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FINAL CRASH SAT. APRIL 16 and SUN. APRIL 17, 2016 @ 5:00pm - 9:00pm
COURSE DESCRIPTION: The FIN401 Final Crash Course is a comprehensive course which
includes a review of NPV & Capital Budgeting. The course provides a full review of Cost of
Capital (WACC) and Leasing concepts with extensive problem-solving applications. The course
also covers the core quantitative concepts of Financial Leverage, Capital Structure and Dividend
Policy along with relevant theory. An introduction to Sources of Capital, Rights Valuation,
Underwriting and Financial Contracts with hedging techniques is also provided. The course will
introduce and heavily cover the concepts surrounding Option Contract Valuation and Derivatives
as these concepts are heavily weighted on the final exam. Finally, the course covers the
mathematical and theoretical concepts of Mergers with an emphasis Cash vs. Stock acquisitions.
CHAPTER 9 - NPV & OTHER INVESTMENT CRITERIA
Exam Practice Question:
A new investment has an initial cost of $600,000 and will generate operating cash flow of
$120,000 per year for the first four years followed by $240,000 per year for the following three
years. The tax rate is 35% and the discount rate is 12.75%. What is the IRR? ANSWER: 17.59%
CHAPTER 10 - MAKING CAPITAL INVESTMENT DECISIONS
Exam Practice Question:
A manufacturing company wants to invest in a new machine to increase its production efficiency.
The machine has an initial cost of $750,000 and will last for three years. The CCA rate on the
asset is 30% and there is no expected salvage value. An increase in net working capital of
$25,000 will be required for the machine. During its operating life, the machine will produce
10,000 units per year. The selling price will be $30.00 per unit and the variable cost will be $7.00
per unit. The fixed costs are expected to be $50,000 per year. The corporate tax rate is 40% and
the required rate of return is 12%. What is the NPV of the investment? ANSWER: ($295,000)
CHAPTER 14 - COST OF CAPITAL
Exam Practice Question:
Jolt Inc. is considering investing in a new project. The initial cost will be $70,000 and the annual
operating cash flow generated from the project will be $21,000 per year for six years. The target
D/E ratio is 0.37 and the pre-tax cost of debt is 9%. The common stock of Jolt has a beta of 1.76
and the expected return on the market is 10.70%. The risk-free rate is 5%. If the corporate tax
rate is 34%, what is the weighted average cost of capital (WACC)? ANSWER: 12.55%
CHAPTER 22 - LEASING
Exam Practice Question:
Axon Gas Inc. is deciding to lease or buy a new refinery system for oil exploration. The system
will provide $600,000 in cost savings each year for the next five years. The system has a capital
cost of $5,500,000 and the companys tax rate is 34%. The system will be in a CCA class with a
rate of 25%. It is expected that the systems salvage value at the end of the lease will be
$500,000. The lease contract calls for annual payments of $1,240,000 per year and the
companys cost of borrowing is 9%. What is the maximum lease payment which would be
acceptable to the firm? ANSWER: $1,274,397.38
CHAPTER 16 - FINANCIAL LEVERAGE AND CAPITAL STRUCTURE POLICY
Exam Practice Question:
Duke Inc. was an unlevered firm with 600,000 shares outstanding, trading at $40 per share. The
firm had considered a proposal to add financial leverage and changed its capital structure by
issuing $9 million of debt at 10%. The proceeds were used to repurchase shares. The firms EPS
after the capital restructuring is now $5.50. A prominent shareholder who owned 15,000 shares
of Duke before the capital restructuring is not satisfied. What would the shareholders total cash
flow be assuming she applies homemade leverage to reconstruct the cash flows that were
received under the firms all-equity capital structure? Ignore taxes. ANSWER: $74,062.50
TRI-DELTA INC.
Shares Outstanding
80,000
24,000
Share Price
$15
$25
Earnings
$100,000
$60,000
If the NPV of the merger is exactly $0, how many shares would Bolt have to give to Tri-Delta
through a share exchange in the acquisition? ANSWER: 57,333 shares
CHAPTER 1 - CORPORATE FINANCIAL MANAGEMENT
Stock Value Maximization, Agency Theory & Problems, Managerial Compensation, Financial
Ethics and Policy, Direct / Indirect Agency Costs and Corporate Governance