Finance Exam Coverage

1. Read Chapters 1-3
2. End of Chapter Questions:
• 4: odd only
• 5: even and odd
• 6: even and odd
• 7: even and odd
• 8: odd only
3. Concepts:
1. sustainable growth rate g*=
1. net profit margin P
2. retention ratio R (expressed in decimal, eg 0.91)
   
3. Asset turnover A (defined as revenue/assets)
   
4. Financial leverage T^ (defined as assets/equity(bop))
2.  weighted average cost of capital
1. cost of equity
1. CAPM
2. DDM
2. cost of debt
1. (1-t)*market cost of debt
2. depends on risk, maturity, and tax rate t
3. Present Value
1. Present Value of a perpetuity (p265) P=A/r
1. N
2. I/Y
3. PMT
4. CPT->PV
5. OR, use the formula P=Annual receipt/r (the discount rate)
4. figures of merit (chapter 7)

1. ARR= accounting rate of return= ave. annual cash flow / total cash outflow
2. NPV= Net Present Value = Present Value - Initial Outlay
3. IRR= Internal Rate of Return = discount rate at which project's net present value equals zero. Rate at which funds left in a project are compounding. Used for bonds and preferred stock, which pay a fixed dividend.  IRR of a perpetuity r = A/P where A is the perpetual annual payment and P is the initial payment.
1. N (number of periods)
2. PV (initial investment, expressed as negative, eg -40)
3. PMT (annual cash flow from investment, expressed as positive, eg 7.5)
4. FV (salvage or final value of investment, expressed as positive)
5. CPT-> I/Y
4.  AEV= Annual Equivalent Value = way to compare annual cost of ME projects with different lives
1. N
2. I/Y (discount rate given)
3. PV (from separate PV calculation)
4. FV=0
5. CPT->PMT
5.  BCR= Benefit Cost Ratio = PV of cash inflows / PV of cash outflows
6. Payback and Discount Payback (PB, DPB)
5. cash flow calculations
1. net income -> operating cash flow
2. CFO, CFF, CFI classification
3. P/E ratio given, value a company based on CFO (cash flow from ops) 
6. Bond Valuation:
1. YTM= yield to maturity
1. N
2. PV (entered as a negative number)
3. PMT
4. FV (par value of bond entered here)
5. CPT-> I/Y
2. PV (price) of bond with maturity and annual return given
1. N (number of compounding periods)
2. I/Y (% return)
3. PMT (Coupon rate * par value)
4. FV (par value of bond)
5. CPT->PV (will display as a negative number)