Fin 400 Final Exam Review
Term Final Exam Preparation
(Note: This document includes practice examples from chapters covered only after the mid term. Your term final exam will be a comprehensive one and will include all chapters both before and after mid term exam.)
FIN 300 Review: Basic Capital Budgeting
Ch. 14: Calculating WACC Calculating the growth rate of dividends
Ch. 15: Value of a right (including flotation) Dilution (three types) IPO underpricing (Winner’s Curse)
Ch. 16: Indifference EBIT M&M Propositions and the Static Theory Homemade Leverage
Ch. 17: Mechanics of a Dividend (price impacts of cash and stock dividends/splits) Homemade Dividends Strict Residual Dividends
Ch 22: Net Advantage of Leasing (NAL) Break-even Lease Range of Lease Payments
Ch. 23 M&A with cash M&A with stock swap
Ch. 24 Read a futures quote Read an option quote Create a simple hedge
Ch. 25 Types of options and payoffs Intrinsic and time value Factors influencing option value Convertible bonds Warrants
Chapter 15
Probably one of the easier chapters. Make sure you read it over because there is a lot of detail there that might show up in M/C questions. Off the top of my head, there is Venture Capital, the types (firm commitment, best efforts, bought deal) and costs (direct and indirect) of underwriting, the mechanics of equity issues and issuing long-term debt. But, since the focus of this review is the problems, the main types of problem concern dilution, direct and indirect costs, the winner’s curse and the value of a right.
The value of a right is covered in the book and there are several formulae, but I find it easier to attack these things with another “recipe”. If I always do them the same way, after a while, they start to look pretty easy. Here is an example:
Big Al’s Cajun Grill Inc. (BACG) wants to raise some money with a new equity issue. It decides on a rights issue because Big Al’s
(Note: This document includes practice examples from chapters covered only after the mid term. Your term final exam will be a comprehensive one and will include all chapters both before and after mid term exam.)
FIN 300 Review: Basic Capital Budgeting
Ch. 14: Calculating WACC Calculating the growth rate of dividends
Ch. 15: Value of a right (including flotation) Dilution (three types) IPO underpricing (Winner’s Curse)
Ch. 16: Indifference EBIT M&M Propositions and the Static Theory Homemade Leverage
Ch. 17: Mechanics of a Dividend (price impacts of cash and stock dividends/splits) Homemade Dividends Strict Residual Dividends
Ch 22: Net Advantage of Leasing (NAL) Break-even Lease Range of Lease Payments
Ch. 23 M&A with cash M&A with stock swap
Ch. 24 Read a futures quote Read an option quote Create a simple hedge
Ch. 25 Types of options and payoffs Intrinsic and time value Factors influencing option value Convertible bonds Warrants
Chapter 15
Probably one of the easier chapters. Make sure you read it over because there is a lot of detail there that might show up in M/C questions. Off the top of my head, there is Venture Capital, the types (firm commitment, best efforts, bought deal) and costs (direct and indirect) of underwriting, the mechanics of equity issues and issuing long-term debt. But, since the focus of this review is the problems, the main types of problem concern dilution, direct and indirect costs, the winner’s curse and the value of a right.
The value of a right is covered in the book and there are several formulae, but I find it easier to attack these things with another “recipe”. If I always do them the same way, after a while, they start to look pretty easy. Here is an example:
Big Al’s Cajun Grill Inc. (BACG) wants to raise some money with a new equity issue. It decides on a rights issue because Big Al’s