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TUGAS FINANCIAL MANAGEMENT Fery Purwa Ginanjar Eksekutif B 26 B 1. Problem 3-5 ; Needham Pharmaceuticals has a profit margin of 3% and an equity multiplier of 2.0. Its sales are $100 million and it has total assets of $50 million. What is its ROE? Answer : ROE = (Profit margin)(Total assets turnover)(Equity multiplier) ROE = (3%)(100/50)(2) = 12,0% 2. Problem 3-6 ; Donaldson & Son has an ROA of 10%, a 2% profit margin, and a return on equity equal to 15%. What is the company’s total assets turnover? What is the firm’s equity multiplier? Answer : ROE Equity multiplier Equity multiplier ROE Total assets turnover Total assets turnover = ROA x Equity multiplier = ROE / ROA = 15% / 10% = 1,5 = (Profit margin)(Total assets turnover)(Equity multiplier) = ROE / (Profit margin)(Equity multiplier) = 15% / (2%)(1,5) =5 3. Problem 4-6 ; What is the future value of a 7%, 5-year ordinary annuity that pays $300 each year? If this were an annuity due, what would its future value be? Answer : FVA5 FVA5 = PMT(1+i)N-1+ PMT(1+i)N-2+ PMT(1+i)N-3+ PMT(1+i)N-4+ PMT(1+i)N-5 = 300(1+0,07)5-1+300(1+0,07)5-2+300(1+0,07)5-3+300(1+0,07)5-4+300(1+0,07)5-5 = $1.725,22 (by excel =FV(0.07,5,-300,0,0)) FVA5 Due FVA5 Due = PMT [((1+i)n / i) – 1/i] = 300[((1+0,07)5 / 0,07) – 1/0,07] = $1.845,99 (by excel =FV(0.07,5,-300,0,1)) 4. Problem 4-11 ; To the closest year, how long will it take $200 to double if it is deposited and earns the following rates? [Notes: (1) See the Hint for Problem 4-9. (2) This problem cannot be solved exactly with some financial calculators. For example, if you enter PV = –200, PMT = 0, FV = 400, and I = 7 in an HP-12C and then press the N key, you will get 11 years for part a. The correct answer is 10.2448 years, which rounds to 10, but the calculator rounds up. However, the HP-10B gives the exact answer.] a. 7% b. 10% c. 18% d. 100% Answer : a. 7% 400 2 ln(2) N b. 10% 400 2 = 200(1+0,07)N = (1+0,07)N = N[(ln(1,07)] = 0,693147 / 0,067659 = 10,24477 years = 200(1+0,10)N = (1+0,10)N ln(2) N c. 18% 400 2 ln(2) N d. 100% 400 2 ln(2) N = N[(ln(1,10)] = 0,693147 / 0,09531 = 7,272541 years = 200(1+0,18)N = (1+0,18)N = N[(ln(1,18)] = 0,693147 / 0,165514 = 4,187835 years = 200(1+1,00)N = (1+1,00)N = N[(ln(2,00)] = 0,693147 / 0,693147 = 1 year. 5. Problem 5-2 ; Wilson Wonders’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $850. What is their yield to maturity? Answer : 850 YTM = 100 / (1+y)1+100 / (1+y)2+...+1.100 / (1+y)12 = 12,48% 6. Probelm 5.5 ; A Treasury bond that matures in 10 years has a yield of 6%. A 10-year corporate bond has a yield of 9%. Assume that the liquidity premium on the corporate bond is 0.5%. What is the default risk premium on the corporate bond? Answer : rd 9,00 DRP DRP = r+ LP + DRP + MRP = 6,00 + 0,50 + DRP + 0 = 9,00 – 6,00 – 0,50 = 2,50% 7. Problem 6.4 ; Answer : Demand for the Company's Products 1 Weak Below average Average Above average Strong Sum Probability Deviation Rate of Return If Stock's of This Expected from Squared This Demand Expected Demand Return Expected Deviation Occurs (%) Return Occurring Return 2 3 4=2x 3 5 5=2- 5 6 = (5)^2 0.1 -50.00% -5.00% 11.40% -61.40% 37.70% 0.2 -5.00% -1.00% 11.40% -16.40% 2.69% 0.4 16.00% 6.40% 11.40% 4.60% 0.21% 0.2 25.00% 5.00% 11.40% 13.60% 1.85% 0.1 60.00% 6.00% 11.40% 48.60% 23.62% 1 46.00% 11.40% -11.00% 66.07% Expected Return = Sum = Variance = Std. Dev = Square root of Variance = Coefficient of Variation = Sq. Dev x Prob 7=6x 1 3.77% 0.54% 0.08% 0.37% 2.36% 7.12% 11.40% 7.12% 26.68% 2.34 8. Problem 6.8 ; Suppose you hold a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio’s beta is 1.12. Now, suppose you sell one of the stocks with a beta of 1.0 for $7,500 and use the proceeds to buy another stock whose beta is 1.75. Calculate your portfolio’s new beta. Answer : w = 100%/20 = 5% Beta Portofolio (bp) = 1,12 Beta Portofolio (bpn) Beta Portofolio (bpn) = w1b1 + w2b2 + ... + w19b19 + w20b20 = 5%(1,12) + 5%(1,12) + ... + 5%(1,12) + 5%(1,75) = 1,15 9. Problem 7.2 ; Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of this year (i.e., D1 = $1.50). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, r s, is 15%. What is the value per share of Boehm’s stock? Answer : P^0 = D1 / r s – g = $1,50 / 15% - 7% P^0 = $ 18,75 10. Problem 7.5 ; A company currently pays a dividend of $2 per share (D 0 = $2). It is estimated that the company’s dividend will grow at a rate of 20% per year for the next 2 years, then at a constant rate of 7% thereafter. The company’s stock has a beta of 1.2, the riskfree rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stock’s current price? Answer : rRF = 7,5% bi = 1,2 RPM = 4,0% rs rs = rRF + (RPM)bi = 7,5% + (4,0%)1,2 = 12,30% D0 rs gs gL b RPM N $2.0 12.3% 20.0% Short-run g; for Years 1-2 only 7.0% Long-run g; for all years after Year 3 1.2% 4.0% 4.00 (asumsi 4 tahun) Growth Rate Year Dividends 0 $2.00 20% 1 $2.4 20% 2 $2.9 7% 3 $3.1 7% 4 $3.3 PV of dividends discounted at rs Horizon value Year 1 2.137133 Year 2 2.283668 Year 3 2.175890 6.596691 PV nonconstan dividends 43.92835 PV of horizon value 50.52504 P0 = = D4 / (rs-gL) 62.21343 11. Problem 8.4 ; The current price of a stock is $33, and the annual risk-free rate is 6%. A call option with a strike price of $32 and with 1 year until expiration has a current value of $6.56. What is the value of a put option written on the stock with the same exercise price and expiration date as the call option? Answer : Put option = VC – P + Xe -rRFt Put option = $6,56 - $33 + $32-0.06x1 Put option = $3,74 12. Problem 8.7 ; The current price of a stock is $15. In 6 months, the price will be either $18 or $13. The annual risk-free rate is 6%. Find the price of a call option on the stock that has a strike price of $14 and that expires in 6 months. (Hint: Use daily compounding.) Answer : P = $15 P(u) = $18 P(d) = $13 rRF = 6% X = $14 Cu ending up option payoff Cd ending down option payoff Share of stock (Ns) = Max(18-14) = $4 = Max(13-14) = $0 = Cu – Cd / P(u) – P(d) = $4 - $0 / $18 - $13 Share of stock = 0,8 Hedge portofolio’s payoff if stock is up = NsP(u) - Cu = 0,8($18) - $3 = $10,4 Hedge portofolio’s payoff if stock is down = NsP(d) – Cd = 0,8($13) - $0 = $10,4 PV of riskless payoff = $10,4 / (1+rRF/365)365(t/n) = $7,8 / (1+0,06/365)365(0.5/1) = $10,09 Option’s Value (VC) = NsP - Present value of riskless payoff = 0.8 x $15 - $10,09 = $1,91 13. Problem 9.7 ; Shi Importer’s balance sheet shows $300 million in debt, $50 million in preferred stock, and $250 million in total common equity. Shi’s tax rate is 40%, rd = 6%, rps = 5.8%, and rs = 12%. If Shi has a target capital structure of 30% debt, 5% preferred stock, and 65% common stock, what is its WACC? Answer : WACC = wdrd(1-T) + wpsrps + wsrs = 0,3(6,0%)(1-0,4) + 0,05(5,8%) + 0,65(12%) WACC = 9,17% 14. Problem 9.11 ; Radon Homes’ current EPS is $6.50. It was $4.42 five years ago. The company pays out 40% of its earnings as dividends, and the stock sells for $36. a. Calculate the historical growth rate in earnings. (Hint: This is a 5-year growth period.) b. Calculate the next expected dividend per share, D 1. (Hint: D0 = 0.4($6.50) = $2.60.) Assume that the past growth rate will continue. c. What is Radon Homes’ cost of equity, rs? Answer : a. Growth rate in earnings Growth Rate Year Eps 0 $4.42 EPS/Year Growth Rate / Year 9% 1 $4.8 ($6.5 -$4.42) / 5 (Sum growth / year) b. Expected dividend per share D1 = D0(1+g)1 = $2,6 (1+0,08)1 D1 = $2,81 c. rs 15. Problem 10.7 ; Answer : 9% 2 $5.3 = (D1 / P0) + Expected g = ($2,81 / $36) + 8% = 15,81% 8% 3 $5.7 $0.42 8.0% 7% 4 $6.1 7% 5 $6.5 Sum 40% Project cost of capital, r, for each project : Name Project Initial Cost 0 Project A (15,000,000) Project B (15,000,000) NPV Project A Project B IRR Project A Project B r1 16,108,951.52 18,300,939.42 r1 5% r2 10% r3 15% Net Cash Flows 1 2 3 5,000,000 10,000,000 20,000,000 20,000,000 10,000,000 6,000,000 r2 12,836,213.37 15,954,169.80 r3 10,059,587.41 13,897,838.42 43.97% 82.03% 16. Problem 10.12 ; After discovering a new gold vein in the Colorado mountains, CTC Mining Corporation must decide whether to go ahead and develop the deposit. The most costeffective method of mining gold is sulfuric acid extraction, a process that could result in environmental damage. Before proceeding with the extraction, CTC must spend $900,000 for new mining equipment and pay $165,000 for its installation. The gold mined will net the firm an estimated $350,000 each year for the 5-year life of the vein. CTC’s cost of capital is 14%. For the purposes of this problem, assume that the cash inflows occur at the end of the year. a. What are the project’s NPV and IRR? b. Should this project be undertaken if environmental impacts were not a consideration? c. How should environmental effects be considered when evaluating this, or any other, project? How might these concepts affect the decision in part b? Answer : a. Project cost of capital, r, for each project : r Name Project Initial Cost Net Cash Flows 0 1 2 CTC Mining (1,065,000) 350,000 350,000 NPV CTC Mining r1 136,578.34 IRR CTC Mining 19.22% 14% 3 350,000 4 350,000 5 350,000 b. Yes, in quantitative methods this project is profitable because NPV positif and IRR higher than cost of capital c. Because, government rules and regulations constrain what companies can do with environmental. For example, suppose a manufacturer is studying a proposed new plant. The company could meet current environmental regulations at a cost of $1 million, but the plant would still emit fumes that would cause some bad will in its neighborhood. Those ill feelings would not show up in the cash flow analysis, but they should still be considered. Perhaps a relatively small additional expenditure would reduce the emissions substantially, make the plant look good relative to other plants in the area, and provide goodwill that in the future would help the firm’s sales and its negotiations with governmental agencies.