What are the three sources of financial value? ———time value, transformation value, and arbitrage FF32-92 Which statement most accurately describes the members on the Board of Directors? ——–They often are successful outsiders with careers unrelated to the mission of the company They are elected to the Board by shareholders They usually are not employees of the company FF29 The typical management hierarchy is a pyramid headed by the Board of Directors.

Underneath that are senior management, including the Chief Executive Office (CEO) and Chief Financial Officer (CFO). Which statement is most consistent with the textbook discussion. ——-The Office of the Treasurer typically administers the finance functions of the firm. The Office of the Controller typically administers the accounting functions of the firm. Besides the CEO, there are in a typical large corporation many senior management positions (e. g. , Marketing Chief; Head General Counsel, CFO) and no single-one can really be called most important. FF25

Choose the one statement that most correctly describes categorization schemes of the financial market ————-the equity market includes stocks that do not specify repayment schedules but instead represent a claim on residual cash flows the nature of the repayment promise is the distinguishing criterion when categorizing markets as either credit market or equity market the money market includes financial securities repayable within one year the distinguishing criterion when categorizing markets as either primary or secondary is whether the security is new or used (seasoned) the capital market includes financial securities repayable in more than one year he primary market includes stocks and bonds issued by the company to investors FF20 Which statement is most consistent with one or more of the principal-agent relationships that exist in corporate finance? ————-creditor/bondholders are the principals, management/shareholders are the agents, and the contested wealth is loans and debt employees are the principals, management/shareholders are the agents, and the contested wealth is pension contributions shareholders are principals, management is the agent, and the contested wealth is equity FF4 Which of the following mechanisms does not provide managers with an incentive to act in shareholders’ best interests? ————-a leveraged buyout of shares by managers FF31 According to the new view of corporate finance which statement provides the best description for the proper goal of the company? ————–maximize wealth creation ————————————————- QUIZ2 BS31 Three common anti-takeover measures often appear during contests for corporate control. Identify the statement that correctly describes the respective measure. ————-Golden parachutes are provisions approved by shareholders of potential takeover targets that provide management with lucrative payments in event they are terminated because of a take-over.

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A white-knight strategy occurs when a potential takeover target tries to find a friendly company to takeover the target in order to thwart an unfriendly raider. Poison pills are provisions approved by shareholders of potential takeover targets that, among other things, enable management to issue large numbers of new stocks to existing target shareholders. FA5 The company share price in the stock market is $50 . The equity book value per share according to the balance sheet is $62 . There are 510 million shares outstanding. Find the company market capitalization and equity price to book ratio. ———————Market Cap = 50*510 Price-to-Book= 50/62 FA3g

The balance sheet for the Raider Company shows Total assets of $11,600 financed by $3,900 of Debt and $7,700 of Stockholders’ equity. For the Target Company Total assets of $4,300 are financed by $1,500 of Debt and $2,800 of Stockholders’ equity. The Raider Company plans to takeover the Target Company. The Raider Company has 860 common shares outstanding, their equity price-to-book ratio is 6. 40, and their price-to-earnings ratio is 39. 7. The Target Company has 810 common shares outstanding, their equity price-to-book ratio is 0. 90, and their price-to-earnings ratio is 16. 5. The Raider Company offers 5 share(s) of Raider stock to Target shareholders that tender 67 Target shares (the exchange ratio is 0. 74627; assume fractional shares can be exchanged). Suppose tax effects and synergistic gains and losses equal zero; that is, accumulated sales, costs, and profits remain the same. After the Raider takes control of all Target shares, what is the total transfer of wealth from Raider to Target shareholders? ——————Market Cap(R)/7700=6. 40 Market Cap(R)=49280 Market Cap(T)/2800=0. 90 Market Cap(T)=2520 Market Cap= 49280+2520= 51800 ?W(R)=860*(51800/(860+810*5/67)-49280/860) ————————————————- =860*(56. 28-57. 30)? -877. 2 QUIZ3 BS23 Choose the most accurate statement about Initial Public Offerings (IPOs). ——— information disclosure requirements increase after the company goes public shareprices for IPO stocks during the first day of trading generally rise dramatically shareprices for IPO stocks generally underperform the overall market during the few years following the IPO FA19 The investor bought a share of company stock one year ago for $45 . Today the investor receives the annual dividend of $1. 80 and the stock’s current price is $60 . Find the stockholder’s annual rate of return. ———–ROR= (Price current + Dividend – Price1 year ago)/ Price1 year ago =( Price current + Dividend)/ Price1 year ago -1 =(60+1. 8-45)/45=0. 3733 FA15c

At year-end 2525 the company has Total assets of $7,800 financed by Debt of $4,200 and Stockholders’ equity of $3,600 . For 230 common shares outstanding, the equity price-to-book ratio at year-end 2525 is 1. 26. During 2526, the company expects an asset turnover ratio (= Salest / Total assetst-1 ) of 4. 5 and an operating margin (= (Sales – operating expenses) / Sales ) of 8. 0%. Interest charges will equal 6% of Debt. Corporate taxes equal 34% of taxable income and the payout ratio always is 45%. Your analyst tells you that at year-end 2526 the company price-to-earnings ratio will equal 3. 0. What is the shareholders’ rate of return for year 2526? ————- ROR= (Price 2526 + Dividend 2526– Price 2525)/ Price 2525 Market Cap 2525= Price-to book * Stockholder’s Equity= 1. 26*3600=4536 = Price 2525 NI=(Total Assets* Assets turnoever* Operating margin-Intest charge*Debt)* (1-Corporate taxes) =(7800*4. 50*0. 08-0. 06*4200)*(1-0. 34)= 2556*0. 66= 1687 Dividend 2526 =NI*Payout= 1687*0. 45= 759 Market Cap 2526 =Price-to-earnings * NI=3. 0*1687= 5061= Price 2526 ————————————————- ROR=(5061+759-4536)/4536= 0. 2831 QUIZ4 BS10 Which of the following descriptions of the New York Stock Exchange is false? (TRUE) it has the largest market capitalization of any stock exchange in the world securities mostly trade by open outcry (yelling & screaming) the NYSE is a profit-making member-owned self-regulatory organization daily volume averages $30-to-$50 billion and about 2,400-to-3,000 securities are listed companies must request and pay for their securities to be listed) BE1b The company computes that each unit of production incurs variable operating costs of $21 and sells for $30 . The company’s fixed costs are $29,750 per year. Find the number of units per year the company must sell to earn $50,000 of operating income. —————-Fixed cost+ EBIT/(Price- Variable operating costs= (29750+50000)/(30-21)=8861 BE3 The most recent annual report lists company Sales revenue at $65,200 . Cost analysis suggests that annual Total fixed costs equal $34,000 and Total variable costs equal $25,250 . The company believes that the ratio of Sales revenue to Total variable costs is constant.

Find the percentage decline in annual Sales revenue that would cause the company to fall to its operating breakeven point. Sales= Total fixed costs/ (1- Total variable costs/Sales revenue) =34000/(1-25250/65200)= 55489 %DS= (Sales-Sales revenue)/sales revenue ————————————————- = (55489-65200)/65200= -14. 9% ————————————————- QUIZ5 FF5 Which one statement about the legal form of business is most consistent? ————-An advantage of the corporation is that they raise capital more easily. disadvantage of the corporation is that they are subject to relatively complex government regulations. isadvantage of the corporation is that it has relatively high organizational costs. disadvantage of the sole proprietorship is that they do not offer limited liability to the owners. A disadvantage of the sole proprietorship is that they generally do not offer easy transferability of ownership. TQ2 Last year’s equity book value per share was $11. 80 . This year’s is $12. 99 . The number of shares increased from 23,700 last year to 26,260 this year (but maybe there was a stock split; maybe not). This year the company has New retained earnings of $50,300 . Find the value of Net equity issues for the company this year ——-B= SE/#shs Last year 11. 80= SElast/23700 This year 12. 99= SEnow/26260

SEnow= SElast+ NInow+ REnow 12. 99*26260= 11. 80*23700+ NI+ 50300 NI= 11. 2k (+ Net Sale – Net repurchases) BA12b At year-end 2525, Stockholder’s Equity is $3,500 and there are 100 common shares outstanding. For 2526, sales should equal $16,100 , the net profit margin (= net income / sales) is 5. 20%, the payout ratio (=dividends / net income) is 40%, and no shares are issued or repurchased. If the equity price-to-book ratio at year-end 2525 is 0. 69, and it moves to 0. 77 at year-end 2526, what is the shareholder’s annual rate of return for 2526? 3500*0. 69= 2415 (MC2525) 16100*0. 052=837 (NI) 837*0. 4= 335 (DIV2526) 837-335= 502 (502+3500)*0. 7=3082 (MC2526) ————————————————- ROR2526= (3082+335)/2415-1= 41. 5% ————————————————- QUIZ6 BS17 Which statement about a venture capitalist is most accurate? —- generally they are extremely involved in managerial decision-making venture financing represents a relatively small sum when compared to the larger banks and public capital markets venture financing typically involves an equity-stake in the company venture financing typically goes to small or mid-sized companies with a lot of potential usually their plans involve liquidating their investment after 4 to 7 years GR2a

The Company’s financial statements for year 2525 show that year-end Total assets of $2,135 include Plant, property, & equipment (PP&E) of $1,700 . The assets are financed by Debt of $435 and Stockholders’ equity of $1,700 . The annual Sales equal $8,300 , total costs equal $8,000 , Net income equals $300 , Dividends equal $100 , and New retained earnings equal $200 . For 2526 the asset turnover (sales/total assets), net profit margin (=net income / sales), payout ratio (=dividends/net income) and price-to-earnings ratio (now 20. 5) will be constant. The number of shares outstanding is 90. The firm seeks maximum growth by relying exclusively on retained earnings; external financing will be zero.

What is the sales growth rate? g international= NewRE/(Total asset- NewRE)= 200/(2135-200) =10. 3 EFN2b The Company’s financial statements for year 2525 show that year-end Total assets of $3,930 include Plant, property, & equipment (PP&E) of $3,000 . The assets are financed by Current liabilities of $1,710 , Debt of $1,020 , and Stockholders’ equity of $1,200 . The annual Sales equal $15,300 , total costs equal $15,100 , Net income equals $200 , Dividends equal $60 , and New retained earnings equal $140 . For 2526 the company plans 13. 70% sales growth. They plan to hold constant the asset turnover (sales/total assets) and payout ratio (=dividends/net income).

They plan to increase Current Liabilities spontaneously with sales, while holding Debt constant. Suppose the company decides to institute cost-cutting measures that should increase the net profit margin (=net income / sales) by 2. 00% above its value of year 2525. Given the above plan, how much external financing is needed for year 2526? NI= 15300*(200/15300+0. 02)*(1+0. 137)= 575 NewRE= NI*NewRe/Ni= 575*140/200= 403 EFN= TA- (THSE)/CC =3930*0. 137-(1710*0. 137+403)= -99 ————————————————- QUIZ7 FF14 The Efficient Market hypothesis (“EMH”) claims it is not possible to use an information set to consistently earn excess stock returns.

Which statement about different forms of the information set is most accurate? ——— for the strong form of the EMH the information set includes calendar, stock market, and all public and privately available data for the semi-strong form of the EMH the information set includes calendar, stock market, and all publicly available data for the weak form of the EMH the information set includes calendar and stock market data GR1 Find below the company’s income statement. Income, 1/1 – 12/31/2525 Sales $6,900 – all costs $6,600 = Net income $300 – Dividends $170 = New retained earnings $130 Total assets at 12/31/2525 equal $2,035 and the debt-to-assets ratio is 40%.

If the company is growing at their sustainable growth rate, what are Total assets at 12/31/2526? G= {130(1+0. 4/0. 6)}/2035-{130(1+0. 4/0. 6)} =217/2035-217 = 11. 9% TA2526= 2035*(1+11. 9%)= 2277 CF3a The Company balance sheet for year-end 2525 lists the following assets: Cash, $555 Inventory, $600 PP;amp;E, $1,500 Total, $2,655 and liabilities: Current liabilities, $835 Debt, $420 Stockholders equity, $1,400 Total, $2,655 For 2525 the Company’s asset turnover ratio (Sales2525 / Total assets2525) is 4. 6. Depreciation equals 20% of PP&E, and the gross profit margin (= Earnings Before Interest and Taxes / Sales) is 10. 60%. Interest expense equals 8. 80% of Long Term Debt.

Taxes equal 33% of taxable income, and the payout ratio (= Dividends / Net income) is 60%. There are no other items on the income statement for 2525. There are 70 shares outstanding. As a prospective investor in the Company’s shares, you are especially interested in their financial ratios. You know the price-to-earnings ratio at year-end 2525 equals 27. 7. More significant to you, however, is the price-to-cash-flow ratio (= shareprice / operating cash flow per share). What is the company’s price-to-cash-flow ratio? —-NI=(EBIT- IE)*(TAX) =(0. 106*4. 6*2655-0. 088*420)(1-0. 33) =(1295-37)(1-0. 33) =1258-415 =842 MC2525= NI2525* PER= 842* 27. 7= 23324 MC2525/CF = MC2525/(EBIT+ PPE- TAX)= 22324/(1295+0. 2*1500-415) =19. 8

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