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All page numbers are references to Fundamentals of Corporate Finance, 7th edition by Brealey, Myers, and Marcus (McGraw-Hill, 2012)
This module has two foci. In Chapter 14, we learn many details related to how firms finance themselves with discussions of retaining earnings, selling debt often in the form of bonds, and selling new equity. Chapter 14 will have below average coverage on the Midterm Exam. In the Midterm Exam, I evaluate how much of the material from the first half of the course you have mastered.
From Chapter 14
Things to Absorb - Nothing into your permanent memory. Firms have three sources of cash from which to finance their activities. This chapter provides an overview of debt, equity, and internally generated funds. We give details about each of these forms of financing. As such, there are many financial terms that you need for quiz and exam purposes, but are not really needed for real life. Note that many of the terms in Chapter 14 were also covered in earlier chapters. The main purpose of this chapter is to prepare us for the two chapters in Module 5, Capital Structure and Dividend Policy.
Things to Read - Read the Chapter.
Things to Do - Make 100 on the quiz. Be able to solve End of Chapter Problems 1-6, 9-13.
1. Watch the Chapter 14 Overview video. The Powerpoints for all of this chapter’s videos are located here.
2. I want you to read this chapter before you watch the videos. If you feel the need, watch the Chapter 14 Lecture. The Powerpoints for this video begin at about slide 4.
3. I do not yet have any audios for this chapter. I will create them based on student requests.
4. Take the Chapter 14 Quiz.
Midterm Exam
I will send details about the Midterm Exam about one week before the exam opens. My expectation is that about 30% of the exam will be concept questions. The remaining 70% will be calculations. Of the calculations you will have two big, multi-step problems. One will be a Chapter 3 based scrambled income statement/ balance sheet problem worth about 20 points. One will be a Chapter 13 based multi-step WACC computation worth about 15 points. There will be about 6 other problems involving calculations. The concept questions will probably be multiple choice, averaging one question per chapter. The other calculation questions will be a mix of matching, multiple choice, and enter a numerical answer problems. After using 35 points for the two big problems, this leaves 65 points for the other questions and problems.
