Finance Final

A project that provides annual cash flows of $1,930 for 8 years costs $7,700 today.At a required return of 8 percent, what is the NPV of the project? 3,391.01 ± .1%
A project that provides annual cash flows of $1,930 for 8 years costs $7,700 today.At what discount rate would you be indifferent between accepting the project and rejecting it? 18.71 ± 1% CFo -7700CF1 1930FO1 8 IRR = 18.71
Calvani, Inc., has a cash cycle of 38.7 days, an operating cycle of 57.5 days, and an inventory period of 21.4 days. The company reported cost of goods sold in the amount of $430,000, and credit sales were $684,000.What is the company’s average balance in accounts payable Cash cycle = Operating cycle – Payables period38.70 days = 57.50 days – Accounts payable periodAccounts payable period = 18.80 daysPayables period = 365 / Payables turnover18.80 = 365 / Payables turnoverPayables turnover = 19.41 timesPayables turnover = Cost of goods sold / Average payables19.41 = $430,000 / Average payablesAverage payables = $22,147.95
Calvani, Inc., has a cash cycle of 38.7 days, an operating cycle of 57.5 days, and an inventory period of 21.4 days. The company reported cost of goods sold in the amount of $430,000, and credit sales were $684,000.What is the company’s average balance in accounts receivable? Operating cycle = Inventory period + Receivables period57.50 days = 21.40 days + Receivables periodReceivables period = 36.10 days Using the receivables period equation, we find: Receivables period = 365 / Receivables turnover36.10 = 365 / Receivables turnoverReceivables turnover = 10.11 times Finally, the average accounts receivable balance is: Receivables turnover = Credit sales / Average accounts receivable10.11 = $684,000 / Average accounts receivableAverage accounts receivable = $67,650.41
Martinez, Inc., has a total debt ratio of .65, total debt of $345,000, and net income of $31,280.What is the company’s return on equity? 16.84%To find the ROE, we need the equity balance. Since we have the total debt, if we can find the total assets we can calculate the equity. Using the total debt ratio, we find total assets as:Debt ratio = Total debt / Total assets.65 = $345,000 / Total assetsTotal assets = $530,769Total liabilities and equity is equal to total assets. Using this relationship, we find:Total liabilities and equity = Total debt + Total equity$530,769 = $345,000 + Total equityTotal equity = $185,769Now, we can calculate the ROE as:ROE = Net income / Total equityROE = $31,280 / $185,769ROE = .1684, or 16.84%
Mullineaux Corporation has a target capital structure of 75 percent common stock, 5 percent preferred stock, and 20 percent debt. Its cost of equity is 11.25 percent, the cost of preferred stock is 5.5 percent, and the cost of debt is 6.1 percent. The relevant tax rate is 35 percent.What is Mullineaux’s WACC? WACC = .75(.1125) + .05(.055) + .20(.0610)(1 – .35)WACC = .0951, or 9.51%
Mullineaux Corporation has a target capital structure of 75 percent common stock, 5 percent preferred stock, and 20 percent debt. Its cost of equity is 11.25 percent, the cost of preferred stock is 5.5 percent, and the cost of debt is 6.1 percent. The relevant tax rate is 35 percent.What is the aftertax cost of debt? RD = .061(1 – .35)RD = .0397, or 3.97%
What is the future value of $1,270 in 16 years assuming an interest rate of 9 percent compounded semiannually?What is the Future Value? 5,194.28 ± 0.1%
A stock has had returns of −26 percent, 6 percent, 34 percent, −5 percent, 28 percent, and 19 percent over the last six years.What are the arithmetic and geometric returns for the stock? Arithmetic average return 9.33 ± 1%Geometric average return7.24 ± 1%
You’re trying to save to buy a new $150,000 Ferrari. You have $35,000 today that can be invested at your bank. The bank pays 3.2 percent annual interest on its account.How long will it be before you have enough to buy the car? 46.20 years N value
Benjamin Manufacturing has a target debt-equity ratio of .45. Its cost of equity is 12 percent, and its cost of debt is 7 percent.Required:If the tax rate is 35 percent, what is the company’s WACC Here, we need to use the debt-equity ratio to calculate the WACC. A debt-equity ratio of .45 implies a weight of debt of .45/1.45 and an equity weight of 1/1.45. Using this relationship, we find:WACC = .12(1/1.45) + .07(.45/1.45)(1 – .35)WACC = .0969, or 9.69%
You’re prepared to make monthly payments of $250, beginning at the end of this month, into an account that pays 8 percent interest compounded monthly.Required:How many payments will you have made when your account balance reaches $50,000? Number of payments 127.52 ± 1%
You own a portfolio that is 35 percent invested in Stock X, 45 percent in Stock Y, and 20 percent in Stock Z. The expected returns on these three stocks are 10 percent, 13 percent, and 15 percent, respectively.Required:What is the expected return on the portfolio? The expected return of a portfolio is the sum of the weight of each asset times the expected return of each asset. So, the expected return of the portfolio is:E(Rp) = .35(.10) + .45(.13) + .20(.15)E(Rp) = .1235, or 12.35%
The Jackson Wardrobe Co. has 7 percent coupon bonds on the market with nine years left to maturity. The bonds make annual payments.Required:If the bond currently sells for $1,038.50, what is its YTM 6.42 ± 1%
Gontier Corporation stock currently sells for $53.95 per share. The market requires a return of 12 percent on the firm’s stock.Required:If the company maintains a constant 5.5 percent growth rate in dividends, what was the most recent dividend per share paid on the stock? We are given the stock price, the dividend growth rate, and the required return, and are asked to find the dividend. Using the constant dividend growth model, we get: P0 = D0 (1 + g) / (R – g) Solving this equation for the dividend gives us: D0 = P0(R – g) / (1 + g)D0 = $53.95(.12 – .055) / (1 + .055)D0 = $3.32
Hammett, Inc., has sales of $34,630, costs of $10,340, depreciation expense of $2,520, and interest expense of $1,750. If the tax rate is 35 percent. Operating Cash Flow? First do income statement OCF = EBIT + Depreciation – TaxesOCF = $21,770 + 2,520 – 7,007OCF = $17,283
Year Cash Flow0 −$5,900 1 2,000 2 2,700 3 1,500 4 900 PAYBACK PERIOD? 2.80 ± 1% YEARS
Fama’s Llamas has a WACC of 8.65 percent. The company’s cost of equity is 11 percent, and its cost of debt is 6 percent. The tax rate is 35 percent.Required:What is Fama’s target debt-equity ratio .4947 ± 0.001
Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $1,860,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1,950,000 in annual sales, with costs of $1,060,000. Assume the tax rate is 35 percent and the required return on the project is 14 percentWhat is the NPV? -13,141.72 ± .1%OCF = (Sales – Costs)(1 – TC) + Depreciation(TC)OCF = ($1,950,000 – 1,060,000)(1 – .35) + .35($1,860,000 / 3)OCF = $795,500
A fire has destroyed a large percentage of the financial records of the Inferno Company. You have the task of piecing together information in order to release a financial report. You have found the return on equity to be 14.3 percent. Sales were $1,840,000, the total debt ratio was .45, and total debt was $673,000.Required:What is the return on assets (ROA) ROA = .0787, or 7.87%
Kenny, Inc., is looking at setting up a new manufacturing plant in South Park. The company bought some land six years ago for $7.5 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent facilities elsewhere. The land would net $10.3 million if it were sold today. The company now wants to build its new manufacturing plant on this land; the plant will cost $24 million to build, and the site requires $975,000 worth of grading before it is suitable for construction. Required:What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project? Cash flow = $10,300,000 + 24,000,000 + 975,000Cash flow = $35,275,000
A stock has a beta of 1.15, the expected return on the market is 10.9 percent, and the risk-free rate is 3.8 percent.Required:What must the expected return on this stock be E(Ri) = Rf + [E(RM) – Rf] × βiSubstituting the values we are given, we find:E(Ri) = .038 + (.109 – .038)(1.15)E(Ri) = .1197, or 11.97%
The next dividend payment by Wyatt, Inc., will be $2.30 per share. The dividends are anticipated to maintain a growth rate of 4.5 percent forever.Required:If the stock currently sells for $39.85 per share, what is the required return R = (D1 / P0) + gR = ($2.30 / $39.85) + .045R = .1027, or 10.27%
Halestorm Corporation’s common stock has a beta of 1.15. Assume the risk-free rate is 3.9 percent and the expected return on the market is 12 percent.Required:What is the company’s cost of equity capital? RE = .039 + 1.15(.12 – .039)RE = .1322, or 13.22%
A stock has an expected return of 13.6 percent, the risk-free rate is 3.7 percent, and the market risk premium is 7.1 percent.Required:What must the beta of this stock be? E(Ri) = Rf + [E(RM) – Rf] × βi.136 = .037 + .071βiβi = 1.394
A piece of newly purchased industrial equipment costs $870,000 and is classified as seven-year property under MACRS. The MACRS depreciation schedule is shown in MACRS Table. Required:Calculate the annual depreciation allowances and end-of-the-year book values for this equipment. (Do not round intermediate calculations. Leave no cells blank. Enter “0” when necessary.) BeginningYear BeginningBook Value Depreciation Depreciation Allowance Ending Book Value1 $870,000 14.29% $124,323 $745,677 2 745,677 24.29% 213,063 532,614 3 532,614 17.49% 152,163 380,451 4 380,451 12.49% 108,663 271,788 5 271,788 8.93% 77,691 194,097 6 194,097 8.92% 77,604 116,493 7 116,493 8.93% 77,691 38,802 8 38,802 4.46% 38,802 0
The stock price of Webber Co. is $68. Investors require an 11 percent rate of return on similar stocks.Required:If the company plans to pay a dividend of $3.85 next year, what growth rate is expected for the company’s stock price? g = R – (D1 / P0)g = .11 – ($3.85 / $68)g = .0534, or 5.34%
Year Cash Flow0 -$ 153,000 1 78,000 2 67,000 3 49,000 Requirement 1:At a required return of 9 percent, what is the NPV of the project? ( 12,789.18 ± .1%
Sunset, Inc., has a book value of equity of $13,205. Long-term debt is $8,200. Net working capital, other than cash, is $2,205. Fixed assets are $18,380 and current liabilities are $1,630.Requirement 1:How much cash does the company have?Requirement 2:What is the value of the current assets? 1:The total liabilities and equity of the company are the book value of equity, plus current liabilities and long-term debt, so:Total liabilities and equity = $13,205 + 1,630 + 8,200Total liabilities and equity = $23,035We have NWC other than cash. Since NWC is current assets minus current liabilities, NWC other than cash is: NWC other than cash = Accounts receivable + Inventory – Current liabilities$2,205 = Accounts receivable + Inventory – $1,630Accounts receivable + Inventory = $2,205 + 1,630Accounts receivable + Inventory = $3,835Since total assets must equal total liabilities and equity, we can solve for cash as: Cash = Total assets – Fixed assets – (Accounts receivable + Inventory)Cash = $23,035 – 18,380 – 3,835Cash = $8202:The current assets are:Current assets = Cash + (Accounts receivable + Inventory)Current assets = $820 + 3,835Current assets = $4,655
The Lo Tech Co. just issued a dividend of $1.80 per share on its common stock. The company is expected to maintain a constant 6 percent growth rate in its dividends indefinitely.Required:If the stock sells for $41 a share, what is the company’s cost of equity With the information given, we can find the cost of equity using the dividend growth model. Using this model, the cost of equity is:RE = [$1.80(1.06) / $41] + .06RE = .1065, or 10.65%
ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with seven years to maturity that is quoted at 108 percent of face value. The issue makes semiannual payments and has an embedded cost of 6.1 percent annually.Requirement 1:What is ICU’s pretax cost of debt?Requirement 2:If the tax rate is 38 percent, what is the aftertax cost of debt? YTM = 2 × 2.371%YTM = 4.74%2:And the aftertax cost of debt is:RD= .0474(1 – .38)RD = .0294, or 2.94%
Winnebagel Corp. currently sells 28,000 motor homes per year at $73,000 each and 7,000 luxury motor coaches per year at $115,000 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 29,000 of these campers per year at $18,500 each. An independent consultant has determined that if Winnebagel introduces the new campers, it should boost the sales of its existing motor homes by 2,500 units per year and reduce the sales of its motor coaches by 750 units per year.Required:What is the amount to use as the annual sales figure when evaluating this project? NET SALES 632,750,000 ± .01%
You want to buy a new sports car from Muscle Motors for $52,500. The contract is in the form of a 60-month annuity due at an APR of 6.25 percent.Required:What will your monthly payment be 2nd BGN 2nd SET $1,015.80
In 2011, an 1880-O Morgan silver dollar sold for $13,113.Required:What was the rate of return on this investment? I/Y 7.51%
An asset used in a four-year project falls in the five-year MACRS class (MACRS Table) for tax purposes. The asset has an acquisition cost of $6,400,000 and will be sold for $1,530,000 at the end of the project. Required:If the tax rate is 34 percent, what is the aftertax salvage value of the asset? BV4 = $6,400,000 – 6,400,000(.2000 + .3200 + .1920 + .1152)BV4 = $1,105,920The asset is sold at a gain to book value, so this gain is taxable. Aftertax salvage value = $1,530,000 + ($1,105,920 − 1,530,000)(.34)Aftertax salvage value = $1,385,812.80
Crossfade Co. issued 15-year bonds two years ago at a coupon rate of 6.9 percent. The bonds make semiannual payments. Required:If these bonds currently sell for 94 percent of par value, what is the YTM YTM 7.64
Remi, Inc., has sales of $15 million, total assets of $9 million, and total debt of $3.7 million. If the profit margin is 7 percent.What is net income?What is ROA?What is ROE? NET INCOME 1,050,000 ± .01%ROA 11.67 ± 1%ROE 19.81 ± 1%
A proposed new investment has projected sales of $750,000. Variable costs are 55 percent of sales, and fixed costs are $182,500; depreciation is $86,000. Assume a tax rate of 35 percent.Required:What is the projected net income? NET INCOME $ 44,850
Consider an asset that costs $635,000 and is depreciated straight-line to zero over its eight-year tax life. The asset is to be used in a five-year project; at the end of the project, the asset can be sold for $125,000.Required:If the relevant tax rate is 35 percent, what is the aftertax cash flow from the sale of this asset? 164,593.75 ± .1%
Your coin collection contains 50 1952 silver dollars.Required:If your grandparents purchased them for their face value when they were new, how much will your collection be worth when you retire in 2058, assuming they appreciate at an annual rate of 6.1 percent? value of collection in the future 26,595.04 ± .1%
A firm evaluates all of its projects by applying the IRR rule.Year Cash Flow0 -$ 153,000 1 78,000 2 67,000 3 49,000 Requirement 1:What is the project’s IRR? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Internal rate of return 14.02 correct % Requirement 2:If the required return is 11 percent, should the firm accept the project?Yes correct
Allen, Inc., has a total debt ratio of .34.Requirement 1:What is its debt-equity ratio? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Debt-equity ratio 0.52 correct timesRequirement 2:What is its equity multiplier? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Equity multiplier 1.52 correct times
Prepare an amortization schedule for a three-year loan of $75,000. The interest rate is 8 percent per year, and the loan calls for equal annual payments. How much total interest is paid over the life of the loan? Total interest over life of the loan = $6,000.00 + 4,151.80 + 2,155.74Total interest over life of the loan = $12,
Lycan, Inc., has 6 percent coupon bonds on the market that have 9 years left to maturity. The bonds make annual payments.Required:If the YTM on these bonds is 8 percent, what is the current bond price? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Current bond price $ 875.06 correct
App Store Co. issued 20-year bonds one year ago at a coupon rate of 6.1 percent. The bonds make semiannual payments.Required:If the YTM on these bonds is 5.3 percent, what is the current bond price? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Current bond price $ 1,095.07 correct
Pujols Lumber Yard has a current accounts receivable balance of $527,167. Credit sales for the year just ended were $5,938,261.Requirement 1:What is the receivables turnover? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)Requirement 2:What is the days’ sales in receivables? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Requirement 3:How long did it take on average for credit customers to pay off their accounts during the past year? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Receivables turnover 11.26 correct times Days’ sales in receivables 32.42 correct days Average collection period 32.42 correct days
Rolston Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $26,400, and the company expects to sell 1,500 per year. The company currently sells 1,850 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,520 units per year. The old board retails for $22,300. Variable costs are 55 percent of sales, depreciation on the equipment to produce the new board will be $1,975,000 per year, and fixed costs are $2,400,000 per year.Required:If the tax rate is 38 percent, what is the annual OCF for the project? OCF $ 8,257,739 correct OCF = EBIT + Depreciation – TaxesOCF = $10,133,450 + 1,975,000 – 3,850,711OCF = $8,257,739

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