Principles of Finance Final Exam Study Guide Fall 2024 PDF

Principles of Finance Final Examination Study Guide (Check on the 17th of December for possible minor changes) Be able to calculate the cost of giving up the cash discount. Explain the advantages and disadvantages of issuing a commercial paper. Explain what the line of credit is, why this instru...

Principles of Finance Final Examination Study Guide (Check on the 17th of December for possible minor changes) Be able to calculate the cost of giving up the cash discount. Explain the advantages and disadvantages of issuing a commercial paper. Explain what the line of credit is, why this instrument could be useful for companies and what the logic behind annual cleanup is. Explain what is factoring and how factoring with recourse is different from factoring without the recourse. Be able to calculate the cost of factoring both in dollar and percentage terms. Define: bond, coupon, face/par/nominal value, convertible, floating rate bond, TIPS, indenture, zero- coupon bond, callable, puttable bond. Explain the differences in the coupon rates between callable, puttable vs. ordinary bond. Classify bonds according to the issuer and maturity (know risk levels). Know and be able to explain the 3 factors that impact bond prices. Understand whether a bond is traded at the discount or premium or par. Know the relationship between the coupon rate and the yield to maturity. Be able to define the YTM as well as calculate approximate YTM given a formula. Be able to calculate the annual and semiannual bond price. Be able to calculate the preferred and common stock prices using the dividend discount model (zero growth and constant growth). Know how to calculate D1 given D0 or EPS. Be able to explain when the Dividend Discount Model is the most suitable, know its advantages and disadvantages. Be able to calculate the stock intrinsic value under the book value per share and liquidation value per share as well as explain the rationale/advantages and disadvantages of those two methods. Be able to calculate the components of the WACC and WACC itself. Know how to select the best weights while calculating the WACC. Bonus: Be able to calculate the EPS. Exam structure: 20-30 MC questions, 2-4 problems, short answer questions (up to 5 sentences), case to calculate WACC (similar to in-class problem) Formulas that will be provided on the exam:  Principal payment  Price of the bond Annual interest payment  Number of years till maturity Y'  0.6 (Price of the bond)  0.4 (Principal payment) D1 P0  Ke  g WACC = (wd  Kd) + (wp  Kp) + (we  Ke)