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MANAGERIAL FINANCE MIDTERM TEST
HONOR PLEDGE (PLEASE AGREE TO THE PLEDGE BY TYPING YOUR NAME Name:
I pledge on my honor that I have not given or received any unauthorized assistance on this as
Summary of the Final Test
Q1: 6 points
Q2: 6 points
Q3: 6 points
Q4: 6 points
Q5: 10 points
Unlu
BEFORE SUBMITTING YOUR TEST)
ssignment/examination.
Find the present value of the cash flow schedule shown below assuming a discount rate of 10%. (The first cash flow is at t=3, the second cash flow occurs at t=5 and at t=18 the first payment of the growing p
t=0
t=1
0
t=2
0
t=3
70
t=4
0
t=5
30
t=6
0
t=7
0
t=8
0
t=9
0
t=10
0
t=11
0
t=12
0
t=13
0
t=14
0
t=15
0
t=16
0
t=17
0
t=18
90
…
PV
$427.34 MANAGERIAL FINANCE MIDTERM
Problem #1
0 18 $90 … g=5% 3 $70 5 $30
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perpetuity occurs)
Harry should invest in the portfolio with higher beta given that he believes that the markets will perform
he should invest in HM firms.
MANAGERIAL FINANCE MIDTERM
Problem #2
Harry is considering to invest in one of the two stock portfolios, A and B. Portfolio A is composed of elec
Harry expects that markets around the world will perform very well in the near future. Which portfolio
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m well in the near future. Since heavy machinery is more cyclical than utilities,
ctric utility stocks and Portfolio B is composed of heavy machinery equipment stocks. (A or B) is most appropriate for Harry to invest in now given his expectations? Why?
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HUSKERS INC. FINANCIAL STATEMENTS
Income Statement
2015
2016
Revenue
$ 50,000.00 $ 55,000.00 COGS (Excludes depreciation expense)
$ 36,750.00 $ 40,425.00 Depreciation expense
$ 5,000.00 $ 6,934.62 EBIT
$ 8,250.00 $ 7,640.38 Interest expense $ 2,000.00 $ 2,967.31 EBT
$ 6,250.00 $ 4,673.08 Taxes (20%)
$ 1,250.00 $ 934.62 Net income
$ 5,000.00 $ 3,738.46 Dividends
$ - $ - Assets
2015
2016
Cash
$ 10,000.00 $ 11,000.00 Accounts receivable
$ 30,000.00 $ 33,000.00 Gross PP&E
$ 50,000.00 $ 69,346.15 Less accumulated depreciation $ 10,000.00 $ 16,934.62 Net PP&E
$ 40,000.00 $ 52,411.54 Total assets
$ 80,000.00 $ 96,411.54 Liabilities and Equity
Accounts payable
$ 30,000.00 $ 33,000.00 Bank debt
$ - $ 9,673.08 Long-term debt
$ 20,000.00 $ 20,000.00 Common stock
$ 20,000.00 $ 20,000.00 Retained earnings
$ 10,000.00 $ 13,738.46 Total L+E
$ 80,000.00 $ 96,411.54 Cash flow from operating activities
Net income
$ 3,738.46 Depreciation
$ 6,934.62 -Chg in A/R
$ (3,000.00)
Chg in A/P
$ 3,000.00 MANAGERIAL FINANCE MIDTERM
Problem #3
a. Construct the statement of cash flows for 2016.
b. Calculate the free-cash flow for 2016.
Net CF from operations
$ 10,673.08 Cash flow from investing activities
Capex
$ (19,346.15)
Net CF from investing activities
$ (19,346.15)
Cash flow from financing activities
Dividends
$ - Proceeds from bank debt issuance
$ 9,673.08 Proceeds from long-term debt issuance
$ - Proceeds from common stock issuance
$ - Net CF from operations
$ 9,673.08 Net CF
$ 1,000.00 FCF
$ (7,299.23)
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8.27%
MANAGERIAL FINANCE MIDTERM
Problem #4
Huskers Inc. has 500,000 bonds outstanding with 13 years to maturity and par value of $1000 per bond. Coupon rate is 7% and coupons are paid semi-annually. The price of a bond is $ 900 per bond. What is the yield-to-maturity?
2016 (Present time)
2017
2018
2019
Revenue
$ 50,000.00 $ 55,000.00 $ 60,500.00 $ 66,550.00 COGS (Excludes depreciation expense)
$ 36,750.00 $ 33,000.00 $ 36,300.00 $ 39,930.00 Depreciation expense
$ 5,000.00 $ 6,000.00 $ 7,000.00 $ 8,000.00 EBIT
$ 8,250.00 $ 16,000.00 $ 17,200.00 $ 18,620.00 Interest expense $ 2,000.00 $ 2,086.96 $ 2,000.00 $ 2,000.00 EBT
$ 6,250.00 $ 13,913.04 $ 15,200.00 $ 16,620.00 Taxes (20%)
$ 1,250.00 $ 2,782.61 $ 3,040.00 $ 3,324.00 Net income
$ 5,000.00 $ 11,130.43 $ 12,160.00 $ 13,296.00 Dividends
$ - $ - $ 4,990.43 $ 7,666.00 MANAGERIAL FINANCE MIDTERM
Problem #5
The following assumptions are applicable for Huskers Inc. during the next three years (2017, 2018 and 2019). - Annual sales (i.e. revenue) growth will be 10% .
- Annual COGS will be 60% of annual revenues.
- Annual depreciation expense will be 10% of the annual gross PP&E fiscal year-end balance.
- Interest rate on all types of debt is 10% and the annual interest expense is computed as 10% of annual interest bearing debt balances (=bank debt + - Fiscal year-end accounts receivable balance will be 60% of annual revenues.
- Fiscal year-end for inventories will be 30% of revenues.
- Capital expenditures during the next three years will be $10,000 per year. - Fiscal year-end accounts payable will be 50% of annual revenues.
- Long-term debt balance will remain at $20,000 during the next three years.
- Huskers will not issue equity during the next three years.
- Huskers can borrow from the bank as necessary (currently Huskers' bank debt balance is zero).
- Fiscal year-end cash balance will be 20% of annual revenues. The company pays any excess cash in dividends as long as there is no outstanding bank
Inc. pays down the bank debt down to zero and pays out any remaining amount in dividends.
Using all
of the above information fill in the blanks on the proforma income statement and balance sheet for the next three years.
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Assets
2016 (Present time)
2017
2018
2019
Cash
$ 10,000.00 $ 11,000.00 $ 12,100.00 $ 13,310.00 Accounts receivable
$ 30,000.00 $ 33,000.00 $ 36,300.00 $ 39,930.00 Inventories
$ 15,000.00 $ 16,500.00 $ 18,150.00 $ 19,965.00 Gross PP&E
$ 50,000.00 $ 60,000.00 $ 70,000.00 $ 80,000.00 Less accumulated depreciation $ 10,000.00 $ 16,000.00 $ 23,000.00 $ 31,000.00 Net PP&E
$ 40,000.00 $ 44,000.00 $ 47,000.00 $ 49,000.00 Total assets
$ 95,000.00 $ 104,500.00 $ 113,550.00 $ 122,205.00 Liabilities and Equity
Accounts payable
$ 30,000.00 $ 27,500.00 $ 30,250.00 $ 33,275.00 Bank debt
$ - $ 869.57 $ - Long-term debt
$ 20,000.00 $ 20,000.00 $ 20,000.00 $ 20,000.00 Common stock (1000 shares outstanding)
$ 20,000.00 $ 20,000.00 $ 20,000.00 $ 20,000.00 Retained earnings
$ 25,000.00 $ 36,130.43 $ 43,300.00 $ 48,930.00 Total L+E
$ 95,000.00 $ 104,500.00 $ 113,550.00 $ 122,205.00 Imbalance
$ - $ (0.00) $ (0.00)
We have two plug figures in this question (dividends and bank debt). We need to figure out which one will have a zero balance each year
Once we determine which plug is zero then we use goal seek to balance the balance sheet by choosing the other plug figure
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long-term debt).
k debt balance. If there is outstanding bank debt balance, before paying dividends Huskers
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