TEXAS INSTRUMENTS BA II PLUS
2nd BGN COMPUTE
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Problem #1 Time Value of Money Basic

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Corporate Finance Study Guide

This course covers practical approaches to analysis and decision-making in corporate finance, including capital budgeting, working capital management, and cost of capital.

Your Study Path

Click any topic to expand details, formulas, and exam tips.

1. Time Value of Money 25% +
  • Core concept: A dollar today is worth more than a dollar tomorrow
  • Key skill: Converting between PV and FV using interest rates
  • All other finance topics build on TVM calculations
Key Formulas
  • FV = PV × (1 + r)^n
  • PV = FV / (1 + r)^n
  • PV Annuity = PMT × [(1 - (1+r)^-n) / r]
Exam Tips
  • Always enter PV as negative (cash outflow) on calculator
  • Check END vs BGN mode before annuity calculations
  • Clear TVM registers (2nd + FV) between problems
2. Capital Budgeting (NPV & IRR) 20% +
  • NPV: Accept if positive (adds shareholder value)
  • IRR: Accept if greater than required return (WACC)
  • NPV is preferred when projects conflict or have different scales
Key Formulas
  • NPV = Σ(CFt / (1+r)^t) - Initial Investment
  • IRR: Rate where NPV = 0
  • Payback = Years to recover initial investment
Exam Tips
  • Enter initial investment as negative CF0 in calculator
  • Use CF worksheet frequency feature for equal cash flows
  • NPV and IRR can give conflicting rankings - know why
3. Cost of Capital (WACC) 15% +
  • WACC = weighted average of debt and equity costs
  • Tax shield applies ONLY to debt (interest is deductible)
  • Use market value weights, not book values
Key Formulas
  • WACC = (E/V × Re) + (D/V × Rd × (1-T))
  • After-tax cost of debt = Rd × (1 - T)
  • V = E + D (total firm value)
Exam Tips
  • Tax shield (1-T) is on DEBT only, never equity
  • Double-check that weights sum to 1.0 (100%)
  • Cost of equity often uses CAPM formula
4. Risk & Return (CAPM) 15% +
  • Beta measures systematic (market) risk only
  • Beta = 1 means same volatility as market
  • Risk premium compensates investors for taking risk
Key Formulas
  • E(Ri) = Rf + β × (Rm - Rf)
  • Market Risk Premium = Rm - Rf
  • Portfolio β = Σ(wi × βi)
Exam Tips
  • Calculate market premium first, then multiply by beta
  • Higher beta = higher expected return required
  • Beta < 1 is less volatile, > 1 is more volatile
5. Bond Valuation 10% +
  • Bond price = PV of coupons + PV of face value
  • Price and YTM move inversely
  • Premium bond: Coupon > YTM; Discount: Coupon < YTM
Key Formulas
  • Bond Price = Σ(C/(1+r)^t) + Face/(1+r)^n
  • Current Yield = Annual Coupon / Price
  • YTM: Rate where bond price = PV of cash flows
Exam Tips
  • Use TVM: PMT=coupon, FV=face value, solve for PV
  • If YTM > coupon rate, bond trades at discount
  • Semiannual: divide coupon & rate by 2, double N
6. Financial Ratios 10% +
  • Liquidity ratios measure short-term debt-paying ability
  • Profitability ratios measure efficiency and returns
  • Always compare ratios to industry benchmarks
Key Formulas
  • Current Ratio = Current Assets / Current Liabilities
  • ROE = Net Income / Total Equity
  • D/E Ratio = Total Debt / Total Equity
Exam Tips
  • Higher current ratio = more liquid, but too high = idle assets
  • ROE shows shareholder returns; ROA shows asset efficiency
  • Know the difference between gross, operating, net margins
7. Cash Flow Analysis 5% +
  • Operating Cash Flow = cash from core business operations
  • Free Cash Flow = cash available after capital expenditures
  • FCFF for all capital; FCFE for equity holders only
Key Formulas
  • OCF = EBIT × (1-T) + Depreciation
  • FCF = OCF - CapEx - ΔNWC
  • FCFE = FCFF - Interest × (1-T) + Net Borrowing
Exam Tips
  • Add back depreciation (non-cash expense)
  • Working capital increase = cash outflow
  • Use FCFF for firm valuation, FCFE for equity only
8. Business Leverage 10% +
  • Operating leverage relates to fixed operating costs
  • Financial leverage relates to debt financing
  • Higher leverage = higher risk and potential return
Key Formulas
  • DOL = Contribution Margin / EBIT
  • DFL = EBIT / (EBIT - Interest)
  • DTL = DOL × DFL
Exam Tips
  • High fixed costs = high operating leverage
  • High debt = high financial leverage
  • Know MM Proposition I and II with and without taxes
9. Firm Valuation 10% +
  • Enterprise Value = Market Cap + Debt - Cash
  • DDM values stock based on expected dividends
  • EVA measures value creation above cost of capital
Key Formulas
  • EV = Market Cap + Total Debt - Cash
  • P0 = D1 / (r - g) [Gordon Growth]
  • EVA = NOPAT - (Capital × WACC)
Exam Tips
  • DDM assumes constant dividend growth
  • EV/EBITDA is common for comparing firms
  • Know the 5 types of bond risk
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