Question: If you invest $8,000 at 12%,

> Write a brief, verbal description of the logic behind the development of the time value formulas for annuities.

> Why might the government be interested in influencing exchange rates from time to time? How would it go about moving the exchange rate?

> Calculate the IRR for the following projects. a. An initial outflow of $15,220 followed by inflows of $5,000, $6,000, and $6,500. b. An initial outflow of $47,104 followed by inflows of $16,000, $17,000, and 18,000.

> Calculate an IRR for the project in problem 2 using an iterative technique. (Hint: Start by guessing 15%.)

> Conestoga Ltd. has the following estimated probability distribution of returns. Calculate Conestoga’s expected return, the variance and standard deviation of its expected return and the return’s coefficient of variat

> Fred Tibbits has made a detailed study of the denim clothing industry. He's particularly interested in a company called Denhart Fashions that makes stylish denim apparel for children and teenagers. Fred has done a forecast of Denhart's earnings and look

> The Habender Company just issued a two-year bond at 12%. Inflation is expected to be 4% next year and 6% the year after. Habender estimates its default risk premium at about 1.5% and its maturity risk premium at about .5%. Because it's a relatively sma

> A project has the following cash flows a. What is the project’s payback period? b. Calculate the projects NPV at 12%. c. Calculate the project’s PI at 12%. Co ($700) Ca $244 $200 $500

> Blackstone Corporation's $7 preferred was issued five years ago. The risk-appropriate interest rate for the issue is currently 11%. What is this preferred stock selling for today?

> What will a deposit of $4,500 left in the bank be worth under the following conditions? a. Left for nine years at 7% interest? b. Left for six years at 10% compounded semiannually? c. Left for five years at 8% compounded quarterly? d. Left for 10 years

> Pam Smith just inherited a $1,000 face value K-S Inc. bond from her grandmother. The bond clearly indicates a 12% coupon rate, but the maturity date has been smudged and can’t be read. Pam called a broker and determined that similar bonds are currently

> A four-stock portfolio is made up as follows Calculate the portfolio's beta. Current Value $4,500 Stock Beta .8 .6 2,900 6,800 1,200 1.3 1.8 D ABCA

> Calculate the present value of one dollar 30 years in the future at 10% interest. What does the result tell you about very long-term contracts?

> Grand Banks Mining Inc. plans a project to strip mine a wilderness area. Setting up operations and initial digging will cost $5 million. The first year's operations are expected to be slow and net a positive cash flow of only $500,000. Then there will

> The Duncan Company's stock is currently selling for $15. People generally expect its price to rise to $18 by the end of next year. They also expect that it will pay a dividend of $.50 per share during the year. (Hint: Apply Equation 9.2 page 395.) a.

> Calculate the expected return on an investment in Delta Inc.'s stock if the probability distribution of returns is as follows. Plot the distribution on the axis with Omega Inc. of the previous problem. Based on the graph, which company has the lower r

> The probability distribution of the return on an investment in Omega Inc.'s common stock is as follows: Graph the probability distribution. Calculate the expected return, the standard deviation of the return, and the coefficient of variation. Re

> The Wintergreens are planning ahead for their son's education. He's eight now and will start college in 10 years. How much will they have to set aside each year to have $65,000 when he starts if the interest rate is 7%?

> The Aldridge Co. is expected to grow at 6% into the indefinite future. Its latest annual dividend was $2.50. Treasury bills currently earn 7% and the S&P 500 yields 11%. a. What price should Aldridge shares command in the market if its beta is 1.3? b.

> You are a junior treasury analyst at the Palantine Corporation. The treasurer believes the CAPM gives a good estimate of the company's return to equity investors at any time, and has asked you to prepare an estimate of that return using the SML. Treasu

> The stock of Sedly Inc. is expected to pay the following dividends: At the end of the fourth year its value is expected to be $37.50. What should Sedly sell for today if the return on stocks of similar risk is 12%? Year Dividend 3. 1 2 4 $2.25 $3.

> A portfolio consists of the following four stocks. What is the expected return of the portfolio? Еxpected Current Market Value Return $180,000 $145,000 $452,000 $223,000 $1,000,000 Stock 8% 10% 12% 5% ABCA

> Longly Trucking is issuing a 20-year bond with a $2,000 face value tomorrow. The issue is to pay an 8% coupon rate, because that was the interest rate while it was being planned. However, rates have increased suddenly and are expected to be 9% when the

> Why is it important that physical assumptions precede financial results in the planning process? For example, what's wrong with assuming that you want a business that sells $50 million a year earning a profit of $5 million, and then building a revenue an

> At what interest rate will $750 grow into $3,132.83 in 15 years?

> How long will it take $5,000 invested at 14% to double?

> The Pancake Corporation recently paid a $3 dividend, and is expected to grow at 5% forever. Investors generally require an expected return of at least 9% before they'll buy stocks similar to Pancake. a. What is Pancake's intrinsic value? b. Is it a ba

> The Spinnaker Company has paid an annual dividend of $2 per share for some time. Recently the board of directors voted to grow the dividend by 6% from now on. What is the most you would be willing to pay for a share of Spinnaker if you expect a 10% ret

> Broxholme Industries has sales of $40 million, equity totaling $27.5 million and an ROS of 12%. The sustainable growth rate has been calculated at 10.9%. What dividend payout ratio was assumed in this calculation?

> Refer to the Microsoft stock quotation on page 194. Demonstrate that the price earnings (P/E) ratio is consistent with other information in the listing.

> Snyder Mfg. issued a $1,000 face value 30-year bond 5 years ago with an 8% coupon. The bond is subject to call after 10 years, and the current interest rate is 7%. What call premium will make a bondholder indifferent to the call? (Hint: Equate the for

> What would you pay for an annuity paying $3,000 per year for 12 years if the interest rate is 10%?

> Softek has two potentially big-selling products under development. Alpha, the first new product, seems very likely to catch on and is expected to drive the firm's growth rate to 25% for the next two years. However, software products have short lives, a

> How much will $650 per year deposited at 12% be worth in 8 years?

> Why is planning for a new business harder than planning for an existing operation? In which do you have to make more assumptions? Why? What implicit assumption provides a short cut in one situation?

> What is the FV of $1,250.63 for 3 years at 7%?

> At what interest rate will $1,000 grow into $3,642.50 in 15 years?

> What is the current yield on each of the bonds in the previous problem?

> How much is a guaranteed promise of $15,750 to be received in 12 years’ worth today if interest is 14%?

> If you deposit $207.86 in an account that pays 4% and leave it there for 12 years how much will you have in the account?

> Timberline Inc. has the following current accounts last year. ($000) In addition, the company had sales revenues of $9,453,000 and costs and expenses (including interest and tax) of $7,580,000. Depreciation of $1,462,000 is included in the cost and

> How much will $175 grow into if it is invested at 16% for 30 years?

> Lapps Inc. makes a gift product that sells best during the holiday season. Retailers stock up in the fall so Lapps’ sales are largest in October and November and drop dramatically in December. The firm expects the following revenue patt

> The Centurion Corp. is putting together a financial plan for the company covering the next three years, and needs to forecast its interest expense and the related tax savings. The firm's most significant liability is a fully amortized mortgage loan on it

> Amitron Inc. is considering an engineering project that requires an investment of $250,000 and is expected to generate the following stream of payments (income) in the future. Use the TIMEVAL program to determine if the project is a good idea in a presen

> What was the trigger that started the crisis? If it didn’t happen would the crisis have been averted?

> The Lexington Property Development Company has a $10,000 note receivable from a customer due in three years. How much is the note worth today if the interest rate is a. 9%? b. 12% compounded monthly? c. 8% compounded quarterly? d. 18% compounded month

> What interest rate will make $7,500 per year accumulate to $279,600 in 15 years?

> Tutak Industries issued a $1,000 face value bond a number of years ago that will mature in eight years. Similar bonds are yielding 8%, and the Tutak bond is currently selling for $1,291.31. Compute the coupon rate on this bond. (In practice we generall

> How much would you have to put in the bank today to have $42,800 in 9 years if the interest rate is 7%?

> Sam Rothstein wants borrow $15,500 to be repaid in quarterly installments over five years at 16% compounded quarterly. How much will his payment be?

> Sweet Tooth Cookies, Inc. has the following ratios What percentage of its assets are financed by equity? (Hint: Substitute into the Extended DuPont Equation.) ROE . = 15% ...... T/A turnover = 1.2 ROS . E 10%

> What are the annual payments on a loan of $350,000 to be repaid over 10 years at 8%?

> How much would you have to save each year to have $65,000 in 10 years if the interest rate is expected to be 7%?

> The Lineberry Golf Cart Co. sold 7,400 carts this year at an average unit price of $3,000. The firm produced the carts at a 42% cost ratio, which is calculated as cost of goods sold (COGS) divided by revenue. At year end 50 days of sales remained uncol

> What is a tranche and how was its risk estimated before the crisis?

> Fleming, Inc. had a dividend payout ratio of 25% this year that resulted in a payout of $80,000 in dividends. Return on sales (ROS) was 8% this year and is expected to increase to 9% next year. If Fleming expects to have $305,100 available from next ye

> The Eagle Feather Fabric Company expects to complete the current year with the following financial results ($000). Forecast next year using a modified percentage of sales method assuming no dividends are paid and no new stock is sold along with the fol

> The Tower family wants to make a home improvement that is expected to cost $60,000. They want to fund as much of the cost as possible with a home equity loan, but can afford payments of only $600 per month. Their bank offers equity loans at 12% compound

> Larime Corp is forecasting 20X2 near the end of 20X1. The estimated year-end financial statements and a worksheet for the forecasts are shown below. Management expects the following next year: • An 8% increase in revenue. â&

> The management of Coker Corp is doing a quick forecast of 20X9 using the modified percentage of sales method in preparation for a more detailed planning exercise later in the month. The estimate is to assume a 10% growth in sales. All other line items

> If Sharon Henderson of the previous problem is also a founder of the company and has retained 8 million shares of its stock, how much of a difference will the auditors’ decision make in her personal wealth outside of the stock option?

> Joe Ferro's uncle is going to give him $250 a month for the next two years starting today. If Joe banks every payment in an account paying 6% compounded monthly, how much will he have at the end of three years?

> Read Business Analysis Case 3. Henderson Industries Inc.’s stock is currently selling at $22.40 per share. Sharon Jacobs, the CEO, has options to buy 250,000 shares at $25.50 per share that expire at the end of this year. Sharon feels that if the tradi

> The Cambridge Cartage Company has partially completed its forecast of next year's financial statements as follows. The firm pays interest at 10% on all borrowings and pays a combined state and federal tax rate of 40%. Complete the forecasted income st

> The Nelson Sheet Metal Company has current assets of $2.5 million and current liabilities of $1.0 million. The firm is in need of additional inventory and has an opportunity to borrow money on a short-term note with which it can buy the needed material.

> List the traditional qualifications for a mortgage loan and describe how each protects the lender.

> Industry A is dominated by ten large firms each with sales of approximately $500 million per year. A proposal to merge two of these firms was approved by the Justice Department as not violating the antitrust laws. Industry B is locally defined and much

> Relate the idea of cost of capital to the opportunity cost concept. Is the cost of capital the opportunity cost of project money?

> Why is it desirable to construct capital budgeting rules so that higher risk projects become less acceptable than lower risk projects?

> Because companies always have inventory and accounts receivable, most banks are happy to make long term loans to support those assets. Either refute or support that statement.

> Why are time value concepts important in ordinary business dealings, especially those involving contracts?

> Depreciation is a noncash charge. Why then is it important in Lease-Buy analysis? (Very short answer.)

> What bank problems does securitization solve?

> In leases with no residuals, lessors calculate the lease payments they must charge as if the lease was a loan. How does the presence of a residual change the calculation?

> Given the importance of dividends to the well-being of equity investors, why do they put up with the fact that dividends are discretionary?

> Explain the ideas of a risk-free rate and the real rate of interest. Are either of them approximated by anything that exists in the real world?

> The following issues are related to the accuracy and reliability of financial plans. Explain the processes/issues related to each. Top-down vs. bottom-up planning Plans as statements of goals vs. plans as predictions of what's going to happen. Planni

> There’s a fundamental difference between the rules one, two, and four for qualifying an operating lease and rule three. What is it?

> Summarize the effect of operating leverage on EBIT.

> Why is inflation important to lenders? How do they take it into consideration?

> Capital budgeting is based on the idea of identifying incremental cash flows, so overheads aren't generally included. Does this practice create a problem for a firm that over a long period of time takes on a large number of projects that are just barely

> What is the general (in words) relationship between risk and return?

> Interest is said to drive the stock market. But interest is paid on bonds and loans while stocks pay dividends, never interest. It would seem that interest has nothing to do with the stock market. Explain this apparent contradiction.

> The payback technique is criticized for not using discounted cash flows. Under what conditions will this matter most? That is, under what patterns of cash flow will payback and NPV or IRR be likely to give different answers?

> Because of the advances in computer technology, inventory management is a precise science, and there's no excuse for not having the optimal quantity on hand at all times. Is that statement true or false? Explain.

> Inventory management is a shared responsibility between finance and manufacturing just as receivables management involves both sales and finance. Right or wrong? Explain.

> Outline the costs and benefits involved in the trade-off between a tighter versus a looser receivables policy.

> Why does stock-based compensation create a moral hazard for executives?

> Describe insider trading. Why is it illegal?

> You're the cash manager for Huge Inc., which has factories and stores all over the country. Each operation has several bank accounts to receive deposits and pay vendors, so the company's cash is spread all over the country under the control of divisiona

> What argument was made against adopting FASB 13?

> What do we mean when we say businesses spend two kinds of money? Where does each kind come from? How is each used?

> What, in general, is meant by off balance sheet financing?

> Define term and maturity. Is there a difference?

> Factoring may involve interest even though it isn't a loan. How can this come about?

> Describe the concept of the breakeven point in words by using the concept of contribution and fixed costs. (Short answer.)

> Explain the idea of breakeven analysis in a brief paragraph.

> What information are we likely to be interested in that’s contained in a loan amortization schedule?

> You're a new member of the planning staff within the finance department at Bertram Enterprises, a large manufacturer of household goods. The firm does an annual operating plan and a long range plan every year. You've just received a note from the CFO a