HW 2. Hanh Do

xlsx

School

Palm Beach State College *

*We aren’t endorsed by this school

Course

4604

Subject

Finance

Date

Apr 3, 2024

Type

xlsx

Pages

Uploaded by MasterWildcat4249

MANAGERIAL FINANCE HOMEWORK #2 Summary of Homework #2 There are 4 questions in this assignment. Points assigned to each question are shown below: Q1: 1 point Q2: 1 point Q3: 1 point Q4: 1 point Total = 4 points 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 2 3 4 5 6

Part A: Give an example for diversifiable risk. Answer: Part B: Give an example for undiversifiable risk. Answer: Part C: Using layman terms please explain the meaning of beta. Answer: Part D: As beta increases, what happens to risk (increase or decrease)? Please provide an intuitive answer Answer: Part E: Please examine SML equation (6-15) on page 264 and figure 6-9 on page 266. Suppose that you ha that risk-free rate and market risk-premium are 4% and 10% respectively. What is the required return on would be the required return? Assuming that you correctly answered the latter part and got a negative nu how come a risky asset can have negative required return? Why would investors ever want to hold this st Answer: Part F: The following data presents the monthly returns for XYZ Industries and S&P500 during the past fiv regressing XYZ Returns (dependent variable or Y-values) on S&P 500 Returns (independent variable or X-v use the "SLOPE" function or use the "Data Analysis" module under "Data" tab. Date XYZ Returns S&P500 Returns 2/1/2007 -1.28% -1.96% 3/1/2007 1.34% 1.16% 4/2/2007 0.68% 4.43% 5/1/2007 3.98% 3.39% 6/1/2007 -2.88% -1.46% 7/2/2007 -8.57% -3.13% 8/1/2007 1.86% 1.28% MANAGERIAL FINANCE HOMEWORK #2 Question 1-Conceptual questions (Hint: Review Chapter 6)

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9/4/2007 0.49% 3.87% 10/1/2007 1.06% 1.35% 11/1/2007 -7.37% -3.87% 12/3/2007 -1.94% -1.12% 1/2/2008 -3.84% -6.05% 2/1/2008 -3.17% -2.59% 3/3/2008 -0.07% -0.89% 4/1/2008 3.95% 4.77% 5/1/2008 3.11% 1.51% 6/2/2008 -9.34% -8.36% 7/1/2008 4.01% -0.90% 8/1/2008 5.22% 1.54% 9/2/2008 -3.21% -9.41% 10/1/2008 -20.97% -16.52% 11/3/2008 -11.26% -6.96% 12/1/2008 5.27% 0.97% 1/2/2009 -13.78% -8.21% 2/2/2009 -13.89% -10.74% 3/2/2009 8.69% 8.32% 4/1/2009 15.37% 9.93% 5/1/2009 2.36% 5.84% 6/1/2009 -0.16% -0.06% 7/1/2009 11.27% 7.46% 8/3/2009 5.07% 3.69% 9/1/2009 4.67% 3.55% 10/1/2009 -6.32% -1.92% 11/2/2009 2.63% 6.16% 12/1/2009 7.67% 1.92% 1/4/2010 -2.77% -3.64% 2/1/2010 4.53% 3.12% 3/1/2010 8.51% 5.65% 4/1/2010 6.82% 1.55% 5/3/2010 -8.25% -7.95% 6/1/2010 -8.83% -5.18% 7/1/2010 7.08% 6.84% 8/2/2010 -7.51% -4.50% 9/1/2010 10.71% 8.96% 10/1/2010 3.84% 3.82% 11/1/2010 2.62% 0.00% 12/1/2010 8.33% 6.69% 1/3/2011 -0.13% 2.33% 2/1/2011 5.10% 3.47% 3/1/2011 1.35% 0.02% 4/1/2011 1.62% 2.90% 5/2/2011 -1.70% -1.13%

6/1/2011 -2.50% -1.69% 7/1/2011 -3.17% -2.00% 8/1/2011 -9.11% -5.50% 9/1/2011 -10.84% -6.94% 10/3/2011 14.47% 10.91% 11/1/2011 -0.20% -0.41% 12/1/2011 1.41% 1.05% 1/3/2012 5.36% 4.75%

GRBA 811 r (layman terms please)? ave a stock with a beta of 0.5 . Also assume this stock? If the beta were -0.5, what umber then please explain tock? ve years. Please estimate XYZ's beta by values. To run a regression on Excel you can either

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Answer: MANAGERIAL FINANCE HOMEWORK #2 Question 2-Bond basics (Hint: Review Chapter 5) A 25-year, $1,000 par value bond has a 7% annual coupon. The bond currently sells for $800. If the yield to price be 7 years from now?

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GRBA 811 o maturity remains at its current rate, what will the

Answer: MANAGERIAL FINANCE HOMEWORK #2 Question 3-Bond basics (Hint: Review Chapter 5) Huskers Industries has a bond outstanding with 20 years to maturity, a 9% coupon paid semiannually, be called in 7 years at a price of $1,030. What is the bond’s nominal yield to call?

GRBA 811 and a $1,000 par value. The bond has an 8.0% nominal yield to maturity, but it can

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2011 2012 2013 Revenue $50,000 COGS (Excludes depreciation expense) $36,750 Depreciation expense $5,000 EBIT $8,250 Interest expense $2,000 EBT $6,250 Taxes (20%) $1,250 Net income $5,000 Dividends 0 Assets 2011 2012 2013 Cash $10,000 Accounts receivable $30,000 Gross PP&E $50,000 Less accumulated depreciation $10,000 Net PP&E $40,000 Total assets $80,000 Liabilities and Equity Accounts payable $30,000 Bank debt 0 Long-term debt $20,000 Common stock $20,000 Retained earnings $10,000 Total L+E $80,000 MANAGERIAL FINANCE HOMEWORK #2 Question 4- Basic FS Forecasting Huskers Inc. is considering a one-time investment in property, plant and equipment amounting to $40,000 (Assu at an annualized rate of 15% during the next two years. Currently, Huskers Inc. does not carry short-term bank d statement and balance sheet to compute the bank debt balance for years 2012 and 2013. Bank debt picks up re corporate credit card account or more properly "line of credit"). - Annual sales growth will be 15% . - Annual COGS will be 70% 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 the previous ye - Company will pay $2,000 per year in dividends during the next two years. - Fiscal year-end cash balance will be 15% of annual revenues. - Fiscal year-end accounts receivable balance will be 60% of annual revenues. - There will be no other capital expenditures during the next two years other than the $40,000 that will occur at - Fiscal year-end accounts payable will be 60% of annual revenues. - Long-term debt balance will remain at $20,000 during the next two years. - Company will not issue equity during the next two years.

GRBA 811 ume today is the last day of 2011). This new investment is expected to increase revenues debt. Using all of the below assumptions, fill in the blanks on the proforma income emaining financing needs of the firm after accounting for everything else (i.e. it is like a ear’s interest bearing debt balance (=bank debt + long-term debt). t the beginning of 2012.

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