Information about the Fall 2011 Final Exam for MBA 8135

Overview
The MBA 8135 Final Exam is difficult. It is a comprehensive exam. The exam is closed book
and has no formula sheet. When compared to the class quizzes, the majority of the Final Exam
questions would rank in the top 25% of difficulty. There is limited coverage of the easier
material in the course. Your exam preparation should focus on the chapters that have the
heaviest coverage of material. About 75% of the exam is based on the topics of Time Value of
Money, Capital Budgeting Cash Flows, Risk and Return, and Capital Structure. Review the
detailed list later in this document to aid in focusing your studies.
A team of instructors designs the Final Exam. Thus, the style/wording of questions may differ
from the style/wording used by Professor Hodges. All 8135 Professors use questions from
many different sources during a given semester, thus questions will often be worded in a
manner that differs from your textbooks typical patterns. Having said that, I have covered
every topic. I have assigned questions and problems for every topic tested in the Final Exam.
It is important that you try to do your best on the exam. Your course grade will be determined
by your performance relative to the class, not your exam or course average. Based on my
perception of the Fall 2011 exam difficulty, the class average will be in the upper 70s. Since
about 85% of the class will make either A or B in the course, this implies that one could have a
Final Exam grade in the mid-60s and still make a B in the course.
Time and Place Information for Final Exam
The Fall 2011 MBA 8135 Final Exam is scheduled for Saturday, December 10, from 1:00 p.m. to
3:30 p.m. The exam will take place in Room 200 of General Classroom Building (700 GCB) at
the downtown Georgia State University campus (http://www.gsu.edu/map.html). The room
should be open by 12:45 pm. There are two other classes taking the exam in the same room.
PLEASE BRING A PHOTO IDENTIFICATION TO THE EXAM. YOU WILL SHOW
THE IDENTIFICATION WHEN YOU TURN IN YOUR EXAM.
Time and Place Information for Optional Face to Face Help Session
There was be an optional face-to-face Help Session on Monday, December 5, beginning at 6 pm
and lasting until at least 9 pm. The Help Session will be in Room 1200 of the Robinson College
of Business Building at 35 Broad Street. The format is questions and answer, where I answer
student questions but do not initiate discussions. The timing is dropin, so arrive when you can
and leave when you need to. You must arrive before 8 pm, as the Building is locked at 8 pm.

Exam Information
There are currently 18 questions on the exam, and it is possible for us to make minor changes.
The exam is similar in structure and difficulty to the sample Final Exams on the Ulearn
website. The exam is comprehensive, thus material from any chapter is fair game. Based on the
draft of the exam, you should expect the following. There are four multiple choice concept
questions, eight multiple-choice calculation questions, and six calculations where you can show
your work for partial credit. All multiple choice questions count 4 points each. There is one
WACC problem that counts 12 points, one time value of money problems that counts 8 points,
one comprehensive capital budgeting cash flows question that counts 12 points, and one capital
structure question that counts 8 points, one bond question that counts 6 points, and one stock
question that counts 6 points. Note, while most of the questions with numerical answers are
quantitative (i.e., require calculations), some may be solved using logic alone. THERE ARE NO
ESSAY QUESTIONS ON THE EXAM.
Be aware that many concepts are covered in multiple chapters, for example, calculations
involving the Present Value with uneven cash flows are from Jaffe Chapters 4, 5, 6, 8, 9, and
13. Just because a chapter is not listed does not mean we did not use any information from that
chapter.
There are many questions that cross chapter boundaries. For example, the well-known
relationship - that increasing the discount rate will decrease the present value could be
phrased as a time value of money, bond, stock, or capital budgeting question. For the questions
below, the listed chapter is the chapter that we were considering when we wrote the question.
Your classification of questions could differ from ours. There are usually multiple versions of
the exams and your version of the exam will not be in the question order shown below. Here is
the breakdown of question types by topic.
Multiple Choice Questions
1. Question with Numerical Answer from Time Value of Money
2. Question with Numerical Answer from Time Value of Money
3. Concept question from Time Value of Money
4. Question with Numerical Answer from Risk and Return
5. Question with Numerical Answer from Risk and Return
6. Question with Numerical Answer from Risk and Return
7. Question with Numerical Answer from Risk and Return
8. Concept question from Risk and Return
9. Concept question from Net Present Value and Other Rules
10. Concept question from Risk Analysis and Real Options
11. Question with Numerical Answer from Capital Structure Handout
12. Question with Numerical Answer from Making Capital Investment Decisions
Open-ended questions
13. 6 point question with Numerical Answers from Stock Valuation
14. 6 point question with Numerical Answers from Bond Valuation
15. 8 point question with Numerical Answers from Time Value of Money
16. 12 point question with Numerical Answers from Weighted Average Cost of Capital

17. 8 point question with Numerical Answers from Capital Structure Handout
18. 12 point question with Numerical Answers from Making Capital Investment Decisions
Exam Hints
MBA 8135 is a core course. As such, our objective is to assure that students have a body of
knowledge about certain fundamental finance concepts. The Final Exam tests a students
knowledge over these fundamental finance concepts. Although knowledge from other courses
is helpful (e.g., sources and uses of funds in calculating initial cash flows for capital budgeting)
for the Final Exam, we do not design questions to directly test your knowledge of any other
material. MBA 8135 is a relatively new course, but the material covered, in the relevant
chapters, will be quite similar to coverage in the previous versions of this course (MBA 8622,
MBA 8130, and MBA 8230). I have incorporated most of the old final exam questions into our
course quizzes. For this reason, I strongly suggest you review the old quizzes in Ulearn, with a
focus on the most difficult questions and problems.
For quantitative questions, we test the same material each term. As an example, consider stock
valuation. There are two models (CAPM and Constant Growth) with two types of valuation
problems (constant growth and non-constant growth) and four variables that can possibly be
calculated (dividend, price, growth rate, and required return on stock). We therefore have very
few types of questions that we can ask. On almost every exam, one of the questions is a nonconstant growth problem and one of the questions is a required rate of return. Another reason
to study the old quizzes is to see the way in which questions are written.
There are usually no formulas listed on the exam. You are not allowed to program you
calculator with formulas and thus there are certain formulas/methods/ techniques you should
memorize. In the list that follows, I have placed a (M), for Memorize, by types of calculations
that are not normally directly solvable with the standard calculator. Here are some of the
calculations that you might be asked to make; weighted returns/average (M), standard
deviation (M), standard deviation of a 2-stock portfolio where you combine the stocks for each
state of nature, present value, future value, annuity, annuity due, solving for interest rate and
time, compounding periods other than annual, periodic to stated to effective interest rate
conversions (M), amortized loan tables (M), perpetuities (M), CAPM (M), bond valuations,
current yield, coupon rate, yield to maturity, Constant Growth stock valuation model (M), nonconstant growth stock valuations, preferred stock valuation (M), WACC (M), NPV, IRR,
Payback (M), PI (M), Initial Cash Flows for new projects or replacement (M), Operating Cash
Flows for new or replacement projects (M), Terminal Cash Flows for new or replacement
projects (M), adjusting cash flows for inflation, adjusting the discount rate for project risk.
Some things that will not be tested are discounted payback period, MIRR, fractional time
periods, put-call parity, binomial option valuation, breakeven analysis, and the probability of
returns type given a return and standard deviation questions (seen in Chapters 10 and 11).
Here is a list of some equations you may need for the Final Exam. The first two equations will
be listed in the Fall 2011 Exam.
-

Standard Deviation of a 2-asset portfolio (given the individual standard deviations):

Portfolio x A 2 A 2 xB 2 B 2 2 x A xB A B CorrA,B

Hamada Equation : L = U[1

+ ((1 - T)(D/E))]

Ri RF i ( RM RF )
-

Perpetuity:

WACC:

P = PMT/r

rWACC =
-

S
S+B

rS +

B
S+B

rB (1 TC)

Constant growth model:

Pn

Div(n+1)
r g

For the comprehensive capital budgeting question, we have an empty matrix that may help to
solve the problem/enter your work.
Some test technique hints:
1. If you do not understand a question, ask an instructor.
2. You may have difficulty in finishing the exam, within 2.5 hours. If you believe you may have
a problem, Cherry Pick your questions save the longest and most difficult questions for last.
3. You will need formulas on the exam. Memorize the formulas you expect to need (based on
the quizzes and the above list) and then upon receipt of the exam, write the formulas on the
back of the exam.
4. Budget your time. You have 2.5 hours to complete the exam. This is the third semester in
which you are allowed 2.5 hours. In previous semesters the exam period was 2 hours. We have
not lengthened the exam since the change. While we design the exam to take about 100
minutes for the average student, historically about 50% have used at least 2 hours and 10
minutes.
5. If the room is not in use before or after our Exam, we usually give about 15 extra minutes to
complete the exam.
Hope this helps and have fun.