Fi515 Final

In: Business and Management

Submitted By multynat
Words 917
Pages 4
Time Remaining: [pic]
[pic][pic][pic][pic]
|1. (TCO C) |
|On its 1999 balance sheet, Sherman Books showed a balance of retained earnings equal to $510 million. On its 2000 balance sheet, the |
|balance of retained earnings was also equal to $510 million. Which of the following statements is most correct? Show your calculations. |
|a. The company must have had net income equal to zero in 2000. |
|b. The company had a profit in 2000 but did not pay a dividend in 2000. |
|c. the company’s net income in 2000 was $200 million. |
|d. If the company lost money in 2000, they must have paid a dividend. |
|e. None of the statements above is correct. |
|(Points: 20) |
| |
|[pic] |
| |
|2. (TCO D) After-tax returns…...

Similar Documents

Fi515

...Chapter 7 (7–2) Constant Growth Valuation 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, rs, is 15%. What is the value per share of Boehm’s stock? D1= 1.50 g=.07 rs=.15 D1/ rs-g=$1.50/.15-.07= $1.50/.08= $18.75 (7–4) Preferred Stock Valuation Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each year. The preferred sells for $50 a share. What is the stock’s required rate of return? Vps=$50= $5/rps Rps=$5-$50=0.10=10.0% (7–5) Nonconstant Growth Valuation A company currently pays a dividend of $2 per share (D0 = $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 risk-free rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stock’s current price? rs=rRF+(RPM)b= 0.75+(0.04)(1.2)=0.75+0.78=.123 D0=$2 g=20%=.20 rs=7.5% Rmp=4% Beta=1.2 D1 = D 2.00(1 + .2) = $2(1.2) = $2.40 D2 = 2.40(1 + 8) = $2.4(1.2) = $2.88 D3 = 2.88(1 + 0.07) = $2.88(1.07) = $3.08 D1 =2.40/(1.123)1=2.14 D2 = 2.88/(1.123)2=2.28 =4.42 Cal p2 =D3/rs-g =3.08/0.123-0.07=3.08/0.53=$58.11 PV=58.11/(1+rs)2=58.11/1.126=$46.08 46.08+4.42=$50.50 Chapter 9 (9-2) After-Tax Cost of Debt LL......

Words: 763 - Pages: 4

Fi515 Week 1 Assignment

...Week 1 assignments FI515 Mini case A-Why is corporate finance important to all managers? Corporate finance provides managers with the skills to identify and select the corporate strategies and individual projects that add value to the company. It helps them to forecast the funding requirements of their company and the necessary strategies to acquire those funds. B- Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form. The three main forms of business organizations are: Sole proprietorship, Partnerships and corporations. The main advantages of a Proprietorship are: it is easily and inexpensively formed, it is subject to few government regulations, and the business pays no corporate income taxes. Its disadvantages are: it is difficult for a proprietorship to obtain large sums of capital, the proprietor has unlimited personal liability for the business debts, and the life of the business is limited to the life of the owner. The major advantage of a partnership is its low cost and ease of formation. The disadvantages are similar to those associated with proprietorships: unlimited liability, limited life of the organization, difficulty of transferring ownership, and difficulty of raising large amounts of capital. The tax treatment of a partnership is similar to that for proprietorships, which is often an advantage. The corporate form of business has three major......

Words: 2193 - Pages: 9

Fi515 Week 2 Assigment

...FI515 Homework 2 Keller Graduate School of Management FI515 Managerial Finance Sept 09, 2011 Page 112 3-1 Days Sales Outstanding Greene Sisters has a DSO of 20 days. The company’s average daily sales are $20,000. What is the level of its accounts receivable? Assume there are 365 days in a year. Formula for DSO = Receivables/ Ave sales per day = Receivables/( Annual sales/365) = 20 days x $20,000= $400,000 Solution: AR = $400,000 3-2 Debt Ratio Vigo Vacations has an equity multiplier of 2.5. The company’s assets are financed with some combination of long-term debt and common equity. What is the company’s debt ratio? Formula for Debt ratio = Debt Ratio + Equity Ratio = 1 Equity Multiplier = 2.5 Therefore Equity Ratio = 1/EM Equity Ratio = 1/2.4 = 0.40 MEMORIZE this formula: Debt Ratio + Equity Ratio = 1 There for Debt Ratio = 1 - Equity Ratio = 1 - 0.40 = 0.60% Solution: D/A 60% 3-3 Market/Book Ratio Winston Washers’s stock price is $75 per share. Winston has $10 billion in total assets. Its balance sheet shows $1 billion in current liabilities, $3 billion in long-term debt, and $6 billion in common equity. It has 800 million shares of common stock outstanding. What is Winston’s market/book ratio? Winston market = $75 x 800 million = $60 billion Book Value = Assets ($10b in total asset) – Liabilities ($1b current liabilities + $3b long term debt) = $10b...

Words: 1126 - Pages: 5

Fi515 Final

...Final Exam Page 1 1. (TCO A) Which of the following is NOT normally regarded as being a barrier to hostile takeovers? (Points : 5) Abnormally high executive compensation Targeted share repurchases Shareholder rights provisions Restricted voting rights Poison pills | 2. (TCO F) Which of the following statements is correct? (Points : 5) If a project with normal cash flows has an IRR greater than the WACC, the project must also have a positive NPV. If Project A's IRR exceeds Project B’s, then A must have the higher NPV. A project’s MIRR can never exceed its IRR. If a project with normal cash flows has an IRR less than the WACC, the project must have a positive NPV. If the NPV is negative, the IRR must also be negative. | 3. (TCO D) Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 25% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company's last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock? a. $26.77 b. $27.89 c. $29.05 d. $30.21 e. $31.42(Points : 20) | 4. (TCO G) Singal Inc. is preparing its cash budget. It expects to have sales of $30,000 in January, $35,000 in February, and $35,000 in March. If 20% of sales are for cash, 40%......

Words: 1034 - Pages: 5

Fi515 Homework 2

...Lorchineng Lo FI515 Homework 1 Minicase/2.6,2.7,2.9 Problems Minicase – Page 45 1. Corporate Finance is important to all managers because they want to know how their company is performing. If a company isn’t producing income, they won’t be in business for too long. By managing Corporate Finances, companies are able to expand their company lifeline, through maximizing their stocks and shareholders. 2. There are many different types of organizational forms: Sole Proprietorship, Partnership, Corporation, Corporation – S, Trust, and Non Profits. A company may start off as a Sole Proprietorship or Partnership, and work its way towards becoming a Corporation. The benefits of being a Sole Proprietorship are that it’s easy to set up and everything you own is dispersed properly through your decisions. The benefits of becoming a Corporation is knowing that you have a company that can grow and allow shareholders to be part of the equation. Growth is always an important step for business. 3. To go public a company must have an: Initial Public Offering, Small Corporate Offering Registration, or ACE – net. Agency Problems could include conflicts of interest arising between creditors, shareholders and management because of differing goals. Corporate governance refers broadly to the rules, processes, or laws by which businesses are operated, regulated, and controlled. 4. The primary objective of managers are to maximize the value of company growth, so...

Words: 884 - Pages: 4

Fi515 Week 1

...in yellow jackets. The Nasdaq is provided as an example of a computer/telephone network in which transactions are conducted over telephone wires and computer systems. (2) Explain the differences between open outcry auctions, dealer markets, and electronic communications networks (ECNs). In an open outcry auction system, traders and buyers communicate between each other through various shouts and hand signals for purchasing and selling decisions. In dealer markets however, the process is conducted through a system in which a market maker keeps an inventory of the stock. The dealer then proceeds by listing prices in which people are willing to buy and sell at. A computer then keeps track of the bids and a dealer issued to complete the final details of the transaction. The last dealer market, known as an electronic communications network uses a system to match buyers and sellers and complete the details of the transaction once it is completed. p. Briefly explain mortgage securitization and how it contributed to the global economic crisis. Mortgage securitization is the process where loan originators would package loans together with various degrees of risk and sell them as pools to investors. The process was supposed to allow more funding options for potential buyers and home owners, however, since the funds were originally created by the seller’s of the homes, if the funds were not received then a chain was broken and the money was never returned to the banks and......

Words: 1404 - Pages: 6

Fi515 Final

...1. (TCO A) Which of the following statements is NOT correct? (Points : 5)        The corporate valuation model can be used both for companies that pay dividends and those that do not pay dividends.        The corporate valuation model discounts free cash flows by the required return on equity.        The corporate valuation model can be used to find the value of a division.        An important step in applying the corporate valuation model is forecasting the firm's pro forma financial statements.        Free cash flows are assumed to grow at a constant rate beyond a specified date in order to find the horizon, or terminal, value. | 2. (TCO F) Which of the following statements is correct? (Points : 5)        If a project with normal cash flows has an IRR greater than the WACC, the project must also have a positive NPV.        If Project A's IRR exceeds Project B’s, then A must have the higher NPV.        A project’s MIRR can never exceed its IRR.        If a project with normal cash flows has an IRR less than the WACC, the project must have a positive NPV.        If the NPV is negative, the IRR must also be negative. | 3. (TCO D) Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 25% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company's last...

Words: 1001 - Pages: 5

Final Fi515

...Final Exam Page 1 1. (TCO A) Which of the following is NOT normally regarded as being a barrier to hostile takeovers? (Points : 5) Abnormally high executive compensation Targeted share repurchases Shareholder rights provisions Restricted voting rights Poison pills 2. (TCO F) Which of the following statements is correct? (Points : 5) The NPV, IRR, MIRR, and discounted payback (using a payback requirement of 3 years or less) methods always lead to the same accept/reject decisions for independent projects. For mutually exclusive projects with normal cash flows, the NPV and MIRR methods can never conflict, but their results could conflict with the discounted payback and the regular IRR methods. Multiple IRRs can exist, but not multiple MIRRs. This is one reason some people favor the MIRR over the regular IRR. If a firm uses the discounted payback method with a required payback of 4 years, then it will accept more projects than if it used a regular payback of 4 years. The percentage difference between the MIRR and the IRR is equal to the project’s WACC. 3. (TCO D) Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 25% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company's last......

Words: 527 - Pages: 3

Fi515 Week 7 Homework

...FI515 Week 7 Homework Problems pp. 681-682 16-1 Cash Management Williams & Sons last year reported sales of $10 million and an inventory turnover ratio of 2. The company is now adopting a new inventory system. If the new system is able to reduce the firm’s inventory level and increase the firm’s inventory turnover ratio to 5 while maintaining the same level of sales, how much cash will be freed up? Sales=$10,000,000 Inventory turnover ratio (old) 2 Inventory Turnover ratio (new) 5 Freed up Cash ? (old)=10,000,000/2=$5,000,000 (new)=10,000,000/5=$2,000,000 Freed up cash=old inventory-new inventory $5,000,000-2,000,000 =$3,000,000 Medwig 16-2 Receivables Investment Corporation has a DSO of 17 days. The company averages $3,500 in credit sales each day. What is the company’s average accounts receivable? DSO= Accounts Receivables/Credit Sales(365) 17= Accounts Receivables/$3,500 Account Receivables= 17*$3,500=$59,500 16-3 Cost of Trade Credit What is the nominal and effective cost of trade credit under the credit terms of 3/15, net 30? Nominal cost of trade formula= discount percentage 100-discount percentage*365days credit is outstanding-discount period =397*36530-15 =0.03093*24.33 =0.75263 =75.26% Effective cost of trade formula= Periodic rate=0.03/0.97=0.3093 Periods/year=365/(30-15)=24.33 EAR=(1+periodic rate)n-1 =(1.03093)24.33-1=109.84% 16-4 Cost of Trade Credit ...

Words: 414 - Pages: 2

Fi515

...1. (TCO A) Which of the following statements is CORRECT? (Points: 10)        It is generally more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are required.        Corporations face fewer regulations than sole proprietorships.        One disadvantage of operating a business as a sole proprietorship is that the firm is subject to double taxation, at both the firm level and the owner level.        One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership.        If a regular partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business. 2. (TCO G) Which of the following statements is CORRECT? (Points: 10)        The statement of cash flows reflects cash flows from operations, but it does not reflect the effects of buying or selling fixed assets.        The statement of cash flows shows where the firm’s cash is located; indeed, it provides a listing of all banks and brokerage houses where cash is on deposit.        The statement of cash flows reflects cash flows from continuing operations, but it does not reflect the effects of changes in working capital.        The statement of cash flows reflects cash flows from operations and from borrowings, but it does not reflect cash obtained by selling new common stock.        The statement of cash flows shows......

Words: 909 - Pages: 4

Fi515 Final Project

...(13-10) Corporate Valuation The financial statements of Lioi Steel Fabricators are shown below—both the actual results for 2010 and the projections for 2011. Free cash flow is expected to grow at a 6% rate after 2011. The weighted average cost of capital is 11%. * a. If operating capital as of 12/31/2010 is $502.2 million, what is the free cash flow for 12/31/2011? * b. What is the horizon value as of 12/31/2011? * c. What is the value of operations as of 12/31/2010? * d. What is the total value of the company as of 12/31/2010? * e. What is the intrinsic price per share for 12/31/2010? Income Statements for the Year Ending December 31 (Millions of Dollars Except for Per Share Data) | Actual 2010 | Projected 2011 | | Net sales | $ 500.0 | $ 530.0 | Costs (except depreciation) | 360.0 | 381.6 | Depreciation | 37.5 | 39.8 | Total operating costs | $ 397.5 | $ 421.4 | Earnings before interest and taxes | $ 102.5 | $ 108.6 | Less interest | 13.9 | 16.0 | Earnings before taxes | $ 88.6 | $ 92.6 | Taxes (40%) | 35.4 | 37.0 | Net income before preferred dividends | $ 53.2 | $ 55.6 | Preferred dividends | 6.0 | 7.4 | Net income available for common dividends | $ 47.2 | $ 48.2 | Common dividends | $ 40.8 | $ 29.7 | Addition to retained earnings | $ 6.4 | $ 18.5 | Number of shares | 10 | 10 | Dividends per share | $ 4.08 | $ 2.97 | Balance Sheets for December 31 (Millions of Dollars) | Actual 2010 | Projected 2011 | | ......

Words: 725 - Pages: 3

Fi515 Final Exam

...* 1. Which of the following does not always increase a company market value * a. Increase the expected growth weight of sales * b. Increasing the expected operating profitability (NOPAT/SALES) * c. Decreasing the capital requirements (Capital /sales0 * d. Decreasing the weighted average cost of capital * e. Increasing the expected rate of return on invested capital   * 2. Which of the following statement is correct * a. The MIRR and MPV decision could never conflict * b. The IRR method can never be subject to the multiple IRR problems, while the MIRR method can be * c. One reason people prefer the MIRR to the regular IRR is that the MIRR is based on a generally more reasonable re-investment rate assumption. * d. The higher the WACC , the shorter the discounted payback period. * e. The MIRR method assumes that cash flow are reinvested at the cross over rate   •3. The Ackert company's last dividend was a $1.55 , the dividend growth rate is expected to be constant at 1.5% for two years, after which dividends are expected to grow a rate of 8.0% for ever. The firm required return the (rs) is 12.0% what is the best estimate of the current stock price. a.$37.05 b. 38.16 c.39.30 c. 40.48 d.41.7 Last dividend (D0) $1.55 Short-run growth rate 1.50% Long-run growth rate 8.00% Required......

Words: 781 - Pages: 4

Fi515 Week 6

...FI515 Homework Week 6 12 -1 AFN Equation Baxter Video Products’s sales are expected to increase by 20% from $5 million in 2010 to $6 million in 2011. Its assets totaled $3 million at the end of 2010. Baxter is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2010, current liabilities were $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accruals. The after tax profit margin is forecasted to be 5%, and the forecasted payout ratio is 70%. Use the AFN equation to forecast Baxter’s additional funds needed for the coming year. AFN Equation (Ao*/So)∆S-(L*So)∆S-MS1(1-d) = (3,000,000/5,000,000)*1,000,000-(500,000/5,000,000)*1,000,000-5%*6,000,000(1-7%) = (0.6)(1,000,000)-(0.1)(1,000,000)-(300,000)(0.3) = 600,000-100,000-90,000 =410,000 AFN 13 – 2 Value of Operations of Constant Growth Firm EMC Corporation has never paid a dividend. Its current free cash flow of $400,000 is expected to grow at a constant rate of 5%. The weighted average cost of capital is WACC = 12%. Calculate EMC’s value of operations Vop = FCF(1+g)/WACC-g Vop = $400,000(1.05)/0.12-0.05 Vop = $6,000,000 13 – 3 Horizon Value Current and projected free cash flows for Radell Global Operations are shown below. Growth is expected to be constant after 2012, and the weighted average cost of capital is 11%. What is the horizon (continuing) value at 2012? Actual......

Words: 402 - Pages: 2

Fi515

...MINI CASE ------------------------------------------------- Assume that you recently graduated and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle Dellatorre, a professional tennis player who has just come to the United States from Chile. Dellatorre is a highly ranked tennis player who would like to start a company to produce and market apparel that she designs. She also expects to invest substantial amounts of money through Balik and Kiefer. Dellatorre is also very bright, and, therefore, she would like to understand, in general terms, what will happen to her money. Your boss has developed the following set of questions which you must ask and answer to explain the U.S. financial system to Dellatorre. ------------------------------------------------- a. Why is corporate finance important to all managers? Answer: Corporate finance provides the skills managers need to: (1) identify and select the corporate strategies and individual projects that add value to their firm; and (2) forecast the funding requirements of their company, and devise strategies for acquiring those funds. ------------------------------------------------- b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form. Answer: The three main forms of......

Words: 2830 - Pages: 12

Fi515

...2-6 Statement of Retained Earnings In its most recent financial statements, Newhouse Inc. reported $50 million of net income and $810 million of retained earnings. The previous retained earnings were $780 million. How much in dividends was paid to shareholders during the year? New Balance Retained Earnings=Previous Balance Retained Earnings+ Net Income-Dividend Paid Dividend Paid=Previous Balance Retained Earnings+ Net Income- New Balance Retained Earnings Dividend Paid=$780 Mills+ $50 Mills- $810 Mills Dividend Paid=$20 Millions 2-7 Corporate Tax Liability The Talley Corporation had a taxable income of $365,000 from operations after all operating costs but before (1) interest charges of $50,000, (2) dividends received of $15,000, (3) dividends paid of $25,000, and (4) income taxes. What are the firm’s income tax liability and its after-tax income? What are the company’s marginal and average tax rates on taxable income? The marginal rate for this company is 39% The non-taxable dividends are: $15,000 * 0.7 = $ 10,500 Tax Liability =$ 22,250 + (319,500 ± 100,000)*0.39 = $ 107,855 After Tax-income: Taxable income $ 319,500 Taxable ($ 107855) Non-taxable dividend Received 15000*(0.70) $ 10,500 Net income $ 222,145 Average tax rate = Taxable interest income / Taxable operating income = 107855 / 319500 = 0.337574 *100% = 33.7574 = 33.76 % Average tax rate is 33.8 % 2-9 Corporate After-Tax Yield The Shrieves Corporation has $10,000 that it plans to......

Words: 411 - Pages: 2