Finance Final Study Guide FIN 331 – Moser – Study Guide for Exam 1 – Spring 2011 Important Concepts * Forms of Business Organization * Proprietorship- an unincorporated business owned by one individual * Partnership- legal arrangement between two or more people who decide to do business together * Advantages * Ease of formation * Subject to few regulations * No corporate income taxes * Disadvantages * Limited life
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------------------------------------------------- Chapter 15 Capital Structure Decisions ------------------------------------------------- ANSWERS TO END-OF-CHAPTER QUESTIONS 15-1 a. Capital structure is the manner in which a firm’s assets are financed; that is‚ the right-hand side of the balance sheet. Capital structure is normally expressed as the percentage of each type of capital used by the firm--debt‚ preferred stock‚ and common equity. Business risk is the risk
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FIN 501 Test 2 138 terms by Mila_Sambunjak Ready to study? ! Start with Flashcards Which of the following statements is CORRECT? a. You hold two bonds. One is a 10-year‚ zero coupon‚ issue and the other is a 10-year bond that pays a 6% annual coupon. The same market rate‚ 6%‚ applies to both bonds. If the market rate rises from the current level‚ the zero coupon bond will experience the larger percentage decline. b. The time to maturity does not affect the change in the value of a bond in response
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how much is the additional premium that Ethier’s shareholders require to be compensated for financial risk? If the company had no debt‚ its required return would be: Required return without debt rs‚U = rRF + bU RPM = = 5.5% + 1.0(6%) = 11.5% Required return with debt= rs‚L = rRF + bL RPM = =5.5% + 1.6*6% = 15.1% Premium extra required for financial risk is: =15.1% - 11.5% =3.6% Answer = 3.6%
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COST OF CAPITAL Directed Silicon Valley Medical Technologies - SIVMED was found in San Jose‚ CA‚ in 1982 by Kelly’s O’Brien‚ David Roberts‚ and Barbara Smalley. O’Brien and Roberts‚ both MDs‚ were on the research faculty at the UCLA Medical School at the time; O’Brien specialized in biochemistry and molecular biology‚ and Roberts specialized in immunology and medical microbiology. Smalley‚ who has a PhD‚ served as department chair of the Microbiology Department at UC-Berkeley. The company
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Chapter 8. Mini-Case Assume that you have just been hired as a financial analyst by Triple Play Inc.‚ a mid-sized California company that specializes in creating high-fashion clothing. Because no one at Triple Play is familiar with the basics of financial options‚ you have been asked to prepare a brief report that firm’s executives can use to gain a cursory understanding of the topic. To begin‚ you gathered some outside materials on the subject and used these materials to draft a list of pertinent
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Ace Repair: Q1: A. List: WACC= (%of debt) (after-tax cost of debt) + (% of preferred stock)(Cost of preferred stock) + (% of common equity) (Cost of common equity) =WdRd * (1-T) + WpsRps + WceRs Wd – the weights used for debt‚ Wps – the weights used for preferred equity‚ Wce – the weights used for common equity‚ rd – before-tax cost of debt‚ rps – cost of preferred stock‚ rs – cost of common equity‚ T – marginal tax rate B. Book weight of debt=long-term debt/ total capital=30
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Chapter 6 Interest Rates Learning Objectives After reading this chapter‚ students should be able to: List the various factors that influence the cost of money. Discuss how market interest rates are affected by borrowers’ need for capital‚ expected inflation‚ different securities’ risks‚ and securities’ liquidity. Explain what the yield curve is‚ what determines its shape‚ and how you can use the yield curve to help forecast future interest rates. Chapter 6: Interest Rates
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has average risk. If b > 1.0‚ stock is riskier than average. If b < 1.0‚ stock is less risky than average. Most stocks have betas from 0.5 to 1.5 The Security Market Line (SML) is part of the Capital Asset Pricing Model (CAPM) SML: ri = rRF + (RPM)bi RPM = (rM - rRF) Inflation increases the rM by however much I equals (ex. I= 3%‚ rM increases 3%). Slope remains the same. Moves entire SML. Impact of Risk Aversion: if RPM increases 3%‚ slope increases to make RPM increase by 3%. Slope increases instead
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BA – 316 Project Part 1 Identify a company Look at financial statements (from previous years‚ at least one year) Conduct ratio analysis. Use Dupont equation from results.. Make a financial statement Organize and Analyze Statements Make recommendations – how will you improve the forecast Strengths‚ weaknesses‚ etc. Part 2 Forecasting – Statistical Analysis Standard Goal of 10% Determine location of new funds (borrowing‚ issuance of stocks‚ capital)
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