Vous êtes sur la page 1sur 12

FIN 3030 Answers

********** FIN 3030 Week-1 Asignment-1 DQ **************


Question-1
The separation of ownership and control is often a subject of concern for financial
managers. Management decisions are sometimes not acceptable to shareholders.
This, in turn, raises conflicts. These conflicts are called agency problems.
For example, a chief executive officer (CEO) may spend a considerable amount of
the organization's capital on artwork to decorate the office premises. The
shareholders may raise the concern that their investment has been inappropriately
invested as decorating the office premises will not yield any financial benefits.
Provide at least two more examples of agency problems. Why does such a conflict
develop? Are such conflicts more likely to occur in smaller or larger organizations?
Why? What can be done to decrease the likelihood of these conflicts?

Question-2
What are some of the problems related to financial ratio analysis? How can these
problems be rectified?
Justify your answers using examples and reasoning.
************ FIN 3030 Week-1

Assignment-3 ************

1. Future Value. What is the future value of


a. $572 invested for 5 years at 15 percent compounded annually?
b. $449 invested for 15 years at 14 percent compounded annually?
c. $270 invested for 7 years at 6 percent compounded annually?
d. $1177 invested for 3 years at 13 percent compounded annually?
2. Present Value. What is the present value of
a. $592 to be received 8 years from now at a 14 percent discount rate?
b. $1167 to be received 7 years from now at a 12 percent discount rate?
c. $1155 to be received 12 years from now at a 14 percent discount rate?
d. $784 to be received 14 years from now at a 5 percent discount rate?
3. Future Value of an Annuity. What is the future value of
a. $1176 a year for 13 years at 13 percent compounded annually?
b. $663 a year for 10 years at 13 percent compounded annually?

c. $360 a year for 8 years at 7 percent compounded annually?


d. $338 a year for 11 years at 14 percent compounded annually?
4. Present Value of an Annuity. What is the present value of
a. $387 a year for 5 years at a 9 percent discount rate?
b. $798 a year for 13 years at a 11 percent discount rate?
c. $754 a year for 11 years at a 11 percent discount rate?
d. $550 a year for 8 years at a 11 percent discount rate?
5. How many years will it take to grow
a. $974 to a value of 4,531.43 at a compound rate of 15 percent ?
b. $371 to a value of 986.28 at a compound rate of 13 percent ?
c. $841 to a value of 2,578.34 at a compound rate of 9 percent ?
d. $421 to a value of 1,369.07 at a compound rate of 14 percent ?
6. Interest Rate. At what interest rate will it take to grow
a. $374 to a value of 1,051.94 over 12 years?
b. $640 to a value of 1,817.23 over 10 years?
c. $372 to a value of 1,623.22 over 13 years?
d. $527 to a value of 2,451.81 over 11 years?
7. Annuity. How many years will it take for a payment of
a. $687 to grow to 9,090.91 at a compound rate of 14 percent?
********** FIN 3030 Week-2 Asignment-1 DQ **************

Question 3: If the cost of debt is generally below cost of equity, why would firms want to issue
equity?

Question 4: How reliable are ratios when used to evaluate fast-growing companies? How is it
used to evaluate fast-evolving economic sectors such as Internet companies? How are ratios
helpful in evaluating turnarounds? What is the best measure of performance for companies in
cyclical sectors?

**************** FIN 3030 Week-2 Assignment 2 ******************


For each of the following find the correct equations and solve for the cost indicated.
You must show work

1. A bond has a $1,000 par value (face value) and a contract or coupon interior rate
of 8%. A new issue would have a flotation cost of 5% of the market value. The
bonds mature in 10 years. The firms average tax rate is 28% and its marginal tax
rate is 39%. The current price is $1100. What is the after tax cost of debt?
2. A new common stock issue paid a $1.50 dividend last year. The par value of the
stock is $25, and earnings per share have grown at a rate of 3% per year. This
growth rate is expected to continue into the foreseeable future. The company
maintains a constant dividend/earnings ratio of 40%. The price of this stock is now
$30, but 4% flotation costs are anticipated. What is the cost of new common equity?
3. Internal common equity where the current market price of the common stock is
$45.50. The expected dividend this coming year should be $4.00, increasing
thereafter at a 6% annual growth rate. The corporations tax rate is 34%. What is
the cost of common equity?
4. A preferred stock paying a 10% dividend on a $100 par value. If a new issue is
offered, flotation costs will be 10% of the current price of $115. What is the cost of
preferred equity?
5. The capital structure for the Shelby Corporation is provided below. The company
plans to maintain its debt structure in the future. If the firm has a 5% after-tax cost
of debt, a 12% cost of preferred stock, and a 20% cost of common stock, what is the
firms weighted cost of capital?
Bonds $2,500,000
Preferred Stock $ 350,000
Common Stock

$4,350,000

6. A bond that has a $1,000 par value (face value) and a contract or coupon interior
rate of 12%. A new issue would have a flotation cost of 6% of the market value. The
bonds mature in 10 years. The firms average tax rate is 30% and its marginal tax
rate is 34%.The current price is $989. What is after tax cost of debt?
7. A new common stock issue that paid a $1.75 dividend last year. The par value of
the stock is $15, and earnings per share have grown at a rate of 8% per year. This
growth rate is expected to continue into the foreseeable future. The company
maintains a constant dividend/earnings ratio of 30%. The price of this stock is now
$28, but 5% flotation costs are anticipated. What is the cost of new common equity?
8. Internal common equity where the current market price of the common stock is
$43.50. The expected dividend this coming year should be $3.25, increasing
thereafter at a 7% annual growth rate. The corporations tax rate is 34%. What is
the cost of common equity

9. A preferred stock paying a 10% dividend on a $125 par value. If a new issue is
offered, flotation costs will be 12% of the current price of $150. What is the cost of
preferred equity?
10. The capital structure for the Memphis Corporation is provided below. The
company plans to maintain its debt structure in the future. If the firm has a 6%
after-tax cost of debt, a 13.5% cost of preferred stock, and a 19% cost of common
stock, what is the firms weighted cost of capital?
Capital Structure ($000)
Bonds $1,100
Preferred Stock $

250

Common Stock $3,700

************* FIN 3030 Week-3 Assignment-1 *****************

Question-1 Compare and contrast NPV, IRR, MIRR and payback. Which method of ranking
investment proposals is best and why?
Question-2 What impact does timing of the cash flows have on your overall return? How might
this impact project acceptance?

***************

FIN 3030 Week-3 Assignment-2

********************

You will compare three projects. The following table lists each projects initial
outlay (price of the project) in year 0 (zero). The following years are the cash
inflows. All projects receive the same total cash inflows. They differ on when
the cash flows occur and the amount of the annual cash flow You must
submit your backup in Excel showing how answers were reached. Use the
formula and the financial calculator or Excel to determine:

Given three projects with the following cash flows:

Year

Project
A

Project
B

Project
C

Cash
Flow

Cash
Flow

Cash
Flow

-1000

-1000

-1000

200

500

350

300

400

350

400

300

350

500

200

350

1. Find the NPV, IRR and MIRR of each the projects with a cost of capital
of 5%, 10%, and 12%.
2. Determine the payback period of each project.
3. Determine the acceptance of the projects if you have a capital budget
of $3000, $2000. and $1000.
4. Compare the timing of the cash flows of each project relative to its
NPV.
5. Compare how the timing and size of the cash flows change the net
present value.
******************** FIN 3030 Week-3 Assignment-3 **********************

First identify or calculate the capital spending, the operating cash flow, the
change in net working capital, and finally the free cash flow to the firm of the
project. Free Cash Flows are cash flows available to the firm after
stakeholders have been paid (interest and dividends). It is these free cash
flows that you find that are discounted at the weighted average cost of
capital to calculate the net present value and the internal rate of return.

You will assess whether to make the investment or not. Use your acceptreject rules for the net present value and the internal rate of return.
Redbird, Inc. is considering an addition to its current operations. The figures
are below.

Cost of the new project

$3,000,000

Installation costs

$100,000

Estimated unit sales in year 1

40,000

Estimated unit sales in year 2

65,000

Estimated unit sales in year 3

35,000

Estimated sales price in year 1

$200

Estimated sales price in year 2

$200

Estimated sales price in year 3

$150

Variable cost per unit

$130

Annual fixed cost

$40,000

Initial working capital needed

$60,000

Additional Working capital


needed

5 % of sales

Depreciation method

5 years straight-line
method, no salvage value

Redbirds tax rate

40%

Redbirds cost of capital

15%

1. Calculat
e

Operating Cash Flow, change in Net Working Capital, and calculate


Free Cash Flow. Show your calculations in a Word document or an Excel
spreadsheet.
2. Determine the NPV and IRR of the project. Show your calculations in a
Word document or an Excel spreadsheet.
3. Assess the project. Be sure to state the basis upon which you made
your option choices. You should prepare a one-page executive
summary of your findings, with 35 pages of supporting analysis.
4. You must submit your backup in Excel or other supporting
documentation showing how answers were reached.
************* FIN 3030 Week-4 Assignment-1 DB *************************

Question-3 Discuss the relationship between business risk, financial risk, and beta (systematic or
market risk).

Question 4: Explain why certain shareholders would have a preference on receiving dividends
and on the amount of the dividend.

***************** FIN 3030 Week-4 Assignment-2 ************************

Assume that a firm has the following Income Statement Use this data to
determine the business risk and the financial risk as measured by the degree
of operating leverage and the degree of financial leverage, respectively. Also,
determine the combined leverage as found with the degree of combined
leverage. Utilize these risk measures to see the affect of a change in sales.

Income Statement

December 31, Year 1

Sales ($34/unit)

$34,000,000

Variable Cost ($20/unit)

$20,000,000

Fixed Cost

$10,000,000

EBIT

$4,000,000

Interest Expense

$120,000

EBT

$3,880,000

Taxes (40%)

$1,552,000

Net Income

$2,328,000

1. Calculate the DOL.


2. Calculate the DFL.
3. Determine the DCL

4. If sales increased by 20% determine the change in EBIT and the


change in EPS.
5. You must submit your backup in Excel or other supporting
documentation showing how answers were reached.
**************** FIN 3030 Week-4 Assignment-3 **************************

This part of the project is to analyze the following capital structure plans. You
will use the EBIT-EPS analysis to evaluate the two plans. One plan is all
equity and one has debt and equity.

Plan

Plan 1: All
Equity

Plan 2: Some
Debt

Shares of
Equity

80,000

50,000

Debt

$2,000,000

Cost of debt

12%

Interest
Expense

$240,000

Tax Rate

34%

34%

1. Determine the EBIT indifference point


2. Discuss the implications of EBIT above and below this point
3. You must submit your backup in Excel or other supporting
documentation showing how answers were reached.
********************* FIN 3030 Week-5 Assignment-1 **********************

Question 2: Discuss the optimal amount of accounts receivables relative to the


cost and benefits.

Question 3: Compare and contrast the impact of supply chain management on


working capital needs.

******************* FIN 3030 Week-5 Assignment-2 *******************

1. Cash Cycles: Go the internet and select an automobile manufacturing company (e.g. Ford,
Toyota, Hyundai, etc.) Find its most recent quarterly income statement and balance sheet.
a. Determine its Cash Cycle
b. Evaluate its Cash Cycle.
2. EOQ: Lillys Manufacturing needs fastener supplies to manufacture its products. The CFO
estimates that the company will need about 200,000 cases next year. The cost of storing cases
is about $0.90. The ordering cost is $500 for a shipment.
a. Determine the EOQ.
b. How many times will you order?
c. What would be the total costs for ordering the cases 1, 6, and 12 times per year?
d. What questionable assumptions are being made by the EOQ model?
************

FIN 3030 Week-5 Assignment-3 *****************

Of Redbirds sales, 20% is for cash, another 60% is collected in the month
following sale, and 20 percent is collected in the second month following
sale. November and December sales for 20X1 were $220,000 and $175,000,
respectively.

Redbird purchases its raw materials two months in advance of its sales equal
to 70% of its final sales price. The supplier is paid one month after it makes
delivery. For example, purchases for April sales are made in February, and
payment is made in March.

In addition, Redbird pays $10,000 per month for rent and $20,000 each
month for other expenditures. Tax prepayments for $23,000 are made each
quarter beginning in March.
The companys cash balance at December 31, 20X1, was $22,000; a
minimum balance of $20,000 must be maintained at all times. Assume that
any short-term financing needed to maintain cash balance would be paid off
in the month following the month of financing if sufficient funds are
available. Interest on short-term loans (12%) is paid monthly. Borrowing to
meet estimated monthly cash needs takes place at the beginning of the
month. Thus, if in the month of April the firm expects to have a need for an
additional $60,500, these funds would be borrowed at the beginning of April

with interest of $605 (.12 x 1/12 x $60,500) owed for April and paid at the
beginning of May.

January

$100,0
00

May

$275,0
00

February

$110,0
00

June

$250,0
00

March

$130,0
00

July

$235,0
00

April

$250,0
00

Augu
st

$160,0
00

1. Prepare a cash budget for Redbird covering the first seven months of
2010.
2. They have $100,000 in notes payable due in July that must be repaid,
or an extension renegotiated. Will they be able to pay off the notes?
3. What are the external funding needs, or how much can they pay back?
*****************

FIN 3030 Week-6 Assignment-1 **********************

Question 1: Discuss strengths and weakness of the percent of sales method.


Question 2: Discuss the effects on the breakeven of what happens during a
business cycle: falling and rising sales and costs.

*********************** FIN 3030 Week-6 Assignment-2 ********************

Orange Company is evaluating its financing requirements for the coming


year. The firm has been in business for only three years, and the firms chief
financial officer (Erica Stevens) predicts that the firms operating expenses,
current assets, and current liabilities will remain at their current proportion of
sales.
Last year Orange had $20 million in sales with net income of $1 million. The
firm anticipates that next years sales will reach $27 million with net income

rising to $2 million. Given its present high rate of growth, the firm retains all
its earnings to help defray the cost of new investments.

The firms balance sheet for the year just ended is found below:
12/31/09

% of
Sales

Current assets

$4,000,000

20%

Net fixed assets

8,000,000

40%

Total Assets

$12,000,00
0

Accounts payable

$3,000,000

15%

Long-term debt

2,000,000

NA

Total Liabilities

$5,000,000

Common stock

1,000,000

NA

Paid-in capital

1,800,000

NA

Retained earnings

4,200,000

NA

Total Equity

7,000,000

NA

Total Liability & Equity

$12,000,0
00

1. Estimate Oranges total financing requirements for 2010 and its net
funding requirements.
2. Orange Company is considering manufacturing communication
equipment for the military. The average selling price of its finished
product is $175 per unit. The variable cost for these same units is $140
per unit. This project incurs fixed costs of $550,000 per year.
a. What is the break-even point in units for the project?
b. What is the dollar sales volume the firm must achieve to reach
the break-even point?
c. What would be the firms profit or loss at the following units of
production sold: 12,000 units? 15,000 units? 20,000 units?

Get Answer From:


http://www.studentoffortune.com/question/250195
3/FIN-3030--Course

Better Deal--- Get Individual Answer s


from:
http://homework.ecrater.com/c/1635385/
fin-3030