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FIN615 Final Exam Spring 2014 Solution Sheet




Question;FIN615 Final Exam Spring 2014 Section 9040Record your answers to the multiple choice questions on the Excel answer sheet provided. You must also SHOW YOUR WORK OR EXPLAIN YOUR ANSWERS on all problems.This exam consists of multiple choice questions and problems. There are a total of 100 points in the exam. The exam is 25% of your overall course grade.The exam is open book, which means that you may refer to the text, lectures, your notes, conference posts, and other course materials presented in WebTycho for this class. You may not use Library services or the Internet as to research questions.This exam is an individual assignment. Collaboration is NOT allowed on this exam. Under no circumstances should you seek the aid of another person. Nor should you provide such aid to others.All policies in the syllabus related to standards for submission for graduate?level work and course specific grading policies, including policies on plagiarism and other academic misconduct apply to this exam.By putting your name on the exam above, you are promising to abide by the honor code.1. The following procedure is recommended when creating financial statements in Excel, in order to minimize error and make the statements easier to read when provided to others:a. Use custom number formatsb. Make excel do as little work as possible by avoiding the use of formulasc. Use as many fonts and colors as possible in order to separate line items and subheadingsd. Hide data you do not want others to see before distributing a worksheet2. You are thinking of buying a miniature golf course to operate. It is expected to generate cash flows of $40,000 per year in years one through four and $50,000 per year in years five through eight. If the appropriate discount rate is 10%, what is the present value of these cash flows?a. $285,288b. $167,943c. $235,048d. $828,2303. The intrinsic value of an asset is:a. The price which a marginal investor is willing to pay for an assetb. The required rate of return demanded by an investorc. The price of an asset less its accumulated depreciationd. The present value of expected future cash flows provided by the asset4. Using the Net Present Value method of capital budgeting will always lead you to the economically correct decision because_____, however it can be misleading when comparing projects of ____.a. NPV represents the change in shareholder wealth that accompanies the acceptance of an investment, differing sizeb. NPV considers the time value of money, differing payback periodsc. NPV considers the time value of money, differing sized. NPV can be greater than, equal to, or less than zero, differing payback periods5. In calculating the risk associated with two potential projects (A & B), which of the following statistical calculations indicates that the projects are equally risky?I. The standard deviation of A is 100, and the coefficient of variation of A is 80.912II. The standard deviation of B is 1,000, and the coefficient of variation of B is 809.12III.The variance of A?s possible outcomes is 258.10, and the standard deviation of A is 100IV.The variance of B?s possible outcomes is 2,581, and the standard deviation of B is 1,000a. III and IVb. II and IIIc. I and IId. I and IVe. None of the above6. The value for "a" in the regression equation Y = a + b(X) + e is shown in Excel asa. the slopeb. the forecasted variablec. the interceptd. the independent predictor variablee. none of the above7. The best example of a useful function macro created by a financial analyst might be to:a. Insert a standard header on a worksheet for a weekly expense summary reportb. Calculate the IRR of various investment opportunities as they arise throughout the fiscal yearc. Format a monthly financial report prior to internal distributiond. Summarize a column of sales data by producte. B and C8. As a bank loan officer, you want to reference detailed columnar loan portfolio data with a list of past-due loans. Which of the following is the most effective tool for doings so?a. Pivot tableb. H Lookupc. Search functiond. Scatter plote. V LookupUse the information below for the next problem, No 9.9. Calculate the free cash flowUse the following information for the next problem, No. 1010. What is the expected return for Security X?Use the following information for the next three problems, Nos. 11-13PVYearCash FlowCash Flows1$14,000$12,7262$14,000$11,5643$10,000$7,5104$10,000$6,8305$8,000$4,96811. What is the NPV of above project if the initial investment was $35,000?12. Calculate the IRR of the project.13. Calculate the MIRR of the project, respectively, assuming a cost of capital of 10%.14. Suppose that you are approached with an offer to purchase an investment that will provide cash flows of $1,200 per year for 15 years. The cost of purchasing this investment is $9,800. You have an alternative investment opportunity, of equal risk, that will yield 8% per year. What is the NPV that makes you indifferent between the two options?15. The Claustrophobic Solution, Inc., a residential window and door manufacturer, has the following historical record of earnings per share (EPS) from 2011 to 2007:20112010200920082007EPS$1.10$1.05$1.00$0.95$0.90The company?s payout ratio has been 60% over the last five years and the last quoted price of the firm?s share of stock was $10. Flotation costs for new equity will be 7%. The company has 30,000,000 shares of common stock outstanding and a debt-equity ratio of 0.5.If dividends are expected to grow at the same arithmetic average growth rate of the last five years, what is the dividend payment in 2012?16. The following are the company sales from 2000-2009YearGoggles1$2252$5683$9894$1,6785$3,1896$6,1387$10,6048$16,5949$21,79510Fit an exponential trend curve to the data and calculate the projected sales in 2010.17. THE FINAL PROBLEM IS A CALCULATION PROBLEM.Frozen Turkeys ScenarioCost of Land $ 200,000Cost of Buildings & Equipment $ 350,000MACRS Class 20Life of Project (Years) 5Terminal Value of Land $ 300,000Terminal Value of Buildings & Equipment $ 175,000First year sales (pounds) 250,000Selling Price per Pound $3.50Unit Sales Growth Rate 7.0%Variable Costs as % of Sales 62%Fixed Costs 75,000Tax Rate 35%WACC 10.0%1. Prepare a statement of annual cash flows for years 0 through 5. Cash flows in year 0 are your investments for land and building & equipment. Base your calculations on the following assumptions:* Sales growth is based on the annual growth rate in units.* Assume no changes in fixed cost $ or variable cost %.* Depreciate the project cost for 5 years, with the cash flow in year 5 to include the cashflow of selling the investment at its terminal value.2. Calculate the NPV, profitability index, IRR, MIRR, payback and discounted payback of the cash flows in part 1.3. Using scenario manager find best case, worst case, base case of NPV based on sales in pounds, price per pound, and variable cost percent.


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