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Category: Finance

# How to Solve Academic Problems in Finance

By Michelle Johnson
8 Feb, 2019
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Parents often to come me ask about their children not doing well in their Finance examination. ‘How to solve academic problems in Finance’ is the greatest challenge parents think their children need to know. So for all those who are struggling hard to come to get flying colors and make their parents proud, here is what is in store for you.

## Understand what this subject is all about?

The subject Finance is compulsory for students pursuing Business Administration. It is a field that deals with the allocation of assets and liabilities. It concentrates with regards to risk and uncertainty of the financial statements. It is basically learning the art of money management.

It is important to study this subject as it helps the participants of the market to price the assets at a risk level, understand the fundamental value and the rate of return.

Students specializing Finance got to study the three types of it- Public, Personal and Corporate. So read ahead as we unfold the various ways to solve academic problems in Finance.

• #### Make tables to solve the problem

What sounds confusing in the statement form becomes easy when you look into it in the tabular form.

Let’s take an example of Measuring Investment Returns

You have been given the following information as a problem where a project has the following details-

1. It has a 10-year lifetime
2. The initial investment in the Meryl and Sons project is \$50 million, and the investment will be depreciated straight line, down to a salvage value of \$20 million at the end of the tenth year.
3. The expected revenue growth for the next year is \$40 million and will grow 20% a year after that for the remaining 9 years.
4. The cost of goods is sold at 50% of the revenue but this excludes depreciation.
5. The tax rate is 20%.

You are expected to estimate the pre-tax return on capital, by year and on average, for the project and also the after-tax return on capital, by year and on average, for the project by Meryl and Sons. If the cost of capital is 24%, should it take this project?

### Solution

Don’t get stunned looking at this problem. Take it easy. First, make a table such as this,

Year    Beginning BV,Ending BV, Depreciation,Revenues,Average BV, COGS,EBIT, EBIT (1-t)

By doing the above table you will get an idea about the details that are given to you. As per the questions create another table that has columns like Pre-tax Return on Capital where Year, Average BV, EBIT, and Pre-tax ROC is done. Similarly create a table for Average and so on. You will automatically see that the return on capital is greater than the cost of capital and hence the firm should accept the project.

• ### Analyze the problem well and know how to define it

Although the problem is in front of you, you must put it in a way so that you can understand it well. Thus, analyze the problem first. Define it in a problem statement way. Do an analysis and then interpret the results.

#### For example-

Let’s say a company is thinking of expanding its business. It wants to purchase Samuel & Brothers Company with 10 million shares of stock.  Samuel & Brothers have free cash flow of \$ 48 million that is expected to grow at a constant rate of 10%. As per the financial report marketable securities of \$200 million, while there is a debt of \$400 million, the preferred stock is measured at\$100 million, and the weighted average cost is at 22%. You are expected to state the legal rights and privileges of the common stockholders.

### Solution:

Here you will have to understand how ownership implies control. So, a company’s common stockholders have the right, known as the preemptive right to select its directors, buy additional shares. So when you analyze such problems you will get the solution automatically by calculating it.

• #### Start attending the lectures regularly

The fact for every problem lies in the classroom teaching. Most of the problems that are given as a projector in the examination are the result of what is taught in the classroom. So make sure you attend at least your lectures for the Finance subject so that you get to know the essence of the subject well. You will realize that when it comes to completing the problems on this subject it will become the easiest task for you. Professors normally give problems and case studies that are taught to you, so make sure you have 100% attendance to get 100% result.

• #### Get professional help from online tutors

Some of the best ways to solve academic problems in Finance is to seek professional help. This day online tutors are the easiest way to get help. You can ask for help at any point of time and from any part of the world.

The sessions can be conducted as per your ease. So whether it is present value for the time value of money, capital structure, dividend policy, or any valuation or any other topic that may be difficult for you can be done at a convenient time.

Besides, the tutors at such portals are highly qualified and have enough number of experiences to put their expertise. I will advise you to go ahead with a platform such as this as it will benefit you as an individual and there is a lot that can be learned.

Author’s Bio:

Michelle Johnson, the name tantamount in the field of online academic portals. She masters in Accounting, Finance, Marketing, and Management. She has a knack of imparting knowledge to the children in a very jovial way. She is a blogger for myhomeworkhelp.com and loves to write for students from the Accounting and Finance stream.

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