Chapter 2
1b. With TVM formula, and table setup:
FV = $400.00 x (1.05)5 = $400.00 x (FVIF5%,5)
FV = $17,411.00 x (1.06)30 = $17,411.00 x (FVIF6%,30)
FV = $35,000.00 x (1.10)20 = $35,000.00 x (FVIF10%,20)
FV = $26,981.75 x (1.16)15 = $26,981.75 x (FVIF16%
Financial Management, Raymond Brooks, Ph.D.
Solutions to Selected Problems
Romero 340 Section
Chapter 1
1. The cycle of money is the movement of funds from a lender to a borrower and back to
the lender. The participants are the original lender, usually an
Measuring student intelligent base on a three hour test shouldnt be the main solution on
determining their decision on whether they receive a standard high school. Having the decision
of taking a test under pressure shouldnt be acceptable because its only
Chapter 1
1. The cycle of money is the movement of funds from a lender to a borrower and back to the
lender. The participants are the original lender, usually an individual (or household) through
direct investment or through a financial institution, the f
19.
Find the incremental cash flows by year
CF0 = $3,500,000 plus $500,000 outflow or $4,000,000
CF1 through CF4 = $1,000,000
CF5 = $1,000,000 plus $500,000 plus $250,000 or $1,750,000
NPV at 12%
NPV = $30,346
And the project is a go!
Reducing Collection Cycle by one week (7 days) reduces cash conversion cycle by one
week (7 Days) to 35 days.
Increasing Payment by one week (7 days) reduces cash conversion cycle by one week (7
Days) to 35 days.
3. Average Production Cycle:
Average Inven
Chapter 12
9.
WACC if she borrows $1,000,000 is
WACC = 0.4 x 8.5% + 0.6 x 9.25% = 3.40% + 5.55% = 8.95%
a. WACC if she borrows $2,000,000 is
WACC = 0.2 x 8.5% + 0.375 x 9.25% + 0.425 x 17%
WACC = 1.7000% + 3.4688% + 7.2250% = 12.3938%
b. She can not borro
Correlation refers to the statistical measure of the relationship, if any, between a series of
numbers. The correlation between asset returns is important when evaluating the effect of a
new asset on the portfolios overall risk. Once the correlation betwe
Diversification is a process of risk reduction achieved by including in the portfolio a variety
of vehicles having returns that are less than perfectly positively correlated with each other.
Diversification of risk in the asset selection process allows th
Answers:
WHEN AND HOW are interest rates expected to rise?
keeping interest rates low, it brings up the supply of money in the system because it's less
expensive Bernanke and friends haven't seen inflation creeping up, so they haven't increase the
rates a
The efficient frontier is the site of all efficient portfolios (those with the best riskreturn
tradeoff).
All portfolios on the efficient frontier are preferable to the others in the feasible or attainable
set.
Plotting an investors utility function or r
Modern portfolio theory (MPT) is based on the use of statistical measures including
mathematical concepts such as correlation (of rates of return) and beta. Combining securities
with negative or low positive correlation reduces risk through statistical di
Traditional portfolio management emphasizes balancing the portfolio. The traditional
portfolio includes a wide variety of stocks and/or bonds that emphasize interindustry
diversification. The securities selected are usually highquality and issued by stab
CAPM provides only a rough forecast of future returns, because it is based on historical
data. Those using CAPM typically adjust return forecasts for their expectations of future
returns.
Arbitrage pricing theory (APT) suggests that the market risk premiu
The capital asset pricing model (CAPM) links together risk and return to help investors
make investment decisions. It describes the relationship between required return and
systematic risk, as measured by beta. The equation for the CAPM is:
ri = RF + [b (
The relevant risk measured by beta is the nondiversifiable risk of an investment. It is
relevant since any intelligent investor can eliminate unsystematic risk by holding a
diversified portfolio of securities.
The market return is typically measured by t
Combining assets with high positive correlation increases the range of portfolio returns;
combining assets with high negative correlation reduces the range of portfolio returns. When
negatively correlated assets are brought together through diversificatio
At 6% WACC we have,
NPV = $171,309
Accept project if WACC is 6% or lower.
At 8% WACC we have,
NPV = $2,253
Accept project if WACC is 8%.
At 10% WACC we have,
NPV = $156,499
Reject project if WACC is 10% or higher.
.
a. NPV = $59,859.98 and accept the project.
b. NPV = $22,840.31 and accept the project.
c. NPV = $7,939.82 and reject the project.
Cash Flows
Project M
Year one
$500,000
Year two
$500,000
Year three
$500,000
Year four
$500,000
Year five
$500,000
Discou
OUTPUT
8.0426 8 payments or 8 years
Note: Most HP calculators get 9, because they round up to nearest integer when solving for n.
Chapter 4
Period
SemiAnnual
Quarterly
Monthly
Daily
1.
Compounding
Per Year
2
4
12
365
APR
8%
9%
7.5%
4.25%
Periodic Rate
4.
KEYS
CPT
N
I/Y
13.9991
PV
PMT
FV
6. Check figure for 1st bond:
Set Calculator to P/Y = 1 and C/Y = 1
INPUT
20
?
1000.00
40.00
1000.00
KEYS
N
I/Y
PV
PMT
FV
CPT
4.0 (then multiply by 2 for annual YTM = 8%)
OR
11a.
Set Calculator to P/Y = 2 and C/Y = 2
INPU
From my perspective, the goal of financial management is good for society because it plays a big
role in a modern companys development. Finance is required to play an ever more serious
strategic role within the corporation. The financial manager has advan
The Goal of Financial management is to manage the current assets of the company and invests in
new assets. Financial management want to procure funds to further move out business activities,
enlarge the business, develop longterm investments, and judicia
WalMart vs. Publix on Motivating Employees
Donal Dorisca
Florida State College at Jacksonville
Jonathan Lyon
April 7, 2013
WalMart vs. Publix on Motivating Employees
With the rise of WalMart, smaller grocery store across America, have struggled to comp
11.
Enter the keys noted for each project in the CF of a Texas BA II Plus calculator:
Cash Flows
CFO
CO1, F1
CO2, F2
Year three
Year four
Year five
CPT IRR
Project M
$2,000,000
$500,000, 1
$500,000, 1
$500,000, 1
$500,000, 1
$500,000, 1
7.93%
Project N
