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Question;1. (TCO A) Which of the following does NOT always increase a company's;market value? (Points: 5);Increasing the expected growth rate of sales;Increasing the expected operating profitability (NOPAT/Sales);Decreasing the capital requirements (Capital/Sales);Decreasing the weighted average cost of capital;Increasing the expected rate of return on invested capital;2. (TCO F) Which of the following statements is correct? (Points: 5);The NPV, IRR, MIRR, and discounted payback (using a payback requirement;of 3 years or less) methods always lead to the same accept/reject decisions for;independent projects.;For mutually exclusive projects with normal;cash flows, the NPV and MIRR methods can never conflict, but their results;could conflict with the discounted payback and the regular IRR methods.;Multiple IRRs can exist, but not multiple MIRRs. This is one reason some people;favor the MIRR over the regular IRR.;If a firm uses the discounted payback method with a required payback of 4;years, then it will accept more projects than if it used a regular payback of 4;years.;The percentage difference between the MIRR and the IRR is equal to the;project?s WACC.;3. (TCO D) Church Inc. is presently enjoying relatively high growth;because of a surge in the demand for its new product. Management expects;earnings and dividends to grow at a rate of 25% for the next 4 years, after;which competition will probably reduce the growth rate in earnings and;dividends to zero, i.e., g = 0. The company's last dividend, D0;was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the;risk-free rate is 3.00%. What is the current price of the common stock?;a. $26.77;b. $27.89;c. $29.05;d. $30.21;e. $31.42;4. (TCO G) Singal Inc. is preparing its cash budget. It expects to have;sales of $30,000 in January, $35,000 in February, and $35,000 in March. If 20%;of sales are for cash, 40% are credit sales paid in the month after the sale;and another 40% are credit sales paid 2 months after the sale, what are the;expected cash receipts for March?;a. $24,057;b. $26,730;c. $29,700;d. $33,000;e. $36,300;1. (TCO H) Zervos Inc. had the following data for 2008 (in millions). The;new CFO believes (a) that an improved inventory management system could lower;the average inventory by $4,000, (b) that improvements in the credit department;could reduce receivables by $2,000, and (c) that the purchasing department;could negotiate better credit terms and thereby increase accounts payable by;$2,000. Furthermore, she thinks that these changes would not affect either;sales or the costs of goods sold. If these changes were made, by how many days;would the cash conversion cycle be lowered?2. (TCO C) Bumpas Enterprises purchases $4,562,500 in goods per year from;its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time;but does not take the discount, what is the effective annual percentage cost of;its nonfree trade credit? (Assume a 365-day year.);a. 20.11%;b. 21.17%;c. 22.28%;d. 23.45%;e. 24.63%;3. (TCO E) You were hired as a consultant to the Quigley Company, whose;target capital structure is 35% debt, 10% preferred, and 55% common equity. The;interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the;cost of common from retained earnings is 11.25%, and the tax rate is 40%. The;firm will not be issuing any new common stock. What is Quigley's WACC?;a. 8.15%;b. 8.48%;c. 8.82%;d. 9.17%;e. 9.54%;4. (TCO B) A company forecasts the free cash flows (in millions) shown;below. The weighted average cost of capital is 13%, and the FCFs are expected;to continue growing at a 5% rate after Year 3. Assuming that the ROIC is;expected to remain constant in Year 3 and beyond, what is the Year 0 value of;operations, in millions?;Year: 1 2 3;Free cash flow: -$15 $10 $40;a. $315;b. $331;c. $348;d. $367;e. $386;5. (TCO G) Based on the corporate valuation model, Hunsader's value of;operations is $300 million. The balance sheet shows $20 million of short-term;investments that are unrelated to operations, $50 million of accounts payable;$90 million of notes payable, $30 million of long-term debt, $40 million of;preferred stock, and $100 million of common equity. The company has 10 million;shares of stock outstanding. What is the best estimate of the stock's price per;share?;a. $13.72;b. $14.44;c. $15.20;d. $16.00;e. $16.80;6. TCO G) Clayton Industries is planning its operations for next year;and Ronnie Clayton, the CEO, wants you to forecast the firm's additional funds;needed (AFN). The firm is operating at full capacity. Data for use in your;forecast are shown below. Based on the AFN equation, what is the AFN for the;coming year? Dollars are in millions.;Last year's sales = S0;$350;Last year's accounts payable;$40;Sales growth rate = g;30%;Last year's notes payable;$50;Last year's total assets = A0*;$500;Last year's accruals;$30;Last year's profit margin = PM;5%;Target payout ratio;60%;a. $102.8;b. $108.2;c. $113.9;d. $119.9;e. $125.9;1. (TCO A) Which of the following does NOT always increase;a company's market value? (Points: 5);Increasing the expected growth rate of sales;Increasing the expected operating profitability (NOPAT/Sales);Decreasing the capital requirements (Capital/Sales);Decreasing the weighted average cost of capital;Increasing the expected rate of return on invested capital;2. (TCO F) Which of the following statements is;correct? (Points: 5);The MIRR and NPV decision criteria can;never conflict.;The IRR method can never be subject to the multiple IRR problem, while;the MIRR method can be.;One reason some;people prefer the MIRR to the regular IRR is that the MIRR is based on a;generally more reasonable reinvestment rate assumption.;The higher the WACC, the shorter the discounted payback period.;The MIRR method assumes that cash flows are reinvested at the crossover;rate.;3. (TCO D) The Ramirez Company's last dividend was $1.75. Its;dividend growth rate is expected to be constant at 25% for 2 years, after which;dividends are expected to grow at a rate of 6% forever. Its required return (rs);is 12%. What is the best estimate of the current stock price?;a. $41.58;b. $42.64;c. $43.71;d. $44.80;e. $45.92;4. (TCO G) The ABC Corporation's budgeted monthly sales are;$4,000. In the first month, 40% of its customers pay and take the 3%;discount.;The remaining 60% pay in the month following the sale and don't receive a;discount.;ABC's bad debts are very small and are excluded from this analysis.;Purchases for next month's sales are constant each month at $2,000. Other;payments for wages, rent, and taxes are constant at $500 per month.;Construct a single month's cash budget with the information given. What is the;average cash gain or (loss) during a typical month for the ABC;Corporation?;5. (TCO G) Howton & Howton Worldwide (HHW) is planning its;operations for the coming year, and the CEO wants you to forecast the firm's;additional funds needed (AFN). The firm is operating at full capacity. Data for;use in the forecast are shown below. However, the CEO is concerned about the;impact of a change in the payout ratio from the 10% that was used in the past;to 50%, which the firm's investment bankers have recommended. Based on the AFN;equation, by how much would the AFN for the coming year change if HHW increased;the payout from 10% to the new and higher level? All dollars are in millions.;1. (TCO H) Your consulting firm was recently hired to improve the;performance of Shin-Soenen Inc, which is highly profitable but has been;experiencing cash shortages due to its high growth rate. As one part of your;analysis, you want to determine the firm's cash conversion cycle. Using the;following information and a 365-day year, what is the firm's present cash;conversion cycle?;Average inventory =;Annual sales =;Annual cost of goods sold =;Average accounts receivable =;Average accounts payable =;$75,000;$600,000;$360,000;$160,000;$25,000;a. 120.6 days;b. 126.9 days;c. 133.6 days;d. 140.6 days;e. 148.0 days;2. (TCO C) Bumpas Enterprises purchases $4,562,500 in goods per year;from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on;time but does not take the discount, what is the effective annual;percentage cost of its nonfree trade credit? (Assume a 365-day year.);a. 20.11%;b. 21.17%;c. 22.28%;d. 23.45%;e. 24.63%;3. (TCO E) Daves Inc. recently hired you as a consultant to estimate;the company's WACC. You have obtained the following information. (1) The firm's;noncallable bonds mature in 20 years, have an 8.00% annual coupon, a par value;of $1,000, and a market price of $1,050.00. (2) The company's tax rate is 40%.;(3) The risk-free rate is 4.50%, the market risk premium is 5.50%, and the;stock's beta is 1.20. (4) The target capital structure consists of 35% debt and;the balance is common equity. The firm uses the CAPM to estimate the cost;of common stock, and it does not expect to issue any new shares. What is its;WACC?;a. 7.16%;b. 7.54%;c. 7.93%;d. 8.35%;e. 8.79%;4. (TCO B) A company forecasts the free cash flows (in millions);shown below. The weighted average cost of capital is 13%, and the FCFs are;expected to continue growing at a 5% rate after Year 3. Assuming that the ROIC;is expected to remain constant in Year 3 and beyond, what is the Year 0 value;of operations, in millions?;Year: 1 2 3;Free cash flow: -$15 $10 $40;a. $315;b. $331;c. $348;d. $367;e. $386;5. (TCO G) Based on the corporate valuation model, the value of a;company's operations is $900 million. Its balance sheet shows $70 million in;accounts receivable, $50 million in inventory, $30 million in short-term;investments that are unrelated to operations, $20 million in accounts payable,, $140 million in retained earnings, and $280 million in total common equity.;If the company has 25 million shares of stock outstanding, what is the best;estimate of the stocks price per share?;a. $23.00;b. $25.56;c. $28.40;d. $31.24;e. $34.36;1. (TCO A) Which of the following does NOT always increase a company's;market value? (Points: 5);Increasing the expected growth rate of sales;Increasing the expected operating profitability (NOPAT/Sales);Decreasing the capital requirements (Capital/Sales);Decreasing the weighted average cost of capital;Increasing the expected rate of return on invested capital;2. (TCO F) Which of the following statements is correct? (Points: 5);For a project with normal cash flows;any change in the WACC will change both the NPV and the IRR.;To find the MIRR, we first compound cash flows at the regular IRR to;find the TV, and then we discount the TV at the WACC to find the PV.;The NPV and IRR;methods both assume that cash flows can be reinvested at the;WACC. However, the MIRR method assumes reinvestment at the MIRR itself.;If two projects have the same cost, and if their NPV profiles cross in;the upper right quadrant, then the project with the higher IRR probably has;more of its cash flows coming in the later years.;If two projects have the same cost, and if their NPV profiles cross in;the upper right quadrant, then the project with the lower IRR probably has more;of its cash flows coming in the later years.;3. (TCO D) Church Inc. is presently enjoying relatively high growth;because of a surge in the demand for its new product. Management expects;earnings and dividends to grow at a rate of 25% for the next 4 years, after;which competition will probably reduce the growth rate in earnings and;dividends to zero, i.e., g = 0. The company's last dividend, D0;was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the;risk-free rate is 3.00%. What is the current price of the common stock?;a. $26.77;b. $27.89;c. $29.05;d. $30.21;e. $31.42;(Points: 20);4. (TCO G) The ABC Corporation's budgeted monthly sales are;$4,000. In the first month, 40% of its customers pay and take the 3%;discount.;The remaining 60% pay in the month following the sale and don't receive a;discount.;ABC's bad debts are very small and are excluded from this analysis.;Purchases for next month's sales are constant each month at $2,000. Other;payments for wages, rent, and taxes are constant at $500 per month.;Construct a single month's cash budget with the information given. What is the;average cash gain or (loss) during a typical month for the ABC;Corporation?;5. (TCO G) Howton & Howton Worldwide (HHW) is planning its operations;for the coming year, and the CEO wants you to forecast the firm's additional;funds needed (AFN). The firm is operating at full capacity. Data for use in the;forecast are shown below. However, the CEO is concerned about the impact of a;change in the payout ratio from the 10% that was used in the past to 50%, which;the firm's investment bankers have recommended. Based on the AFN equation, by;how much would the AFN for the coming year change if HHW increased the payout;from 10% to the new and higher level? All dollars are in millions.;1. (TCO H) The Dewey Corporation has the following data, in;thousands. Assuming a 365-day year, what is the firm's cash conversion cycle?;Annual sales =;Annual cost of goods sold =;Inventory =;Accounts receivable =;Accounts payable =;$45,000;$31,500;$4,000;$2,000;$2,400;a. 25 days;b. 28 days;c. 31 days;d. 35 days;e. 38 days;2. (TCO C) Bumpas Enterprises purchases $4,562,500 in goods per year from;its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time;but does not take the discount, what is the effective annual percentage cost of;its nonfree trade credit? (Assume a 365-day year.);a. 20.11%;b. 21.17%;c. 22.28%;d. 23.45%;e. 24.63%;(Points: 30);3. (TCO E) You were hired as a consultant to the Quigley Company, whose;target capital structure is 35% debt, 10% preferred, and 55% common equity. The;interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the;cost of common from retained earnings is 11.25%, and the tax rate is 40%. The;firm will not be issuing any new common stock. What is Quigley's WACC?;a. 8.15%;b. 8.48%;c. 8.82%;d. 9.17%;e. 9.54%;(Points: 30);4. (TCO B) Leak Inc. forecasts the free cash flows (in millions) shown;below. If the weighted average cost of capital is 11% and FCF is expected to;grow at a rate of 5% after Year 2, what is the Year 0 value of operations, in;millions? Assume that the ROIC is expected to remain constant in Year 2 and;beyond (and do not make any half-year adjustments).;Year: 1 2;Free cash flow: -$50 $100;a. $1,456;b. $1,529;c. $1,606;d. $1,686;e. $1,770;5. (TCO G) Based on the corporate valuation model, the value of a;company's operations is $1,200 million. The company's balance sheet shows;$80 million in accounts receivable, $60 million in inventory, and $100 million;in short-term investments that are unrelated to operations. The balance;sheet also shows $90 million in accounts payable, $120 million in notes;payable, $300 million in long-term debt, $50 million in preferred stock, $180;million in retained earnings, and $800 million in total common equity. If the;company has 30 million shares of stock outstanding, what is the best estimate;of the stock's price per share?;a. $24.90;b. $27.67;c. $30.43;d. $33.48;e. $36.82;(Points: 35);6. Sapp Trucking?s balance sheet shows a total of noncallable $45 million;long-term debt with a coupon rate of 7.00% and a yield to maturity of;6.00%. This debt currently has a market value of $50 million. The;balance sheet also shows that the company has 10 million shares of common;stock, and the book value of the common equity (common stock plus retained;earnings) is $65 million. The current stock price is $22.50 per share;stockholders' required return, rs, is 14.00%, and the firm's tax rate is 40%.;The CFO thinks the WACC should be based on market value weights, but the;president thinks book weights are more appropriate. What is the;difference between these two WACCs?;7. based on the corporate valuation model, bernile Inc's value of;operation is $750 million. Its balance sheet shows $50 million of short-term;investments that are unrelated to operations, $100 million of accounts payable;$100 million of notes payable, $200 million of long term debt, $40 million of;common stock (par plus pain -in - capital), and $160 million of retained;earnings. What is the best estimate for the firm's value of equity, in millions

Paper#51664 | Written in 18-Jul-2015

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