FINC 4498
Fall 2013
Escobar
Homework 1 Finance Problems
Bob's Billiards has total assets of $8,000,000 and a total asset turnover of 2.9 times. If
the ROA is 11 percent, what is Bob's profit margin?
15.25%
5.78%
7.56%
3.79%
Use the Income Statement and Ba
FINC 4498
Fall 2013
Escobar
Homework 4 Finance Problems
P5-8 Third edition
P5-13 Second edition
4.5%
6%
7.25%
8%
P5-4 Third edition
P5-9 Second edition
Hint: Find the total annual dividend first. Then find the required rate of return on the
preferred stoc
FINC 4498
Fall 2013
Escobar
Homework 2 Finance Problems
Why is the quick ratio a more appropriate measure of liquidity than the current ratio for a
large-airplane manufacturer?
It provides a better measure of overall liquidity when a firm has highly liqui
FINC 4498
Fall 2013
Escobar
Review Questions for Exam 1
A market in which the buyer and seller are brought together on a securities exchange to
trade securities.
What is the OTC market?
What is a dealer market?
What is a broker market?
A start-up firm loo
FINC 4498
Fall 2013
Escobar
Homework 3 Finance Problems
What is the average annual growth rate?
5.08%
6.24%
7.52%
9.62%
Preferred stock of Slow But Sure Inc., pays annual dividends of $1.50. These dividends
are expected to continue into the indefinite fut
FINC 4498
Fall 2013
Escobar
Homework 5 Finance Problems
Answer problem P6-2 (both editions) of your book.
$0.15
$0.25
$0.45
$0.50
The answer is "the additional return that an investment must offer, relative to some
alternative, because it is more risky th
FINC 4498
Fall 2013
Escobar
Review Questions for Exam 2
Answer problem P6-15 (both editions) of your book.
The risk premiums in each decade are 6.0%, 6.0%, 6.0%, and 6.0%. The main
lesson is that the observed equity risk premium is constant through time.
FINC 4498
Fall 2013
Escobar
Take Home Quiz 3
Investors who have the right to receive the cash that remains after a firm pays all of its
bills and makes necessary new investments in the business.
What is a bondholder?
What is a residual claimant?
What is a
FINC 4498
Fall 2013
Escobar
Take Home Quiz 2
Which of the following is the same as taxable income?
EBIT
EBT
EBITDA
Gross profit
Which of the following are the residual claimants of a firm?
the suppliers
the government
the employees
the bondholders
the sto
FINC 4498
Fall 2013
Escobar
Review Questions for Exam 3
Use the table in problem P7-25 to calculate the beta of a portfolio invested equally in
stocks A, B ,C, and D.
0.5
0.85
1.05
2.15
Answer problem P7-3 (both editions) of your book
2%
4%
6%
8%
10%
Usin
FINC 4498
Fall 2013
Escobar
Take Home Quiz 1
Read Problem P2-2 in your book and answer letter b)
The FCF for the year ended December 31, is
$2,000
$5,200
$4,800
$1,500
Noncash charges, such as _, are expenses that appear on the income
statement but do not
FINC 3412
Summer I 2011
Raegan
External Funds Required (EFR)
The estimated amount of external financing that a firm will require in the future:
EFR for Zinsmeister is $8,111,000. In pro forma balance sheet, external financing
declined by $6.7 million. Why
FINC 3412
Summer I 2011
Raegan
Quiz 2
Calculate the effective annual rate (EAR) associated with a 6 APR when interest
compounds monthly.
an infinite rate
6.168%
6.136%
6.090%
6.183%
Calculate the effective annual rate (EAR) associated with a 6 APR when in
FINC 3412
Summer I 2011
Raegan
Quiz 1
For the mortgage loan in question 3, how much would you save in interest payments
over the 30-year period, if you were able to negotiate an interest of 5%?
You would save approximately $10,000
You would save approxima
FINC 3412
Summer I 2011
Raegan
Cash Budget
For Farrell Industries ($ in thousands)
We can now construct the cash budget for Farrell Industries based on the cash
receipt and cash disbursement schedules developed earlier and the following
additional informa
FINC 3412
Summer I 2011
Raegan
Schedule of Projected Cash Receipts
For Farrell Industries ($ in thousands)
Next consider the cash disbursements projections:
Purchases: The firms purchases average 70% of sales. Of this, Farrell pays 20% in
cash, 60% in the
FINC 3412
Summer I 2011
Raegan
Quiz 3
The effective annual rate (EAR) is:
The annual rate to be used in continuous compounding situations.
The annual rate of interest in affect during the current year.
The annual rate of interest actually paid or earned.
FINC 3412
Summer I 2011
Raegan
Quiz 6
Refer to problem P2-10 of your book. The quick ratio of the Access Corporation is
1.04
0.38
0.58
The firm's managers use ratios to _.
generate an overall picture of the company's financial health
monitor the firms' pe
FINC 3412
Summer I 2011
Raegan
Quiz 4
You are prepared to make monthly payments of $120, beginning at the end of this
month, into an account that pays 12 percent interest compounded monthly. How many
payments will you have made when your account balance r
FINC 3412
Summer I 2011
Raegan
Quiz 8
Use the Income Statement and Balance sheet for the Buzz Coffee Shops, Inc.
Corporation in Problem P2-9 of your book. The net profit margin for the Buzz Coffee
Shops Inc. is
25.6 percent
20.85 percent
36 percent
15.25
FINC 3412
Summer I 2011
Raegan
Quiz 7
Refer to problem P2-10 of your book. The ROA of the Access Corporation is
11.3%
4.4%
18.6%
Assume you just started a new business and you are asking your suppliers for credit on
purchases above $10,000. Which of the f
FINC 3412
Summer I 2011
Raegan
Quiz 5
What is the present value of the following stream of cash flows? Use i = 8.25%
Year
CF
1
$500
2
$500
3
$500
4
$500
5
$600
6
$600
7
$600
8
$700
9
$700
10
$700
$2,563.25
$1,589.36
$3,798.96
$1,111.11
What is the future
FINC 2401
Spring 2013
Duarte
Raising Long-Term Financing
Long-term financing instruments: common and preferred stock, debt
Financial intermediaries: institutions that raise funds by selling claims on
themselves
Volume of security issues surged eight-fold
FINC 2401
Spring 2013
Duarte
Capital Rationing
Equipment Replacement and Unequal Lives
A firm must purchase an electronic control device:
First alternative: cheaper device, higher maintenance costs, shorter period
of utilization
Second device: more expens
FINC 2401
Spring 2013
Duarte
Pro Forma Financial Statements
A forecast of what a firm expects its income statement and balance sheet
to look like a year or two ahead.
A sales forecast that relies heavily on macroeconomic and industry
forecasts.
A sales fo
FINC 2401
Spring 2013
Duarte
Popular Growth Targets
Return on Investment
Firms that use this metric as a growth target attempt to maintain ROI above some
minimum hurdle rate and to grow it over time. These firms often set hurdle rates
for minimum ROI at a
FINC 2401
Spring 2013
Duarte
Excess Capacity
NPV of leasing excess capacity (assume 10% discount rate):
o
The Human Face of Capital Budgeting
Managers must be aware of optimistic bias in the assumptions
made by project supporters.
Companies should have co
FINC 2401
Spring 2013
Duarte
Sensitivity Analysis
Sensitivity Analysis
Table 10-4 Sensitivity Analysis of Skateboard Project
Scenario Analysis
Scenario analysis is a more complex form of sensitivity analysis.
Rather than adjust one assumption up or down,
FINC 2401
Spring 2013
Duarte
Strategy and Capital Budgeting
Competition and NPV
Advocates of a positive NPV project should be able to articulate the
projects competitive advantage before running the numbers
Strategic thinking and real options
Managers mus
FINC 2401
Spring 2013
Duarte
Conflicts of Interest
Investment banks cannot solve these conflicts of interest.
Instead, they must price new security issues to strike a balance between the revenue
maximization goal of the issuing firms and the profit maximi