corp finance final

A firm issues preferred stock with a dividend of $4.81. If the appropriate discount rate is 8.39% what is the value of the preferred stock?

4.81/.0839=57.3302

Derek has the opportunity to buy a money machine today. The money machine will pay Derek $38,221.00 exactly 20.00 years from today. Assuming that Derek believes the appropriate discount rate is 10.00%, how much is he willing to pay for this money machine?

FV = 38,221.00 N = 20 I/Y = 10 PMT =0 CALUCLATE PV ANS - 5681.31

Assume a par value of $1,000. Caspian Sea plans to issue a 9.00 year, semi-annual pay bond that has a coupon rate of 8.08%. If the yield to maturity for the bond is 7.68%, what will the price of the bond be?

N - 9 * 2 ( SEMI-ANNUAL) = 18 pmt - 0.0808*1000/2) =40.4 fv - 1000 i/y - 7.68/2 = 4.04 PV ---- 974.76

The market price of a semi-annual pay bond is $974.87. It has 16.00 years to maturity and a coupon rate of 7.00%. Par value is $1,000. What is the yield to maturity?

N = 16*2 PMT = 7*1000/2 FV = 1000 PV = -974.87 I/Y CALCULATE THEN MULTIPLY BY 2 = 7.269

What is the firm's net income for the current year?

calculate current year net income (SALES-COGS-OPERATING EXPENSE-DEPRECIATION EXPENSE-INTEREST EXPENSE-TAX)

What is the firm's current year net profit margin?

calculate current year net income (SALES-COGS-OPERATING EXPENSE-DEPRECIATION EXPENSE-INTEREST EXPENSE-TAX) then divide by sales so (net income/sales for the current year) you should get a percentage

A firm just paid a dividend of $2.25. The dividend is expected to grow at a constant rate of 2.18% forever and the required rate of return is 13.37%. What is the value of the stock?

d*(1+g/r-g) 2.25*(1+.0218/.1337-.0218)=20.5456

A bank offers 7.00% on savings accounts. What is the effective annual rate if interest is compounded semi-annually?

formula = (1 + r/m)^m -1 semi annually means twice a year answ - 7.1225%

What is the firm's gross profit margin for the current year?

gross profit=(sales-COGS)/net sales

the goal of financial management is to ___

maximize shareholder value

Assume a par value of $1,000. Caspian Sea plans to issue a 10.00 year, annual pay bond that has a coupon rate of 8.09%. If the yield to maturity for the bond is 7.54%, what will the price of the bond be?

n - 10 fv - 1000 pmt - 0.0809*1000 i/y - 7.54 ans ----- 1037.68

#23 Assume a par value of $1,000. Caspian Sea plans to issue a 6.00 year, semi-annual pay bond that has a coupon rate of 7.89%. If the yield to maturity for the bond is 8.39%, what will the price of the bond be?

n - 12 fv - 1000 pmt - 0.0789*1000/2 -39.45 i/y - 8.39/2 ans ----976.80

Caspian Sea Drinks needs to raise $42.00 million by issuing bonds. It plans to issue a 16.00 year semi-annual pay bond that has a coupon rate of 5.18%. The yield to maturity on the bond is expected to be 4.82%. How many bonds must Caspian Sea issue? (Note: Your answer may not be a whole number. In reality, a company would not issue part of a bond.)

n - 16*2 pmt - .0518*1000/2 fv - 1000 i/y - 4.82/2 pv ----- 1,039.83 then 42,000,000/1,039.83 --- 40,391.18

The risk-free rate is 3.29% and the market risk premium is 5.80%. A stock with a β of 1.45 just paid a dividend of $1.16. The dividend is expected to grow at 22.36% for three years and then grow at 3.69% forever. What is the value of the stock?

p0 = d1(1+k) + d2/(1+k)^2 + d3(1+k)^3 + p3(1+k)^3 ri = rf + B (rm -rf) = 0.0329+1.45(0.0580) = 0.117 = 11.7% d1 = 1.16*1.2236 = 1.419376 d2 = 1.419376*1.2236=1.736748 d3 =1.736748*1.2236=2.125085 p3= ( 2.125085*1.0369/( .117-0.0369) = 27.5094 p0 =

in general , shareholders prefer ____ than bondholders do

riskier projects

It is _______ for a company to issue equity than debt; it is ________ for an investor to buy equity in a company than debt in the same firm.

safer ; riskier

Derek plans to retire on his 65th birthday. However, he plans to work part-time until he turns 71.00. During these years of part-time work, he will neither make deposits to nor take withdrawals from his retirement account. Exactly one year after the day he turns 71.0 when he fully retires, he will wants to have $3,206,275.00 in his retirement account. He he will make contributions to his retirement account from his 26th birthday to his 65th birthday. To reach his goal, what must the contributions be? Assume a 7.00% interest rate.

this is a 2 STEP PMT PROBLEM 1. solve for PV from period 65-71 PMT = 0 FV = 3,206,275 I/Y = 7 N = 7 (72-65) CUZ 1 YEAR AFTER 71 SOLVE FOR PV ---- 1,996,706.93 2. find the pmt from 26-65 FV = 1,996,706.93 I/Y = 7 N = 65-26-1 = 40 PV = 0 SOLVE FOR PMT ----- 10,001.78

Derek plans to retire on his 65th birthday. However, he plans to work part-time until he turns 70.00. During these years of part-time work, he will neither make deposits to nor take withdrawals from his retirement account. Exactly one year after the day he turns 70.0 when he fully retires, he will begin to make annual withdrawals of $131,251.00 from his retirement account until he turns 95.00. He he will make contributions to his retirement account from his 26th birthday to his 65th birthday. To reach his goal, what must the contributions be? Assume a 6.00% interest rate.

this is a 3 STEP PMT PROBLEM 1. find the PV from 70-95 PMT - 131251 FV - 0 I/Y - 6 N - (95-70) = 25 PV --- 1,677,828.28 2. FIND FV AT 65 pmt - 0 fv - 1,677,828.28 (from earlier) i/y - 6 n - 5 solve for PV ----- 1,253,770.90 3. FIND PMT FROM 26 TO 65 FV - 1,253,770.90 (FROM EARLIER) I/Y - 6 N - (65 - (26-1) = 40 becuiz PMT IS NOT 0 PV = 0 PMT ----- 8101.29

Assume the nominal rate of return is 6.30% and the inflation rate is 2.97%. Find the real rate of return using the exact formula.

use formula (nominal = r + i ( r * i) plug in , solve for real ANS - 3.23%

A rational person would prefer which of the following cash flows.

$50,000 paid today

What is the firm's cash flow from financing?

1. calculate dividend payment = net income - current year RE + prior year RE) 2. ADD change in additional paid in captial 3. ADD change in common stock 4. ADD change in current portion of long-term debt 5. ADD change in long-term debt 6. ADD change in notes payable 7. SUBTRACT DIVIDEND PAYMENT

What is the firm's cash flow from operations?

1. calculate net income 2. ADD change in accounts payable 3. SUBTRACT change in accounts recieveable. 4. ADD change in accruals 5. ADD depreciation expense for current year 5. SUBTRACT change in inventory

Assume the real rate of interest is 2.00% and the inflation rate is 6.00%. What is the value today of receiving 12,928.00 in 7.00 years?

1. calculate nominal rate of interest (make sure in decimal form) = r + i + (r * i) this is ur I/Y 2. calculate PV ANS - 7484.95

What is the firm's cash flow from investing?

1. current net fixed asset + current yr depreciation expense 2. subtract PRIOR year net fixed asset -[(current net fixed asset + current yr depreciation expense) -prior net fixed asset] IT SHOULD BE POSITIVE

Derek borrows $282,434.00 to buy a house. He has a 30-year mortgage with a rate of 4.58%. After making 80.00 payments, how much does he owe on the mortgage?

2 steps 1. calculate PMT PV - 282,434 FV -0 I/Y - (4.58/12) N = 30*12 PMT ---- 1,444.51 2. FIND HOW MYUCH IS LEFT OF THE PV pmt - 1,444.51 fv - 0 i/y - (4.58/12) n - 360-80= 280 PV ----- 248,216

Derek plans to buy a $31,632.00 car. The dealership offers zero percent financing for 57.00 months with the first payment due at signing (today). Derek would be willing to pay for the car in full today if the dealership offers him $____ cash back. He can borrow money from his bank at an interest rate of 5.32%.

4 steps... 1. find PMT 31,632/57 ---554.9474 2. FIND PV FOR THE BANK PMT - 554.9474 FV - 0 N -57-1 = 56 I/Y - 5.32/12 PV ----- -27,466.13 3. ADD one PMT to the pv -27,466.13 - 554.9474 = -28,021.0788 4. find the difference -28,021.0788+31,632.00 ans --- 3610.92

Suppose you deposit $1,038.00 into an account 7.00 years from today that earns 10.00%. It will be worth $1,829.00 _____ years from today.

PV = -1,038.00 I/Y = 10 PMT = 0 FV = 1829 SOLVE FOR N THEN ADD 7 ANS - 12.94

Suppose you deposit $1,188.00 into an account 6.00 years from today. Exactly 17.00 years from today the account is worth $1,757.00. What was the account's interest rate?

PV = -1,188.00 FV = 1,757.00 N = (17-6) = 11 PMT = 0 CALCULATE I/Y ANS - 3.622%