Corporate Finance:
Review for Final Exam
Professor Scott Hoover
Business Administration 221
1
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Introduction
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Time Value of Money
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Basic Intuition: Indifference
Present Value vs. Future Value
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Financial Statements (review)
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Financial Statement Analysis
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What questions are important in assessing the health of a firm?
The DuPont Relationship
Ratios
Difficulties with Financial Statement Analysis
2
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Financial Forecasting
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The Cash Budget
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Importance
The Typical Methodology (Percent-of-Sales Forecasting)
What is a cash budget?
Basic methodology
Growth Management
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What is the optimal growth rate for a company?
The Sustainable Growth Rate
3
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Financing
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How much debt should a firm have?
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A Second Look at ROE….
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Benefits of Debt
Drawbacks of Debt
The relationship between interest rates on debt and ROIC
FRICTO Analysis
Difficulties in determining the optimal level of debt
Financial Securities
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Bonds
Derivatives
Stock
4
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Capital Budgeting
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How are projects created?
Relevant Cash Flows
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Capital Expenditures
Salvage Cash Flows
Operating Cash Flows
Changes in Net Working Capital
Opportunity Costs
Externalities
5
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The Weighted Average Cost of Capital (WACC)
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Cost of Equity
Cost of Debt
Cost of Preferred Stock
Project Evaluation Techniques
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NPV
IRR
mutually exclusive projects
6
EXAM STRUCTURE
Topic
# of Problems
Points
General
4
40
Stocks
1
10
Capital Budgeting
3
50
# of Problems
Points
Problem Solving
4
60
Short Answer/Essay
4
40
Type
7