Final  Exam  FINC  330  OL1-­‐‑US1  Fall  2014

Transcription

Final  Exam  FINC  330  OL1-­‐‑US1  Fall  2014
Final Exam FINC 330 OL1-­‐‑US1 Fall 2014
Name___________________________________
All free response questions. All the work has to be shown! You should show the formula, the input, and the final answer. If you are using financial calculator or Excel, you should type your input. You will not receive the full credit for the problem if only the final answer is given.
Part 1: 10 questions 2 points each.
1) In five years your oldest child will be in 8th grade, at which point you and your family plan to vacation in Spain. You estimate that you will need $20,000 for the trip. How much do you need to set aside today if you can place your money in an investment vehicle earning an average of 4.50% per year?
1) _______
2) Swan Construction had sales seven years ago of $2,150,000. This year their sales hit $4,600,000. What has been Simpson'ʹs average annual rate of growth of sales?
2) _______
3) Your friend Ken started college at the age of 18 with $63,450 already saved, because 18 years ago when he was born his parents placed money into a special college savings account earning 7.25% per year. How much money did Ken'ʹs parents place into his college account? 3) _______
4) Gasoline cost $.10 per gallon in 1930. Over the next 60 years, the price rose at an average rate of 4.42% per year. Based on this information, what was the average price of a gallon of gas in 1990?
4) _______
5) Given the following cash flows, what is the future value at year ten when compounded at an interest rate of 12.0%?
Year
Cash Flow
5) _______
0
$4,000
1
$3,000
5
$2,000
10
$1,000
Part 2: 30 questions 3 points each.
6) You have saved $47,000 for college and wish to use $15,000 per year. If you use the money as an ordinary annuity and earn 6.15% on your investment, how many years will your annuity last? Use a calculator to determine your answer.
6) _______
7) What is the present value of a loZery paid as an annuity due for twenty years if the cash flows are $250,000 per year and the appropriate discount rate is 7.50%? 7) _______
8) You just won a loZery -­‐‑ CONGRATULATIONS! Your parents have always told you to plan for the future, so since you already have a well-­‐‑paying job you decide to invest rather than spend your loZery winnings. The payment schedule from the loZery commission is $100,000 after taxes at end of year one and 19 more payments of exactly $100,000 after taxes in equal annual end-­‐‑of-­‐‑the-­‐‑year deposits (i.e., the first of the next 20 deposits is one year from today) into your account paying 7% compounded annually. How much money will be in your account after the last deposit is made?
8) _______
9) What is the present value today of an ordinary annuity cash flow of $3,000 per year for forty years at an interest rate of 6.0% per year if the first cash flow is six years from today?
9) _______
10) Suppose you invest $1,000 today, compounded quarterly, with the annual interest rate of 5.00%. What is your investment worth in one year? 10) ______
11) Ten years ago Brick Signs Inc. issued twenty-­‐‑five-­‐‑year 8% annual coupon bonds with a $1,000 face value each. Since then, interest rates in general have risen and the yield to maturity on the Brick Signs bonds is now 9%. Given this information, what is the price today for a Brick Signs bond?
11) ______
12) Thomson Biometrics Inc., has outstanding $1,000 face value 8% coupon bonds that make semiannual payments, and have 14 years remaining to maturity. If the current price for these bonds is $987.24, what is the annualized yield to maturity?
12) ______
13) PGC Inc. just issued zero-­‐‑coupon bonds with a par value of $1,000. If the bond has a maturity of 15 years and a yield to maturity of 10% compounded semi-­‐‑annually, what is the current price of the bond if it is priced in the conventional manner?
13) ______
14) Morning Glory Enterprises Inc. has issued 30-­‐‑year semiannual coupon bonds with a face value of $1,000. If the annual coupon rate is 14% and the current yield to maturity is 15%, what is the firm'ʹs current price per bond?
14) ______
15) The Super Bike Company just paid an annual dividend of $1.12. If you expect a constant growth rate of 4% and have a required rate of return of 13%, what is the current stock price according to the constant growth dividend model? 15) ______
16) In a stream of past dividends, the initial dividend is $0.75 and the most recent dividend is $1.25. The number of years between these two dividends (n) is 8 years. What is the average growth rate during this eight-­‐‑year period? Use a calculator to determine your answer.
16) ______
17) Peter is considering an investment in Moon Inc. and has gathered the following information. What is the expected return for a share of the firm'ʹs stock?
State of the Economy
Recession
Steady
Boom
17) ______
Probability of the State
.20
.50
.30
Conditional Expected Return Moon Inc.
-­‐‑10%
10%
45%
18) Mary owns the following portfolio of securities. What is the beta for the portfolio?
Company
Apple
Wells Fargo
Beta
2.50
0.65
Percent of Portfolio
25%
50%
Ebay
1.70
25%
18) ______
19) Assume the following information about the market and CrashMasters'ʹ stock. CrashMasters'ʹ beta = 1.50, the risk-­‐‑free rate is 3.50%, the market risk premium is 10.0%. Using the SML, what is the expected return for CrashMasters'ʹ stock?
19) ______
20) Kerry purchased Black Forest Industries Inc. stock for $14.65 and sold it 6 months later for $17.38 after receiving a $0.25 dividend. What was Kerry'ʹs holding period return (HPR), Annual Percentage Rate (APR), and Effective Annual Rate (EAR)? 20) ______
21) Sunny, Inc. is considering a four-­‐‑year project that has an initial outlay or cost of $100,000. The respective future cash inflows from its project for years 1, 2, 3 and 4 are: $50,000, $40,000, $30,000 and $20,000. Will it accept the project if its required payback period is 31 months? 21) ______
22) DumDum, Inc. is considering a very risky five-­‐‑year project that has an initial outlay or cost of $70,000. The future cash inflows from its project for years 1, 2, 3, 4, and 5 are all the same at $35,000. Calculate the internal rate of return to evaluate the project. Will DumDum accept the project if its hurdle rate is 41.00%? 22) ______
23) Pig, Inc. is currently considering an eight-­‐‑year project that has an initial outlay or cost of $80,000. The future cash inflows from its project for years 1 through 8 are the same at $30,000. Pig has a discount rate of 13%. Because of concerns about funds being short to finance all good projects, Pig wants to compute the profitability index (PI) for each project. What is the PI for Pig'ʹs current project? 23) ______
24) Find the Modified Internal Rate of Return (MIRR) for the following annual series of cash flows, given a discount rate of 10.50%: Year 0: -­‐‑$75,000; Year 1: $15,000; Year 2: $16,000; Year 3: $17,000; Year 4: $17,500; and, Year 5: $18,000.
24) ______
25) Pie, Inc. is considering an eight-­‐‑year project that has an initial after-­‐‑tax outlay or after-­‐‑tax cost of $180,000. The future after-­‐‑tax cash inflows from its project for years 1 through 8 are the same at $38,000. Pie uses the net present value method and has a discount rate of 11.50%. Calculate the Net Present Value of the project. Will Pie accept the project?
25) ______
26) Consider the following four-­‐‑year project. The initial outlay or cost is $180,000. The respective cash inflows for years 1, 2, 3 and 4 are: $100,000, $80,000, $80,000 and $20,000. What is the discounted payback period if the discount rate is 11%?
26) ______
27) Bald Eagle Co. purchases an asset for $50,000. This asset qualifies as a five-­‐‑year recovery asset under MACRS, with the fixed depreciation percentages as follows: year 1 = 20.00%; year 2 = 32.00%; year 3 = 19.20%; year 4 = 11.52%. Bald Eagle has a tax rate of 35%. If the asset is sold at the end of four years for $5,000, what is the after-­‐‑tax cash flow from disposal?
27) ______
28) KKOL, Inc. has just issued a 10-­‐‑year $1,000.00 par value, 10% annual coupon bond for a net price of $964.00. The tax rate is 30%. What is the after-­‐‑tax cost of debt financing? Use a financial calculator or Excel to determine your answer.
28) ______
29) The following information comes from the Galaxy Way Construction balance sheet. The value of common stock is $10,000, retained earnings equals $7,000, total common equity equals $17,000, preferred stock has a value of $3,000, and long-­‐‑term debt totals $15,000. If the cost of debt is 8.00%, preferred stock has a cost of 10.00%, common stock has a cost of 12.00%, and the firm has a corporate tax rate of 30%, calculate the firm'ʹs WACC adjusted for taxes.
29) ______
30) Use the dividend growth model to determine the required rate of return for equity. Your firm has just paid a dividend of $1.50 per share, has a recent price of $31.82 per share, and anticipates a growth rate in dividends of 4.00% per year for the foreseeable future. 30) ______
31) The following market information was gathered for the Blender Corporation. The firm has 1,000 bonds outstanding, each selling for $1,100.00 with a required rate of return of 8.00%. Blenders has 5,000 shares of preferred stock outstanding, selling for $40.00 per share and 50,000 shares of common stock outstanding, selling for $18.00 per share. If the preferred stock has a required rate of return of 11.00% and the common stock requires a 14.00% return, and the firm has a corporate tax rate of 30%, then calculate the firm'ʹs WACC adjusted for taxes.
31) ______
32) T-­‐‑short Unlimited, Inc., an on line retailer of t-­‐‑shirts, orders 100,000 t-­‐‑shirts per year from its manufacturer. T-­‐‑short Unlimited plans on ordering t-­‐‑shirts 12 times over the next year. T-­‐‑short Unlimited receives the same number of t-­‐‑shirts each time it orders. The carrying cost is $0.10 per shirt per year. The order cost is $500 per order. What is the annual ordering cost of the t-­‐‑shirt inventory (rounded to the nearest dollar)?
32) ______
33) Canada Forest Mills Inc. has credit terms of 2/10 net 60. Customers should take the discount and pay in 10 days if they CANNOT earn more than ________ (APR) or ________ (EAR) on their investments.
33) ______
34) Plum Electronics Inc. has a profitability ratio of 0.14, an asset turnover ratio of 1.7, a debt to equity ratio of 0.60 and a total asset to equity ratio of 1.60. What is the firm'ʹs ROE? 34) ______
Consider the information below from a firm'ʹs balance sheet for 2011 and 2012. All the work has to be shown!
Current Assets
2012
Cash and Equivalents $1,561 Short-­‐‑Term Investments $1,052 Accounts Receivable
$3,616 Inventories
$1,816 Other Current Assets $ 707 Total Current Assets $8,752 Current Liabilities
Accounts Payable $5,173 Short-­‐‑Term Debt
$ 288 Other Current Liabilities$1,401 Total Current Liabilities $6,862 2011
$1,800
$3,010
$3,129
$1,543
$ 601
$10,083 Change
-­‐‑$ 239
-­‐‑$ 1,958
$ 487
$ 273
$ 106 -­‐‑$1,331
$5,111
$ 277 $1,098 $6,486 $ 62
$ 11
$ 303 $ 376 35) Assuming the Operating Cash Flows (OCF) are $7,155 and the Net Capital Spending (NCS) is $2,372, what is the Cash Flow from Assets?