Finance

Solution Library


Our Finance Solution Library Page contains so numerous questions, essay, problems and case studies that help in developing an in-depth knowledge on the subject.

Put it simply, finance deals with application of financial, economic and accounting principles which help in maximizing wealth and overall value of an organization. In fact, maximizing the wealth is regarded as one of the primary objectives of an organization. The value of a firm can be measured by the market price of shares of the company. Many a times, the higher the share value, the better the company’s performance, financially.

Capital Structure: In order that a company performs better financially, it must have a good capital structure. Capital structure is the way in which a corporation buys its assets by combining equity share capital and debt. While equity share capital belongs to shareholders, debt is provided by a third party. Our solution library has various questions, problems and case studies on capital structure, which make it easier for you to understand the concept thoroughly, both theoretically and practically.

Working Capital Management: Working capital management is a short term financial activity which is used for running the day to day activities of the firm. It is the difference between current assets and current liabilities. There are several problems and scenario analysis questions on working capital in our solution library dealing with working capital management.

Time value of money: Time value of money plays a crucial role in finance. Time value of money gives rise to various concepts such as present value (PV), future value (FV), net present value (NPV), internal rate of return (IRR), profitability index (PI), etc. Each of these concepts help in calculating the earning capacity or potential for money invested. In other words, one make a benchmark for earning capacity or rate of return for an investment by using the time value of money. Several problems, short answer questions, essays, cases and scenarios have been covered under time value of money in our Finance Solution Library page.

Financial Statement Analysis: Financial statements of a firm include income statement, balance sheet and cash flow statement. Each of these statements provide accounting and financial information which is used to arrive at the financial position of the firm with the help of certain tools and benchmarking techniques. Ratio analysis is one such practice used to know the financial position of a firm. Our solution library has several essays, problems, scenarios and cases on financial statement analysis which offer a comprehensive understanding of the topic.

Derivatives: Derivatives are financial instruments which are calculated by an underlying asset. These can be stock and commodities, government bonds, etc. The questions and problems covering derivatives in our solution library range from Options and Futures, Forwards, Swaps, Currency options and Futures, Hedging Strategies, etc.

Mergers and Acquisitions: Mergers and acquisitions play a major role not just in corporate strategy but also financially. Merger is merging two or more companies into one and acquisition is one company acquiring one or more companies and making them its own. Various questions and problems under merger and acquisitions can be found in our finance solution library.

Problems and case studies in finance: Our Finance Solution Library contains several problems and case studies which deal with topics mentioned above and more.

 


Cost of Capital and Affect of Taxes on Cost of Debt

Question 1. What does the cost of capital represents? What is should reflect? 2. How do taxes affect the cost of debt? Summary This question belongs to finance and discusses about cost of capital and affect of taxes on cost of debt. Word count: 150   ... Read More

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Retained Earnings and Major Cost Incurred in Issuing New Equity

Question 1. What are the retained earnings? Do they have any costs for the firm? 2. What is the major cost incurred in issuing new equity? Summary This question belongs to finance and discusses about retained earnings & cost incurred in issuing new equity. Word count: 194   ... Read More

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Cost of Capital and WACC Representation

Question 1. What does the cost of capital represents? What is should reflect? 2. What does the WACC represents? Summary This question belongs to finance and discusses about cost of capital and WACC. Word count: 150   ... Read More

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Calculating Cost of Preferred Stock for Company

Question A Company’s perpetual preferred stock sells for $102.50 per share, and it pays a $9.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company's cost of preferred stock? Summary ... Read More

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Calculating Cost of New Equity based on DCF Approach

Question You have been provided with the following data: D1 = $1.30; P0 = $42.50; and g = 7.00% (constant). What is the cost of equity from retained earnings based on the DCF approach? If your company is going to issue new equity, it will incur an additional 6% flotation costs what is the cost of n ... Read More

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Cost of Equity from Retained Earnings

Question You have been provided with the following data: RF = 5.00%; (RM – RF) = 5.00%; and b = 1.15. What is the cost of equity from retained earnings based on the CAPM approach? Summary This question belongs to finance and discusses about calculating cost of equity from retained earnings. ... Read More

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Calculating Cost of Equity from Retained Earnings

Question Suppose your company’s beta is 0.85, the risk free rate is 4.5% while the market return is 12%. What is the cost of equity from retained earnings based on the CAPM? Summary This question belongs to finance and discusses about calculating cost of equity from retained earnings based ... Read More

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Component Cost of Debt for Use in WACC Calculation

Question Several years ago your company sold a $1,000 par value, non-callable bonds that now has 12 years to maturity and a 8.00% annual coupon that is paid semiannually. The bond currently sells for $925, and the company’s tax rate is 40%. What is the component cost of debt for use in the WA ... Read More

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Calculating WACC when the Firm is not Issuing New Stock

Question Your company’s target capital structure is 35% debt, 15% preferred, and 50% common equity. The interest rate on new debt is 7.50%, the yield on the preferred is 7.00%, the cost of retained earnings is 12. 5%, and the tax rate is 40%. The firm will not be issuing any new stock. What i ... Read More

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WACC based on Debt Equity and Tax Rate

Question Suppose that your company just paid a dividend of $1.2; the dividends are expected to grow at a constant rate of 5% indefinitely. Today’s market price/share is $45. Suppose also that your company has some bonds outstanding in the market selling for $1,035. The bonds have 8 years left ... Read More

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Relevant Cost of New Preferred Stock based on Marginal Tax Rate

Question A company will issue preferred stock to finance a new project. The firm's existing preferred stock pays a dividend of $4.00 per share and is selling for $40 per share. Investment bankers have advised that flotation costs on the new preferred issue would be 5% of the selling price. The marg ... Read More

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Calculating Cost of New Common Stock Based on Flotation Expenses

Question A company will issue new common stock to finance an expansion. The existing common stock just paid a $1.50 dividend, and dividends are expected to grow at a constant rate 8% indefinitely. The stock sells for $45, and flotation expenses of 5% of the selling price will be incurred on new sha ... Read More

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