# Study Session 8: Corporate Finance

## Help with depreciation under capital budgeting.

HI All,

Noticed something confusing in the readings, wanted to see if you can shed some insight. With regards to capital budgeting we all know that the tax affects of depreciation needed to be added back to operating income. The thing is, the CFA questions use different terms of cash flow, and in some instances this really affects the answer.

## Asymmetry

I apologize if I’m nitpicking but I can’t grasp the following concept from CorpFin.

This is what the curriculum says:

A high level of information asymmetry between managers and investors encourages managers to use more debt in the capital structure

Later there are examples contradicting that statement

Companies in the utility industry have a low degree of information asymmetry. As a result, utility companies tend to have much more debt than companies in other industries.  Continue reading

## confusion in a simple q in corporate finance

Guys

Plz help me out in a very simple q.

q no 3 pg no 113 of corporate finance Continue reading

## CAPM Question from Advanced corporate finance

I have a class soon. Using my textbook, I have to prepare for the class exam. But I do not have an answer paper.

Would you guys kindly see if I am correct.

An equity has a beta of 1.2 and an expected return of 16 per cent. A risk-free asset currently earns 5 per cent.

(a). what is the expected return on portfolio that is equally invested in the two assets? ( 10.5 % )

Solution: 0.5x16%+0.5x5%

(b). If a portfolio of the two assets has a beta of 0.75 what are the portfolio weights? (0.625) Continue reading

## Independent Board of Directors

This question probably won’t come up, but why do you want 75% independant directors? If I owned 40% of the company, I would probably want representation roughly around there. Is is for the small shareholders so that I can’t use my influence with 40%?

## CFAI Mock Exam (AM) Qn 50 - FCFF

When calculating the change in FCInv, the answer sheet adds back depreciation (\$61):

(1,203 − 1,130) + 61 = –134

Can someone explain the intuition behind this? I don’t get it since \$61 is already added via Non-cash charges. Continue reading

## CFAI Mock Exam (AM) Qn 50 - FCFF

When calculating the change in FCInv, the answer sheet adds back depreciation (\$61):

(1,203 − 1,130) + 61 = –134

Can someone explain the intuition behind this? I don’t get it since \$61 is already added via Non-cash charges. Continue reading

## Ex-dividend price change of stock

When a stock goes ex-dividend, does the price of the stock drop by the amount of the dividend or does it equal dividend (1-div tax)/(1-cg tax)

## Difference between Eco income in equity and corp fin

I wanted to know if there is any difference between economic income in the equity and corp finance book?

## Pages

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