finace homework
Section 1. Which Is Better?
1. Which is better: an annuity or a series of equal payments occurring over a specified number of periods? Explain your answer.
Section 2. Time Value of Money Problems
Show the steps you used to solve the problem or attach an Excel spreadsheet showing your work. Be sure to label each problem.
2. Namon just inherited $247,000 from a long-lost cousin. He wants to plan for a future business opportunity. So, he plans to invest it until 2030 in a special savings account earning 5.75%. How much will he have to invest in 2030?
3. Yosvany wants to accumulate $197,000 by 2026. How much must he deposit today in an investment account that earns 13% with semi-annual compounding of interest?
4. Kimyata’s friends just conducted a GoFundMe page to seed her future business enterprise. The page generated $134,000. She has pinpointed 2036 at the year she will launch her enterprise. What rate of interest does she need to earn to have her account grow to be $459,000 if the account has interest that compounds weekly?
5. How much is a 12% typical paying coupon bond worth for 20 years?
6. How long will it take Jercoby’s investment of $7500 to double in value at a 3% return?
7. Suppose that you have $1,250 today and invest it at a 9% rate of return for 8 years, what will be the value of your investment in 8 years?
Section 3. Miscellaneous Problems
Answer each question thoroughly.
8. Emmanuel is considering buying a ten-year-old used tire business. It has great sales with four hundred locations across the country. The company is publicly traded on NASDAQ. He has hired you to be his consultant to determine the value of the company. What valuation method would you use? Explain your choice or choices in detail.
9. Israel’s best friend wanted to know what he had been learning in Dr. Minor’s class about long term securities. Pretend you are Israel, unless you’re Israel, list and define the different types of long-term securities discussed in class so far.
10. David and Nathan are discussing valuing preferred stocks and perpetuities. David says that you must use the mixed cashflow method to find the value for preferred stocks and the payment divided the interest rate to find the value of a perpetuity. Nathan says that you can solve both the same way by taking the payment and dividing by the appropriate discount rate. Who is right? Why?
Section 4. Investment Decision
Explain step-by-step, using the examples from class as a template, how you solve the following problem. If you do not list the steps and the associated answers for each step, you will not receive full credit.
11. Ronald is considering selling his company – the Bishop Companies. You are considering making an offer to buy his company. You will not pay more than $200 million for his company. Using the Bishop Companies financial statements B located in the Unit 2 materials, determine the intrinsic value of the company. To find the intrinsic value, use the after tax cashflow for each year 2018 through 2020. Assume that the current year after tax cashflow is a perpetuity. How much is the company worth? Considering your purchase price ceiling, would you make an offer to purchase the company? How much would you offer? You have a required rate of return of 13% plus the current annualized inflation rate.
The bottom is just for info
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The Bishop Companies, Incorporated |
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Income Statement |
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Period Ending: |
6/30/2021 |
6/30/2020 |
6/30/2019 |
6/30/2018 |
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Net Sales |
$180,186,000 |
$232,571,000 |
$285,059,000 |
$245,486,000 |
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Cost of Goods Sold |
$158,267,000 |
$203,752,000 |
$249,259,000 |
$188,312,000 |
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Gross Profit |
$21,919,000 |
$28,819,000 |
$35,800,000 |
$57,174,000 |
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Operating Expenses: |
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Sales, General and Admin. |
$13,276,000 |
$14,532,000 |
$14,950,000 |
$13,706,000 |
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Non-Recurring Items |
$0 |
$17,000 |
($1,510,000) |
$2,515,000 |
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Other Operating Items |
$0 |
($1,714,000) |
$0 |
$8,771,000 |
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EBIT |
$8,643,000 |
$15,984,000 |
$22,360,000 |
$32,182,000 |
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Interest Expense |
$1,279,000 |
$851,000 |
$642,000 |
$559,000 |
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EBT |
$7,364,000 |
$15,133,000 |
$21,718,000 |
$31,623,000 |
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Income Tax |
$4,342,000 |
$5,939,000 |
$8,282,000 |
$9,288,000 |
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EAT |
$3,022,000 |
$9,194,000 |
$13,436,000 |
$22,335,000 |
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Cash Dividends |
$1,208,800 |
$3,677,600 |
$5,374,400 |
$8,934,000 |
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Increase in RE |
$1,813,200 |
$5,516,400 |
$8,061,600 |
$13,401,000 |
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0.4 |
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Balance Sheet |
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6/30/2021 |
6/30/2020 |
6/30/2019 |
6/30/2018 |
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Current Assets: |
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Cash and Cash Equivalents |
$1,520,000 |
$1,947,000 |
$1,156,000 |
$2,960,000 |
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Short Term Investments |
$215,000 |
$185,000 |
$328,000 |
$9,858,000 |
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Net Receivables |
$33,150,000 |
$40,716,000 |
$46,696,000 |
$41,114,000 |
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Inventory |
$10,181,000 |
$11,617,000 |
$15,698,000 |
$19,593,000 |
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Total Current Assets |
$45,066,000 |
$54,465,000 |
$63,878,000 |
$73,525,000 |
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Long Term Assets: |
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Long Term Investments |
$4,728,000 |
$18,637,000 |
$19,309,000 |
$26,165,000 |
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Fixed Assets |
$87,682,000 |
$91,911,000 |
$96,748,000 |
$85,947,000 |
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Goodwill |
$10,354,000 |
$10,838,000 |
$7,933,000 |
$10,542,000 |
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Intangible Assets |
$5,128,000 |
$4,473,000 |
$4,204,000 |
$4,772,000 |
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Other Assets |
$4,633,000 |
$1,139,000 |
$5,955,000 |
$1,508,000 |
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Deferred Asset Charges |
($78,000) |
($65,000) |
$0 |
$5,307,000 |
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Total Assets |
$157,513,000 |
$181,398,000 |
$198,027,000 |
$207,766,000 |
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Current Liabilities: |
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Accounts Payable |
$36,215,000 |
$41,128,000 |
$54,341,000 |
$52,380,000 |
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Short Term Debt/Current Portion of Long Term Debt |
$10,086,000 |
$9,456,000 |
$10,184,000 |
$18,015,000 |
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Other Current Liabilities |
$0 |
$0 |
$0 |
$1,602,000 |
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Total Current Liabilities |
$46,301,000 |
$50,584,000 |
$64,525,000 |
$71,997,000 |
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Long Term Debt |
$11,922,000 |
$12,869,000 |
$12,907,000 |
$13,926,000 |
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Other Liabilities |
$18,139,000 |
$21,783,000 |
$26,943,000 |
$12,017,000 |
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Deferred Liability Charges |
$13,514,000 |
$15,273,000 |
$15,050,000 |
$25,488,000 |
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Minority Interest |
$638,000 |
$1,125,000 |
$1,885,000 |
$789,000 |
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Total Liabilities |
$90,514,000 |
$101,634,000 |
$121,310,000 |
$124,217,000 |
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Shareholders Equity: |
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Preferred Stocks |
$21,000 |
$0 |
$21,000 |
$0 |
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Common Stocks |
$5,595,000 |
$5,552,000 |
$5,382,000 |
$5,185,000 |
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Capital Surplus |
$4,243,000 |
$4,480,000 |
$6,366,000 |
$0 |
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Retained Earnings |
$32,344,000 |
$38,700,000 |
$37,763,000 |
$78,364,000 |
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Negative Goodwill |
$0 |
$0 |
$61,000 |
$0 |
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Other Equity |
$24,796,000 |
$31,032,000 |
$27,124,000 |
$0 |
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Total Equity |
$66,999,000 |
$79,764,000 |
$76,717,000 |
$83,549,000 |
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Total Liabilities/Equity |
$157,513,000 |
$181,398,000 |
$198,027,000 |
$207,766,000 |
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