Close call in finance

During Mod I there were a couple of times when I showed up to class late because I had overslept. I eventually began using a backup alarm clock. The system has worked well and not once did I oversleep during Mod II, that was until this morning.

 

I spent the entire day yesterday in McColl studying for finance and went home early to watch the Apprentice and to get a good night’s sleep before my exam. I neglected to set my alarm clock before I went to sleep and when I woke up, it was 8:35 and I had 25 minutes until my final exam.

 

By the time I got to McColl, it was already 8:55 and all the good seats in the rooms had been taken. I pulled up a chair (I purposely chose one with a writing surface) next to an AC outlet (I forgot to turn off my laptop last night and the battery was drained) and did the exam in the front of the room The questions were not any harder than the practice problem sets we had to do for class but it felt much harder because we had a time limit.

 

The professor that taught the first part of finance during Mod I used to encourage us to perform an “internal sanity check” on all our answers. One of those “internal sanity checks” saved me today. In one of the problems, we had to calculate the Rs (cost of levered equity capital) and the Ru (cost of unlevered equity capital). When I completed the problem, I noticed that my Ru was bigger than the Rs. This failed my “internal sanity check,” which tells me the weighted average cost of capital should always be lower than the Ru, and the Ru should always be lower than the Rs. Turns out while calculating the capital asset pricing model, I had plugged in the market risk premium as the market return.

 

I am hopeful I can get an H in finance. On three of the problems I am certain I got right. The other four contained so much detail I really had no way of ascertaining as to whether I got them completely right or not.

 

And in case you are wondering, my second alarm clock did not work this morning because I had tinkered with it yesterday. I noticed that it was five minutes behind and in my attempt to set the correct time, I turned off the alarm function.