FIN 317 PS 1.pdf - Fin 317 Problem Set#1 Due...

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Fin 317 Problem Set #1 Due Wednesday, September 20, 2017 (beginning of class) Note: Book problems are taken from the Concise 9 th edition. Please remember to take your time when writing up your solutions. It is very important that you clearly communicate and justify your answers. 1. EZ Toy, Inc. lists fixed assets of $25 million on its balance sheet. The firm’s fixed assets were recently appraised at $32 million. EZ Toy, Inc.’s balance sheet also lists currents assets at $9 million. Current assets were appraised at $11 million. Current liabilities’ book and market values stand at $7 million and firm’s long-term debt is $15 million, i.e. there is no difference between its book and market values of debt. Construct two (very simple) balance sheets for EZ Toy, Inc. - one with the book values and the other with market values. 2. Suppose you are considering a stock investment in one of two firms (Leveraged, Inc. and Unleveraged, Inc.), both of which operate in the same industry and have identical operating incomes of $5 million. Leveraged, Inc. finances its $12 million in assets with $11 million in debt (on which it pays 8% interest) and $1 million in common equity.
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