C708 Resources

This stuff WILL make Principles of Finance easier for you!



NOTE:
These resources were created for the
versions of this class prior to the Sept 4, 2018 revision.
I do not know what is in the new class.

I can't find Ron on Wyzant — Where did he go?

Sorry folks, I'm no longer tutoring in finance. Read the sheets and watch the videos - everything I know is in there anyway!    =:o)

C708 Index

I created these resources and roadmap to make passing C708 as fast and painless as possible for you. If they help you, please consider saying thanks with something from my Amazon wish list, or a gift via PayPal:

General Help with C708
Whether you're brand new or neck-deep and frustrated, please read this sheet!
08/07/2018
This isn't the only calculator you can use for this course, but since it's what I used, it's the only calculator that my sheets reference.
6/30/2018
Ch. 1
RON'S ROADMAP

C708

1.1 – 1.3

Skip it.
Chapter one is pointless to read.
Ch. 2 - Accounting and Financial Statements
RON'S ROADMAP

C708

2.1

EZC1

N/A

Skip it.
Don't watch it. It's completely out of context and will immediately confuse you. We'll talk about Begin Mode later, when you actually need it.

C708

2.2

EZC1

2.1

Read it.
Things to know:
• GAAP = Generally Accepted Accounting Principles
• Advantages of accrual-based accounting
• Matching principle
• Historical cost

C708

2.3

EZC1

2.2

Read my sheet called The Balance Sheet, watch the first Boot Camp video, then you can just quickly just skim-read this section. Then work the problems at the bottom.
Balance sheet is a snapshot in time A lot of test questions really just boil down to the basics of balance.

Δ is my shorthand for "change"
Assets = Liabilities + Owners Equity

  Net Income
- Δ in Retained Earnings
------------------------
= Dividends

  Gross PP&E
- Depreciation Expense
----------------------
= Net PP&E

C708

2.4

EZC1

2.3

Assuming you have already watched the first Boot Camp video, download and read my pdf of The Income Statement. Then skim-read the section and work the problems at the bottom.
• Memorize the Sales to Net Income progression
• Gross Profit is also called Gross Income
Table 2.2 says depreciation expense is part of the Operating Expenses. Ignore that. Always treat it as its own line item.
  Sales
- COGS
----------------------
= Gross Profit
- Operational Expenses
- Depreciation Expense
----------------------
= EBIT
- Interest
- Taxes
----------------------
= Net Income

C708

2.5

EZC1

2.4

Skip it.

C708

2.6

EZC1

2.5

Watch the Session #2 Boot Camp video, then download and read my pdf on CFO, CFI, and CFF. Quickly skim-read the section, but entirely skip the Three Dudes example. Go to the bottom and work the problems.
• Only the CFO formula is provided on the test - and it's overcomplicated - so learn my formulas for all three.
• If your assets go up, it's because you spent cash. If your liabilities go up, it's because you borrowed cash.
• Operational Assets: Current Assets BUT NOT CASH.
• Operational Liabilities: Current Liabilities BUT NOT NOTES PAYABLE.

Δ is my shorthand for "change"
  Net Income
+ Depreciation Expense
- Δ in Op. Assets
+ Δ in Op. Liabilities
----------------------
= CFO

CFI = -(Gross PP&E)

  Long-term Debt
+ Notes Payable
- Dividends
--------------------
= CFF

C708

2.7

EZC1

2.6

Do the end-of-topic test.
• Make note of the application questions (i.e. "Based on this information, what is probably true about this company?"). These assume you understand the concepts and have you apply the knowledge. There are questions like this on the OA. There's no way to study for them, other than to understand the material and think through the situation logically.
Covers what's involved with Assets, Liabilities, and Owners' Equity.
7/13/2018
Everything from Sales to Gross Profit to EBIT to Net Income
6/19/2018
How to calculate cash flows from operations, investing, and financing
8/21/2018
Ch. 3 - Ratios
RON'S ROADMAP

3.1

Read this section.

3.2 – 3.5

Assuming you have watched the first Boot Camp video, download my pdf called Learn The Ratios and learn their names in the order given. Then read these sections and work the problems at the bottom of each page.
• Don't worry about memorizing the formulas, they're given to you on the test. However, you do need to know the NAMES of them.
• You should be working problems with the two pages of formulas in the "official" Course of Study Roadmap open. These are the formulas provided to you in the test.

3.6

Assuming you have watched the first Boot Camp video, read my sheet on The DuPont Formula. Then read the section and work the problems at the bottom.
• Notice how DuPont contains a bunch of ratios. There will be test questions using them, so really understand it.
• The third part of DuPont is called the Leverage Multiplier. Make sure you know that, because it's NOT on the ratios sheet!
• The key to solving these problems is knowing the names of the ratios. Did you learn them in Section 3.5? If not, do that now.
ROE = (NI/S) x (S/A) x (A/E)

3.7

Assuming you have watched the second Boot Camp video, read my pdf on FCFF & FCFE. Then read the section and work the problems at the bottom.
• You don't need to learn my sheet's formulas, they are just there to help you to understand what's going on with cash.
• Rather than trying to understand how to deal with "Inc in NWC", my recommendation is to simply see what's happening to cash in Current Assets and Current Liabilities. (Watch the Session #2 Boot Camp video to understand this.)

Δ is my shorthand for "change".

CAPEX is just the Δ in Gross PP&E.

"Inc in NWC" is not correct. It should be CHANGE in NWC - because it can also decrease.

"Inc in Net LT Debt" is not correct. It should be CHANGE in Long-term Debt - because it can also decrease.
  EBIT
- Tax Expense
+ Depreciation Expense
- CAPEX
- Δ in Net Working Capital
--------------------------
= FCFF

  Net Income
+ Depreciation Expense
- CAPEX
- Δ in Net Working Capital
- Δ in Long-term Debt
--------------------------
= FCFE

3.8

I would skip it, but read it if you choose.* If you do, see my notes below on EVA.
*Here's the deal: EVA and Costly Capital are NOT on the end of book test or the preassessment. That's a pretty good indicator that it won't be on the final. However, the formula IS in the list of provided formulas. So it's up to you as to whether you choose to learn this or not.
NOPAT = EBIT - Tax Expense

Notes Payable
+ Long-Term Debt
+ Owners' Equity
----------------
= Costly Capital

3.9

Read it if you want.

3.10

Do the end-of-topic test.
• OIROI is not on the provided list of ratios, but there is a question on it here. It doesn't show up on the tests after that, but it's up to you to learn it or not - it had a paragraph in 3.3.
• Just like in 2.7, there are several application questions here. These test whether you can use your understanding of the material to draw logical conclusions. Get used to these, they are on the OA.
The test gives you the ratios, but not the names. It's important to memorize the names for the final.
7/13/2018
Why does the DuPont equation exist? It tells us stuff.
7/13/2018
Why are cash flows in the ratios chapter? I dunno, but since most of the book is disorganized and stupid, why NOT put them in there?
6/19/2018
EVA
EVA* = NOPAT - (WACC x Costly Capital)
EVA (Economic Value Added) is also called "Economic Profit.">

NOPAT is the Net Operating Profit After Taxes. Remember that Operating Profit is EBIT, so just take the taxes out of it and you're done.

They will tell you WACC % for now. You'll learn how to do it in chapter 9.

Costly Capital is the interest-bearing debt (Notes Payable + Long-term Debt) plus Owners' Equity
Ch. 4 - Forecasting
RON'S ROADMAP

4.1

Read it, do the questions at the bottom.

4.2

Assuming you have watched the Session #2 Boot Camp video, read my pdf on the Percent of Sales Method/DFN. Then read this section and do the quiz at the bottom.
• Memorize the six steps of the Percent of Sales Method in order.
• Understand what spontaneous and discretionary accounts do, and which ones are which.
• Know how to figure out a percentage increase.
• Know how to calculate DFN.
Percentage Increase = (New Amount - Old Amount) / Old Amount

  Left side of balance sheet
- Right side of balance sheet
-----------------------------
= Discretionary Financing Needed

4.3

Assuming you have watched the Session #2 Boot Camp video, and have already the Percent of Sales Method/DFNsheet, you can skip the reading and go right to the problems at the bottom.
  Assets
- Liabilities
- Equities
-------------
= DFN

4.4

Assuming you have watched the Session #2 Boot Camp video, look at the section about Sustainable Growth Rate on this sheet. Then read the section and work the problems at the bottom.
• Understand what Sustainable Growth Rate means
• Know the four things that will decrease DFN.
• Memorize the Dividend Payout Ratio, called "b".
b = Dividends / Net Income

SGR = ROE (1 - b)

SGR = (NI/S) x (S/A) x (A/E) x (1 - (Div/NI))

4.5

Read it if you want.
If you did the previous two sections and understand what you're doing, this section is overkill.

4.6

Do the end-of-topic test.
What you need to know about spontaneous accounts, Discretionary Financing Needed (DFN), and how to do the percent of sales calculations.
7/14/2018
Use the DuPont equation with one more ratio to find SGR.
7/13/2018
Ch. 5 - TVM, Time Value of Money
RON'S ROADMAP

5.1

Watch the Session #3 Boot Camp video, then read my sheet called Time Value of Money. After that, read this section and answer the questions at the bottom.
This is important stuff! Learn to do TVM problems in your sleep, because this topic is one of the two biggest things in the course!

5.2

Assuming you watched the Session #3 Boot Camp video, and read my sheet called Time Value of Money, you'll be able to quickly skim this section and then work the problems at the bottom of the page.

5.3

Before you attempt read this section, make sure you've watched the Session #3 Boot Camp video, and read my sheet on Annuities & Perpetuities. If you do, you can completely skip all the reading and jump to the bottom and start working the problems.
• This book is often a steaming pile of crap. And this page is a perfect example.
• If you make sure you've watched the Session #3 Boot Camp video and have read my sheets on Time Value of Money and Annuities & Perpetuities, you'll be able to skip the reading. (And believe me, this is a page you don't want to try to interpret. It's just terrible writing and needlessly complex math. It's really hard not to use profanity to describe the poor quality of this text and the authors' total inability to communicate simple concepts.)
• Yes, you can ignore the Effective Yield stuff.

5.4

Just like 5.3, you can totally skip the reading IF you've watched the Session #3 Boot Camp video, and read my sheet on Annuities & Perpetuities. If you haven't, go do that now. If you have, go to the bottom and work the problems.
• It's FINALLY time to learn what Begin Mode on your calculator is! (Notice that we're late in chapter FIVE. Putting that video at the beginning of chapter two was idiotic - not to mention inifinitely frustrating to new finance students.)
• ALWAYS use Begin Mode for Annuities Due.
• Uneven Cash Flows and Deferred Annuities: Learn to do NPV on your calculator right here, and you'll save yourself a ton of grief! (Tutorial video links are below.)

5.5

Read it and work the problems at the bottom.

5.6

Take the end-of-topic test.
A couple of these mulit-year problems get pretty complex. DON'T get bogged down and frustrated. These are much more involved than you'll face in the OA, but if you can't let them go just ask for help in the C708 Survival Team Facebook group, from your Wyzant tutor, or from your Course Mentor.
Covers all the variations and steps for solving time value of money problems.
6/12/2018
Learn the difference between Annuities, Perpetuities, Annuities Due, Deferred Annuities, and Deferred Perpetuities... and how to calculate them.
7/23/2018
Uneven Cash Flows
1) Learn to do NPV cash flows on your calculator.
Videos: How to do NPV on TI-83 & TI-84 and BA II Plus.

2) For Present Value of uneven cash flows: Solve for NPV.

3) For Future Value of uneven cash flows: Solve for NPV. Then use that NPV value as the PV in a TVM problem. Solve for FV.
Ch. 6 - Bonds
RON'S ROADMAP

6.1

Read it and answer the questions.

6.2 – 6.4

Assuming that you have already watched the Session #3 Boot Camp video, download and read my sheet on Bonds. Then read these three sections and work the problems at the bottom of each.

6.5

Read it if you want.
I don't remember any of this stuff being important.

6.6

Read it and work the problems at the bottom.
I didn't learn any of these relationships. When asked in the test, I just made up two problems with the change it asked about, and looked at what happened.

6.7

Take the end-of-topic test.
Don't move past this chapter until you're scoring 100% on this quiz.
Covers all the variations and steps for solving bond problems.
6/12/2018
Ch. 7 - Stocks
RON'S ROADMAP

7.1

Read it.
Watch the Session #4 Boot Camp video!

7.2

Read it.

7.3

Read it.
Understand the difference between Common and Preferred stocks.

7.4

Read it.
The formula for preferred stock is really easy - you should remember it from Perpetuities! Although the variables have different letters, it's still just Value = Payment / Rate, or put another way, Rate = Payment / Value.
V0 = D / Kps

Kps = D / V0

7.5

Read it, but skip "Two-Stage Growth".
Single Period:
Understand it, but it's nowhere on the tests.

The "basic model":
Read it, but don't do the crazy stupid math. Just use the NPV cash flows I told you to learn back in section 5.4.

Gordon Growth Model:
Yeah, you want to TOTALLY digest this. Download my pdf on GGM and really, really, really understand it! It will help you not just with stocks, but later on with WACC, Firm Valuation, and more.

Two-Stage Growth:
I didn't read any of this. Just look at the bottom section of my GGM pdf and you'll be able to do it all easily.
Kcs = (D1 / V0) + g

V0 = D1 / (Kcs - g)

7.6

Skip it.
Capital Asset Pricing Model (beta, risk-free rate, etc.)
6/13/2018
Gordon Growth Model
6/13/2018
Two additional ways you might have to figure stocks: the Single Period Holding Model and the Build-up Method.
7/1/2018
RON'S ROADMAP

8.1 – 8.7

Skip this entire chapter. You're welcome.

Just make sure you get the sheets on CAPM and the Build-up Method.
The only things you need from chapter 8 are the build-up method and CAPM, both of which I put up in the chapter 7 sheets. (Build-up is in "Two More Stock Calcs" sheet. CAPM has its own sheet.)

Make sure you know the difference between Return on the Market, Market Risk Premium, and Risk-free Rate! (They will try to trick you because the terms sound so similar.)
  Bond Yield
+ Equity Risk Premium
+ Micro-cap Risk Premium
+ Start-up Risk Premium
------------------------
= Required Rate of Return (or Kcs)

Kcs = Rf + B (Rm - Rf)
Ch. 9 - Weighted Average Cost of Capital
RON'S ROADMAP

9.1

Read it, and download my sheet on WACC.
Watch the Session #4 Boot Camp video

WACC is not hard. It's ALL stuff you know how to do.

9.2

Read it.
The "cost" of bonds (debt) is the I/Y. Make sure you know how to deal with flotation costs and taxes.

9.3

Read it.
The "cost" of stocks (equity) is the required rate of return (the I/Y). For Common Stock, you'll use the stuff from Chapter 7: CAPM, Build-up Method, and Gordon Growth Model. For Preferred Stock, it's just the easy formula.
Kps = D / V0

9.4

Read it, and download my pdf on WACC below.
  ((C/V) x Kcs)
+ ((P/V) x Kps)
+ ((D/V) x Kd x (1 - T))
------------------------
= WACC
Learn to calculate WACC. It's not as difficult as people think!
7/28/2018
Ch. 10 - Making Budget Decisions
RON'S ROADMAP

C708

10.1

EZC1

11.1

Read it.
Watch the Session #5 Boot Camp video!

"Wait, if I'm in EZC1, what do I do with 'Chapter 10 - Leverage'?" Well, they removed it from the book for the C708 class. Whether that information is tested in EZC1, I do not know. Might be a good question for your Course Mentor.

C708

10.2

EZC1

11.2

Read it.

C708

10.3

EZC1

11.3

Read it, and download my sheet on Capital Budgeting.
Learn to calculate Payback Period. I explain how in the Capital Budgeting sheet.

C708

10.4

EZC1

11.4

Read it, but skip the math. Just download my sheet on Capital Budgeting.
Hopefully you learned how to do NPV cash flows on your calculator back when you were avoiding the math in 5.4. If you didn't go back up there and watch the video for your calculator.

If you're deciding a project, NPV needs to be greater than zero to accept it.
If NPV > $0 then YES

C708

10.5

EZC1

11.5

Read it, but skip the math. Just download my sheet on Capital Budgeting.
Profitability Index was not in the end-of-book test or the PA, but some students report that it WAS in their OA.
If PI > 1 then YES

C708

10.6

EZC1

11.6

Read it, but skip the math. Just download my sheet on Capital Budgeting.
Just like NPV, except while NPV is a dollar amount (Value), IRR is a percentage (Rate).

If you're deciding a project, IRR needs to be greater than the required rate.
If IRR > Discount Rate then YES

C708

10.7

EZC1

11.7

Read it if you want.
EAA was not in the end-of-book test or the Preassessment. So I wouldn't bother with it.
Learn to do Payback Period, NPV, IRR, and PI.
7/4/2018
Ch. 11 - Cash Flows in Budgeting
RON'S ROADMAP

C708

11.1

EZC1

12.1

Read it fast.
Watch the Session #5 Boot Camp video!

C708

11.2

EZC1

12.2

Read it, it's important.
A whole page to learn the definitions of four words.

C708

11.3

EZC1

12.3

Read it and download my sheet on depreciation.
Depreciation schedules are important to understand.

Fortunately, MACRS percentages are always given in the problems, so at least you don't have to memorize them.

C708

11.4

EZC1

12.4

Read it, it's important. And download my sheet on depreciation if you didn't already.
The depreciated book value of an asset affects how much tax has to be paid when you sell it. Fully understand this before moving on, it will be important to know.

C708

11.5-6

EZC1

12.5

Read it, and download my sheet called "From Initial to Terminal."
Really take the time to understand Initial Outlay, Differential Cash Flows, and Terminal Cash Flows.
What depreciation is, how to follow a depreciation schedule, and how to tax the depreciated book value of an asset.
7/20/2018
A couple more notes about depreciation
- You'll need to know that non-cash expenses are depreciation and amortization.
- If you sell an asset for less than book value, it makes a tax shield instead of incurring a tax bill. (This adds cash instead of subtracting it.)
Estimating project cash flows: How to calculate Initial Outlay, Differential Cash Flows, and Terminal Cash Flow.
7/21/2018
Ch. 12 - Valuation of a Firm
RON'S ROADMAP

C708

12.1

EZC1

13.1

Read it.
Watch the Session #5 Boot Camp video!

I think there's a test question on what the replacement method is. Nothing much to learn, just know that Replacement Cost is what it would cost to replace the company's assets, liabilities, and capital structure.

C708

12.2

EZC1

13.2

Read it, and make sure to download my sheet on Firm Valuation.
Don't be freaked out by the crazy math formulas they are showing. Remember how to value a stock with "a unique dividend model"? Then you know how to do firm valuation! This is just the Gordon Growth Model combined with Cash Flows all over again. The only difference is the names of the variables: Instead of Dividends, the cash is coming from FCFF. And instead of Required Rate of Return (Kcs), they are using WACC.

If you don't remember any of that, you need a refresher on the Gordon Growth Model sheet up in chapter 7. It's exactly the same thing!

C708

12.3

EZC1

13.3

Read it, and download my sheet on Comparable Multiples.
They don't explain this very well, but I made a sheet with a formula. All you need to do is remember PEEP. Note that it works for either Earnings or Sales (PSSP? lol), but it doesn't work to mix them. If the problem gives you earnings for one firm and sales for another, you'll need to dig in and figure out how to get earnings for both or sales for both.
(Pa / Ea) x Eb = Pb

(Pa / Sa) x Sb = Pb

C708

12.4

EZC1

13.4

Read it.
Taking Out Salary: If the owner of a SMALL business doesn't get paid, it messes up the valuation of the company.

Liquidity Discount: It's easier to sell ownership of a publicly traded company than it is to sell off a small company. Often they have to discount it 40-50% to sell it.

Control Premium: If you're trying to buy a controlling interest in a company (i.e.: takeover), you'll be paying more than regular price. Usually 30-35% more.

C708

12.5

EZC1

13.5

Skip it.
The only thing to learn from this section is that apparantly you can write the world's crappiest textbook and STILL be able to afford a three hundred thousand dollar house.
Life ≠ Fair
The EASY way to find the value of a company, using GGM and NPV. (NOT the book's crazy hard way.)
7/15/2018
Using the Price-to-Earnings ratio to value another firm.
6/13/2018
Ch. 13 - End-of-Book Test
RON'S ROADMAP

C708

13.1

EZC1

14.1

Take the test once with notes. Then take it again without notes.
When you can take the test without notes and score 80% or higher, take the Preassessment.