BUSN 379 All Homework

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BUSN 379 All Homework
The income statement starts with revenues and subtracts costs to arrive at EBIT…

 

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BUSN 379 All Homework

BUSN 379 All Homework

A+ Week 1-7

Homework Week 1

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Chapter 2: 8, 14, and 19

Instructions:

  • Please submit your homework using this template.
  • If you used excel for your calculations, please fill in your results in this template and submit along with your Excel sheet.
  • If you used a financial calculator, provide your inputs.
  • If you used an online calculator, provide a snapshot at all possible.
  • If you used a formula, write down your step-by-step calculations.
  • Please complete all items highlighted in yellow.
  • Note: you will not receive credit for items without calculations.

Chapter 2 Assignment                                           

  1. The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income.

Please calculate by completing the Income Statement below:

Income Statement

Sales$34,630

 

Costs$10,340
Depreciation$2520
EBIT$21,770
Interest$1,750
Taxable income$20,020
Taxes$7,007
Net income$13,013
    1. BUSN 379 All Homework
  1. a. To calculate the OCF, we need to create an income statement. The income statement starts with sales (revenues) and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income.

Please calculate by completing the Income Statement below:

Income Statement

Sales$167,000
Costs$88,600
Other Expenses$4,900
Depreciation$11,600
EBIT$61,900
Interest$8,700
Taxable income$53,2000
Taxes$18,620
Net income$34,580
  1. The cash flow to creditors is the interest paid, minus any new borrowing. We know that $4,000 of debt were “redeemed”, so we know net borrowing changed by $4,000 (This is your net new borrowing). Since the company redeemed long-term debt, the net new borrowing is negative. So, the cash flow to creditors is:….
  2. a. The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get:

Income Statement

Sales$2,600,000
Cost of goods sold$1,535,000
Other expenses$465,000
Depreciation$520,000
EBIT$80,000
Interest$245,000
Taxable income-$165,000
Taxes (35%)$0
Net income-$165,000
  1. The operating cash flow for the year was:…
  2. Please write here your answer in essay format….

BUSN 379 All Homework

Homework Week 2

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Chapter 4: 8, 17, and 18

Chapter 5: 1, 4, and 12

Instructions:

  • Please submit your homework using this template.
  • If you used excel for your calculations, please fill in your results in this template and submit along with your Excel sheet.
  • If you used a financial calculator, provide your inputs.
  • If you used an online calculator, provide a snapshot at all possible.
  • If you used a formula, write down your step-by-step calculations.
  • Please complete all items highlighted in yellow.

Note: you will not receive credit for items without calculations

Chapter 4

Exercise #8.

You need to compute “r”. Assume the PV is $1. The future value is $13,113. The periods or time are 131. You can compute r by using the following methods:

  1. Solving for interest in your financial calculator.
  2. Using the following formula: r=(FV/PV)1/t – 1
  3. Using the following online calculator (easiest method): http://www.moneychimp.com/calculator/discount_rate_calculator.htm

Provide a snapshot of your online calculator, your formula or the financial calculator inputs.

Exercise #17

You need to compute the PV.

  1. Solving for PV in your financial calculator.
  2. Using the following formula: PV=FV/(1+r)t
  3. Using the following online calculator (easiest method): http://zenwealth.com/businessfinanceonline/TVM/TVMExercise.html

Provide a snapshot of your online calculator, your formula or the financial calculator inputs.

Exercise #18

You need to compute the FV.

  1. Solving for FV in your financial calculator.
  2. Using the following formula: FV=PV(1+r)t
  3. Using the following online calculator (easiest method): http://zenwealth.com/businessfinanceonline/TVM/TVMExercise.html

Provide a snapshot of your online calculator, your formula or the financial calculator inputs.

Chapter 5

Exercise #1

To solve this exercise, you need to find the PV of each cash flow and add them up. You can:

  1. Solve for PV for each cash flow in your financial calculator. Then add them all up.
  2. Solve for PV using the following formula: PV=FV/(1+r)t . Then add them all up.
  3. Using the following online calculator (easiest method): http://zenwealth.com/businessfinanceonline/TVM/CFCalcExercise.html

Provide a snapshot of your online calculator, your formula or the financial calculator inputs.

Exercise #4:

(a) If the required return is 8 percent, what is the value of the investment? What would the value be if the payments occurred for 40 years? For 75 years?

You need to find the PV of an annuity. To do so, you can:

  1. Solve for PVA in your financial calculator.
  2. Use the formula on Page 132 – The Present Value Annuity
  3. Using the following online calculator (easiest method): http://zenwealth.com/businessfinanceonline/TVM/TVMCalculator.html

Provide a snapshot of your online calculator, your formula or the financial calculator inputs.

Exercise #12

Here you need to find the EAR. There are two ways:

  1. You can use the formula EAR = [1 + (APR / m)]m – 1
  2. Use an online calculator (easiest method): http://www.pine-grove.com/online-calculators/equivalent-rate-calculator.htm

Provide a snapshot of your online calculator, your formula or the financial calculator inputs.

BUSN 379 All Homework

Homework Week 3

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Chapter 6: 16

Chapter 7: 11 and 12

Instructions:

  • Please submit your homework using this template.
  • If you used excel for your calculations, please fill in your results in this template and submit along with your Excel sheet.
  • If you used a financial calculator, provide your inputs.
  • If you used an online calculator, provide a snapshot at all possible.
  • If you used a formula, write down your step-by-step calculations.
  • Please complete all items highlighted in yellow.

Note: you will not receive credit for items without calculations

Chapter 6, Exercise #16: Both Bond Bill and Bond Ted have 7 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 3 years to maturity, whereas Bond Ted has 20 years to maturity.

(a) If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Bill? Of Bond Ted?

If the bonds were priced at par value, the initial price was $1,000. $1,000 is the “default” face value (par price) of a bond unless otherwise stated.

In order to find the current price, you can:

  1. Compute the present value (which equals the price) of the bond following Example 6.3 on Page 174 of your textbook. Note that the coupon is $35 (7% coupon rate = $70/2 = $35. It is divided by two because it is paid semiannually)….
  2. (b) If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Bill be then? Of Bond Ted? Illustrate your answers by graphing bond prices versus YTM.
  3. (c) What does this problem tell you about the interest rate risk of longer-term bonds?

Chapter 7, Exercise #11: E-Eyes.com has a new issue of preferred stock it calls 20/20 preferred. The stock will pay a $20 dividend per year, but the first dividend will not be paid until 20 years from today. If you require a return of 8 percent on this stock, how much should you pay today?

Here you should make two calculations. The first one is to compute the price of the stock at Year 19, since no dividends will be paid until Year 20. Since this is preferred stock, you will use the following formula:

Pt = Dt+1 / R

Chapter 7, Exercise #12: Alexander Corp. will pay a dividend of $2.72 next year. The company has stated that it will maintain a constant growth rate of 4.5 percent a year forever.

(a) If you want a return of 12 percent, how much will you pay for the stock?

(b) What if you want a return of 8 percent?

(c) What does this tell you about the relationship between the required return and the stock price?

BUSN 379 All Homework

Homework Week 4

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Chapter 8: 3, 4, 5, and 6

Instructions:

  • Please submit your homework using this template.
  • If you used excel for your calculations, please fill in your results in this template and submit along with your Excel sheet.
  • If you used a financial calculator, provide your inputs.
  • If you used an online calculator, provide a snapshot at all possible.
  • If you used a formula, write down your step-by-step calculations.
  • Please complete all items highlighted in yellow.

Note: you will not receive credit for items without calculations

Chapter 8

  • Please submit your homework using this template.
  • If you used excel for your calculations, please fill in your results in this template and submit along with your Excel sheet.
  • If you used a financial calculator, provide your inputs.
  • If you used an online calculator, provide a snapshot at all possible.
  • If you used a formula, write down your step-by-step calculations.
  • Please complete all items highlighted in yellow.

Exercise #3:

3.Calculating Payback. Global Toys Inc., imposes a payback cutoff of three years for its international investment projects. If the company has the following two projects available, should it accept either of them?
YearCash Flow (A)Cash Flow (B)
0−$55,000−$ 95,000
1    19,000     18,000
2    27,000     26,000
3    24,000     28,000
4      9,000   260,000

Exercise #4

Calculating AAR. You’re trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $14 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,253,000, $1,935,000, $1,738,000, and $1,310,000 over these four years, what is the project’s average accounting return (AAR)?

Exercise #5

Calculating IRR. A firm evaluates all of its projects by applying the IRR rule. If the required return is 11 percent, should the firm accept the following project?
YearCash Flow
0−$153,000
1      78,000
2      67,000
3      49,000

Exercise #6

Calculating NPV. For the cash flows in the previous problem, suppose the firm uses the NPV decision rule. At a required return of 9 percent, should the firm accept this project? What if the required return was 21 percent?

There are several ways to calculate the NPV:

  1. Using Excel (function NPV). If you use Excel, compute the NPV of all cash flows from years 1 to 3. Then subtract the initial investment. Do not include the initial investment (Year 0) cash flow under the formula NPV. Your result will not be correct.
  2. Using trial and error as provided in Example 8.1, Page 242
  3. Using your financial calculator
  4. Using an online calculator (recommended process): http://zenwealth.com/businessfinanceonline/CB/CBCalculator.html
    The “Cost of Capital” is your “required return”. Make sure the initial investment is negative. You need to add a minus sign (-) in front of it….

BUSN 379 All Homework

Homework Week 5

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Chapter 11: 4, 7, 17, and 29

Instructions:

  • Please submit your homework using this template.
  • If you used excel for your calculations, please fill in your results in this template and submit along with your Excel sheet.
  • If you used a financial calculator, provide your inputs.
  • If you used an online calculator, provide a snapshot at all possible.
  • If you used a formula, write down your step-by-step calculations.
  • Please complete all items highlighted in yellow.

Note: you will not receive credit for items without calculations

Chapter 11, Exercise #4

Portfolio Expected Return.  You have $10,000 to invest in a stock portfolio.  Your choices are Stock X with an expected return of 14 percent and Stock Y with an expected return of 11 percent.  If your goal is to create a portfolio with an expected return of 12.4 percent, how much money will you invest in Stock X?  In Stock Y?
Here, we are given the expected return of the portfolio and the expected return of each asset in the portfolio, and are asked to find the weight of each asset. Review Section 11.2 and Table 11.5 of your textbook.

We can use the equation for the expected return of a portfolio to solve this problem. Since the total weight of a portfolio must equal 1 (100%), the weight of Stock Y must be one minus the weight of Stock X. Mathematically speaking, this means:

E(Rp) = Expected Return = (Return of X * Weight of X) + Return of Y * (1 – Weight of X)

— We can now solve this equation for the Weight of X…

Exercise #7

Calculating Returns and Standard Deviations.  Based on the following information, calculate the expected return and standard deviation for the two stocks.

State of           Probability of State   Rate of Return if State Occurs

Economy        of Economy                Stock A           Stock B

Recession        .15                               .02                   -.30

Normal            .55                               .10                   .18

Boom              .30                               .15                   .31

  • Calculate the expected return. The expected return of an asset is the sum of the probability of each state occurring times the rate of return if that state occurs…

Exercise #17

Using CAPM.  A stock has a beta of 1.15 and an expected return of 10.4 percent.  A risk-free asset currently earns 3.8 percent.

  1. What is the expected return on a portfolio that is equally invested in the two assets?
  2. If a portfolio of the two assets has a beta of .7, what are the portfolio weights?
  3. If a portfolio of the two assets has an expected return of 9 percent, what is its beta?
  4. If a portfolio of the two assets has a beta of 2.3, what are the portfolio weights?  How do you interpret the weights for the two assets in this case?  Explain

(a) Expected Return. Again, we have a special case where the portfolio is equally weighted, so we can sum the returns of each asset and divide by the number of assets since they are equally invested. The expected return of the portfolio is:…

Exercise #29

SML Suppose you observe the following situation:

 

State of           Probability of             Return if State Occurs

Economy        State                            Stock A           Stock B

Bust                 .10                               -.12                  -.05

Normal                        .65                               .09                   .10

Boom              .25                               .35                   .21

  1. Calculate the expected return on each stock.
  2. Assuming the capital asset pricing model holds and stock A’s beta is greater than stock B’s beta by .25, what is the expected market risk premium?

(a)The expected return of an asset is the sum of the probability of each state occurring

times the rate of return if that state occurs. So, the expected return of each asset is:

Expected Return = (Probability of State 1 * Rate of Return for State 1)+ (Probability of State 2 * Rate of Return for State 2)+ (Probability of State 3 * Rate of Return for State 3)…

BUSN 379 All Homework

Homework Week 6

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Chapter 12: 3, 5, 6, and 15

Chapter 13: 1

Instructions:

  • Please submit your homework using this template.
  • If you used excel for your calculations, please fill in your results in this template and submit along with your Excel sheet.
  • If you used a financial calculator, provide your inputs.
  • If you used an online calculator, provide a snapshot at all possible.
  • If you used a formula, write down your step-by-step calculations.
  • Please complete all items highlighted in yellow.

Note: you will not receive credit for items without calculations

Chapter 12, Exercise #3

Calculating Cost of Equity. Stock in CDB Industries has a beta of .90. The market risk premium is 7 percent, and T-bills are currently yielding 3.5 percent. CDB’s most recent dividend was $1.80 per share, and dividends are expected to grow at a 5 percent annual rate indefinitely. If the stock sells for $47 per share, what is your best estimate of CDB’s cost of equity?

Exercise #5

Calculating Cost of Preferred Stock. Sixth Fourth Bank has an issue of preferred stock with a $6.25 stated dividend that just sold for $108 per share. What is the bank’s cost of preferred stock?

Exercise #6

Calculating Cost of Debt. ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with seven years to maturity that is quoted at 108 percent of face value. The issue makes semiannual payments and has an embedded cost of 6.1 percent annually. What is ICU’s pretax cost of debt? If the tax rate is 38 percent, what is the aftertax cost of debt?

Chapter 13, #1

EBIT and Leverage. Kaelea, Inc., has no debt outstanding and a total market value of $125,000. Earnings before interest and taxes, EBIT, are projected to be $10,400 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20 percent higher. If there is a recession, then EBIT will be 35 percent lower. Kaelea is considering a $42,000 debt issue with a 6 percent interest rate. The proceeds will be used to repurchase shares of stock. There are currently 6,250 shares outstanding. Ignore taxes for this problem.

a.       Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. Also, calculate the percentage changes in EPS when the economy expands or enters a recession.

b.      Repeat part (a) assuming that Kaelea goes through with recapitalization. What do you observe?

BUSN 379 All Homework

Homework Week 7

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Chapter 17: 6, 7, 14

 Instructions:

  • Please submit your homework using this template.
  • If you used excel for your calculations, please fill in your results in this template and submit along with your Excel sheet.
  • If you used a financial calculator, provide your inputs.
  • If you used an online calculator, provide a snapshot at all possible.
  • If you used a formula, write down your step-by-step calculations.
  • Please complete all items highlighted in yellow.

Note: you will not receive credit for items without calculations

Chapter 17, Exercise #6

Calculating Net Float. Each business day, on average, a company writes checks totaling $19,500 to pay its suppliers. The usual clearing time for the checks is four days. Meanwhile, the company is receiving payments from its customers each day, in the form of checks, totaling $37,200. The cash from the payments is available to the firm after two days.

Chapter 17, Exercise #7

Size of Accounts Receivable. Essence of Skunk Fragrances, Ltd., sells 6,500 units of its perfume collection each year at a price per unit of $270. All sales are on credit with terms of 1/10, net 30. The discount is taken by 40 percent of the customers. What is the amount of the company’s accounts receivable? In reaction to sales by its main competitor, Sewage Spray, Essence of Skunk is considering a change in its credit policy to terms of 3/10, net 30 to preserve its market share. How will this change in policy affect accounts receivable?

Chapter 17, Exercise #14

EOQ. The Trektronics store begins each month with 740 phasers in stock. This stock is depleted each month and reordered. If the carrying cost per phaser is $26 per year and the fixed order cost is $340, what is the total carrying cost? What is the restocking cost? Should the company increase or decrease its order size? Describe an optimal inventory policy for the company in terms of order size and order frequency.

BUSN 379 All Homework

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