unit5-problem

mba6016_workbook.xls

Home >Business & Finance homework help >unit5-problem

UNIT 1- ANSWERS

UNIT 1: TEXTBOOK PROBLEMS
Stanley Thompson
17-Jan-16
CHAPTER 2: PROBLEM 1
Current Assets	$7,300
Net Fixed Assets	$26,200
Current Liabilities	$5,700
Long-Term Debt	$12,900
Shareholder Equity =	$14,900	Equity= Assets - Liability
Net Working Capital =	$1,600	WC = CA - CL
CHAPTER 2: PROBLEM 2
	Income Statement
Sales	$675,300
Costs	$297,800
Depreciation Expense	$45,100
EBIT	$332,400
Interest Expense	$20,700
EBT	$311,700
Taxes @ 35%	$109,095
Net Income =	$202,605
Cash Dividends	$62,000
Addition to Retained Earnings =	$140,605
Tax Rate =	35%
CHAPTER 2: PROBLEM 4
Taxable Income	$315,000
Table 2.3
Taxable Income	Taxable Income (cont)	Tax Rate
					Working Income Tax
0	50,000	15%			Income band	Rate	Tax
50,001	75,000	25%			50,000	15%	7,500
75,001	100,000	34%			25,000	25%	6,250
100,001	335,000	39%			25,000	34%	8,500
335,001	10,000,000	34%			215,000	39%	83,850
10,000,001	15,000,000	35%			Income Tax		106,100
15,000,001	18,333,333	38%
18,333,334	+	35%
Income Taxes =	$106,100
Average Tax Rate =	33.68%
Marginal Tax Rate =	39%	(Note: No formula needed. Just input the correct rate from the Tax Rate column)
CHAPTER 2: PROBLEM 5
Sales	$29,200
Costs	$10,400
Depreciation Expense	$1,800
EBIT	$17,000
Interest Expense	$1,050
EBT	$15,950
Taxes @ 40%	$6,380
Net Income	$9,570
Tax Rate	40%
Operating Cash Flow =	$12,420	OCF = EBIT + Depreciation – Taxes
CHAPTER 3: PROBLEM 2		Percentage			In Dollars
		Debt	Equity	Assets	Debt	Equity	Assets
Debt/Equity Ratio	0.65	65%	100%	165%	$552,500	$850,000	$1,402,500
Return on Assets	9.80%	Net Income / Total Assets
Total Equity	$850,000
Equity Multiplier =	1.65	Assets / Equity
Return on Equity =	16.17%	Net Income / Equity
Net Income =	137,445.00	Return on assets * Total Assets
CHAPTER 3: PROBLEM 6
ROE	16%
Payout Ratio	25%
Retention Ratio	75.00%	(Note: You must calculate the retention ratio first then the sustainable growth rate)
Sustainable Growth Rate =	12.00%	ROE x (1 - dividend-payout ratio)

UNIT 2- ANSWERS

UNIT 2: TEXTBOOK PROBLEMS
Name: Stanley Thompson
MBA 6016
24-Jan-16
CHAPTER 4: PROBLEM 2 (a thru c)
	A.	B.	C.
Present Value	3,200	3,200	3,200
Interest Rate	6%	8%	6%
Number of Years	10	10	20
Future Value =	$5,731	$6,909	$10,263
Future value = Present Value x (1+r)^N
r = Interest Rate and N = number of years
CHAPTER 4: PROBLEM 3
	A.	B.	C.	D.
Future Value =	15,451	51,557	886,073	550,164
Interest Rate	7%	9%	14%	16%
Number of Years	12	8	19	24
Present Value =	$6,860	$25,875	$73,498	$15,614
Present Value = Future value / (1+r)^N
r = Interest Rate and N = number of years
CHAPTER 4: PROBLEM 4
	A.	B.	C.	D.
Present Value =	217	432	41,000	54,382
Future Value	307	896	162,181	483,500
Number of Years	3	10	13	26
Interest Rate	12.26%	7.57%	11.16%	8.77%
r= ((FV/PV)^1/N ) -1
CHAPTER 4: PROBLEM 5
	A.	B.	C.	D.
Present Value =	625	810	18,400	21,500
Future Value	1,284	4,341	402,662	173,439
Interest Rate	9%	11%	7%	10%
Number of Years (or Periods)	8.35	16.09	45.61	21.91
N = ln (FV/PV) / ln (1+r)
CHAPTER 4: PROBLEM 11
Discount Rate	5%	13%	18%
Year 1:	$960	$960	$960
Year 2:	$840	$840	$840
Year 3:	$1,935	$1,935	$1,935
Year 4:	$1,350	$1,350	$1,350
Present Value @ 5%, 13%, and 18% =	$4,458	$3,676	$3,291	(Note: Use the built-in NPV formula in Excel)
CHAPTER 5: PROBLEM 2
A.
Settlement	04/30/2007	(Think of Settlement as the beginning of the duration of the bond)
Maturity	06/26/2012	(Think of Maturity as the end of the duration of the bond)
Rate	10%	(Coupon Rate)
YTM	5%	(Yield to Maturity or Required Rate of Return)
Redemption	100	(Bonds Face Value, Par Value, or Fair Price; Note that is $100, not $1,000. You make the adjustments by multiplying the answer by 10)
Frequency	2	(Coupon payments are semiannual, so you put in a 2. If they are annual, then you input a 1)
Basis		(Always leave it blank)
Bond Price	122.46	(The answer. But you need to multiply it by 10 to get the actual bond price)
Multiply by 10	1224.65	(Microsoft gives the bond price in 2 digits. You need to multiply it by 10 to get the actual bond price)
CHAPTER 5: PROBLEM 3
Settlement	12/30/09	(Think of Settlement as the beginning of the duration of the bond)
Maturity	1/1/15	(Think of Maturity as the end of the duration of the bond)
Rate	9%	(Coupon Rate)
Pr	$100	(The bonds price per $100 face value)
Redemption	$100	(Bonds Face Value, Par Value, or Fair Price; Note that is $100, not $1,000)
Frequency	1	(Coupon payments are semiannual, so you put in a 2. If they are annual, then you input a 1)
Basis:		(Always leave it blank)
YTM	9.00%
CHAPTER 6: PROBLEM 2
Dividend Payment	$1.99
Dividend Growth Rate	4.50%		Required return =( Do*(1+g)/P0 ) + g
ZYX Stock Price	$31
Required Return =	11.21%
CHAPTER 6: PROBLEM 4
Dividend	$2.65		P= D1/r-g
Dividend increase per year	4.75%
Required Return (Return on Investment)	11%
Stock Price =	$42.40

UNIT 3- ANSWERS

UNIT 3: TEXTBOOK PROBLEMS
Name: Stanley Thompson
MBA 6016
Date: 31 January 2016
CHAPTER 7: PROBLEM 1b	Project A	Project B
	15%	15%
	($14,500)	($9,800)
Discount Rate	$8,500	$4,700
Year 0	$6,800	$4,200
Year 1	$2,800	$4,100
Year 2	($125.87)	$158.58	(Note: You will choose the project that has the highest NPV since it creates the most wealth)
Year 3
NPV =
Project B will be selected since it has a higher NPV.
CHAPTER 7: PROBLEM 2	A.	B.	C.
	$3,200	$4,600	$7,900						A	B	C
Year	$825	$825	$825	1	$825	$825			$725	$475	Greater than $6600
0	$825	$825	$825	2	$825	$1,650			0.8787878788	0.5757575758	implies it is over 8 years
1	$825	$825	$825	3	$825	$2,475		10.5454545455	10.5454545455	6.9090909091
2	$825	$825	$825	4	$825	$3,300	$825		16.3636363636	27.2727272727
3	$825	$825	$825	5	$825	$4,125		7.6363636364
4	$825	$825	$825	6	$825	$4,950
5	$825	$825	$825	7	$825	$5,775
6	$825	$825	$825	8	$825	$6,600
7	4 years 10 months 17 days	6 years 6 months 28 days	Over 8 years
8
Payback Period =	3yrs 10month	5yrs 7 months	It wont pay back
Project C will not pay back since its payback period is over 8 years which is the period of returns
CHAPTER 7: PROBLEM 8	Project A	Project B
	($5,200)	($3,600)
Year	1,800	1,300
0	3,200	2,100
1	2,200	1,800
2	17.57%	19.72%
3
IRR =
CHAPTER 7: PROBLEM 9	15%
Discount Rate	($185,000)	$185,000
Year	62,000
0 (Initial Cost)	62,000
1	62,000
2	62,000
3	62,000
4	62,000
5	62,000
6	$257,946	(Use the built-in NPV formula in Excel but exclude using the Year 0 cash outflow)
7	1.39	(Use the positive amount of the initial cost in cell C44 in the formula. You would only accept the project if the Profitability Index is above 1)
First find the NPV
Now calculate the Profitability Index
	$72,946
The project will be accepted
NPV is positive
CHAPTER 8: PROBLEM 1	$27,000	($27,000)
	6	years
Cost of Souffle Maker	2,300
Economic Life	$2
# of Souffles produced per year	$7
Cost to make each Souffle	14%
Price of each Souffle	34%
Discount Rate
Tax Rate	$9,120
Step 1: First calculate the Operating Cash Flow
	$9,120
Step 2: Place the answer you get for your Operating Cash Flow in the year 1 thru year 6 cells below	$9,120
Year 1	$9,120
Year 2	$9,120
Year 3	$9,120
Year 4	$9,120
Year 5
Year 6
	$8,465	(You will accept the project if the NPV is positive)
Step 3: Now find the NPV. Be sure to include the initial cost by using cell C58 as it is negative
NPV =
The project will be accepted since the NPV is positive.

UNIT 4- ANSWERS

UNIT 4: TEXTBOOK PROBLEMS
CHAPTER 10: PROBLEM 1
Beginning Stock Price	$73
Ending Stock Price	$82
Dividend	$1.20
Percentage Total Return =	0.00%
CHAPTER 10: PROBLEM 12
Stock Return the past 5 years	-18.35%	14.72%	28.47%	6.48%	16.81%
Holding Period Return for the Stock =	0.00%	(Note: Subtract your answer by 1 to obtain the correct percentage answer)
CHAPTER 10: PROBLEM 14
Price of Preferred Stock Last Year	$94.83
Current Price of Preferred Stock	$96.20
Preferred Stock Dividend	4.20%
Face Value of Preferred Stock	$100
Total Return =	0.00%
CHAPTER 10: PROBLEM 15
Stock Price 3 Months Ago	$41.75
Current Stock Price	$44.07
First calculate the total return for the 3 months	0.00%
Then calculate the APR by multiplying the answer in cell B35 by 4	0.00%
EAR (Effective Annual Rate) =	0.00%
CHAPTER 11: PROBLEM 2
Stock A	$3,900
Stock B	$5,700
Total Value of the Portfolio	$9,600
Expected Return on Stock A	9.50%
Expected Return on Stock B	15.20%
Expected Return on the Portfolio =	0.00%
CHAPTER 11: PROBLEM 12
Beta	0.85
Expected Return on the Market	11.50%
Risk-Free Rate	3.40%
Expected Return on the Stock =	0.00%
CHAPTER 12: PROBLEM 1
Beta	1.21
Risk-Free Rate	3.50%
Expected Return on the Market	11%
Cost of Equity =	0.00%
CHAPTER 12: PROBLEM 5
Common Stock weight	70%
Debt weight	30%
Cost of Equity	13%
Cost of Debt	6%
Tax Rate	35%
WACC =	0.00%

UNIT 5- ANSWERS

UNIT 5: TEXTBOOK PROBLEMS
CHAPTER 16: PROBLEM 1
Dividend	$6.30
Dividend Tax	25%
Stock Price	$83
Step 1: Calculate the After-Tax Dividend	$4.73
Step 2: Ex-Dividend Price =	$76.70
CHAPTER 16: PROBLEM 4 (a thru d)
# of shares of stock outstanding	270,000
Stock Price	$73
A.	$0.00	5
		3
B.	$0.00	1
		1.15
C.	$0.00	1
		1.425
D.	$0.00	4
		7
CHAPTER 16: PROBLEM 7
Stock Dividend	25%
# of shares of stock outstanding	25,000
Market Value Balance Sheet:
Cash	$145,000
Fixed Assets	$598,000
Total	$743,000
Debt	$127,000
Equity	$616,000
Total	$743,000
Find the market price of stock by using the equity and # of shares outstanding	$24.64
New shares outstanding =	31,250
New Stock price =	$19.71
CHAPTER 16: PROBLEM 16a
Dividend	$2.05
Payout Ratio	40%
Earnings Per Share	$6.20
Adjustment Rate	0.3
Dividend 1 year from now =	$2.18

UNIT 6- ANSWERS

UNIT 6: TEXTBOOK PROBLEMS
CHAPTER 18: PROBLEM 2
Net Worth	$13,205
Long-term Debt	$8,200
Net Working Capital (Excluding Cash)	$3,205
Fixed Assets	$17,380
Current Liabilities	$1,630
Cash =	$820
Net Working Capital (Including Cash) =	$4,025
Current Assets =	$5,655
CHAPTER 19: PROBLEM 1 (a thru d)
# of shares outstanding	490,000
Current Stock Price	$75
# of new shares outstanding in the future (rights offering)	80,000
Price of New Stock (or rights)	$71
A. New Market Value of the Company =	$42,430,000
B. # of Rights Needed =	$6.13	rights per new share
C. Ex-Rights Price =	$74.44
D. Value of the Right =	$0.56
CHAPTER 20: PROBLEM 4a
Spot exchange rate for the Canadian Dollar	$1.04
6 month forward rate	$1.06
U.S. Dollar	$1.00
One Canadian Dollar is worth	$0.9811	(If amount is below 1, then the U.S. Dollar is worth more and vice versa)
CHAPTER 20: PROBLEM 5a
Japanese Yen Exchange Rate=	89	=	$1
British Pound Exchange Rate=	1	=	$1.62
Cross Rate in terms of Yen per Pound =	$144.18