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FIN 515 Week 7 Problem Set
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Chapter 26 (page 903):
Answer the following questions:
What is the difference between a firm’s cash cycle and its operating cycle?
How will a firm’s cash cycle be affected if a firm increases its inventory, all else being equal?
How will a firm’s cash cycle be affected if a firm begins to take the discounts offered by its suppliers, all else being equal?
The Greek Connection had sales of $32 million in 2012, and a cost of goods sold of $20 million. A simplified balance sheet for the firm appears below:
Calculate The Greek Connection’s net working capital in 2012.
Calculate the cash conversion cycle of The Greek Connection in 2012.
The industry average accounts receivable days is 30 days. What would the cash conversion cycle for The Greek Connection have been in 2012 if it had matched the industry average for accounts receivable days?
Assume the credit terms offered to your firm by your suppliers are 3/5, Net 30. Calculate the cost of the trade credit if your firm does not take the discount and pays on day 30.
Chapter 27 (page 925):
Which of the following companies are likely to have high short-term financing needs? Why? A clothing retailer A professional sports team An electric utility A company that operates toll roads A restaurant chain
Sailboats Etc. is a retail company specializing in sailboats and other sailing-related equipment. The following table contains financial forecasts as well as current (month 0) working capital levels. During which months are the firm’s seasonal working capital needs the greatest? When does it have surplus cash?
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FIN 515 Week 6 Quiz
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FIN 515 Week 6 Quiz
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Question : You work for Athens Inc. and you must estimate the Year 1 operating cash flow for a project with the following data. What is the Year 1 operating cash flow?
Question : Which of the following is not a cash flow and thus should not be reflected in the analysis of a capital budgeting project?
Question : Which of the following is not a key element in strategic planning as it is described in the text?
Question : Which of the following assumptions is embodied in the AFN formula forecasting method?
Question : How is the capital intensity ratio generally defined?
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FIN 515 Week 6 Problem Set
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FIN 515 Week 6 Problem Set
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1. What inherent characteristic of corporations creates the need for a system of checks on manager behavior?
2. What are some examples of agency problems?
3. What are the advantages and disadvantages of the corporate organizational structure?
4. What is the role of the board of directors in corporate governance?
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FIN 515 Week 5 Problem Set
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Chapter 10 (pages 345–348)
- You bought a stock one year ago for $50 per share and sold it today for $55 per share. It paid a $1 per share dividend today.
a. What was your realized return?
b. How much of the return came from dividend yield and how much came from capital gain? - Consider two local banks. Bank A has 100 loans outstanding, each for $1 million, that it expects will be repaid today. Each loan has a 5% probability of default, in which case the bank is not repaid anything. The chance of default is independent across all the loans. Bank B has only one loan of $100 million outstanding, which it also expects will be repaid today. It also has a 5% probability of not being repaid. Explain the difference between the type of risk each bank faces. Which bank faces less risk? Why?
- Consider the following two, completely separate, economies. The expected return and volatility of all stocks in both economies is the same. In the first economy, all stocks move together—in good times all prices rise together and in bad times they all fall together. In the second economy, stock returns are independent—one stock increasing in price has no effect on the prices of other stocks. Assuming you are risk-averse and you could choose one of the two economies in which to invest, which one would you choose? Explain.
- What does the beta of a stock measure?
- Suppose the market risk premium is 5% and the risk-free interest rate is 4%. Using the data in Table 10.6 (also shown above), calculate the expected return of investing in
a. Starbucks’ stock.
b. Hershey’s stock.
c. Autodesk’s stock.
Chapter 11 (pages 390–396):
- You own three stocks: 600 shares of Apple Computer, 10,000 shares of Cisco Systems, and 5,000 shares of Colgate-Palmolive. The current share prices and expected returns of Apple, Cisco, and Colgate-Palmolive are, respectively, $500, $20, $100 and 12%, 10%, 8%.
a. What are the portfolio weights of the three stocks in your portfolio?
b. What is the expected return of your portfolio?
c. Suppose the price of Apple stock goes up by $25, Cisco rises by $5, and Colgate-Palmolive falls by $13. What are the new portfolio weights?
d. Assuming the stocks’ expected returns remain the same, what is the expected return of the portfolio at the new prices? - Suppose Autodesk stock has a beta of 2.16, whereas Costco stock has a beta of 0.69. If the risk-free interest rate is 4% and the expected return of the market portfolio is 10%, what is the expected return of a portfolio that consists of 60% Autodesk stock and 40% Costco stock, according to the CAPM?
Chapter 12 (page 431):
- Unida Systems has 40 million shares outstanding trading for $10 per share. In addition, Unida has $100 million in outstanding debt. Suppose Unida’s equity cost of capital is 15%, its debt cost of capital is 8%, and the corporate tax rate is 40%.
a. What is Unida’s unlevered cost of capital?
b. What is Unida’s after-tax debt cost of capital?
c. What is Unida’s weighted average cost of capital? - You would like to estimate the weighted average cost of capital for a new airline business. Based on its industry asset beta, you have already estimated an unlevered cost of capital for the firm of 9%. However, the new business will be 25% debt financed, and you anticipate its debt cost of capital will be 6%. If its corporate tax rate is 40%, what is your estimate of its WACC?
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FIN 515 Week 4 Problem Set
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Bonds-1. Interest on a certain issue of bonds is paid annually with a coupon rate of 8%. The bonds have a par value of $1,000. The yield to maturity is 9%. What is the current market piece of these bonds? The bonds will mature in 5 years.
Bonds-2. A certain bond has 12 years left to maturity. Interest is paid annually at a coupon rate of 10%. The bonds are currently selling for $850. What is their YTM?
Bonds-3. A certain bond pays a semiannual coupon rate at a 10% annual rate. The bond has a par value of $1,000. There are eight years to maturity. The yield to maturity is 9%. What is the current price of the bond?
Bonds-4. A particular corporate bond has a par value of $1,000. Coupon payments are $40 and are paid twice a year. Seven years are left on the life of the bond.The YTM is 9%. What is the price of the bond?
Bond-5. A given bond has 5 years to maturity. It has a face value of $1,000. It has a YTM of 5% and the coupons are paid semiannually at a 10% annual rate. What does the bond currently sell for?
Bond-6. A given bond has five years left to maturity. Interest is paid annually and the annual coupon rate is 9%. The par value of the bond is $1,000. The bond currently sells for $1,000. What is the yield to maturity?
9-1.Assume Evco, Inc., has a current price of $50 and will pay a $2 dividend in 1 year, and its equity cost of capital is 15%. What price must you expect it to sell for right after paying the dividend in 1 year in order to justify its current price?
9-5.NoGrowth Corporation currently pays a dividend of $2 per year, and it will continue to pay this dividend forever. What is the price per share if its equity cost of capital is 15% per year?
9-6.Summit Systems will pay a dividend of $1.50 this year. If you expect Summit’s dividend to grow by 6% per year, what is its price per share if its equity cost of capital is 11%?
9-7. Dorpac Corporation has a dividend yield of 1.5%. Dorpac’s equity cost of capital is 8%, and its dividends are expected to grow at a constant rate. a. What is the expected growth rate of Dorpac’s dividends? b. What is the expected growth rate of Dorpac’s share price?
9-12.Procter & Gamble will pay an annual dividend of $0.65 1 year from now. Analysts expect this dividend to grow at 12% per year thereafter until the fifth year. After then, growth will level off at 2% per year. According to the dividend-discount model, what is the value of a share of Procter & Gamble stock if the firm’s equity cost of capital is 8%?
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FIN 515 Week 4 Midterm – 3 Sets
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1. (TCO G) The firm’s asset turnover measures
2. (TCO G) Suppose Novak Company experienced a reduction in its ROE over the last year. This fall could be attributed to
3. (TCO B) You plan on retiring in 20 years. You currently have $275,000 and think you will need $1,000,000 to retire. Assuming you don’t deposit any additional money into the account, what annual return will you need to earn to meet this goal?
4. (TCO B) You take out a 4 year car loan for $18,000. The loan has a 4% annual interest rate. The payments are made monthly. What are the monthly payments? Show your work
5. (TCO B) You currently have $10,000 in your retirement account. If you deposit $500 per month and the account pays 5% interest, how much will be in the account in 10 years? Show your work.
6. (TCO B) You have a two children, A and B. Child A is not going to college but is working in a business to learn the ropes. Child A plans on opening a business someday. Child B is attending college. You put a certain amount of money into an account. From this account, Child B will receive $2,000 per month for the next four years. Whatever is left at that time will go to Child A to help start the business. You want Child A to receive $96,000 at that time. The account pays 7% annually, compounded monthly. How much money do you need to start the account? Show your work.
7. (TCO F) A project requires an initial cash outlay of $95,000 and has expected cash inflows of $20,000 annually for 9 years. The cost of capital is 10%. What is the project’s NPV? Show your work.
8. (TCO F) A project requires an initial cash outlay of $60,000 and has expected cash inflows of $15,000 annually for 8 years. The cost of capital is 10%. What is the project’s payback period? Show your work.
9. (TCO F) A project requires an initial cash outlay of $95,000 and has expected cash inflows of $20,000 annually for 9 years. The cost of capital is 10%. What is the project’s IRR? Show your work.
10. (TCO F) A project requires an initial cash outlay of $40,000 and has expected cash inflows of $12,000 annually for 7 years. The cost of capital is 10%. What is the project’s discounted payback period? Show your work.
11. (TCO F) Company A has the opportunity to do any, none, or all of the projects for which the net cash flows per year are shown below. The projects are not mutually exclusive. The company has a cost of capital of 15%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work. Explain your answer thoroughly.
(1 ) (TCO A) Which of the following statements is CORRECT? (Points : 10)
(a) It is generally more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are required.
(b) Corporations face fewer regulations than sole proprietorships.
(c) One disadvantage of operating a business as a sole proprietorship is that the firm is subject to double taxation, at both the firm level and the owner level.
(d) One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership.
(e) If a regular partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.
(2) (TCO G) A security analyst obtained the following information from Prestopino Products’ financial statements:
Retained earnings at the end of 2009 were $700,000, but retained earnings at the end of 2010 had declined to $320,000.
• The company does not pay dividends.
• The company’s depreciation expense is its only non-cash expense; it has no amortization charges.
• The company has no non-cash revenues.
• The company’s net cash flow (NCF) for 2010 was $150,000.
On the basis of this information, which of the following statements is CORRECT? (Points : 10)
(a) Prestopino had negative net income in 2010.
( b ) Prestopino’s depreciation expense in 2010 was less than $150,000.
(c) Prestopino had positive net income in 2010, but its income was less than its 2009 income.
(d) Prestopino’s NCF in 2010 must be higher than its NCF in 2009.
(e) Prestopino’s cash on the balance sheet at the end of 2010 must be lower than the cash it had on the balance sheet at the end of 2009.
(3) TCO G) Beranek Corp. has $410,000 of assets, and it uses no debt—it is financed only with common equity. The new CFO wants to employ enough debt to bring the debt/assets ratio to 40%, using the proceeds from the borrowing to buy back common stock at its book value. How much must the firm borrow to achieve the target debt ratio? (Points : 10)
$155,800
$164,000
$172,200
$180,810
$189,851
(4) (TCO B) You deposit $1,000 today in a savings account that pays 3.5% interest, compounded annually. How much will your account be worth at the end of 25 years? (Points : 10)
$2,245.08
$2,363.24
$2,481.41
$2,605.48
$2,735.75
(5). (TCO B) You sold a car and accepted a note with the following cash flow stream as your payment. What was the effective price you received for the car assuming an interest rate of 6.0%?
Years: 0 1 2 3 4
|———–|————–|————–|————–|
CFs: $0 $1,000 $2,000 $2,000 $2,000 (Points : 10)
$5,987
$6,286
$6,600
$6,930
$7,277
(6) (TCO B) Suppose you borrowed $12,000 at a rate of 9.0% and must repay it in four equal installments at the end of each of the next four years. How large would your payments be? (Points : 10)
3,704.02
$3,889.23
$4,083.69
$4,287.87
$4,502.26
(7 ) (TCO D) Which of the following statements is CORRECT? (Points : 10)
(a) If a bond is selling at a discount, the yield to call is a better measure of return than the yield to maturity.
(b) On an expected yield basis, the expected capital gains yield will always be positive because an investor would not purchase a bond with an expected capital loss.
(c) On an expected yield basis, the expected current yield will always be positive because an investor would not purchase a bond that is not expected to pay any cash coupon interest.
(d) If a coupon bond is selling at par, its current yield equals its yield to maturity.
(e) The current yield on Bond A exceeds the current yield on Bond B; therefore, Bond A must have
(8 ) (TCO D) Ezzell Enterprises’ noncallable bonds currently sell for $1,165. They have a 15-year maturity, an annual coupon of $95, and a par value of $1,000. What is their yield to maturity? (Points : 10)
- 20%
- 53%
- 87%
- 24%
- 62%
(9 ) (TCO C) Niendorf Corporation’s five-year bonds yield 6.75%, and five-year T-bonds yield 4.80%. The real risk-free rate is r* = 2.75%, the inflation premium for five-year bonds is IP = 1.65%, the default risk premium for Niendorf’s bonds is DRP = 1.20% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t – 1) x 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Niendorf’s bonds? (Points : 10)
- 49%
- 55%
- 61%
- 68%
- 75%
(10 ) (TCO C) Assume that investors have recently become more risk averse, so the market risk premium has increased. Also, assume that the risk-free rate and expected inflation have not changed. Which of the following is most likely to occur? (Points : 10)
(a) The required rate of return for an average stock will increase by an amount equal to the increase in the market risk premium.
(b) The required rate of return will decline for stocks whose betas are less than 1.0.
(c) The required rate of return on the market, rM, will not change as a result of these changes.
(d) The required rate of return for each individual stock in the market will increase by an amount equal to the increase in the market risk premium.
(e) The required rate of return on a riskless bond will decline.
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FIN 515 Week 3 Problem Set
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Chapter 7 (pages 225–228):
- Your brother wants to borrow $10,000 from you. He has offered to pay you back $12,000 in a year. If the cost of capital of this investment opportunity is 10%, what is its NPV? Should you undertake the investment opportunity? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged.
- You are considering an investment in a clothes distributor. The company needs $100,000 today and expects to repay you $120,000 in a year from now. What is the IRR of this investment opportunity? Given the riskiness of the investment opportunity, your cost of capital is 20%. What does the IRR rule say about whether you should invest?
- You are a real estate agent thinking of placing a sign advertising your services at a local bus stop. The sign will cost $5,000 and will be posted for one year. You expect that it will generate additional revenue of $500 per month. What is the payback period?
- You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10 million. Investment A will generate $2 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $1.5 million at the end of the first year and its revenues will grow at 2% per year for every year after that.
a. Which investment has the higher IRR?
b. Which investment has the higher NPV when the cost of capital is 7%?
c. In this case, for what values of the cost of capital does picking the higher IRR give the correct answer as to which investment is the best opportunity?
Chapter 8 (260–262)
- Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $20 million per year. While many of these sales will be to new customers, Pisa Pizza estimates that 40% will come from customers who switch to the new, healthier pizza instead of buying the original version.
a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza?
b. Suppose that 50% of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. What level of incremental sales is associated with introducing the new pizza in this case? - Cellular Access, Inc. is a cellular telephone service provider that reported net income of $250 million for the most recent fiscal year. The firm had depreciation expenses of $100 million, capital expenditures of $200 million, and no interest expenses. Working capital increased by $10 million. Calculate the free cash flow for Cellular Access for the most recent fiscal year.
- A bicycle manufacturer currently produces 300,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $2 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.50 per chain. The necessary machinery would cost $250,000 and would be obsolete after 10 years. This investment could be depreciated to zero for tax purposes using a 10-year straight-line depreciation schedule. The plant manager estimates that the operation would require $50,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored because it is recoverable at the end of the 10 years. Expected proceeds from scrapping the machinery after 10 years are $20,000.
If the company pays tax at a rate of 35% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce the chains in-house instead of purchasing them from the supplier?
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FIN 515 Week 2 Quiz
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Question 1
(TCO B) You are a trust fund baby. Your trust fund is currently worth $1,234,000. The problem is the terms of the trust don’t allow you to receive any of the money until you are 27. You are now 21. The fund is earning 7.7% per year. How much will the fund be worth when you are 27 and too old to enjoy it?
Ignore taxes. Show your work. If you use Excel, show the formula with the parameters, and the answer. If you use a formula, provide the standard formula, the formula with terms substituted, and the answer. If you use a calculator, show the inputs and the answer.
Question 2
(TCO B) You have a student loan of $75,000. The interest rate is 8.6% per year. You have been out of school for 6 months and are ready to start making payments. You want to use the maximum allowed of 10 years to pay off the loan by making equal monthly payments. How much are the monthly payments?
Ignore taxes. Show your work. If you use Excel, show the formula with the parameters, and the answer. If you use a formula, provide the standard formula, the formula with terms substituted, and the answer. If you use a calculator, show the inputs and the answer.
Question 3
(TCO B) You want to have $1,000,000 in 30 years. You already have $50,000. You think you can get a 7% annual return on your money. How much per year will you have to save to get to $1,000,000?
Ignore taxes. Show your work. If you use Excel, show the formula with the parameters, and the answer. If you use a formula, provide the standard formula, the formula with terms substituted, and the answer. If you use a calculator, show the inputs and the answer.
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FIN 515 Week 2 Problem Set
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Chapter 4 (pages 132–136):
- Calculate the future value of $2000 in
a. five years at an interest rate of 5% per year;
b. ten years at an interest rate of 5% per year; and
c. five years at an interest rate of 10% per year.
d. Why is the amount of interest earned in part (a) less than half the amount of interest earned in part (b)? - What is the present value of $10,000 received
a. twelve years from today when the interest rate is 4% per year;
b. twenty years from today when the interest rate is 8% per year; and
c. six years from today when the interest rate is 2% per year? - Your brother has offered to give you either $5,000 today or $10,000 in 10 years. If the interest rate is 7% per year, which option is preferable?
- Consider the following alternatives.
i. $100 received in 1 year
ii. $200 received in 5 years
iii. $300 received in 10 years
a. Rank the alternatives from most valuable to least valuable if the interest rate is 10% per year.
b. What is your ranking if the interest rate is only 5% per year?
c. What is your ranking if the interest rate is 20% per year? - Your daughter is currently 8 years old. You anticipate that she will be going to college in 10 years. You would like to have $100,000 in a savings account to fund her education at that time. If the account promises to pay a fixed interest rate of 3% per year, how much money do you need to put into the account today to ensure that you will have $100,000 in 10 years?
- You are thinking of retiring. Your retirement plan will pay you either $250,000 immediately on retirement or $350,000 5 years after the date of your retirement. Which alternative should you choose if the interest rate is
a. 0% per year;
b. 8% per year; and
c. 20% per year? - You have been offered a unique investment opportunity. If you invest $10,000 today, you will receive $500 1 year from now, $1,500 2 years from now, and $10,000 10 years from now. a. What is the NPV of the opportunity if the interest rate is 6% per year? Should you take the opportunity? b. What is the NPV of the opportunity if the interest rate is 2% per year? Should you take it now?
- You are thinking of purchasing a house. The house costs $350,000. You have $50,000 in cash that you can use as a down payment on the house, but you need to borrow the rest of the purchase price. The bank is offering a 30-year mortgage that requires annual payments and has an interest rate of 7% per year. What will your annual payment be if you sign up for this mortgage?
- You would like to buy the house and take the mortgage described in Problem 36. You can afford to pay only $23,500 per year. The bank agrees to allow you to pay this amount each year, yet still borrow $300,000. At the end of the mortgage (in 30 years), you must make a balloon payment; that is, you must repay the remaining balance on the mortgage. How much will this balloon payment be?
- You have just made an offer on a new home and are seeking a mortgage. You need to borrow $600,000. a. The bank offers a 30-year mortgage with fixed monthly payments and an interest rate of 0.5% per month. What is the amount of your monthly payment if you take this loan? b. Alternatively, you can get a 15-year mortgage with fixed monthly payments and an interest rate of 0.4% per month. How much would your monthly payments be if you take this loan instead?
* A.1. This problem is from the Appendix to Chapter 4. Your grandmother bought an annuity from Rock Solid Life Insurance Company for $200,000 when she retired. In exchange for the $200,000, Rock Solid will pay her $25,000 per year until she dies. The interest rate is 5%. How long must she live after the day she retired to come out ahead (that is, to get more in value than what she paid in)?
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FIN 515 Week 1 Quiz
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Question 1 - (TCO G) Which do you think provides a more valid measure of how a company is doing, comparison of current results with historical results or comparison of current results with the current results of another company?
Question 2- (TCO G) Barnes Corp’s total assets at the end of last year were $415,000,000 and its net income after taxes was $17,750,000. What was its return on total assets?
Question 3- (TCO G) Between December 31, 2016 and December 31, 2017, ROE at Bobcat Industries decreased even though sales increased. Using the DuPont Identity, explain what else could have happened to cause this.
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Chapter 1 (page 19)
- What is the most important difference between a corporation and all other organizational forms?
- What does the phrase limited liability mean in a corporate context?
- Which organizational forms give their owners limited liability?
- What are the main advantages and disadvantages of organizing a firm as a corporation?
- Explain the difference between an S corporation and a C corporation.
Chapter 2
The following is provided for use in answering the next set of questions. You may also find table 2.5 on page 53 of your text and all questions on pages 56–57.
- In fiscal year 2011, Starbucks Corporation (SBUX) had revenue of $11.70 billion, gross profit of $6.75 billion, and net income of $1.25 billion. Peet’s Coffee and Tea (PEET) had revenue of $372 million, gross profit of $72.7 million, and net income of $17.8 million.
a. Compare the gross margins for Starbucks and Peet’s.
b. Compare the net profit margins for Starbucks and Peet’s.
c. Which firm was more profitable in 2011? - See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.
a. How did Mydeco’s accounts receivable days change over this period?
b. How did Mydeco’s inventory days change over this period?
c. Based on your analysis, has Mydeco improved its management of its working capital during this time period? - See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.
a. Compare Mydeco’s accounts payable days in 2009 and 2013.
b. Did this change in accounts payable days improve or worsen Mydeco’s cash position in 2013? - See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.
a. By how much did Mydeco increase its debt from 2009 to 2013?
b. What was Mydeco’s EBITDA/Interest coverage ratio in 2009 and 2013? Did its coverage ratio ever fall below 2?
c. Overall, did Mydeco’s ability to meet its interest payments improve or decline over this period? - For fiscal year 2011, Starbucks Corporation (SBUX) had total revenues of $11.70 billion, net income of $1.25 billion, total assets of $7.36 billion, and total shareholder’s equity of $4.38 billion.
a. Calculate the Starbucks’ ROE directly, and using the DuPont Identity.
b. Comparing with the data for Peet’s in Problem 41, use the DuPont Identity to understand the difference between the two firms’ ROEs.
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FIN 515 Final Exam 5 Sets
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(TCO A) In the United States, the most common type of business by number of businesses is the _____. (Points : 5)
(TCO A) Sole proprietorships have all of the following advantages except (Points : 5)
(TCO B) Which of the following would cause the future value of an annuity to decrease? (Points : 5)
(TCO B) Which of the following is an annuity due? (Points : 5)
(TCO G) What are the names of the four components of the DuPont Identity and how are they calculated? What does each measure? (Points : 20)
(TCO D) A stock pays an annual dividend of $2.50 and that dividend is not expected to change. Similar stocks pay a return of 10%. What is P0? (Points : 20)
(TCO D) A stock has just declared an annual dividend of $2.25 to be paid one year from today. The dividend is expected to grow at a 7% annual rate. The return on equity for similar stocks is 12%. What is P0? (Points : 20)
(TCO D) A particular bond has 8 years to maturity. It has a face value of $1,000. It has a YTM of 7% and the coupons are paid semiannually at a 10% annual rate. What does the bond currently sell for? (Points : 10)
(TCO D) A bond currently sells for $1,000 and has a par of $1,000. It was issued two years ago and had a maturity of 10 years. The coupon rate is 7% and the interest payments are made semiannually. What is its YTM? (Points : 10)
(TCO D) Using examples, explain the difference between systematic risk and nonsystematic risk. Explain why the distinction is important for both investors and issuers of stock.(Points : 30)
(TCO E) A company has 10 million shares outstanding trading for $7 per share. It also has $300 million in outstanding debt. If its equity cost of capital is 15%, and its debt cost of capital is 9%, and its effective corporate tax rate is 40%, what is its weighted average cost of capital? (Points : 30)
(TCO A) Relate how the job of the financial manager can be explained using the balance sheet. (Points : 25)
(TCO H) Other things being equal, would a firm prefer a longer or shorter Cash Conversion Cycle? What are some examples of ways a firm could attain this? (Points : 30)
(TCO F) A company has the opportunity to do any of the projects for which the net cash flows per year are shown below. The company has a cost of capital of 12%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work
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FIN 515 Week 1 Problem Set
FIN 515 Week 1 Quiz
FIN 515 Week 2 Problem Set
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FIN 515 Week 3 First Course Project
FIN 515 Week 3 Problem Set
FIN 515 Week 4 Problem Set
FIN 515 Week 4 Midterm
FIN 515 Week 5 Problem Set
FIN 515 Week 6 Problem Set
FIN 515 Week Second Course Project
FIN 515 Week 6 Quiz
FIN 515 Week 7 Problem Set
FIN 515 Final Exam
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