|1)||Total assets are $1000, fixed assets are $700, long-term debt is $250, and short-term debt is $300. What is the amount of net working capital?
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Net working capital = $1000 – $700 – $300 = $0
|3)||Your parents are giving you $100 a month for four years while you are in college. At a 6% discount rate, what are these payments worth to you when you first start college?
|.4)||The great, great grandparents of one of your classmates sold their factory to the government 104 years ago for $150,000. If these proceeds had been invested at 6%, how much would this legacy be worth today? Assume annual compounding.
|5)||An investment project has the cash flow stream of $-3250, $80, $200, $75, and $90. The cost of capital is 12%. What is the discounted payback period?
6) An investment cost $12,000 with expected cash flows of $4,000 for 4 years. The discount rate is 15.2382%. The NPV is ______ and the IRR is ______ for the project.
|D.||Can not answer without one or the other value as input.|
|E.||None of these.|
7) Thornley Machines is considering a 3-year project with an initial cost of $618,000. The project will not directly produce any sales but will reduce operating costs by $265,000 a year. The equipment is depreciated straight-line to a zero book value over the life of the project. At the end of the project the equipment will be sold for an estimated $60,000. The tax rate is 34%. The project will require $23,000 in extra inventory for spare parts and accessories. Should this project be implemented if Thornley’s requires a 9% rate of return? Why or why not?
|A.||No; The NPV is -$2,646.00.|
|B.||Yes; The NPV is $27,354.00.|
|C.||Yes; The NPV is $32,593.78.|
|D.||Yes; The NPV is $43,106.54.|
|E.||Yes; The NPV is $196,884.40.|
A project will produce operating cash flows of $45,000 a year for four years. During the life of the project, inventory will be lowered by $30,000 and accounts receivable will increase by $15,000. Accounts payable will decrease by $10,000. The project requires the purchase of equipment at an initial cost of $120,000. The equipment will be depreciated straight-line to a zero book value over the life of the project. The equipment will be salvaged at the end of the project creating a $25,000 after-tax cash flow. At the end of the project, net working capital will return to its normal level. What is the net present value of this project given a required return of 14%?
9) What are the arithmetic and geometric average returns for a stock with annual returns of 5%, 8%, -3%, and 16%?
10) A year ago, you purchased 300 shares of IXC Technologies, Inc. stock at a price of $10.05 per share. The stock pays an annual dividend of $.10 per share. Today, you sold all of your shares for $29.32 per share. What is your total dollar return on this investment?
What is the expected return on a portfolio comprised of $3,000 in stock K and $5,000 in stock L if the economy is normal?
12) You have a $1,000 portfolio which is invested in stocks A and B plus a risk-free asset. $400 is invested in stock A. Stock A has a beta of 1.3 and stock B has a beta of .7. How much needs to be invested in stock B if you want a portfolio beta of .90?
13) Gail’s Dance Studio is currently an all equity firm that has 80,000 shares of stock outstanding with a market price of $42 a share. The current cost of equity is 12% and the tax rate is 34%. Gail is considering adding $1 million of debt with a coupon rate of 8% to her capital structure. The debt will be sold at par value. What is the levered value of the equity?
14) The Winter Wear Company has expected earnings before interest and taxes of $2,100, an unlevered cost of capital of 14% and a tax rate of 34%. The company also has $2,800 of debt that carries a 7% coupon. The debt is selling at par value. What is the value of this firm?
15) The Montana Hills Co. has expected earnings before interest and taxes of $8,100, an unlevered cost of capital of 11%, and debt with both a book and face value of $12,000. The debt has an annual 8% coupon. The tax rate is 34%. What is the value of the firm?
16) Your firm has a debt-equity ratio of .75. Your pre-tax cost of debt is 8.5% and your required return on assets is 15%. What is your cost of equity if you ignore taxes?
18) Regional Power wants to raise $10 million in new equity. The subscription price is $20. There are currently 3 million shares outstanding, each with 1 right. How many rights are needed to purchase 1 share?
19) For a particular stock the old stock price is $20, the ex-rights price is $15, and the number of rights needed to buy a new share is 2. Assuming everything else constant, the subscription price is ______.
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