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Finance Problems




Question;Show work;The Corporation, the Financial Manager and MarketsBy now you must be familiar with the Principal-Agent;Problem. What is it and why should shareholders be;concerned with it?;Compare and contrast the Shareholder and Stakeholder Theories;of Corporate Responsibility.;Investment Vs. Financing DecisionWhat is the difference between the Investment Decision and the;Financing Decision which a firm faces?;Time Value of Money$1 today is worth more to you than $1 in one year. Why?;What is the realfuture;value of $10,000 which will sit in a savings account for 20 years;earning 4% interest compounded yearly during a period of 4% annual;inflation?;What is the present value of an annuity which makes its first;payment in 3 years, makes a total of 10 payments of $10,000 each year;with an overall discount rate of 7%?;What is the PV of a perpetuity which pays $200 one year from;today and then each year thereafter?;Assume a discount rate of 8%.;What is the nominal future value of $10,000 one year from;today if it can be invested in a portfolio that expects to earn, in real;terms, 4% per year with inflation of 3% per year?;Bond and Stock BasicsFind the current price of 30 day commercial paper issued with;a yield of 1.25% and with face value of $100,000.;Domenic purchases a newly issued 4 year bond priced at $1015 with;par value of $1000. It pays $100;interest yearly. What is the coupon rate, the current yield and the yield;to maturity?;Domenic also purchases a share of General Electric stock for $14;at the beginning of the year.;During the course of the year he receives dividends totaling;$1.15. He sells the stock to Elliana;for $16.75 at the end of the year.;What is his holding period return?;Elliana buys the stock at $16.75 from Domenic. Using the current dividend (now time =;0) of $1.15 and a predicted growth rate of 3%, what is GE?s required rate;of return, r?;Instead, just as Elliana purchases the stock, GE announces;that it will be distributing all of its earnings in the form of a;dividend (i.e. retaining no earnings). The dividend announced is $2.00. What is the price of the stock now;(assume the required rate of return did not change from part c)?;Project Valuation and Analysis;Suppose a new machine costs $59,000 today. It will yield $11,000 in after-tax;savings each year for 7 years and you sell the machine for $4,000 in the 7th;year. Given an opportunity cost of capital of 8%, what is the NPV of;this project?;What is the IRR of this project?;What is the payback period for this project?;What is the discounted payback period for this project?;What is the profitability index for this project?;Recall our discussion of incremental cash flow analysis. What is meant by ?indirect effects??;Define or cite an example;WACC: Common stock of;the company KewCo. has a beta of 1.3.;Treasury Bills provide a return of 4% and the market risk premium;is 16%. Suppose KewCo. total value;is composed of 60% equity and 40% debt (by market value). Debt yields of;8%. There are no shares of preferred stock in circulation. a.;Find the cost of equity capital;for KewCo;b.;Suppose KewCo. has a total;value, V of $1,000,000,000. If there are;15,000,000 shares of KewCo stock outstanding, what is the current price of a;share of KewCo equity?;c.;What is the WACC if the firm;faces an average tax rate of 40%;d.;Suppose KewCo is considering a;project with an IRR of 12%, should it accept the project? Why or why not?;e.;Suppose KewCo is considering a;product line that will provide expected new net cash flows of $100,000 per year;for 4 years. What is the maximum amount;KewCo would be willing to pay for this new product line today?;Venture CapitalHow are profits typically distributed to a Venture Capitalist;and its investors, the Limited Partners?;During class, we discussed three ?exits? for a firm in a;Venture Capitalist?s portfolio.;Select one, name and describe it.;Scenario Analysis: Estimated Cash;Flows for the Segway People Mover;Consider the scenario in which a competing;form of transportation, the bicycle, causes sales to drop to 90% of expected;sales from the base case.;Fill in the table on the right, including NPV;What is maximum opportunity cost of capital in both the Base;Case and the Bicycle Scenario such that you should undertake the Segway;People Mover Project?


Paper#47745 | Written in 18-Jul-2015

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