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Intermediate Corporate Finance

by: Haylee Spencer

Intermediate Corporate Finance FIN 3414

Marketplace > University of Central Florida > Finance > FIN 3414 > Intermediate Corporate Finance
Haylee Spencer
University of Central Florida
GPA 3.79

Melissa Frye

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Melissa Frye
Class Notes
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This 2 page Class Notes was uploaded by Haylee Spencer on Thursday October 22, 2015. The Class Notes belongs to FIN 3414 at University of Central Florida taught by Melissa Frye in Fall. Since its upload, it has received 27 views. For similar materials see /class/227498/fin-3414-university-of-central-florida in Finance at University of Central Florida.

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Date Created: 10/22/15
N 9 Je 01 0 l 0 F0 O The cash flow from projects for a company is computed as the a sum of the incremental operating cash flow capital spending and net working capital expenses incurred by the project Payback is frequently used to analyze independent projects because 39 i easy and quick to calculate The total rate of return on a stock can be positive even when the price of the stock depreciates because of the39 a Dividend yield The elements that cause problems with the use of the IRR in projects that are mutually exclusive are a timing and scale problems A banker considering loaning a firm money for ten years would most likely prefer the firm have a debt ratio of imes interest earned ratio of 35 300 lower higher Discounting cash flows involves discounting all expected future cash flows to reflect the time value of money The present value of future cash flows minus initial cost is called e net present value of the project If its yield to maturity is less than its coupon rate a bond will sell at a interest rates will premium decrease this premium Which one of the following statements is correct if a firm has a receivables turnover measure of 10 a The firm has an average collection period of 365 days and increases in market The rate of return required by investors in the market for owning a bond is called the yield to maturity If a project has a net present value equal to zero then N 9 J l 0 O I O Interest rate risk I the present value of the cash in ows exceeds the initial cost of the project 11 the project produces a rate of return that just equals the rate required to accept the project 111 the project is expected to produce only the minimally required cash in ows IV any delay in receiving the projected cash in ows will cause the project to have a negative net present value a II III and IV only Which of the following statements concerning the effective annual rate are correct I When making financial decisions you should compare effective annual rates rather than annual percentage rates II The more frequently interest is compounded the higher the effective annual rate III A quoted rate of 6 compounded continuously has a higher effective annual rate than if the rate were compounded daily lV When borrowing and choosing which loan to accept you should select the offer with the highest effective annual rate I II and Ill only The changes in a firm39s future cash flows that are a direct consequence of accepting a project are called cash flows Incremental as the time to maturity increases increases at a decreasing rate The James River Co pays an annual dividend of 150 per share on its common stock This dividend amount has been constant for the past 15 years and is expected to remain constant Given this one share of James River Co stock is valued as if the dividend paid is a perpetuity The equivalent annual cost method is useful in determining a which one of two machines to purchase when the machines are mutually exclusive have different machine lives and will be replaced once they are worn out The most valuable investment given up if an alternative investment is chosen is an opportunity cost The stated rate of interest is 10 Which form of compounding will give the highest effective rate of interest continuous compounding Changes in the net working capital can affect the cash flows of a project every year of the project39s life Accepting positive NPV projects benefits the stockholders because the present value of the expected cash flows are greater than the cost 21 The market pnce ctr matunty bands rtuctuates cctmpareu wtth matunty bands as tntetest rates change a sherten Ess tenget Whtch ctne ctrthe rettewtng ts an eltampte eran tnctementat cashrtctw a the tent ctn sctme new machtnerythatts tequtteu retan upcctmtng ptctect Ftnanctat statements are rtequennythe bests useu rut penetmance eatuattctns s a True Each vatues shctutu atways be gtven precedence WEr mametvatues a Fatse Putenttat tenders ptace ttttte vatue ctn nnanctat statement tnrctrmattctn a Fats e Revtewtngrtnanctat tnrctrmattctn WEr mE has very ttmtteu vatue a Fatse Htstuncat mfurmattun has he vatue when prEthttng the future a Fatse a tntetnat rate at retum pretects have 5 yEarhvEs Pro m B 814093 2 51 Esrs 9 6 Netpresemmlue 39c a S s U 0 that Requtted AAR accept a pretectA anu retectptcttect 3 based ctn thett net present vatues an tttt t ttat t catteu rates N a ctmt t at The unuenytng assumpttun ctrthe deEnd gtehth mctuet ts that a stctch ts werth a the ptesentvatue at the rumte tncctme whtch the stctch generates


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