Study Guide for Exam 3 (Friday, April 3rd at 8:00am)
Know the effects of a negative externality on the market.
Identify an example of a negative externality.
Know how to portray a negative externality on a graph.
Know why an externalit
1. What is the major goal of finance? How does this mesh with profit maximization?
2. How does the study of investments fit in the study of finance and what careers are
3. What is a sole proprietorship compare and contrast it to a p
Chapter 12 (Notes): Capital Budgeting: Decision Criteria
1. Discuss three potential problems with IRR. (What are the problems, why do they
happen, when do they happen?)
Internal Rate of Return (IRR) cannot be used to make decisions about two
Sweet Dreams, Inc.
Financial Analysis and Forecasting
2. After finding the results of question 1, it is obvious that SDI has more weaknesses than
strengths as of 1995. If you look at the common size statements (Table 3), it shows that
Chapter 11 (Notes): Corporate valuation
2. What are free cash flows and how are they calculated?
Free cash flows (FCF) are the cash from operations that is actually available for
distribution to investors. Computation of free cash flows:
FCF= NOPAT Net In
Asset Management Ratios
Inventory Turnover Ratio (Cost)
In 1993, the companys inventory turnover ratio was 7.17, which was above the industry
average of 5.50. In 1994, it decreased below that average because of lower sales and
The debt ratio was 38.73% in 1993 and 45.12% in 1994. So, we can see that from 1993 to
1994, SDIs debt ration was less than the industry average. In 1995, the company took a
long-term loan to support its inventory lev
Chapter 10 (Notes): Determining the Cost of Capital
1. Why is there a specific adjustment for taxes when calculating the cost of debt but not
when calculating the cost of common equity?
There is a specific adjustment for taxes when calculating the cost of
Chapter 9 (Notes): Financial Analysis and Forecasting
2. Discuss the importance of being able to accurately forecast sales, highlighting potential
methods and their downsides.
It is important to accurately forecast sales because sales forecast is the prim
March 3, 2016
The economic sides of vaccines positive externalities
We talked about positive and negative externalities in class. So, I decided to
look for a current article that will allow me to learn more about externalities
and the impa
Sweet Dreams Inc. was doing well with a profit margin of 5.78% in 1993, which was
above the industry average of 3.50%. This can be explained by the fact that 5.78% of
revenue was kept. However, due to reduced
Chapter 6 Bond Valuation
Valuing a security, such as a corporate bond or stock, is nothing more than
calculating the present value of cash revenue from the security.
Bond vocabulary (corresponding to time value of money keys)
Face value or Par is the prin
Nominal Interest rate, rate of interest on a given security is the sum of risk-free
rate of interest and risk premiums;
R = RF + Risk premiums.
RF is return on risk-free securities. Normally, we use 90-day T-bill rate as the
Time Value of Money
Net present value is an important concept which is widely used in corporate
capital budgeting and investing. It is derived from the concept of time value of
Simple interest rate: interest paid only on principle of inve
Chapter 1 Overview of Managerial Finance
Finance is a subject about money or cash flows. It is derived from Economics. It
covers Financial Markets & Institutions, Investments, and Managerial /Corporate
Finance. The following are major topics included in C
Corporate bond represents debt, while common stock represents equity, firms
own capital. A hybrid security is preferred stock.
Preferred stock is essentially a perpetuity, because a preferred stock, like a
common stock, does not
Chapter 12 Capital Structure
Capital structure: Optimal vs. Target
Business risk: Risk of operation
Standard deviation of ROE is a business risk measure for a debt-free company.
Financial risk: Risk of using debt, in addition to business risk.
A key part of capital asset investing or capital budgeting process is about how to
evaluate and rank possible investment projects.
Mutually exclusive projects vs. Independent projects.
There are five well-known techniques used
Chapter 10 Project Cash flows
Cash flows relevant to capital budgeting:
1. Initial investment (cash outlay)
2. Incremental cash flow (operating cash flow)
3. Terminal cash flow
Price of new assets
+Increase in net working capital
Chapter 6 Vocab Review Finance 3330 Tammy Rogers 2013
Prinicipal Value- Face value- Maturity value- Par value, all are same
Interest Payments- payments made in addition to the repayment of principal. Gives the lender an
extra portion of the return
Chapter 6 Bond Notes Finance 3330 Tammy Rogers 2013
Issuer of a bond is borrowing money (principle, face value, maturity value, par value) all mean
Always assume par value of $1000 if not given
Maturity- time to maturity date
Maturity date- date
Chapter 8 Notes Finance 3330 Tammy Rogers 2013
Portfolio- collection of assets you own
To calculate weighted average, divide by overall value of the portfolio
The riskiness of a portfolio is reduced as we add more stock
The less your stocks are positively
Chapter 7 Notes Finance 3330 Tammy Rogers 2013
Preferred Stock(Hybrid)- shows some characteristics of bonds (fixed dividend amounts) and
some of stocks (ownership, residual claim, get dividends first)
-Par Value- face value
-Cumulative Earnings- dividends
Finance 3330 In Class Example WACC Tammy Rogers 2013
Roger Clark opened a small restaurant business in Tennessee 10 years ago. His company grew
and he decided to issue stock to the public 5 years ago and Rogers Restaurants Inc. (RRI) was
formed. The stock
1) XYZ, which has a marginal tax rate equal to 34%, has preferred stock that pays a
constant dividend equal to $15 per share. The stock currently sells for $125. If the
company incurs a 3% flotation cost each time it issues preferred stock, what is the co
UC - DAVIS Graduate School of Management Management 205 Financial Theory and Policy Homework 1 Acid Rain: The Southern Company (A) Based on the information provided in the case, answer the following questions. In answering these questions, use clear and c