We're going to do a full-blown corporate financial model. It's long, and
looks complicated. Don't be discouraged - it's just real life - and if you go
step by logical step, pretty soon you'll have a model that predicts the future
of the firm's financials
M5-14
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Period
Period
Product, direct materials
Product, conversion
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Product, direct materials
Product, direct materials
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Chapter 7
Net Present Value and Other
Investment Rules
7-1
Chapter Outline
7.1 Net Present Value
7.2 The Payback Period Method
7.3 The Discounted Payback Period Method
7.4 The Average Accounting Return Method
7.5 The Internal Rate of Return
7.6 Problems w
Chapter
11
Return and Risk: The Capital Asset
Pricing Model (CAPM)
11-1
Chapter Outline
11.1 Individual Securities
11.2 Expected Return, Variance, and Covariance
11.3 The Return and Risk for Portfolios
11.6 Announcements, Surprises, and Expected Return
11
Question No: 1 ( Marks: 1 ) - Please choose one
Which of the following principle deals with the valuation and recording of the assets at
cost?
Entity Principle
Matching Principle
Cost Principle
Stable Currency principle
Question No: 2 ( Marks: 1 ) - P
Chapter 6
Stock Valuation
6-1
Chapter Outline
6.1 The Present Value of Common Stocks
6.2 Estimates of Parameters in the Dividend Discount
Model
6.3 Growth Opportunities
6.4 Price-Earnings Ratio
6.5 Some Features of Common and Preferred Stock
6.6 The Stock
BE1-9
Ruiz Manufactoring Company
Balance Sheet
12/31/2014
Current assets
Cash
$62,000
Accounts Receivable
$200,000
Inventories
Finished goods
$91,000
Work in process
$87,000
Raw materials
$73,000 $251,000
Prepaid expenses
$38,000
Total current assets
$551
Total interest over life of the loan = $3,360 + 2,787.27 + 2,168.71 + 1,500.68 + 779.20 Total interest over life of the loan = $10,595.86 56. This amortization table calls for equal principal payments of $8,400 per year. The interest payment is the beginn
FVAdue = (1 + r) FVA FVAdue = (1 + .11)$62,278.01 FVAdue = $69,128.60 c. Assuming a positive interest rate, the present value of an annuity due will always be larger than the present value of an ordinary annuity. Each cash flow in an annuity due is receiv
in the problem is only relevant to determine the total interest under the terms given. The interest rate for the cash flows of the loan is: PVA = $25,000 = $2,416.67cfw_(1 [1 / (1 + r)]12 ) / r Again, we cannot solve this equation for r, so we need to so
To find the interest rate at which the firm will break even, we need to find the interest rate using the PV (or FV) of a lump sum. Using the PV equation for a lump sum, we get: $94,000 = $165,000 / ( 1 + r)4 r = ($165,000 / $94,000)1/4 1 = .1510 or 15.10%
43. We are given the total PV of all four cash flows. If we find the PV of the three cash flows we know, and subtract them from the total PV, the amount left over must be the PV of the missing cash flow. So, the PV of the cash flows we know are: PV of Yea
Since your salary grows at 4 percent, you deposit will also grow at 4 percent. We can use the present value of a growing perpetuity equation to find the value of your deposits today. Doing so, we find: PV = C cfw_[1/(r g)] [1/(r g)] [(1 + g)/(1 + r)]t PV
Using the EAR and the number of years to find the FV, we get: FV in one year = $1(1.1498)1 = $1.15 FV in two years = $1(1.1498)2 = $1.32 Either method is correct and acceptable. We have simply made sure that the interest compounding period is the same as
29. The total interest paid by First Simple Bank is the interest rate per period times the number of periods. In other words, the interest by First Simple Bank paid over 10 years will be: .07(10) = .7 First Complex Bank pays compound interest, so the inte
EAR = [1 + .3333]52 1 = 313,916,515.69% 23. Here we need to find the interest rate that equates the perpetuity cash flows with the PV of the cash flows. Using the PV of a perpetuity equation: PV = C / r $95,000 = $1,800 / r We can now solve for the intere
FV in 10 years = $4,500[1 + (.093/365)]10(365) = $11,403.94 FV in 20 years = $4,500[1 + (.093/365)]20(365) = $28,899.97 18. For this problem, we simply need to find the PV of a lump sum using the equation: PV = FV / (1 + r)t It is important to note that c
[email protected] yrs: PVA = $5,300cfw_[1 (1/1.07)75 ] / .07 = $75,240.70 To find the PV of a perpetuity, we use the equation: PV = C / r PV = $5,300 / .07 = $75,714.29 Notice that as the length of the annuity payments increases, the present value of the annuity app
CHAPTER 5 INTRODUCTION TO VALUATION: THE TIME VALUE OF MONEY
Solutions to Questions and Problems Basic 1. The simple interest per year is: $5,000 .08 = $400 So after 10 years you will have: $400 10 = $4,000 in interest. The total balance will be $5,000 +
FV = PV(1 + r)t FV = $50(1.045)105 = $5,083.71 13. To answer this question, we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is: FV = PV(1 + r)t Solving f
FV = $364,518 = $18,400(1.17)t; t = ln($364,518 / $18,400) / ln 1.17 = 19.02 years FV = $173,439 = $21,500(1.15)t; t = ln($173,439 / $21,500) / ln 1.15 = 14.94 years 6. To answer this question, we can use either the FV or the PV formula. Both will give th
CHAPTER 4 LONG-TERM FINANCIAL PLANNING AND GROWTH
Solutions to Questions and Problems
NOTE: All end of chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediat
excess debt will be: Excess debt = $733,676 697,080 = $54,596 To make the balance sheet balance, the company will have to increase its assets. We will put this amount in an account called excess cash, which will give us the following balance sheet. MOOSE
Capital intensity ratio = Fixed assets / Full capacity sales Capital intensity ratio = $413,000 / $1,161,250 Capital intensity ratio = .35565 The fixed assets required at full capacity sales is the capital intensity ratio times the projected sales level:
Internal growth rate = .0660 or 6.60% Using the formula ROA b, and beginning of period assets: Internal growth rate = .0814 .8684 Internal growth rate = .0707 or 7.07% 25. Assuming costs vary with sales and a 20 percent increase in sales, the pro forma in
So, the equity at the end of the year was: Ending equity = $135,000 + 16,500 Ending equity = $151,500 The ROE based on the end of period equity is: ROE = $19,000 / $151,500 ROE = .1254 or 12.54% The plowback ratio is: Plowback ratio = Addition to retained
ROE = (PM)(TAT)(EM) ROE = (.048)(1.25)(1 + 1.86) ROE = .1714 or 17.14% Now we can calculate the retention ratio as: b = 1 .30 b = .70 Finally, putting all the numbers we have calculated into the sustainable growth rate equation, we get: Sustainable growth
19. We have all the variables to calculate ROE using the DuPont identity except the equity multiplier. Remember that the equity multiplier is one plus the debt-equity ratio. If we find ROE, we can solve the DuPont identity for equity multiplier, then the
15. We must first calculate the ROE using the DuPont ratio to calculate the sustainable growth rate. The ROE is: ROE = (PM)(TAT)(EM) ROE = (.078)(2.50)(1.80) ROE = .3510 or 35.10% The plowback ratio is one minus the dividend payout ratio, so: b = 1 .60 b