Question;Part 1: 35 questions 2 points each.1) You gave your little sister two rabbits for Easter seven years ago and now she has 84 of the cute little bunnies. What is the average annual rate of increase in the number of rabbits your sister owns? Note: Your parents are not very pleased with you right now. 1) _______2) Your parents plan to spend $20,000 on a car for you upon graduation from college. If you will graduate in four years and your parents can earn 4.125% annually on their investment, how much money must they set aside today for your car? 2) _______3) In 1975, the era of major league baseball free agency began. The average player salary was $16,000. In 1985, the average salary was $30,000. What was the average annual growth in the minimum salary in major league baseball over those ten years? 3) _______4) You need $32,000 at the end of 10 years. If you can earn 0.625% per month, how much would you need to invest today to meet your objective? 4) _______5) Given the following cash flows, what is the future value at year ten when compounded at an interest rate of 15.0%?Year01510Cash Flow$4,000$3,000$2,000$1,000 5) _______6) You dream of endowing a chair in finance at the local university that will provide a salary of $150,000 per year forever, with the first cash flow to be one year from today. If the university promises to invest the money at a rate of 5.5% per year, how much money must you give the university today to make your dream a reality? 6) _______7) You estimate that the little drive-through coffee kiosk you own will generate ordinary annuity after-tax cash flows of $150,000 per year for the next six years. If you discount these cash flows at an annual rate of 14%, what is the present value of your expected cash flows? 7) _______8) You are saving money for a down payment on a new house. You intend to place $5,000 at the end of each year for four years into an account earning 6% per year. At the end of the fifth year, you will place $10,000 into this account. How much money will be in the account at the end of the fifth year? 8) _______9) Your parents have an investment portfolio of $400,000, and they wish to take out cash flows of $50,000 per year as an ordinary annuity. How long will their portfolio last if the portfolio is invested at an annual rate of 5.50%? Use a calculator to determine your answer. 9) _______10) Suppose you invest $3,500 today, compounded monthly, with an annual interest rate of 8.50%. What amount of interest will you earn in one year? 10) ______11) The Cougar Corporation has issued 20-year semi-annual coupon bonds with a face value of $1,000. If the annual coupon rate is 12% and the current yield to maturity is 10%, what is the firm's current price per bond? 11) ______12) Ten years ago Bacon Signs Inc. issued twenty-year 8% semi-annual coupon bonds with a $1,000 face value each. Since then, interest rates in general have fallen and the yield to maturity on the Bacon bonds is now 7%. Given this information, what is the price today for a Bacon Signs bond? 12) ______13) Rogue Racing Inc. has $1,000 par value bonds with a coupon rate of 8% per year making semiannual coupon payments. If there are twelve years remaining prior to maturity and these bonds are selling for $896.40, what is the yield to maturity for these bonds? 13) ______14) The Belgium Bike Company just paid an annual dividend of $1.92. If you expect a constant growth rate of 4% and have a required rate of return of 13%, what is the current stock price according to the constant growth dividend model? 14) ______15) In a stream of past dividends, the initial dividend is $0.75 and the most recent dividend is $1.75. The number of years between these two dividends (n) is 8 years. What is the average growth rate during this eight-year period? Use a calculator to determine your answer. 15) ______16) You want to invest in a stock that pays $3.50 annual cash dividends for the next ten years. At the end of the ten years, you will sell the stock for $22.50. If you want to earn 12.5% on this investment, what is a fair price for this stock if you buy it today? 16) ______17) Jarvis bought a share of stock for $18.75 that paid a dividend of $.45 and sold three months later for $18.65. What was his dollar profit or loss and holding period return? 17) ______18) Richard owns the following portfolio of securities. What is the beta for the portfolio?CompanyBetaPercent of PortfolioApple2.5015%Wells Fargo0.6550%Ebay1.7035% 18) ______19) Given an expected market risk premium of 12.0%, a beta of 0.75 for Benson Industries, and a risk-free rate of 4.0%, what is the expected return for Benson Industries? 19) ______20) Given the expected returns and probabilities of various states of the world in this table, what is the expected return for Carbide Company?Carbide CompanyState of the EconomyProbability of StateReturn on StateBoom.3018%Steady.5513%Recession.15-5% 20) ______21) Fox, Inc. is considering a six-year project that has initial after-tax outlay or after-tax cost of $170,000. The future after-tax cash inflows from its project for years 1 through 6 are $45,000 for each year. Fox uses the net present value method and has a discount rate of 11.25%. Calculate the NPV of the project. Will Fox accept the project? 21) ______22) Consider the following four-year project. The initial outlay or cost is $180,000. The respective cash inflows for years 1, 2, 3 and 4 are: $110,000, $80,000, $80,000 and $20,000. What is the payback period 22) ______23) Lennon, Inc. is considering a five-year project that has an initial outlay or cost of $80,000. The respective future cash inflows from its project for years 1, 2, 3, 4 and 5 are: $15,000, $25,000, $45,000, $45,000, and $55,000. Lennon uses the internal rate of return method to evaluate projects. What is Lennon's IRR? 23) ______24) Berra, Inc. is currently considering a seven-year project that has an initial outlay or cost of $120,000. The future cash inflows from its project for years 1 through 7 are the same at $30,000. Berra has a discount rate of 11%. Because of capital rationing (shortage of funds for financing), Berra wants to compute the profitability index (PI) for each project. What is the PI for Berra's current project? 24) ______25) Acme, Inc. is considering a four-year project that has an initial outlay or cost of $100,000. The respective future cash inflows from its project for years 1, 2, 3 and 4 are: $50,000, $40,000, $20,000 and $30,000.Calculate payback period for this project. Will it accept the project if its required payback period is 31 months? 25) ______A) Yes, because it pays back in 28 months.B) Yes, because it pays back in 30 months.C) No, because it pays back in over 31 months.D) No, because it pays back in over 35 months.26) Find the Modified Internal Rate of Return (MIRR) for the following annual series of cash flows, given a discount rate of 10.50%: Year 0: -$75,000, Year 1: $15,000, Year 2: $16,000, Year 3: $17,000, Year 4: $19,500, and, Year 5: $18,000. 26) ______27) A firm is considering purchasing an asset that will have a useful life of 10 years and cost $5 million, it will have installation costs of $500,000 and a salvage or residual value of $300,000. What is the annual straight-line depreciation for this asset? 27) ______28) Churchill Ltd. purchases an asset for $150,000. This asset qualifies as a five-year recovery asset under MACRS with the fixed depreciation percentages as follows: year 1 = 20.00%, year 2 = 32.00%, year 3 = 19.20%, year 4 = 11.52%. Churchill has a tax rate of 30%. If the asset is sold at the end of four years for $40,000, what is the cash flow from disposal? 28) ______29) Rogers' Rotors has debt with a market value of $250,000, preferred stock with a market value of $50,000, and common stock with a market value of $750,000. If debt has a cost of 7%, preferred stock a cost of 9%, common stock a cost of 13%, and the firm has a tax rate of 30%, what is the WACC? 29) ______30) Green Tees, an on line retailer of t-shirts, orders 10,000 t-shirts per year from its manufacturer. The carrying cost is $0.10 per shirt per year. The order cost is $550 per order. What is the optimal order quantity for the t-shirt inventory (rounded to the nearest dollar)?30) ______31) Green Tees, an on line retailer of t-shirts, orders 100,000 t-shirts per year from its manufacturer. Green Trees plans on ordering t-shirts several times over the next year. The firm receives 2,500 t-shirts each time it orders. The carrying cost is $0.10 per shirt per year. The order cost is $500 per order. What is the annual ordering cost of the t-shirt inventory (rounded to the nearest dollar)?31) ______32) Perfect Purchase Electronics Selected Income Statement Items, 2009Cash Sales $1,500,000Credit Sales $7,500,000Total Sales $9,000,000COGS $6,000,000 Perfect Purchase Electronics Selected Balance Sheet Accounts 12/31/2009 12/31/2008 ChangeAccounts Receivable $270,000 $240,000 $30,000Inventory $125,000 $100,000 $25,000Accounts Payable $110,000 $90,000 $20,000Using the information provided, what is the collection cycle for the firm? 32) ______33) Green Tees, an on line retailer of t-shirts, orders 100,000 t-shirts per year from its manufacturer. The firm plans on ordering t-shirts 15 times over the next year. The firm receives the same number of t-shirts each time it orders. The carrying cost is $0.10 per shirt per year. What is the annual carrying cost of the t-shirt inventory (rounded to the nearest dollar)? 33) ______34) The revenue is $40,000, the cost of goods sold is $26,000, the selling, general and administrative expenses are $7,000, interest expense is $2,000, and depreciation is $3,000. What is the EBT (Earnings Before Taxes)? 34) ______Fresh out of Harvard Business School, Joe Walker, the new CFO of Joe's Southern Cornbread Company, wants to shake things up at the sleepy little food company headquartered in Birmingham, Alabama. The firm is currently an all-equity firm because "that's the way we've always done it." Under pressure from a new group of major stockholders, however, Walker is considering acquiring some debt (leverage) in an effort to boost earnings per share. The company currently has 600 shares, but he is thinking about borrowing $6,000 at 10% per year and buying back 200 of those shares.35) Refer to the scenario above. What level of EBIT would make this an attractive strategy? 35) ______II. SHORT ANSWER and FREE RESPONSE QUESTIONS (5 questions, 6 points each). Please write a separate paragraph to explain your answer to each of questions #37, 39 and 40.36) Complete the equal-payments four -year amortization table. Interest rate on this loan is 7.5%.YearBeginning PrincipalPaymentInterest ExpensePrincipal ReductionEnding Principal1$8,000.00234 36) _____________37) When estimating a weighted average cost of capital, a firm can use either book values or market values for estimating the value of the component sources of capital. Where would you find book values, and what value do they represent? How would you calculate market values? In general, would you prefer to use market or book values for estimating the WACC? Under what circumstances would you use book values? 37) _____________38) Complete the following zero-coupon amortization schedule.T (Periods)Beginning PriceInterest Earned (6%)EndingPrice1$839.62$890.002$53.403$943.40$1,000.00 33) _____________39)The annual report is a regular activity of public firms and is sent to current owners (shareholders) and the SEC, and is also made available to prospective owners, financial analysts, and others interested in a company's performance. Name four of the major sections contained. Please discuss the benefits and limitations of the information provided in this report.40) Market value ratios try to answer what question for potential investors? Do financial statements contain all of the necessary information to answer this question? Explain in terms of the P/E (price earnings) ratio.
Paper#47776 | Written in 18-Jul-2015Price : $52