HELLO EVERYONE. SOME BACKGROUND ON THIS FINAL EXAM. THERE ARE SOME EXCEPTIONAL STUDENTS IN THE CLASS, AND I TRIED TO SET UP AN EXAM THAT HAS A LARGE RANGE OF QUESTIONS, FROM EASY TO FAIRLY DIFFICULT ONES IN ORDER TO PROVIDE A WAY FOR ME TO DIFFERENTIATE BETTER.

AS A RESULT, YOU WILL VERY LIKELY FIND SOME DIFFICULT QUESTIONS IN THE FINAL EXAM.

HOWEVER, THESE DIFFICULT QUESTIONS WILL BE TAKEN INTO ACCOUNT DURING GRADING SO THAT IF YOU HAVE SPEND TIME STUDYING AND LEARNING FOR THIS COURSE, YOU SHOULD BE ABLE TO PASS THE COURSE.

HAVE A GOOD SUMMER.

Updates:

(Updated June 10, 2008) Comparing Assignment 2 Question 45 versus Chapter 18 Quiz Question 3.

Assignment 2 Q45. Wygant, Inc. has 10,000 shares of stock outstanding with a par value of $1 and a market value of $56. The company just declared a 3-for-2 stock split. As a result of this split:
a. the number of shares outstanding will decrease to 6,667.
b. the common stock account will increase to $15,000.
c. market price per share will increase to $84 a share.
d. par value per share will decrease to $.67.
Par value = $1 × 3 ÷ 2 = $.67

Here 3-for-2 means you get 3 new shares for every 2 shares that you have. Which means that you have 3/2 more in terms of number of shares, but the value of each share is only 2/3 of before. Think of 2 full glasses of water, and you transferred the water to 3 full smaller glasses of water. Now the number of glasses (number of shares) increases, but the amount of water in each glass (value per share) decreases because the total amount of water (total capital) is the same. (a) is not correct because number of shares (number of glasses) increases. (b) is not correct because common stock account stays the same (same amount of water regardless whether 2 or 3 glasses used). (c) is not correct because market price per share (amount of water in a glass) will decrease. (d) is correct because par value will only be 2/3 of before.

Ch 18 Quiz Q3. Wygant, Inc. has 10,000 shares of stock outstanding with a par value of $1 and a market value of $26. The company just declared a 2-for-3 stock split. As a result of this split:
a. the number of shares outstanding will decrease to 6,667.
b. the common stock account will increase to $15,000.
c. the market price per share will decrease to $17.33 a share.
d. par value per share will decrease to $.67.
Number of shares = 10,000 × 2 ÷ 3 = 6,667 (rounded)

Here 2-for-3 split means that you get 2 new shares for every 3 shares that you have. So you only get 2 shares for every 3 shares. Number of shares will decrease by 2/3, but value of each share increase by 50%. Think of 3 full glasses of water and now transferred to 2 full bigger glasses of water. Now number of glasses decreases, but amount of water in each glass increases. (a) is correct because number of shares will decrease by 1/3 (only 2/3 of before, so 1/3 less). (b) is not correct because common stock account stays the same. (c) is not correct because market price will increase as there are less shares outstanding. (d) is incorrect because par value will increase, not decrease.

You should think of the value of the firm as fixed. If more shares outstanding, then each share is worth less. If less shares outstanding, then each share is worth more and vice versa.

(Updated June 10, 2008) Assignment 2 Questions 14, 23, 57, 59, optional questions Ch 13 questions 11, 12, 14, Ch 15 questions 8, 9, 10, Ch 17 quiz question 5, Ch 15 quiz question 5, April 28 quiz questions 4, 5, optional questions Ch 12 question 9.

Assignment 2 Q14. See below.

Assignment 2 Q23. Cost of equity using dividend growth model. P = dividends next year / (R - g) => 26.40 = (1.20 * 1.03) / (R - 0.03) => (R - 0.03) = 0.04682 => R = 0.07682 = 7.682%. Not 7.55% because have to use next year's dividends amount which is 1.20 * 1.03, not this year's dividends of 1.20.

Assignment 2 Q57. First find the textbook section on securities market line in Ch 13. There should be a graph named Expected Returns and Systematic Risk with dots above and below the green line. This graph should explain this question, so read that first. In this question, stock lies below the SML. When this is the case, then two things are true. (1) There is another stock on the SML that has same return but lower risk, which is to the left the stock on the SML. (2) There is another stock on the SML that has the same risk but higher return, which is above the stock on the SML. So (a) is not correct because the return is too low for the risk assumed. (b) is not correct because if it is correctly priced, then will be on the SML and not below it. (c) is not correct because for the return, the risk is too high. (d) is correct as the stock is overpriced given (1) and (2) above.

Assignment 2 Q59. US Treasury bills has beta of zero as risk-free, stock C which is same risk as market so beta of 1.0. Beta of portfolio = weight of each * beta of each = (0.25)(0) + (0.25)(0.84) + (0.25)(1.48) + (0.25)(1.00) = 0.83. You can also just add up the beta of 0 + 0.84 + 1.48 + 1.00 and then divide by 4 as evenly distributed. Risk free return and expected return on the market not used to answer this question.

Ch13 Q11. Total portfolio value = (520)(25) + (300)(48) + (250)(26) = 13,000 + 14,400 + 6,500 = 33,900. Expected return = sum of (expected return * weight) for each stock = (0.08)(13000/33900) + (0.15)(14400/33900) + (0.06)(6500/33900) = 0.1059 = 10.59%.

Ch13 Q12. Total portfolio value = 3000 + 5000 = 8000. Expected return on the portfolio if normal = (0.05)(3000/8000) + (0.06)(5000/8000) = 0.05625 = 5.625%

Ch13 Q14. First find the expected returns under each state of economy. E(r) for boom = (0.2)(0.15) + (0.3)(0.10) + (0.5)(0.05) = 0.085, E(r) for normal = (0.2)(0.09) + (0.3)(0.06) + (0.5)(0.07) = 0.071, E(r) for recession = (0.2)(-0.14) + (0.3)(0.02) + (0.5)(0.08) = 0.018. Now find the expected portfolio return given these state of economy = (0.10)(0.085) + (0.70)(0.071) + (0.20)(0.018) = 0.06180. Variance = (0.10)(0.085-0.0618)(0.085-0.0618) + (0.70)(0.071-0.0618)(0.071-0.0618) + (0.20)(0.018-0.0618)(0.018-0.0618) = 0.0004968. Standard deviation = square root of variance = square root of 0.0004968 = 0.0223 = 2.2%.

Ch15 Q8. Dividends of $7 per $100 preferred shares. So 7 / 48 = 0.1458 = 14.58%.

Ch15 Q9. Total capital = (1200)(980) + (7500)(40) + (32000)(32) = 2,500,000. Weight of preferred = 300000 / 2500000 = 0.12 = 12%.

Ch15 Q10. Let W(E) = weight of equity and W(D) = weight of debt, both of which should sum to one. 0.09 = (1 - W(E))(0.05) + (W(E))(0.11) => W(E) = 2/3. If W(E) = 2/3, then W(D) = 1 - 2/3 = 1/3. Then debt to equity ratio = W(D) / W(E) = (1/3) / (2/3) = 0.5.

Ch17 quiz Q5. See textbook explanation. Like example in class, shareholder can borrow himself or have the company borrow.

Ch15 quiz Q5. WACC = (1.0 / 1.4)(0.11) + (0.4 / 1.4)(0.09)(1-0.34)] = .078571 + .016971 = .0955 = 9.55%. Here we assumed that E = 1.0 and D = 0.4 for debt equity ratio of 0.4. Then just use these numbers for V of 1.0 + 0.4.

April 28 quiz Q4. See book for how to calculate. But outstanding deposit and outstanding checks offset for a net disbursement of 14708 - 11219 = 3489. Net disbursement because outstanding checks larger than deposits, so disbursement because cash outflow from checks written.

April 28 quiz Q5. Float is like the concept of cash flow being used in this process. So if 1050 checks of $20 each and clears in 1.5 days, then the amount of cash being held up / used = 1050 x 20 x 1.5 = 31,500. Conceptually, it is like the working capital of cash being used in project NPV analysis.

Ch12 Q9. This question ask for the standard deviation. The student that asked this question compares this question to assignment 2 question 51, which asked for the geometric average rate of return. Two completely different things. Q51 asked for one way to calculate the return, while Q9 ask for how much risk / volatility / fluctuation is the return. The expected return of the stock is (0.08-0.02+0.04+0.16) / 4 = 0.065. The variance of the return is ((0.08-0.065)^2 +. (-0.02-0.065)^2 + (0.04-0.065)^2 + (0.16-0.065)^2 ) / (4-1) = 0.01710 / 3 = 0.0057. Standard deviation of the return = square root of variance = square root of 0.0057 = 0.0755 = 7.55%. The formula to calculate the geometric returns and standard deviation and variance are in the lecture notes of the last few lectures.

(Updated June 9, 2008) Assignment 2 Question 25, optional questions Ch 18 question 10.

Assignment 2 Q25. Valuation of preferred shares uses the perpetual formula. Price is the market price, D is the dividends which is 9% of the $100 par value = $9. P = D / R => 64 = 9 / R => R = 0.1406 => R = 14.06%.

Ch18 Q10. 10% stock dividends which is based on the market value of the stocks. So stock dividends amount = 10% * 10,000 shares * $8 per share = $8,000. So $8,000 going from retained earnings to shares and excess capital accounts. But retained earnings reduced by $8,000 from $42,700 to $34,700. See Ch 18.8.

(Updated June 9, 2008) Assignment 2 Questions 14 and 44, optional questions Ch 12 question 8.

Assignment 2 Q14. Collection float is the amount of check deposited that have been made such that it is on your record as received, but the bank have not actually collected the money so still not showing as received on the bank account balance. Here the outstanding deposit of $11,219 is the collection float as it is the outstanding deposits.

Assignment 2 Q44. When small stock dividend is paid, the stock dividend's par value is added to the capital in excess of par value account, so this account will increase. See Ch18.8. The other 3 choices are incorrect as common stock account will increase, so both a and b are incorrect. Retained earnings will decrease because that is where the amount is came out of for the stock dividends, so c is incorrect as well.

Ch12 Q8. See below.

(Updated June 9, 2008) May 5 Quiz question 2, optional questions Ch 17 questions 5, 6, and 11, Ch 12 question 8, and Ch 13 question 3.

May 5 Quiz Q2. Find the YTM. Same as Assignment 2 Question 26, see below.

Ch17 Q5 see below.

Ch17 Q6. As M&M with no tax, value of firm is the same with and without debt. So if other shareholders borrow $1.5 million to buy 25% of Unique Vactions, then 100% of the firm must be 1.5 million * 4 = $6 million.

Ch17 Q11 see below.

Ch12 Q8. Quarterly dividends of $0.50 per share, so assume that two dividends totalling $1.0 was received over 8 months. Then total percentage return = (49.3 - (54.9 - 1.0)) / 54.9 = -0.084 = -8.4%. Now it is possible to have 3 dividend payments received over the 8 months period, then the total percentage return = (49.3 - (54.9 - 1.5)) / 54.9 = -0.075 = -7.5% but there is no choice of -7.5%, so use -8.4%.

Ch13 Q3. Non-diversifiable risk. The main determinant of an event being non-diversifiable is whether is affect "all" firms in the market or just a "selected number or groups" of firms. Most of the time, events are unexpected, but even expected events can be diversifiable and non-diversifiable. For the lumber price hike, it will only affect the lumber, paper, and other industries that use lumber (and maybe other related industries indirectly), so it is a diversifiable risk. For the tax increase on hotels, it will only affect the hotel and travel industries, so also diversifiable. Inflation affects all firms, so non-diversifiable. For the terriorist event, we cannot tell what industry or firms it will affect in a definite way, so it is a non-diversifiable risk.

(Updated June 9, 2008) Assignment 2 Questions 26, 27, 28.

Q26. Find the YTM. Can use financial calculator or trial and error without financial calculator. Use financial calculator and n=6, PMT=50, PV=98, FV=100, find i. Without financial calculator, then use bond pricing formula from Lecture 6 / Chapter 7 and plug in numbers into the formula. Then change i until the numbers match in the formula.

Q27. Given debt equity (D/E) ratio of 0.60, but needs (D/V) for the cost of equity formula, so need to convert (D/E) to (D/V) first. If (D/E) = 0.6, then can assume that E = 1.0, so V = D+E = 0.6+1.0 = 1.6. Then weighted average cost of capital = (1.0/1.6)(0.12) + (0.6/1.6)(0.08)(1-0.34) = 0.0948 = 9.48%.

Q28. First need to find the market risk premium using overall cost of equity, beta, and risk free rate. R(E) = risk free rate + Beta (Market risk premium) => 0.12 = 0.04 + 0.80(market risk premium) => market risk premium = 0.10. Now we have the market risk premium, use the same formula but put in the new beta for the project to determine the project's cost of equity. Project's cost of equity = risk free rate + beta (market risk premium) = 0.04 + (1.23)(0.10) = 0.163 = 16.3%.

(Updated June 8, 2008) Detailed answer for optional questions Ch 15 question 6.

Ch15 Q6 - two ways to get cost of equity: (a) by using the dividends growth model and (b) by using the CAPM. With dividends growth model: price = dividends / ( R - g) => 26 = 1.30 / ( R - 0.04) => R = 0.09. With the CAPM: R = risk free rate + beta (market risk premium) => R = (0.10-0.06) + (1.2)(0.06) => R = 0.112. As discussed in the textbook, then take average of these two methods if they are different. Average of 0.09 and 0.112 = 0.1010 = 10.10%.

(Updated June 8, 2008) Detailed answer for optional questions Ch 15 question 8.

Ch15 Q8 - preferred share has 7% dividends so payment of $7 for $100 face value of preferred shares. From the formula to value preferred shares: P = D / R; P = 48, D = 7, R = D / P = 7 / 48 = 0.1458 = 14.58%. The market rate of return is not used, and the tax rate is not used because no tax deduction for preferred dividends.

(Updated June 7, 2008) Detailed answer for optional questions Ch 13 question 15.

Ch13 Q15 - let wt = weight of treasury bills, then (1.5)(1 - wt) + (0)(wt) = 1 => (1.5)(1 - wt) = 1 => 1 - wt = 0.667 => wt = 0.333

(Updated June 4, 2008) Detailed answer for Assignment 2 Question 2.

Cash cycle = inventory period + accounts receivable period - accounts payable period = 38 + 32 - 51 = 19 days. Please see graph in chapter or lecture notes on their relationship.

(Updated June 1, 2008) Detailed answer for optional questions Ch 17 questions 5, 11, and 12 and Ch 18 question 10.

Ch17 Q5 - all of $200,000 from debt used to repurchase shares. If market price at $8 per share, this $200,000 can retire $200,000 / $8 = 25,000 shares. If there are 70,000 shares outstanding, and a totoal of 25,000 shares are being repurchased, that means repurchase percentage of 70,000 / 25,000 = 35.7%. If you sell the same 35.7%, then you will offset the increase in debt at the company level, so selling of 1,500 x 35.7% = 535.5 shares.

Ch17 Q11 - based on initial information, the weighted average cost of capital is (6/16)(0.07) + (10/16)(0.11) = 0.095 = 9.5%. Now if I change the (D/V) and (E/V) to 0.5 (because 50/50 mix of debt and equity), the new cost of equity can be calculated as 0.095 = (0.5)(0.07) + (0.5)(new cost of equity), then doing the math will give you new cost of equity = 12%.

Ch17 Q12 - see last lecture of review slide 17, value of company V = E + D, V = EBIT (1-T) / R = 160000 (1-0.35) / 0.12 = 866,667. Value of levered firm (firm with debt) = value of unlevered firm + DT = 866,667 + 300,000 (0.35) = 971,667. V = E + D, with V = 971,667 and D = 300,000, so E = 971,667 - 300,000 = 671,667. Now go back to last lecture review slide 16, R(E) = R(A) + (R(A) - R(D))(D/E)(1-T) = 0.12 + (0.12-0.08)(300000/671667)(1-0.35) = 0.13161 = required return for equity with debt. Now going back to the WACC equation: WACC = (671667/971667)(0.13161) + (300000/971667)(0.08)(1-0.35) = 0.10703 = 10.703% which is closest to answer a of 10.72% due to rounding error.

Ch18 Q10 - 10,000 shares outstanding at market value of $8 per share for total market value of $80,000. 10% stock dividend would mean a stock dividend of $80,000 x 10% = $8,000. For stock dividends, amount transferred from retained earnings to common stock account, so $8,000 transferred out of retained earning, leaving ending balance of $42,700 - $8,000 = $34,700.

(Updated May 30, 2008) Answer key for additional optional exercise questions. The answer key for the extra questions for Ch 15, Ch 17, Ch 18, Ch 12, and Ch 13 can be downloaded here. Chapter 15 exercises answers can be downloaded here. Chapter 17 exercises answers can be downloaded here. Chapter 18 exercises answers can be downloaded here. Chapter 12 exercises answers can be downloaded here. Chapter 13 exercises answers can be downloaded here.

(Updated May 28, 2008) Final examination. A formula sheet exactly like that one in your mid-term test will be provided to you in the final examination. It should be a two page formula sheet.

(Updated May 24, 2008) Questions on Assignment 2. You do not have to do questons 8 and 50. Question 6 - the answer should be d, NOT c. I bolded the wrong line.

(Updated May 23, 2008) Additional optional exercise questions. I have prepared some extra questions for Ch 15, Ch 17, Ch 18, Ch 12, and Ch 13. Chapter 15 exercises can be downloaded here. Chapter 17 exercises can be downloaded here. Chapter 18 exercises can be downloaded here. Chapter 12 exercises can be downloaded here. Chapter 13 exercises can be downloaded here. These exercise questions are optional and you do not need to submit your answers. I will post the answer key to these exercise questions on Friday May 30, 2008.

(Updated May 23, 2008) Answer key for assignment 2. Answer key for assignment 2 can be downloaded here.

(Updated May 23, 2008) Logistics for your questions from now until the final examination. May 19 was the last day of class. For your study, please check the Assignment 2 answer key that I will post here the night of the due date, then review any questions that you have done incorrectly. If you have any questions on the course material, please (1) send me an email (thomaswu@uic.edu.hk) with your question and I will post an answer here for everyone to share, or (b) check with Leaflet in her office. Good luck.

(Updated May 19, 2008) Answer key for Ch15, Ch17, Ch18, Ch12, Ch13 quiz. Answer for Quiz Ch15 can be downloaded here. Answer for Quiz Ch17 can be downloaded here. Answer for Quiz Ch18 can be downloaded here. Answer for Quiz Ch12 can be downloaded here. Answer for Quiz Ch13 can be downloaded here.

(Updated May 17, 2008) Review lecture notes for May 19 and quiz questions. Review lecture slides for Monday, May 19 can be downloaded here. I have also prepared 5 quizzes that you can use to review for the final exam at home. I will post the answer key for these 5 quizzes with the answer for assignment 2. The quizzes can be downloaded here. Quiz Ch15, Quiz Ch 17, Quiz Ch 18, Quiz Ch 12, Quiz Ch 13.

(Updated May 12, 2008) Lecture on May 19. We will have a review session on May 19 which is our lecture. Please bring all your previous notes, textbook, and calculator. You should review before the lecture and email to me any questions that you have so that I can go over your questions in class for the benefit of everyone.

(Updated May 12, 2008) Notes from class May 12, Assignment 2. Practice questions. The notes from class can be downloaded here. Assignment 2 can be downloaded here, please get answer key from Leaflet. Assignment 2 is due March 23, 2008 5pm. Please submit assignment 2 answer to Leaflet. Answer to assignment 2 will be posted after due date. Practice questions for last several lectures are: Chapter 15 Questions and Problems 1, 3, 5, 6, 7, 9, 10, 14, and 16. Chapter 17 Questions and Problems 8, 9, 10, 11, 12, 13, 14, 15, and 16. Chapter 18 Questions and Problems 3, 6, 7, 10, 13, and 14. Chapter 12 Questions and Problems 1, 4, 7, 8, 9, 10, 14, and 15. Chapter 13 Questions and Problems 1, 2, 5, 7, 8, 10, 12, 13, 15, 18, 23, 25, and 26. Please make sure that you have worked on these questions to familiarize yourself with the calculations.

(Updated May 9, 2008) Review session. There are only two lectures left before the final examination. We will use them to finish the remaining materials and then review all the materials as much as possible. Therefore, several things all students must do. 1. Must come to the two remaining lectures. 2. Bring all previous lecture notes, quiz, homework assignment, tutorial notes, and your book to the lectures. 3. Do a quick review for topics that you need further explanation so that I can incorporate those into the review. 4. I will post practice exercises here in the next several weeks that you must try to do. 5. You must check your attendance status from class to make sure that you meet the 85% attendance requirement; if you do not meet this requirement after coming to the last two lectures, you must come and talk to me to fix this. Otherwise, you might fail the course even after taking the exam.

(Updated May 6, 2008) Practice questions for Lectures 10 to 14. Practice questions to try for Lectures 10 to 14. Chapter 15 Questions and Problems 1, 3, 5, 6, 7, 9, 10, 14, and 16. Chapter 17 Questions and Problems 8, 9, 10, 11, 12, 13, 14, 15, and 16. Chapter 18 Questions and Problems 3, 6, 7, 10, 13, and 14. Chapter 12 Questions and Problems 1, 4, 7, 8, 9, 10, 14, and 15. Chapter 13 Questions and Problems 1, 2, 5, 7, 8, 10, 12, 13, 15, 18, 23, 25, and 26.

(Updated May 3, 2008) Answer key for practice questions for Chapter 19, Chapter 20, and Chapter 21. Answer key for Chapter 19 practice questions can be downloaded here. Answer key for Chapter 20 practice questions can be downloaded here. Answer key for Chapter 21practice questions can be downloaded here.

(Updated April 28, 2008) Rquirement for attendance. UIC has a requirement that students attend 85% of the classes. Failing to do so might result in a failing grade. Please check with your TA on your attendance record if this requirement is a problem for you. But please make sure that you check early so that remedial action can be taken when there is still time. If you wait, it might be too late if final exam is around the corner.

(Updated April 28, 2008) Answer to quiz on April 28. The answer key to the quiz given today can be downloaded here.

(Updated April 26, 2008) Practice questions for Lecture 8 (Chapter 19) and Lecture 9 (Chapter 20 and 21). Please try the following question as practice exercise. Chapter 19 Questions and Problems 3, 6, 7, and 11. Chapter 20 Questions and Problems 1, 4, 5, and 7. Chapter 21 Questions and Problems 1, 5, 9, 10, 11, 12, and 14. Answers will be posted next week.

(Updated April 21, 2008) Quiz detailed answer key. I have prepared a detailed explanation of the answers for the quiz today. For the last question, I have prepared several ways the extra charges can be build into the compensating balance from the bank for higher interest charge. The answer key can be downloaded here.

(Updated April 14, 2008) 3 page notes on Cash Budgeting. Attached 3 jpg on how to complete the cash budget table from lecture this afternoon. Cash collection table, cash disbursement table, and Net Cash Flow and Cash Balance.

(Updated April 9, 2008) Mid-term test results. Our TA Leaflet did a great job in turning this around so quickly considering that there is 198 papers to grade. But below is the distribution for the mid-term test. The mean score is 23, the medium score is 24. Overall, I think the whole class did a great job and perform better than I had expected because I have included some relatively difficult questions. Hence, congratulations on a great effort.

(Updated April 8, 2008) Answer key for mid-term test. Answer key for mid-term test can be downloaded here.

(Updated April 6, 2008) Lecture slides for lectures 8 to 14 available now. Lecture slides for lecture 8 to lecture 14 are available now in both the format for printing in pdf and for translation in Google in htm. Please see the Lecture Notes section below.

(Updated April 5, 2008) If you have questions, please send me an email or Skype me. If you have any questions before the mid-term test, please send me an email (thomaswu@uic.edu.hk) about the question so that I can go through it in class before the mid-term for everyone's benefits. Alternatively, you can Skype me at drthomaswu and I should be available unless I am in transit. If you do not have a Skype account, you can open one for free here. I have a forwarding setup so that I can be reached through Skype for free from your end (so no long distance or any phone charges).

(Updated April 5, 2008) Net Working Capital and Cash Flow Notes. I have answered several quesions on net working capital and cash flow before, so here is a short note that summarize their relationship and its effect on NPV project evaluation. If you would like me to work through some problems in class on Monday, April 7, 2008, please let me know. The note can be downloaded here.

(Updated April 5, 2008) Quiz 1 Question 6 Fisher Effect. In quiz 1, question 6, the question asked Jenny's real rate of return. Both answers (b) and (c) are acceptable. If you use the short cut version, then 9.2 - 2.6 = 6.6% which is answer (c). But if you use the full version, then the answer is ( (1+0.092) / (1+0.026) ) - 1 = 6.43% which is answer (b).

(Updated March 31, 2008) Lecture 5, 6, 7 Exercise Question Solution. The solution for the exercise questions for Lecture 5 (chapter 11) can be downloaded here. The solution for the exercise questions for Lecture 6 (chapter 7) can be downloaded here. The solution for the exercise questions for Lecture 7(chapter 8) can be downloaded here.

(Updated March 31, 2008) Additional tutorial sessions. There are two additional tutorial sessions arranged. (1) Leaflet is holding a tutorial session on Wednesday, April 2, 2008. For time and place, please check with her. (2) I have also booked a classroom for Thursday, April 3, 2008 from 12:30pm to 2:30pm to answer questions. Please check my office door for the classroom number on Thursday. (3) If you have questions but cannot come to these tutorial sessions, please send me the question via email and I will try to answer it via email.

(Updated March 31, 2008) Quiz 1. Quiz 1 together with answer can be downloaded here.

(Updated March 30, 2008) Revised Assignment 1 Answer Key. I have neglected to made some corrections on the Assignment 1 Answer Key previously. Here are the changes: #11 answer should be (d), #12 answer should be (b), #13 answer should be (c). The answer key have been updated to reflect these changes.

(Updated March 24, 2008) Prepare questions for review session. On March 31, 2008, our class will go through stock valuation and review of material for mid-term test. As such, please forward to me any questions that you have so that we can discuss in class.

(Updated March 24, 2008) Assignment 1 Answer. The answer key for assignment can be downloaded here. The Excel worksheet for question 20 and 27 can be downloaded here.

(Updated March 24, 2008) Lecture 7 Lecture Notes. The lecture notes for lecture 7, Monday, March 31, 2008 can be downloaded here. Version for translation can be downloded here.

(Updated March 24, 2008) Lecture 6 Lecture Notes. The lecture notes for lecture 6, Monday, March 24, 2008 can be downloaded here. Version for translation can be downloded here.

(Updated March 18, 2008) Lecture 5 Lecture Notes. The actual lecture notes used can be downloaded here.

(Updated March 18, 2008) Break-even Analysis example. Case study of break-even analysis used in class can be downloaded here. Excel can be downloaded here.

(Updated March 17, 2008) Excel for previous exercise. For your exercise and sample question, I have set up Excel for the calculations and then copy and paste the table to the answer key. Several students asked for the construction of the formula in Excel. So the Excel can be downloaded here. Excel for Chapter 5 (Lecture 1) exercise questions. Excel for Chapter 9 (Lecture 3) exercise questions. Excel for Chapter 10 (Lecture 4) exercise questions.

(Updated March 17, 2008) Assignment 1 and Assignment 1 Answer Sheet. Assignment 1 is available for download here. Assignment 1 Answer Sheet can be downloaded here. Please submit your completed assignment to Leaflet no later than 11am, Monday, March 24, 2008 (before lecture starts).

It is made up of 26 multiple choice questions and one long answer question. Please put your answer on the answer sheet given for the multiple choice questions. For the long answer, please use the lower half of the answer sheet, and you can use additional sheets of paper if required. If you use Excel for your calculations, you can just include the answer. You do not need to submit your Excel.

(Updated March 13, 2008) Lecture notes available for Google translation. I have set up the lecture slides so that they can be translate into Chinese using Google translation. When you open the file, use the translation box and select the language to translate to. Click here to download lecture slides for translation: Lecture 1, Lecture 2, Lecture 3, Lecture 4, Lecture 5.

(Updated March 12, 2008) Textbook of different edition. The book that I am using is the 7th edition (yours is 8th), and I have found out that there are some small differences in the exercise questions. I will get your edition and sort it out this week. But if you are doing the exercise and checking with my answer key, there are several questions that are different and my answer key will provide different solutions.

(Updated March 12, 2008) Lecture 5 Notes. The lecture notes for lecture 5, Monday, March 17, 2008 can be downloaded here.

(Updated March 12, 2008) Answer key for exercise questions from Chapter 10. Answer key to exercise questions for chapter 10, click here to download. WARNING! I used the Google translation service to translate the answer key, but some of the translation is incorrect, so please use English as your main focus but you can use the chinese translation to help your understanding.

(Updated March 10, 2008) Today's lecture. Due to the problem of the mic, I will spend some time in the next lecture to go through today's material on how to get the cash flow. But please check the answer key below and try the lecture sample exercises first. I will post the answer key for the other questions in a few days.

(Updated March 10, 2008) Extra lecture or tutorial sessions. If any students would like to have extra lecture or tutorial sessions set up before the mid-test test, please let me know and I can arrange something for that.

(Updated March 10, 2008) Answer key for exercise questions from Lecture 4 slides. The answer key to the 3 example questions on the lecture notes can be downloaded here.

(Updated March 10, 2008) Lecture 4 Notes Revised. The actual lecture notes used for lecture 4 can be downloaded here.

(Updated March 5, 2008) Lecture 4 Notes. The lecture notes for lecture 4, Monday, March 10, 2008 can be downloaded here.

(Updated March 5, 2008) Answer key for exercise questions from Chapter 9. Answer key to exercise questions for chapter 9, click here to download. For the Excel spreadsheet, click here.

(Update March 5, 2008) Tutorial on using HP 12c. A few person has requested a tutorial for the use of 12c or TI. However, due to difficulty in finding a time when everyone can come, I have decided to hold the tutorial during lunch hour next Monday, March 10, 2008 so that everyone is available and can come if desired. But please review the calculator user manual first because most instruction is available there. See links at bottom for user manual download links. The tutorial will only be 15 minutes or so, from 12:45pm to 1:00pm. You can come if you want to, but it is not required.

(Updated March 3, 2008) Using HP 12c. If anyone would like short tutorial on how to use the basic NPV functions, let me know and we can schedule something quick.

(Updated March 3, 2008) Quiz question and Excel during lecture. I have used a second example in the lecture which was not in the slides. You can download the details of this question here. The Excel used to answer the question is here.

(Updated March 3, 2008) HP Calculator. Some students have bought the HP 12c financial calculator. The chinese manual is available here (select Product Manual) and a tutorial is available here. It will take some time to get used to it, but it will be very convenient once you are familiar with the process. If you have any questions on using the HP, you can send me an email or come by my office.

(Updated March 3, 2008) Textbook. One student told me that an English and partial Chinese version of our textbook is available in the library, so if you want to find the chinese terms, you can check out these books. The English / Chinese version of this textbook is also available for sale at the bookshop next to the supermarket (between supermarket and Old Beijing restaurant).

(Updated February 29, 2007) Lecture 3 Notes. The lecture notes for lecture 3, Monday, March 3, 2008 can be downloaded here.

(Updated February 29, 2007) Lecture 1 exercise questions answer key. The answer key to lecture 1 Chapter 15 exercise questions can be downloaded here.

(Updated February 27, 2008) Tutorial next Monday. There will be a tutorial session next Monday, March 3, 2008 from 11am to noon. Leaflet will go through some questions with you. If you have questions on the Chapter 5 and Chapter 6 exercise questions, you can also raise them during the tutorial.

(Updated February 27, 2008) Supplementary summary notes. I have prepared a two page summary notes on the time value of money for your reference. To download the supplementary summary notes, click here.

(Updated February 27, 2008) Answer key for exercise questions from Chapter 6. I have prepared a set of answer key for the exercise questions from Chapter 6. You should have tried these questions by yourself first, then compare your answer to the key. I have also included added comments to facilitate understanding. If you have questions relating to these questions, please let Leaflet know and she can either answer you directly or answer the question during tutorial next Monday. For the answer key, click here. I have also prepared an Excel spreadsheet showing step by step how to construct a payment schedule showing the interest and principal repayment amounts for each period for same amount repayment and same principal repayment schedules. To download the Excel spreadsheet, click here.

(Updated February 27, 2008) Lecture 2 Notes. Lecture slides from lecture notes can be downloaded here.

(Updated February 27, 2008) Textbook. There is a copy of the textbook available from the library which you can review. Alternatively, please borrow book from friends or classmates if you do not have a textbook.

(Updated February 25, 2008) Books. Some students told me that they do not have a book for various reasons. If you do not have a book or your book is of a different version, please make sure that you can gain access to the teaching material and the chapter exercises of the current textbook. You have the sole responsibility to ensure this access.

(Updated February 22, 2008) New office and office hours. My office has changed from B423 to B421. My office hours are Mondays 12pm to 1pm (lunch hour) and Thursdays 12pm to 3pm). But please make appointment at least several hours before you come as I might be on the way to school.

(Updated February 18, 2008) New calculator policy. Due to the reason that almost all students do not have ready access to a financial calculator (HP 12c or Texas Instrument), I have decided that the financial calculator would be highly recommended but not required for this course. All relevant course work will be adjusted to reflect this change in requirement. A revised set of lecture notes for Monday, February 18 will also be posted shortly to reflect this amendment. Although you can use online financial calculators for your assignments, you must be able to perform analysis using formula and regular calculators in an examination situation. In addition, an increase emphasis would be placed on students having a strong theoretical framework on cash flow and project analysis.

(Updated February 18, 2008) Formula sheet. With the revised calculator policy, I have provided the attached formula sheet which will contain all the formula for this semester for your reference. To download the formula sheet, click here.

(Updated February 18, 2008) Revised Lecture 1 Notes February 18, 2008. I have revised the lecture 1 notes to reflect the formula used for the cash flow examples. Previously, the calculator keying instruction was included; now the formula is provided instead. The showing of calculator keys and use of + and - signs for the calculator will be further clarifed in lecture 2 on February 25, 2008. To download the revised February 18, 2008 lecture notes, click here.

COURSE OUTLINE AND DETAILS

ASSESSMENT

The final grade is based on four parts:

LECTURE NOTES

Dr. Thomas Wu

 This course aims to enable students to:

1. understand the fundamental concepts in financial management,
2. value different investment assets,
3. perform capital budgeting and assess alternative investment possibilities,
4. evaluate different sources of financing projects, and
5. manage working capital.

1. Financial Management Decisions, Hutchinson, Alison, Gregory & Lumby, ITP Thomas Nelson
2. Principles of Managerial Finance, Gitman, Addison Wesley

There are specific terms that apply to accounting and finance, and there are various online sources that can help students understand these terms.

Download and print for reference:

• Hong Kong Exchange glossary of terms (English to Chinese)
• 88translation.com finance dictionary (Chinese to English, English to Chinese)

Online finance dictionaries:

• Reuters Chinese to English and English to Chinese finance dictionary
• Goldman Sachs English to Chinese finance dictionary
• Goldman Sachs Chinese to English finance dictionary
• Morgan Stanley English to Chinese finance dictionary

Other unverified sources of financial references:

• Finance Street - a finance related site prepared by the government
• Financial glossary of terms
• List of dictionaries