1. Compare the stand-alone risk / return of each of the five investment alternatives listed in Exhibit 13.1.
Economic State
Poor
Below Avg
Avg
Above Avg
Excellent
Probability
1-Yr T-bill
0.1
0.2
0.4
0.2
0.1
Standard deviation
Return
CV
Project A
7.00%
7.0
Time Value of Money Homework
1.
Your local travel agent is advertising an extravagant global vacation. The
package deal requires that you pay $5,000 today, $15,000 one year from today,
and a final payment of $25,000 on the day you leave two years from tod
Alternative Views Homework
The following information should be used for problems #1 - 4:
Suppose that we have identified three important systematic risk factors given by
exports, inflation, and industrial production. In the beginning of the year, growth i
9/1/2014 UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT
Chapter 12 - Project Risk Analysis
PROBLEM 1
The managers of Merton Medical Clinic are analyzing a proposed project. The project's most likely
NPV is $120,000, but, as evidenced by the following NPV d
9/1/2014
UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT
Chapter 11 - Capital Budgeting
PROBLEM 1
Winston Clinic is evaluating a project that costs $52,125 and has expected net cash flows of $12,000 per
year for eight years. The first inflow occurs one year
9/1/2014 UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT
Chapter 9 - Cost of Capital
PROBLEM 1
Calculate the after-tax cost of debt for the Wallace Clinic, a for-profit healthcare provider, assuming that
the coupon rate set on its debt is 11 percent and its
1. Which bank should Gary choose for a saving account, which bank for a certificate of deposit, and which bank for a term
Bank
Sun Trust
Product
Savings account
CD
Term Loan
Compounding
Daily
Monthly
Quarterly
Bank South
Savings account
CD
Term Loan
Weekl
9/1/2014
UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT
Chapter 6 - Debt Financing
PROBLEM 1
Assume Venture Healthcare sold bonds that have a ten-year maturity, a 12 percent coupon rate with
annual payments, and a $1,000 par value.
a. Suppose that two year
9/1/2014
UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT
Chapter 4 - Time Value Analysis
PROBLEM 1
Find the following values for a lump sum:
- The future value of $500 invested at 8 percent for one year
- The future value of $500 invested at 8 percent for f
9/1/2014
UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT
Chapter 8 - Lease Financing
PROBLEM 1
Suncoast Healthcare is planning to acquire a new X-ray machine that costs $200,000. The business can
either lease the machine using an operating lease or buy it u
1. To prepare for the meeting, create a summary of the yields of each bond by completing the table shown in Exhibit 14.2.
assumed to be the required rate of return of each bond and that the semiannual YTM must be multiplied by two to get the
Face Value
An
CASE19
CASE 20
7/4/2016
Student Version
Copyright 2014 Health
Administration Press
CORAL BAY HOSPITAL
Traditional Project Analysis
This case illustrates a complete capital budgeting analysis, including cash flow analysis
and profitability measures. Note t
1. As a baseline, assume all cash flows have the same risk; that is, ignore residual value risk and use th
a. Should the Center lease the equipment? Should GBF write the lease?
The Center has a net advatage to leasing of $116,261, indicating that they sho
Time Value of Money
o Financial managers need to know how to determine the value today of an expected
future cash flow
o When given today in a problem, today = time 0 (present value); t=0; T=1 means the end
of year (period if not year) one, and also begi
1.1
L01 What is corporate finance?
Financial managers must ask the following 3 questions:
In what long-term assets should the firm invest in? [capital budgeting] cfw_appears on lefthand side of balance sheet
How can the firm raise cash for capital expe
9/1/2014
UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT
Chapter 5 - Financial Risk and Required Return
PROBLEM 1
Consider the following probability distribution of returns estimated for a proposed project that involves a
new ultrasound machine:
State of th
Bonds and Stocks Homework
1.
The bonds issued by Jensen & Son bear a 6% coupon, payable semiannually.
The bond matures in 8 years and has a $1,000 face value. Currently, the bond
sells at par. What is the yield to maturity?
I bond will only sell at par wh
Fin 5320: Cashman
1. Harris paid a $3 dividend yesterday. If the firm raises its dividend at 5 percent every
year and the appropriate discount rate is 12 percent, what is the price of Harris
stock?
P0 = Div1/(r g)
Div1 = Div0 * 1.05 = 3 * 1.05 = $3.15
P0
Fin 5320: Cashman
1. Given the following cash flows for project Z: C0 = -2,000, C1 = 600, C2 = 2160 and
C3= 6000, calculate the discounted payback period for the project at a discount rate
of 20%.
Discounted C0 = -2,000
Discounted C1 = 600/1.2 = 500
Disco
Investment Rules Homework
1.
You are considering the following two mutually exclusive projects that will not be
repeated. The required rate of return is 11.25% for project A and 10.75% for
project B. Which project should you accept and why?
Year
0
1
2
3
P
Investment Decisions Homework
1.
NAU is faced with the decision of which word processor to choose. It can buy the Bang word
processor, which costs $8,000, and has an estimated annual, year-end maintenance cost of $2,000.
The Bang word processor will be re
Fin 5320: Cashman
My Big Example 2
1 Your R&D department has come up with a innovative product. Your firm had
spent $2m as R&D expenses for this project. You are now wondering whether this
product introduction will increase shareholder wealth?
Investment
Primer Homework
1. Rank the following in terms of historical risk, and historical return from highest to
lowest:, U.S. Treasury bills, Long-term Corp bonds, Large Cap Stocks, Long-term
Gov Bonds, Small Cap Stocks
Small Cap Stocks, Large Cap Stocks, Long-t
Fin 5320: Cashman
1.
If the economy booms, RTF, Inc. stock is expected to return 10%. If the economy
goes into a recessionary period, then RTF is expected to only return 4%. The
probability of a boom is 60% while the probability of a recession is 40%. Wha
CAPM Homework
1.
The variance of Stock A is 0.0016, the variance of the market is 0.0049 and the
covariance between the two is 0.0026. What is the correlation coefficient?
Correlation coefficient = 0.0026 / (0.04*0.07) = 0.9286
2.
What is the formula for
Fin 5320: Cashman
1. You have a $25,000 portfolio comprised of three assets, Treasury Bills, Google, and
Ford. If you want a portfolio of 1.3, the s of Google and Ford are 2.5 and 0.8,
respectively, and you have $12,000 invested in Google. How much do you
Fin 5320: Cashman
1.
Nero Violins has the following capital structure:
Security
Beta
Debt
Preferred Stock
Common Stock
0
0.2
1.2
Total Market Value ($
millions)
120
40
180
What is the firms asset beta?
Firm Value = 120 + 40 + 180 = 340
a = (120/340)*0 + (
Capital Structure Homework
1.
If a firm permanently borrows $50 million at an interest rate of 8%, how much is
firm value increased over an un-levered firm? Assume a 35% tax rate.
50,000,000 * 0.35 = $17,500,000
2.
Firm U and firm L are identical except f