Week 4 7294

MBA 7294 – Advanced Financial Analysis

Midterm 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:

· +30%

· -15%

· +50%

· -35%

· +10%

· -5%

a. Calculate the geometric total return

b. 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

a. Calculate Internal Rate of Return

b. 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

a. 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

a. Calculate geometric total return

b. Annualized rate of return

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

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

a. 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