Homework: Financial Management
1. Dividends paid have what impact on the balance sheet?
2. Give two examples of accruals?
3. Define free cash flow
4. Define NOPAT
5. Name the four basic financial statements
6. What is the name of a corporation that limits the number of shareholders and allows the corporate taxation to be passed onto the shareholders?
7. What are the five categories of ratios?
8. What kind of business would have a very high inventory turnover ratio? Give at least one example
9. What is the times-interest earned ratio (define it) and what number/ratio would indicate an immediate issue/concern?
10. What is the current value of a stock, with the following information: last dividend paid $2.75; required rate of return 7%, growth rate 3%? Show calculation even if you use your calculator.
11. What is the payment required if you borrow $450k to buy a house, taking out a 15 year, monthly pay, fully amortizing, 3%(annual rate) mortgage? Show value input next to category (e.g., fv)
12. The difference between NOPAT and the weighted average cost of capital time invested capital is called what (the three words or three intitials)?
13. What is Operating Profit (or loss)? Definition.
14. What fixed income instrument would you buy if you wanted zero reinvestment risk?
15. What are the risk premiums added in the risk free interest rate for a long dated corporate bond?
16. Two deals have identical expected returns, but deal A has a standard deviation of 27.6% and Deal B has 29.4%. Which deal has more risk?
17. What does Coefficient of Variation measure? If you are risk averse, would you be happy with a CV of 2.76? Is higher or lower better?
18. What will you pay for a 10 year zero coupon bond with $1,000 maturity value, if you are seeking at 7% return? Show values and categories.
19. What approach is the easiest way to value a company, if you can compare it to a publicly traded company? Very short answer expected (two words or initials).
20. What is the yield to maturity of a 15 year US corporate bond, par value $1,000, annual coupon of 8%, purchased for $1,200? Shovv values.
21. What s the weighted average cost of capital in this situation: 50% debt/equity split. 40% tax rate. Cost of debt 9% cost of equity calculation: risk free rate 4%, risk premium 2%, Beta 1.5? Show work.
22. Is the value of land, on the books at zero book value, being used for a major project, an opportunity cost or sunk cost?
23. Would a large bid/ask spread indicate a large or small liquidity premium and why?
24. Name a benchmark security, used to price corporate bonds?
25. What is a scenario analysis used for?
26. What are the NPV and IRR in the following proposed 5 year project to renovate and rent a building on land already owned, with following assumptions:
• Cost of building improvement upfront: $125k
• Increase in working capital: $3k
• Study to determine rental demand: $5k
• Market value of land and building before renovation, which is on the books at $100,000: $300k
• Revenue expected by year, starting at end on year one and ending end of year 5: $100k, 110, 120, 130 and 140.
• Salvage value: $200k
• Decrease in revenue in building owned by company next door, as a result of proposed project: $10k/year reduction.
• Book value of asset at end of year 5: $75k
• Depreciation a year 530k
• Tax rate: 40%
• WACC: 10%
• Show your numbers in columns and what they go to, by time.
Format your homework according to the give formatting requirements:
• The answer must be using Times New Roman font (size 12), double spaced, typed, with one-inch margins on all sides.
• The response also includes a cover page containing the student's name, the title of the homework, the course title, and the date. The cover page is not included in the required page length.
• Also include a reference page. The references and Citations should follow APA format. The reference page is not included in the required page length.