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Corporate FinanceReview for Midterm #1

Professor Scott Hoover

Management 221

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Introduction What must a financial manager understand?

…must understand how to value future cash flows …must understand how to evaluate the health of a firm …must understand how to forecast and plan accordingly …must understand how to identify optimal financing

arrangements …must understand how to evaluate potential

investments Firm managers

the ideal goal of firm managers agency costs

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Time Value of Money Basic intuition Present value of cash flows

single cash flow annuities growing annuities

Future value of cash flows single cash flow annuities growing annuities

Applications

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Financial Statement Analysis What questions are important in assessing the

health of a firm? Can the firm meet its debt obligations? How well are assets being managed? How risky is the firm? How profitable is the firm? What does the market think of the firm?

The DuPont Approach Ratios Common Size and Indexed Statements

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Approximate Exam Structure 8 questions

Topics 2 General (20 points) 4 Time Value of Money (40 points) 2 Financial Statement Analysis (40 points)

Type 2 Short Answers 4 Numerical Calculations 2 Analytical Essays (FSA)

Annuity formulas and ratio “definitions” will be provided.

Note: Your answers must be concise.