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. Alonna’s rich cousin has $136,000. Her cousin wants to know how long it will take for that amount to grow to $468,000 at 8% interest. What is the answer?

3. Erisha sold everything she owns. She ended up with $153,000. A wonderful philanthropist will give her half today of what she would accumulate by 2034 at a 7.5% rate of return compounded monthly. How much will she accumulate by 2034?

4. The year is 2026. Keishuna invested $1000 in an investment account five years ago. When she withdraws the investment plus interest in the future, it’s worth $1610.05. What is her rate of return?

5. 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?

6. Arbriana took a trip to the year 2030. She discovered that her IRA with a 5% return will be worth $8,863.25. How much did she invest initially?

7. How much is a 12% typical paying coupon bond worth for 20 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 C 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 Bishop Companies, Incorporated
Income Statement
Period Ending:	6/30/2021	6/30/2020	6/30/2019	6/30/2018
Net Sales	$232,571,000	$245,486,000	$180,186,000	$285,059,000
Cost of Goods Sold	$203,752,000	$188,312,000	$158,267,000	$249,259,000
Gross Profit	$28,819,000	$57,174,000	$21,919,000	$35,800,000
Operating Expenses:
Sales, General and Admin.	$14,532,000	$13,706,000	$13,276,000	$14,950,000
Non-Recurring Items	$17,000	$2,515,000	$0	($1,510,000)
Other Operating Items	($1,714,000)	$8,771,000	$0	$0
EBIT	$15,984,000	$32,182,000	$8,643,000	$22,360,000
Interest Expense	$851,000	$559,000	$1,279,000	$642,000
EBT	$15,133,000	$31,623,000	$7,364,000	$21,718,000
Income Tax	$5,939,000	$9,288,000	$4,342,000	$8,282,000
EAT	$9,194,000	$22,335,000	$3,022,000	$13,436,000
Cash Dividends	$3,677,600	$8,934,000	$1,208,800	$5,374,400
Increase in RE	$5,516,400	$13,401,000	$1,813,200	$8,061,600
0.4
Balance Sheet
	6/30/2021	6/30/2020	6/30/2019	6/30/2018
Current Assets:
Cash and Cash Equivalents	$1,947,000	$2,960,000	$1,520,000	$1,156,000
Short Term Investments	$185,000	$9,858,000	$215,000	$328,000
Net Receivables	$40,716,000	$41,114,000	$33,150,000	$46,696,000
Inventory	$11,617,000	$19,593,000	$10,181,000	$15,698,000
Total Current Assets	$54,465,000	$73,525,000	$45,066,000	$63,878,000
Long Term Assets:
Long Term Investments	$18,637,000	$26,165,000	$4,728,000	$19,309,000
Fixed Assets	$91,911,000	$85,947,000	$87,682,000	$96,748,000
Goodwill	$10,838,000	$10,542,000	$10,354,000	$7,933,000
Intangible Assets	$4,473,000	$4,772,000	$5,128,000	$4,204,000
Other Assets	$1,139,000	$1,508,000	$4,633,000	$5,955,000
Deferred Asset Charges	($65,000)	$5,307,000	($78,000)	$0
Total Assets	$181,398,000	$207,766,000	$157,513,000	$198,027,000
Current Liabilities:
Accounts Payable	$41,128,000	$52,380,000	$36,215,000	$54,341,000
Short Term Debt/Current Portion of Long Term Debt	$9,456,000	$18,015,000	$10,086,000	$10,184,000
Other Current Liabilities	$0	$1,602,000	$0	$0
Total Current Liabilities	$50,584,000	$71,997,000	$46,301,000	$64,525,000
Long Term Debt	$12,869,000	$13,926,000	$11,922,000	$12,907,000
Other Liabilities	$21,783,000	$12,017,000	$18,139,000	$26,943,000
Deferred Liability Charges	$15,273,000	$25,488,000	$13,514,000	$15,050,000
Minority Interest	$1,125,000	$789,000	$638,000	$1,885,000
Total Liabilities	$101,634,000	$124,217,000	$90,514,000	$121,310,000
Shareholders Equity:
Preferred Stocks	$0	$0	$21,000	$21,000
Common Stocks	$5,552,000	$5,185,000	$5,595,000	$5,382,000
Capital Surplus	$4,480,000	$0	$4,243,000	$6,366,000
Retained Earnings	$38,700,000	$78,364,000	$32,344,000	$37,763,000
Negative Goodwill	$0	$0	$0	$61,000
Other Equity	$31,032,000	$0	$24,796,000	$27,124,000
Total Equity	$79,764,000	$83,549,000	$66,999,000	$76,717,000
Total Liabilities/Equity	$181,398,000	$207,766,000	$157,513,000	$198,027,000