Corp. Fin.

Question 1

Profitability Index to Get NPV (If PI = 1.2 and CF0 = 2m)

Answer 1

• PI: Ratio of PV(CFs) to Initial Outlay
  - Accept if > 1.0 (NPV > 0)
• PI - 1 = NPV as % of initial outlay
  - ex: NPV = (.2 x 2m) = 400k

Question 2

BE Qty of Sales Formula

Answer 2

BE = (Fixed Op + Fin Costs)/(Unit Price - Unit VC)

Question 3

Break Point Formula

Answer 3

• BP = (Component Cost BP) / Component Wt
• # BPs = #times total capital BP changes

   - BP for each component might be different

• If each component has = BP -> Only 1 BP for Total Capital

Question 4

Yield to convert to for Discount Securities comparison

Answer 4

Bond Equivalent Yield

= HPY x (365/days)

Question 5

Discount yield to BEY

Answer 5

1. (Disc Yld)(days/360)
2. HPY = (Face/Face - Disc) - 1
3. BEY = HPY x (365/days)

Question 6

Money Mkt Yield to BEY

Answer 6

1. HPY = MMY x (days/360)
2. BEY = HPY x (365/days)

Or:
BEY = MMY x (365/360)