Finance 450 - Final Study - Equations

What are the arithmetic and geometric average returns for a stock with annual returns of 5 percent, 9 percent, -4 percent, and 17 percent?

6.75%; 6.48%

Sarah purchased a tract of land for $32,000. Today, the same land is worth $48,400. How many years have passed if the price of the land has increased at an annual rate of 5.2 percent?

8.16 years

From the above information we know that the market required return based on the systematic risk for Stock S is: (E5,Q5)

greater than 11.5 percent.

A company has a pension liability of $350,000,000 that it must pay in 20 in years. If it can earn an annual interest rate of 3.1 percent, how much must it deposit today to fund this liability?

$190,061,756.54

You have just started a new job and plan to save $4,350 per year for 38 years until you retire. You will make your first deposit in one year. How much will you have when you retire if you earn an annual interest rate of 10.73 percent?

$1,909,173.56

Your parents are giving you $250 a month for 4 years while you are in college. At an interest rate of .57 percent per month, what are these payments worth to you when you first start college? (E2)

$10,472.48

NU YU announced today that it will begin paying annual dividends. The first dividend will be paid next year in the amount of $.39 a share. The following dividends will be $.44, $.59, and $.89 a share annually for the following three years, respectively. After that, dividends are projected to increase by 2.9 percent per year. How much are you willing to pay today to buy one share of this stock if your desired rate of return is 10 percent?

$10.58

At the beginning of the year, a firm has current assets of $323 and current liabilities of $227. At the end of the year, the current assets are $483 and the current liabilities are $267. What is the change in net working capital?

$120

Daniel invests $105 in an account that pays 5 percent simple interest. How much money will Daniel have at the end of 5 years?

$131.25

A company. has a project available with the following cash flows: Year Cash Flow 0−$33,830 1 12,840 2 14,740 3 20,290 4 11,540 If the required return for the project is 8.8 percent, what is the project's NPV? (E4)

$14,413.16

For the past year, KSU, Inc., has sales of $45,602, interest expense of $3,542, cost of goods sold of $15,959, selling and administrative expense of $11,386, and depreciation of $5,835. If the tax rate is 40 percent, what is the operating cash flow?

$14,705

Wildcat Waters currently sells 330 Class C spas and 230 select model spas each year. The firm is considering adding a mid-class spa and expects that if it does, it can sell 405 units per year. However, if the new spa is added, Class C sales are expected to decline to 240 units. The sales of the select model will not be affected. Class C spas sell for an average of $12,500 each and the select models sell for $17,300 each. The new mid-range spa will sell for $8,300. What annual sales figure should you use in your analysis? (E4)

$2,236,500

Wildcat, Inc., is considering the purchase of KSU Co. Wildcat believes that KSU Co. can generate cash flows of $6,500, $11,500, and $17,700 over the next three years, respectively. After that time, they feel the business will be worthless. Wildcat has determined that a rate of return of 12 percent is applicable to this potential purchase. What is Wildcat willing to pay today to buy KSU Co.? (E2)

$27,569.81

You plan to save $370 per month starting today for the next 46 years "just to start the month off right." You feel that you can earn an interest rate of 9.7 percent compounded monthly. How much will there be in the account 46 years from today? (E2)

$3,881,568.21

Your grandparents would like to establish a trust fund that will pay you and your heirs $150,000 per year forever with the first payment 8 years from today. If the trust fund earns an annual return of 2.9 percent, how much must your grandparents deposit today? (E2)

$4,234,339.13

There are zero coupon bonds outstanding that have a YTM of 5.19 percent and mature in 16 years. The bonds have a par value of $10,000. If we assume semiannual compounding, what is the price of the bonds?

$4,405.16

What is the future value of $3,048 invested for 8 years at 5.7 percent compounded annually? (E2)

$4,749.14

A project has annual depreciation of $26,700, costs of $103,700, and sales of $153,500. The applicable tax rate is 35 percent. What is the operating cash flow? (E4)

$41,715

Stoneheart Group is expected to pay a dividend of $3.15 next year. The company's dividend growth rate is expected to be 4 percent indefinitely and investors require a return of 11.6 percent on the company's stock. What is the stock price?

$41.45

Kim's Supreme Umbrellas purchased equipment 7 years ago for $2,350,000. The equipment was used for a project that was intended to last for 9 years. However, due to poor sales, the project is being terminated. The equipment was depreciated straight-line to zero over the original project period and can be sold for $360,000 today. The company's tax rate is 35 percent. What is the after-tax salvage value of the equipment?

$416,778

Gerritt wants to buy a car that costs $27,750. The interest rate on his loan is 5.41 percent compounded monthly and the loan is for 6 years. What are his monthly payments? (E2)

$452.21

Ghost Riders Co. has an EPS of $1.59 that is expected to grow at 7.9 percent per year. If the PE ratio is 18.55 times, what is the projected stock price in 6 years?

$46.54

Whipple Corp. just issued 245,000 bonds with a coupon rate of 5.81 percent paid semiannually that mature in 30 years. The bonds have a YTM of 6.25 percent and have a par value of $2,000. How much money was raised from the sale of the bonds? (E3)

$460.95 million

You take out a four year loan for $2,000 at an annual interest rate of 5.0% that is to be paid with equal annual payments of $564.02. How much principal will be paid in the second year? (E2)

$487.22

Harpeth Valley Water District has a bond outstanding with a coupon rate of 3.95 percent and semiannual payments. The bond matures in 23 years, with a yield to maturity of 3.71 percent, and a par value of $5,000. What is the market price of the bond?

$5,184.58

A bond with a par value of $5,000 is quoted at 106.978. What is the dollar price of the bond?

$5,348.90

Michael's, Inc., just paid $2.10 to its shareholders as the annual dividend. Simultaneously, the company announced that future dividends will be increasing by 4.6 percent. If you require a rate of return of 8.8 percent, how much are you willing to pay today to purchase one share of the company's stock (E3)

$52.30

A 4-year project has an annual operating cash flow of $50,500. At the beginning of the project, $4,150 in net working capital was required, which will be recovered at the end of the project. The firm also spent $22,200 on equipment to start the project. This equipment will have a book value of $4,580 at the end of the project, but can be sold for $5,610. The tax rate is 35 percent. What is the Year 4 cash flow? (E4)

$59,900

Wildcat Windows has a new project that will require fixed assets of $919,000, which will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company has a tax rate of 35 percent. What is the depreciation tax shield for Year 3? (E4)

$61,757

You are going to deposit $24,000 today. You will earn an annual rate of 5.3 percent for 9 years, and then earn an annual rate of 4.7 percent for 12 years. How much will you have in your account in 21 years?

$66,286.76

(E2) KSU Corp. has a project with the following cash flows. What is the value of the cash flows today assuming an annual interest rate of 10.7 percent? Year Cash Flow 1 $1,960 2 2,510 3 2,885 4 2,895

$7,873.25

You take out a four year loan for $2,000 at an annual interest rate of 5.0% that is to be paid with equal annual payments of $564.02. How much interest will be paid in the second year? (E2)

$76.80

Purple Power Co. purchased a parcel of land six years ago for $868,500. At that time, the firm invested $140,000 in grading the site so that it would be usable. Since the firm wasn't ready to use the site itself at that time, it decided to lease the land for $51,500 a year. The company is now considering building a warehouse on the site as the rental lease is expiring. The current value of the land is $920,000. What value should be included in the initial cost of the warehouse project for the use of this land? (E4)

$920,000

Wine and Roses, Inc., offers a bond with a coupon of 5.5 percent with semiannual payments and a yield to maturity of 5.90 percent. The bonds mature in 6 years. What is the market price of a $1,000 face value bond?

$980.03

A portfolio consists of 270 shares of Stock C that sells for $51 and 235 shares of Stock D that sells for $24. What is the portfolio weight of Stock C? (E5)

.7094

You have a portfolio that is equally invested in Stock F with a beta of 1.18, Stock G with a beta of 1.55, and the risk-free asset. What is the beta of your portfolio? (E5)

.91

POD has a project with the following cash flows: Year Cash Flows 0−$261,000 1 146,500 2 164,000 3 129,100 The required return is 9.3 percent. What is the profitability index for this project? (E4)

1.418

What is the equity multiplier for 2017? (E1,Q3)

1.63 times

From the information in the table above, the portfolio standard deviation is closest to: (E5,Q21)

1.79%

What is the effective annual rate for an APR of 9.80 percent compounded quarterly? (E2)

10.17%

A project will generate annual cash flows of $237,600 for each of the next three years, and a cash flow of $274,800 during the fourth year. The initial cost of the project is $764,600. What is the internal rate of return of this project? (E4)

10.82%

Two years ago, you invested $3,150. Today, it is worth $3,900. What rate of interest did you earn? (E2)

11.27 percent

The inflation rate over the past year was 3.1 percent. If an investment had a real return of 8.2 percent, what was the nominal return on the investment?

11.55%

A firm has sales of $1,160, net income of $220, net fixed assets of $532, and current assets of $288. The firm has $95 in inventory. What is the common-size balance sheet value of inventory?

11.59%

The current rate on T-bills is 3.8 percent, inflation is 1.5 percent and the market expected return is 11.5 percent. What is the expected return of a stock that has a beta of 1.23? (E5)

13.27%

What is the internal rate of return for Project One? (E4,Q14)

14.2 percent

Over a certain period, large-company stocks had an average return of 12.59 percent, the average risk-free rate was 2.58 percent, and small-company stocks averaged 17.45 percent. What was the risk premium on small-company stocks for this period?

14.87%

A stock had returns of 18.67 percent, −7.83 percent, and 24.08 percent for the past three years. What is the standard deviation of the returns? (E5)

17.08%

What is the return on equity for 2017? (E1,Q5)

16.39%

What is the cash coverage ratio for 2017? (E1,Q4)

20.21 times

KSU Inc is considering a new project with an initial cost of $185,000. The equipment will be depreciated on a straight-line basis to a zero book value over the four-year life of the project. The projected net income for each year is $19,600, $20,500, $24,600, and $16,500, respectively. What is the average accounting return? (E4)

21.95%

Three months ago, you purchased a stock for $55.07. The stock is currently priced at $58.45. What is the EAR on your investment? (E5)

26.90%

How long does it take to double your money of your account pays 2.4 percent compounded monthly?

28.9 years

There is a project with the following cash flows : Year Cash Flow 0−$22,700 1 6,600 2 7,700 3 6,900 4 7,500 5 6,200 What is the payback period? (E4)

3.20 years

GN Supply wants to issue new 10-year, $1,000 face value bonds at par. The company currently has 6.35 percent coupon bonds on the market that sell for $983.20, make semiannual interest payments, and mature in 10 years. What coupon rate should the company set on its new bonds? (E3)

6.58 percent

A bond had a price of $1,945.35 at the beginning of the year and a price of $1,975.32 at the end of the year. The bond's par value is $2,000 and its coupon rate is 4.2 percent. What was the percentage return on the bond for the year?

5.86%

A bond that pays interest semiannually has a price of $942.01 and a semiannual coupon payment of $30.75. If the par value is $1,000, what is the current yield?

6.53%

Fifth Fourth National Bank has a savings program which will guarantee you $13,000 in 8 years if you deposit $100 per month. What APR is the bank offering you on this savings plan? (E2)

7.32%

(E5) Based on the following information, what is the expected return? State of economy Probability of State Rate of Return if State Occurs Recession .28 −10.60% Normal .31 12.10% Boom .41 21.40%

9.56%

A stock is expected to maintain a constant dividend growth rate of 4.2 percent indefinitely. If the stock has a dividend yield of 5.5 percent, what is the required return on the stock?

9.7%

The stock of Big Joe's has a beta of 1.34 and an expected return of 11.80 percent. The risk-free rate of return is 4.3 percent. What is the expected return on the market?

9.90%

Use the information in the table above to determine which stock has the most total and the the most systematic risk. Stock ___ has the most total risk and stock ___ has the most systematic risk. (E5,Q15)

K; S

KSU Inc, is considering adding to it operations. The cost of the equipment for the expansion will be $663,000 and will be depreciated on a straight-line basis to zero over the 5-year life of the project. The equipment will be sold for $175,000 at the end of the project. The project requires $45,000 initially for net working capital, which will be recovered at the end of the project. The operating cash flow will be $172,360 a year. What is the net present value of this project if the relevant discount rate is 13 percent and the tax rate is 35 percent? (E4)

−$15,607

An asset has an average return of 10.61 percent and a standard deviation of 20.54 percent. What range of returns should you expect to see with a 95 percent probability?

−30.47% to 51.69%