a. Why is corporate finance important to all managers? Corporate finance is important to all mangers because it lets them know the company’s financial situation before any decisions can be made within the organization. It helps managers develop strategic financial issues associated with achieving goals. Having a solid understanding of corporate finance helps mangers find ways to raise and manage its capital‚ which type of investments the firm should make‚ if profits are earned‚ how these profits
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Having studied this chapter you will be able to: Evaluate the potential value added to a firm arising from a specified capital investment project or portfolio using the net present value model. Project modelling should include explicit treatment of: (a) Inflation & specific price variation (b) Taxation including capital allowances and tax exhaustion (c) Single & multi-period capital rationing to include the formulation of programming methods and the interpretation of their output (d) Probability
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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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In recent years there has been considerable growth in the use of credit derivatives‚ which protect lenders against the risk that a borrower will default. For example‚ bank A may be reluctant to refuse a loan to a major customer (customer X) but may be concerned about the total size of its exposure to that customer. Speculators in search of large profits (and prepared to tolerate large losses) are attracted by the leverage that derivatives provide. By this we mean that it is not necessary to lay out
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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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MenuItem 10: (Topic 10) Medium- to long-term debt Question 1: Manufacturer Limited is seeking a five-year term loan from its bank. The bank manager has indicated that a loan can be provided and will be priced at the bank’s base rate‚ plus a margin. Which of the following is not a determinant of the margin to be paid by the company? A: the debt to equity ratio of the borrower B: the borrower’s past loan-repayment performance C*: the term structure of interest rates D: the assets available to
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CHAPTER 8 MAKING CAPITAL INVESTMENT DECISIONS Answers to Concept Questions 1. In this context‚ an opportunity cost refers to the value of an asset or other input that will be used in a project. The relevant cost is what the asset or input is actually worth today‚ not‚ for example‚ what it cost to acquire. 2. a. Yes‚ the reduction in the sales of the company’s other products‚ referred to as erosion‚ should be treated as an incremental cash flow. These lost sales are included because
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Corporate Finance Case Study: Volkswagen Volkswagen (VW) Volkswagen (VW) is a German automobile manufacturer which was originally founded in 1937. Now VW Group is one of world’s leading automobile manufacturers and the largest carmaker in Europe‚ with its recent headquarter in Wolfsburg. VW is one of the ten brands under VW Group. (Volkswagen Homepage‚ 2011) 2011 VW’s revenue is 159‚337 million EUR; net income is 15‚409 million EUR‚ with a profit margin of 9.6707%. (Bloomberg
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Valuation- “projected financial performance into values.” Involves projecting/ making budgets. Value of an Asset = Value of Cash Flow (CF) it Will Generate (not profits) CF=1/(1+r)^1 value is based on three things- Current Cash Flow‚ Expected growth (used with to estimate future cash flow)‚ Riskiness of expected future cash flow (discount rate).Net Present Value- Value CFs using project discount rate based on risk Investment Decision-which real assets the firm should acquire.Choose positive and
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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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