Part -1:
1. Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership?
a) Corporations generally find it relatively difficult to raise large amounts of capital.
b) Less of a corporation's income is generally subjected to taxes than would be true if the firm were a partnership.
c) Corporate shareholders escape liability for the firm's debts, but this factor may be offset by the tax disadvantages of the corporate form of organization.
d) Corporate investors are exposed to unlimited liability.
e) Corporations generally face relatively few regulations.
2. Tucker Electronic System's current balance sheet shows total common equity of $3,125,000. The company has 125,000 shares of stock outstanding, and they sell at a price of $52.50 per share. By how much do the firm's market and book values per share differ?
a) $27.50
b) $28.88
c) $30.32
d) $31.83
e) $33.43
3. NNR Inc.'s balance sheet showed total current assets of $1,875,000 plus $4,225,000 of net fixed assets. All of these assets were required in operations. The firm's current liabilities consisted of $475,000 of accounts payable, $375,000 of 6% short-term notes payable to the bank, and $150,000 of accrued wages and taxes. Its remaining capital consisted of long-term debt and common equity. What was NNR's total investor-provided operating capital?
a) $4,694,128
b) $4,941,188
c) $5,201,250
d) $5,475,000
e) $5,748,750
4. Considered alone, which of the following would increase a company's current ratio?
a) An increase in accounts payable
b) An increase in net fixed assets
c) An increase in accrued liabilities
d) An increase in notes payable
e) An increase in accounts receivable
5. Bastian, Inc. has total assets of $625,000. Its total debt outstanding is $185,000. The board of directors has directed the CFO to move towards a debt-to-assets ratio of 55%. How much debt must the company add or subtract to achieve the target debt ratio?
a) $158,750
b) $166,688
c) $175,022
d) $183,773
e) $192,962
6. Muscarella Inc. has the following balance sheet and income statement data:
| Cash |
$14,000 |
Accounts payable |
$42,000 |
| Receivables |
70,000 |
Other current liabilities |
28,000 |
| Inventories |
210,000 |
Total CL |
$70,000 |
| Total CA |
$294,000 |
Long-term debt |
70,000 |
| Net fixed assets |
126,000 |
Common equity |
280,000 |
| Total assets |
$420,000 |
Total liab. and equity |
$420,000 |
| Sales |
$280,000 |
|
|
| Net income |
$21,000 |
|
|
The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the . current ratio to equal the industry average, 2.70, without affecting either sales or net income. . Assuming that inventories are sold off and not replaced to get the current ratio to the target level, and that the funds- generated are used to buy back common stock at book value, by how much would the ROE change?
a) 4.28%
b) 4.50%
c) 4.73%
d) 4.96%
e) 5.21%
7. You deposited $2,000 seven years ago and haven't touched the account since. Now you have $3,656 in the bank. What was the interest rate?
a) 6%
b) 7%
c) 8%
d) 9%
8. Jane wants to have $200,000 in an account in 20 years. If it earns 11 percent per annum over the accumulation period, how much must she save per year (end of year to have the $200,000?
a) $25,116
b) $3,115
c) $10,000
d) $3,492
9. Idlewild Bank has granted you a seven year loan for $50,000. If your seven annual (end of year) payments are $11,660.45, what is the rate of interest Idlewild is charging?
a) 14%
b) 23%
c) 12.6%
d) none of the above
10. Assume you want to pay off your $10,000, 3.0-month car loan after only the first 12 months of payments, With interest at 12% compounded monthly, how much will you need to pay off the loan in full at the end of the first year?
a) $5,639
b) $6,354
c) $4,361
d) $7,425
11. How much must be invested today to have $1,000 in two years if the interest rate is 5%?
a) $909.09
b) $900.00
c) $907.00
d) $950.00
12. If Susan and Joe set aside $10,000 for college tuition when their daughter is 13, how much will be available when she starts college at 18 if the account in which the money is deposited pays 12 percent compounded monthly?
a) $17,623.42
b) $18,167.00
c) $16,105.10
d) $16,122.26
13. Comet Powder Company has purchased a piece of equipment costing $100,000. It is expected to generate a 10-year stream of benefits amounting to $16,273 per year. Determine the rate of return Comet expects to earn from this equipment.
a) 16.3%
b) 62.7%
c) 10%
d) 20%
14. Columbia Bank & Trust has just given you a $20,000 term loan to pay for a new concrete mixer. The loan requires five equal annual (end of year) payments. If the loan provides the bank with a 12 percent return, what will be your annual payments?
a) $5,548
b) $3,148.12
c) $6,000
d) $1,666.67
15. Each year a company is required to place money into a bank account to retire its bond's principal at maturity. If the bond's principal is $10 million, and bank interest is estimated at 8%, how much are the annual payments if they are to be Made over the last 20 years of the bond's life?
a) $101,853
b) $218,522
c) $462,950
d) $425,387
16. Find the present value of a perpetuity of $1,500 per year, given a 20% opportunity cost.
a) $800
b) $3,000
c) $300
d) $6,000
e) $7,500
17. If a 30-year, $1,000 bond has a 9% coupon and is currently selling for $826, its current yield is:
a) $90
b) 9.0%
c) 10.9%
d) 12.0%
18. If a bond is selling at par value, which of the following would be the same as its coupon rate:
a) Current Yield
b) Yield to Maturity
c) Market Interest Rate
d) Both b & c
e) All of the above
19. Addleson Corp. has a $1,000 par value bond outstanding that was issued for 30 years 5 years ago at a coupon rate of 15%. The yield on similar bonds is now 12%. What isits price?
a) $1,235.27
b) $2,418.58
c) $836,74
d) $1,236.44
20. A bond is available for purchase that has a face value of $10,000, an 8% coupon, payable semiannually, and 20 years of its original 25 years left to maturity. Approximately how much would you pay for the bond if the market return on similar bonds is 10%?
a) $8,184.60
b) $8,296.88
c) $8,283.64
d) $8,174.36
21. A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 10.5%, and the expected constant growth rate is g = 6.4%. What is the stock's current price?
a) $17.39
b) $17.84
c) $18.29
d) $18.75
e) $19.22
22. $35.50 per share is the current price for Foster Farms' stock. The dividend is projected to increase at a constant rate of 5.50% per year. The required rate of return on the stock, rs, is 9.00%. What is the stock's expected price 3 years from today?
a) $37.86
b) $38.83
c) $39.83
d) $40.85
e) $41.69
23. If Do = $2.25, g (which is constant = 3.5%, and Po = $50, what is the stock's expected dividend yield for the coming year?
a) 4.42%
b) 4.66%
c) 4.89%
d) 5.13%
e) 5.39%
24. If Do = $1.75, g (which is constant) = 3.6%, and Po = $32.00, what is the stock's expected total return for the coming year?
a) 8.37%
b) 8.59%
c) 8.81%
d) 9.03%
e) 9.27%
25. The projected cash flow for the next year for Minesuah Inc. is $100,000, and FCF is expected to grow at a constant rate of 6%. If the company's weighted average cost of capital is 11%, what is the value of its operations?
a) $1,714,750
b) $1,805,000
c) $1,900,000
d) $2,000,000
e) 2,100,000
Part -2:
Course Textbook: Brigham, E. F. & Ehrhardt, M. C. (2014). Financial Management: Theory and Practice (14th ed.). Mason, OH,: South-Western. Cengage Learning.
Supplementary Textbook: Lasher, W. R. (2014). Practical Financial Management Citil ed.). Mason, OH: South-Western Cengage.
Workshop 1 Assignments
1. Read chapters 1, 2, and 3 in the textbook. Be prepared to discuss their content in class.
2. ProVide answers to the following problems or questions. Show all calculations.
i. Using Rhodes Corporation's financial statements (shown below), answer the following questions.
a. What is the net operating profit after taxes (NOPAT) for 2016?
b1 What are the amounts of net operating working capital for both years?
c. What are the amounts of total net operating capital for both years?
d. What is the free cash flow for 2016?
e. What is the ROTC for 2016?
Rhodes.Corporation
Income Statements for the Year Ending on December 31
(Millions of Dollars)
|
2016 |
2015 |
| Sales |
$11,000 |
$10,000 |
| Operating costs excluding depreciation |
9,360 |
8,500 |
| Depreciation and amortization |
380 |
360 |
| Earnings before interest and taxes |
$1,260 |
$1,140 |
| Less interest |
120 |
100 |
| Pre-tax income |
$1,140 |
$1,040 |
| Taxes (40%) |
456 |
416 |
| Net income available to common stockholders |
$684 |
$624 |
| Common dividends |
$220 |
$200 |
Rhodes.Corporation
Balance Sheet of December 31
(Millions of Dollars)
|
2016 |
2015 |
| Assets |
|
|
| Cash |
$550 |
$500 |
| Short-term investments |
110 |
100 |
| Accounts receivable |
2,750 |
2,500 |
| Inventories |
1,650 |
1,500 |
| Total current assets |
5,060 |
$4,600 |
| Net plant and equipment |
3,850 |
3,500 |
| Total assets |
$8,910 |
$8,100 |
| Liabilities and Equity |
|
|
| Accounts payable |
$1,100 |
$1,000 |
| Accruals ' |
550 |
500 |
| Notes payable |
384 |
200 |
| Total current liabilities |
$2,034 |
$1,700 |
| Long-term debt |
1,100 |
1,000 |
| Total liabilities |
$3,134 |
$2,700 |
| Common stock |
4,312 |
4,400 |
| Retained earnings |
1,464 |
1,000 |
| Total common-equity |
$5,776 |
$5,400 |
| Total liabilities and equity |
8910 |
$8,100 |
ii. Financial ratio analysis is conducted by managers, equity investors, long-term creditors, and short-term creditors. What is the primary emphasis of each of these groups in evaluating ratios?
This is a written assignment that is to be submitted to the facilitator via email or Blackboard.
2. Go to Tell Me More and work on interactive exercises designed to develop or improve linguistic skills in English. Submit to the facilitator a print-out from the program that evidences the amount of time spent working on this e-Lab activity. Scan the print-out and send it via the Blackboard message system.3. Go to the Discussion Board Forum labeled Stock and Bond Valuations. Post a comment on the following observation and directive:
The valuation of any is based on the projected cash flows expected to be derived from the investment in that asset. In other words, the value of an asset is based on the present value of the present value of its projected cash flows. Both stocks and bonds are investment assets that are valued in the financial market, There are inherent difference and similarities in the valuations of stocks and bonds relative to their cash flows. Explain what those differences and similarities are.
Respond to one of your fellow student's post. HINT: Review the PowerPoint on stock valuation.
4. Provide answers to the following problems. Show all calculations.
i. Anne Lockwood, manager of Oaks Mall Jewelry, wants to sell on credit, giving customers 3 months to pay. However, Anne will have to borrow from her bank to carry the accounts receivable. The bank will charge a nominal rate of 15% and will compound monthly. Anne wants to quote a nominal rate to her customers (all of whom are expected to pay on time) that will exactly offset her financing costs. That nominal annual rate should she quote to her credit customers?
Ii Assume that your father is now 50 years old, that he plans to retire in 10 years, and that he expects to live for 25 years after he retires - that is, until age 85. He wants his first retirement payment to have the same purchasing power at the time he retires as $40,000 has today. He wants all of his subsequent retirement payments to be equal to his first retirement payment. (Do not let the retirement payments grow with inflation: Your father realizes that the real value of his retirement income will decline year by year after he retires.) His retirement income will begin the day he retires, 10 years from today, and he will then receive 24 additional annual payments.
Tnflation is expected to be 5% per year from today forward. He currently has $100,000 saved up; and he expects to earn a return on his savings of 8% per year with annual compounding. To the nearest dollar, how much must he save during each of the next 10 years (with equal deposits being made at the end of each year, beginning a year from today) to meet his retirement goal? (Note: Neither the amount he saves nor the amount he withdraws upon retirement is a growing annuity.)
This is a written assignment that is to be submitted to the facilitator via email or the Blackboard messaging system.
5. Provide answers to the following problems. Show all calculations.
i. The real risk-free rate of interest is 4%. Inflation is expected to be 2% this year
and 4% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? What is the yield on 3-year Treasury securities?
ii. Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds?
iii. Suppose Hillard Manufacturing sold an issue of bonds with a 10-year maturity, a $1,000 par value, a 10% coupon rate, and semiannual interest payments.
a. Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 6%. At what price would the bonds sell?
b. Suppose that, 2 years after the initial offering, the going interest rate had risen to 12%. At what price would the bond sell?
c. Suppose, as in part a, that interest rates fell to 6% 2 years after the issue date. Suppose further that the interest rate remained at 6% for the next 8 years. What would happen to the price of the bonds over time?
iv. Boehm Inc. is expected to pay a dividend of $1.50 a share at the end of this year. The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock is 15%. What is the value per share of Boehm's stock?
v. Nick's Enchiladas Inc. has preferred stock outstanding that pays a dividend of $5 at the end of each year. The preferred sells for $50 a share. What is the stock's required rate of return (assume the market is in equilibrium with the required return equal to the expected return)?
vi. Suppose a firm's common stock paid a dividend of $2 yesterday. You expect the dividend to grow at a rate of 5% per year for the next 3 years; if you buy the stock, you plan to hold it for 3 years and then sell it.
a. Find the expected dividend for each of the next 3 years.
b. Given that the appropriate discount rate is 12% and that the first of these dividend payments will occur 1 year from now, find the present value of the dividend stream.
c. You expect the price of the stock 3 years from now to be $34.73. Discounted at a 12% rate, what is the present value of this expected future stock price?
d. If you plan to buy the stock, hold for 3 years, and then sell it for $34.73, what is the most you should pay for it?
e. Using the constant growth model equation, calculate the present value of this stock. Assume that g = 5% and is constant.
This is a written assignment that is to be submitted to the facilitator via email or the Blackboard messaging system.
6. Start working on the term paper.
7. Start working on and organizing the digital portfolio following the guidelines stipulated in the Digital Performance Portfolio Assessment Handbook.
Workshop 3 Assignments
Readings: Chapters 6 and 10
1. Read chapters 6 and 10 in the textbook.
2. Complete Exam 1 handed out in workshop 2. This exam is to be submitted to the facilitator at the beginning of the workshop.
3. Observe the following videos:
Introduction to Risk and Return:
https://www.youtube.com/watch?v-LA.Wx1a9tUME Net Present Value: https://www.youtube.comiwatch?v=zGRVVSC4UUQ
4. Give answers to the following problems. Show all calculations.
i. An individual has $35,000 invested in a stock with a beta of 0.8 and another $40,000 invested in a stock with a beta of 1.4. If these are the only two investments in her portfolio, what is her portfolio's beta?
ii. Assume that the risk-free rate is 6% and that the expected return on the market is 13%. What is the required rate of return on a stock that has a beta of 0.7%?
iii. Suppose rRF = 5%, rm = 10%, and rA = 12%.
a. Calculate Stock A's beta.
b. If Stock A's beta were 2.0, then what would be A's new required rate of return?
iv. You have a $2 million portfolio consisting of a $100,000 investment in each of 20 different stocks. The portfolio's beta is 1.1. You axe considering selling $100,000 worth of one stock with a beta of 0.9 and using the proceeds to purchase another stock with a beta of 1.4. What will the portfolio's new beta be after these transactions?
v. A project has an initial cost of $52,125, expected net cash inflows of $12,000 per
year for 8 years, and a cost of capital of 12%.
a. What is the project's NPV?
b. What is the project's IRR? (Use a financial calculator.)
c. What is the project's MIRK? (Draw a timeline to reflect the FY inflows then use a financial calculator for the calculation.)
d. What is the project's PI?
e. What is the project's payback period?
vi. Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory.
Since both forklifts perform the same function, the firm will choose only one. The electric-powered truck will cost more, but it will be less expensive to operate; it will cost $22,000, whereas the gas-powered truck will cost $17,500. The cost of capital that applies to both investments is 12%. The life for both types of trucks is estimated to be 6 years, during which time the net cash flows for the electric-powered truck will be $6,290 per year and those for the gas-powered truck will be $5,000 per year. Annual net cash flows include depreciation expenses. Calculate the NPV and IRR for each type of truck, and decide which to recommend.
This is a written assignment that is to be submitted to the facilitator via email or the Blackboard messaging system.
5. Go to Tell Me More and work on interactive exercises designed to develop or improve linguistic skills in English. Submit to the facilitator a print-out from the program that evidences the amount of time spent working on this e-Lab activity. Scan the print-out and send it via the Blackboard message system.
6. Continue working on the term paper.
7. Continue working on and organizing the digital portfolio following the guidelines stipulated in the Digital _Performance Portfolio Assessment Handbook