FIN 515 Entire Course Managerial Finance
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FIN 515 Week 1 Problem Set
Answer the following questions and solve the following problems in
the space provided. When you are done, save the file in the format
flastname_Week_1_Problem_Set.docx, where flastname is your first initial and
you last name, and submit it to the appropriate dropbox.
Chapter 1 (page 19)
1. What is the most important difference between a
corporation and
all other organizational forms?
2. What does the phrase
limited liability mean
in a corporate context?
3. Which organizational forms give their owners
limited liability?
4. What are the main advantages and disadvantages of
organizing a firm as a corporation?
5. Explain the difference between an S corporation and
a C corporation.
Chapter 2
The following is provided for use in answering the next set of questions.
You may also find table 2.5 on page 53 of your text and all questions on pages
56–57.
29. In fiscal year 2011, Starbucks Corporation (SBUX) had
revenue of $11.70 billion, gross profit of $6.75 billion, and net income of
$1.25 billion. Peet’s Coffee and Tea (PEET) had revenue of $372 million, gross
profit of $72.7 million, and net income of $17.8 million.
a. Compare the gross margins for Starbucks and Peet’s.
b. Compare the net profit margins for Starbucks and Peet’s.
c. Which firm was more profitable in 2011?
31. See Table 2.5 showing financial statement data and
stock price data for Mydeco Corp.
a. How did Mydeco’s accounts receivable days change over this period?
b. How did Mydeco’s inventory days change over this period?
c. Based on your analysis, has Mydeco improved its management of its working
capital during this time period?
32. See Table 2.5 showing financial statement data and
stock price data for Mydeco Corp.
a. Compare Mydeco’s accounts payable days in 2009 and 2013.
b. Did this change in accounts payable days improve or worsen Mydeco’s cash
position in 2013?
33. See Table 2.5 showing financial statement data and
stock price data for Mydeco Corp.
a. By how much did Mydeco increase its debt from 2009 to 2013?
b. What was Mydeco’s EBITDA/Interest coverage ratio in 2009 and 2013? Did
its coverage ratio ever fall below 2?
c. Overall, did Mydeco’s ability to meet its interest payments improve or
decline over this period?
42. For fiscal year 2011, Starbucks Corporation (SBUX) had
total revenues of $11.70 billion, net income of $1.25 billion, total assets of
$7.36 billion, and total shareholder’s equity of $4.38 billion.
a. Calculate the Starbucks’ ROE directly, and using the DuPont Identity.
b. Comparing with the data for Peet’s in Problem 41, use the DuPont Identity
to understand the difference between the two firms’ ROEs.
FIN 515 Week 1 Quiz
Question 1
(TCO G) Which do you think provides a more valid measure of
how a company is doing, comparison of current results with historical results
or comparison of current results with the current results of another company?
Question 2
(TCO G) Barnes Corp’s total assets at the end of last year
were $415,000,000 and its net income after taxes was $17,750,000. What was its
return on total assets?
Question 3
(TCO G) Between December 31, 2016 and December 31, 2017,
ROE at Bobcat Industries decreased even though sales increased. Using the
DuPont Identity, explain what else could have happened to cause this.
FIN 515 Week 2 Problem Set
Answer the following questions and solve the following problems in
the space provided. When you are done, save the file in the format flastname_Week_2_Problem_Set.docx,
where flastname is your first initial and you last name, and submit it to the
appropriate dropbox.
Chapter 4 (pages 132–136):
3. Calculate the future value of $2000 in
a. five years at an interest rate of 5% per year;
b. ten years at an interest rate of 5% per year; and
c. five years at an interest rate of 10% per year.
d. Why is the amount of interest earned in part (a) less than half the
amount of interest earned in part (b)?
4. What is the present value of $10,000 received
a. twelve years from today when the interest rate is 4% per year;
b. twenty years from today when the interest rate is 8% per year; and
c. six years from today when the interest rate is 2% per year?
5. Your brother has offered to give you either $5,000 today
or $10,000 in 10 years. If the interest rate is 7% per year, which option is
preferable?
6. Consider the following alternatives.
i. $100 received in 1 year
ii. $200 received in 5 years
iii. $300 received in 10 years
a. Rank the alternatives from most valuable to least valuable if the
interest rate is 10% per year.
b. What is your ranking if the interest rate is only 5% per year?
c. What is your ranking if the interest rate is 20% per year?
8. Your daughter is currently 8 years old. You anticipate
that she will be going to college in 10 years. You would like to have $100,000
in a savings account to fund her education at that time. If the account
promises to pay a fixed interest rate of 3% per year, how much money do you
need to put into the account today to ensure that you will have $100,000 in 10
years?
9. You are thinking of retiring. Your retirement plan will
pay you either $250,000 immediately on retirement or $350,000 5 years after the
date of your retirement. Which alternative should you choose if the interest
rate is
a. 0% per year;
b. 8% per year; and
c. 20% per year?
14. You have been offered a unique investment opportunity.
If you invest $10,000 today, you will receive $500 1 year from now, $1,500 2
years from now, and $10,000 10 years from now. a. What is the NPV of the
opportunity if the interest rate is 6% per year? Should you take the
opportunity? b. What is the NPV of the opportunity if the interest rate is 2%
per year? Should you take it now?
36. You are thinking of purchasing a house. The house costs
$350,000. You have $50,000 in cash that you can use as a down payment on the
house, but you need to borrow the rest of the purchase price. The bank is
offering a 30-year mortgage that requires annual payments and has an interest
rate of 7% per year. What will your annual payment be if you sign up for this
mortgage?
37. You would like to buy the house and take the mortgage
described in Problem 36. You can afford to pay only $23,500 per year. The bank
agrees to allow you to pay this amount each year, yet still borrow $300,000. At
the end of the mortgage (in 30 years), you must make a balloon payment; that
is, you must repay the remaining balance on the mortgage. How much will this
balloon payment be?
38. You have just made an offer on a new home and are
seeking a mortgage. You need to borrow $600,000. a. The bank offers a 30-year
mortgage with fixed monthly payments and an interest rate of 0.5% per month.
What is the amount of your monthly payment if you take this loan? b.
Alternatively, you can get a 15-year mortgage with fixed monthly payments and
an interest rate of 0.4% per month. How much would your monthly payments be if
you take this loan instead?
*A.1. This problem is from the Appendix to Chapter 4. Your
grandmother bought an annuity from Rock Solid Life Insurance Company for
$200,000 when she retired. In exchange for the $200,000, Rock Solid will pay
her $25,000 per year until she dies. The interest rate is 5%. How long must she
live after the day she retired to come out ahead (that is, to get more in value
than what she paid in)?
FIN 515 Week 2 Quiz
Question 1
(TCO B) Your daughter has just given birth to your first grandchild. You
decide to start a college fund for the child. You want the fund to have
$300,000 in it when the child turns 18. You think you can get a return of 10%
per year on your investment. How much should you deposit in the fund? Ignore
taxes. Show your work. If you use Excel, show the formula with the parameters,
and the answer. If you use a formula, provide the standard formula, the formula
with terms substituted, and the answer. If you use a calculator, show the
inputs and the answer.
Question 2
(TCO B) You have a student loan of $75,000. The interest rate is 8.6% per
year. You have been out of school for 6 months and are ready to start making
payments. You want to use the maximum allowed of 10 years to pay off the loan
by making equal monthly payments. How much are the monthly payments? Ignore
taxes. Show your work. If you use Excel, show the formula with the parameters,
and the answer. If you use a formula, provide the standard formula, the formula
with terms substituted, and the answer. If you use a calculator, show the
inputs and the answer.
Question 3
(TCO B) Your cousin wants to buy a car but he really can’t afford it. He
needs a loan of $22,000. The finance manager at the dealership offers him
something like a loan in which your cousin will get the $22,000 and will pay
$413 per month for the next 60 months with an additional payment of $3,000
(which the car will surely be worth!) in the 60th month. What interest rate is
your cousin really going to pay? Ignore taxes. Show your work. If you use
Excel, show the formula with the parameters, and the answer. If you use a
formula, provide the standard formula, the formula with terms substituted, and
the answer. If you use a calculator, show the inputs and the answer.
FIN 515 Week 3 Problem Set
Answer the following questions and solve the following problems in
the space provided. When you are done, save the file in the format
flastname_Week_3_Problem_Set.docx, where flastname is your first initial and
you last name, and submit it to the appropriate dropbox.
Chapter 7 (pages 225–228):
1. Your brother wants to borrow $10,000 from you. He has
offered to pay you back $12,000 in a year. If the cost of capital of this
investment opportunity is 10%, what is its NPV? Should you undertake the
investment opportunity? Calculate the IRR and use it to determine the maximum
deviation allowable in the cost of capital estimate to leave the decision
unchanged.
8. You are considering an investment in a clothes
distributor. The company needs $100,000 today and expects to repay you $120,000
in a year from now. What is the IRR of this investment opportunity? Given the
riskiness of the investment opportunity, your cost of capital is 20%. What does
the IRR rule say about whether you should invest?
19. You are a real estate agent thinking of placing a sign
advertising your services at a local bus stop. The sign will cost $5,000 and
will be posted for one year. You expect that it will generate additional
revenue of $500 per month. What is the payback period?
21. You are deciding between two mutually exclusive
investment opportunities. Both require the same initial investment of $10
million. Investment A will generate $2 million per year (starting at the end of
the first year) in perpetuity. Investment B will generate $1.5 million at the
end of the first year and its revenues will grow at 2% per year for every year
after that.
- a. Which
investment has the higher IRR?
- b. Which
investment has the higher NPV when the cost of capital is 7%?
- c. In
this case, for what values of the cost of capital does picking the higher
IRR give the correct answer as to which investment is the best
opportunity?
-
Chapter 8 (260–262)
1. Pisa Pizza, a seller of frozen pizza, is
considering introducing a healthier version of its pizza that will be low in
cholesterol and contain no trans fats. The firm expects that sales of the new
pizza will be $20 million per year. While many of these sales will be to new
customers, Pisa Pizza estimates that 40% will come from customers who switch to
the new, healthier pizza instead of buying the original version.
a. Assume customers will spend the same amount on either version. What
level of incremental sales is associated with introducing the new pizza?
b. Suppose that 50% of the customers who will switch from Pisa Pizza’s
original pizza to its healthier pizza will switch to another brand if Pisa
Pizza does not introduce a healthier pizza. What level of incremental sales is
associated with introducing the new pizza in this case?
6. Cellular Access, Inc. is a cellular telephone
service provider that reported net income of $250 million for the most recent
fiscal year. The firm had depreciation expenses of $100 million, capital
expenditures of $200 million, and no interest expenses. Working capital
increased by $10 million. Calculate the free cash flow for Cellular Access for
the most recent fiscal year.
12. A bicycle manufacturer currently produces 300,000
units a year and expects output levels to remain steady in the future. It buys
chains from an outside supplier at a price of $2 a chain. The plant manager
believes that it would be cheaper to make these chains rather than buy them.
Direct in-house production costs are estimated to be only $1.50 per chain. The
necessary machinery would cost $250,000 and would be obsolete after 10 years.
This investment could be depreciated to zero for tax purposes using a 10-year
straight-line depreciation schedule. The plant manager estimates that the
operation would require $50,000 of inventory and other working capital upfront
(year 0), but argues that this sum can be ignored because it is recoverable at
the end of the 10 years. Expected proceeds from scrapping the machinery after
10 years are $20,000.
If the company pays tax at a rate of 35% and the opportunity cost of capital
is 15%, what is the net present value of the decision to produce the chains
in-house instead of purchasing them from the supplier?
FIN 515 Week 3 First Course Project
The purpose of this project is to help you develop skills not only in
performing the calculations behind financial analysis but interpreting the
numbers as well.
You are to pick a company. You should pick one either from the industry in
which you are currently working or an industry in which you are interested. You
could also pick a division of a company. It is imperative to use that
sufficient data about your company and that it is available. One way to do this
is to pick a publicly held company. If you pick a privately held company or a
division of a company, make sure that the data necessary to do a significant
financial analysis is available.
If you use data that is not publicly available, be sure to talk to your
manager and to make absolutely sure that revealing that data is not a problem.
You will also need to find a standard against which to compare your
findings. This could be a different company in the same industry. This could
also be the same company at a different time. Additionally, average or
benchmark numbers are available for several industries. If you decide to use a
different company in the same industry or the same company at a different time,
make sure that there are enough differences between the two to make an analysis
meaningful.
After you have selected a company, put yourself in the place of an analyst
who has been asked to perform an analysis of the company and provide a
recommendation to management.
Use ratio analysis, common size analysis, or other techniques to determine
areas in which the company is doing well as well as areas that management
should look at. Then, present your analysis and recommendations in the form of
a paper.
A good place to start would be to perform a complete DuPont analysis of the
company and compare it to the standard. The DuPont analysis might provide
guidance as to what particular areas of the company should be examined next and
what ratios should be calculated. If the DuPont analysis does not reveal
anything useful, you might wish to calculate several of the ratios that are
available to you.
Deliverable
The completed paper should be about 1,000 words long. In the paper, you do
not have to explain the ratios in depth. You may assume that the reader has a
basic understanding of finance and knows what ratio analysis is, although he or
she might not be able to list all the ratios and how to calculate them from
memory. The reader is not going to want a lot of background about financial
analysis. He or she really wants information that he or she can apply to the
given situation, which is the company that you have selected.
If you like, you can write the paper in the form of a memo to management.
You do not have to cite your source for how to calculate the ratios. You do
need to provide a reference to where you got that data not only for your
subject company but for the other company or standard to which you compared
your company.
- The spirit
of this assignment is for you to calculate and interpret the results. The
purpose is not for you to find calculations and interpretations that have
been done by someone else.
- The paper
is expected to conform to the standards for graduate school writing.
- The
purpose of your analysis is internal evaluation. Refrain from using stock
market valuation ratios.
When you have completed the project, place it in one Word document and place
that document in the appropriate dropbox.
Week 4 Problem Set
Bonds-1. Interest on a certain issue of bonds is paid
annually with a coupon rate of 8%. The bonds have a par value of $1,000. The
yield to maturity is 9%. What is the current market piece of these bonds? The
bonds will mature in 5 years.
Bonds-2. A certain bond has 12 years left to maturity.
Interest is paid annually at a coupon rate of 10%. The bonds are currently
selling for $850. What is their YTM?
Bonds-3. A certain bond pays a semiannual coupon rate
at a 10% annual rate. The bond has a par value of $1,000. There are eight years
to maturity. The yield to maturity is 9%. What is the current price of the bond?
Bonds-4. A particular corporate bond has a par value of
$1,000. Coupon payments are $40 and are paid twice a year. Seven years are left
on the life of the bond.The YTM is 9%. What is the price of the bond?
Bond-5. A given bond has 5 years to maturity. It has a face
value of $1,000. It has a YTM of 5% and the coupons are paid semiannually at a
10% annual rate. What does the bond currently sell for?
Bond-6. A given bond has five years left to maturity.
Interest is paid annually and the annual coupon rate is 9%. The par value of
the bond is $1,000. The bond currently sells for $1,000. What is the yield to
maturity?
9-1.Assume Evco, Inc., has a current price of $50 and will
pay a $2 dividend in 1 year, and its equity cost of capital is 15%. What price
must you expect it to sell for right after paying the dividend in 1 year in
order to justify its current price?
9-5.NoGrowth Corporation currently pays a dividend of $2
per year, and it will continue to pay this dividend forever. What is the price
per share if its equity cost of capital is 15% per year?
9-6.Summit Systems will pay a dividend of $1.50 this year.
If you expect Summit’s dividend to grow by 6% per year, what is its price per
share if its equity cost of capital is 11%?
9-7. Dorpac Corporation has a dividend yield of 1.5%.
Dorpac’s equity cost of capital is 8%, and its dividends are expected to grow
at a constant rate. a. What is the expected growth rate of Dorpac’s dividends?
b. What is the expected growth rate of Dorpac’s share price?
9-12.Procter & Gamble will pay an annual dividend of
$0.65 1 year from now. Analysts expect this dividend to grow at 12% per year
thereafter until the fifth year. After then, growth will level off at 2% per
year. According to the dividend-discount model, what is the value of a share of
Procter & Gamble stock if the firm’s equity cost of capital is 8%?
FIN 515 Week 4
Midterm
1. (TCO G) The firm’s asset turnover measures
2. (TCO G) Suppose Novak Company experienced a reduction in its ROE over the
last year. This fall could be attributed to
3. (TCO B) You plan on retiring in 20 years. You currently have $275,000 and
think you will need $1,000,000 to retire. Assuming you don’t deposit any
additional money into the account, what annual return will you need to earn to
meet this goal?
4. (TCO B) You take out a 4 year car loan for $18,000. The loan has a 4%
annual interest rate. The payments are made monthly. What are the monthly
payments? Show your work
5. (TCO B) You currently have $10,000 in your retirement account. If you deposit
$500 per month and the account pays 5% interest, how much will be in the
account in 10 years? Show your work.
6. (TCO B) You have a two children, A and B. Child A is not going to college
but is working in a business to learn the ropes. Child A plans on opening a
business someday. Child B is attending college. You put a certain amount of
money into an account. From this account, Child B will receive $2,000 per month
for the next four years. Whatever is left at that time will go to Child A to
help start the business. You want Child A to receive $96,000 at that time. The
account pays 7% annually, compounded monthly. How much money do you need to
start the account? Show your work.
7. (TCO F) A project requires an initial cash outlay of $95,000 and has expected
cash inflows of $20,000 annually for 9 years. The cost of capital is 10%. What
is the project’s NPV? Show your work.
8. (TCO F) A project requires an initial cash outlay of $60,000 and has
expected cash inflows of $15,000 annually for 8 years. The cost of capital is
10%. What is the project’s payback period? Show your work.
9. (TCO F) A project requires an initial cash outlay of $95,000 and has
expected cash inflows of $20,000 annually for 9 years. The cost of capital is
10%. What is the project’s IRR? Show your work.
10. (TCO F) A project requires an initial cash outlay of $40,000 and has
expected cash inflows of $12,000 annually for 7 years. The cost of capital is
10%. What is the project’s discounted payback period? Show your work.
11. (TCO F) Company A has the opportunity to do any, none, or all of the
projects for which the net cash flows per year are shown below. The projects
are not mutually exclusive. The company has a cost of capital of 15%. Which
should the company do and why? You must use at least two capital budgeting
methods. Show your work. Explain your answer thoroughly.
FIN 515 Week 5 Problem Set
Answer the following questions and solve the following problems in
the space provided. When you are done, save the file in the format flastname_Week_5_Problem_Set.docx,
where flastname is your first initial and you last name, and submit it to the
appropriate dropbox.
Chapter 10 (pages 345–348)
4. You bought a stock one year ago for $50 per share
and sold it today for $55 per share. It paid a $1 per share dividend today.
a. What was your realized return?
b. How much of the return came from dividend yield and how much came
from capital gain?
20. Consider two local banks. Bank A has 100 loans
outstanding, each for $1 million, that it expects will be repaid today. Each
loan has a 5% probability of default, in which case the bank is not repaid
anything. The chance of default is independent across all the loans. Bank B has
only one loan of $100 million outstanding, which it also expects will be repaid
today. It also has a 5% probability of not being repaid. Explain the difference
between the type of risk each bank faces. Which bank faces less risk? Why?
22. Consider the following two, completely separate,
economies. The expected return and volatility of all stocks in both economies
is the same. In the first economy, all stocks move together—in good times all
prices rise together and in bad times they all fall together. In the second
economy, stock returns are independent—one stock increasing in price has no
effect on the prices of other stocks. Assuming you are risk-averse and you
could choose one of the two economies in which to invest, which one would you
choose? Explain.
30. What does the beta of a stock measure?
35. Suppose the market risk premium is 5% and the
risk-free interest rate is 4%. Using the data in Table 10.6 (also shown
above), calculate the expected return of investing in
a. Starbucks’ stock.
b. Hershey’s stock.
c. Autodesk’s stock.
Chapter 11 (pages 390–396):
2. You own three stocks: 600 shares of Apple Computer,
10,000 shares of Cisco Systems, and 5,000 shares of Colgate-Palmolive. The
current share prices and expected returns of Apple, Cisco, and
Colgate-Palmolive are, respectively, $500, $20, $100 and 12%, 10%, 8%.
a. What are the portfolio weights of the three stocks in your
portfolio?
b. What is the expected return of your portfolio?
c. Suppose the price of Apple stock goes up by $25, Cisco rises by $5,
and Colgate-Palmolive falls by $13. What are the new portfolio weights?
d. Assuming the stocks’ expected returns remain the same, what is the
expected return of the portfolio at the new prices?
50. Suppose Autodesk stock has a beta of 2.16, whereas
Costco stock has a beta of 0.69. If the risk-free interest rate is 4% and the
expected return of the market portfolio is 10%, what is the expected return of
a portfolio that consists of 60% Autodesk stock and 40% Costco stock, according
to the CAPM?
Chapter 12 (page 431):
26. Unida Systems has 40 million shares outstanding trading
for $10 per share. In addition, Unida has $100 million in outstanding debt.
Suppose Unida’s equity cost of capital is 15%, its debt cost of capital is 8%,
and the corporate tax rate is 40%.
- a. What
is Unida’s unlevered cost of capital?
- b. What
is Unida’s after-tax debt cost of capital?
- c. What
is Unida’s weighted average cost of capital?
27. You would like to estimate the weighted average
cost of capital for a new airline business. Based on its industry asset beta,
you have already estimated an unlevered cost of capital for the firm of 9%.
However, the new business will be 25% debt financed, and you anticipate its
debt cost of capital will be 6%. If its corporate tax rate is 40%, what is your
estimate of its WACC?
FIN 515 Week 6 Problem Set
Answer the following questions and solve the following problems in
the space provided. When you are done, save the file in the format
flastname_Week_6_Problem_Set.docx (where flastname is your first initial and
your last name), and submit it to the appropriate Dropbox.
Chapter 29 (pages 983-984):
1. What inherent characteristic of corporations creates the
need for a system of checks on manager behavior?
2. What are some examples of agency problems?
3. What are the advantages and disadvantages of the
corporate organizational structure?
4. What is the role of the board of directors in corporate
governance?
Second Project
The purpose of this project is for you to have some practice working with
financial concepts in the real world. This will involve integrating some
material from throughout the course. The project will also involve the
development of your own approach to doing the work. The project does not
provide a step-by-step procedure for you to follow.
Your task is to determine the WACC for a given firm using what you know
about WACC as well as data you can find through research. Your deliverable is
to be a brief report in which you state your determination of WACC, describe
and justify how you determined the number, and provide relevant information as
to the sources of your data.
With the help of your professor, you have selected a company for which to
research and find the WACC. Your research is to be independent from any
information you may find at thatswacc.com or similar sites although you might
want to use such sites to provide a reasonableness check on the WACC you
calculate.
Assumptions
As you recall, the formula for WACC is
r
WACC = (E/E+D) r
E + D/(E+D) r
D (1-T
C)
The formula for the required return on a given equity investment is
ri= rf + βi * (RMkt-rf)
R
Mkt-r
f is the Market Risk Premium. For this
project, you may assume the Market Risk Premium is 4% unless you can develop a
better number.
r
f is the risk free rate. The YTM on 10 year US Treasury
securities is a good approximation.
You may assume a corporate tax rate of 40%.
One good source for financial data for companies as well as data about their
equity is
http://finance.yahoo.com.
By looking around this site, you should be able to find the market
capitalization (E) as well as the β for any publicly traded company.
There are not many places left where data about corporate bonds is still
available. One of them is
http://finra-markets.morningstar.com/BondCenter.
To find data for a particular company’s bonds, find the
Quick Search
feature, then be sure to specify corporate bonds and type in the name of the
issuing company. This should give you a list of all of the company’s
outstanding bond issues. Clicking on the symbol for a given bond issue will
lead you to the current amount outstanding and the yield to maturity. You are
interested in both. The total of all bonds outstanding is D in the above
formula.
If you like, you can use the YTM on a bond issue that is not callable as the
pre-tax cost of debt for the company.
Deliverable
Write a two or three page report that contains the following elements:
- 1.
Your calculated WACC.
- 2.
How data was used to calculate WACC. This would be the formula and the formula
with your values substituted.
- 3.
Sources for your data.
- 4.
A discussion of how much confidence you have in your answer. What were the
limiting assumptions that you made, if any.
FIN 515 Week 7 Problem Set
Answer the following questions and solve the following problems in
the space provided. When you are done, save the file in the format
flastname_Week_7_Problem_Set.docx (where flastname is your first initial and
your last name), and submit it to the appropriate Dropbox.
Chapter 26 (page 903):
1. Answer the following questions:
a. What is the difference between a firm’s cash cycle and its operating
cycle?
b. How will a firm’s cash cycle be affected if a firm increases its
inventory, all else being equal?
c. How will a firm’s cash cycle be affected if a firm begins to take
the discounts offered by its suppliers, all else being equal?
4. The Greek Connection had sales of $32 million in 2012,
and a cost of goods sold of $20 million. A simplified balance sheet for the
firm appears below:
a. Calculate The Greek Connection’s net working capital in 2012.
b. Calculate the cash conversion cycle of The Greek Connection in 2012.
c. The industry average accounts receivable days is 30 days. What would
the cash conversion cycle for The Greek Connection have been in 2012 if it had
matched the industry average for accounts receivable days?
5. Assume the credit terms offered to your firm by your
suppliers are 3/5, Net 30. Calculate the cost of the trade credit if your firm
does not take the discount and pays on day 30.
Chapter 27 (page 925):
1. Which of the following companies are likely to have high
short-term financing needs? Why?
a. A clothing retailer
b. A professional sports team
c. An electric utility
d. A company that operates toll roads
e. A restaurant chain
2. Sailboats Etc. is a retail company specializing in
sailboats and other sailing-related equipment. The following table contains
financial forecasts as well as current (month 0) working capital levels. During
which months are the firm’s seasonal working capital needs the greatest? When
does it have surplus cash?
FIN 515 Final Exam
- (TCO A) In
the United States, the most common type of business by number of
businesses is the _____. (Points : 5)
- (TCO A)
Sole proprietorships have all of the following advantages except (Points :
5)
- (TCO B)
Which of the following would cause the future value of an annuity to
decrease? (Points : 5)
- (TCO B)
Which of the following is an annuity due? (Points : 5)
- (TCO G)
What are the names of the four components of the DuPont Identity and how
are they calculated? What does each measure? (Points : 20)
- (TCO D) A
stock pays an annual dividend of $2.50 and that dividend is not expected
to change. Similar stocks pay a return of 10%. What is P0? (Points : 20)
- (TCO D) A
stock has just declared an annual dividend of $2.25 to be paid one year
from today. The dividend is expected to grow at a 7% annual rate. The
return on equity for similar stocks is 12%. What is P0? (Points : 20)
- (TCO D) A
particular bond has 8 years to maturity. It has a face value of $1,000. It
has a YTM of 7% and the coupons are paid semiannually at a 10% annual
rate. What does the bond currently sell for? (Points : 10)
- (TCO D) A
bond currently sells for $1,000 and has a par of $1,000. It was issued two
years ago and had a maturity of 10 years. The coupon rate is 7% and the
interest payments are made semiannually. What is its YTM? (Points : 10)
- (TCO D)
Using examples, explain the difference between systematic risk and
nonsystematic risk. Explain why the distinction is important for both
investors and issuers of stock.(Points : 30)
- (TCO E) A
company has 10 million shares outstanding trading for $7 per share. It
also has $300 million in outstanding debt. If its equity cost of capital
is 15%, and its debt cost of capital is 9%, and its effective corporate
tax rate is 40%, what is its weighted average cost of capital? (Points :
30)
- (TCO A)
Relate how the job of the financial manager can be explained using the
balance sheet. (Points : 25)
- (TCO H)
Other things being equal, would a firm prefer a longer or shorter Cash
Conversion Cycle? What are some examples of ways a firm could attain this?
(Points : 30)
- (TCO F) A
company has the opportunity to do any of the projects for which the net
cash flows per year are shown below. The company has a cost of capital of
12%. Which should the company do and why? You must use at least two
capital budgeting methods. Show your work
