Mini Case
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a.
Why is corporate finance important to all managers?
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b.
Describe the organizational forms a company might have as it evolves from a start-up toa major corporation. List the advantages and disadvantages of each form.
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c.
How do corporations go public and continue to grow?
What are agency problems?
What is corporate governance?
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d.
What should be the primary objective of managers?
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e.
What three aspects of cash flows affect the value of any investment?
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f.
What are free cash flows?
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g.
What is the weighted average cost of capital?
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h.
How do free cash flows and the weighted average cost of capital interact to determine a firm’s value?
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i.
Who are the providers (savers) and users (borrowers) of capital?
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j.
What do we call the price that a borrower must pay for debt capital? Interest Rate
.5in;=”” 0px=””>What is the priceof equity capital?
.5in;=”” 0px=””>What are the four most fundamental factors that affect the cost ofmoney, or the general level of interest rates, in the economy?
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k.
What are some economic conditions (including international aspects) that affect the cost of money?
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l.
What are financial securities? Describe some financial instruments.
.
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m.
List some financial institutions.
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n.
What are some different types of markets?
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o.
How are secondary markets organized?
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2-6: Statement of Retained Earnings
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o
In its most recent financial statements, Newhouse Inc. reported $50 million of net income and $810 million of retained earnings. The previous retained earnings were$780 million. How much in dividends was paid to shareholders during the year?
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2-7 Corporate Tax Liability
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o
The Talley Corporation had a taxable income of $365,000 from operations after all operating costs but before (1) interest charges of $50,000, (2) dividends received of $15,000, (3) dividends paid of $25,000, and (4) income taxes.
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What are the firm’s income tax liability and its after-tax income?
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What are the company’s marginal and average tax rates on taxable income?
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2-9 Corporate After-Tax Yield (muni, corp, PS)
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o
The Shrieves Corporation has $10,000 that it plans to invest in marketable securities. It is choosing among AT&T bonds, which yield 7.5%, state of Florida muni bonds, which yield 5% (but are not taxable), and AT&T preferred stock, with a dividend yield of 6%. Shrieves’s corporation tax rate is 35%, and 70% of the dividends received are tax exempt. Find the after-tax rates of return on all three securities.
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