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Finance
Wen Seng operates an ice cream shop. He is trying to decide whether to expand his business to include ice cream cakes. He will need some additional space that will cost him $7,200 per year at the end of each year and some additional equipment that will cost $10,000 up front. The ice cream cakes will provide an extra income of $10,000 per year at the end of each year. The business is expected to last 20 years. The discount rate (or interest rate) for Wen Seng's new business is 10%. What is the Net Present Value of the ice cream cake project project? (Assume there are no taxes.)
Finance
1. Firm L has debt with a market value of $200,000 and a yield of 9%. The firm's equity has a
market value of $300,000, its earnings are growing at a rate of 5%, and its tax rate is 40%. A
similar firm with no debt has a cost of equity of 12%. Under the MM extension with growth, what
is Firm L's cost of equity?
a. 11.4%
b. 12.0%
c. 12.6%
d. 13.3%
e. 14.0%
2. Your firm has debt worth $200,000, with a yield of 9%, and equity worth $300,000. It is growing
at a 5% rate, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 12%.
Under the MM extension with growth, what is the value of your firm’s tax shield, i.e., how much
value does the use of debt add?
a. $92,571
b. $102,857
c. $113,143
d. $124,457
e. $136,903
3. Your firm has debt worth $200,000, with a yield of 9%, and equity worth $300,000. It is growing at a
5% rate, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 12%. What is
the value of the firm according to MM with corporate taxes?
a. $475,875
b. $528,750
c. $587,500
d. $646,250
e. $710,875
4. Gomez computer systems has an EBIT of $200,000, a growth rate of 6%, and its tax rate is 40%.
In order to support growth, Gomez must reinvest 20% of its EBIT in net operating assets. Gomez
has $300,000 in 8% debt outstanding, and a similar company with no debt has a cost of equity of
11%.
According to the MM extension with growth, what is the value of Gomez’s tax shield?
a. $156,385
b. $164,616
c. $173,280
d. $182,400
e. $192,000
5. Trumbull, Inc., has total value (debt plus equity) of $500 million and $200 million face value of 1-
year zero coupon debt. The volatility ( ) of Trumbull’s total value is 0.60, and the risk-free rate is
5%. Assume that N(d1) = 0.9720 and N(d2) = 0.9050.
What is the value (in millions) of Trumbull’s equity if it is viewed as an option?
a. $228.77
b. $254.19
c. $282.43
d. $313.81
e. $345.19
market value of $300,000, its earnings are growing at a rate of 5%, and its tax rate is 40%. A
similar firm with no debt has a cost of equity of 12%. Under the MM extension with growth, what
is Firm L's cost of equity?
a. 11.4%
b. 12.0%
c. 12.6%
d. 13.3%
e. 14.0%
2. Your firm has debt worth $200,000, with a yield of 9%, and equity worth $300,000. It is growing
at a 5% rate, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 12%.
Under the MM extension with growth, what is the value of your firm’s tax shield, i.e., how much
value does the use of debt add?
a. $92,571
b. $102,857
c. $113,143
d. $124,457
e. $136,903
3. Your firm has debt worth $200,000, with a yield of 9%, and equity worth $300,000. It is growing at a
5% rate, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 12%. What is
the value of the firm according to MM with corporate taxes?
a. $475,875
b. $528,750
c. $587,500
d. $646,250
e. $710,875
4. Gomez computer systems has an EBIT of $200,000, a growth rate of 6%, and its tax rate is 40%.
In order to support growth, Gomez must reinvest 20% of its EBIT in net operating assets. Gomez
has $300,000 in 8% debt outstanding, and a similar company with no debt has a cost of equity of
11%.
According to the MM extension with growth, what is the value of Gomez’s tax shield?
a. $156,385
b. $164,616
c. $173,280
d. $182,400
e. $192,000
5. Trumbull, Inc., has total value (debt plus equity) of $500 million and $200 million face value of 1-
year zero coupon debt. The volatility ( ) of Trumbull’s total value is 0.60, and the risk-free rate is
5%. Assume that N(d1) = 0.9720 and N(d2) = 0.9050.
What is the value (in millions) of Trumbull’s equity if it is viewed as an option?
a. $228.77
b. $254.19
c. $282.43
d. $313.81
e. $345.19
Finance
Two constant growth stocks are in equilibrium, have the same price, and have the same required rate of return. Which of the following statements is CORRECT?
The two stocks must have the same dividend per share.
If one stock has a higher dividend yield, it must also have a lower dividend growth rate.
If one stock has a higher dividend yield, it must also have a higher dividend growth rate.
The two stocks must have the same dividend growth rate.
The two stocks must have the same dividend yield
The two stocks must have the same dividend per share.
If one stock has a higher dividend yield, it must also have a lower dividend growth rate.
If one stock has a higher dividend yield, it must also have a higher dividend growth rate.
The two stocks must have the same dividend growth rate.
The two stocks must have the same dividend yield
Finance
b. What will be the impact on its net investment in working capital in 2012 if Robinson is able to reduce its collection
period by five days, its inventory period by six days, and increase its payment period by two days?
New Sales
Sales/day
New COGS
COGS/day
Estimated AR if reduced by 5 days
Old collection period 93.58
New collection period 88.58
New AR estimate 5
Estimated Inventory if conversion period reduced by 6 days
COGS/day
Old conversion period
New conversion period
New inventory estimate
Estimated AP if payment period increased by 2 days
COGS/day
Old payment period
New payment period
New AP estimate
2012 working capital
Did the working capital increase or decrease from part a?
please just help me anser this part. I have no money and I have been trying to get this done for 3 days now I need this by 8 am tomorrow
period by five days, its inventory period by six days, and increase its payment period by two days?
New Sales
Sales/day
New COGS
COGS/day
Estimated AR if reduced by 5 days
Old collection period 93.58
New collection period 88.58
New AR estimate 5
Estimated Inventory if conversion period reduced by 6 days
COGS/day
Old conversion period
New conversion period
New inventory estimate
Estimated AP if payment period increased by 2 days
COGS/day
Old payment period
New payment period
New AP estimate
2012 working capital
Did the working capital increase or decrease from part a?
please just help me anser this part. I have no money and I have been trying to get this done for 3 days now I need this by 8 am tomorrow
Finance
I am so lost in all of this. can somone help me? b. What will be the impact on its net investment in working capital in 2012 if Robinson is able to reduce its collection
period by five days, its inventory period by six days, and increase its payment period by two days?
New Sales
Sales/day
New COGS
COGS/day
Estimated AR if reduced by 5 days
Old collection period 93.58
New collection period 88.58
New AR estimate 5
Estimated Inventory if conversion period reduced by 6 days
COGS/day
Old conversion period
New conversion period
New inventory estimate
Estimated AP if payment period increased by 2 days
COGS/day
Old payment period
New payment period
New AP estimate
2012 working capital
Did the working capital increase or decrease from part a?
Robinson expects its 2012 sales and cost of goods sold to grow by 20 percent over their 2011 levels.
a. What will be the affect on its levels of receivables, inventories, and payments if the components of its cash conversion
cycle remain at their 2011 levels? What will be its net investment in working capital?
Receivables
Inventories
Payments
Net investment in working capital
New Sales
Sales/day
New COGS
COGS/day
b. What will be the impact on its net investment in working capital in 2012 if Robinson is able to reduce its inventory
period by ten days?
Estimated AR if reduced by 0 days
Sales/day
Old collection period
New collection period
New AR estimate
Estimated Inventory if conversion period reduced by 10 days
COGS/day
Old conversion period
New conversion period
New inventory estimate
Estimated AP if payment period increased by 0 days
COGS/day
Old payment period
New payment period
New AP estimate
2012 working capital
Did the working capital increase or decrease from part a?
period by five days, its inventory period by six days, and increase its payment period by two days?
New Sales
Sales/day
New COGS
COGS/day
Estimated AR if reduced by 5 days
Old collection period 93.58
New collection period 88.58
New AR estimate 5
Estimated Inventory if conversion period reduced by 6 days
COGS/day
Old conversion period
New conversion period
New inventory estimate
Estimated AP if payment period increased by 2 days
COGS/day
Old payment period
New payment period
New AP estimate
2012 working capital
Did the working capital increase or decrease from part a?
Robinson expects its 2012 sales and cost of goods sold to grow by 20 percent over their 2011 levels.
a. What will be the affect on its levels of receivables, inventories, and payments if the components of its cash conversion
cycle remain at their 2011 levels? What will be its net investment in working capital?
Receivables
Inventories
Payments
Net investment in working capital
New Sales
Sales/day
New COGS
COGS/day
b. What will be the impact on its net investment in working capital in 2012 if Robinson is able to reduce its inventory
period by ten days?
Estimated AR if reduced by 0 days
Sales/day
Old collection period
New collection period
New AR estimate
Estimated Inventory if conversion period reduced by 10 days
COGS/day
Old conversion period
New conversion period
New inventory estimate
Estimated AP if payment period increased by 0 days
COGS/day
Old payment period
New payment period
New AP estimate
2012 working capital
Did the working capital increase or decrease from part a?
Finance
When it started a few years ago, a firm issued shares at $2.00 a share and raised $600,000 in equity. These shares now trade at $6.00 a share on the open market. The debt equity mix is currently 10%. The firm has generated a net profit of $150,000 this year and as a rule pays out 50% of its profits as dividends to shareholders. How many shares are there in issue?
Finance
Claims on assets would be most relevant in a situation where a company is: (Choose the correct answer)
being liquidated
a going concern
making a loss
making a profit
being liquidated
a going concern
making a loss
making a profit
Finance
When a local bank in Kansas City makes loans to its small business customers, it charges them an interest rate for borrowing money. Interest rates are part of the ____________ environment.
Question 19 options:
cultural and social
economic
legal
political
competitive
Question 19 options:
cultural and social
economic
legal
political
competitive
Finance
Which of the following statements is CORRECT?
a. Assume that two bonds have equal maturities and are of equal risk, but one bond sells at par
while the other sells at a premium above par. The premium bond must have a lower current
yield and a higher capital gains yield than the par bond.
b. A bond’s current yield must always be either equal to its yield to maturity or between its yield
to maturity and its coupon rate.
c. If a bond sells at par, then its current yield will be less than its yield to maturity.
d. If a bond sells for less than par, then its yield to maturity is less than its coupon rate.
e. A discount bond’s price declines each year until it matures, when its value equals its par
value.
a. Assume that two bonds have equal maturities and are of equal risk, but one bond sells at par
while the other sells at a premium above par. The premium bond must have a lower current
yield and a higher capital gains yield than the par bond.
b. A bond’s current yield must always be either equal to its yield to maturity or between its yield
to maturity and its coupon rate.
c. If a bond sells at par, then its current yield will be less than its yield to maturity.
d. If a bond sells for less than par, then its yield to maturity is less than its coupon rate.
e. A discount bond’s price declines each year until it matures, when its value equals its par
value.
Finance
Riverside Bank offers to lend $50K at a nominal rate of 6.5%, compounded monthly. The loan must be repaid at the end of the year. Midwest Bank also offers to lend you the $50K, but it will charge an annual rate of 7.0%, with no interest due until the end of the year. How much higher or lower is the effective annual rate charged by Midwest versus the rate charged by Riverside?
