BUSN 379 Finance Course

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BUSN 379 Finance Course
(TCO 1) Provide three examples of situations in which business ethics play a role in the financial…

 

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BUSN 379 Finance Course

BUSN 379 Finance Course

A+ Entire Course: Homework Week 1-7 | Case Study Week 2, 4, 6 | Discussions Week 1-7 | Final Exam

Homework Week 1-7

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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. 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 Finance Course

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 Finance Course

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 Finance Course

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 Finance Course

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 Finance Course

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 Finance Course

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 Finance Course

Sunset Boards, Inc, – Case 1 Week 2

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Case I is due at the end of this week. Prepare a memo in Word, which answers the questions in the Chapter 2 Case, Cash Flows and Financial Statements at Sunset Boards, Inc., on page 51 of the textbook. Use Excel to solve any financial calculations. You will be graded on correct financial analysis, proper use of technology, business-like presentation of technology, and business-like presentation.

Sunset Boards is a small company that manufactures and sells surfboards in Malibu. Tad Marks, the founder of the company, is in charge of the design and sale of the surfboards, but his background is in surfing, not business. As a result, the company’s financial records are not well maintained.

The initial investment in Sunset Boards was provided by Tad and his friends and family. Because the initial investment was relatively small, and the company has made surfboards only for its own store, the investors haven’t required detailed financial statements from Tad. But thanks to word of mouth among professional surfers, sales have picked up recently, and Tad is considering a major expansion. His plans include opening another surfboard store in Hawaii, as well as supplying his “sticks” (surfer lingo for boards) to other sellers.

Tad’s expansion plans require a significant investment, which he plans to finance with a combination of additional funds from outsiders plus some money borrowed from banks. Naturally, the new investors and creditors require more organized and detailed financial statements than Tad has previously prepared. At the urging of his investors, Tad has hired financial analyst Paula Wolfe to evaluate the performance of the company over the past year.

After rooting through old bank statements, sales receipts, tax returns, and other records, Paula has assembled the following information:

2013                2014

Cost of goods sold                                                         $169,969         214,607

Cash                                                                                        24,524             26,056

Depreciation                                                                       47,980             54,230

Interest expense                                                                 10,442             11,954

Selling & administrative expenses                              33,425             43,626

Accounts payable                                                               43,344             48,090

Net fixed assets                                                                  211,680           264,021

Sales                                                                                        333,426           406,427

Accounts receivable                                                           17,378             22,542

Notes payable                                                                        19,757             21,571

Long-term debt                                                                 106,848           119,976

Inventory                                                                               36,570             50,185

New equity                                                                             0                      20,160

Sunset Boards currently pays out 50 percent of net income as dividends to Tad and the other original investors, and has a 20 percent tax rate. You are Paula’s assistant, and she has asked you to prepare the following:

  1. An income statement for 2013 and 2014.
  2. A balance sheet for 2013 and 2014.
  3. Operating cash flow for each year.
  4. Cash flow from assets for 2014.
  5. Cash flow to creditors for 2014.
  6. Cash flow to stockholders for 2014.
  7. How would you describe Sunset Boards’ cash flows for 2014? Write a brief discussion.
  8. In light of your discussion in the previous question, what do you think about Tad’s expansion plans?

Preview:

As requested, attached are the financial statements of Sunset Boards, Inc. from 2013-2014. It includes:

  1. Income Statement
  2. Balance Sheet
  3. Operating Cash Flow

Highlights of Financial Statements

In analyzing the financial statements, horizontal analysis and vertical analysis were…

BUSN 379 Finance Course

S&S AIR’S MORTGAGECase 2 Week 4

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Mark Sexton and Todd Story, the owners of S&S Air, Inc., were impressed by the work Chris had done on financial planning. Using Chris’s analysis, and looking at the demand for light aircraft, they have decided that their existing fabrication equipment is sufficient, but it is time to acquire a bigger manufacturing facility. Mark and Todd have identified a suitable structure that is currently for sale, and they believe they can buy and refurbish it for about $35 million. Mark, Todd, and Chris are now ready to meet with Christie Vaughan, the loan officer for First United National Bank. The meeting is to discuss the mortgage options available to the company to finance the new facility.

Christie begins the meeting by discussing a 30-year mortgage. The loan would be repaid in equal monthly installments. Because of the previous relationship between S&S Air and the bank, there would be no closing costs for the loan. Christie states that the APR of the loan would be 6.1 percent. Todd asks if a shorter mortgage loan is available. Christie says that the bank does have a 20-year mortgage available at the same APR.

Mark decides to ask Christie about a “smart loan” he discussed with a mortgage broker when he was refinancing his home loan. A smart loan works as follows: Every two weeks a mortgage payment is made that is exactly one-half of the traditional monthly mortgage payment. Christie informs him that the bank does have smart loans. The APR of the smart loan would be the same as the APR of the traditional loan. Mark nods his head. He then states this is the best mortgage option available to the company since it saves interest payments.

Christie agrees with Mark, but then suggests that a bullet loan, or balloon payment, would result in the greatest interest savings. At Todd’s prompting, she goes on to explain a bullet loan. The monthly payments of a bullet loan would be calculated using a 30-year traditional mortgage. In this case, there would be a 5-year bullet. This would mean that the company would make the mortgage payments for the traditional 30-year mortgage for the first five years, but immediately after the company makes the 60th payment, the bullet payment would be due. The bullet payment is the remaining principal of the loan. Chris then asks how the bullet payment is calculated. Christie tells him that the remaining principal can be calculated using an amortization table, but it is also the present value of the remaining 25 years of mortgage payments for the 30-year mortgage.

Todd has also heard of an interest-only loan and asks if this loan is available and what the terms would be. Christie says that the bank offers an interest-only loan with a term of 10 years and an APR of 3.5 percent. She goes on to further explain the terms. The company would be responsible for making interest payments each month on the amount borrowed. No principal payments are required. At the end of the 10-year term, the company would repay the $35 million. However, the company can make principal payments at any time. The principal payments would work just like those on a traditional mortgage. Principal payments would reduce the principal of the loan and reduce the interest due on the next payment.

Mark and Todd are satisfied with Christie’s answers, but they are still unsure of which loan they should choose. They have asked Chris to answer the following questions to help them choose the correct mortgage.

  1. What are the monthly payments for a 30-year traditional mortgage? What are the payments for a 20-year traditional mortgage?
  2. Prepare an amortization table for the first six months of the traditional 30-year mortgage. How much of the first payment goes toward principal?
  3. How long would it take for S&S Air to pay off the smart loan assuming 30-year traditional mortgage payments? Why is this shorter than the time needed to pay off the traditional mortgage? How much interest would the company save?
  4. Assume S&S Air takes out a bullet loan under the terms described. What are the payments on the loan?
  5. What are the payments for the interest-only loan?
  6. Which mortgage is the best for the company? Are there any potential risks in this action?

Preview:

… The amortization table below for the first six months of the 30-year mortgage shows that of the first amortization payment of $212,098.17, only $34,181.51 goes to the…

BUSN 379 Finance Course

Bullock Gold Mining – Case 3 Week 6

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Case III – Chapter 8 Case, Bullock Gold Mining, page 274 is due this week.

Seth Bullock, the owner of Bullock Gold Mining, is evaluating a new gold mine in South Dakota. Dan Dority, the company’s geologist, has just finished his analysis of the mine site. He has estimated that the mine would be productive for eight years, after which the gold would be completely mined. Dan has taken an estimate of the gold deposits to Alma Garrett, the company’s financial officer. Alma has been asked by Seth to perform an analysis of the new mine and present her recommendation on whether the company should open the new mine.

Alma has used the estimates provided by Dan to determine the revenues that could be expected from the mine. She has also projected the expense of opening the mine and the annual operating expenses. If the company opens the mine, it will cost $650 million today, and it will have a cash outflow of $72 million nine years from today in costs associated with closing the mine and reclaiming the area surrounding it. The expected cash flows each year from the mine are shown in the table on this page. Bullock Mining has a 12 percent required return on all of its gold mines.

YearCash Flow
0−$650,000,000
1     80,000,000
2   121,000,000
3   162,000,000
4   221,000,000
5   210,000,000
6   154,000,000
7   108,000,000
8     86,000,000
9   −72,000,000

QUESTIONS

1.Construct a spreadsheet to calculate the payback period, internal rate of return, modified internal rate of return, and net present value of the proposed mine.
2.Based on your analysis, should the company open the mine?
3.Bonus question: Most spreadsheets do not have a built-in formula to calculate the payback period. Write a VBA script that calculates the payback period for a project.

Preview:

In this calculation, two scenarios were assumed :(1)- Capital outlay includes the cost of closing the mine and (2)- only the initial capital requirement is considered, i.e., $….

BUSN 379 Finance Course

Discussions Week 1-7 All Students Posts – 270 Pages 

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Financial Management and Business Ethics Discussions Week 1 All Students Posts 43 Pages 

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Financial Management – 23 Pages 

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What are some of the most important financial management decisions? Can you provide some real-life examples?

  1. Identify three good investment opportunities for the firm.
    Obtain a short-term loan to purchase materials.
    c. Evaluate the level of risk of a project.
    d. Sale long-term bonds to raise funds.
    e. Determine the cheapest sources of financing for a project.
    f. Determine the return of a potential project.
    g. Calculate the cash flows for a project.

Which of the following would you assign to the income statement and which to the balance sheet?
a. Accounts receivable
b. Cost of goods sold
c. Net working capital
d. Interest expense
e. Taxes
f. Current assets such as inventories
g. Short-term loans
h. Cash on hand
i. Consulting revenues
j. Inventory
k. Plant and equipment
l. Retained earnings
m. Accounts payable
n. Selling and administrative expenses

Do you believe a company can be profitable but short on cash or vice versa? What do you think, class?…

Business Ethics – 20 Pages 

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Do you believe that the firm’s social responsibilities conflict with the ultimate goal of shareholder’s wealth maximization? Consider issues such as the protection of the environment and the creation of jobs.  Is wealth maximization the same for all types of companies (e.g. corporations versus sole proprietors)? What about firms that trade internationally? What is the difference between the market and the book value of the firm? Can you provide one recent example of unethical behavior by businesses? What about an example of an ethical issue you face at work? Why is business ethics important for financial management?…

BUSN 379 Finance Course

Time Value of Money and Loans and Interest Rates Discussions Week 2 All Students Posts 44 Pages 

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Time Value of Money – 23 Pages 

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Why does money have a time value? Can you provide at least one real-life scenario in which you can apply the concept of time value of money?  The time value of money is the cornerstone of finance. Consider some real-life simple applications such as buying a house, investing in a bond or even your salary. Why would you say that money changes value over time? Why do you believe postponement of consumption  plays a role in the TVM? Any other examples you can provide? Given the concept of postponement of consumption, what are your thoughts regarding the use of debt? Do you believe that using debt can have a positive side? What about a negative side? Should we aim to be debt-free?…

Loans and Interest Rates – 21 Pages 

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What is the difference between the annual percentage rate (APR) and the effective annual rate (EAR)? Which rate do you believe is more relevant for financial decisions and why? Yes, in fact EAR is more relevant because it is the true cost of borrowing considering compounding. The conclusion that we can reach is that by using APR (instead of EAR) banks and financial institutions that consumers to believe they are paying a lower interest rate than they really are. Most consumers are not aware of the concept of compounding and therefore when they have a loan with 5% APR, they believe they are paying 5% interest, but are not aware that the actual interest on the loan may be higher if the rate compounds more than once a year. In recent years we have seen increased concerns about certain financial products such as subprime mortgages or payday loans. Based on our discussions from Week 1 about business ethics, do you believe it is ethical for financial institutions not to disclose the EAR on loans?  Let’s try out an example: First Choice Bank charges 9% APR compounded quarterly on its business loans. National Emerald Bank charges 3% APR compounded monthly. What are the EARs for the two banks, which bank is the better choice?  If this were to be an investment and the bank offers you 9% and 3% respectively, would you still take the same bank?…

BUSN 379 Finance Course

Bond Valuation and Risk and Stock Valuation Discussions Week 3 All Students Posts 42 Pages 

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Bond Valuation and Risk – 21 Pages 

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What are some of the most important risks associated with bonds? Why investing in bonds?
Types of bonds.  Bond risks.  Bonds vs. Stocks  Do you believe US T-bills (US Government bonds) are risk free? What about bonds issued by foreign governments? How do you believe the recent discussions about the debt ceiling can raise questions about US T-bill risk?…

Stock Valuation – 21 Pages 

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Are there any instances in which companies should not pay dividends?  How do dividends impact the value of a share of stock?  How can you relate the concept of time value of money learned in Week 2 to stock valuation?

The dividend growth model can be applied when dividend growth is constant (or constantly zero). However, most companies do not increase dividends at the same rate forever. For example, a company is not likely to increase dividends at 5% for the next 20 years. It would probably increase it by 5, then 3, then 4 and so forth. There will be change. What does this tell us about the model?
Even with these considerations, the basic way to price a stock is with the dividend growth model. The formula is R=D1/P0 + g. Remember that preferred stock does not have growth so the “g” is zero. As we discuss this model, consider the following questions:
1. Assume you buy stock from Company X. The next dividend (the dividend D1 one year from now) is $5. You expect the stock to grow at a rate of 3% indefinitely and the return you required from this stock is 6%. What is the price of the stock today?
2. If you increase the dividend to $6, what happens to the stock price?
3. If you increase the rate of return required to 8%, what happens to the stock price?
4. What would the price of the stock be if this were to be preferred (instead of common stock)?…

Net Present Value and Related Tools and Internal Rate of Return Discussions Week 4 All Students Posts 35 Pages 

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Net Present Value and Related Tools – 18 Pages 

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Discuss the pros and cons of net present value. Class, we learned in Week 2 that we can take the cash inflows and outflows of a project and use the Present Value to analyze if the project was worth or not. Can you provide some examples of real-life project scenarios?…

Internal Rate of Return – 17 Pages 

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Are there situations where a manger would prefer to use IRR? Why? Class, consider the project length, the competition and the estimated sales. How do these factors affect project risk?

A company is planning on building a new production facility. The initial investment is $50 million and each year for the next 20 years they expect to receive $10 million in revenues from the project. In year 5 they need to invest an additional $20 million in equipment. Do you see the problem here? In year 1 and 5 cash flows will be negative. This is different from other traditional projects in which year 1 is the only that has negative cash flows. Thus, if you calculate the IRR for this project you may end up with two of them, which one do you use? This is the main drawback of the method.
Any other drawbacks you see in using the IRR? …

BUSN 379 Finance Course

Basics of Risk and Measuring Risk Discussions Week 5 All Students Posts 39 Pages

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Basics of Risk – 20 Pages 

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What is the difference between systematic and nonsystematic risk? What are some examples of each?  Class, last week we learned that projects are subject to risk. Consider some of the examples we learned last week. What systematic and non-systematic risks can you identify? Why is it important to differentiate between these two? How do systematic risks affect the diversification process?

A market is a “group” of assets. These could be a group of stocks or bonds. To understand the concept of a market within the context of beta, you need to understand that beta is a mathematical and statistical measure that compares the changes in return of any given asset to a “market”. For instance, a given asset could be Coca Cola. Because Coca Cola stock is traded in the S&P500, in order to obtain Coca Cola’s beta we would compare the changes in return for its stock vis-a-vis those of the S&P500. If the beta resulting from this analysis is higher than 1, we would say that Coca Cola has more systematic risk that all the companies in the S&P500 combined and viceversa. With this idea in mind:
1. What other markets can you think of?
2. If Coca Cola also trades in the New York Stock Exchange (NYSE) may we find a different beta for it?…

Measuring Risk – 19 Pages 

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What are some statistical measures of risk and what type of risk do they measure?  Consider for a moment the idea that beta reflects market driven risk. Which company do you expect to have a higher beta, Coca Cola or Disney?
Go to Yahoo Finance, look for each company and under the left bar you will see “Key Statistics”. Select “Key Statistics” and then look for the beta on the right under the headline “Trading Information”. Look at your results and consider consumption patterns. Why would you expect one company to have a higher beta than the other?  What can beta tell us about each of these companies? What types of risks can we understand through beta?Can you think of some examples of companies that would have a high beta? What about low betas?…

BUSN 379 Finance Course

Cost of Capital and Leverage Discussions Week 6 All Students Posts 36 Page

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Cost of Capital – 19 Pages

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How can you explain the concept of cost of capital? Do you believe that a firm should use the same cost of capital for all of its projects? Why or why not? How can you compute the cost of debt? What about the cost of equity? How do you believe you can calculate the cost of retained earnings? What would be some examples of flotation costs and how would they impact the cost of equity? Would flotation costs increase or decrease the cost of equity?…

Leverage – 17 Pages 

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What is the impact of financial leverage on wealth creation? What is the relationship between financial leverage and risk? How can you explain the concept of operating leverage?  How would you compare and contrast this concept to financial leverage? How would the EPS increase or decrease using debt in the firm’s capital structure?…

BUSN 379 Finance Course

Short-Term Planning and Cash Management Discussions Week 7 All Students Posts 31 Pages 

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Short-Term Planning – 17 Pages 

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How are the operating and cash cycles of the firm different? Why are they important? Can you provide some examples of transactions that affect the cash account? Certainly inventory is an important aspect of the cash and operating cycles. Inventory may require a significant amount of investments, while it may take a long time to either produce and sell or market the product. Consider a company such as HP which has to buy parts and pieces for its computers, assemble these parts and then ship the product to the customer or sell them to distributors as Best Buy or Wal-mart. The cycle of producing and selling an item can take a few days. Do you see how these process can affect your cash cycle? To minimize this effect, companies use a just-in-time (JIT) inventory system. What do you believe are some industries or companies that can use this system successfully and why? Would all company benefit from JIT? How can a company use JIT or EOQ to maximize its cash and operating cycles? consider the cash and operating cycle…what industries do you believe would be the most prone to have quicker cash cycles or operating cycles?…

Cash Management – 14 Pages 

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What strategies can a firm use to optimize its cash cycle? How does the credit policy affect cash management? Other than discounts, how do you believe firms can accelerate payments from clients? What are some strategies you as a financial manager would recommend? How do you bring in more cash to your business? What strategies can you use? And what sources of short-term financing can you use to help in obtaining more cash for immediate needs? Consider the following practical example: You place an order for 100 units of inventory Part A at a unit price of $522. The supplier offers terms of 2/25, net 40. How much should you remit if you take the discount? How do you believe a company can “prove” its creditworthiness to vendors, for instance material vendors?…

BUSN 379 Finance Course

Final Exam 

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(TCO 1) Likeline, Inc., has sales of $445,000, costs of $173,000, depreciation expense of $72,000, interest expense of $36,000, and a tax rate of 35 percent. What is their net income? (Points : 20)

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Sales                            $445,000

Less:

Cost                             $173,000

Depreciation                $72,000….

(TCO 1) Hammett, Inc. has sales of $19,570, costs of $9,460, depreciation expense of $2,130, and interest expense of $1,620. If the tax rate is 35 percent, what is the operating cash flow, or OCF?

Show your work

(Points : 20)

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Operating cash flow in this case would be…

19,570 Sales

(9,460)…

(TCOs 2 and 3) Cee Co. issued 20-year, $1,000 bonds at a coupon rate of 7 percent. The bonds make annual payments. If the YTM on these bonds is 4 percent, what is the current bond price? (Points : 20)

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Note:Coupon rate= 7% x…
(TCO 3) Sixteenth Bank has an issue of 6% preferred stock with a $100.00 par value that just sold for $89 per share. What is the bank’s cost of preferred stock? (Show your work and round your answer to two decimal places. (Points : 20)
The bank’s cost of preferred stock….
(TCOs 3 and 5) You own a portfolio that has $2,600 invested in Stock A and $3,400 invested in Stock B. If the expected returns on these stocks are 11 percent and 17 percent, respectively, what is the expected return on the portfolio? (Show your work.) (Points : 20)

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Total Portfolio = 2600 + 3400 = $6000

Ratio of Stock A/ total = $2600/6000 = 43.33%….

 

(TCO 3)  A stock has a beta of 1.25, the expected return on the market is 12 percent, and the risk-free rate is 2 percent. What must the expected return on this stock be? (Show your work.) (Points : 20)

https://www.hiqualitytutorials.com/product/stock-has-a-beta/Ra = …Ra= Rf + Ba (Rm – Rf)

(TCO 4) Suppose Tom, Ltd. just issued a dividend of $2.00 per share on its common stock. The company’s dividends have been growing at a rate of 7%. If the stock currently sells for $50.00, what is your best estimate of the company’s cost of equity? (Show your work.) (Points : 20)

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Cost of  equity= g + Current annual dividends (1+g)….

 

(TCO 4) Given the following information, calculate the weighted average cost for the Han Corp.
Percent of capital structure:
Preferred stock                                                      15%
Common equity                                                     60%
Debt                                                                      25%
Additional information:
Corporate tax rate                                                  34%
Dividend, preferred                                                $9.50
Dividend, expected common                                  $1.50
Price, preferred                                                      $100.00
Growth rate                                                            9%
Bond yield                                                             6%
Price, common                                                               $75.00 (Points : 40)

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Where:WACC = ((E/V) * Re) +((E/V) * Rp) + [((D/V) * Rd)*(1-T)]

  • E = Market value of the company’s equity, preferred stock or debt
  • V = Total Market Value of the company (E + D); therefore…
(TCO 7) What are some important factors to consider when conducting a credit evaluation and scoring? (Points : 20)

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BUSN 379 Finance Course

When doing a credit evaluation and scoring, the “classic five Cs of credit” is commonly used. These are:

  1. Character – this is the customer’s…
  2. Capacity – this pertains to the…
  3. Capital – refers to the…
(TCO 1) Provide three examples of situations in which business ethics play a role in the financial management process. Explain your rationale, and how these situations may affect the value of the firm. (Points : 20)

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  1. The ultimate goal of companies is to maximize the value of shareholder’s equity. In striving to achieve this objective, companies are prone to…

(TCO 6) What are the factors that make up the capital asset pricing model? Where would you typically find the data for these factors? (Points : 20)

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Ra= Rf …Capital asset pricing model (CAPM) depicts the relationship between risk and expected return on a risky asset or security through the formula below:

Where the factors that make up the model and their sources are:

  • Note: Ra – represents the…

BUSN 379 Finance Course

DeVry