Fina2222 Exam Notes

Mid-Semester Exam

* 6:15pm - 7:55pm (1hr and 40 mins)

* Wilmore Lecture Theatre

* Format:

* Section 1 – 10 True/False Questions (shade (a) for true and (b) for false)

* Section 2 – 20 MCQ (All calculation questions)

* Section 3 – 3 short answer questions (mixture of theory and calculation)

* Doesn’t mind if you write your answers in point form (bearing in mind that it must be understandable by the marker)

* Coverage:

* Lecture materials from weeks 1-6

* Tutorials from weeks 2-7

* Readings are examinable

Chapter 14 - Capital Structure in a Perfect Market

* Law of one price – “2 identical items at the same venue should sell for the same price”

* This means that value in finance is defined in relative terms (reason being it is easier to determine whether an object is worth more or less than equivalent alternatives than it is to put an absolute value on it)

* Valuation can be applied in real world or perfect world (typically perfect world when applying valuation techniques)

* The corporate objective and corporate financial decision:

* Corporate financial decisions are made by managers in the context of meeting the corporate objective:

* Maximise the value of the company

* Make optimal use of scarce resources that ensures value of the corporation and the wealth of the shareholders is maximized

* Corporate managers face:

* Investment decisions

* Financing decisions

* Dividend decisions

* Investment decisions

* Valuation of a project:

* Determination of cash flows

* Upfront cash outflow, typically followed by later inflows

* Make sure to all costs and benefits are incorporated into valuation

* Objective is to provide a return to shareholders

* Financing Decisions

* How to fund investment decisions?

* Source of funding – debt or equity?

* Can the...