Week 8 BA 350

BA 350 Week 8 Final Exam

BA 350 Week 8 Chapter 2 Problem 2-4, 2-7

2-4 – (Income Statement)

Pearson Brothers recently reported an EBITDA of $7.5 Million and net income of $1.8 million. It had $2.0 million of interest expense, and its corporate tax rate was 40%. What was its charge for depreciation and amortization?

2-7 – (Corporate Tax Liability)

The Talley Corporation had a taxable income of $365,000 from operations after all operating costs but before (1) interest charge of $50,000, (2) dividends received of $15,000, (3) dividends paid of $25,000, and (4) income taxes. What are the company’s marginal and average tax rates on taxable income?

Chapter 3 Problem 3-8, 3-10

3-8 – (Profit Margin and Debt Ratio)

Assume you are given the following relationships for the Clayton Corporation: Sales/total assets 1.5 Return on assets (ROA) 3% Return on equity (ROE) 5% Calculate Clayton’s profit margin and debt ratio.

3-10 – (Times-interest-earned ratio)

The Manor Corporation has $500,000 of debt outstanding, and it pays an interest rate of 10% annually: Manor’s annual sales are $2 million, its average tax rate is 30%, and its net profit margin on sales is 5%. If the company does not maintain a TIE ratio of at least 5 to 1, then its bank will refuse to renew the loan and bankruptcy will result. What is Manor’s TIE ratio?

Chapter 12 Problem 12.1 12-4

12.1 – (AFN Equation)

Baxter Video Product’s sales are expected to increase by 20% from $5 million in 2010 to $6 million in 2011. Its assets totaled $3 million at the end of 2010. Baxter is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2010, current liabilities were$1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accruals. The after-tax profit margin is forecasted to be 5%, and the forecasted payout ratio is 70%. Use the AFN equation to forecast Baxter’s additional funds needed for the coming year.

12-4 – (Sales Increase)

Bannister Legal Services generated $2,000,000 in sales during 2010, and its year-end total assets were $1,500,000. Also, at year-end 2010, current liabilities were $500,000, consisting of $200,000 of notes payable, $200,000 of accounts payable, and $100,000 of accruals. Looking ahead to 2011, the company estimates that its assets must increase at the same rate as sales, its spontaneous liabilities will increase at the same rate as sales, its profit margin will be 5%, and its payout ratio will be 60%. How large a sales increase can the company achieve without having to raise funds externally; that is, what is its self-supporting growth rate?

Chapter 13 Problem 13-6, 13-7, 13-8

13-6:

Brooks Enterprises has never paid a dividend. Free cash flow is projected to be

$80,000 and $100,000 for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of 8%. The company’s weighted average cost of capital is 12%.

a. What is the terminal, or horizon, value of operations? (Hint: Find the value of all free cash flows beyond Year 2 discounted back to Year 2.)

b. Calculate the value of Brooks’s operations.

13- 7

Dozier Corporation is a fast growing supplier of office products. Analysts project the following free cash flows (FCFs) during the next 3 years, after which FCF is expected to grow at a constant 7% rate. Dozier’s weighted average cost of capital is WACC = 13%.

YEAR

1 2 3

Free Cash Flow ($millions) -$20 $30 $40

a.) What is Dozier’s terminal, or horizon, value? (Hint: Find the value of all free cash flows beyond year 3 discounted back to Year 3.)

b.) What is the current value of operations for Dozier?

c.) Suppose Dozier has $10 million in marketable securities, $100 million in debt, and 10 million shares of stock. What is the intrinsic price per share?

13.8

The balance sheet of Hutter Amalgamated is shown below. If the 12/31/2010 value of operations is $756 million, what is the 12/31/2010 intrinsic market value of equity?

Assets Liabilities and Equity

Cash $20.0 Accounts Payable $19.0

Marketable securities 77.0 Notes Payable 151.0

Accounts receivable 100.0 Accruals 51.0

Inventories 200.0 Total current liabilities $221.0

Total current assets $397.0 Long term bonds 190.0

Net Plant and equipment 279.0 Preferred stock 76.0

Common stock

(par plus PIC) 100.0

Retained earnings 89.0

Common equity $189.0

Total Assets $676.0 Total liabilities $676.0

Chapter 4 Problem 4-4, 4-5, 4-20, 4-22

4-4:

If you deposit money today in an account that pays 6.5% annual interest, how long will it take to double your money?

4-5:

You have $42,180.53 in a brokerage account, and you plan to deposit an additional $5,000 at the end of every future year until your account totals $250,000. You expect to earn 12% annually on the account. How many years will it take to reach your goal?

4-20:

a. Set up an amortization schedule for a $25,000 loan to be repaid in equal instalments at the end of each of the next 5 years. The interest rate is 10%.

b. How large must each annual payment be if the loan is for $50,000? Assume that the interest rate remains at 10% and that the loan is still paid off over 5 years.

c. How large must each payment be if the loan is for $50,000, the interest rate is 10%, and the loan is paid off in equal installments at the end of each of the next 10 years? This loan is for the same amount as the loan in part b, but the payments are spread out over twice as many periods. Why are these payments not half as large as the payments on the loan in part b?

4-22:

Washington-Pacific invested $4 million to buy a tract of land and plant some young pine trees. The trees can be harvested in 10 years, at which time W-P plans to sell the forest at an expected price of $8 million. What is W-P’s expected rate of return?

Chapter 5 Problem 5-15, 5-21

5-15;

Absalom Motors’s 14% coupon rate, semiannual payment, $1,000 par value bonds that mature in 30 years are callable 5 years from now at a price of $1,050. The bonds sell at a price of $1,353.54, and the yield curve is flat. Assuming that interest rates in the economy are expected to remain at their current level, what is the best estimate of the nominal interest rate on new bonds?

5-21:

Suppose Hillard Manufacturing sold an issue of bonds with a 10-year maturity, a $1,000 par value, a 10% coupon rate, and semiannual interest payments.

a. Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 6%. At what price would the bonds sell?

b. Suppose that, 2 years after the initial offering, the going interest rate had risen to 12%. At what price would the bonds sell?

c. Suppose, as in part a, that interest rates fell to 6%, 2 years after the issue date. Suppose further that the interest rate remained at 6% for the next 8 years. What would happen to the price of the bonds over time?

Chapter 6 Problem 6-4, 6-10

6-4:

A stock’s returns have the following distribution:

Demand for Probability of Rate of return Company’s this Demand if this demand Products Occuring Occurs

Weak 0.1 (50%) Below Average 0.2 (5) Average 0.4 16 Above average 0.2 25 Strong 0.1 60 1.0Calculate the stock’s expected return, standard deviation, and coefficient of variation.

6-10:

You have a $2 million portfolio consisting of a $100,000 investment in each of 20different stocks. The portfolio has a beta of 1.1. You are considering selling $100,000 worth of one stock with a beta of 0.9 and using the proceeds to purchase another stock with a beta of 1.4. What will the portfolio’s new beta be after these transactions?

Chapter 7 Problem 7-4, 7-10

7-4:

Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each year. The preferred sells for $50 a share. What is the stock’s required rate of return?

7-10:

The beta coefficient for Stock C is bC = 0.4 and that for Stock D is bD = −0.5. (Stock D’s beta is negative, indicating that its rate of return rises whenever returns on most other stocks fall. There are very few negative-beta stocks, although collection agency and gold mining stocks are sometimes cited as examples.)

a. If the risk-free rate is 9% and the expected rate of return on an average stock is 13%, what are the required rates of return on Stocks C and D?

b. For Stock C, suppose the current price, P0, is $25; the next expected dividend,D1, is $1.50; and the stock’s expected constant growth rate is 4%. Is the stock in equilibrium? Explain, and describe what would happen if the stock were not in equilibrium.

Chapter 8 Problem 8-4, 8-5, 8-6

8-4:

The current price of a stock is $33, and the annual risk-free rate is 6%. A call option with a strike price of $32 and with 1 year until expiration has a current value of $6.56. What is the value of a put option written on the stock with the same exercise price and expiration date as the call option?

8-5:

Use the Black-Scholes Model to find the price for a call option with the following inputs: (1) current stock price is $30, (2) strike price is $35, (3) time to expiration is 4 months, (4) annualized risk-free rate is 5%, and (5) variance of stock return is 0.25.

8-6:

The current price of a stock is $20. In 1 year, the price will be either $26 or $16. The annual risk-free rate is 5%. Find the price of a call option on the stock that has a strike price of $21 and that expires in 1 year. (Hint: Use daily compounding.)

Chapter 9 Problem 9-3, 9-8, 9-13

9-3:

Duggins Veterinary Supplies can issue perpetual preferred stock at a price of $50 a share with an annual dividend of $4.50 a share. Ignoring flotation costs, what is the company’s cost of preferred stock, rps?

9-8;

David Ortiz Motors has a target capital structure of 40% debt and 60% equity. The yield to maturity on the company’s outstanding bonds is 9%, and the company’s tax rate is 40%. Ortiz’s CFO has calculated the company’s WACC as 9.96%. What is the company’s cost of equity capital?

9-13:

Messman Manufacturing will issue common stock to the public for $30. The expected dividend and the growth in dividends are $3.00 per share and 5%, respectively. If the flotation cost is 10% of the issue’s gross proceeds, what is the cost of external equity, re?

BA 350 Week 8 Final Exam

BA/350 Week 8 Final Exam

BA/350 Week 8 Final

BA350 Week 8 Final Exam

BA 350 Week 8 Chapter 2 Problem 2-4, 2-7

BA 350 Week 8 Chapter 3 Problem 3-8, 3-10

BA 350 Week 8 Chapter 12 Problem 12.1 12-4

BA/350 Week 8 Chapter 13 Problem 13-6, 13-7, 13-8

BA 350 Week 8 Chapter 4 Problem 4-4, 4-5, 4-20, 4-22

BA350 Week 8 Chapter 5 Problem 5-15, 5-21

BA 350 Week 8 Chapter 6 Problem 6-4, 6-10

BA350 Week 8 Chapter 7 Problem 7-4, 7-10

BA/350 Week 8 Chapter 8 Problem 8-4, 8-5, 8-6

BA 350 Week 8 Chapter 9 Problem 9-3, 9-8, 9-13

U can also download BA/350 Week 8 Case Study .Just click on below Link

Why Work with Us

Top Quality and Well-Researched Papers

We always make sure that writers follow all your instructions precisely. You can choose your academic level: high school, college/university or professional, and we will assign a writer who has a respective degree.

Professional and Experienced Academic Writers

We have a team of professional writers with experience in academic and business writing. Many are native speakers and able to perform any task for which you need help.

Free Unlimited Revisions

If you think we missed something, send your order for a free revision. You have 10 days to submit the order for review after you have received the final document. You can do this yourself after logging into your personal account or by contacting our support.

Prompt Delivery and 100% Money-Back-Guarantee

All papers are always delivered on time. In case we need more time to master your paper, we may contact you regarding the deadline extension. In case you cannot provide us with more time, a 100% refund is guaranteed.

Original & Confidential

We use several writing tools checks to ensure that all documents you receive are free from plagiarism. Our editors carefully review all quotations in the text. We also promise maximum confidentiality in all of our services.

24/7 Customer Support

Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.

Try it now!

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Services

No need to work on your paper at night. Sleep tight, we will cover your back. We offer all kinds of writing services.

Essays

No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.

Admissions

Admission Essays & Business Writing Help

An admission essay is an essay or other written statement by a candidate, often a potential student enrolling in a college, university, or graduate school. You can be rest assurred that through our service we will write the best admission essay for you.

Reviews

Editing Support

Our academic writers and editors make the necessary changes to your paper so that it is polished. We also format your document by correctly quoting the sources and creating reference lists in the formats APA, Harvard, MLA, Chicago / Turabian.

Reviews

Revision Support

If you think your paper could be improved, you can request a review. In this case, your paper will be checked by the writer or assigned to an editor. You can use this option as many times as you see fit. This is free because we want you to be completely satisfied with the service offered.