"Study Guide for Mid term Exam"
Study Guide for Final Exam LESE 306 Fall 2008 Terms to know: Asset liquidity (page 7) Credit liquidity (page 7) Cash flow liquidity (page 7) Solvency (page 8) Debt repayment capacity (page 7) Optimal capital structure (page 10 and page 77) Internal rate of return (page 37) Payback period (page 34) I will pick ten from Portfolio effect (page 72) this list for the final Pro forma analysis (page 17) exam. Four from the Explicit and implicit costs (page 9) red box and six from Historical analysis (page 16) the blue box. Know Comparative analysis (page 17) these concepts and Annual net cash flows (page 41) their definitions. Replacement chain (page 44) Terminal value (page 45) Maximum bid price (page 50) Business risk premium (page 63) Financial risk premium (page 70) Financial intermediation (slide 6 – slide show 13) Credit scoring (slide 2 – slide show 14) Credit standards (slide 18 – slide show 14) Six C’s to creditworthiness (slide 19 – slide show 14) Credit Scorecard (slide 20 – slide show 14) Stress testing portfolios (slide 12 – slide show 15) Portfolio segments (slide 26 – slide show 15) Benchmark analysis (slide 26 – slide show 15) Financial indicators to know: Current ratio (equation 1 - page 12) Debt ratio (equation 3 - page 13) Know how to calculate and Leverage ratio (equation 6 - page 13) interpret these financial Rate of return on assets (equation 7 - page 13) key indicators. Rate of return on equity (equation 8 - page 13) Term debt and capital lease ratio (equation 15 - page 15) Graphs to know: Economies of size (page 19) Economics of resource expansion (page 21) Business risk premium and required rate of return (pages 63-64) Financial risk premium and required rate of return (page 70) Know how to Portfolio effect (page 72) interpret these Cost of capital graph (page 76) graphs. Optimal capital structure (page 77) Equations to know: Economic growth model (equation 21 on page 22) Loan amortization model (equation 40 on page 31) Net present value capital budgeting equations with: a. Unequal lives (replacement chain approach – pages 44-45) Be able to use b. With terminal value (pages 46-47) these c. Maximum bid price for land (pages 50-51) equations. d. Projecting future values (know approaches – pages 56-57) Measurement of business risk (equation 85 – page 66) Measurement of financial risk (equations 90-91 – page 71) Homework assignments: Study these homework Homework #1 problems problems when preparing Homework #2 problems for the exam Presentations: Review the process that the borrowing team and lending teams used in conducting their analysis and reaching their conclusion. Design of the final exam: 1. There will be one problem containing a list of terms to define. 2. There will be 5 – 6 problems much like those covered in the two homework assignments and mid-term exam. 3. There will be a major essay question dealing with the borrowing and lending team presentations. 4. There will be 2 – 3 additional essay questions. A copy of the tables on pages 95 and 96 will be stapled to the end of the test booklet. I will also attach a single sheet listing the time value of money equations covered in this course. It is up to you to know which equation fits the situation and how to apply the equation to solve a particular problem. The equations will not be labeled. The financial indicator equations will not be included.