ECON 403: Elements of Modern Corporate Finance Theory
Section 4.2: Valuation
Please answer the following questions using the methodology we have been employing in this course. Make sure to show all your work. The use of financial calculators is strongly encouraged.
You may use the attached materials as examples.
1) What is the Net Present Value of a poem?
2) What is the Internal Rate of Return on a photograph?
3) What is the proper Debt to Capital Ratio for a concerto?
4) What is the Net Operating Cash Flow of a painting?
5) Extra Credit: To what reasons does the author of the following passage ascribe the collapse of Lehman Brothers in September 2008? Is he using Fama and French or Miller and Modigliani? Explain.
We shall not cease from exploration
And the end of all our exploring
Will be to arrive where we started
And know the place for the first time.
Through the unknown, remembered gate
When the last of earth left to discover
Is that which was the beginning;
At the source of the longest river
The voice of the hidden waterfall
And the children in the apple-tree
Not known, because not looked for
But heard, half-heard, in the stillness
between two waves of the sea.
Quick now, here, now, always—
A condition of complete simplicity
(Costing not less than everything)
And all shall be well and
All manner of thing shall be well
When the tongues of flame are in-folded
Into the crowned knot of fire
And the fire and the rose are one.
— T.S. Eliot, Little Gidding (excerpt)
This quiz will count for 25% of your semester grade. Good luck!
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