PROGRESS REPORT
Behavioral Finance and the Psychology of Financial Decision
SCOPE AND PURPOSE
Studies has shown that behavioral finance is an important concept that every investor should at
least have some understanding on or else seek the services of pro
17-2 e(t) = 1 for t=0
= .8/(1.03)t-1 for t=1,2
a What would Sue/Bob rather have: $1 today or $1.10 next year?
Explain.
Sue: 1.10 * 1/1.07 > 1 (1.10 (has in a year) & 1/1.07 (Present value of $1
from year 1)
Sue has a $1.10 in year 1 than $1 as of now.
Bob
Shefrin: Problem 4-3
The author of the Barrons article discussed in question 1 suggests that Jim Chanos may
have suffered from hubris, and let success get to his head. Discuss how this suggestion
relates to the psychological phenomena described in chapter
Behavioral Finance and the Psychology of
Financial Decisions (90/100)
1
August 1, 2016
Mr. Karl Henry (CFO)
Stephanie Jones, Senior Consultant
Shefrain Consulting, LLC
As a new employee at Shefrain Consulting firm I was given the opportunity to
demonstrat
Week 5 Homework
Acker & Deaves
9-2
Consider two investors (A and B) with the following demand curves for a stock:
A: p = 100 - q
B: p = 150 2q
a. At a price of $50, how much will A and B purchase?
q=50 for A (100-50)
q=50 for B (150-2(50)=(150-100)
b. If
FIN 645 Final Project Progress Report
Scope and Purpose
Behavioral finance is an important concept that every stockholder should have some
understanding or pursue service of a professional investment consultant when making significant
investment decisions
Problem 9-4: Traditional WACC Valuation
Given
Solution Legend
Debt beta
Levered equity beta
Market Risk Premium
Risk free rate
Borrowing rate (before tax)
Number of common shares
Tax rate
0.20
1.60
5%
7%
8%
2,000
30%
= Value given in problem
= Formula/Cal
PROBLEM 6-1
Cash provided by operations (CPBO) differs from free cash flow for the following reasons:
1.
Solution Legend
= Value given in problem
= Formula/Calculation/Analysis required
= Qualitative analysis or Short answer required
= Goal Seek or Solver
Toy Co. Enterprise DCF Valuation
Valuation analysis of a strategic merger & acquisition - Mini-case
Setting:
It is January 2015 and as the Chief Executive Officer of TM Toys Inc. you are evaluating a
strategic acquisition of Toy Co. Inc. Toy Co. Inc. desi
P
Given
Initial cost of equipment
Project and equipment life
Salvage value of equipment
Working capital requirement
Depreciation method
Depreciation expense
Discount rate
Tax rate
Base case
Enter the given va
book here
Unit sales
Price per unit
Variable c
PROBLEM 8-1
Given
Sale price
Square footage
Selling price/sq ft
Time on the market
$
$
Comp #1
240,000.00 $
2,240
107.14 $
61 days
Solution
a.
b.
c.
Average price per square foot
Estimated Value
Comp #2
265,000.00
2,145
123.54
32 days
2121 Tartar Circle
3
PROBLEM 9-1
Solution Legend
Given
Discount rate
Year 5 multiple
Debt (0)
Year
1
2
3
4
5
$
15%
5
400,000
Cash flows
$
100,000
120,000
135,000
150,000
175,000
Solution
a. Enterprise Value
b. Equity Value
874,257.01
474,257.01
= Value given in problem
= Form
Problem 2-6
PROBLEM 2-6
Given
Solution Legend
TCM Petroleum
Sales
Cost of Goods Sold
Gross Profit
Selling, General, & Administrative Expense
Operating Income Before Deprec.
Depreciation, Depletion, & Amortization
Operating Profit (NOI)
Interest Expense
No
PROBLEM 10-5
Given
EBITDA 2015
Added EBITDA
Funding need
VC's required rate
Rate on convertible debt
Term
EBITDA multiple
EBITDA growth rate
Solution Legend
#
1,000,000
5,800,000
25.0%
8.0%
5 years
5
20.0%
= Value given in problem
= Formula/Calculation/An
PROBLEM 6-13
Solution
Given (refer to problem 6-12):
Balance Sheet
Cash and Marketable Securities
Accounts Receivable
Inventories
Current Assets
Net Property Plant & Equipment
Total
Accounts Payable
Short-term Debt
Current Liabilities
Long-term Debt
Total
PROBLEM 8-13
Given
Exhibit P6-11.1 Income Statement and Balance Sheet values are in Thousands
XTO Energy Chesapeake
Energy
Ticker
PERIOD ENDING
Income Statement ($000)
Total Revenue
Cost of revenue
Gross Profit
Operating Expenses
Selling, general, and adm
PROBLEM 11-10
Given
Initial investment
$
Total PCs scrapped
Electronic scrap per
Gold content
Life of project
PCs scrapped per ye
Tons of scrap per yea
Current price of gold $
Cost/ton for processi $
Tax rate
Risk free rate
WACC
Growth in gold prices
Forw
PROBLEM 5-7
a. For each segment,
1. Identify a set of comparable companies that have traded equity. The criteria for "comparable" is: similar
line of business and similar size.
2. Use standard regression techniques to compute the beta of leverd equity of
PROBLEM 12-2
Given
Quantity
Price (Year 0)
P-high
P-low
Forward price
Extraction costs
Solution L
$
$
$
$
$
1000
20
25
15
20
17
= Value given in problem
= Formula/Calculation/A
= Qualitative analysis or
= Goal Seek or Solver ce
= Crystal Ball Input
= Crys
Problem 2-12
PROBLEM 2-12
Given
Machine cost
Depreciation
Annual cost savings
Machine life
Salvage value (before tax)
Tax rate
Discount rate
$
760,000
Straight line
250,000
5
30%
9%
The solution below corresponds to pa
b. of the problem. To solve for part
PROBLEM 3-4: Clayton Manufacturing Company
Given
EBITDA (Year 1)
Growth Rate in EBITDA
Initial investment
Depreciation (Straight line) over
Estimated salvage value
Tax rate
Cost of capital
$
$
$
200,000
5%
800,000
5 years
35%
12%
Solution
Years
a.
EBITDA
PROBLEM 5-10
Given
Cost of equity
Cost of debt
Tax rate
10.00%
5.00%
35.00%
Solution
a.
Project A (expand)
Up-front initial investment
Annual fixed costs
Variable costs
Contribution margin
Degree of Operating Leverage
Debt capacity
Debt to value ratio at
PROBLEM 5-4
Given
Debt Ratio (current)
Equity Ratio (current)
Cost of Debt
Market Risk Premium
Equity Beta
Debt Beta
Risk Free Rate
Corporate Tax Rate
Solution L
30.0%
70.0%
6.0%
5.25%
1.20
0.29
4.5%
35%
Solution
a. Cost of Equity
b. WACC
c.
Unlevered bet
PROBLEM 4-8
Given
December 31, 2014
Balance Sheet
Invested Capital
(Book Values)
(Market Values)
Liabilities and Owner's Capital
Current liabilities
Accounts payable
Notes payable
Other current liabilities`
Total current liabilities
Long-term debt (8.5% i
PROBLEM 4-9
Given
Maturity
Terms
Face value
Coupon rate
Offering price
5 years
Interest only
$
1,000
12.00%
$
800
Solution
a.
Promised YTM =
18.46%
b. (Note: the discussion of this analysis is found in the Appendix to the chapter)
Bond Rating
Caa/CCC
10 Y
PROBLEM 6-12
Solution Legend
Given (refer to problem 6-7):
Balance Sheet
Cash and Marketable Securities
Accounts Receivable
Inventories
Current Assets
Net Property Plant & Equipment
Total
Accounts Payable
Short-term Debt
Current Liabilities
Long-term Debt
PROBLEM 11-9
Given
Risk free rate
Spot price (gold)
Number of ounces
Cost of 175 ounces
Maturity
Forward price (175 ounces)
5.00%
571.43
175
$ 100,000.00
1
$ 104,000.00
$
Solution
Strategy of Client
(Short gold today, invest in treasury and go long on for