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FIN 401 Managerial Finance II FINAL Exam TIPS Toronto Metropolitan University
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FIN 401 Managerial Finance II FINAL Exam TIPS Toronto Metropolitan University
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FIN 401 Managerial Finance II FINALExam TIPS Toronto Metropolitan
University
Way to increase Economic Value Added: - One way to achieve the same level of operating income but
with less investor-supplied capital
Advantages of Sole Proprietorships & Partnerships vs. Corporations - Tax Advantages
Rate of Return - = Dividend Yield + Capital Gains Yield
Intrinsic Value per Share - P0 = D1 / rs - g
Market Value Added - = Market Value of Company - Total Equity (Common Stock + Retained Earnings)
Economic Value Added - = (Operating Capital)(ROIC - WACC)
What might lead to a need for AFN - The company's profit margin decreases
Self-Supporting Growth Rate - = M(1 - POR)(Sales) / Assets - Spont. Liabilities - M(1 - POR)(Sales)
What are some ways to increase cost of equity - Increase flotation costs
Increase market risk premium
Increase risk-free rate
Increase Beta
, Increase expected inflation
The risk free rate goes up - If inflation goes up
Sunk cost - A cost that has already been committed and cannot be recovered
Opportunity Cost - Cost of a lost opportunity
Increases the E(NPV) through real options - Considering growth and abandonment options
Real Options (More inclined to accept projects) - 1) Considering investment timing options
2) Considering growth and abandonment options
Dividend Preference Theory - Investors prefer the certainty of current cash to future capital gains
Tax Effect Theory - Proposes that investors prefer capital gains over dividends, because capital gains
taxes can be deferred into the future but taxes on dividends must be paid as the dividends are received
Dividend Irrelevance Theory - The theory that a firm's dividend policy has no effect on either its value or
its cost of capital
Two different types of DRIP's - 1) Open Market Purchase Plan
2) New Issue Plan
Stock Split Equation - P1 = P0 / Split Ratio
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