Problem 1.) What is a firm's fundamental, or intrinsic, value? What might cause a firm's intrinsic value to be different than its actual market value?
Problem 2.) Edmund Enterprises recently made a large investment to upgrade its technology. Although these improvements won't have much of an impact on performance in the short run, they are expected to reduce future costs significantly. What impact will this investment have on Edmund Enterprises' earnings per share this year? What impact might this investment have on the company's intrinsic value and stock price?
Problem 3.) What are financial intermediaries, and what economic functions do they perform?
Problem 4.) Is an initial public offering an example of a primary or a secondary market transaction?
Problem 5.) If a "typical" firm reports $20 million of retained earnings on its balance sheet, can the firm definitely pay a $20 million cash dividend?
Problem 6.) Explain the following statement: "Whereas the balance sheet can be thought of as a snapshot of the firm's financial position at a point in time, the income statement reports on operations over a period of time."
Problem 7.) What is operating capital, and why is it important?
Problem 8.) Explain the difference between NOPAT and net income. Which is a better measure of the performance of a company's operations?
Problem 9.) What is free cash flow? Why is it the most important measure of cash flow?
Problem 10.) If you were starting a business, what tax considerations might cause you to prefer to set it up as a proprietorship or a partnership rather than as a corporation?