FINC 5000 Homework Assignment for Week 1
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For Week 1, please turn in the answers to the following
questions:
Chapter 1:
1. Describe the field of
finance. How is it different from the
field of accounting?
2. What are the three forms of business generally encountered in the
US? What are the main defining
characteristics of each?
3. What should be the basic
financial goal of a business?
4. In the context of a
corporation seeking to maximize the wealth of its owners, how is “wealth”
defined?
5. What are the three broad
factors that influence the market price of a corporation’s stock?
6. Name three ways in which
businesses can raise money from external sources when they need it for
expansion or project funding.
Chapter 2:
7. What is the purpose of a
balance sheet? What are some examples of
typical balance sheet accounts?
8. What is the purpose of an
income statement? What are some examples
of typical income statement accounts?
9. What is the purpose of a
statement of cash flows? What are some
examples of typical statement of cash flow accounts?
10. a. What are “Free Cash Flows (FCF)?”
b. What is “NOPAT?”
11. What was Joe’s average, or effective tax rate in 2014?
12. What was Joe’s NOPAT in 2014?
13. What was Joe’s Free Cash Flow (FCF) in 2014? (Note: For this
question, assume Joe obtained no new plant and equipment or additional net
working capital in 2014. Thus his Net Investment in Operating Capital (NIOC)
for 2014 is $0.00.)
14. Suppose you were an investor and you were considering whether to
buy a corporate bond from Joe’s Corporation or a Municipal Bond from the city
of St. Louis. Joe’s corporate bond has a
yield of 6%. The St Louis city bond has a yield of 4%. The income from Joe’s bond is taxable. The
income from the St Louis city bond is tax-free.
If your effective tax rate is 36%, which bond would give you the higher
after-tax yield?
15. What was Joe’s Net Worth at the end of 2014?
16. Why is the market value of a firm’s stock almost always higher than
the book value of the firm’s stock as shown on the balance sheet?
Chapter 3:
17. a. Calculate Joe’s ROE for 2014.
b. Construct a Du Pont equation (use the
extended, or modified version shown in the Week 1, chapters 2 & 3 lesson
notes) and comment on the sources of Joe’s ROE as revealed by the equation.
Answers to numerical
problems:
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