Week 8 Assignment
phenixtj07
w8_final_exam.docxW8 Final Exam
Final Exam
CHAPTER 2 – PROBLEM 2-4
Talbot Enterprises recently reported an EBITDA of $8 million and net income of $2.4 million. It had $2.0 million of interest expense, and its corporate tax rate was 40%. What was its charge for depreciation and amortization?
CHAPTER 3 – PROBLEM 3-11
Complete the balance sheet and sales information in the table that follows for J. White Industries using the following financial data:
Total assets turnover: 1.5
Gross profit margin on sales: (Sales–Cost of goods sold)/Sales = 25%
Total liabilities-to-assets ratio: 40%
Quick ratio: 0.80
Days sales outstanding (based on 365-day year): 36.5 days
Inventory turnover ratio: 3.75
Partial Income Statement
Information
Sales _______
Cost of goods sold _______
Balance Sheet
Cash _______ Accounts payable ______
Accounts receivable _______ Long-term debt 50,000
Inventories _______ Common stock ______
Fixed assets _______ Retained earnings 100,000
Total assets $400,000 Total liabilities and equity
======== =======
CHAPTER 12 – PROBLEM 12-2
Refer to Problem 12-1. What would be the additional funds needed if the company’s yearend 2013 assets had been $7 million? Assume that all other numbers, including sales, are the same as in Problem 12-1 and that the company is operating at full capacity. Why is this AFN different from the one you found in Problem 12-1? Is the company’s“capital intensity”ratio the same or different?
CHAPTER 13 - QUESTIONS 13-4 AND 13-5
13-4) What are some actions an entrenched management might take that would harm shareholders?
Brigham, Eugene F.; Ehrhardt, Michael C.. Financial Management: Theory & Practice (Finance Titles in the Brigham Family) (Page 543). Cengage Textbook. Kindle Edition.
CHAPTER 4 – PROBLEMS 4-8, 4-13, 4-21
4-8 You want to buy a car, and a local bank will lend you $20,000. The loan would be fully amortized over 5 years (60 months), and the nominal interest rate would be 12%, with interest paid monthly. What is the monthly loan payment? What is the loan’s EFF%?
4-13 Find the present value of the following ordinary annuities (see the Notes to Problem 4-12).
a. $400 per year for 10 years at 10%
b. $200 per year for 5 years at 5%
c. $400 per year for 5 years at 0%
d. Now rework parts a, b, and c assuming that payments are made at the beginning of each year; that is, they are annuities due.
4-21 Sales for Hanebury Corporation’s just-ended year were $12 million. Sales were $6 million
5 years earlier.
a. At what rate did sales grow?
b. Suppose someone calculated the sales growth for Hanebury in part a as follows: “Sales doubled in 5 years. This represents a growth of 100% in 5 years; dividing 100% by 5 results in an estimated growth rate of 20% per year.” Explain what is wrong with this calculation.
CHAPTER 5 – PROBLEMS 5-9, 5-13
5-9The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year.
a. What will be the value of each of these bonds when the going rate of interest is (1) 5%, (2) 8%, and (3) 12%? Assume that there is only one more interest payment to be made on Bond S.
b. Why does the longer-term (15-year) bond fluctuate more when interest rates change than does the shorter-term bond (1 year)?
5-13 You just purchased a bond that matures in 5 years. The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%. What is the bond’s yield to maturity?
CHAPTER 6 – PROBLEM 6-6, 6-8
6-6 Calculate the stock’s expected return and standard deviation.
The market and Stock J have the following probability distributions:
Probability r M rJ
0.3 15% 20%
0.4 9 5
0.3 18 12
a. Calculate the expected rates of return for the market and Stock J.
b. Calculate the standard deviations for the market and Stock J.
6-8 As an equity analyst you are concerned with what will happen to the required return to
Universal Toddler Industries’s stock as market conditions change. Suppose rRF = 5%, rM = 12%, and bUTI = 1.4.
a. Under current conditions, what is r UTI, the required rate of return on UTI stock?
b. Now suppose rRF (1) increases to 6% or (2) decreases to 4%. The slope of the SML remains constant. How would this affect rM and rUTI?
c. Now assume rRF remains at 5% but rM (1) increases to 14% or (2) falls to 11%. The slope of the SML does not remain constant. How would these changes affect rUTI?
CHAPTER 7 – PROBLEM 7-17
Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of 8%. The company’s weighted average cost of capital is 12%.
CHAPTER 8 – PROBLEM 8-3
Assume that you have been given the following information on Purcell Industries:
Current stock price = $15 Strike price of option = $15
Time to maturity of option = 6 months Risk-free rate = 6%
Variance of stock return = 0.12
d1= 0.24495 N(d1) = 0.59675
d2= 0.00000 N(d2) = 0.50000
According to the Black-Scholes option pricing model, what is the option’s value?
CHAPTER 9 – PROBLEMS 9-7, 9-11
9-7 Shi Importers’s balance sheet shows $300 million in debt, $50 million in preferred stock, and $250 million in total common equity. Shi’s tax rate is 40%, r D = 6%, r ps = 5.8%, and rs = 12%.
If Shi has a target capital structure of 30% debt, 5% preferred stock, and 65% common stock, what is its WACC?
9-11 Radon Homes’s current EPS is $6.50. It was $4.42 5years ago. The company pays out 40%
of its earnings as dividends, and the stock sells for $36.
a. Calculate the historical growth rate in earnings. (Hint: This is a 5-year growth period.)
b. Calculate the next expected dividend per share, D1. (Hint: D0 = 0.4($6.50) = $2.60.) Assume that the past growth rate will continue.
c. What is Radon’s cost of equity, rs?
W8 Final Exam
Final Exam
CHAPTER 2
–
PROBLEM 2
-
4
Talbot Enterprises recently reported an EBITDA of $8
million and net income of $2.4
milli
on. It had $2.0
million of interest expense, and its c
orporate tax rate was 40%. What
was its charge for depreciation
and amortization?
CHAPTER 3
–
PROBLEM 3
-
11
Complete the balance sheet and sales information in the
table that follows for J. White
Industries using
the follow
ing financial data:
Total assets turnover: 1.5
Gross profit margin on sales: (Sales
–
Cost
of goods sold)/Sales = 25%
Total liabilities
-
to
-
assets ratio: 40%
Quick ratio: 0.80
Days sales outstanding (based on 365
-
day year): 36.5 days
Inventory turnover ratio: 3.75
Partial Income
Statement
Information
Sales
_______
Cost of goods sold
_______
Bala
nce Sheet
Cash
_______
Accounts payable
______
Accounts receivable
_______
Long
-
term debt
50,000
Inventories
_______
Common stock
______
Fixed assets
_______
Retained earnings
100,000
Total assets
$400,000
Total liabilities and equity
========
=======
CHAPTER 12
–
PROBLEM 12
-
2
Refer to Problem 12
-
1. What would be the additional funds needed if the company’s yearend 2013
assets had been $7 million? Assume that all othe
r numbers, including sales, are
the same as in Problem
12
-
1 and th
at the company is ope
rating at full capacity. Why is
this AFN different from the one you
found in Problem 12
-
1? Is the company’s“capital
intensity”ratio the same or different?
W8 Final Exam
Final Exam
CHAPTER 2 – PROBLEM 2-4
Talbot Enterprises recently reported an EBITDA of $8 million and net income of $2.4 million. It had $2.0
million of interest expense, and its corporate tax rate was 40%. What was its charge for depreciation
and amortization?
CHAPTER 3 – PROBLEM 3-11
Complete the balance sheet and sales information in the table that follows for J. White Industries using
the following financial data:
Total assets turnover: 1.5
Gross profit margin on sales: (Sales–Cost of goods sold)/Sales = 25%
Total liabilities-to-assets ratio: 40%
Quick ratio: 0.80
Days sales outstanding (based on 365-day year): 36.5 days
Inventory turnover ratio: 3.75
Partial Income Statement
Information
Sales _______
Cost of goods sold _______
Balance Sheet
Cash _______ Accounts payable ______
Accounts receivable _______ Long-term debt 50,000
Inventories _______ Common stock ______
Fixed assets _______ Retained earnings 100,000
Total assets $400,000 Total liabilities and equity
======== =======
CHAPTER 12 – PROBLEM 12-2
Refer to Problem 12-1. What would be the additional funds needed if the company’s yearend 2013
assets had been $7 million? Assume that all other numbers, including sales, are the same as in Problem
12-1 and that the company is operating at full capacity. Why is this AFN different from the one you
found in Problem 12-1? Is the company’s“capital intensity”ratio the same or different?
