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BUSN 379 Week 1 Homework Updated

 

8. Calculating OCF.   Hammett, Inc., has sales of $34,630, costs of $10,340, depreciation expense of $2,520, and interest expense of $1,750. If the tax rate is 35 percent, what is the operating cash flow, or OCF?

 

14. Weiland Co. shows the following information on its 2014 income statement: sales = $167,000; costs = $88,600; other expenses = $4,900; depreciation expense = $11,600; interest expense = $8,700; taxes = $18,620; dividends = $9,700. In addition, you’re told that the firm issued $2,900 in new equity during 2014, and redeemed $4,000 in outstanding long-term debt.

 

a. Calculating Cash Flows. What is the 2014 operating cash flow?

 

19. Net Income and OCF. During the year, Belyk Paving Co. had sales of $2,600,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,535,000, $465,000, and $520,000, respectively. In addition, the company had an interest expense of $245,000 and a tax rate of 35 percent. (Ignore any tax loss carryback or carryforward provisions.)

 

a. What is Belyk’s net income?
b. What is its operating cash flow?
c. Explain your results in (a) and (b).

 

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BUSN 379 Week 2 Homework CHAPTER 4 (8, 17, 18) and CHAPTER 5 (1, 4, 12) Updated

 

CHAPTER 4 (8, 17, 18)
8. Calculating the Number of Periods. Calculating Rates of Return. In 2011, an 1880-O Morgan silver dollar sold for $13,113. What was the rate of return on this investment?
17. Calculating Present Values. Suppose you are still committed to owning a $150,000 Ferrari (see Question 9). If you believe your mutual fund can achieve a 10.25 percent annual rate of return, and you want to buy the car in 10 years on the day you turn 30, how much must you invest today?
18. Calculating Future Values. You have just made your first $5,000 contribution to your individual retirement account. Assuming you earn a 10.1 percent rate of return and make no additional contributions, what will your account be worth when you retire in 45 years? What if you wait 10 years before contributing? (Does this suggest an investment strategy?)

 

CHAPTER 5 (1, 4, 12)
1.Present Value and Multiple Cash Flows. Rooster Co. has identified an investment project with the following cash flows. If the discount rate is 10 percent, what is the present value of these cash flows? What is the present value at 18 percent? At 24 percent?

 

4. Calculating Annuity Present Values. An investment offers $6,700 per year for 15 years, with the first payment occurring 1 year from now. If the required return is 8 percent, what is the value of the investment? What would the value be if the payments occurred for 40 years? For 75 years? Forever?

 

12. Calculating EAR. Find the EAR in each of the following cases:

 

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BUSN 379 Week 3 Homework Chapter 6-16, Chapter 7 (11,12) Updated

 

Chapter 6: 16

 

Chapter 7: 11 and 12

 

Chapter 6: 16

 

Interest Rate Risk. Both Bond Bill and Bond Ted have 7 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 3 years to maturity, whereas Bond Ted has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Bill? Of Bond Ted? If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Bill be then? Of Bond Ted? Illustrate your answers by graphing bond prices versus YTM. What does this problem tell you about the interest rate risk of longer-term bonds?

 

Chapter 7: 11 and 12

 

Problem 11

 

Valuing Preferred Stock. E-Eyes.com has a new issue of preferred stock it calls 20/20 preferred. The stock will pay a $20 dividend per year, but the first dividend will not be paid until 20 years from today. If you require a return of 8 percent on this stock, how much should you pay today?

 

12. Stock Valuation. Alexander Corp. will pay a dividend of $2.72 next year. The company has stated that it will maintain a constant growth rate of 4.5 percent a year forever. If you want a return of 12 percent, how much will you pay for the stock? What if you want a return of 8 percent? What does this tell you about the relationship between the required return and the stock price?

 

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BUSN 379 Week 4 Homework Chapter 8: 3, 4, 5, and 6 Updated

 

WEEK 4

Chapter 8: 3, 4, 5, and 6

 

3. Calculating Payback. Global Toys Inc., imposes a payback cutoff of three years for its international investment projects. If the company has the following two projects available, should it accept either of them?

 

Year Cash Flow (A) Cash Flow (B)

 

0 ?$55,000 ?$ 95,000

 

1 19,000 18,000

 

2 27,000 26,000

 

3 24,000 28,000

 

4 9,000 260,000

 

4. Calculating AAR. You’re trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $14 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,253,000, $1,935,000, $1,738,000, and $1,310,000 over these four years, what is the project’s average accounting return (AAR)?

 

5. Calculating IRR. A firm evaluates all of its projects by applying the IRR rule. If the required return is 11 percent, should the firm accept the following project?

 

Year Cash Flow

 

0 ?$153,000

 

1 78,000

 

2 67,000

 

3 49,000

 

6. Calculating NPV. For the cash flows in the previous problem, suppose the firm uses the NPV decision rule. At a required return of 9 percent, should the firm accept this project? What if the required return was 21 percent?

 

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BUSN 379 Week 6 Homework Chapter 12 (3,5,6,15) and Chapter 13 (1) Updated

 

CHAPTER 12
3. Calculating Cost of Equity. Stock in CDB Industries has a beta of .90. The market risk premium is 7 percent, and T-bills are currently yielding 3.5 percent. CDB’s most recent dividend was $1.80 per share, and dividends are expected to grow at a 5 percent annual rate indefinitely. If the stock sells for $47 per share, what is your best estimate of CDB’s cost of equity?

 

5. Calculating Cost of Preferred Stock. Sixth Fourth Bank has an issue of preferred stock with a $6.25 stated dividend that just sold for $108 per share. What is the bank’s cost of preferred stock?

 

6. Calculating Cost of Debt. ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with seven years to maturity that is quoted at 108 percent of face value. The issue makes semiannual payments and has an embedded cost of 6.1 percent annually. What is ICU’s pretax cost of debt? If the tax rate is 38 percent, what is the after tax cost of debt?

 

15. Finding the WACC. Given the following information for Janicek Power Co., find the WACC. Assume the company’s tax rate is 35 percent.
Debt: 8,500 7.2 percent coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 118 percent of par; the bonds make semiannual payments.

 

Chapter 13
Question 1

 

EBIT and Leverage. Kaelea, Inc., has no debt outstanding and a total market value of $125,000. Earnings before interest and taxes, EBIT, are
projected to be $10,400 if economic conditionsare normal. If there is strong expansion in the economy, then EBIT will be 20 percent higher. If there is a recession, then EBIT will be 35 percentlower. Kaelea is considering a $42,000 debt issue with a 6 percent interest rate. The proceeds will
be used to repurchase shares of stock. There are currently 6,250 shares outstanding. Ignore taxes for this problem.

 

a) Calculate earnings per share, EPS, under each of the three economic scenarios before
any debt is issued. Also, calculate the percentage changes in EPS when the economy expands or enters a recession.
b) Repeat part (a) assuming that Kaelea goes through with recapitalization. What do you observe?

 

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BUSN 379 Week 7 Homework Chapter 17 (6,7,14) Updated

 

6. Calculating Net Float. Each business day, on average, a company writes checks totaling $19,500 to pay its suppliers. The usual clearing time for the checks is four days. Meanwhile, the company is receiving payments from its customers each day, in the form of checks, totaling $37,200. The cash from the payments is available to the firm after two days.
a. Calculate the company’s disbursement float, collection float, and net float.
b. How would your answer to part (a) change if the collected funds were available in one day instead of two?

 

7. Size of Accounts Receivable. Essence of Skunk Fragrances, Ltd., sells 6,500 units of its perfume collection each year at a price per unit of $270. All sales are on credit with terms of 1/10, net 30. The discount is taken by 40 percent of the customers. What is the amount of the company’s accounts receivable? In reaction to sales by its main competitor, Sewage Spray, Essence of Skunk is considering a change in its credit policy to terms of 3/10, net 30 to preserve its market share. How will this change in policy affect accounts receivable?

 

14. The Trektronics store begins each month with 740 phasers in stock. This stock is depleted each month and reordered. If the carrying cost per phaser is $26 per year and the fixed order cost is $340, what is the total carrying cost? What is the restocking cost? Should the company increase or decrease its order size? Describe an optimal inventory policy for the company in terms of order size and order frequency

 

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