1. Final review June 9 th, 6 p.m. Office hours next week: M 9-12

2. Exam format Material: Ch. 7-9, 11, 12 10 multiple choice, 5 short answer Short answer questions from: –3 major questions – capital structure analysis, dividend policy analysis, valuation –2 shorter questions – lease vs. buy, rights offering, venture capital method

3. Major topics Capital structure analysis –Qualitative analysis Advantages of debt: tax benefit, added discipline Disadvantages of debt: bankruptcy costs, agency costs, loss of financial flexibility What are these advantages and disadvantages a function of?

4. Major topics Capital structure analysis –Qualitative analysis Advantages of debt: tax benefit, added discipline Disadvantages of debt: bankruptcy costs, agency costs, loss of financial flexibility What are these advantages and disadvantages a function of?

5. Major topics Capital structure analysis –Quantitative analysis (cost of capital approach) Optimal capital structure for a firm is where WACC is minimized. How much does firm value increase by moving to the optimal? What is the ‘cost’ of the constrained optimal? How do we get to the optimal? –Quickly or gradually? (bankruptcy threat? Takeover target? Industry average?) –Methods of getting to optimal »Recapitalization, divestiture, dividend policy change, project investment capital.

6. Major topics Dividend policy analysis –Evaluate the firm’s payout policy relative to the FCFE that the firm generates –Assess the firm’s project quality by comparing ROC to WACC –Other considerations: Cash balance Firm’s capital structure adjustment

7. Major topics Valuation –Relative valuation: How do we come up with an intrinsic value for a stock given a particular multiple and a particular set of comparable firms? What are the assumption that we make for relative valuation overall? What are the assumptions that we make for each of the multiples (P/E, P/BV, P/S, EV/EBITDA) that we have discussed?

8. Major topics Valuation –Discounted Cash Flow Valuation: How do we come up with an intrinsic value for a stock? How do we come up with estimates for: current growth rate, current FCFE, cost of equity, terminal value? How do we determine whether to use a single- stage (stable growth) model or a multi-stage model?

9. Minor topics What are the equity, debt and hybrid choices for firms when raising capital for investment? What are their advantages and disadvantages? How does a firm determine whether to use an operating lease or a capital lease? What is the process by which firms raise equity capital through VCs? Through an initial public offering?

10. Minor topics How do we determine what proportion ownership a VC receives for their investment in a firm (VC method)? What is the value of a right (in a rights offering)? What are the advantages of rights offerings?