finance

5. (TCO G) Consider the information for the following four firms.


Firm

Cash

Debt

Equity

rD

rE

τc

Eenie

0

150

150

5%

10%

40%

Meenie

0

250

750

6%

12%

35%

Minie

25

175

325

6%

11%

35%

Moe

50

350

150

7.50%

15%

30%

Which is the weighted average cost of capital for Minie closest to?

A) 9.50%

B) 8.75%

C) 6.75%

D) 8.25%

(Points : 30)

1. (TCO H) Your consulting firm was recently hired to improve the performance of Shin-Soenen Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firm's cash conversion cycle. Using the following information and a 365-day year, what is the firm's present cash conversion cycle?

Average inventory = 
Annual sales = 
Annual cost of goods sold = 
Average accounts receivable =
Average accounts payable = $75,000 
$600,000 
$360,000 
$160,000 
$25,000
a. 120.6 days
b. 126.9 days
c. 133.6 days
d. 140.6 days
e. 148.0 days (Points : 30)

3. (TCO E)

Division

Asset

Beta

Next Period's Expected Free Cash

Flow ($mm)

Expected

Growth

Rate

Oil Exploration

1.4

450

4.0%

Oil Refining

1.1

525

2.5%

Gas and Convenience Stores

0.8

600

3.0%


The risk-free rate of interest is 3% and the market risk premium is 5%.


1) Which is the cost of capital for the oil exploration division closest to?

A) 6.0%

B) 7.0%

C) 8.5%

D) 10.0%

(Points : 30)

4. (TCO B)
You expect CCM Corporation to generate the following free cash flows over the next 5 years.


Year

1

2

3

4

5

FCF ($ millions)

25

28

32

37

40


Following Year 5, you estimate that CCM's free cash flows will grow at 5% per year and that CCM's weighted average cost of capital is 13%.


Which is the enterprise value of CCM Corporation closest to?

A) $396 million

B) $290 million

C) $382 million

D) $350 million

(Points : 35)

5. (TCO D)
Which is the variance of the returns on the Index from 2000 to 2009 closest to?




Year End

Index

Realized Return

(R - R)

(R - R)2

2000

23.6%

14.78%

0.0218448

2001

24.7%

15.88%

0.0252174

2002

30.5%

21.68%

0.0470022

2003

9.0%

0.18%

3.24E-06

2004

-2.0%

-10.82%

0.0117072

2005

-17.3%

-26.12%

0.0682254

2006

-24.3%

-33.12%

0.1096934

2007

32.2%

23.38%

0.0546624

2008

4.4%

-4.42%

0.0019536

2009

7.4%

-1.42%

0.0002016



A) 0.0450

B) 0.3400

C) 0.1935

D) 0.0375

(Points : 35)