1

Corporate Finance:Review for Final Exam

Professor Scott Hoover

Business Administration 221

2

Introduction

Time Value of Money Basic Intuition: Indifference Present Value vs. Future Value

Financial Statements (review)

Financial Statement Analysis What questions are important in assessing the health of a firm? The DuPont Relationship Ratios Difficulties with Financial Statement Analysis

3

Financial Forecasting Importance The Typical Methodology (Percent-of-Sales Forecasting)

The Cash Budget What is a cash budget? Basic methodology

Growth Management What is the optimal growth rate for a company? The Sustainable Growth Rate

4

Financing How much debt should a firm have?

Benefits of Debt Drawbacks of Debt

A Second Look at ROE…. The relationship between interest rates on debt and ROIC

FRICTO Analysis Difficulties in determining the optimal level of debt

Financial Securities Bonds Derivatives Stock

5

Capital Budgeting How are projects created? Relevant Cash Flows

Capital Expenditures Salvage Cash Flows Operating Cash Flows Changes in Net Working Capital Opportunity Costs Externalities

6

The Weighted Average Cost of Capital (WACC) Cost of Equity Cost of Debt Cost of Preferred Stock

Project Evaluation Techniques NPV IRR mutually exclusive projects

7

EXAM STRUCTURE

Topic # of Problems Points

General 4 40

Stocks 1 10

Capital Budgeting 3 50

Type # of Problems Points

Problem Solving 4 60

Short Answer/Essay 4 40