Chatper 1
Goal of a corporation, how?
Maximize shareholder wealth,
Make decisions that maximizes the price of common stock
Tree Fund Corp. has total current assets of $1mil., total long-term liabilities of $2mil. and total long-term assets of $2mil. How much are the firm's total Liabilities and Equity?
Balance Sheet
$3mil.
Increase in Inventory, what happens to Cash Flow?
Cash outflow
You won a lottery and told you will receive $10,000 per year for 10 years. What is the equivalent of these cash flows now, assuming 5% interest rate?
PV of annuity
pmt = 10000
n = 10
r = 5%
Answer: $77,217.4
What is IPO and what is the market called where IPO happens?
The initial public offerings , primary market
Name two closing costs when buying a home
Origination fee, points, down payment, title fee, insurance fees etc
The results of subtracting cost of goods sold from sales
Gross Profit
Cash flow from Operating activities
Net income
+ depreciations expenses
+(-) Current Account decresae (increase)
+(-) Current Liabilities Increase (decrease)
A series of equial payments made for a specific number of periods
Annuity
If you were to get a loan to buy a car (worth $50000), interest rate 6% compounded monthly, and borrowing form 4 years, what is the monthly payment?
solving for PMT
PV = 50000
Nper = 48
r = 6%/12 = 0.5%
pmt = 1174.25
Agency Problem (Cost)
Conflict of interest between managers and shareholders
Earnings Before Interest and Tax (EBIT)
Gross profit - operating expenses (depreciation)
Earnings Per Shares
NI/Number of shares outstanding
What are we calculating if we want to know how much you need to invest today to have $1mil. 10 years later (r=5%)
FV / (1+r)^n
= 1000000/(1+0.05)^10
Difference between EAR and APR
EAR = (1+APR/m)^m
in which platform are we taking the exam?
Brightspace
Financiang activity of a firm affects EBIT (Operating Income): True vs False?
False
how to calculate credit card interest when average daily method is used?
Average daily balance/monthly APR
What is the worth of a single investment of $5000 today in 5 years, with 5% compound annually. What are we calculating for?
FV of lumpsum = PV *(1+r)^n
Answer= 6381.41
What happens if you only make minimum payments on your credit card balance?
Keep paying interest and principle
You are planning to buy a car. The car is priced at $40,000. You borrow the full amount and agree to repay the loan in 60 equal monthly payments over 5 years at a 6% annual interest rate (0.5% per month). Your monthly payment will be $773.31. How much total interest will you pay over the life of the loan?
Sum of payments: $773.34*60 = $46,398.72
Total interest paid: $46,398-40,000 = $6,398.7
In Statement of Cash Flow, issuing new bond appears under which section?
Financing activity
Issuing equity (increase in Equity), what happens to cash flow?
Cash inflow?
If you were to buy a house today, and you can pay $2000 as mortgage every month (30-year, fixed interest of 7% compounded monthly), how much of a house can you afford? What are we solving for?
PV
PMT = 2000
nper = 360
r = 7%/12
answer; 300,615.1
how many cheat sheets allowed?
2, double sided