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FIN 571 Final Exam Guide (New)
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1.A proxy fight occurs when:
the board of directors disagree on the members of the management team.
2. A stakeholder is any person or entity:
3.Which one of the following is least apt to help convince managers to work
in the best interest of the stockholders?
threat of a proxy fight
pay raises based on length of service
implementation of a stock option plan
4.Financial managers primarily create firm value by:
maximizing current sales.
investing in assets that generate cash in excess of their cost.
5.First City Bank pays 7 percent simple interest on its savings account
balances, whereas Second City Bank pays 7 percent interest compounded
annually.
If you made a $59,000 deposit in each bank, how much more money would
you earn from your Second City Bank account at the end of 9 years? (Do
not round intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.)
12299.09
6.What is the future value of $3,136 invested for 12 years at 6.50 percent
compounded annually?
7.What is the present value of $12,750 to be received 3 years from today if
the discount rate is 5.50 percent?
use this website:
http://www.moneychimp.com/calculator/present_value_calculator.htm
8. Six months ago, you purchased 1,200 shares of ABC stock for $21.20 a
share and have received total dividend payments of $.60 a share. Today,
you sold all of your shares for $22.20 a share. What is your total dollar
return on this investment?
9.Six months ago, you purchased 100 shares of stock in ABC Co. at a price
of $43.89 a share. ABC stock pays a quarterly dividend of $.10 a share.
Today, you sold all of your shares for $45.13 per share. What is the total
amount of your capital gains on this investment?
10.Which one of these accounts is classified as a current asset on the
balance sheet?
11.Shelton, Inc., has sales of $395,000, costs of $183,000, depreciation
expense of $48,000, interest expense of $29,000, and a tax rate of 40
percent. (Do not round intermediate calculations.)
What is the net income for the firm?
12.On a balance sheet, deferred taxes are classified as:
13. Which one of these equations is an accurate expression of the balance
sheet?
14.Galaxy United, Inc.
2009 Income Statement
15. The Purple Martin has annual sales of $4,600, total debt of $1,230, total
equity of $2,500, and a profit margin of 6 percent. What is the return on
assets?
16.Galaxy United, Inc.
2009 Income Statement
17.Reliable Cars has sales of $3,850, total assets of $3,350, and a profit
margin of 5 percent. The firm has a total debt ratio of 41 percent. What is
the return on equity?
18. A firm has net working capital of $344, net fixed assets of $2,292, sales
of $6,000, and current liabilities of $800. How many dollars worth of sales
are generated from every $1 in total assets?
19.One of the primary weaknesses of many financial planning models is
that they:
ignore the goals and objectives of senior management.
ignore the size, risk, and timing of cash flows.
are iterative in nature.
rely too much on financial relationships and too little on accounting
relationships.
ignore cash payouts to stockholders.
20.The external funds needed (EFN) equation projects the addition to
retained earnings as:
21.Which account is least apt to vary directly with sales?
accounts payable
inventory
accounts receivable
notes payable
cost of goods sold
22. The Wintergrass Company has an ROE of 15.1 percent and a payout
ratio of 40 percent.
What is the company’s sustainable growth rate? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal
places, e.g., 32.16.)
23. If the Hunter Corp. has an ROE of 7 and a payout ratio of 15 percent,
what is its sustainable growth rate?(Do not round intermediate calculations
and enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)
24.The length of time between the acquisition of inventory and its sale is
called the:
operating cycle.
accounts receivable period.
inventory period.
accounts payable period.
cash cycle.
25.The most common means of financing a temporary cash deficit is a:
long-term secured bank loan.
long-term unsecured bank loan.
short-term secured bank loan.
short-term issue of corporate bonds.
short-term unsecured bank loan.
26. Consider the following financial statement information for the Rivers
Corporation:
27.Here are the most recent balance sheets for Country Kettles, Inc.
Excluding accumulated depreciation, determine whether each item is a
source or a use of cash, and the amount. (Do not round intermediate
calculations and round your answers to the nearest whole number, e.g., 32.
Input all amounts as positive values):
Ancient Industries just paid a dividend of $1.03 a share. The company
announced today that it expects to pay $.90 a share next year and a final
liquidating dividend of $18.44 in two years. What is one share of this stock
worth today if the required rate of return is 16 percent?
28.The relationship between nominal rates, real rates, and inflation is
known as the:
Gordon growth model.
term structure of interest rates.
Miller and Modigliani theorem.
interest rate risk premium.
Fisher effect.
29.What would be the maximum an investor should pay for the common
stock of a firm that has no growth opportunities but pays a dividend of
$1.36 per year? The required rate of return is 12.5 percent.
31.A newspaper listing of bond prices has an "Asked yield" column. This
yield is based on the asked price and represents the:
coupon rate.
difference between the current yield and the yield to maturity.
32.Mullineaux Corporation has a target capital structure of 65 percent
common stock and 35 percent debt. Its cost of equity is 14 percent, and the
cost of debt is 8 percent. The relevant tax rate is 30 percent.
What is the company’s WACC? (Do not round intermediate calculations
and enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)
33.Filer Manufacturing has 8 million shares of common stock outstanding.
The current share price is $50, and the book value per share is $5. The
company also has two bond issues outstanding. The first bond issue has a
face value of $69.4 million and a coupon rate of 6.7 percent and sells for
108.6 percent of par. The second issue has a face value of $59.4 million
and a coupon rate of 7.2 percent and sells for 108.3 percent of par. The
first issue matures in 9 years, the second in 26 years.
Suppose the company’s stock has a beta of 1.3. The risk-free rate is 2.8
percent, and the market risk premium is 6.7 percent. Assume that the
overall cost of debt is the weighted average implied by the two outstanding
debt issues. Both bonds make semiannual payments. The tax rate is 40
percent. What is the company’s WACC? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal
places, e.g., 32.16.)
34.A firm’s WACC can be correctly used to discount the expected cash
flows of a new project when that project:
will be financed with the same proportions of debt and equity as those
currently used by the overall firm.
will be financed solely with internal equity.
35.The cost of preferred stock:
is set equal to the pretax cost of debt since it is a fixed income security.
is ignored by all firms when computing WACC.
is generally calculated using the overall firm’s beta.
is equal to the stock’s dividend yield.
should be adjusted for taxes when computing WACC.
36.When computing WACC, you should use the:
pretax cost of debt because most corporations pay taxes at the same tax
rate.
aftertax cost of debt because interest is tax deductible.
pretax cost of debt because it is the actual rate the firm is paying
bondholders.
current yield because it is based on the current market price of debt.
pretax yield to maturity because it considers the current market price of
debt.
37.All else constant, the net present value of a typical investment project
increases when:
all cash inflows occur during the last year instead of periodically throughout
a project’s life.
each cash inflow is delayed by one year.
the initial cost of a project increases.
the discount rate increases.
the rate of return decreases.
38.Graham and Harvey (2001) found that _____ were the two most
popular capital budgeting methods.
IRR and payback
IRR and NPV
discounted payback and NPV
IRR and modified IRR
NPV and PI
39.The primary reason that company projects with positive net present
values are considered acceptable is that:
they return the initial cash outlay within three years or less.
the investment's cost exceeds the present value of the cash inflows.
they create value for the owners of the firm.
the project's rate of return exceeds the rate of inflation.
the required cash inflows exceed the actual cash inflows.
40.fitability index of an investment project is the ratio of the:
net present value of the project’s cash outflows divided by the net present
value of its inflows.
net present value of every project cash flow to the initial cost.
present value of the Time 1 and subsequent cash flows to the initial cost.
internal rate of return to the current market rate of interest.
average net income to the average investment.
41.No matter how many forms of investment analysis you employ:
the internal rate of return will always produce the most reliable results.
only the first three years of a project ever affect its final outcome.
the actual results from a project may vary significantly from the expected
results.
the initial costs will generally vary considerably from the estimated costs.
a project will never be accepted unless the payback period is met.
42.Wilson’s Market is considering two mutually exclusive projects that will
not be repeated. The required rate of return is 13.9 percent for Project A
and 12.5 percent for Project B. Project A has an initial cost of $54,500, and
should produce cash inflows of $16,400, $28,900, and $31,700 for Years 1
to 3, respectively. Project B has an initial cost of $69,400, and should
produce cash inflows of $0, $48,300, and $42,100, for Years 1 to 3,
respectively. Which project, or projects, if either, should be accepted and
why?
Project B; because it has the largest total cash inflow
Project A; because its NPV is positive while Project B’s NPV is negative
Project B; because it has a negative NPV which indicates acceptance
neither project; because neither has an NPV equal to or greater than its
initial cost
Project A; because it has the higher required rate of return
43.Flatte Restaurant is considering the purchase of a $11,000 soufflé
maker. The soufflé maker has an economic life of four years and will be
fully depreciated by the straight-line method. The machine will produce
2,500 soufflés per year, with each costing $2.90 to make and priced at
$5.75. Assume that the discount rate is 16 percent and the tax rate is 34
percent.
What is the NPV of the project? (Do not round intermediate calculations
and round your answer to 2 decimal places, e.g., 32.16.)
NPV $
Should the company make the purchase?
No
Yes
44.Down Under Boomerang, Inc., is considering a new three-year
expansion project that requires an initial fixed asset investment of $2.64
million. The fixed asset will be depreciated straight-line to zero over its
three-year tax life, after which it will be worthless. The project is estimated
to generate $2,060,000 in annual sales, with costs of $755,000. The tax
rate is 35 percent and the required return is 13 percent.
What is the project’s NPV? (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)
NPV $
45.What is the net present value of a project with an initial cost of $36,900
and cash inflows of $13,400, $21,600, and $10,000 for Years 1 to 3,
respectively? The discount rate is 13 percent.
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FIN 571 Week 1 Connect Problems (Math and Accounting
Review)
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FIN 571 Week 1 Connect Problems (Math & Accounting Review)
1. Functions
Excel will make your life as a finance student much easier. This section will
show how to use various functions in Excel. Once you understand the how
and why of a particular financial equation, you can make
1. Which Excel cell entry will calculate the square root of 165?
2. Which statements about Excel’s FV function are correct?
3. Which fields are required to calculate net present value (NPV) in Excel?
4. Which Excel function is used to calculate the amount of each annuity
payment?
5. Which fields are required to calculate the rate of return (RATE) for a
present value calculation in Excel?
2. The Balance Sheet
This lesson will help you refresh your knowledge on the basics of the
balance sheet. Brushing up on these concepts now will help you tackle
your finance coursework later.
General Ledger for XYZ Company. The following is a portion of the general
ledger for XYZ Company as of December 31, 20X1, and the statement of
stockholders’ equity for XYZ Company for the year ended December 31,
20X1. Use this information to answer questions (1) through (5).
1. What is the total amount of current assets to be reported on XYZ
Company’s 12/31/X1 classified balance sheet?
2. What is the total amount of long-term assets to be reported on XYZ
Company’s 12/31/X1 classified balance sheet?
3. What is the total amount of current liabilities to be reported on XYZ
Company’s 12/31/X1 classified balance sheet?
4. What is the ending balance in retained earnings to be reported on XYZ
Company’s 12/31/X1 classified balance sheet?
5. What is the total amount of stockholders’ equity to be reported on XYZ
Company’s 12/31/X1 classified balance sheet?
3. Calculating Interest
This lesson will help fill in the basics on how to calculate interest when
tackling financial problems.
1. What is the amount of interest earned after two years on a $100 deposit
paying 4 percent simple interest annually?
2. What is the amount of compound interest earned after three years on a
$100 deposit paying 8 percent interest annually?
3. A business just took out a loan for $100,000 at 10% interest. If the
business pays the loan off in three months, how much did the business pay
in interest?
4. What is the annual percentage yield (APY) for a deposit paying 5
percent interest with monthly compounding?
4.The Income Statement
This lesson will help you refresh your knowledge on the basics of the
income statement. Brushing up on these concepts now will help you tackle
your finance coursework later.
General Ledger for ABC Company. The following is the general ledger for
ABC Company as of December 31, 20X1. Use this information to answer
questions (1) through (4).
1. What is the amount of gross profit to be reported on ABC Company’s
12/31/X1 income statement?
2. What is the amount of operating income (EBIT) to be reported on ABC
Company’s 12/31/X1 income statement?
3. What is the amount of earnings before taxes (EBT) to be reported on
ABC Company’s 12/31/X1 income statement?
4. What is the amount of net income to be reported on ABC Company’s
12/31/X1 income statement?
5. Fractions and Decimals
This lesson will help you review fractions and decimals: calculating,
converting, and recognizing how to use them in a financial setting.
1. 54/32 converted to a mixed number is ________.
2. The product of one and four thirty-seconds and twenty thirty-seconds is
________.
3. One and eight thirty-seconds divided by twelve thirty-seconds is
________.
4. A U.S. Treasury bond is trading at 98 and 6/32. Convert this price to its
decimal form.
5. What is the percentage increase if the S&P 500 Index is currently
trading at 1,100 and rises 55 points?
6. Exponential Functions
This lesson will help you refresh your skills using exponents. Many financial
equations rely on exponents to show compounding and growth.
1. A business acquaintance promises to deliver a $20 bill to you one year
from today. How much should you be willing to pay today for this promise?
2. What is the present value of $1,000 received three years from today if
interest rates are currently 6 percent?
3. What is the interest rate on a three-year investment with a future value
of $1000 and a present value of $863.84?
4. The product rule of exponents says that when multiplying two powers
that have the same base, you need to ________.
5. The fifth root of fifteen is equal to ________.
7. Basic Math
This section of the tutorial will cover writing and editing formulas, using cell
references, following the order of operations, and using operators.
1. Which of the following Excel cell entries gives the sum of 20 + 150 +
85?
2. Which letter or symbol does Excel use to multiply numbers?
3. What is the correct order of operations for entering formulas into Excel?
4. Which of the following sequences will give you the square root of 25 in
Excel?
5. Suppose you need to add the values in range of cell from C2 through
C8. Which of the following sequences will give you the correct answer?
8. Organizing Data
This tutorial is designed to help you to successfully utilize Microsoft Excel
in your finance courses.
1. You are working on an Excel table and realize that you need to add a
row to the middle of your table. What is one way to do this?
2. You are working on an Excel table and realize that you need to add a
single cell to your table. What is one way to do this?
3. You are working on an Excel table and realize that you need to delete a
column in the middle of your table and shift the remaining data columns to
the left. What is one way to do this?
4. You are valuing an investment that will produce cash flows of $10,000
each year for 15 years. What is the quickest way to enter $10,000 into each
of the 15 cells of your table?
5. You have three tables in a worksheet in Excel. You need to sort one of
the tables numerically, from smallest to largest values. How can you do
this?
9. Solving for the Unknown
This lesson will help you review how to solve for unknown quantities in a
problem.
1. If the future value of a one-period investment is given by the formula, F =
I + (I × R), what is the formula for the amount of the investment, I?
2. The opposite process rule says to solve for ________.
3. When solving for an unknown that involves more than one process, the
multiple process rule requires that ________.
4. If the future value of a one-period investment is given by the formula, F
= I + (I × R), what is the formula for the rate of interest, R?
5. If the bank returns $50 on a $1,000 deposit after one year, what is the
interest rate earned on this deposit?
10. Accounting Concepts
This lesson will help you refresh the basic accounting concepts.
1. ________ are items owed to a creditor. ________ are items owned by a
company. ________ represents owners' claims to company resources.
2. Under ________ accounting, revenues are recorded when earned and
expenses are recorded with related revenues. Under ________ accounting,
revenues are recorded when cash is received and expenses are recorded
when cash is paid out. Financial statements are prepared using ________
accounting.
3. The ________ retains the power and authority to set accounting
standards. Currently, this responsibility has been delegated to
the________.
4. In what order are the four primary financial statements prepared?
5. The difference between net income and dividends paid is known as
what?
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FIN 571 Week 1 Connect Problems (Week 1 Problem Set)
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FIN 571 Week 1 Connect Problems (Week 1 Problem Set)
1.The ultimate control of a corporation lies in the hands of the corporate:
president.
board of directors.
chairman of the board.
chief executive officer.
stockholders.
1.
(Set 2)
If a firm is currently profitable, then:
it will always have sufficient cash to pay its bills in a timely manner.
the timing of the cash flows on proposed projects is irrelevant.
its current cash inflows must exceed its current cash outflows.
its cash flows are known with certainty.
its reported sales exceed its costs.
2.Which one of these is a cash outflow from a corporation?
sale of an asset
dividend payment
profit retained by the firm
sale of common stock
issuance of debt
2.(Set 2)
Short-term finance deals with:
acquiring and selling fixed assets.
financing long-term projects.
capital budgeting.
3.For a firm to create value it must:
avoid the issuance of debt securities.
have a greater cash inflow from its stockholders than its outflow to them.
avoid payments to the government so dividends can be increased.
3.(Set 2)
A stakeholder is any person or entity:
owning shares of stock of a corporation.
to whom the firm currently owes money.
that initially started a firm and currently has management control over that
firm.
owning bonds or other long-term debt issued by a corporation.
other than a stockholder or creditor who potentially has a financial interest
in the firm.
4.If a firm is currently profitable, then:
its cash flows are known with certainty.
its reported sales exceed its costs.
the timing of the cash flows on proposed projects is irrelevant.
it will always have sufficient cash to pay its bills in a timely manner.
its current cash inflows must exceed its current cash outflows.
4.(Set 2)Which one of these best fits the description of an agency cost?
increasing the dividend payments per share
the benefits received from reducing production costs per unit
the payment of interest on a firm’s debts
the payment of corporate income taxes
the payment required for an outside audit of the firm
5.The primary goal of financial management is to:
maximize current dividends per share of the existing stock.
avoid financial distress.
minimize operational costs and maximize firm efficiency.
maximize the current value per share of the existing stock.
maintain steady growth in both sales and net earnings.
6.Which one of the following business types is best suited to raising large
amounts of capital?
limited partnership
corporation
sole proprietorship
limited liability company
general partnership
7.Accounting profits and cash flows are generally:
the same since accounting profits reflect when cash flows occur.
different because of GAAP rules regarding the recognition of income.
different because cash inflows must occur before revenue recognition.
the same since they reflect current laws and accounting standards.
the same due to the requirements of GAAP.
8.One year ago, you invested $2,690. Today it is worth $3,800.50. What
rate of interest did you earn?
8. (Set 2)
Your credit card company charges you 1.00 percent per month. What is
the annual percentage rate on your account?
9. (Set 1)
What is the future value of $920 a year for 5 years at a 6 percent interest?
9. (Set 2)
Your credit card company charges you 1.00 percent per month. What is the
annual percentage rate on your account?
10.You just paid $361,000 for an annuity that will pay you and your heirs
$12,300 a year forever. What rate of return are you earning on this policy?
Some time ago, Julie purchased eleven acres of land costing $15,590.
Today, that land is valued at $63,123. How long has she owned this land if
the price of the land has been increasing at 6 percent per year?
11.First City Bank pays 6 percent simple interest on its savings account
balances, whereas Second City Bank pays 6 percent interest compounded
annually.
If you made a $57,000 deposit in each bank, how much more money would
you earn from your Second City Bank account at the end of 10 years? (Do
not round intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.)
11. (Set 2)
First City Bank pays 6 percent simple interest on its savings account
balances, whereas Second City Bank pays 6 percent interest compounded
annually.
If you made a $60,000 deposit in each bank, how much more money would
you earn from your Second City Bank account at the end of 10 years? (Do
not round intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.)
11450.86
12.a.
Compute the future value of $2,000 compounded annually for
10 years at 7 percent. (Do not round intermediate calculations and round
your answer to 2 decimal places, e.g., 32.16.)
b.
Compute the future value of $2,000 compounded annually for 10
years at 12 percent. (Do not round intermediate calculations and round
your answer to 2 decimal places, e.g., 32.16.)
c.
Compute the future value of $2,000 compounded annually for 15
years at 7 percent. (Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)
12. (Set 2)
10.00 points
a.
Compute the future value of $1,000 compounded annually for 10
years at 8 percent. (Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)
b.
Compute the future value of $1,000 compounded annually for 10
years at 11 percent. (Do not round intermediate calculations and round
your answer to 2 decimal places, e.g., 32.16.)
c.
Compute the future value of $1,000 compounded annually for 15
years at 8 percent. (Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)
13. (Set 2)
10.00 points
For each of the following, compute the present value (Do not round
intermediate calculations and round your answers to 2 decimal places, e.g.,
32.16.):
Present Value Years
Interest Rate Future value
Wilkinson Co. has identified an investment project with the following cash
flows:
If the discount rate is 9 percent, what is the present value of these cash
flows? (Do not round intermediate calculations and round your answer to 2
decimal places, e.g., 32.16.)
If the discount rate is 16 percent, what is the present value of these cash
flows? (Do not round intermediate calculations and round your answer to 2
decimal places, e.g., 32.16.)
If the discount rate is 25 percent, what is the present value of these cash
flows? (Do not round intermediate calculations and round your answer to 2
decimal places, e.g., 32.16.)
15.You own 300 shares of Western Feed Mills stock valued at $36.72 per
share. What is the dividend yield if your annual dividend income is $322?
15.Four months ago, you purchased 1,200 shares of Lakeside Bank stock
for $21.20 a share. You have received dividend payments equal to $.55 a
share. Today, you sold all of your shares for $22.20 a share. What is your
total dollar return on this investment?
Question 16 (Another Set)
Suppose a stock had an initial price of $54 per share, paid a dividend of
$1.30 per share during the year, and had an ending share price of $64.
Compute the percentage total return. (Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal
places, e.g., 32.16.)
17.
You’ve observed the following returns on SkyNet Data Corporation’s stock
over the past five years: 14 percent, –7 percent, 17 percent, 15 percent,
and 10 percent. Suppose the average inflation rate over this period was 1.4
percent, and the average T-bill rate over the period was 5.1 percent.
a.
What was the average real return on the stock? (Do not round
intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
b.
What was the average nominal risk premium on the stock? (Do not
round intermediate calculations and enter your answer as a percent
rounded to 1 decimal place, e.g., 32.1.)
Question 17 (another Set)
You’ve observed the following returns on SkyNet Data Corporation’s stock
over the past five years: 17 percent, –15 percent, 19 percent, 29 percent,
and 10 percent. Suppose the average inflation rate over this period was 2.6
percent, and the average T-bill rate over the period was 4.3 percent.
a.
What was the average real return on the stock? (Do not round
intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
b.
What was the average nominal risk premium on the stock? (Do not
round intermediate calculations and enter your answer as a percent
rounded to 1 decimal place, e.g., 32.1.)
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FIN 571 Week 1 DQ 1
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What is ethics? If you follow all applicable rules and
regulations, are you an ethical person?
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FIN 571 Week 1 DQ 2
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Assume that interest rates have increased substantially. Would
this tend to increase or decrease
the market value (meaning the price an investor in the firm's
paper is willing to pay) of a firm’s liabilities (relative to the
book value of liabilities)?
This question is referring to a firm's liability such as a bond or
debenture that has been issued in the markets. What happens to
the price an investor who is looking to purchase that bond or
debenture is willing to pay if the market interest rate increases
above the rate that the bond or debenture pays.
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FIN 571 Week 1 Individual Assignment Business Structures
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Watch the "Your Business Structure" and "Corporate Business Structures"
videos on the Electronics Reserve Readings page.
Identify the different business structures.
Write a 350 to 700 word explanation of how each business structure might
and might not be advantageous.
Click the Assignment Files tab to submit your assignment.
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FIN 571 Week 2 Connect Problems
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FIN 571 Week 2 Connect Problems
1.
Sankey, Inc., has current assets of $4,230, net fixed assets of
$25,700, current liabilities of $3,500, and long-term debt of $14,400. (Do
not round intermediate calculations.)
What is the value of the shareholders' equity account for this firm?
How much is net working capital?
2.
Which one of the following assets is generally the most liquid?
3.
Which one of the following accounts is included in stockholders'
equity?
Operating cash flow is defined as:
4.
firm:
It is easier to evaluate a firm using its financial statements when the
If a firm is currently profitable, then:
5.
Which one of these accounts is classified as a current asset on the
balance sheet?
During 2015, Rainbow Umbrella Corp. had sales of $720,000. Cost of
goods sold, administrative and selling expenses, and depreciation
expenses were $500,000, $90,000, and $85,000, respectively. In addition,
the company had an interest expense of $90,000 and a tax rate of 35
percent. (Ignore any tax loss carryback or carryforward provisions.)
a.
What is the company's net income for 2015? (Do not round
intermediate calculations. A negative answer should be indicated by a
minus sign.)
Net income
$
b.
What is its operating cash flow? (Do not round intermediate
calculations.)
Operating cash flow $
6.
Please use excel sheet in case the values changes
Sankey, Inc., has current assets of $4,500, net fixed assets of $23,500,
current liabilities of $2,750, and long-term debt of $12,900. (Do not round
intermediate calculations.)
What is the value of the shareholders' equity account for this firm?
Shareholders' equity $
How much is net working capital?
Net working capital $
7.
Please use excel sheet in case the values changes
Shelton, Inc., has sales of $396,000, costs of $184,000, depreciation
expense of $49,000, interest expense of $30,000, and a tax rate of 35
percent. (Do not round intermediate calculations.)
What is the net income for the firm?
Suppose the company paid out $39,000 in cash dividends. What is the
addition to retained earnings?
8.
Please use excel sheet in case the values changes
During the year, the Senbet Discount Tire Company had gross sales of
$1.12 million. The firm’s cost of goods sold and selling expenses were
$531,000 and $221,000, respectively. The firm also had notes payable of
$860,000. These notes carried an interest rate of 6 percent. Depreciation
was $136,000. The firm’s tax rate was 40 percent.
a.
What was the firm’s net income? (Do not round intermediate
calculations. Enter your answer in dollars, not millions of dollars, e.g.,
1,234,567. Round your answer to the nearest whole number, e.g., 32.)
b.
What was the firm’s operating cash flow? (Do not round
intermediate calculations. Enter your answer in dollars, not millions of
dollars, e.g., 1,234,567. Round your answer to the nearest whole number,
e.g., 32.)
9.
Please use excel sheet in case the values changes
Use the following information for Ingersoll, Inc., (assume the tax rate is 35
percent):
a.
Prepare an income statement for this company for 2014 and 2015.
b.
Prepare the balance sheet for this company for 2014 and 2015.
10.
Please use excel sheet in case the values changes
Jessica's Boutique has cash of $54, accounts receivable of $52, accounts
payable of $220, and inventory of $160. What is the value of the quick
ratio?
11.
Please use excel sheet in case the values changes
Al's Sport Store has sales of $3,020, costs of goods sold of $2,020,
inventory of $523, and accounts receivable of $448. How many days, on
average, does it take the firm to sell its inventory assuming that all sales
are on credit?
12.
Which statement expresses all accounts as a percentage of total
assets?
13.
The inventory turnover ratio is measured as:
The quick ratio is measured as:
14.
The total asset turnover ratio measures the amount of:
15.
A firm has a debt-equity ratio of .44. What is the total debt ratio?
16.
Please use excel sheet in case the values changes
A firm has total debt of $1,340 and a debt-equity ratio of .27. What is the
value of the total assets?
17.
Please use excel sheet in case the values changes
A firm has a total debt ratio of .47. This means the firm has 47 cents in debt
for every:
18.
Which one of the following sets of ratios would generally be of the
most interest to stockholders?
19.
Ratios that measure how efficiently a firm's management uses its
assets and equity to generate bottom line net income are known as
_______ ratios.
Ratios that measure a firm's ability to pay its bills over the short run
without undue stress
are known as:
20.
The higher the inventory turnover, the:
21.
The debt-equity ratio is measured as:
22.
Please use excel sheet in case the values changes
The Purple Martin has annual sales of $4,600, total debt of $1,220, total
equity of $2,300, and a profit margin of 6 percent. What is the return on
assets?
23.
Please use excel sheet in case the values changes
Galaxy United, Inc.
2009 Income Statement
($ in millions)
Galaxy United, Inc.
2008 and 2009 Balance Sheets
($ in millions)
What is the return on equity for 2009?
24.
P lease use excel sheet in case the values changes
If Wilkinson, Inc., has an equity multiplier of 1.57, total asset turnover of
1.7, and a profit margin of 6.7 percent, what is its ROE? (Do not round
intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
25.
The financial ratio measured as net income divided by sales is
known as the firm's:
26.
The financial ratio that measures the accounting profit per dollar of
book equity is referred to as the:
27.
Puffy's Pastries generates five cents of net income for every $1 in
equity. Thus, Puffy's has _______ of 5 percent.
28.
If stockholders want to know how much profit the firm is making on
their entire investment in that firm, the stockholders should refer to the:
.
29.
The most effective method of directly evaluating the financial
performance of a firm is to compare the financial ratios of the firm to:
30.
Which one of these equations is an accurate expression of the
balance sheet?
31.
The financial statement summarizing a firm's accounting
performance over a period of time is the:
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FIN 571 Week 2 DQ 1
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In order to receive proper credit, please reply to this message
when posting your answers to WK2 DQ1.
-year Treasury
bonds. Is this asset riskless?
-day Treasury bills. You
“roll over” this investment every 90 days by reinvesting the
proceeds in another issue of 90-day Treasury bills. Is this
investment riskless?
Can you think of an asset that is truly riskless?
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====================
FIN 571 Week 2 DQ 2
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Suppose rf is 5% and rM is 10%. According to the SML and the
CAPM, an asset with a beta of −2.0
has a required return of negative 5% [= 5 − 2(10 − 5)]. Can this
be possible? Does this mean that
the asset has negative risk? Why would anyone ever invest in an
asset that has an expected and
required return that is negative? Explain
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====================
FIN 571 Week 2 Individual Assignment Business Structure
Advice
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Write a 350 to 700 word response to the following e-mail:
Dear Consultant,
I am currently starting a business and developing my business plan. I'm in
need of some advice on how to start forming my business. I am not sure
exactly how it will be financed and whether or not I want to take on
partners. I am interested and willing to learn the intricacies of my options to
determine how to best proceed with my plan.
Please advise on what my options are, the advantages and disadvantages
of each, and possible tax consequences for each scenario?
Respectfully,
John Owner
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==========================================================
FIN 571 Week 2 Individual Assignment Ethics and Finance
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The Sarbanes-Oxley Act of 2002 (SOX) was passed as the result of the
Enron scandal and other instances of accounting fraud. This act was
passed to strengthen the role of the Securities and Exchange Commission
(SEC).
Research a case of corporate financial abuse related to the SarbanesOxley Act of 2002 and apply this to your current work or desired place of
employment.
Create a 1,400-word analysis of the application of SOX in which you
include the following:
Discuss the mistakes made by the company and their leadership.
Discuss the steps leadership could have taken to prevent or mitigate the
repercussions.
Explain the role of market pressures on unethical behavior.
Examine the influence of the basics of finance and how the SarbanesOxley Act of 2002 changed things.
Evaluate the influence of Sarbanes-Oxley Act on ethical behavior. Are
businesses more ethical since the enactment?
Explain the changes companies needed to make in how they use and
present financial statements.
Discuss how SOX has affected your current place of employment if at all,
and if not, how it has affected others in the same industry.
Cite a minimum of 2 scholarly sources.
Format your paper consistent with APA guidelines.
Click the Assignment Files tab to submit your assignment.
==========================================================
FIN 571 Week 2 Individual Assignment Ratio Analysis
Problems
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Ratio Analysis Problems
Ratio Analysis
(Individual Assignment)
You may use excel or word.doc format for this assignment.
Please post your homework as a word.doc or excel file in the class
discussion section below by the due date.
1. Analysis of cost of goods sold problem.
1992
1993 1994
Gross Profit Margin
60% 55%
51%
What is happening to cost of goods sold? As was done in the week 2
online lecture on ratio analysis, please assume sales of 1 dollar each year
as you do your analysis. This problem follows the process shown in the
Week 2 Ratio Analysis online lecture section titled: "Another Income
Statement Analytical Approach: Percent of Sales"
(5 points)
2. Overhead (or Sales, General and Administrative Expense) problem.
1992
1993 1994
Gross Profit Margin
40%
39% 41%
Operating Margin (NOI/Sales)
15%
10%
5%
What is happening to S,G and A (or overhead expenses)? Please set up
an illustration assuming sales of 1.00 dollar each year just as you did in
problem number one.
(5 points)
3. Balance Sheet Problem
1992
1993 1994
Annual Sales Growth (over prior yr)
+ 1%
0% +1%
Current Ratio
3.5X
2X
1.2X
Average Collection Period
25 days 30 days 55
days
What is happening to liquidity? Why? What are some follow-up questions
your would ask? (5 points)
4. Using the data provided below, which is the better managed company?
Why? Please support your answers by calculating appropriate ratios. (5
points)
Company A
Company B
Sales
10 million dollars
20 million dollars
Net Income
1 million dollars
2 million dollars
Total Assets 10 million dollars
15 million dollars
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==========================================================
FIN 571 Week 2 Learning Team Reflection
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Read the Ethics case, "A Sad Tale: The Demise of Arthur Anderson"
located in the WileyPLUS Week Fundamentals of Corporate Finance
Chapter readings.
Discuss the mistakes made by Arthur Anderson and potential actions that
leadership could have taken to prevent the organizational failure.
Write a 350- to 700-word summary of your discussion.
Click the Assignment Files tab to submit your assignment.
==========================================================
FIN 571 Week 3 Connect Problems
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FIN 571 Week 3 Connect Problems
If the Garnett Corp. has a 15 percent ROE and a 25 percent payout ratio,
what is its sustainable growth rate?
1.If the Hunter Corp. has an ROE of 15 and a payout ratio of 18 percent,
what is its sustainable growth rate
2.The most recent financial statements for Williamson, Inc., are shown here
Assets and costs are proportional to sales. Debt and equity are not. No
dividends are paid. Next year’s sales are projected to be $8,418. What is
the external financing needed?
3.The maximum rate at which a firm can grow while maintaining a constant
debt-equity ratio is best defined by its:
4.Financial planning, when properly executed:
5.Projected future financial statements are called:
6.Which account is least apt to vary directly with sales?
7.Which one of the following depicts a correct relationship?
8.One of the primary weaknesses of many financial planning models is
that they:
9.In the financial planning model, the external financing needed (EFN) as
shown on a pro forma balance sheet is equal to the changes in assets:
10.The external funds needed (EFN) equation projects the addition to
retained earnings as:
11.Marcie's Mercantile wants to maintain its current dividend policy, which
is a payout ratio of 35 percent. The firm does not want to increase its equity
financing but is willing to maintain its current debt-equity ratio. Given these
requirements, the maximum rate at which Marcie's can grow is equal to:
12.The sustainable growth rate will be equivalent to the internal growth
rate when, and only when,:
13.The minimum level of inventory that a firm wants to keep on hand at all
times is referred to as:
14.The operating cycle can be decreased by:
15.The cash cycle is defined as the time between:
16.Selling goods and services on credit is:
17.The three components of credit policy are:
18.Given a fixed level of sales and a constant profit margin, an increase in
the accounts payable period can result from:
19.On September 1, a firm grants credit with terms of 2/10 net 30. The
creditor:
20.The credit period begins on the:
21.When credit is granted to another firm this gives rise to a(n):
22.Since the credit decision usually includes riskier customers, the
decision should adjust for this by:
23.Jordan and Sons has an inventory period of 48.6 days, an accounts
payable period of 36.2 days, and an accounts receivable period of 29.3
days. Management is considering offering a 5 percent discount if its credit
customers pay for their purchases within 10 days. This discount is
expected to reduce the receivables period by 17 days. If the discount is
offered, the operating cycle will decrease from ___ days to ___ days.
24.Brown’s Market currently has an operating cycle of 76.8 days. It is
planning some operational changes that are expected to decrease the
accounts receivable period by 2.8 days and decrease the inventory period
by 3.1 days. The accounts payable turnover rate is expected to increase
from 9 to 11.5 times per year. If all of these changes are adopted, what will
be the firm's new operating cycle?
25.On average, D & M sells its inventory in 37 days, collects on its
receivables in 3.4 days, and takes 35 days to pay for its purchases. What is
the length of the firm’s operating cycle?
26.A firm has an inventory turnover rate of 15.7, a receivables turnover rate
of 20.2, and a payables turnover rate of 14.6. How long is the cash cycle?
==========================================================
FIN 571 Week 3 DQ 1
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Why are interest rates on short-term loans not necessarily
comparable to each other? Give three possible reasons.
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====================
FIN 571 Week 3 DQ 2
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Optical Supply Company offers credit terms of 2/10, net 60. If
Optical Supply is considering a change in its credit terms to one
of those indicated, explain whether the change should increase
or decrease sales. (a) 2/10, net 30, (b) net 60, (c) 3/15, net 60, (d)
2/10, net 30, 30 extra
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FIN 571 Week 3 Individual Assignment Interpreting
Financial Results
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Resource: Financial Statements for the company assigned by
your instructor in Week 2.
Review the assigned company's financial statements from the
past three years.
Calculate the financial ratios for the assigned company's
financial statements, and then interpret those results against
company historical data as well as industry benchmarks:
Compare the financial ratios with each of the preceding three (3)
years (e.g. 2014 with 2013; 2013 with 2012; and 2012 with
2011).
Compare the calculated financial ratios against the industry
benchmarks for the industry of your assigned company.
Write a 500 to 750 word summary of your analysis.
Show financial calculations where appropriate.
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FIN 571 Week 3 Learning Team Reflection
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Watch the "Concept Review Video: Working Capital
Management" video located in theWileyPLUS Assignment:
Week 3 Videos Activity.
Discuss strategies these business owners used to manage their
working capital.
Write a 350-700 word summary of your discussion.
Click the Assignment Files tab to submit your assignment.
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FIN 571 Week 3 Team Assignment Financial Statement
Interpretation
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

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
Select three publicly traded companies. Choose one each from the
following sectors: manufacturing, service, and retail. At least one of the
three companies should be foreign. If possible, choose from among the
team members' places of business or similar industries.
Calculate the following:
Current ratio
Quick ratio
Net profit margin
Asset utilization
Financial leverage
Analyze the Return on Equity (ROE) for the last 2 years using the DuPont
method.
Develop a 2,100-word comparison of your three companies in which you
include the following:
Discuss the differences in the industries
Discuss the different measurement conventions and how this affects
presentations.
Contrast IASB basis for accounting (IFRS) and FASB/GAAP accounting.
Compare the three companies and their strategies for managing their
working capital.
Discuss the financial ratios and analyses and what they indicate about the
companies and their financial forecast.
Incorporate the calculated ratios and analysis into the paper.
Include the financial statements for the 3 companies as an appendix to the
paper.
Cite at least 3 scholarly sources.
Format the paper consistent with APA guidelines.
Click the Assignment Files tab to submit your assignment.
===================================================
FIN 571 Week 4 Connect Problems
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FIN 571 Week 4 Connect Problems
Q-1
Even though most corporate bonds in the United States make coupon
payments semiannually, bonds issued elsewhere often have annual
coupon payments. Suppose a German company issues a bond with a par
value of €1,000, 20 years to maturity, and a coupon rate of 7 percent paid
annually.
If the yield to maturity is 8.1 percent, what is the current price of the bond?
(Do not round intermediate calculations and round your answer to 2
decimal places, e.g., 32.16.)
Q-1 (Set 2)
Watters Umbrella Corp. issued 30-year bonds 2 years ago at a coupon rate
of 7.4 percent. The bonds make semiannual payments. If these bonds
currently sell for 83 percent of par value, what is the YTM? (Do not round
intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
2.Microhard has issued a bond with the following characteristics:
Par: $1,000
Time to maturity: 15 years
Coupon rate: 11 percent
Semiannual payments
Calculate the price of this bond if the YTM is (Do not round intermediate
calculations and round your answers to 2 decimal places, e.g., 32.16.):
Q-2 (Set 2)
Union Local School District has bonds outstanding with a coupon rate of
3.7 percent paid semiannually and 15 years to maturity. The yield to
maturity on these bonds is 4.3 percent and the bonds have a par value of
$5,000.
What is the dollar price of the bond? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)
Q-3 (Set 1)
Yan Yan Corp. has a $2,000 par value bond outstanding with a coupon rate
of 5.5 percent paid semiannually and 16 years to maturity. The yield to
maturity of the bond is 5.8 percent.
What is the dollar price of the bond? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)
Q-3 (Set 2)
A Japanese company has a bond outstanding that sells for 90 percent of its
¥100,000 par value. The bond has a coupon rate of 5.7 percent paid
annually and matures in 19 years.
What is the yield to maturity of this bond? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal
places, e.g., 32.16.)
Q-4 (Set 1)
The next dividend payment by ECY, Inc., will be $1.96 per share. The
dividends are anticipated to maintain a growth rate of 4 percent, forever.
The stock currently sells for $39 per share.
What is the dividend yield? (Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Dividend yield
%
What is the expected capital gains yield? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal
places, e.g., 32.16.)
Capital gains yield
%
Q-4 (Set 2)
4.Schiller Corporation will pay a $3.14 per share dividend next year. The
company pledges to increase its dividend by 5 percent per year,
indefinitely. If you require a return of 12 percent on your investment, how
much will you pay for the company’s stock today? (Do not round
intermediate calculations and round your answer to 2 decimal places, e.g.,
32.16.)
5. Siblings, Inc., is expected to maintain a constant 3.6 percent growth rate
in its dividends, indefinitely. The company has a dividend yield of 5.4
percent.
What is the required return on the company's stock? (Do not round
intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
Required return
%
5. (Set 2) The next dividend payment by ECY, Inc., will be $1.60 per share.
The dividends are anticipated to maintain a growth rate of 6 percent,
forever. The stock currently sells for $30 per share.
What is the required return? (Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Q-6 (Set 1)
Ayden, Inc., has an issue of preferred stock outstanding that pays a
dividend of $6.75 every year, in perpetuity. This issue currently sells for $93
per share.
What is the required return? (Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Q-6 (Set 2)
6. The Starr Co. just paid a dividend of $1.55 per share on its stock. The
dividends are expected to grow at a constant rate of 6 percent per year,
indefinitely. Investors require a return of 14 percent on the stock.
What is the current price? (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)
What will the price be in three years? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)
What will the price be in 7 years? (Do not round intermediate calculations
and round your answer to 2 decimal places, e.g., 32.16.)
7. Zoom stock has a beta of 1.46. The risk-free rate of return is 3.07
percent and the market rate of return is 11.81 percent. What is the amount
of the risk premium on Zoom stock?
8. The risk premium for an individual security is computed by:
9. The risk-free rate of return is 3.68 percent and the market risk premium
is 7.84 percent. What is the expected rate of return on a stock with a beta
of 1.32?
10. Mullineaux Corporation has a target capital structure of 70 percent
common stock and 30 percent debt. Its cost of equity is 18 percent, and the
cost of debt is 6 percent. The relevant tax rate is 30 percent.
What is the company’s WACC? (Do not round intermediate calculations
and enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)
11.Miller Manufacturing has a target debt–equity ratio of .55. Its cost of
equity is 14 percent, and its cost of debt is 9 percent. If the tax rate is 40
percent, what is the company’s WACC? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal
places,
12.Filer Manufacturing has 4 million shares of common stock outstanding.
The current share price is $76, and the book value per share is $5. The
company also has two bond issues outstanding. The first bond issue has a
face value $90 million, a coupon of 5 percent, and sells for 94 percent of
par. The second issue has a face value of $70 million, a coupon of 6
percent, and sells for 104 percent of par. The first issue matures in 20
years, the second in 3 years.
a.
What are the company's capital structure weights on a book value
basis? (Do not round intermediate calculations and round your answers to
4 decimal places, e.g., 32.1616.)
b.
What are the company's capital structure weights on a market value
basis? (Do not round intermediate calculations and round your answers to
4 decimal places, e.g., 32.1616.)
c.
Which are more relevant?
13. Titan Mining Corporation has 8.9 million shares of common stock
outstanding and 330,000 5 percentsemiannual bonds outstanding, par
value $1,000 each. The common stock currently sells for $37 per share and
has a beta of 1.45, and the bonds have 15 years to maturity and sell for
118 percent of par. The market risk premium is 7.7 percent, T-bills are
yielding 4 percent, and the company’s tax rate is 40 percent.
==========================================================
FIN 571 Week 4 DQ 1
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A firm uses a single discount rate to compute the NPV of all its
potential capital budgeting projects, even though the projects
have a wide range of nondiversifiable risk. The firm then
undertakes all those projects that appear to have positive NPVs.
Briefly explain why such a firm would tend to become riskier
over time.
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FIN 571 Week 4 DQ 2
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Phyllis believes that the firm should use straight-line
depreciation for a capital project because it results in higher net
income during the early years of the project’s life. Joanna
believes that the firm should use the modified accelerated cost
recovery system depreciation because it reduces the tax liability
during the early years of the project’s life. Assuming you have a
choice between depreciation methods, whose advice should you
follow? Why?
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FIN 571 Week 4 Individual Assignment Analyzing Pro
Forma Statements
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Decide upon an initiative you want to implement that would
increase sales over the next five years, (for example, market
another product, corporate expansion, and so on).
Using the sample financial statements, create pro forma
statements of five year projections that are clear, concise, and
easy to read. Be sure to double check the calculations in your
pro forma statements. Make assumptions that support each line
item increase or decrease for your forecasted statements.
Discuss and interpret the financials in relation to the initiative.
Make recommendations on potential discretionary financing
needs.
Write a 350 - 700 word analysis of the company's short term and
long term financing needs and determine strategies for the
company to manage working capital.
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======================================
FIN 571 Week 4 Learning Team Reflection
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Watch the "Concept Review Video: Stock Valuation" video
located in the WileyPLUS Assignment: Week 4 Videos
Activity.
Discuss how markets and investors value a stock.
Write a 350-700 word summary of your discussion.
Click the Assignment Files tab to submit your assignment..
======================================
FIN 571 Week 4 Team Assignment Operating Leverage and
Forecasting
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Operating Leverage and Forecasting Problems Team Assignment
Please complete the following problems. When calculating earnings per
share and PE ratios, please show your work. This problem is similar to the
examples shown in the lecture.
You manufacture hunting pack systems in China for 80 dollars each,
including shipping. The manufacturing costs only include variable costs.
Variable costs are not calculated as a percentage of sales in this case.
Sales are a function of the number of packs sold and the price per pack.
Likewise, variable costs are a function of the number of packs sold and the
cost to produce each pack. You sell these packs to retailers for 200 dollars
each. In the current year you will sell 100,000 packs. Your fixed costs
including such items as insurance, marketing, travel, shows, office
supplies, warehouse rentals etc. totals 5 million dollars this year and are
not part of the 80 dollars per pack manufacturing cost. The federal income
tax rate for your company is 40 percent.
Your company is publicly traded on the NASDAQ with 1,000,000 shares
outstanding.
Please create a current income statement using the same format as found
in the lecture. (5 points)
Please calculate earnings per share. (2 points)
Please calculate the price/earnings multiple assuming that the current stock
price is 10 dollars per share. (2 points)
Create a two-year forecast of the income statement from the information
provided in problem number one. Please create three columns of data:
current year, year 2, and year 3. Assume that sales increase ten percent
per year for year's two and three. Please show the earnings per share for
each of the three years. (10 points)
3. Please estimate the stock price for year's two and three, assuming
that the current PE multiple remains constant for each of the two forecasted
years. (6 points).
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FIN 571 Week 5 Connect Problems
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1.The difference between the present value of an investment’s future cash
flows and its initial cost is the:
payback period.
internal rate of return.
profitability index.
discounted payback period.
net present value.
2.Which statement concerning the net present value (NPV) of an
investment or a financing project is correct?
An investment project that has positive cash flows for every time period
after the initial investment should be accepted.
Any type of project should be accepted if the NPV is positive and rejected if
it is negative.
A financing project should be accepted if, and only if, the NPV is exactly
equal to zero.
Any type of project with greater total cash inflows than total cash outflows,
should always be accepted.
An investment project should be accepted only if the NPV is equal to the
initial cash flow.
3.The primary reason that company projects with positive net present
values are considered acceptable is that:
they create value for the owners of the firm.
the investment's cost exceeds the present value of the cash inflows.
the project's rate of return exceeds the rate of inflation.
the required cash inflows exceed the actual cash inflows.
they return the initial cash outlay within three years or less.
4.Accepting a positive net present value (NPV) project:
indicates the project will pay back within the required period of time.
is expected to increase the stockholders’ value by the amount of the NPV.
ignores the inherent risks within the project.
guarantees all cash flow assumptions will be realized.
means the present value of the expected cash flows is equal to the
project’s cost.
5.The net present value method of capital budgeting analysis does all of
the following except:
use all of a project's cash flows.
discount all future cash flows.
consider all relevant cash flow information.
incorporate risk into the analysis.
provide a specific anticipated rate of return.
6.What is the net present value of a project with an initial cost of $36,900
and cash inflows of $13,400, $21,600, and $10,000 for Years 1 to 3,
respectively? The discount rate is 13 percent.
7.Maxwell Software, Inc., has the following mutually exclusive projects.
a-1.
Calculate the payback period for each project. (Do not round
intermediate calculations and round your answers to 3 decimal places, e.g.,
32.161.)
Payback period
Project A
1.938 years
Project B
2.063 years
________________________________________
a-2.
Which, if either, of these projects should be chosen?
b-1.
What is the NPV for each project if the appropriate discount rate is
15 percent? (A negative answer should be indicated by a minus sign. Do
not round intermediate calculations and round your answers to 2 decimal
places, e.g., 32.16.)
b-2.
Which, if either, of these projects should be chosen if the
appropriate discount rate is 15 percent?
8.Down Under Boomerang, Inc., is considering a new three-year expansion
project that requires an initial fixed asset investment of $2.82 million. The
fixed asset will be depreciated straight-line to zero over its three-year tax
life, after which it will be worthless. The project is estimated to generate
$2,120,000 in annual sales, with costs of $815,000. The tax rate is 30
percent and the required return is 12 percent.
What is the project’s NPV? (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)
9.The Best Manufacturing Company is considering a new investment.
Financial projections for the investment are tabulated here. The corporate
tax rate is 35 percent. Assume all sales revenue is received in cash, all
operating costs and income taxes are paid in cash, and all cash flows occur
at the end of the year. All net working capital is recovered at the end of the
project.
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FIN 571 Week 5 DQ 1
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Because the weighted average is always a correct measure of a
required return, why do firms not create securities to finance
each project and offer them in the capital market in order to
accurately determine the required return for the project?
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FIN 571 Week 5 DQ 2
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The development of the new issue junk bond market had
important implications for capital structure choice. The
existence of a viable junk bond market means that firms can
comfortably maintain higher degrees of leverage than they could
prior to the development of this market. Do you agree or
disagree? Justify your answer.
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FIN 571 Week 5 Individual Assignment DCF and WACC
Problems
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Discounted Cash Flows and WACC Homework Problems
Please post the answers (and show your work) in the assignments section
by midnight the last day of the week assigned.
Calculate the future value of 1,535 invested today for 8 years at 6 percent.
(5 points)
What is the total present value of the following cash stream, discounted at
8 percent? (5 points)
Year
1
2
3
4
5
Amount
400
750
945
145
78
3. If you invested $2,000 per year into an IRA for 30 years and received 6
percent return each year, what would the account balance be in 30 years?
(5 points)
4. A friend gives you a proposition. If you give him 1,500 dollars today, he
will guarantee your receive 12 percent a year for the next 5 years. How
much money will you receive from him at the end of 5 years? (5 points)
5. You want to buy a new Computer Aided Design (CAD) system for your
business. The cost of the system is $150,000 and you expect to save over
$40,000 per year in reduced labor costs. Please calculate the net present
value of the CAD if your required return is 10 percent and the life of the
system is expected to be 5 years. (10 points)
6. Your company is considering converting its heating system in the main
office from coal to heating oil. The initial cost of removing the coal fired
furnace and installing an new oil fired unit is $60,000. The life of the
analysis is 7 years. In the past you spent $25,000 per year on coal. The
new company says you will spend no more than $15,000 per year on
heating oil. If your required return is 12 percent, should you make this
investment? Please calculate the net present value of this project. (10
points)
7. You have collected the following information:
a. the yield on your company’s preferred stock 8%
b. the yield on your company’s debt 10%
c. the required return on your company’s common stock and internal equity
12%
d. debt total $5,000,000
e. preferred stock current market value $10,000,000
f. common stock and retained earnings total value $20,000,000
Please calculate the pre-tax weighted average cost of capital (WACC) for
your company.
(10 points)
8. Your company’s marginal income tax rate is 40%. Please calculate the
post tax WACC from the information provided in problem 7. (10 points)
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FIN 571 Week 5 Learning Team Reflection
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Watch the "Concept Review Video: Cost of Capital" video
located in the WileyPLUS Assignment: Week 5 Videos
Activity.
Discuss some of the corporate finance challenges faced by this
company.
Write a 350-700 word summary of your discussion.
Click the Assignment Files tab to submit your assignment.
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FIN 571 Week 5 Team Assignment Capital Budgeting
Assignment, Part 1 (New Heritage Doll)
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Acting as the executive team for a small company, your team will apply the
principles of capital budgeting to invest in growth and cash flow
improvement opportunities in three phases over 10 simulated years. Each
opportunity has a unique financial profile and you must analyze the effects
on working capital. Examples of opportunities include taking on new
customers, capitalizing on supplier discounts, and reducing inventory.
The team must understand how the income statement, balance sheet, and
statement of cash flows are interconnected and be able to analyze
forecasted financial information to consider possible effects of each
opportunity on the firm's financial position. The company operates on thin
margins with a constrained cash position and limited available credit. You
must optimize use of internal and external credit as you balance the desire
for growth with the need for maintaining liquidity.
Create a 1,050-word analysis of the team members' decisions during each
phase (1-3) and how they influenced each member's final results.
Analyze the influence of member's decisions on sales outcomes or metrics
of SNC.
Analyze the influence of member's decisions on EBIT outcomes or metrics
of SNC.
Assess the influence of member's decisions on Net Income outcomes or
metrics of SNC.
Analyze the influence of member's decisions on Free Cash Flow outcomes
or metrics of SNC.
Assess the influence of member's decisions on Total Firm Value outcomes
or metrics of SNC.
Cite a minimum of two scholarly references.
Format your assignment consistent with APA guidelines.
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FIN 571 Week 6 Individual Assignment Working Capital
Simulation Managing Growth Assignment
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Resources:
Harvard Business Publishing: Working Capital Simulation:
Managing Growth Assignment
Ch. 1 - 21 ofFundamentals of Corporate Finance
WileyPLUS Assignments
All additional resources from each week
Review the following scenario:
Acting as the CEO of a small company, you will apply the
principles of capital budgeting to invest in growth and cash flow
improvement opportunities in three phases over 10 simulated
years. Each opportunity has a unique financial profile and you
must analyze the effects on working capital. Examples of
opportunities include taking on new customers, capitalizing on
supplier discounts, and reducing inventory.
You must understand how the income statement, balance sheet,
and statement of cash flows are interconnected and be able to
analyze forecasted financial information to consider possible
effects of each opportunity on the firm's financial position. The
company operates on thin margins with a constrained cash
position and limited available credit. You must optimize use of
internal and external credit as you balance the desire for growth
with the need for maintaining liquidity.
Sign-in to the simulation and review each of the following:
Welcome Statement
How to Play
Terminology Primer
More Details (this includes information to help you understand
how to play the simulation)
Write a paper of no more than 1,400 words that analyzes your
decisions during each phase (1-3) and how they influenced each
of the following final outcomes (metrics) of SNC:
Sales
EBIT
Net Income
Free Cash Flow
Total Firm Value
Address the following in your paper:
A summary of your decisions and why you made them
How they affected SNC's working capital
What general effects are associated with limited access to
financing
Include scholarly references (in addition to your course textbook
and simulation materials) to support your positions.
Format your paper consistent with APA guidelines.
Click the Assignment Files tab to submit your assignment.
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FIN 571 Week 6 Learning Team Reflection
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Watch the "Corporate Finance Video: Stable Money Makers"
located in the WileyPLUS Assignment: Week 6 Videos
Activity.
Identify a capital improvement that could help Betty with her
Alpaca business.
Write a summary of no more than 700 words explaining how the
capital improvement you identified could help the business.
Click the Assignment Files tab to submit your assignment.
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FIN 571 Week 6 Team Assignment Capital Budgeting
Assignment, Part 2 (New Heritage Doll)
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The executive team of New Heritage Doll has completed the decision
making for capital budgeting for the firm. Now the team must decide which
decisions and approach were the best for the company. The executive
team must create a presentation to be given to the board members of New
Heritage Doll
Compare the decisions and results of all members of the team.
Create a 20-slide Microsoft® PowerPoint® presentation that includes
detailed speaker notes that act as the script of the presentation in which
you include the following:
Summarize the decisions made by each member.
Explain why those decisions were made.
Analyze the effects the team's decisions had on New Heritage Doll working
capital.
Select one plan from the team's results to propose as the best option for
SNC
Defend this option to the board including all supporting documentation.
Cite a minimum of three scholarly sources.
Click the Assignment Files tab to submit your assignment.