Advanced Corporate Finance I SS 2012 Problem Set 1 Valuing Cash Flows Problem Set 1 Valuing Cash Flows Exercise 1 (Ex. 11.2 - 11.6 GT): Assume that Marriott’s restaurant division has the following joint distribution with the market return: Market Scenario Bad Good Great .25 .50 .25 Probability Market Return (%) -15 5 25 YR 1. Cash Flow Forecast $40 million $50 million $60 million Assume also that the CAPM holds. 11.2 Compute the expected year 1 restaurant cash flow for Marriott. 11.3 Find
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Genset (1989) Finance 661: Entrepreneurial Finance Instructor: Prof. Manuel Adelino March 22‚ 2014 Section 402: 12:30 -2:45 PM Prakhar Agrawal Abhay Pandey Locker: 302 1. There were multiple barriers to starting a biotechnology firm in France: A) Expensive fund-raising: Raising capital was a huge issue in France. Unlike US‚ France did not have a mature stock market. Hence‚ doing an IPO was not a viable option. Additionally‚ the Venture Capital market was risk averse in France due to certain cultural
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to be $3.0 million for each of the next 4 years and a horizon value of $10.0 million in Year 4. Tax savings are estimated to be $1 million for each of the next 4 years and a horizon value of $5 million in Year 4. New debt would be issued to finance the acquisition and retire the old debt‚ and this new debt would have an interest rate of 8%. Currently‚ the risk-free rate is 6.0% and the market risk premium is 4.0%. What
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proposed business. It implies that the business will face fluctuations in sales volume due to the extreme climatic changes. Financial Resources Sources of Finance for Revitalising Teahouse The possible sources of finance for the proposed business are provided as follows: • Loan capital in the form of a bank loan reflects the long-term finance for a start-up business over fixed period for the providence of loan‚ interest rate‚ and the time for repayments. Banks will require the owner of the proposed
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Issues 1. Explain why an individual investor might want to invest in an international growth fund? 2. Describe the risk associated with making an investment in an international growth fund. Identify the risks that would be common to domestic an international funds‚ and those risk that would be unique to an international fund. 3. Discuss how the fact that foreign companies are not subject to the same accounting‚ auditing‚ and financial reporting standards and practices as U.S. companies poses
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Bose Plc has developed a design for a new I-Pod Docking Station‚ and is considering whether it is viable to produce the product as a replacement for its existing product whose popularity has decreased in the last year. The company publishes its financial accounts at 31st December 2012‚ and today is 1st January 2012. As the financial manager of the business you have been provided with the following information: 1. The machinery required to produce the station will cost £100million today. The project
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Principles of Finance HW# 1 Question# 1-1: If you bought a share of stock‚ what would you expect to receive‚ when would you expect to receive it‚ and would you be certain that your expectations would be met? Answer: If I bought a share of stock‚ I would expect to receive a share of the company. Meaning either to vote in the company or receive paid dividends‚ depending on if I purchased common or preferred stock. I would expect to receive my share instantly. I would not be certain that my expectations
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Chapter One LG1 - Define finance and the managerial finance function. Finance is the science and art of managing money. Managerial finance: Raise money‚ invest money‚ and distribute money. LG2 - Describe the legal forms of business organization. A sole proprietorship is a business owned by one person and operated for his or her own profit. (73%) A partnership is business owned by two or more people and operated for profit. (7%) A corporation is an entity created by law. Corporations have
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Overview of Relevant Formulas Corporate Finance (B40.2302) _________________________________________________________________________________________ 1. Present value of $1 to be received after t years at discount rate r: 2. Present value of annuity of $1 per year for t years at discount rate r: $1 (1 + r )t ⎡1 − (1 + r ) − t ⎤ ⎢ ⎥ × $1 r ⎣ ⎦ 1 ⎡ (1 + g )t ⎤ 3. Present value of growing annuity of $1 at rate g per year at discount rate r: ⎢1 − ⎥ × $1 r − g ⎣ (1 + r )t ⎦ $1 r 4. Present value
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Chapter 10 The Cost of Capital LEARNING OBJECTIVES After reading this chapter‚ students should be able to: • Explain what is meant by a firm’s weighted average cost of capital. • Define and calculate the component costs of debt and preferred stock. • Explain why retained earnings are not free and use three approaches to estimate the component cost of retained earnings. • Briefly explain why the cost of new equity is higher than the cost of retained earnings‚ calculate the
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