Corporate Investment and Financing
1. ; What is an advantage of the corporate form?
2. ; What is the major disadvantage of the corporate form?
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3. ; What is agency cost and between what two stakeholders does this occur?
4. ; What are two things that can be done to reduce or mitigate agency cost?
5. ; What is the difference between a public and private corporation?
6. ; What is the title of the top financial officer in most corporations?
7. ; Give two reasons managers should act in the shareholder’s interest?
8. ; What is the financial goal for most publically traded corporations?
9. ; How would you find the value of a$100 perpetuity with at required return of 10%?
10. ; Where would you find an annuity in reality?
11. ; Is the annual percentage rate or (APR) an effective rate or a simple rate of interest?
12. ; What is the difference between the present value and the net present value?
13. ; What happens to the effective rate of return if the nominal rate is compounded more often?
14. ; How often do bonds issued inside the United States typically pay interest payments?(annual or semi-annual)
15. ; What is unique about how US treasury bonds are quoted?
16. ; If overall interest rates increase, which bond would have a greater price change? (a 20 year 6% bond or a 2 year 6% bond)
17. ; What is the normal shape of the term structure of interest rates?
18. ; What is the expectations theory of the term structure of interest rates?
19. ; What is the difference between the real interest rate and the nominal risk-free interest rate?
20. ; What do we typically use as a proxy for the nominal risk free interest rate in the US?
21. ; What is the job of the specialist?
22. ; How could a company have high earnings and yet a low ability to pay out dividends?
23. ; What happens to the growth rate as a company matures?
24. ; How would you use market information to get a ballpark guess at the required return?
25. ; To be a value increasing growth opportunity the return on the project must be higher than what?
26. ; What is the payout ratio?
27. ; What are free cash flows?
28. ; Which decision model gives its answer as wealth created per dollar initially invested?
29. ; Which decision model gives its answer in years in present value terms?
30. ; What are two major weaknesses of the payback method?
31. ; Between Exxon and a small business, which is more likely to use the profitability index?
32. ; What causes multiple internal rates of return?
33. ; What is the difference between soft rationing and hard rationing?
34. ; Real cash flow should be discounted at what rate of return? ; Real or nominal?
35. ; What is meant by the incremental payoff from a project?
36. ; I have a piece of land that I am currently renting to a farmer. ; I am considering building a business on this property. ; Is this an example of an opportunity cost or a sunk cost?
37. ; My business is growing and accounts payable is expected to increase from $10,000 to $15,000 from this year to next. ; Would this be a source or use of funds or a positive or negative cash flow?
38. ; What is the role of depreciation in capital budgeting?
39. ; What does the equivalent annuity method allow you to do?
40. ; Where are the interest cost accounted for in the capital budgeting process (in the estimated cash flows or in the discount rate for a project)?
41. ; Acceptance of the project will cause overhead that is presently $100,000 to increase to $110,000. ; How much if any overhead should be allocated to the project?
42. ; What is the present value of $100 expected in two years from today at a discount rate of 6% is:
45. ;A bond has a coupon rate of 5%, par or maturity value of $1000 and matures in five years. The interest payments are made annually. Calculate the price of the bond if the market rate is 3.5%. ;
46. A bond has a coupon rate of 5%, par or maturity value of $1000 and matures in three years. The interest payments are made annually. Calculate the yield to maturity of the bond if the price of the bond is $1060.
47.The In-Tech Co. has just paid a dividend of $1 per share and is expected to pay $1.25 in year 1. The dividends are expected to grow at 25% per year for the next three years (years 2,3,4)and at the rate of 5% per year thereafter. If the required rate of return on the stock is 18%(APR), what is the current value of the stock?
Given the following cash flow for project A: C0= -3,000, C1= +500, C2= +1,500 and C3= +5,000. ;Using a 15% discount rate:
48.Calculate the NPV ;
49.Calculate the PI
50.Calculate the IRR
51.Calculate the Payback
52.Calculate the PV Payback
53.For project Z, year 5 inventories increase by $6,000, accounts receivables increase by $4,000 and accounts payables increase by $3,000. Calculate the incremental investment in working capital for year 5. ;
**** Can be a few word answers each! DO NOT NEED ANY LONG ANSWERS***