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FINANCE EXAM 1 CONCEPTS
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Terms in this set (19)
What is the difference between the divined model and FCF model when finding the HV and Vop of a firm
Know the two!
What is the equation for Rs that is ALWAYS true
D1/P0 = Dividend Yield
P1-P0/P0= Capital Gains Yield
What is the equation for Rs is true when G is CONSTANT
D1/P0= Dividend Yield
G= capital Gains Yield
Operating Assets
The current asses used to support operations, such as cash, A/R, and inventory. It does NOT include Short Term Investments
Non operating Assets
Include investments in marketable securities and non controlling interests in the stock of other companies
What is the order of claims to dividends
1st: Debt Holders
2nd: Preferred Stock Holders
3rd: Common Stock Holders
Corporate Value is affected by what 6 things
1. Sales
2. Total Net Operating Capital
3. Projected Sales growth
4. Projected Operating Profitability ratios
5. Projected capital requirement ratio
6. WACC
Market Multiple Analysis
Analysts choose a metric for a firm and then multiply it to a market-determined multiple such as P/E ratio for a similar company....this will give an ESTIMATE of the stocks intrinsic value
What are the disadvantages of Market Multiple Analysis
1. It's simplistic
2. It's static
3. It's difficult to compare
3. Depends on the correctly value peers
4. Short Term
What is the AFN equation
Ao
g-Lo
g-PM(1-POR)S1
What are the assumptions of the AFN equation
1. Company is being used at full capacity
2. Asset to Sales ratio stays the same
3. Spontaneous-liabilities-to sales ratio stays the same
4. POR and PM stay the same
Basically everything stays he same and the company is used at full capacity
What are the two ways you can find SSG
1. PM(1-POR)S1/Ao-Lo-PM(1-POR)S1
2. Set the AFN equation equal to 0
What is the Financing Feed back loop
More Loans ->More interest expense -> Less Assets -> More AFN-> Loans...etc.
What is the relationship between Risk and WACC
Higher Risk = Higher Wacc
What are the 4 mistakes to avoid when using WACC
1. Current vs. Historical cost of debt
2. Mixing current and historical measures to estimate the MRP
3. Book Weights vs. Market Weights
4. Incorrect cost of capital components
What are factors that influence WACC
Uncontrollable factors
Controllable Factors
How can you estimate the Growth Rate
1. Use the historical growth rate
2. Obtain Analysts estimates
3. Earning Retention Model
Explain what the Retention Ratio is
1-POR
What is the equation for Pay out Ratio
DPS/EPS
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Verified questions
ACCOUNTING
Catherine McCarthy, sales manager of Baxter Arenas, is checking to see if there is any relationship between promotional costs and ticket revenues at the sports stadium. She obtains the following data for the past 9 months: $$ \begin{matrix} \text{Month} & \text{Ticket Revenues} & \text{Promotional Costs}\\ \text{April} & \text{\$ 200.000} & \text{\$ 52.000}\\ \text{May} & \text{270.000} & \text{65.000}\\ \text{June} & \text{320.000} & \text{80.000}\\ \text{July} & \text{480.000} & \text{90.000}\\ \text{August} & \text{430.000} & \text{100.000}\\ \text{September} & \text{450.000} & \text{110.000}\\ \text{October} & \text{540.000} & \text{120.000}\\ \text{November} & \text{670.000} & \text{180.000}\\ \text{December} & \text{751.000} & \text{197.000}\\ \end{matrix} $$ She estimates the following regression equation: Ticket revenues = $65.583+(3.54 [math]\times[/math]Promotional costs) 1. Plot the relationship between promotional costs and ticket revenues. Also draw regression line and evaluate it using the criteria of economic plausibility, goodness of fit, and slope of the regression line. 2. Use the high-low method to compute the function relating promotional costs and revenues. 3. Using (a) the regression equation and (b) the high-low equation, what is the increase in revenues for each$10.000 spent on promotional costs within the relevant range? Which method should Catherine use to predict the effect of promotional costs on ticket revenues? Explain briefly.
ACCOUNTING
A legal form that asks stockholders to transfer their voting rights is called a a. security. b. proxy. c. preemptive right. d. stock split.
ACCOUNTING
Jake's Roof Repair has provided the following data concerning its costs: $$ \begin{matrix} \text{ } & \text{Fixed Cost per Month} & \text{Cost per Repair-Hour}\\ \text{Wages and salaries} & \text{\$ 23.200} & \text{\$ 16.30}\\ \text{Parts and supplies} & \text{ } & \text{\$ 8.60}\\ \text{Equipment depreciation} & \text{\$ 1.600} & \text{\$ 0.40}\\ \text{Truck operating expenses} & \text{\$ 6.400} & \text{\$ 1.70}\\ \text{Rent} & \text{\$ 3.480}\\ \text{Administrative expenses} & \text{\$ 4.500} & \text{\$ 0.80}\\ \end{matrix} $$ "For example, wages and salaries should be $23,200 plus$16.30 per repair-hour. The company expected to work 2,800 repair-hours in May, but actually worked 2.900 repair-hours. The company expects its sales to be $44.50 per repair-hour." Prepare a report showing the company's activity variances for May.
ACCOUNTING
The Terminator Inc. provides on-site residential pest extermination services. The company has several mobile teams who are dispatched from a central location in company-owned trucks. The company uses the number of jobs to measure activity. At the beginning of April, the company budgeted for 100 jobs, but the actual number of jobs turned out to be 105. A report comparing the budgeted revenues and costs to the actual revenues and costs appears below: $$ \begin{matrix} \text{The Terminator Inc.}\\ \text{Variance Report}\\ \text{For the Month Ended April 30}\\ \text{ } & \text{Actual Results} & \text{Planning Budget} & \text{Variances}\\ \text{Jobs} & \text{105} & \text{100}\\ \text{Revenue} & \text{\$ 20.520} & \text{\$ 19.500} & \text{\$ 1.020 F}\\ \text{Expenses:}\\ \text{Mobile team operating costs} & \text{10.320} & \text{10.000} & \text{320 U}\\ \text{Exterminating supplies} & \text{960} & \text{1.800} & \text{840 F}\\ \text{Advertising} & \text{800} & \text{800} & \text{0}\\ \text{Discpatching costs} & \text{2.340} & \text{2.200} & \text{140 U}\\ \text{Office rent} & \text{1.800} & \text{1.800} & \text{0}\\ \text{Insurance} & \text{2.100} & \text{2.100} & \text{0}\\ \text{Total expense} & \text{18.320} & \text{18.700} & \text{380 F}\\ \text{Net operating income} & \text{\$ 2.200} & \text{\$ 800} & \text{\$ 1.400 F}\\ \end{matrix} $$ Is the above variance report useful for evaluating how well revenues and costs were controlled during April? Why, or why not?
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