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 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)

You have recently been hired by a financial analysis firm. Your boss wishes to know if you
understand the practicality of calculating the cost of capital (WACC) of a publically listed firm in
Canada. You have determined that you will use Telus Corporation

Current Policy Prposed Policy
Credit Policy
1/10, net 40
1/10, net 40
10 Days
20%
40%
15 dys
30%
0
40 days
0
60%
50 Days
50%
0
Bad Debts
3%
1.50%
Loss of sale
0%
1.782%
Variable Cost
60%
60%
Collection Expenses
14000
20000
Cost of funds
12%
12%
Tax
30%
30

18-7.
Tightening Credit Terms Maxwell Corp. distributes the Smart brand of
electronic controller systems. The company currently has a credit policy of 1/10,
net 40, though on average only 20% of customers pay in 10 days and take the
discount, while anothe

17-12.
Effective Cost of Short-Term Credit Yonge Corporation must arrange
financing for its working capital requirements for the coming year. Yonge can (a)
borrow from its bank on a simple interest basis (interest payable at the end of
the loan) for 1 yea

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%

Chapter 5: The Time Value of Money
5.1 The simple interest per year is:
$5,000 0.09 = $450
So, after 10 years, you will have:
$450 10 = $4,500 in interest.
The total balance will be $5,000 + 4,500 = $9,500
With compound interest, we use the future value f

Chapter 6: How to Value Bonds and Stocks
6.1 The price of a pure discount (zero coupon) bond is the present value of the par.
Remember, even though there are no coupon payments, the periods are semiannual
to stay consistent with coupon bond payments. So,

Chapter 2: Accounting Statements and Cash Flow
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 equity

Chapter 27: ShortTerm Finance and Planning
27.1 a.
No change. A dividend paid for by the sale of debt will not change cash since the cash
raised from the debt offer goes immediately to shareholders.
b.
No change. The real estate is paid for by the cash ra

Finance IAF330- Week 2 Chapter 4
May 21, 2017
Anthony Lee
Chapter 1 Review:
-Objective of Financial Management is to maximize value of the firms shares
-Share Value Depend in part of the timing of cash flow (Inflation?)
A dollar expected soon is worth mor

Finance IAF330- Week 1 Chapter 1
May 17, 2017
Anthony Lee
1.1 The Five Minute Business Degree
Key elements of Business Education, so the outline for business education (sketches)
Objective of a business degree: to provide managers with knowledge and skill

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%

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

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