about a firm ’s relative performance over time‚ and make informed investment decisions. Financial ratios are classified into five major categories that highlight a firm ’s (1) liquidity‚ (2) efficiency‚ (3) financial leverage‚ (4) profitability and (5) value. (1) Liquidity Liquidity ratios provide an indication of a firm ’s short term financial situation expressing the extent to which a firm is able to pay off its debt as it comes due over the next year. The major liquidity ratios are: • Current
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questions of corporate finance? a. Investment decision (capital budgeting): What long-term investment strategy should a firm adopt? b. Financing decision (capital structure): How much cash must be raised for the required investments? c. Short-term finance decision (working capital): How much short-term cash flow does company need to pay its bills. ( Describe capital structure. Capital structure is the mix of different securities used to finance a firm’s investments
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Project Finance in Developing Countries THE IMPORTANCE OF PROJECT FINANCE Chapter 1 In the past twenty years there has been a new wave of global interest in project finance as a tool for economic investment. Project finance helps finance new investment by structuring the financing around the projects own operating cash flow and assets‚ without additional sponsor guarantees. Thus the technique is able to alleviate investment risk and raise finance at a relatively low cost‚ to the benefit of
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should be able to: • Explain what is meant by a firm’s weighted average cost of capital. • Define and calculate the component costs of debt and preferred stock. • Explain why retained earnings are not free and use three approaches to estimate the component cost of retained earnings. • Briefly explain why the cost of new equity is higher than the cost of retained earnings‚ calculate the cost of new equity‚ and calculate the retained earnings breakpoint--which is the point where new equity
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characteristics of project finance Project finance is a form of long term financing of infrastructure and industrial projects based upon the projected cash flows of the project rather than the balance sheets of the project sponsors. In most cases‚ a project financing structure involves a number of equity investors‚ the sponsors‚ as well as a group of banks or other lending institutions that provide loans to the operation. The loans are usually non-recourse loans‚ which are secured by the project assets and
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CORPORATE FINANCE – CONCEPT QUESTIONS Class Notes - Introduction to Corporate Finance 1. Finance point of view: Corporation: a money processing machine? * Product markets: everything what corporates make (lead with customers‚ suppliers‚ labor) * Capital markets: generic term for the entities which supply cash to this money processing machine‚ and the processing machine uses the money to do things and then periodic sends money back to the capital market there are inflows from the
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based on past experience: * 10% of sales are received in the form of cash in the month they occur * 50% of sales are received in the month following the sale * The remaining 35% is received in the second month following the sale 5% of sales remain uncollectable. * Sales in November and December of 2010 for PFL were $450‚000 and $500‚000 respectively. * PFL has $100‚000 invested in a managed fund that pays investment income of $1‚350 in February‚ April‚ June‚ August‚
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Final Exam Corporate Finance FINC 650 1. Which of the following is not considered a capital component for the purpose of calculating the weighted average cost of capital as it applies to capital budgeting? a. b. c. d. e. Long-term debt. Common stock. Short-term debt used to finance seasonal current assets. Preferred stock. All of the above are considered capital components for WACC and capital budgeting purposes. 2. A company has a capital structure which consists of 50 percent debt and 50 percent
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value? (a) $684.78 (b) $720.82 (c) $758.76 (d) $798.70 (e) $838.63 Student Answer: Answer: d. $798.70 Straight debt value=(N= 10‚ I/YR = 8‚ PMT = 50‚ FV = 1‚000) = $798.70 Instructor Explanation: Answer is: d Chapters 23 and 24 Inputs to find the straight-debt value: N = 10; I/YR = 8; PMT = 50; FV = 1‚000. $798.70 Points Received: 10 of 10 Comments: Question 3. Question : (TCO B) Vu Enterprises expects to have the following data during the coming year. What is Vu’s expected
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Corporate Finance: An Introduction (Welch) Chapter 1 Introduction 1.1 The Goal of Finance: Relative Valuation 1) Which of the following statements is true? A) In finance‚ it is important to determine an asset ’s absolute value. B) The relative value of any asset is‚ at best‚ a lucky guess. C) The true value of an asset is unaffected by externalities such as interest rate levels‚ the state of the economy‚ etc. D) Valuation is not an exact science
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