Final Exam

MBA 7294 – Advanced Financial Analysis

Final Exam

All answers must be prepared on an Excel spreadsheet with supporting calculations documented. Please remember to include your name on your exam or in the file name.

1). 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

a. Calculate Internal Rate of Return

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

2). 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

a. Construct a pie chart of the firm’s capital structure (market values)

b. Calculate weighted average cost of capital

3). Using the following free cash flow data:

Year Cash Flow

2019 $3,000,000

2020 $3,400,000

a. Calculate the growth in cash flow between 2019 and 2020

b. Prepare a 5 year cash flow forecast based upon the rate of growth in cash flow (2021-2025)

c. Calculate the net present value of the forecasted cash flows assuming an investment cost of $18,500,000 in the beginning of 2021

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

d. State your opinion on whether you would make the investment and why?

Using the attached financial statement exhibits, please prepare answers to the following:

4). Prepare common-sized income statements for all prior years.

5). Prepare pro forma income statements for the next 5 years.

· Assume the revenue growth rate between 2019 and 2020 will stay the same for the next five years

· Assume the expense percentages shown on the common-size income statement for 2020 will stay the same going forward.

6). Prepare common-sized balance sheets for all prior years.

7). Using your answers to the above questions, prepare a brief executive summary (no more than a couple of paragraphs) analyzing the company and discussing future financial performance.