Corporate Finance

Question 0

Expected return

Answer 0

Sum of (Returns x Probabilities)

Question 1

Holding Period Return (HPR) of common stock

Answer 1

((Ending period price - Beginning period price) + Dividends) /
Beginning period price

Question 2

Standard deviation (σ)

Answer 2

Square root of:

(the sum of (return - average return) squared) x probability of that return occuring

Question 3

Coefficient of Variation (CV)

Answer 3

σ / Expected return

Question 4

Covariance

Answer 4

Sum of:
Probability x (Return on asset 1 - Expected return on asset 1) x (Return on asset 2 - Expected return on asset 2)

Question 5

Correlation coefficient (or correlation)

Answer 5

Covariance / (σ1 X σ2)

Question 6

Portfolio return

Answer 6

Some of the weight of expected returns of each security in the portfolio

Question 7

CAPM

Answer 7

Ke = Rf + β(Km − Rf)

Question 8

Degree of operating leverage (DOL)

Answer 8

Contribution margin / Operating income

Question 9

Degree of financial leverage

Answer 9

(% change in net income) / (% change in EBIT)

Or

EBIT / EBT

Question 10

Degree of total leverage (DTL)

Answer 10

DOL × DFL

Question 11

Effective duration (of a bond)

Answer 11

(V− minus V+) /

(2 x current bond price) x change yield

Question 12

Value of a bond

Answer 12

Vb = I(PVIFAk, n) + F(PVIFk, n)

Question 13

Basic dividend discount model

Answer 13

Sum of:

Dividends / (1 + req rate of return) to the nth power

Question 14

Zero dividend growth model

Answer 14

Dividend / Required rate of return of stock

Question 15

Constant dividend growth model

Answer 15

Current Dividend x (1 + g) to the nth power

/ (1 + req rate of return) to the nth power

Question 16

Gordon constant growth model

Answer 16

Expected dividend per share /

Required rate of return - Constant (annual) growth rate

Question 17

Trailing P/E Ratio

Answer 17

Market price per share / EPS over previous 12 months

Question 18

Leading P/E Ratio

Answer 18

Market price per share / Forecasted EPS over next 12 months

Question 19

Price to book (P/B) ratio

Answer 19

Market value of equity / Book value of equity

=

Market price per share / Book value per share

Question 20

Price to sales ratio

Answer 20

Market value of equity / Total sales

=

Market price per share / Sales per-share

Question 21

Value of preferred stock

Answer 21

Dividend / Rate

Question 22

Cost of capital

Answer 22

ka = p1 k1 + p2 k2 + . . . + pn kn

Question 23

After tax cost of debt

Answer 23

kd(1 − t)

Question 24

Cost of preferred stock

Answer 24

Dividend / (Dividend - Flotation costs)

Question 25

Dividend growth rate model

Answer 25

(D1 / P0) + g

Question 26

Cost of new equity

Answer 26

(D1 / (P0 - (F + U))) + g

Question 27

Weighted average cost of capital (WACC)

Answer 27

Sum of: (weight) x (after tax cost of each capital component)

Question 28

Net Benefit from Lockbox

Answer 28

Reduction in Float Opportunity Cost + Reduction in Internal Processing Costs − Lockbox Processing Costs

Question 29

Average collection period

Answer 29

365 days / Accounts Receivable turnover

Question 30

Inventory turnover

Answer 30

COGS / average inventory

Question 31

Days on hand

Answer 31

365 / Inventory turnover

Question 32

Effective annual rate of interest

Answer 32

See book