Bond prices move in the opposite direction of interest rates



Study Guide for 1st Hour Exam

Slide Show material:

• Financial indicators (Slide Show #4)

• Basic cost accounting concepts (Slide Show #7)

• LAC curve and firm size plus expansion path in isoquants (Slide Show #8)

Handout material:

• Definitions and concepts (liquidity, solvency, profitability, efficiency and debt repayment capacity in Handout #1)

• Economic climate for growth (graphs and text on pages 1-3 in Handout #2)

• Manipulation of equity growth model in equation 24 in Handout #2

• Constraints on growth in equity (page 7 in Handout #2)

• Amortization formula equations on pp. 4 – 6 of Handout #3

• Capital budgeting in Handout #3:

o Unequal period streams and discount rates (pp. 2 – 3 in Handout #3)

o Payback period (page 6 in Handout #3)

o Concept of internal rate of return (pages 7 and 8 in Handout #3)

o Concept of NPV (pages 7 – 10 in Handout #3)

o Information needs (Table 4 on page 11 in Handout #3)

o Concepts of economic versus service life (page 12 in Handout #3)

o Replacement chain (pages 13 – 15 in Handout #3)

o Concepts of original and terminal value (pages 16 – 16 in Handout #3)

o NPV equations 64, 65, 66 and 69 (pages 15-16 in Handout #3)

o Cover stops at the end of Part C in Handout #3

Hint:

Be familiar with Problems 1, 2 worked in class:

• Problem 1 - Evaluate the financial position of a firm given a list of entries in a income statement and balance sheet

• Problem 2 – Economic growth using PIF and EPIF tables.

• Homework problems – Use of time value of money concepts to evaluate simple investment decisions.

Programmable calculators are prohibited by the department in all exams and quizzes unless you show me that you have cleared the memory. You will be required to show all work in deriving your answers.

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