Exam

All answers must be prepared on an Excel spreadsheet with supporting calculations documented.

1). Using the following data:

+30%

-15%

+50%

-35%

+10%

-5%

Calculate the geometric total return

Calculate the annualized return

2). Using the following data:

Initial Investment = $10,000,000

Cash Inflow – Year 1 = $3,000,000

Cash Inflow – Year 2 = $3,500,000

Cash Inflow – Year 3 = $4,000,000

Cash Inflow – Year 4 = $4,900,000

Cash Inflow – Year 5 = $5,000,000

Calculate Internal Rate of Return

Calculate Net Present Value (assuming a required return of 8%)

3). Using the following data:

Debt

Market value - $7,000,000

Current yield to maturity – 8%

Equity

Market value - $35,000,000

Tax rate – 35%

Expected return on market – 10%

Current 10 year US Treasury – 2.3%

Beta – 1.60

Calculate weighted average cost of capital

4). Using the following free cash flow data:

Year Cash Flow

2014 $1,500,000

2015 $2,300,000

2016 $3,000,000

2017 $3,400,000

2018 $1,800,000

Calculate geometric total return

Annualized rate of return

Prepare a 10 year cash flow forecast based upon the annualized rate of growth in cash flow

Calculate the net present value of the forecasted cash flows assuming an immediate investment cost of $18,500,000

Estimate cost of capital using the following data:

Market value of debt - $600,000

Market value of equity - $1, 400,000

Current yield on debt – 7.3%

Tax rate – 35%

Expected market return – 12%

Current 10 year US Treasury – 3.8%

Beta – 2.1