Corporate Finance Assignment

1.  

This is a debt instrument that is issued without any collateral:

Answer

Question 2

1.  

Next Dividend is going to be $3.50 per share. The firm has promised to increase all future Dividends by 6%. The Stock of the firm currently sells for $ 33.00 per share. This means the required return is:

Answer

Question 3

1.  

1.      XYZ Corp has return on assets (ROA) of 12%. It's total assets and liabilities are

$50m and $ 10m respectively. XYZ's return equity (ROE) is closest to:                         

a)    

Answer

Question 4

1.  

Fill up the missing figures (??) in the following statement in order to estimate the After Tax Cash Flow.

According your calculation the after Cash Flow is:

Answer

Question 5

1.  

 According to Professor Kalia, the best Capital Budgeting Method is:

Answer

Question 6

1.  

After paying taxes at an average income tax rate of 25%, XYZ Corp just declared that it had a Net Income of $ 200m. This means ABC’s Before Tax Income was approximately:

Answer

Question 7

1.  

Which on of the following statement is true regarding Price of a Bnd:

Answer

Question 8

1.  

In year ending 2010, ABC Corp had Total Asset of $ 523m, Total Debt of $367m, EBIT of $ 422m and Interest Expenses of $98m. Calculated values of Leverage Ratios are listed as answer and name of the ratios as questions. Your task is to match the each Answers with the appropriate Question.   

Answer

Question 9

1.  

ABC Corporation just paid a dividend of $ 2.00 per share. A Wall Street Analyst predicts that the current dividend is likely to increase at constant rate of 8% per year for indefinite period. An investor wants to make a minimum return of 12% by investing in Shares of ABC. If sells these shares after one year, his capital gain yield % would be:

Answer

Question 10

1.  

The Price of a 8% Bond with remaining maturity of 8 years and a face value of $1,000 would change by what % if the market interest rate suddenly goes up from 10% t0 15%?

Answer

Question 11

1.  

1.      ABC Corporation just paid a dividend of $ 2.00 per share. A Wall Street Analyst predicts that the current dividend is likely to increase at constant rate of 8% per year for indefinite period. An investor wants to make a minimum return of 12% by investing in Shares of ABC. If sells these shares after one year, his Dividend yield % would be:

Answer

Question 12

1.  

1.      Net Fixed Assets (NFA) of ABC Corp for the two consecutive years are listed below in a Table:

                    ABC Corp Net Fixed Assets (NFA)

                    YR                  NFA

                    2008               $ 2.6 m

                    2009               $ 3.0 m

                    ABC’s 2009 Income Statement shows Depreciation of $ 88,000.  This means ABC’s

Net Capital Spending (NCAPEX) for year 2009 was:

Answer

Question 13

1.  

A Corporate Bond with 10% Coupon Rate and remaining maturity of 6 years is currently selling for $ 1,130. This is a Callable Bond in 2 years time. If called the issuer will pay the face value of Bond, $1,000, plus 10% of the face value. Your best friend wants to buy this Bond and plans to hold it for 3 years at the end of which he would sell it for $1,050. Various calculated Bond Yields are listed as Answer along with name of each type of yield as questions. Your task is to match the appropriate Answer with Question.

Answer

Question 14

1.  

Which one of the following Bonds is a Tax free Bond:

Answer

Question 15

1.  

In a country experiencing relatively high inflation rate of 20% per year, the nominal Interest Rate is 24%. This means the exact real interest rate is:

Answer

Question 16

1.  

ABC Corp just issued 8% Coupon Bonds, with maturity of 10 years, worth $ 20m under Sinking Fund Provision that requires that  ABC must put aside at the end of each year $X in an investment vehicle earning at 6% per year for orderly retirement of these Bonds. According to your calculation X is equal to:

Answer

Question 17

1.  

1.      Estimated Cash Flows for a Construction Truck that ABC Corp is considering to buy are given below:

                      Note: ABC’s Policy is to use a Discount Rate of 15%

The Discounted Payback for the Construction Truck is:

a)       

Answer

Question 18

1.  

Name of a Bond that never mature is:

Answer

Question 19

1.  

ABC Corp just paid a dividend of $ 2.75 per share. The future dividends are expected to grow at a constant rate of 6.5% forever. If the investors’ require a return of 15%, the price per share at the end of 5 years will be:

Answer

Question 20

1.  

1.      A new proposed project, with a life of 5 years, has following per year estimates:

Net Sales = $ 877,000

Variable Expenses = 60% of Net Sales

Fixed Cost = $ 550,000

Depreciation = $ 87,000

Tax Rate = 35%

According to your calculations, the estimated A0fter Tax Cash flow per year  is:

Answer

Question 21

1.  

It is a Cardinal Rule of Capital Budgeting that:

Answer

Question 22

1.  

Capital Intensity Ratio (CIR) of a Firm is 1.20. Currently the Firm is operating at Full Capacity. Marketing Department has indicated that Sales for the next year is going to increase by 10% from current level of $100m per year. This means firms would need additional assets worth approximately:

Answer

Question 23

1.  

XYZ Corp has a Debt to Equity ratio of 0.4, Profit Margin of 10% and Total Asset Turnover of 1.35. This means XYZ has a Return on Equity of:

Answer

Question 24

1.  

Your Uncle wants to buy a Home selling for $ 250,000 in the Worcester County by making a required down payment of 20% and financing the balance from a Friendly Bank in Worcester at a fixed rate of 3.99% over 30 years with monthly payments.  Your Uncle needs your help in figuring out his monthly payments.  According to your calculation your monthly payments would be:

Answer

Question 25

1.  

If the investors’ required rate of return is 14.5%, then price of a preferred Stock that pays Dividend of $ 12,00 per year per share must be:

Answer