Chapter 12: An Alternative View of Risk and Return:
The Arbitrage Pricing Theory
12.1 Since we have the expected return of the stock, the revised expected return can be determined using the
innovation, or surprise, in the risk factors. So, the revised exp

16.2 a.
A table outlining the income statement with taxes for the three possible states of the economy is
shown below. The share price is $45, and there are 5,000 shares outstanding. The last row
shows the percentage change in EPS the company will experie

Case Analysis
There will an online class on Tuesday, November 29 at 3.20 PM (Normal Class Time) instead of
a Formal Class in the class room.
1. This means you do not have to the class room on that day.
2. However, you will have to login to MySeneca at 3.2

IAF 330 - NJJ
Yu Han
107 657 157
Case analysis
1. Balance sheet:
Book value of debt and equity: Sep 30, 2016
Current maturities of long-term debt: 19,399
Long-term debt: 11,604
Common equity: 8281
Asset: 27, 692
http:/www.sedar.com/GetFile.do?
lang=EN&doc

1/10, net 40
Current Policy
10 Days
15 days
40 Days
50 days
Bad Debts
Loss in sales
Variable Cost
Collection Expenses
Cost of Funds
Tax rate
Impact of Policy Change
Sales
Variable Cost
Gross Profit
bad Debts
Collection Expenses
Cash Discount
Cost of Finan

Years
0
Cost of Machine
-240000
Sales
Cost of Sales
Gross Profit
Dep (CCA)
20%
EBIT
Tax
28%
NOPAT
Add Back dep
Less: Incremental WC
Add Recovery of WC
salvage Value
Tax Shield on Loss of Sale of machine
Project Cash Flo
-240000
NPV
$112,470.45
IRR
26.93%

Problem 9-21
The stock of Gao Computing sells for $50, and last year's dividend was $2.10.
A flotation cost of 10% would be required to issues new common stock. Gao's
preferred stock pays a dividend of $3.30 per share, and new preferred could be
sold at a

10.25
Gardial Fisheries is considering two mutually exclusive investments. The projects' expected net cash flows are as follows:
Time
0
1
2
3
4
5
6
7
Expected net cash flows
Project A Project B
($375)
($575)
($300)
$190
($200)
$190
($100)
$190
$600
$190
$

Question 1
0.5 out of 0.5 points
Stock A has a beta of 0.8 and Stock B has a beta of 1.2. Fifty percent of Portfolio P is invested
in Stock A and 50% is invested in Stock B. If the market risk premium (r M rRF) were to
increase but the risk-free rate (rRF

Chapter 18
18.15a. If the company were financed entirely by equity, the value of the firm would be equal
to the present value of its unlevered after-tax earnings, discounted at its unlevered cost
of capital. First, we need to find the companys unlevered c

Chapter 27 Homework Solutions
Problems: 9, 10, 13, 14
27.9 a.
The November sales must have been the total uncollected sales minus the uncollected sales
from December, divided by the collection rate two months after the sale, so:
November sales = ($79,800

Chapter 3: Financial Planning and Growth
3.1 An increase of sales to $30,960 is an increase of:
Sales increase = ($30,960 25,800) / $25,800
Sales increase = 0.20 or 20%
Assuming costs and assets increase proportionally, the pro forma financial statements

Chapter 28 Homework Solutions
Problems 3, 5,7,8
28.3a.
The collection float is the average daily cheques received times the average number of
days for the cheques to clear, so:
Collection float = 3($19,000)
Collection float = $57,000
b.
The firm should pa

Chapter 29 Homework Solutions
Problems: 1,5,10,14,18
29.1a.
There are 30 days until account is overdue. If you take the full period, you must remit:
Remittance = 400($125)
Remittance = $50,000
b.
There is a 1 percent discount offered, with a 10 day discou

Chapter 10 Homework Solutions
Problems 1, 5, 9, 12, 15
10.1 The return of any asset is the increase in price, plus any dividends or cash flows, all divided by the
initial price. The return of this stock is:
R = [($104 92) + 1.45] / $92
R = 0.1462 or 14.62

Chapter 11 Homework Solutions
Problems 2, 9, 11, 16, 22, 26, 31, 35
11.2 The expected return of a portfolio is the sum of the weight of each asset times the expected
return of each asset. The total value of the portfolio is:
Total value = $1,900 + 2,300 =

Chapter 8 Homework Solutions
Problems: 2, 4, 8, 11, 16, 19, 23
8.2
Since there is uncertainty surrounding the bonus payments, which Sundin might receive, you must
use the expected value of Sundins salary in the computation of the PV of his contract. The
e

Chapter 7 Solutions
Problems: 1, 7, 13, 16, 21, 25
7.1 a.
The payback period is the time that it takes for the cumulative undiscounted cash
inflows to equal the initial investment.
Project A:
Cumulative cash flows Year 1 = $6,500
Cumulative cash flows Yea

Chapter 2 Homework
Problems: 1, 6, 8, 13, A2, A3, A7
2.1. To find shareholders equity, we must construct a balance sheet as follows:
Current assets
Net fixed assets
Total assets
Balance Sheet
$ 5,300
Current liabilities
26,000
Long-term debt
Shareholders

Chapter 9 Homework Solutions
Problems 4, 10, 18, 19
9.4 If we purchase the machine today, the NPV is the cost plus the present value of the increased
cash flows, so:
NPV0 = $1,800,000 + $340,000
10
12%
NPV0 = $121,075.83
We should not necessarily purchase

IAF330 Fall 2015
Quiz 2
Total = 100 marks (15% of final mark)
Please provide your completed responses to the questions below in the space provided.
Chapter 7
1. VanCity Inc. is considering a project that has the following cash flows:
Year
0
1
2
3
4
Cash F

Chapter 2
Mini Case
Computron's Income Statement
2014
INCOME STATEMENT
Net sales
$3,432,000
Cost of Goods Sold
$2,864,000
Other Expenses
Depreciation
Total Operating Costs
Earnings before interest and taxes (EBIT)
Less interest
Earnings before taxes (EBT)