0.4 Ordinary Annuities
0.5 The Derivation of Ordinary Annuity Factors
0.7 Future and Present Annuity Factors: Mathematical Formulas
0.9 Growth Perpetuities and the Dividend Discount Model
0.10 Chapter Zero Review Questions
1.4 Capital Budgeting: The Investment Decision
1.6 The Payback and Discounted Payback Methods
1.7 Personal Financial Planning Problem: Payback Method
1.8 Personal Financial Planning Problem: Payback Method (Solutions)
1.9 Payback and Discounted Payback Summary
1.11 Critical Methodological Issues Relative to Choice of Capital Budgeting Tech
1.13 Net Present Value (NPV) (continued)
1.14 NPV Solutions
1.15 NPV Practice Problem
1.19 Net Present Value (NPV): Annuity Cash Inflows
1.20 The Equivalent of the Multiple Cash Flows as A Singular Cash (Out-) Flow: “
1.22 Personal Financial Planning Problem: Net Present Value (In-class Exercise)
1.24 The Capital Rationing Problem
1.26 The Internal Rate of Return (IRR)
1.29 What Does “IRR” Mean? (A Brief Review)
1.30 The NPV vs. the IRR: Differences in Methodologies (Summary and Review)
1.32 Multiple IRRs
1.33 Quadratic Solution to IRR
1.34 Quadratic Practice Problems
1.37 General MIRR Formula (Derivation)
1.38 The Modified Internal Rate of Return (MIRR) (Problem)
1.39 MIRR Solution
1.41 Review Questions: Chapter One
2.2 Comparison of NPV and IRR: Some Technical Points
2.3 Solution to Problem NPV vs. IRR
2.6 Calculating the MIRR: Negative Interim Outflows
2.9 Capital Budgeting for Mutually Exclusive Projects with Unequal Lives: Replac
2.12 Sample Problem: NPV and AAA for Unequal Lives
2.14 NPV and AAA for Unequal Lives (Solutions)
2.15 Topical Practice Problems: Replacement Chain versus AAA (Problems # 1 – 7)
2.16 Solution for “Question #2”
2.18 Solutions for “Questions #3-5”
2.19 Solution for “Questions #6 & #7”
3.2 What is the Discount Rate Anyway?
3.3 The After-Tax Cost of Debt Capital
3.4 Flotation Costs
3.6 Weighted Average Cost of Capital (WACC)
3.7 Solutions to WACC Problems
3.8 WACC Practice Problem
3.11 A Word about Linear Equations (Review of Algebra)
3.13 Diagram of the CAPM
3.18 Summary: The Cost of Capital
3.19 Review Questions: Chapter Three
4.2 External Funds Needed Formula (EFN)
4.6 Financing Lease (Solution to Question #1)
4.7 Lease (Solution to Question #2)
4.8 Leasing Summary Calculations
4.9 Examination of the Lease Obligation over its Entire Life
4.12 Review Questions: Chapter Four
5.2 Financial Leverage
5.3 Financial Leverage (Graph)
5.4 The Crossover Point
5.5 Leverage and the Crossover Point
5.6 Leverage and Risk
5.11 The Impact of Financial Leverage on Valuation or Price
5.13 The Importance of Capital Structure in the Firm’s Valuation
5.14 Review Questions: Chapter Five
6.2 “Homemade” Leverage Illustrated: An Introduction to Modigliani & Miller (“M&
6.3 Leveraging versus De-leveraging
6.5 Modigliani & Miller (“M & M”): “Proposition One” The Formula
6.6 M&M and Pizza
6.8 Review Questions: Chapter Six
7.2 The Effect of Paying a Dividend on a Firm’s Prospective Capitalization
7.6 Stock Splits
7.9 Review Questions: Chapter Seven
8.3 Capital Financing Sources
8.6 Summary: Financial Leverage and Capital Structure
9.5 Some Short-term Sources of Funds
9.6 Cash Conversion Cycle: Practice Problem
9.7 Cash Ratios: Firms in Financial Straits
9.8 Cash Optimal Order Quantities Model: Baumol’s Cash Optimization Model
9.10 Cash Optimization (Baumol) Model: The Mathematics
9.11 The Inverse Relationship between Opportunity and Transaction Costs
9.13 Illustration of the Inverse Relationship between Opportunity and Transactio
9.14 The Optimal Cash Order Quantity Solution
9.15 Cash Receipt and Disbursement Management
9.16 Economic Ordering Quantity (EOQ) Model Inventory Optimal Order Quantities M
9.17 Inventory Model Mathematics Problem
9.19 Altering Credit Policy
9.20 “Trade Credit”: Relevant Costs
9.22 Five Steps to Credit Management
9.23 Review Questions: Chapter Nine
10.2 Operating Leverage
10.3 Operating Break-even Point
10.6 The Degree of Operating Leverage
10.7 Operating Earnings (EBIT): Standard Accounting (Reporting) versus Cost Acco
10.8 Liberalizing Credit Policy (A Last Look)
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3.19 Review Questions: Chapter Three
3.19 Review Questions: Chapter Three
Review Questions: Chapter Three
1. Calculate the Weighted Average Cost of Capital (WACC) for XYZ Company, given the following data for its four capital components.
| Debt | Preferred Stock | Equity
Common + Retained Earnings |
| Debt=$100,000
YTM= 8% Tax Bracket= 35% |
Preferred = $50,000
Dividend= $1.50 P= $25 |
Common Equity = $150,000
Retained Earnings = $75,000 Last Common Dividend- $1.00 Dividend Growh Rate = 2% Flotation Costs = 5% P0= $12 |
2. What would happen if the firm issued more debt? Would its WACC increase or decrease. Assume no change in default rate.
3. If the firm issued $25,000 more in debt at 7%, what would its new WACC be?
4. Why might capital components’ costs change over time? Provide multiple reasons.
5. What numerous accounting manipulations might the firm employ in order to alter its “reported” WACC?
Solution to question #1:
[(0.08) (1 – 0.35) (100) + (1.5/25) (50) + (1.02/12 + 0.02) (75) + {(1.02) / (12) (1 – 0.05) + 0.02} (150)] / 375 = 0.083167