Fin303 Midterm Study Guide

Chapters Learning Objectives

Chapter 1 --Identify the basic forms of business organization in the United States and their
The Financial respective strengths and weaknesses.
Manager and --Discuss how agency conflicts affect the goal of maximizing shareholder value.
the Firm --Explain why ethics is an appropriate topic in the study of corporate finance.

Chapter 2 --Describe the primary, secondary, and money markets, explaining the special
The Financial importance of secondary and money markets to business organizations.
System and --Explain how financial institutions serve the needs of consumers and small businesses.
the Level of --Compute the nominal and the real rates of interest, differentiating between them.
Interest Rates
Chapter 3 --Explain the balance sheet identity and why a balance sheet must balance.
Financial --Identify the basic equation for the income statement and the information it provides.
Statements, --Understand the calculation of cash flows from operating, investing, and financing
Cash Flows, activities required in the statement of cash flows.
and Taxes --Identify the cash flow to a firm’s investors using its financial statements.

Chapter 4 --Describe common-size financial statements, explain why they are used, and be able
Analyzing to prepare and use them to analyze the historical performance of a firm.
Financial --Discuss how financial ratios facilitate financial analysis, and be able to compute and
Statements use them to analyze a firm’s performance.
--Describe the DuPont system of analysis and be able to use it to evaluate a firm’s
performance and identify corrective actions that may be necessary.

Chapter 5 --Explain the concept of future value, including the meaning of the terms principal,
The Time simple interest, and compound interest, and use the future value formula to make
Value of business decisions.
Money --Explain the concept of present value and how it relates to future value, and use the
present value formula to make business decisions.
--Understand the concept of compounding and how it’s applied in time value of money
calculations

Chapter 6 --Compute the present value and future value for multiple cash flows.
Discounted --Explain what a perpetuity is and where we see them in business, and calculate the
Cash Flows value of a perpetuity.
and Valuation --Discuss growing annuities and perpetuities, as well as their application in business,
and calculate their values.
--Discuss why the effective annual interest rate (EAR) is the appropriate way to
annualize interest rates, and calculate the EAR.

Fin303 Midterm Study Guide Yanbo Jin Fall 2017