FINC 5000 Final Exam Part B, Problems
Click Link Below To Buy:
Contact Us:
Hwcoursehelp@gmail.com
Directions: You may complete the exam in Excel or in
Word.
• If you choose to complete the exam in Excel,
open the Excel program and create a new spreadsheet named final exam (your last name).
Then answer the following questions on the spreadsheet. You may put each problem on a separate tab in
the spreadsheet if you like. Save the
file when you are finished, then submit the exam on the course website just as
you would a normal homework assignment.
• If you choose to complete the exam in Word,
open the Word program and create a new document named final exam (your last name).
Then answer the following questions on the document. Be sure to show your calculations. Save the file when you are finished, then
submit the exam on the course website just as you would a normal homework
assignment.
Question 1: (Cost of Capital) 8 points
Pine Tree Farms Corporation (PTFC) has a target capital
structure of 20% debt, 10% preferred stock, and 70% common equity. Currently PTFC has a capital structure of 70%
debt, 10% preferred stock, and 80% common stock. The after tax cost of debt is 4.5%. The preferred stock has a par value of $100
per share, a $5 per share dividend, and a market price of $70 per share. The common stock of PTFC trades at $97 per
share and has a projected dividend (D1)
of $2.60. The stock price and dividend
are expected to continue to grow at 7% per year for the foreseeable future.
What is PTFC’s weighted average cost of capital (WACC)?
Question 2: (Capital Budgeting) 4 points
Consider Projects A and B, with net cash flows as follows:
---- Net Cash Flows ----
Project A Project B
Initial
Cost at T-0 (Now) ($30,000) ($50,000)
cash inflow at the end of year
1 10,000 6,000
cash inflow at the end of year
2 8,000 16,000
cash inflow at the end of year
3 5,000 25,000
- Construct NPV Profiles for these two projects.
= 47,000 – 50,000 = -$3,000
- If the two projects were mutually exclusive, which would you accept if your firm’s cost of capital were 4%? Which would you accept if your firm’s cost of capital were 8%?
Question 3: (Capital Budgeting) 2 points
Calculate the
IRR of the following project:
Year Cash Flow
0 ($55,000)
1 $21,000
2 $23,000
3 $25,000
Question 4: (Capital Budgeting) 2 points
Calculate the Modified Internal Rate of Return (MIRR) of the
project in Question 3, assuming your firm’s cost of capital is 7%.
Question 5: (Capital Structure) 4 points
Firms
R and S are similar firms in the same industry. Firms R and S have the same
profit margin and total asset turnover when compared. However, Firm R's capital
structure is 70% debt, 30% equity, and Firm S's capital structure is 30% debt,
70% equity. Given the above conditions, which firm will experience the highest
return on equity (ROE)? Why?
Question 6: (Capital Structure) 4 points
A consultant has collected the following information
regarding Hobbit Manufacturing:
Operating income (EBIT) $600 million, Debt $0, Interest expense $0, Tax rate 35%, Cost
of equity 7%, WACC 7% . The company has no growth opportunities (g = 0), so the
company pays out all of its earnings as dividends . Hobbit can borrow money at a pre-tax rate of 5%. The consultant believes
that if the company moves to a capital structure consisting of 30% debt and 70%
equity (based on market values), which would require taking on debt in the
amount of $1,779.47 million, that the cost of equity will increase to 8% and the pre-tax cost of debt will remain at
6%, but the value of the firm will rise.
Is the consultant correct? If the company makes this change, what will
be the increase in total market value for the firm?
Question 7: (Forecasting)
8 points
Jolly
Joe's Novelties, Inc. had the financial data shown below last year. Jolly Joe's has just invented a new toy which
they expect will cause sales to double from $100,000 to $180,000, increasing
net income to $12,000. From experience the company knows that when sales changes,
all current assets plus accounts payable and accrued expenses change at the
same percentage rate, and the company feels they can handle the increase
without adding any fixed assets. a. Will Jolly Joe's need any new outside
funding if they pay no dividends?
b. If so, how much will be needed?
Question 8: (Working Capital Management) 4 points
Suppose it takes Jolly Joe’s Novelties, Inc. 5 days to build
and sell toys (on average). Also suppose
it takes the firm’s customers 35 days, on average, to pay for the toys after
they have purchased them on credit.
Finally, suppose the firm is able to delay paying for the materials it
uses in the manufacturing process for 30 days.
Given these conditions, how long is Jolly Joe’s cash conversion cycle?
Question 9: (Working Capital Management) 4 points
If Jolly Joe’s buys $100 worth of supplies on credit with
terms 3/10 n30 and pays the bill on the 28th day after the purchase:
No comments:
Post a Comment