HW 1. HanhDo

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Palm Beach State College *

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4604

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Finance

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Apr 3, 2024

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MANAGERIAL FINANCE HOMEWORK #1 Summary Summary of Homework #1 This homework is based on Chapters 1, 2, 3, and 4. There are 10 questions in this assignment. Each question is worth 0.5 points regardless of difficulty. This assignment can be completed based on group effort. Do not forget to put your name(s) in the appropriate cells (shown right) in alphabetical order. If you have any questions, please feel free to contact me.
GRBA 811 Member Last name First name 1 Do Hanh 2 3 4 5 6
Part A: What should be the primary objective of management? to maximize stockholders' wealth, and this means maximizing the company's fundamental value.Legal action prices usually increase social welfare Part B: Briefly explain the term "free-cash flow" free-cash flow is the cash flow available for distribution to all of a firm's investors after the firm has paid all e and has made the required investments in operations to support growth Part C: Briefly explain the term "weighted average cost of capital" weighted average cost of capital is the average return required by all of the firm 's investor, it is determined structure (the firm 's relative amounts of debt and equity), interest rate, the firm's risk, and the market's atti Part D: Briefly explain the term "fundamental value or intrinsic value" the value of a firm depends on the size of the firm 's free cash flow, the timing of those flows and their risk. I free cash flow and the cost of capital incorporate all relevant information MANAGERIAL FINANCE HOMEWORK #1 Question 1-Conceptual questions (Hint: Review Chapter 1)
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GRBA 811 ns that maximize stock expenses (including taxes) by the firm's capital ttitude toward risk If the expected future
Find the present value of the cash flow schedule shown below assuming a discount rate of 10% Answer: t CF t=1 60 t=2 20 t=3 30 r=10% pv $93.61 MANAGERIAL FINANCE HOMEWORK #1 Question 2-Uneven cash-flows (Hint: Review Chapter 4)
GRBA 811
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Find the present value of the cash flow schedule shown below assuming a discount rate of 10% Answer: t=0 CF t=1 20 t=2 20 t=3 20 t=4 20 pv r=10% $63.40 MANAGERIAL FINANCE HOMEWORK #1 Question 3-Ordinary annuity (Hint: Review Chapter 4)
GRBA 811
Find the present value of the cash flow schedule shown below assuming a discount rate of 10% Answer: CF t=1 50 t=2 50 t=3 50 t=4 50 t=5 50 r=10% pv $189.54 MANAGERIAL FINANCE HOMEWORK #1 Question 4-Ordinary annuity (Hint: Review Chapter 4)
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GRBA 811
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Find the present value of the cash flow schedule shown below assuming a discount rate of 10%. (The following is a growing perpetuity, where the first cash-flow($80) occurs in t= 1 and subsequent cash flow Answer: 1760 r=0.1 g=0.05 pv $1,600.00 MANAGERIAL FINANCE HOMEWORK #1 Question 5-Growing perpetuity (Hint: Review Chapter 4 and/or notes on perpetuities posted on Black
GRBA 811 ws grow at a rate of 5%) Board under Module 1)
Find the present value of the cash flow schedule shown below assuming a dis (The following is a late-starting growing perpetuity, where the first cash-flow grow at a rate of 5%) Answer r=0.1 g=0.05 1760 pv 1092.8215286 MANAGERIAL FINANCE HOMEWORK #1 Question 6- Late-starting growing perpetuity (Hint: Review Chapter 4 an
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scount rate of 10%. w($80) occurs in t= 5 and subsequent cash flows nd/or notes on perpetuities posted on Black Board under Module 1) !!! Extremely important !!! You MUST know how to work this problem by heart since we will be using this over and over again through out the course.
GRBA 811
Use the financial statements given below to answer the questions. Balance Sheet 2008 2007 Assets Cash 330 300 Accounts receivable 550 500 Inventory 925 1,000 Total current assets 1,805 1,800 Net plant and equipment 2,300 2,000 Total assets 4,105 3,800 Liabilities and equity Notes payable 390 380 Accounts payable 280 250 Accruals 85 70 Total current liabilities 755 700 Long-term debt 950 1,100 150 Total liabilities 1,705 1,800 Common stock 1,000 1,000 Retained earnings 1,400 1,000 Total common equity 2,400 2,000 Total liabilities and equity 4,105 3,800 Part A: Compute NOPAT for 2008 Answer: NOPAT= EBIT*(1- tax rate) 756 Tax rate= taxes/EBT 0.3125 Part B: Compute Free Cash Flow for 2008 Answer: FCF=NOPAT-net investment in operating capital 496 operating working capital in 2008 1,440 operating long term asset in 2008=NPPE 2008 2,300 total operating capital 2008 3,740 MANAGERIAL FINANCE HOMEWORK #1 Question 7- Financial Statements (Hint: Follow the example solved through Chapters 2 and 3. If you are
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operating working capital in 2007 1,480 operating long term asset in 2007=NPPE 2007 2,000 totak operationg captial 2007 3,480 Part C: Construct the statement of cash flows Answer: Part D: Compute the amount of dividends paid out in 2008. Answer: change in retaining earning =net income-devidend devidend=net income-change in retaining earning 150 Part E: Compute the current ratio for 2008 Answer: 2.39072847682119 Part F: Compute the acid ratio for 2008 Answer: 1.16556291390728 Part G: Compute the inventory turnover ratio for 2008 Answer:
10.8108108108108 Part H: Compute days sales outstanding for 2008 Answer: 20.075 Part I: Compute fixed asset turnover ratio for 2008 Answer: 4.34782608695652 Part J: Compute the total asset turnover ratio for 2008 Answer: 2.43605359317905 Part K: Compute the debt ratio for 2008 Answer: 33% 42% Part L: Compute times-interest-earned for 2008 Answer: 3.66666666666667 Part M: Compute profit margin on sales for 2008 Answer: 6% Part N: Compute return on total assets (ROA) for 2008 Answer: 13% Part O: Compute return on common equity (ROE) for 2008 Answer: 23% Part P: Using your computations above comment on the firm's liquidity policy. Answer: acid ration less than quick acid (test )ratio (less than industry average. The firm need hold more cash Part Q: Using your computations above comment on the firm's asset management policy. Answer: fix asset and total asset are higher than the industry average Part R: Using your computations above comment on the firm's debt management policy. Answer: debt is higher than industry average
Part S: Using DuPont analysis please explain why ROE is larger than ROA Answer: ROA= 13% ROE 23% Part T: Do you think this firm exhibits the financial resources to manage its debt load? Provide evidence suppo Answer:
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FINANCIAL STATEMENTS FOR BigRed INC. (MILLIONS OF DOLLARS) Income Statement Sales COGS EBITDA Depreciation EBIT Interest expense EBT Taxes Net Income Industry averages for selected financial ratios Current ratio Quick (Acid test) ratio Inventory turnover ratio Days sales outstanding Fixed asset turnover ratio Total asset turnover ratio Debt ratio Times-interest earned ratio Profit margin on sales ROA ROE Alternate method calculate FCF CFO 820 Subtract Cap EX -500 Add interest expense*(1-tc) 206.25 subtract the change in cash balance -30 FCF 496 e not familiar to the topic, you might want to review the crash-course on financial statements)
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operating activity net income 550 depreciation 200 subtract change in account receivable -50 subtract change in inventories 75 add change in account payable 30 add change in accrued expense 15 CFO 820 Investing activities subtract change in GPEE (Cap Ex) -500 CFI -500 financing activity add change in note payable 10 add change in long term debt -150 add change in common stock 0 subtract devidends -150 CFF -290 Net CF 30 check with net CF= 330-300 =30 Beginning Cash Balance 300 End Cash Balance 330
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orting your discussion.
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GPPE Acc depreciation NPPE change in NPPE >>Cap ex >>cap ex
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GRBA 811 2008 10,000 8,700 1,300 200 1,100 300 800 250 550 4.2 2.1 9 36 3 1.8 30% 6 5% 9% 15%
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2008 2007 x+cap ex x y (x+cap ex) -(y+depreciation expense) x-y 500 change in retaining earning=net income-devidend y+depreciation expense 2008 cap ex - depreciation expense 2008 change in NPPE+ depreciation expense 2008
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Point in time Withdrawal/Deposit t=0 0 t=1 10000 t=2 144 t=3 622 t=4 715 t=5 82 t=6 708 t=7 164 t=8 419 t=9 -273 t=10 -656 t=11 208 t=12 -862 t=13 1994 t=14 1267 t=15 -75 t=16 431 t=17 1329 t=18 183 t=19 1877 t=20 1837 t=21 -545 t=22 1412 t=23 -407 t=24 49 t=25 -366 t=26 1798 t=27 -163 t=28 -706 t=29 1073 t=30 44 t=31 1482 t=32 1148 t=33 772 t=34 214 t=35 -344 t=36 -902 MANAGERIAL FINANCE HOMEWORK #1 Question 8 The following schedule shows how much money you withdraw or deposit every month to your amount. t=1 represents 1 month, t=2 represents 2 months from today. Currently you have a ze
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a) Assuming that your money earns an interest rate of 0.2% per month during the next 36 month Answer Point in time Withdrawal/Deposit a)Balance with r=0.2% t=0 0 t=1 10000 10000 t=2 144 10164 t=3 622 10806.328 t=4 715 11542.940656 t=5 82 11648.026537312 t=6 708 12379.3225903866 t=7 164 12568.0812355674 t=8 419 13012.2173980385 t=9 -273 12765.2418328346 t=10 -656 12134.7723165003 t=11 208 12367.0418611333 t=12 -862 11529.7759448555 t=13 1994 13546.8354967453 t=14 1267 14840.9291677387 t=15 -75 14795.6110260742 t=16 431 15256.2022481264 t=17 1329 16615.7146526226 t=18 183 16831.9460819279 t=19 1877 18742.6099740917 t=20 1837 20617.0951940399 t=21 -545 20113.329384428 t=22 1412 21565.5560431968 t=23 -407 21201.6871552832 t=24 49 21293.0905295938 t=25 -366 20969.676710653 t=26 1798 22809.6160640743 t=27 -163 22692.2352962024 t=28 -706 22031.6197667949 t=29 1073 23148.6830063284 t=30 44 23238.9803723411 t=31 1482 24767.4583330858 t=32 1148 25964.993249752 b) Assuming that your money earns an interest rate of 0.2% per month during the next 12 month the following 12 months (starting from t=24 to t=36), what will be your balance at t=36?
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t=33 772 26788.9232362515 t=34 214 27056.501082724 t=35 -344 26766.6140848894 t=36 -902 25918.1473130592
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bank account. If the number shown is negative then the number represents a withdrawal amount and sim ero balance in your bank account and the first deposit of $10,000 will be made 1 month from today.
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hs, what will be your final balance at t=36? B)balance 10000 <<<<r=0.2% t=0 to 1=12 10164 10806.328 11542.940656 11648.026537312 12379.3225903866 12568.0812355674 13012.2173980385 12765.2418328346 12134.7723165003 12367.0418611333 11529.7759448555 13558.3652726901 <<<r=0.3% t=12 to t=24 14866.0403685082 14835.6384896137 15311.1454050825 16686.0788412978 16919.1370778217 18846.8944890551 20740.4351725223 20257.6564780399 21730.429447474 21388.6207358164 21501.7865980238 21221.7937444159 <<<r=0.4% t=24 to t=36 23104.6809193936 23034.0996430712 22420.2360416435 23582.91698581 23721.2486537533 25298.1336483683 26547.3261829618 hs (starting from t=0 to t=12) and an interest rate of 0.3% per month during the following 12 months (startin
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27425.5154876936 27749.2175496444 27516.214419843 26724.2792775223
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GRBA 811 milarly if the number is positive then the number represents a deposit
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ng from t=12 to t=24) and an interest rate of 0.4% per month during
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a) What will be Joe's monthly mortgage payment? b) Joe makes the monthly payments (calculated in part a) during the next 60 months and wants to p Answer t=0 t=1 t=2 t=3 t=180 t=nper r 0.50% pv $300,000 a/annual payment PMT ($2,531.57) b/ $228,027.30 c/ maturity (10 year) 120 new rate 0.40% new annual payment PMT ($2,396.353) d/ monthly payment saving $135.22 MANAGERIAL FINANCE HOMEWORK #1 Question 9 Suppose that Joe Brown borrows $300,000 via 15-year mortgage that requires him to make payme prepayment penalties. Suppose that Joe Brown borrows $300,000 via 15-year mortgage that requires him to make payme prepayment penalties. c) At t=60, instead of paying back all of the debt out of his own pocket, Joe borrows from another le d) Assume the scenario in part c except for that Joe will have to pay a one-time upfront fee of $120 into the new loan (i.e. he has to pay for it out-of-pocket).
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fee of 12K given up monthly investment CF $140.57 $5.35 everymonth ,we will lose $5.35 if refinance with cost 12K upfont, th
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payback all of the loan at the end of the 60th month (t=60). How much will Joe have to pay to ex ents every month. The first payment will be made one month from today (t=1) and the last pay ents every month. The first payment will be made one month from today (t=1) and the last pay ender a 10-year mortgage loan at a lower monthly rate of 0.4%. What will be Joe's new monthly p 000 for refinancing . Should Joe refinance? Why or why not? Please be specific and assume that J
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hen no refinance
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xtinguish the debt (in addition to his payment at t=60). yment will be made 180 months from today (t=180). Assume that the monthly interest rate on the loan (r) is yment will be made 180 months from today (t=180). Assume that the monthly interest rate on the loan (r) is payments? ( Assume no refining costs) oe can reinvest his money in an investment that earns 0.6% rate of return per month and Joe cannot roll the r
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GRBA 811 0.5% and there are no 0.5% and there are no refinancing fee of $12,000
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For years ending 12/31 2010 INCOME STATEMENT Net sales $ 16,230 Cost of sales $ 9,430 Gross Profit $ 6,800 Selling, general, and administrative expenses $ 5,195 Depreciation $ 160 Net interest expense $ 119 Pre-tax income $ 1,326 Income taxes $ 546 Net income $ 780 Dividends $ 155 Contribution to retained earnings BALANCE SHEET Assets 2010 Cash balances $ 508 Accounts receivable $ 2,545 Inventories $ 1,630 Total current assets $ 4,683 Gross plant & equipment $ 3,232 Accumulated depreciation $ 1,335 Net plant & equipment $ 1,897 Total assets $ 6,580 Liabilities & Equity Current maturities of long-term debt $ 125 Accounts payable $ 1,042 Accrued expenses $ 1,145 Total current liabilities $ 2,312 Long-term debt $ 1,000 Common stock $ 1,135 Retained earnings $ 2,133 Total shareholders' equity $ 3,268 Total liabilities and equity $ 6,580 Please construct the statement of cash flows for year 2011 using the above information. On the cash flow statements DO NOT just present the figure but show your work by linking the calculation MANAGERIAL FINANCE HOMEWORK #1 Question 10
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Answer net income $ 997 add depreciation $ 180 subtract change A/R $ (550) subtract change inventory $ (208) add change A/P $ 283 add change accrued $ 287 Cash flow from operating $ 989 subtract change Gross PE $ (563) cash flow from investing -563 subtract dividends -200 add long term debt $ (125) add common stock $ - cash flow from finance -325 net cash flow $ 101 beginning cash balance $ 508 end cash balance $ 609
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GRBA 811 2011 $ 20,355 $ 11,898 $ 8,457 $ 6,352 $ 180 $ 106 $ 1,819 $ 822 $ 997 $ 200 2011 $ 609 $ 3,095 $ 1,838 $ 5,542 $ 3,795 $ 1,515 $ 2,280 $ 7,822 $ 125 $ 1,325 $ 1,432 $ 2,882 $ 875 $ 1,135 $ 2,930 $ 4,065 $ 7,822 n to the appropriate cells on the financials.
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5 year mortage annually and the 1st payment will occur at the end of the 1st year borrow $100,000 r=2% annually mortgage payments? t=0 t=1 $21,215.84 t=2 $21,215.84 t=3 $21,215.84 t=4 $21,215.84 t=5 $21,215.84 annual payment $21,215.84 r 2% pv $100,000.00 <<<use goal seek second way t=0 t=1 pmt t=2 pmt t=3 pmt t=4 pmt t=5 pmt t=Nper pmt+fv pv rate ($21,215.84)
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