Finc 3610 Sirmeans Final exam

Jetson Spacecraft Corp. shows the following information on its 2019 income statement: sales = $214,000; costs = $91,000; other expenses = $6,100; depreciation expense = $9,100; interest expense = $13,300; taxes = $37,800; dividends = $10,100. In addition, you're told that the firm issued $7,900 in new equity during 2009 and redeemed $9,500 in outstanding long-term debt. What is the 2019 operating cash flow? Hint: OCF = EBIT + Depreciation - Taxes.

OCF = EBIT + Depreciation - Taxes = $107,800 + 9,100 - 37,800 = $79,100

In January 2007, the average price of an asset was $28,858. 8 years earlier, the average price was $21,808. What was the annual increase in selling price?

N=8 I/Y=? 3.56 PV=-21,808 PMT=0 FV=28,858

A firm evaluates all of its projects by using the NPV decision rule. Year Cash Flow 0 -$31,000 1 24,000 2 16,000 3 11,000 At a required return of 38 percent, what is the NPV for this project?

NPV=$-1,021.52

The 2018 balance sheet of Saddle Creek, Inc., showed current assets of $1,490 and current liabilities of $980. The 2019 balance sheet showed current assets of $1,700 and current liabilities of $1,080. What was the company's 2019 change in net working capital, or NWC? Hint: Change in NWC = NWC end - NWC beg

Change in NWC = ($1,700 - 1,080) - ($1,490 - 980)=110

Dinero Bank offers you a $36,000, 8-year term loan at 8 percent annual interest. What will your annual loan payment be?

N=8 I/Y=8 PV==36,000 PMT=? 6,264.53 FV=0

Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?

Agency problem

Penguin Pucks, Inc., has current assets of $3,400, net fixed assets of $18,500, current liabilities of $2,900, and long-term debt of $7,700. What is the value of the shareholders' equity account for this firm? Hint: Construct a simple balance sheet and remember the two sides must balance.

OE = $21,900 − 7,700 − 2,900 = $11,300

Mahjong, Inc., has identified the following two mutually exclusive projects. If the required return is 8 percent, Find the Npv And Irr Year Cash Flow (A) 0 -36000 1 18,900 2 14,400 3 11,900 4 8,900

Project A has an NPV of $9,834.05 and an IRR of 21.55% .

Corporate dividends are:

Taxable as personal income when received by shareholders even though that income was taxed at the corporate level.

Which one of the following is a capital structure decision?

Determining how much debt should be assumed to fund a project.

Year x y 1 14% 18% 2 28 29 3 9 10 4 -21 -26 5 10 20 Calculate the arithmetic average return for X. Round to the nearest XX.XX%.

The average return is the sum of the returns, divided by the number of returns. The average return for each stock was: X = [.14+.28+.09−.21+.10]/5 =.0800, or 8.00%

Year Cash Flow (B) 0 -36000 1 6,100 2 12,600 3 19,100 4 23,100

Project B has an NPV of $12,592 and an IRR of 20.03% .

Which one of the following terms is defined as the management of a firm's long-term investments?

Capital budgeting

A stakeholder is...

Any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm.

Which one of the following is a capital budgeting decision?

Deciding whether or not to purchase a new machine for the production line.

Which one of the following actions by a financial manager is most apt to create an agency problem?

Increasing current profits when doing so lowers the value of the firm's equity.

Assets in the balance sheet are listed in order of:

Liquidity

Which one of the following best states the primary goal of financial management?

Maximize the current value per share.

You want to buy a new sports car from Muscle Motors for $37,000. The contract is in the form of a 60-month annuity due at a 6.50 percent APR. What will your monthly payment be?

Switch to bgn mode (annuity due) N=60 I/Y=6.5/12 =.541 PV=-37,000 PMT=? 720.05 FV= 0

Year x 1 . 18% 2 29 3 10 4 -26 5 20 Calculate the arithmetic average return for Y. Round to the nearest XX.XX%.

[.18+.29+.10−.26+.20]/5 = .1020, or 10.20%

Suppose a stock had an initial price of $88 per share, paid a dividend of $2.10 per share during the year, and had an ending share price of $96. Compute the percentage total return. Round to the nearest XX.XX%.

R = ($96 - 88 + 2.10) / $88R = .1148, or 11.48%

One More Time Software has 9.6 percent coupon bonds on the market with 9 years to maturity. The bonds make semiannual payments and currently sell for 100.4 percent of par. What is the current yield on the bonds?

Current yield = Annual coupon payment / Price = $96 / $1,004 = 0.0956 or 9.56%

XXL Roach Exterminators, Inc., has sales of $704,000, costs of $255,000, depreciation expense of $39,000, interest expense of $32,000, and a tax rate of 40 percent. What is the net income for firm? Hint: Construct a simple income statement using the information given.

Income Statement Sales$704,000 Costs- 255,000 Depreciation - 39,000 EBIT= $410,000 Interest - 32,000 EBT= $378,000 Taxes (40%) - 151,200 Net income = $226,800

Barcain Credit Corp. wants to earn an effective annual return on its consumer loans of 14 percent per year. The bank uses daily compounding on its loans. What is the APR of these loans?

We can convert the EAR to an APR as follows: EAR = [1 + (APR/m)]m - 1 APR = m[(1 + EAR)1/m - 1] APR = 365[(1.14)1/365 - 1] = .1311 or 13.11%

An investment project has annual cash inflows of $5,200, $6,300, $7,100, and $8,400, and a discount rate of 19 percent. What is the discounted payback period for these cash flows if the initial cost is $8,000?

chegg it

An investment project provides cash inflows of $650 per year for 9 years. What is the project payback period if the initial cost is 3,640?

For an initial cost of $3,640, the payback period is: Payback = $3,640 / $650 = 5.6 years

Penguin Pucks, Inc., has current assets of $3,400, net fixed assets of $18,500, current liabilities of $2,900, and long-term debt of $7,700. How much is net working capital? Hint: NWC = CA − CL.

$500

You're trying to save to buy a new $210,000 Ferrari. You have $50,000 today that can be invested at your bank. The bank pays 3.5 percent annual interest on its accounts. How long will it be before you have enough to buy the car?

N=41.72 I/Y=3.5% PV=-50,000 PMT=0 FV=210,000

You are scheduled to receive $33,000 in two years. When you receive it, you will invest it for 6 more years at 8.0 percent per year. How much will you have in 8 years?

N=6 I/Y=8% PV=-33,000 FV=? 52,366.85 PMT=0

Mahjong, Inc., has identified the following two mutually exclusive projects. If the required return is 8%, which project creates more value for the firm?

The NPV indicates how much value is created for the firm, and the NPV of project B is higher than that of project A.

Suppose a stock had an initial price of $60 per share, paid a dividend of $.60 per share during the year, and had an ending share price of $53. What is the dividend yield? Round to the nearest XX.XX%.

The dividend yield is: Dividend yield = $.60 / $60Dividend yield = .0100, or 1.00%

Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $29,000 per month for 25 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 20 years at an estimated cost of $1,034,000. Third, after he passes on at the end of the 25 years of withdrawals, he would like to leave an inheritance of $750,000 to his nephew Frodo. He can afford to save $1,800 per month for the next 20 years. If he can earn a 10 percent EAR before he retires and a 8 percent EAR after he retires, how much will he have to save each month in years 21 through 30?

look it up $16,447.30

Ackerman Co. has 6 percent coupon bonds on the market with thirteen years left to maturity. The bonds make annual payments. If the bond currently sells for $907.03, what is its YTM? Assume a par value of $1,000.

N=13 I/Y(YTM)=? 7.12% PV= -907.03 PMT=60 FV=1000

You deposit $1,300 at the end of each year into an account paying 11.1 percent interest. How much money will you have in the account in 16 years?

N=16 I/Y=11.% PV=0 PMT=1,300 FV=? 51,390.61

Which one of the following is a means by which shareholders can replace company management?

Proxy fight

Seether Co. wants to issue new 19-year bonds for some much-needed expansion projects. The company currently has 8.0 percent coupon bonds on the market that sell for $789.18, make semiannual payments, and mature in 19 years. What coupon rate should the company set on its new bonds if it wants them to sell at par?

N=38 I/Y=? (5.30*2)= 10.60%-semi PV=789.18 PMT=40 FV=1,000

Suppose you know a company's stock currently sells for $80 per share and the required return on the stock is 14 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share?

Dividend yield = 1/2(.14) = .070 = Capital gains yield D1 = .070($80) = $5.60 D1 = D0(1 + g) D0 = $5.60 / 1.070 = $5.23

What is the payback period for the following set of cash flows? Year Cash Flow 0 −$ 2,500 1 2,400 2 1,600 3 1,800 4 2,300

2,500-2,400= 100 100/1600=.06 1+.06=1.06 yrs payback

You are looking at an investment that has an effective annual rate of 6 percent. What is the effective monthly return?

EAR = 0.06 = (1 + r)12 - 1; r = (1.06)1/12 - 1 = 0.0049 or 0.49% per month

Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $6 million. The machinery can be sold to the Romulans today for $4.85 million. Klingon's current balance sheet shows net fixed assets of $3 million, current liabilities of $1.6 million, and net working capital of $510,000. If all the current assets were liquidated today, the company would receive $1.8 million cash. What is the book value of Klingon's assets today? Hint: CA = NWC + CL.

CA = NWC + CL = $510,000 + 1,600,000 = $2,110,000

Jetson Spacecraft Corp. shows the following information on its 2019 income statement: sales = $214,000; costs = $91,000; other expenses = $6,100; depreciation expense = $9,100; interest expense = $13,300; taxes = $37,800; dividends = $10,100. In addition, you're told that the firm issued $7,900 in new equity during 2009 and redeemed $9,500 in outstanding long-term debt. What is the 2019 cash flow to creditors? Hint: CFC = Interest - Net new LTD

CFC = Interest - Net new LTD = $13,300 - (-9,500) = $22,800

Jetson Spacecraft Corp. shows the following information on its 2019 income statement: sales = $214,000; costs = $91,000; other expenses = $6,100; depreciation expense = $9,100; interest expense = $13,300; taxes = $37,800; dividends = $10,100. In addition, you're told that the firm issued $7,900 in new equity during 2009 and redeemed $9,500 in outstanding long-term debt. What is the 2019 cash flow to stockholders? Hint: CFS = Dividends - Net new equity

CFS = Dividends - Net new equity = $10,100 - 7,900 = $2,200

Suppose a stock had an initial price of $68 per share, paid a dividend of $2.00 per share during the year, and had an ending share price of $80. What was the capital gains yield yield? Round to the nearest XX.XX%.

Capital gains yield = ($80 - 68) / $68Capital gains yield = .1765, or 17.65%`

Which one of the following terms is defined as the mixture of a firm's debt and equity financing?

Capital structure

SDJ, Inc., has net working capital of $1,640, current liabilities of $4,450, and inventory of $1,895. What is the current ratio? Hint: Current ratio is CR = CA / CL.

Current ratio = CA / CL = $6,090/$4,450 = 1.37 times

What is the IRR of the following set of cash flows? Year Cash Flow 0 -$9,444 1 5,700 2 4,200 3 4,100

IRR=24.26

What is the future value of $1,000 in 20 years assuming an interest rate of 11 percent compounded semiannually?

N=40 I/y=11/2 (semi annual) =5.5 PV=-1,000 PMT=0 FV=8513.31

Apocalyptica Corp. pays a constant $28 dividend on its stock. The company will maintain this dividend for the next 10 years and will then cease paying dividends forever. If the required return on this stock is 6 percent, what is the current share price?

N=10 I/Y=6% PV=? 206.08 PMT=28 FV=0

Kiss the Sky Enterprises has bonds on the market making annual payments, with 13 years to maturity, and selling for $930. At this price, the bonds yield 10.0 percent. What must the coupon rate be on the bonds?

N=13 I/Y=10 PV=-930 PMT(coupon rate)=? 90.15 which equals .09015or 9.1% FV=1,000

Grohl Co. issued 13-year bonds a year ago at a coupon rate of 8 percent. The bonds make semiannual payments. If the YTM on these bonds is 7 percent, what is the current bond price?

N=13-1 year cause it was a year ago =12*2=24(semi annual) I/Y=(7%/2)=3.5%(semi annual) PV=? 1080.29 PMT=8%*1000=80 80/2 = 40 (semi annual) FV=1000

Imprudential, Inc., has an unfunded pension liability of $850 million that must be paid in 16 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 6.5 percent, what is the present value of this liability?

N=16 I/Y=6.5% PV=310,331,028.9 PMT=0 FV=850,000,000

If you put up $32,000 today in exchange for a 8.50 percent, 18-year annuity, what will the annual cash flow be?

N=18 I/Y=8.5% PV=-32,000 PMT=? 3,533.77 FV=0

You expect to receive $16,000 at graduation in two years. You plan on investing it at 9 percent until you have $98,000. How long will you wait from now?

N=21.03 i/y=9% PV=-16000 PMT=0 FV=98,000 Then add the 2 years from the start to get 23.03

Ashes Divide Corporation has bonds on the market with 15 years to maturity, a YTM of 6.4 percent, and a current price of $1,286.50. The bonds make semiannual payments. What must the coupon rate be on these bonds?

N=30 I/Y=3.2 PV=-1286.50 PMT=? (47*2)=94 make that a %= 9.4%(coupon rate) FV=1,000

One More Time Software has 8.8 percent coupon bonds on the market with 15 years to maturity. The bonds make semiannual payments and currently sell for 89.0 percent of par. What is the yield to maturity (YTM)?

N=30 I/Y=? (5.13*2)=10.25 PV=-890 PMT=44 FV=1000

Ngata Corp. issued 18-year bonds 2 years ago at a coupon rate of 10.6 percent. The bonds make semiannual payments. If these bonds currently sell for 100 percent of par value, what is the YTM?

N=32(16*2)-semi I/Y=? (5.30%*2)=semi 10.6% PV=-1000 PMT=(.106*1000)=(106/2)=53-semi FV=1000

You have just made your first $3,000 contribution to your retirement account. Assuming you earn an 7 percent rate of return and make no additional contributions. What will your account be worth when you retire in 35 years?

N=35 I/Y=7% PV=-3,000 PMT=0 FV=? 32,029.74

Wakers, Inc., has sales of $43 million, total assets of $24 million, and total debt of $8 million. If the profit margin is 8 percent, what is the net income? For additional practice, try calculating the ROA and ROE.

Net income = ($43,000,000)(.08) = $3,440,000 ROA = Net income / TA = $3,440,000 / $24,000,000 = 0.14333 or 14.33% ROE = Net income / TE = Net income / TE = $3,440,000 / $16,000,000 = 0.215 or 21.50%

Metroplex Corporation will pay a $4.60 per share dividend next year. The company pledges to increase its dividend by 4.60 percent per year indefinitely. If you require an 9.20 percent return on your investment, how much will you pay for the company's stock today?

P0 = D1 / (R- g) = $4.60/(.092 - .046) = $100.00

Far Side Corporation is expected to pay the following dividends over the next four years: $11, $7, $6, and $3. Afterward, the company pledges to maintain a constant 7 percent growth rate in dividends forever. If the required return on the stock is 15%, what is the current share price?

P4 = D4 (1 + g) / (R - g) = $3(1.07) / (.15 - .07) = $40.13 P0 = $11 / 1.15 + $7 / 1.152 + $6 / 1.153 + $3 / 1.154 + $40.13 / 1.154 = $43.46

Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next 8 years because the firm needs to plow back its earnings to fuel growth. The company will pay a $10 per share dividend in 9 years and will increase the dividend by 5 percent per year thereafter. If the required return on this stock is 13 percent, what is the current share price?

P8 = D9 / (R - g) = $10 / (.13 - .05) = $125.00 P0 = $125.00 / 1.138 = $47.02

Seaborn Co. has identified an investment project with the following cash flows. If the discount rate is 12 percent, what is the present value of these cash flows? Year Cash Flow 1 $850 2 1,040 3 1,340 4 1,160

PV@12% = $850/1.12 + $1,040/1.12^2 + $1,340/1.12^3 + $1,160/1.12^4 = $3,279

In a healthy firm, net working capital is usually:

Positive

The next dividend payment by Hot Wings, Inc., will be $4.15 per share. The dividends are anticipated to maintain a 3 percent growth rate forever. If the stock currently sells for $46 per share, what is the required return?

R = (D1 / P0) + g = ($4.15 / $46) + .03 = .1202 or 12.02%

If Roten Rooters, Inc., has an equity multiplier of 1.40, total asset turnover of 1.26, and a profit margin of 10.50 percent. What is its ROE?

ROE = (PM)(TAT)(EM) ROE = (0.105)(1.26)(1.40) = 0.1852 or 18.52%

The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.36 per share on its stock. The dividends are expected to grow at a constant rate of 5 percent per year indefinitely. If investors require a 10 percent return on The Jackson-Timberlake Wardrobe Co. stock, what is the current price?

So the price of the stock today is :P0 = D0 (1 + g) / (R - g) = $1.36 (1.05) / (.10 - .05) = $28.56

You have just received notification that you have won the $4.5 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you're around to collect), 72 years from now. What is the present value of your windfall if the appropriate discount rate is 10 percent?

To find the PV of a lump sum we use:PV = FV / (1 + r)^t PV = $4,500,000 / (1.10)^72 = $4,709.11

Year Large company 1 3.88 2 14.31 3 19.05 4 -14.63 5 -32.12 6 37.29 Calculate the standard deviation of the returns for large-company stocks over this time period. Round to the nearest XX.XX%

Variance = 1/5[(.0388 - .0463)2 + (.1431 - .0463)2 + (.1905 - .0463)2 + (- .1463 - .0463)2 + (-.3212 - .0463)2 + (.3729 - .0463)2] Variance = .061808 Standard deviation = (.061808)1/2 = .2486, or 24.86%

Live Forever Life Insurance Co. is selling a perpetuity contract that pays $1,450 monthly. The contract currently sells for $74,000. What is the monthly return on this investment vehicle?

We can now solve for the interest rate as follows: r = $1,450/$74,000 = 0.0196 or 1.96% per month