FINA 4422 - White - Final Exam Practice Conceptual and Short Calculations

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University of Minnesota-Twin Cities *

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4422

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Finance

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Apr 3, 2024

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xlsx

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unity. %, should you take the early pay discounts or not?

Your company's capital expenditures in 2024 were $100 What line does this change on th 2023 2024 Accumulated Depreciation $1,100 $1,150 Reverse engineer this How much does your Net PP&E change by from 2023 to 2024? Last Year This Year GFA 2,000 2,100 -Accumulated Depreciation $1,100 $1,150 Change in ACC Dep ($50)

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he balance sheet? This would be Gross PPE problem

You won the lottery and will receive $10,000 per year forever, starting today. What is the value of this to you today if you can invest/lend at 8% per year?

Tasty Pi Bakery has an equity beta of 3.14. Its debt-to-value ratio is 31.4%. Its tax rate is 28%. What is Tasty Pi Bakery's asset beta? Asset beta is equity risk Levered Beta 3.14 D/V 31.40% Tax 28% E/V 68.60% D/E 45.77% Unlevered Beta 2.36

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Your management team wants to stop paying your vendors early - they think it is not a positive NPV opportu If your company's vendor payment terms are 2% 15, Net 60 and your company's cost of capital is about 12% 2% 15, Net 60 2% interest rate 15 days for early pay 60 days for later pay 45 days of a "loan" if you pay later 365 days per year 16.22% implied annual interest rate Yes, you would still want to pay early as paying early is "earning" you a ~16% interest rate which is higher than

unity. %, should you take the early pay discounts or not? n your cost of capital.

Your company's capital expenditures in 2024 were $100 2023 2024 Accumulated Depreciation $1,100 $1,150 How much does your Net PP&E change by from 2023 to 2024? Accumulated depreciation went up by $50 (this reduces Net PP&E). Capital Expenditures (i.e., change in Gross Fixed Assets) was $100 (this increases Net PP&E). Thus, the change in Net PP&E was +$50. Example: 2023 2024 Change Gross Fixed Assets $5,000 $5,100 $100 Accumulated Depreciation $1,100 $1,150 $50 Net PP&E $3,900 $3,950 $50 In this example, I just made up a number for Gross Fixed Assets. When we are focused on the change, the

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e starting point doesn't matter.

You won the lottery and will receive $10,000 per year forever, starting today. What is the value of this to you today if you can invest/lend at 8% per year? PV of Perpetuity Discount Rate 8.0% CF $10,000 CF stream is… t=0 t=1 t=2 to infinity, and beyond! $10,000 $10,000 $10,000 FOREVER Value of $10K today $10,000 Value of perpetuity t=1 and beyond $125,000 Total PV $135,000 Alternately, discount the whole thing to t= -1 (i.e., last year) and compound the total forward to t=0 t= -1 t=0 t=1 t=2 to infinity, and beyond! $10,000 $10,000 $10,000 FOREVER $125,000 Value at t=0 $135,000 PV 0 = CF 1 / r

Tasty Pi Bakery has an equity beta of 3.14. Its debt-to-value ratio is 31.4%. Its tax rate is 28%. What is Tasty Pi Bakery's asset beta? Value = Debt + Equity Equity Beta 3.14 Debt/Value 31.40% thus… Equity/Value 68.60% Note: D + E weights must sum to 100% thus… Debt/Equity 45.77% Tax Rate 28% Unlevered Beta = Levered Beta / (1+ D/E * (1-TaxRate)) Unlevered Beta 2.36

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