FINC400 full course (American Public university)

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FINC 400 Principles of Financial Management

Week 4 Homework Problems

Complete the following problems:

Problem 9-17

Problem 10-6

Problem 11-7

Problem 9-19

Problem 10-13

Problem 11-15

Problem 9-27

Problem 10-24

Problem 11-19

Master 11/2011-kT

Problem 9-17 - Refer to problems at the end of the chapter for details and instructions:
Use the template to complete the problem :
Western Sweepstakes
Discount Rate = i	12%
Periods = n	20
Annuity	50,000
PVIFA
	Solution:
		A	x	PVIFA	=	PVA

Problem 9-19 - Refer to problems at the end of the chapter for details and instructions:
Use the template to complete the problem :
Bruce Sutter
Discount Rate = i	20%
Periods = n	5	PV	x	FVIF	=	FV
Present Value of Investment	-2,000
FVIF
Discount Rate = i	15%
Periods = n	3	PV	x	FVIF	=	FV
Present Value of Investment
FVIF

Problem 9-27 - Refer to problems at the end of the chapter for details and instructions:
Use the template to complete the problem :
Information
Discount Rate = i	8%
Periods = n	11
Annuity	2,000
FVIFA
Solution:	A	x	FVIFA	=	FVA

Problem 10-6 - Refer to problems at the end of the chapter for details and instructions:
Use the template to complete the problem :
Solution: Hartford Telephone Company
a)	Par Value	$1,000
	Interest	11%	Present Value of Interest Payments = A * PVIFA
	Time to Maturity=n	30	Present Value of Interest Payments =
	Yield to Maturity = i	14%	Present Value of Principal Payment at Maturity = FV * PVIF
	Annuity = A		Present Value of Principal Payment at Maturity =
	PVIFA		Total Present Value or Price of the Bond =
	PVIF
b)	Par Value	$1,000
	Interest	11%	Present Value of Interest Payments = A * PVIFA
	Time to Maturity=n	15	Present Value of Interest Payments =
	Yield to Maturity = i	14%	Present Value of Principal Payment at Maturity = FV * PVIF
	Annuity = A		Present Value of Principal Payment at Maturity =
	PVIFA		Total Present Value or Price of the Bond =
	PVIF
c)	Par Value	$1,000
	Interest	11%	Present Value of Interest Payments = A * PVIFA
	Time to Maturity=n	1	Present Value of Interest Payments =
	Yield to Maturity = i	14%	Present Value of Principal Payment at Maturity = FV * PVIF
	Annuity = A		Present Value of Principal Payment at Maturity =
	PVIFA		Total Present Value or Price of the Bond =
	PVIF

Problem 10-13 - Refer to problems at the end of the chapter for details and instructions:
Use the template to complete the problem :
	Tom Cruise Lines, Inc.
	Par Value	$1,000	Real Rate of Return	3%
	Interest	12%	Inflation Rate	5%
	Time to Maturity=n	20	Risk Premium	4%
	Yield to Maturity = i		Total Return
	Annuity = A
	PVIFA		Inflation Rate in 5 years	3%
	PVIF
Solution:
	Compute new required rate of return (yield to maturity)
	Real Rate of Return
	Inflation Rate
	Risk Premium
	Total Return
Present Value of Interest Payments = A * PVIFA
Present Value of Interest Payments =
Present Value of Principal Payment at Maturity = FV * PVIF
Present Value of Principal Payment at Maturity =
	Total Present Value or Price of the Bond =

Problem 10-24 - Refer to problems at the end of the chapter for details and instructions:
Use the template to complete the problem :
	North Pole Cruise Lines
	Annual Dividend	$8.00
	Original Required Rate of Return	8%
	New Required Rate of Return	6%
Solution:			Show your work!
a)	ORIGINAL PRICE
	Price of Preferred Stock	=
	CURRENT VALUE
b)	Price of Preferred Stock	=

Problem 11-7 - Refer to problems at the end of the chapter for details and instructions:
Use the template to complete the problem :
Goodsmith Charitable Foundation
Debt issued last year at	8%
Cost of debt last year	10%
Cost of debt this year	20%	higher than last year
Cost of debt this year	12.0%
Corporate Tax Rate (b)	35.0%
			a)
		Solution:
If the Goodsmith Charitable Foundation borrowed money this year, what would the aftertax cost of debt be, based on their cost last year and the 20 percent increase?
			b)
If the receipts of the foundation were found to be taxable by the IRS (at a rate of 35 percent because of involvement in political activities), what would the aftertax cost of debt be?

Problem 11-15 - Refer to problems at the end of the chapter for details and instructions:
Use the template to complete the problem :
Riley Coal Co.			Aftertax Cost of Debt
Yield	10.6%	Solution:
Corporate Tax Rate = T	35%
Dividend = Dp	$4.40
Price of Preferred Stock =Pp	$50		Aftertax Cost of Preferred Stock
Floatation Cost = F	$2.00
			Based on the facts above, is the treasurer correct?

Problem 11-19 - Refer to problems at the end of the chapter for details and instructions:
Use the template to complete the problem :
United Business Forms
Capital Structure
Debt	35%	Aftertax Cost of Debt	7%
Preferred Stock	15%	Cost of Preferred Stock	10%
Common Equity	50%	Cost of Common Equity	13%
Solution:
	Cost (aftertax)	Weights	Weighted Cost
Debt (Kd)
Preferred Stock (Kp)
Common Equity (Ke)
Weighted Average Cost of Capital (Ka)