors
and emotional biases. An analyst might be o
Lecture 5 Why Buy up other Companies or their Assets ?
5.1) IntroductiOn
As discussed in Lecture 1, a public company’s mission is to enhance the share price
for its shareholders. A sure way of doing this is to generate a positive cash flow on a
continuous
Appendix A: Draft Treasury
Policy Document
Note: This is a sample policy document. Genuine first time buyers of the Handbook of Global
Corporate Treasury can download this template and amend it to suit the objectives of their
Treasury organization. Terms,
Assignment #2
Due date: October 12, 2016
1. (a) Mike invested $3000 at 4.5% compounded semiannually. After 18 months the rate
changed to 4.25% compounded quarterly. What amount will Mike have accumulated 4
years after the initial investment?
(b) If the to
and then ordering these r objects in r! ways.
Therefore
n
r
r!
!
r
= Pn .
Binomial Theorem.
(a + b)n =
n
X
k=0
!
n
k
ak b n k .
Some properties.
n
k
(1) Symmetry:
!
=
n
n
k
!
(2) Pascals triangle:
n
k
1
1
!
+
1
n
k
!
=
n
k
!
.
Pn
(3) k=0
n
k
!
= 2n .
Exam
Denition: The cumulative distribution function (c.d.f.) F (FX ) of a random variable X
is
F (x) = P (X x) = P (cfw_s 2 S : X(s) x).
Properties of the c.d.f.:
1. 0 F (x) 1
2. If x y then F (x) F (y).
3. F ( 1) = 0, F (+1) = 1.
For any a b 2 R,
F (b)
F (a)
Example: Nissan sold three models of cars
in North America in 1999: Sentras, Maximas
and Pathnders. Of the vehicles sold, 50%
were Sentras, 30% were Maximas and 20%
were Pathnders. In the same year 12% of
the Sentras, 15% of the Maximas and 25%
of the Pat
Example: n dierent letters were sent to
4 dierent addressees at random. Find the
probability that at least one goes to the right
address.
Solution. Dene events
Ai = ith letter goes to the right address
for i = 1, . . . , 4. We need to calculate
1
P (A1
Capital Budgeting Techniques
A. NON-discounted CF (Cash Flow) techniques
1. Total Cash Flow (CF)
TCF = CF (NOT discounted)
2. Accounting rate of return (ARR)
Average annual [after tax] income
ARR =
Average investment over project life
3. Payback period (P
SECTION I Questions 1-5 are worth 2 marks each
Answer TRUE (T) or FALSE (F) by circling the appropriate letter
1) A project that has a discounted payback period longer than its life
must have a positive NPV T F <
2) When multiple IRRs exist, a project mus
SECTION I Questions 1-5 are worth 2 marks each
Answer TRUE (T) or FALSE (F) by circling the appropriate letter
1) By using a firm's WACC to analyze all potential investments, there is
no risk of T F *
incorrectly accepting some unsuitable projects
2) It i
CORPORATE TAXATION IN CANADA
Prof. Michel L. Bilodeau
1
Corporate Income Taxes
Corporate taxes paid to
both the federal and
provincial governments
Income from all Sources
Less
Allowable Expenses
and Deductions
Equals
Taxable Income
Times
Tax Rate
Equals
T