FIN 3113 Test #1 Review Chapters 1-6 What is the goal of the corporation, i.e.

, the goal of the financial manager? What kind of decisions do financial managers make? What are the two possible sources of return for a common stockholder? Profit maximization versus Value maximization? What influences movements in common stock prices? How do common stock prices change? Define the primary market, secondary market, money market, capital market, dealer market, broker market, and auction market. Distinguish between the market value vs. the book value vs. the intrinsic value. Describe the functions of financial markets. What information can be obtained from financial markets? What is the difference between a current asset and a fixed asset? What are the different current assets? What is the investment decision? What is the financing decision? What is a bond? What are the two categories of operating expenses and what defines the difference? Define operating income? How are corporate taxes calculated? Distinguish between the average tax rate and the marginal tax rate? Define depreciation. How is depreciation estimated? What is the difference between straight-line and accelerated depreciation methods? What is the effect of depreciation on cash flow?

Define and calculate operating cash flow. What is net working capital? What is the change in net working capital? Define and calculate net fixed assets. Define cash flow to creditors and cash flow to stockholders. Why is interest expense not an operating expense? What are the different categories of financial ratios and how are they used to assess the financial condition of the firm? What are the two necessary parts to a financial analysis? What is the DuPont analysis? Distinguish between the sustainable and internal growth rate?

How to approach time value of money problems: 1. Read the question and ask yourself: Is there an annuity, i.e., series of equal cash flows or payments in the problem? 2. If you say No, then you have a one amount problem. Identify the variables. The four variables in a one amount problem are: N I/Y PV FV . Calculate the unknown variable. 3. If you say Yes, there is an annuity, then you must decide whether you have a present value of an annuity or a future value of an annuity. Identify the variables. The present value of annuity variables are: PV PMT N I/Y . The future value of an annuity variables are: FV PMT N I/Y . Calculate the unknown variable.

What is the difference between an ordinary annuity and an annuity due? What is the N variable in a one amount problem versus an annuity problem? What is the effective annual rate? What is a perpetuity and how do you calculate the present value of a perpetuity? What is continuous compounding?

Example TVM Problems and Applications: Calculating any of the variables; N, I/Y, PV, PMT, FV Compound growth rates Straight and Discount loans Effective interest rates Multiple cash flows Ordinary annuity versus Annuity Due Differing number of payments and compounding periods using the calculator Retirement income Real versus Nominal discounting Perpetuities Continuous compounding

Remember the Library in Connect. There are additional practice problems and practice tests. In the Time Value of Money D2L module under Content see the handouts TVM Example Problems I and TVM Example Problems II for many problems and solutions.