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exam 2 study guide

by: wendye10

exam 2 study guide FIN 3320


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Fin 3320 Exam Two Study Guide
Business Finance
James Richards
Study Guide
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This 2 page Study Guide was uploaded by wendye10 on Wednesday October 19, 2016. The Study Guide belongs to FIN 3320 at University of Texas at Dallas taught by James Richards in Fall 2016. Since its upload, it has received 4 views.


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Date Created: 10/19/16
Fin 3320 Exam Two Study Guide Computations 1. Proforma statement of income and project cash flows. 2. Payback, discounted payback, NPV, IRR, profitability index. 3. After tax salvage value. 4. Bond yield-to-maturity, market price 5. Stock value with constant, constant growth and multi-stage growth. 6. Implied market return on stock. 7. MARCS depreciation (you will be given rates). 8. Cash flow in year zero (initial cash flow) given sunk cost and opportunity costs. 9. Incremental sales for a project with negative side effects. Concepts 1. Callable bonds. A feature available for most bonds and preferred stocks that gives the issuer the ability to buy the security back from investors before the scheduled date of maturity. A surcharge might be assessed to the issuer if the security is repurchased. 2. Protective covenants in a bond indenture.  Protective Covenants Rules that restrict the actions of the issuer to maintain a consistent level of risk for the bondholder; examples would be limits on dividends that can be paid to stockholders & restrictions on acquisitions  Bond Indenture Three Part Contract Between: 1. The Bond Issuer 2. The Bondholder 3. The Trustee 3. Zero coupon bonds. A bond that has only one payment, which occurs at maturity • Make no periodic interest payments (coupon rate = 0%) • The entire yield-to-maturity comes from the difference between the purchase price and the par value • Cannot sell for more than par value • Sometimes called zeroes, deep discount bonds, or original issue discount bonds (OIDs) • Treasury Bills and principal-only Treasury strips are good examples of zeroes 4. Default, liquidity, and interest rate risk premiums. Liquidity: Availability of resources to meet short-term cash requirements. Interest rate risk: can be measured by the volatility of a bank's net interest income given changes in the level of interest rates 5. Dividend yield for stocks. which one of the following is computed by diving next years annual dividend by the current stock price 6. Pink Sheets. You are the sole shareholder of a small corporation. Presently, you wish to diversity your holding and thus want to sell a portion of your shares but do not want to incur the cost associated with SEC filling. which one of the following markets, if any m might be conducive to this sale 7. Payback period. The length of time a firm must wait to recoup the money it has invested in a project is called 8. Internal rate of return. Discount rate which causes the net present value of a project to equal zero 9. Profitability index. The present Value of an investment's future cash flows divided by the initial cost of the investment is called the PV/INITIAL COST 10.Net present value. The difference between the market value of a project and its cost • How much value is created from undertaking an investment? – The first step is to estimate the expected future cash flows. – The second step is to estimate the required return for projects of this risk level. – The third step is to find the present value of the cash flows and subtract the initial investment. 11.Mutually exclusive projects. if a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive us of the same piece of machinery. these projects are considered to be 12.Incremental cash flows. The difference between a firm's future cash flows if it accepts a project and the firms future cash flows if it does not accept the project is referred to as the projects 13.Sunk costs. Which one of the following cost has incurred in the past and cannot be recouped A cost that has already been incurred and cannot be removed and therefore should not be considered in an investment decision • Sunk costs – costs that have accrued in the past 14.Opportunity costs. the option that is foregone so that an asset can be utilized by a specific project is referred to as which one of the following Opportunity costs – costs of lost options 15. Side effects. a. Positive side effects – benefits to other projects b. Negative side effects – costs to other projects 16.Pro forma statements. financial statements projecting future years' operations Side effects


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