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FIN 515 Complete Project Financial Statement Analysis (Nike)
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FIN 515 Week 2 Project Financial Statement Analysis (Nike)
FIN 515 Week 6 Project Calculating the Weighted Average Cost of
Capital (Nike)
FIN 515 Week 7 Project Capital Budgeting Analysis (Nike)
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FIN 515 Course Project 1 and 2
This Tutorial contains

Week 3 Course Project (3 Sets)
Week 6 Course Project (2 Sets)
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FIN 515 Entire Course
This tutorial doesnt contain Final Exam Guide
FIN 515 Week 1 DQ 1 Accounting Versus Finance
FIN 515 Week 1 DQ 2 Financial Analysis
FIN 515 Week 1 Quiz
FIN 515 Week 1 Quiz (New)
FIN 515 Week 1 Problem Set
FIN 515 Week 2 DQ 1 TVM Pass-a-Problem
FIN 515 Week 2 DQ 2 Assumptions of the TVM Model
FIN 515 Week 2 Quiz

FIN 515 Week 3 DQ 1 Examples of Capital Expenditure From Your
Industry
FIN 515 Week 3 DQ 2 Capital Budgeting Terms and Considerations
FIN 515 Week 3 Course Project 1 (3 Papers)
FIN 515 Week 3 Quiz
FIN 515 Week 4 DQ 1 Market Value of a Stock Versus DDM Value
FIN 515 Week 4 DQ 2 Differences in YTM of Real Life Bonds
FIN 515 Week 4 Midterm
FIN 515 Week 5 DQ 1 Calculating WACC for a Real Firm
FIN 515 Week 5 DQ 2 Finding Stock Values for Real Stocks Using B
eta and the SML
FIN 515 Week 5 problem Set
FIN 515 Week 5 Quiz
FIN 515 Week 6 DQ 1 Examples of Real Agency Problems and How
They Could Have Been Prevented
FIN 515 Week 6 DQ 2 The Role of Financial Managers in Ethical Co
rporate Governance
FIN 515 Week 6 Course Project 2 (2 Different Projects)

FIN 515 Week 7 DQ 1 Industry Approaches to Working Capital Fin
ancing
FIN 515 Week 7 DQ 2 Your Preference for Working Capital Manag
ement Policy
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FIN 515 Final Exam (all 3 Sets)
FIN 515 Final Exam Set 1
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1. (TCO A) In the United States, which of the following types of organiz
ation has the greatest revenue in total? (Points : 5)
a. Sole proprietorship
b. C corporation
c. S corporation
d. Limited partnership
1.1) Which of the following is not a step in the WACC valuation method
?
A) Compute the value of the investment, including the tax benefit of lev
erage, by discounting the free cash flow of the investment using the WA
CC.
B) Compute the weighted average cost of capital.
C) Determine the free cash flow of the investment.
D) Adjust the WACC for the firm's current debt/equity ratio.
1. (TCO H) Zervos Inc. had the following data for 2008 (in millions). Th
e new CFO believes (a) that an improved inventory management system
could lower the average inventory by $4,000, (b) that improvements in t
he credit department could reduce receivables by $2,000, and (c) that the
purchasing department could negotiate better credit terms and thereby i
ncrease accounts payable by $2,000. Furthermore, she thinks that these c
hanges would not affect either sales or the costs of goods sold. If these c
hanges were made, by how many days would the cash conversion cycle
be lowered?
2. (TCO A) Sole proprietorships have all of the following advantages ex
cept (Points : 5)
a. easy to set up.

b. single taxation of income.
c. limited liability.
d. ownership and control are not separated.
2. (TCO C) A firm buys on terms of 2/8, net 45 days, it does not take dis
counts, and it actually pays after 58 days. What is the effective annual pe
rcentage cost of its nonfree trade credit? (Use a 365-day year.)
Question 2. 2. (TCO A) A sole proprietorship is owned by (Points : 5)
a. one person.
b. one or two people, but if there are two owners, they must be married t
o each other.
c. up to 100 owners.
d. up to 64 owners.
3. (TCO B) Which of the following would cause the present value of an
annuity to decrease? (Points : 5)
a. Reducing the number of payments.
b. Increasing the number of payments.
c. Decreasing the interest rate.
d. Decreasing the liquidity of the payments.
3. Church Inc. is presently enjoying relatively high growth because of a
surge in the demand for its new product. Management expects earnings a
nd dividends to grow at a rate of 25% for the next 4 years, after which co
mpetition will probably reduce the growth rate in earnings and dividends
to zero. The company’s last dividend, D0, was $ 1.25, its beta is 1.20, th
e market risk premium is 5.50%, and the risk-
free rate is 3.00%. Which is the current price of the common stock?
3. (TCO E) Your firm is planning to invest in a new power generation sy
stem. Galt Industries is an all-
equity firm that specializes in this business. Suppose Galt’s equity beta i
s 0.75, the risk-
free rate is 3%, and the market risk premium is 6%. If your firm’s projec

t is all equity financed, then which is your estimate of your cost of capita
l closest to?
4. (TCO B) In a TVM calculation, if incoming cash flows are positive, o
utgoing cash flows must be (Points : 5)
a. positive.
b. negative.
c. either positive or negative. It really doesn’t matter.
d. stated in time units that are different from the time units in which the i
nterest rates are stated.
4. (TCO B)
You expect CCM Corporation to generate the following free cash flows
over the next 5 years.
Year 1 2 3 4 5
FCF ($ millions) 25 28 32 37 40
Following Year 5, you estimate that CCM’s free cash flows will grow at
5% per year and that CCM’s weighted average cost of capital is 13%.
Which is the enterprise value of CCM Corporation closest to?
4. (TCO B)
You expect CCM Corporation to generate the following free cash flows
over the next 5 years.
Year 1 2 3 4 5
FCF ($ millions) 25 28 32 37 40
If CCM has $200 million of debt and 8 million shares of stock outstandi
ng, then which is the share price for CCM closest to?

Question 4. 4. (TCO B) Which of the following is an annuity due? (Point
s : 5)
a. A typical car loan.
b. A typical mortgage.
c. A typical apartment rental agreement.
d. A credit card balance.
5. If you were a manager of a company, which of the three right side co
mponents of the DuPont Identity would you want to increase and which
would you want to decrease, other things being equal? Give a specific ex
ample for how to do that for each of the three. (Points : 20)
Question 5. 5. (TCO G) If net income, total assets, and book value of eq
uity stayed the same, what would be the effect on the DuPont Identity of
an increase in sales? (Points : 20)
5. (TCO G)
Consider the information for the following four firms.
Firm Cash Debt Equity rD rE τc
Eenie 0 150 150 5% 10% 40%
Meenie 0 250 750 6% 12% 35%
Minie 25 175 325 6% 11% 35%
Moe 50 350 150 7.50% 15% 30%
Which is the weighted average cost of capital for Meenie closest to?
5. (TCO D)
Which is the standard deviation of the returns on Stock A from 2000 to 2
009 closest to?
Year End Stock A Realized Return (R – R) (R – R)2

2000 46.3% 29.85% 0.0891023
2001 26.7% 10.25% 0.0105063
2002 86.9% 70.45% 0.4963203
2003 23.1% 6.65% 0.0044223
2004 0.2%
-
16.25%
0.0264063
2005 -3.2%
-
19.65%
0.0386123
2006 -27.0%
-
43.45%
0.1887903
2007 27.9% 11.45% 0.0131103
2008 -5.1%
-
21.55%
0.0464403
2009 -11.3%
-
27.75%
0.0770063
6. A stock pays an annual dividend of $2.50 and that dividend is not exp
ected to change. Similar stocks pay a return of 10%. What is P0? (Points
: 20)
Question 6. 6. (TCO D) A stock has just paid a dividend and will pay a d
ividend of $3.00 in a year. The dividend will stay constant for the rest of
time. The return on equity for similar stocks is 14%. What is P0? (Points
: 20)
7. A stock has just paid a dividend and has declared an annual dividend
of $2.00 to be paid one year from today. The dividend is expected to gro
w at a 5% annual rate. The return on equity for similar stocks is 12%. W
hat is P0? (Points : 20)
Question 7. 7. (TCO D) A stock has just declared an annual dividend of
$2.25 to be paid one year from today. The dividend is expected to grow

at a 7% annual rate. The return on equity for similar stocks is 12%. What
is P0? (Points : 20)
8. A bond has 5 years to maturity and has a YTM of 8%. Its par value is
$1,000. Its semiannual coupons are $50. What is the bonds current mark
et price? (Points : 10)
9. A bond currently sells for $1,000 and has a par of $1,000. It was issue
d two years ago and had a maturity of 10 years. The coupon rate is 7% a
nd the interest payments are made semiannually. What is its YTM? (Poi
nts : 10)
Question 9. 9. (TCO D) A bond currently sells for $1,030 even though it
has a par of $1,000. It was issued two years ago and had a maturity of 10
years. The coupon rate is 7% and the interest payments are made semia
nnually. What is its YTM? (Points : 10)
10. A company has 10 million shares outstanding trading for $7 per shar
e. It also has $300 million in outstanding debt. If its equity cost of capita
l is 15%, and its debt cost of capital is 9%, and its effective corporate tax
rate is 40%, what is its weighted average cost of capital? (Points : 30)
Question 10. 10. (TCO D) Explain thoroughly how stock portfolios affec
t the risk to an investor. (Points : 30)
11. Name and describe the three functions of managerial finance. For ea
ch, give an example other than those used in the text and lecture. (Points
: 25)
Question 11. 11. (TCO E) A company has 30 million shares outstanding
trading for $8 per share. It also has $90 million in outstanding debt. If its
equity cost of capital is 15%, and its debt cost of capital is 9%, and its ef
fective corporate tax rate is 40%, what is its weighted average cost of ca
pital? (Points : 30)
12. Explain thoroughly how stock portfolios affect the risk to an investor
. (Points : 30)

13. What is the Cash Conversion Cycle (CCC)? Name the components o
f the CCC and explain why the CCC is important to business.
Question 13. 13. (TCO H) What is the difference between the cash cycle
and the operating cycle? Under what condition would they be the same?
(Points : 30)
14. A company has the opportunity to do any of the projects for which th
e net cash flows per year are shown below. The company has a cost of c
apital of 12%. Which should the company do and why? You must use at
least two capital budgeting methods. Show your work.
Year A B C
0 -300 -100 -300
1 100 -50 100
2 100 100 100
3 100 100 100
4 100 100 100
5 100 100 100
6 100 100 100
7 -100 -200 0
(Points : 40)
Top of Form
Bottom of Form
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Question 1.1. (TCO A) Double taxation is a drawback for which of the f
ollowing types of business organization except?
Question 2.2. (TCO A) Sole proprietorships have all of the following ad
vantages except
Question 3.3. (TCO B) Which of the following would cause the present
value of an annuity to decrease?
Question 4.4. (TCO B) In a TVM calculation, if incoming cash flows are
positive, outgoing cash flows must be
Question 5.5. (TCO G) If net income, total assets, and book value of equ
ity stayed the same, what would be the effect on the DuPont Identity of a
n increase in sales?
Question 6.6. (TCO D) A stock has just paid a dividend and will pay a di
vidend of $3.00 in a year. The dividend will stay constant for the rest of t
ime. The return on equity for similar stocks is 14%. What is P0?
Question 7.7. (TCO D) A stock has just declared an annual dividend of $
2.25 to be paid one year from today. The dividend is expected to grow at
a 7% annual rate. The return on equity for similar stocks is 12%. What i
s P0?
Question 8.8. (TCO D) A given bond has 5 years to maturity. It has a fac
e value of $1,000. It has a YTM of 6% and the coupons are paid semiann
ually at a 10% annual rate. What does the bond currently sell for?
Question 9.9. (TCO D) A bond currently sells for $887 even though it ha
s a par of $1,000. It was issued two years ago and had a maturity of 10 y

ears. The coupon rate is 7% and the interest payments are made semiann
ually. What is its YTM?
Question 10.10. (TCO D) Using examples, explain the difference betwee
n systematic risk and nonsystematic risk. Explain why the distinction is i
mportant for both investors and issuers of stock.
Question 11.11. (TCO E) A company has 100 million shares outstanding
trading for $8 per share. It also has $900 million in outstanding debt. If i
ts equity cost of capital is 15%, and its debt cost of capital is 12%, and it
s effective corporate tax rate is 40%, what is its weighted average cost of
capital?
Question 12.12. (TCO A) Relate how the job of the financial manager ca
n be explained using the balance sheet.
Question 13.13. (TCO H) Other things being equal, would a firm prefer
a longer or shorter Cash Conversion Cycle? What are some examples of
ways a firm could attain this?
Question 14.14. (TCO F) A company has the opportunity to do any of th
e projects for which the net cash flows per year are shown below. The co
mpany has a cost of capital of 12%. Which should the company do and
why? You must use at least two capital budgeting methods. Show your
work.
===============================================

1. (TCO A) In the United States, which of the following types of organiz
ation has the greatest revenue in total? (Points : 5)
Sole proprietorship
C corporation
S corporation
Limited partnership
Question 2.2. (TCO A) A sole proprietorship is owned by (Points : 5)
one person.
one or two people, but if there are two owners, they must be married
to each other.
up to 100 owners.
up to 64 owners.
Question 3.3. (TCO B) Which of the following would cause the present
value of an annuity to decrease? (Points : 5)
Reducing the number of payments.

Increasing the number of payments.
Decreasing the interest rate.
Decreasing the liquidity of the payments.
Question 4.4. (TCO B) In a TVM calculation, if incoming cash flows are
positive, outgoing cash flows must be (Points : 5)
positive.
negative.
either positive or negative. It really doesn’t matter.
stated in time units that are different from the time units in which th
e interest rates are stated.
Question 5.5. (TCO G) If you were a manager of a company, which of th
e three right side components of the DuPont Identity would you want to i
ncrease and which would you want to decrease, other things being equal
? Give a specific example for how to do that for each of the three. (Point
s : 20)
Question 6.6. (TCO D) A stock pays an annual dividend of $2.50 and th
at dividend is not expected to change. Similar stocks pay a return of 10%
. What is P0? (Points : 20)

Question 7.7. (TCO D) A stock has just paid a dividend and has declared
an annual dividend of $2.00 to be paid one year from today. The divide
nd is expected to grow at a 5% annual rate. The return on equity for simi
lar stocks is 12%. What is P0? (Points : 20)
Question 8.8. (TCO D) A bond has 5 years to maturity and has a YTM o
f 8%. Its par value is $1,000. Its semiannual coupons are $50. What is th
e bonds current market price? (Points : 10)
Question 9.9. (TCO D) A bond currently sells for $887 even though it ha
s a par of $1,000. It was issued two years ago and had a maturity of 10 y
ears. The coupon rate is 7% and the interest payments are made semiann
ually. What is its YTM? (Points : 10)
Question 10.10. (TCO D) What is β and why is it important to investors
and issuers of stock? Describe the behavior of stocks with βs of greater t
han one, less than one, and less than zero. (Points : 30)
Question 11.11. (TCO E) A company has 10 million shares outstanding t
rading for $7 per share. It also has $300 million in outstanding debt. If it

s equity cost of capital is 15%, and its debt cost of capital is 9%, and its
effective corporate tax rate is 40%, what is its weighted average cost of c
apital? (Points : 30)
Question 12.12. (TCO A) What is the difference between capital structur
e and capital budgeting? Explain and give an example of a capital struct
ure decision and an example of a capital budgeting decision. (Points : 25
)
Question 13.13. (TCO H) What is the difference between the cash cycle
and the operating cycle? Under what condition would they be the same?
(Points : 30)
Question 14.14. (TCO F) A company has the opportunity to do any of th
e projects for which the net cash flows per year are shown below. The co
mpany has a cost of capital of 12%. Which should the company do and
why? You must use at least two capital budgeting methods. Show your
work.
Year A B C
===============================================

FIN 515 Midterm Exam All 3 Sets
Question included in these Midterms could be found on this link
FIN 515 Midterm Exam Set 1 (New)
Link:http://www.tutorialrank.com/FIN/FIN-515-DEVRY/product-
14582-FIN-515-Midterm-Exam-Set-1-(New)
14583-FIN-515-Midterm-Exam-Set-2-(New)
13745-FIN-515-Week-4-Midterm
===============================================

Question 1. Question : (TCO G) If Company A and Company B
are in the same industry and use the same production method, and
Company A’s asset turnover is higher than that of Company B, then all
else equal we can conclude
Question 2. Question : (TCO G) Suppose Novak Company
experienced a reduction in its ROE over the last year. This fall could be
attributed to
Question 3. Question : (TCO B) A certain investment will pay
$10,000 in 20 years. If the annual return on comparable investments is
8%, what is this investment currently worth? Show your work.
Question 4. Question : (TCO B) You take out a 4 year car loan
for $18,000. The loan has a 4% annual interest rate. The payments are
made monthly. What are the monthly payments? Show your work.
Question 5. Question : (TCO B) A grandfather sets up a trust for
his only grandchild. The trust consists of an annuity that will pay $5,000

monthly to the grandchild for 18 years. The annuity pays an annual
return of 5% and makes the payments monthly at the end of the month.
Return on the annuity is 5% annually. The payments to the grandchild
are paid at the beginning of the month. The annuity will have a value of
$0 at the end of the 18 years. How much needs to be deposited to set up
the annuity? Show your work.
Question 6. Question : (TCO B) You have a two children, A and
B. Child A is not going to college but is working in a business to learn
the ropes. Child A plans on opening a business someday. Child B is
attending college. You put a certain amount of money into an account.
From this account, Child B will receive $2,000 per month for the next
four years. Whatever is left at that time will go to Child A to help start
the business. You want Child A to receive $96,000 at that time. The
account pays 7% annually, compounded monthly. How much money do
you need to start the account? Show your work.
Question 7. Question : (TCO F) A project requires an initial cash
outlay of $60,000 and has expected cash inflows of $15,000 annually for
8 years. The cost of capital is 10%. What is the project’s NPV? Show
your work.
7 years. The cost of capital is 10%. What is the project’s payback
period? Show your work.

7 years. The cost of capital is 10%. What is the project’s IRR? Show
your work.
7 years. The cost of capital is 10%. What is the project’s discounted
payback period? Show your work.
Question 11. Question : (TCO F) Company A has the opportunity
to do any, none, or all of the projects for which the net cash flows per
year are shown below. Projects A and C can be done together. Projects B
and C can be done together. But Projects A and B are mutually
exclusive. The company has a cost of capital of 18%. Which should the
company do and why? You must use at least two capital budgeting
methods. Show your work.
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Question 1. 1. (TCO G) If Company A and Company B are in the same
industry and use the same production method, and Company A’s asset

turnover is higher than that of Company B, then all else equal we can
conclude (Points : 10)
Question 2. 2. (TCO G) If Moon Corporation has an increase in sales,
which of the following would result in no change in its EBIT margin?
(Points : 10)
Question 3. 3. (TCO B) If today you put $10,000 into an account paying
10% annually, how much will there be in the account after 5 years?
Show your work. (Points : 20)
Question 4. 4. (TCO B) You take out a 5 year car loan for $20,000. The
loan has a 5% annual interest rate. The payments are made monthly.
What are the monthly payments? Show your work. (Points : 20)
Question 5. 5. (TCO B) You currently have $10,000 in your retirement
account. If you deposit $500 per month and the account pays 5%
interest, how much will be in the account in 10 years? Show your work.
(Points : 20)
Question 6. 6. (TCO B) A homebuyer is taking out a mortgage with a
balloon payment. The loan amount is $100,000 and the annual interest

rate is 5%. The homebuyer will make equal monthly payments for 5
years except the last payment will include an additional payment of
$20,000. How much will the equal monthly payments be? Show your
work. (Points : 20)
Question 7. 7. (TCO F) A project requires an initial cash outlay of
$95,000 and has expected cash inflows of $20,000 annually for 9 years.
The cost of capital is 10%. What is the project’s NPV? Show your work.
(Points : 10)
The cost of capital is 10%. What is the project’s payback period? Show
your work. (Points : 10)
The cost of capital is 10%. What is the project’s IRR? Show your work.
(Points : 20)
The cost of capital is 10%. What is the project’s discounted payback
period? Show your work. (Points : 20)
Question 11. 11. (TCO F) Company A has the opportunity to do any,
none, or all of the projects for which the net cash flows per year are
shown below. Projects A and C can be done together. Projects B and C
can be done together. But Projects A and B are mutually exclusive. The

company has a cost of capital of 18%. Which should the company do
and why? You must use at least two capital budgeting methods. Show
your work.
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Accounting Versus Finance (graded)
Much of the analysis done by financial managers is based on numbers
that are different from what would seem to the corresponding numbers
presented in the financial statements. This difference is not due to any
kind of cooking the books or other attempts to mislead anyone. One
example is the use of market value rather than historical cost in the
valuation of assets. What are some other examples of the differences
between financial management and financial accounting?
===============================================

Financial Analysis (graded)
In this discussion, we will be working with the variety of financial
analysis tools available to us. Let's start with the DuPont Identity
introduced in Chapter 2 of the text. For your initial post, locate the
financial statements for two firms in one industry. Calculate all four
terms of the DuPont Identity and present the results but do not analyze
the results. For an additional post, analyze the results that another
student has posted. If you were the appropriate financial manager of one
of the firms that you analyzed, what would be your observations and
recommendations?
===============================================
FIN 515 Week 1 Homework Problem
Week 1

Mini Case
Assume that you recently graduated and have just reported to work as an
investment advisor at the brokerage firm of Balik and Kiefer Inc. One of
the firm’s clients is Michelle DellaTorre, a professional tennis player
who has just come to the United States from Chile. DellaTorre is a
highly ranked tennis player who would like to start a company to
produce and market apparel she designs. She also expects to invest
substantial amounts of money through Balik and Kiefer. DellaTorre is
very bright, and she would like to understand in general terms what will
happen to her money. Your boss has developed the following set of
questions you must answer to explain the U.S. financial system to
DellaTorre.
a. Why is corporate finance important to all managers?
b. Describe the organizational forms a company might have as it evolves
from a start-up to a major corporation. List the advantages and
disadvantages of each form.
c. How do corporations go public and continue to grow? What are
agency problems? What is corporate governance?
d. What should be the primary objective of managers?
(1) Do firms have any responsibilities to society at large?

(2) Is stock price maximization good or bad for society?
(3) Should firms behave ethically?
e. What three aspects of cash flows affect the value of any investment?
f. What are free cash flows?
g. What is the weighted average cost of capital?
h. How do free cash flows and the weighted average cost of capital
interact to determine a firm’s value?
i. Who are the providers (savers) and users (borrowers) of capital? How
is capital transferred between savers and borrowers?

j. What do we call the price that a borrower must pay for debt capital?
What is the price of equity capital? What are the four most fundamental
factors that affect the cost of money, or the general level of interest rates,
in the economy?
k. What are some economic conditions (including international aspects)
that affect the cost of money?
l. What are financial securities? Describe some financial instruments.
m. List some financial institutions.
n. What are some different types of markets?
o. How are secondary markets organized?

(1) List some physical location markets and some computer/telephone
networks.
(2) Explain the differences between open outcry auctions, dealer
markets, and electronic communications networks (ECNs).
p. Briefly explain mortgage securitization and how it contributed to the
global economic crisis.
Problem 2-6
Statement of Retained Earnings
In its most recent financial statements, Newhouse Inc. reported $50
million of net income and $810 million of retained earnings. The
previous retained earnings were $780 million. How much in dividends
was paid to shareholders during the year?

Problem 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 charges of
$50,000, (2) dividends received of $15,000, (3) dividends paid of
$25,000, and (4) income taxes. What are the firm’s income tax liability
and its after-tax income? What are the company’s marginal and average
tax rates on taxable income?
Problem 2-9
Corporate After-Tax Yield
The Shrieves Corporation has $10,000 that it plans to invest in
marketable securities. It is choosing among AT&T bonds, which yield
7.5%, state of Florida muni bonds, which yield 5% (but are not taxable),
and AT&T preferred stock, with a dividend yield of 6%. Shrieves’s
corporate tax rate is 35%, and 70% of the dividends received are tax
exempt. Find the after-tax rates of return on all three securities.

===============================================
Chapter 1
The Corporation
1-1. What is the most important difference between a corporation and
all other organizational forms?
1-2. What does the phrase limited liability mean in a corporate
context?
1-3. Which organizational forms give their owners limited liability?
1-4. What are the main advantages and disadvantages of organizing a
firm as a corporation?
1-5. Explain the difference between an S corporation and a C
corporation.
1-6. You are a shareholder in a C corporation. The corporation earns
$2 per share before taxes. Once it has paid taxes it will distribute the rest
of its earnings to you as a dividend. The corporate tax rate is 40% and
the personal tax rate on (both dividend and non-dividend) income is
30%. How much is left for you after all taxes are paid?

1-7. Repeat Problem 6 assuming the corporation is an S corporation.
Chapter 2
Introduction to Financial Statement Analysis
2-8. In early 2009, General Electric (GE) had a book value of equity
of $105 billion, 10.5 billion shares outstanding, and a market price of
$10.80 per share. GE also had cash of $48 billion, and total debt of $524
billion. Three years later, in early 2012, GE had a book value of equity
of $116 billion, 10.6 billion shares outstanding with a market price of
$17 per share, cash of $84 billion, and total debt of $410 billion. Over
this period, what was the change in GE’s:
a. market capitalization?
b. market-to-book ratio?
c. enterprise value?
2-11. Suppose that in 2013, Global launches an aggressive marketing
campaign that boosts sales by 15%. However, their operating margin
falls from 5.57% to 4.50%. Suppose that they have no other income,
interest expenses are unchanged, and taxes are the same percentage of
pretax income as in 2012.
a. What is Global’s EBIT in 2013?
b. What is Global’s income in 2013?
c. If Global’s P/E ratio and number of shares outstanding remains
unchanged, what is Global’s share price in 2013?
2-24. Suppose your firm receives a $5 million order on the last day of
the year. You fill the order with $2 million worth of inventory. The
customer picks up the entire order the same day and pays $1 million
upfront in cash; you also issue a bill for the customer to pay the

remaining balance of $4 million in 30 days. Suppose your firm’s tax rate
is 0% (i.e., ignore taxes). Determine the consequences of this transaction
for each of the following:
a. Revenues
b. Earnings
c. Receivables
d. Inventory
e. Cash
===============================================
FIN 515 Week 1 Quiz (New)
Question 1.
(TCO G) The lecture says that some ratios typically are better when they
are higher and some of the ratios are better when they are lower. Pick a
ratio for which a lower number typically would be preferred and
describe a situation, in which a higher number for that ratio would be
preferred, OR pick a ratio for which a higher number typically would be

preferred and describe a situation in which a lower number for that ratio
would be preferred.
Question 2.
(TCO G) As of December 31, 20XX, David Corp's accounts payable
were $4,000,000. Its accounts receivable were $2,200,000, and its sales
for 20XX were $32,000,000.What was its days sales outstanding?
Question 3.
(TCO G) As of December 31, 2015, Michael Corp's current assets were
$2,000,000. Its current liabilities were $2,000,000.Its sales for 2015
were $50,000,000.As of December 31, 2016, Michael Corp's current
assets were $3,000,000. Its current liabilities were $3,000,000.Its sales
for 2016 were $65,000,000.Management has asked you to comment on
these numbers.
===============================================
FIN 515 Week 1 Quiz
Question 1
(TCO G) Which do you think provides a more valid measure of how a
company is doing, comparison of current results with historical results or

comparison of current results with the current results of another
company?
Question 2
(TCO G) Barnes Corp’s total assets at the end of last year were
$415,000,000 and its net income after taxes was $17,750,000.What was
its return on total assets?
Question 3
(TCO G) Between December 31, 2016 and December 31, 2017, ROE at
Bobcat Industries decreased even though sales increased. Using the
DuPont Identity, explain what else could have happened to cause this.
===============================================
FIN 515 Week 1-7 DQs

Industry
FIN 515 Week 3 DQ 2 Capital Budgeting Terms and Considerations
FIN 515 Week 4 DQ 1 Market Value of a Stock Versus DDM Value
FIN 515 Week 5 DQ 2 Finding Stock Values for Real Stocks Using B
eta and the SML
FIN 515 Week 6 DQ 1 Examples of Real Agency Problems and How
They Could Have Been Prevented
FIN 515 Week 6 DQ 2 The Role of Financial Managers in Ethical Co
rporate Governance
FIN 515 Week 7 DQ 1 Industry Approaches to Working Capital Fin
ancing
FIN 515 Week 7 DQ 2 Your Preference for Working Capital Manag
ement Policy
===============================================

TVM Pass-a-Problem (graded)
• This week, the lecture provided some examples of TVM
problem scenarios.
For your first post, provide a story problem that can be solved using one
or more of the TVM calculations.
• Your second post can be a description of how the problem posed
by another student can be solved.
Your professor may provide an example.
===============================================
Assumptions of the TVM Model (graded)
What are some of the assumptions behind the TVM calculations?
How do these assumptions limit our application of these calculations?

===============================================
FIN 515 Week 2 Homework Problems
(3-1)
Days Sales Outstanding
Greene Sisters has a DSO of 20 days. The company’s average daily sales
are $20,000. What is the level of its accounts receivable? Assume there
are 365 days in a year.
(3-2)
Debt Ratio
Vigo Vacations has an equity multiplier of 2.5. The company’s assets
are financed with some combination of long-term debt and common
equity. What is the company’s debtratio?
(3-3)

Market/Book Ratio
Winston Washers’s stock price is $75 per share. Winston has $10 billion
in total assets. Its balance sheet shows $1 billion in current liabilities, $3
billion in long-term debt, and $6 billion in common equity. It has 800
million shares of common stock outstanding. What is Winston’s
market/book ratio?
(3-4)
Price/Earnings Ratio
A company has an EPS of $1.50, a cash flow per share of $3.00, and a
price/cash flow ratio of 8.0. What is its P/E ratio?
(3-5)
ROE
Needham Pharmaceuticals has a profit margin of 3% and an equity
multiplier of 2.0. Its sales are $100 million and it has total assets of $50
million. What is its ROE?
(3-6)
Du Pont Analysis
Donaldson & Son has an ROA of 10%, a 2% profit margin, and a return
on equity equal to 15%. What is the company’s total assets turnover?
What is the firm’s equity multiplier?
(3-7)
Current and Quick Ratios

Ace Industries has current assets equal to $3 million. The company’s
current ratio is 1.5, and its quick ratio is 1.0. What is the firm’s level of
current liabilities? What is the firm’s level of inventories?
(4-1)
Future Value of a Single Payment
If you deposit $10,000 in a bank account that pays 10% interest
annually, how much will be in your account after 5 years?
(4-2)
Present Value of a Single Payment
What is the present value of a security that will pay $5,000 in 20 years if
securities of equal risk pay 7% annually?
(4-6)
Future Value: ordinary Annuity versus Annuity Due
What is the future value of a 7%, 5-year ordinary annuity that pays $300
each year? If this were an annuity due, what would its future value be?
(4-13)
Present Value of an Annuity
Find the present value of the following ordinary annuities (see the Notes
to Problem 4-12).
 a. $400 per year for 10 years at 10%
 b. $200 per year for 5 years at 5%

 c. $400 per year for 5 years at 0%
 d. Now rework parts a, b, and c assuming that payments are made
at the beginning of each year; that is, they are annuities due.
(4-14)
Uneven Cash Flow Stream
Find the present values of the following cash flow streams. The
appropriate interest rate is 8%. (Hint: It is fairly easy to work this
problem dealing with the individual cash flows. However, if you have a
financial calculator, read the section of the manual that describes how to
enter cash flows such as the ones in this problem. This will take a little
time, but the investment will pay huge dividends throughout the course.
Note that, when working with the calculator’s cash flow register, you
must enter CF = 0. Note also that it is quite easy to work the problem
with Excel, using procedures described in theChapter 4 Tool Kit.)
===============================================
3.Calculate the future value of $2000 in

a. five years at an interest rate of 5% per year;
b. ten years at an interest rate of 5% per year; and
c. five years at an interest rate of 10% per year.
d. Why is the amount of interest earned in part (a) less than half the
amount of interest earned in part (b)?
4.What is the present value of $10,000 received
a. twelve years from today when the interest rate is 4% per year;
b. twenty years from today when the interest rate is 8% per year; and
c. six years from today when the interest rate is 2% per year?
5.Your brother has offered to give you either $5,000 today or $10,000 in
10 years. If the interest rate is 7% per year, which option is preferable?
6.Consider the following alternatives.
i. $100 received in 1 year
ii. $200 received in 5 years
iii. $300 received in 10 years
a. Rank the alternatives from most valuable to least valuable if the
interest rate is 10% per year.

b. What is your ranking if the interest rate is only 5% per year?
c. What is your ranking if the interest rate is 20% per year?
8.Your daughter is currently 8 years old. You anticipate that she will be
going to college in 10 years. You would like to have $100,000 in a
savings account to fund her education at that time. If the account
promises to pay a fixed interest rate of 3% per year, how much money
do you need to put into the account today to ensure that you will have
$100,000 in 10 years?
9.You are thinking of retiring. Your retirement plan will pay you either
$250,000 immediately on retirement or $350,000 5 years after the date
of your retirement. Which alternative should you choose if the interest
rate is
14.You have been offered a unique investment opportunity. If you invest
$10,000 today, you will receive $500 1 year from now, $1,500 2 years
from now, and $10,000 10 years from now.
a. What is the NPV of the opportunity if the interest rate is 6% per year?
Should you take the opportunity?
b. What is the NPV of the opportunity if the interest rate is 2% per year?
Should you take it now?
36.You are thinking of purchasing a house. The house costs $350,000.
You have $50,000 in cash that you can use as a down payment on the

house, but you need to borrow the rest of the purchase price. The bank is
offering a 30-year mortgage that requires annual payments and has an
interest rate of 7% per year. What will your annual payment be if you
sign up for this mortgage?
37.You would like to buy the house and take the mortgage described in
Problem 36. You can afford to pay only $23,500 per year. The bank
agrees to allow you to pay this amount each year, yet still borrow
$300,000. At the end of the mortgage (in 30 years), you must make
a balloon payment; that is, you must repay the remaining balance on the
mortgage. How much will this balloon payment be?
38.You have just made an offer on a new home and are seeking a
mortgage. You need to borrow $600,000.
a. The bank offers a 30-year mortgage with fixed monthly payments and
an interest rate of 0.5% per month. What is the amount of your monthly
payment if you take this loan?
b. Alternatively, you can get a 15-year mortgage with fixed monthly
payments and an interest rate of 0.4% per month. How much would your
monthly payments be if you take this loan instead?
*A.1. This problem is from the Appendix to Chapter 4.
Your grandmother bought an annuity from Rock Solid Life Insurance
Company for $200,000 when she retired. In exchange for the $200,000,
Rock Solid will pay her $25,000 per year until she dies. The interest rate
is 5%. How long must she live after the day she retired to come out
ahead (that is, to get more in value than what she paid in)?

===============================================
As the new financial manager of your company, the CEO has asked your
team to provide a brief analysis of the company’s performance to present
at the upcoming board of directors meeting. The CEO has asked that you
assess the company’s performance against your company’s industry.
Thus, to do this, you will need to use ratio analysis or other techniques
to determine areas in which the company is doing well, as well as areas
that management should look at.
Here are the steps for the project:
1. Select your teammate. Each team should be made up of two
members.
2. Determine which company you will analyze for the project. Your
selection may be subject to your professor’s approval. The company that
you select will likely be used for all four team projects. As such, be sure
that the company has debt on its balance sheet, as this will be a
requirement for future projects.

3. Go to the website for your company and download the 10-K report
for the most recent year.
4. Perform your ratio analysis on your company:
a. A good place to start would be to perform a complete DuPont
analysis of the company. The DuPont analysis might provide guidance
as to what particular areas of the company should be examined next and
what ratios should be calculated. Be sure to include ratios that cover the
following areas:
i. Profitability
ii. Debt Management
iii. Liquidity
iv. Asset Management
v. Market Value
b. In addition to the DuPont analysis ratios, be sure to present and
discuss at least six relevant ratios that your team feels may best assess
the company’s performance.
c. Using an online database, such as bizstats.com or a similar
database, capture the ratio averages for your company’s industry to
evaluate your company’s performance.

d. Provide an analysis that compares your company’s ratios to the
industry standards. There is no need to explain the purpose of the ratios.
Rather, be sure to provide an interpretation of the results. This may
entail some research from news sources on the company’s recent
performance.
e. Prepare a PowerPoint presentation that summarizes the
comparison of your company’s ratios against the industry ratios, as well
as your analysis. APA standards are to be followed for all portions of
this presentation, including but not limited to proper references and
citations.
f. Using Webex or Voicethread, prepare an oral presentation that
presents your PowerPoint presentation. Each team member must
participate in this presentation.
===============================================
FIN 515 Week 2 Quiz

FIN 515 Week 2 Quiz
Question 1
(TCO B) You are a trust fund baby. Your trust fund is currently worth
$1,234,000. The problem is the terms of the trust don’t allow you to
receive any of the money until you are 27. You are now 21. The fund is
earning 7.7% per year. How much will the fund be worth when you are
27 and too old to enjoy it?
Ignore taxes. Show your work. If you use Excel, show the formula with
the parameters, and the answer. If you use a formula, provide the
standard formula, the formula with terms substituted, and the answer. If
you use a calculator, show the inputs and the answer.
Question 2
(TCO B) You have a student loan of $75,000. The interest rate is 8.6%
per year. You have been out of school for 6 months and are ready to start
making payments. You want to use the maximum allowed of 10 years to
pay off the loan by making equal monthly payments. How much are the
monthly payments?
Question 3
(TCO B) You want to have $1,000,000 in 30 years. You already have
$50,000. You think you can get a 7% annual return on your money. How
much per year will you have to save to get to $1,000,000?

===============================================
FIN 515 Week 3 Course Project 1 (3 Papers)
This Tutorial contains 3 Different Course Projects
First Course Project
The purpose of this project is to help you develop skills not only in
performing the calculations behind financial analysis but interpreting the
numbers as well.
You are to pick a company. You should pick one either from the
industry in which you are currently working or an industry in which you
are interested. You could also pick a division of a company. It is
imperative to use that sufficient data about your company and that it is
available. One way to do this is to pick a publicly held company. If you
pick a privately held company or a division of a company, make sure
that the data necessary to do a significant financial analysis is available.
If you use data that is not publicly available, be sure to talk to your
manager and to make absolutely sure that revealing that data is not a
problem.
You will also need to find a standard against which to compare your
findings. This could be a different company in the same industry. This
could also be the same company at a different time. Additionally,

average or benchmark numbers are available for several industries. If
you decide to use a different company in the same industry or the same
company at a different time, make sure that there are enough differences
between the two to make an analysis meaningful.
After you have selected a company, put yourself in the place of an
analyst who has been asked to perform an analysis of the company and
provide a recommendation to management.
Use ratio analysis, common size analysis, or other techniques to
determine areas in which the company is doing well as well as areas that
management should look at. Then, present your analysis and
recommendations in the form of a paper.
A good place to start would be to perform a complete DuPont analysis of
the company and compare it to the standard. The DuPont analysis might
provide guidance as to what particular areas of the company should be
examined next and what ratios should be calculated. If the DuPont
analysis does not reveal anything useful, you might wish to calculate
several of the ratios that are available to you.
Deliverable
The completed paper should be about 1,000 words long. In the paper,
you do not have to explain the ratios in depth. You may assume that the
reader has a basic understanding of finance and knows what ratio
analysis is, although he or she might not be able to list all the ratios and
how to calculate them from memory. The reader is not going to want a
lot of background about financial analysis. He or she really wants
information that he or she can apply to the given situation, which is the
company that you have selected.
If you like, you can write the paper in the form of a memo to
management. You do not have to cite your source for how to calculate
the ratios. You do need to provide a reference to where you got that data
not only for your subject company but for the other company or standard
to which you compared your company.
•The spirit of this assignment is for you to calculate and interpret the
results. The purpose is not for you to find calculations and
interpretations that have been done by someone else.
•The paper is expected to conform to the standards for graduate school

writing.
•The purpose of your analysis is internal evaluation. Refrain from using
stock market valuation ratios.
===============================================
FIN 515 Week 3 DQ 1 Examples of Capital Expenditure From
Your Industry
Industry (graded)
Describe a potential capital expenditure project from the industry in
which you now work or an industry in which you are interested. What is
the project? Describe and provide an approximate value of the initial
cash flow. Describe and provide an approximate value of the annual
cash flows. Provide an estimation of the life of the project, as well as the
exit costs.
===============================================

FIN 515 Week 3 DQ 2 Capital Budgeting Terms and
Considerations
Capital Budgeting Terms and Considerations
Our textbook and lecture discuss some considerations that should be
taken into account when doing capital budgeting. How will these
considerations affect the project you described in the other topic?
Incremental earnings, interest expenses, taxes, opportunity costs,
externalities, sunk costs, cannibalization or erosion, depreciation, and
salvage value; as well as others.
===============================================

5-1
Bond Valuation with Annual payments
Jackson Corporation’s bonds have 12 years remaining to maturity.
Interest is paid annually, the bonds have a $1,000 par value, and the
coupon interest rate is 8%. The bonds have a yield to maturity of 9%.
What is the current market price of these bonds?
5-2
Yield to Maturity for Annual payments
Wilson Wonders’s bonds have 12 years remaining to maturity. Interest is
paid annually, the bonds have a $1,000 par value, and the coupon
interest rate is 10%. The bonds sell at a price of $850. What is their yield
to maturity?
5-6
Maturity Risk Premium
The real risk-free rate is 3%, and inflation is expected to be 3% for the
next 2 years. A 2-year Treasury security yields 6.3%. What is the
maturity risk premium for the 2-year security?
5-7

Bond Valuation with Semiannual payments
Renfro Rentals has issued bonds that have a 10% coupon rate, payable
semiannually. The bonds mature in 8 years, have a face value of $1,000,
and a yield to maturity of 8.5%. What is the price of the bonds?
5-13
Yield to Maturity and Current Yield
You just purchased a bond that matures in 5 years. The bond has a face
value of $1,000 and has an 8% annual coupon. The bond has a current
yield of 8.21%. What is the bond’s yield to maturity?
(6-6)
If a company’s beta were to double, would its expected return double?
(6-1)
Portfolio Beta
An individual has $35,000 invested in a stock with a beta of 0.8 and
another $40,000 invested in a stock with a beta of 1.4. If these are the
only two investments in her portfolio, what is her portfolio’s beta?
(6-2)
Required Rate of Return

Assume that the risk-free rate is 6% and that the expected return on the
market is 13%. What is the required rate of return on a stock that has a
beta of 0.7?
(6-7)
Required Rate of Return
Suppose rRF = 9%, rM = 14%, and bi = 1.3.
 a. What is ri, the required rate of return on Stock i?
 b. Now suppose rRF (1) increases to 10% or (2) decreases to 8%.
The slope of the SML remains constant. How would this affect
rM and ri?
 c. Now assume rRF remains at 9% but rM (1) increases to 16% or
(2) falls to 13%. The slope of the SML does not remain constant.
How would these changes affect ri?
===============================================

Week 3 Problem Set
1. Your brother wants to borrow $10,000 from you. He has offered to
pay you back $12,000 in a year. If the cost of capital of this investment
opportunity is 10%, what is its NPV? Should you undertake the
investment opportunity? Calculate the IRR and use it to determine the
maximum deviation allowable in the cost of capital estimate to leave the
decision unchanged.
8. You are considering an investment in a clothes distributor. The
company needs $100,000 today and expects to repay you $120,000 in a
year from now. What is the IRR of this investment opportunity? Given
the riskiness of the investment opportunity, your cost of capital is 20%.
What does the IRR rule say about whether you should invest?
19. You are a real estate agent thinking of placing a sign advertising
your services at a local bus stop. The sign will cost $5,000 and will be
posted for one year. You expect that it will generate additional revenue
of $500 per month. What is the payback period?
21. You are deciding between two mutually exclusive investment
opportunities. Both require the same initial investment of $10 million.
Investment A will generate $2 million per year (starting at the end of the
first year) in perpetuity. Investment B will generate $1.5 million at the
end of the first year and its revenues will grow at 2% per year for every
year after that.
 a. Which investment has the higher IRR?
 b. Which investment has the higher NPV when the cost of capital
is 7%?
c. In this case, for what values of the cost of capital does picking the
higher IRR give the correct answer as to which investment is the best
opportunity?
Chapter 8 (260–262)

1. Pisa Pizza, a seller of frozen pizza, is considering introducing a
healthier version of its pizza that will be low in cholesterol and contain
no trans fats. The firm expects that sales of the new pizza will be $20
million per year. While many of these sales will be to new customers,
Pisa Pizza estimates that 40% will come from customers who switch to
the new, healthier pizza instead of buying the original version.
a. Assume customers will spend the same amount on either version.
What level of incremental sales is associated with introducing the new
pizza?
b. Suppose that 50% of the customers who will switch from Pisa
Pizza’s original pizza to its healthier pizza will switch to another brand
if Pisa Pizza does not introduce a healthier pizza. What level of
incremental sales is associated with introducing the new pizza in this
case?
6. Cellular Access, Inc. is a cellular telephone service provider that
reported net income of $250 million for the most recent fiscal year. The
firm had depreciation expenses of $100 million, capital expenditures of
$200 million, and no interest expenses. Working capital increased by
$10 million. Calculate the free cash flow for Cellular Access for the
most recent fiscal year.
12. A bicycle manufacturer currently produces 300,000 units a year and
expects output levels to remain steady in the future. It buys chains from
an outside supplier at a price of $2 a chain. The plant manager believes
that it would be cheaper to make these chains rather than buy them.
Direct in-house production costs are estimated to be only $1.50 per
chain. The necessary machinery would cost $250,000 and would be
obsolete after 10 years. This investment could be depreciated to zero for
tax purposes using a 10-year straight-line depreciation schedule. The
plant manager estimates that the operation would require $50,000 of
inventory and other working capital upfront (year 0), but argues that this
sum can be ignored because it is recoverable at the end of the 10 years.

Expected proceeds from scrapping the machinery after 10 years are
$20,000.
If the company pays tax at a rate of 35% and the opportunity cost of
capital is 15%, what is the net present value of the decision to produce
the chains in-house instead of purchasing them from the supplier?
===============================================
Continuing with your Week 2 Project, now your CEO after reviewing
your earlier Week 2 PowerPoint submission has asked your team to
complete an additional benchmark analysis task, before the upcoming
Board Meeting. For this part of the project your team needs to do an
analysis of the market and operational characteristics of your company
and its financial profile. For this project, your team will need to select
four companies that are direct competitors of your company. This
sample selection should be based on revenue, profitability, market
capitalization, market segment and product characteristics.
This project is an additional benchmark data analytics project. The
objective of this part of the project will be to do a comparative financial
analysis of your company with the averages of the sample of four
companies that will form your comparative group.

The project deliverables will be another PowerPoint presentation to the
CEO explaining the financial performance of your company compared
to the sample of four comparable companies. The analysis should
include the following deliverables:
1. An explanation of the logic of the selection of the four comparable
group companies. Why were these companies selected?
2.Your team’s data extraction strategy, process and methodology.
3. A financial comparison of your company to the average of the
comparator group on the following financial factors.
a. Profitability
b. Debt Management
c. Liquidity
d. Asset Management
e. Value Creation – based on a the 3-year trend in Free
Cash Flow
In order to complete this project, your team has to select which ratios
you are going to use in each of the five categories given above. In
addition to that, your team will have to briefly explain why you are
selecting the ratios you are using in your benchmark study.
Then your team will have to collect the financial data for your company
and the financial data of the four competitor companies. The data can be
collected from two financial data bases such as, Yahoo Finance, Lexis
Nexis, Plunkett, or bizstats.com. Your team will then have to collect and
calculate the averages of the four competitor companies. (Please note
that no ratio calculations are required for each company, the ratios

should be readily available on the websites noted above. You will only
need to calculate the average ratios for the four companies combined.)
Your team will proceed to developing a PowerPoint presentation
presenting the comparison and your team’s commentary of what your
team discerns from the comparison. PowerPoint should not have more
than ten slides. Just like the previous project your team should use
Webex or Voicethread, and prepare an oral presentation that presents
your PowerPoint presentation. Each team member must participate in
this presentation.
===============================================
FIN 515 Week 3 Quiz
Company A has a beta of 2.77. Company B has a beta of .73. Company
C has a beta of .90. The risk free rate is 6% and the market risk premium
is 4%. What is the expected return of investing in Company B?
stock portfolio consists of only two stocks. You have $15,000 in
Company A and $25,000 in Company B. Company A has an actual
return of -8% and Company B has a return of 12%. What is the return on
your portfolio?
A company has a capital structure of 40% debt and 60% equity. The
YTM on the company’s bonds is 9%, and the company’s effective tax

rate is 40%. The CFO has estimated the company’s WACC to be 9.96%.
What is the company’s cost of equity?
===============================================
FIN 515 Week 4 DQ 1 Market Value of a Stock Versus DDM
Value
Market Value of a Stock Versus DDM Value (graded)
Select a stock in which you are interested. Calculate its per share value
using the DDM or another method discussed in Chapter 9.
Then find the current market value of a share of the stock. Compare that
two. Can you explain the similarity or difference?
===============================================

Differences in YTM of Real Life Bonds (graded)
Do some research, probably on the Web, and find some bonds with
differing yields to maturity (YTM). How do you explain the difference?
Both the lecture and the textbook discuss some factors that may lead to
this difference.
===============================================
(6-5). Expected Return: Discrete
Distribution
A stock’s return has the following
distribution:

(6-1). Portfolio Beta
Your investment club has only two stocks in its portfolio. $20,000 is
invested in a stock with a beta of 0.7, and $35,000 is invested in a stock
with a beta of 1.3. What is the portfolio’s
beta?
(6-2). Required Rate of
Return
AA Corporation’s stock has a beta of 0.8. The risk-free rate is 4% and
the expected return on the market is 12%. What is the required rate of
return on AA’s stock?
(6-7). Required Rate of
Return

Suppose rRF=5%rRF=5%, rM=10%rM=10%,
and rA=12%rA=12%.
Calculate Stock A’s beta.
If Stock A’s beta were 2.0, then what would be A’s new required rate of
return?
(6-10). Portfolio Required
Return
Suppose you manage a $4 million fund that consists of four stocks with
the following investments:
If the market’s required rate of return is 14% and the risk-free rate is 6%,
what is the fund’s required rate of
return?
(9-2). After-Tax Cost of
Debt

LL Incorporated’s currently outstanding 11% coupon bonds have a yield
to maturity of 8%. LL believes it could issue new bonds at par that
would provide a similar yield to maturity. If its marginal tax rate is 35%,
what is LL’s after-tax cost of debt?
(9-4). Cost of Preferred Stock with Flotation
Costs
Burnwood Tech plans to issue some $60 par preferred stock with a 6%
dividend. A similar stock is selling on the market for $70. Burnwood
must pay flotation costs of 5% of the issue price. What is the cost of the
preferred stock?
(9-5). Cost of Equity: Dividend
Growth
Summerdahl Resort’s common stock is currently trading at $36 a share.
The stock is expected to pay a dividend of $3.00 a share at the end of the
year (D1=$3.00)(D1=$3.00), and the dividend is expected to grow at a
constant rate of 5% a year. What is its cost of common
equity?

(9-6). Cost of Equity: CAPM
Booher Book Stores has a beta of 0.8. The yield on a 3-month T-bill is
4%, and the yield on a 10-year T-bond is 6%. The market risk premium
is 5.5%, and the return on an average stock in the market last year was
15%. What is the estimated cost of common equity using the CAPM?
===============================================
Question 1.
Question :
(TCO G) The firm's asset turnover measures
Question 2.
Question :
(TCO G) If Moon Corporation has an increase in sales, which of the
following would result in no change in its EBIT margin?

Question 3.
Question :
(TCO B) You plan on retiring in 20 years. You currently have $275,000
and think you will need $1,000,000 to retire. Assuming you don’t
deposit any additional money into the account, what annual return will
you need to earn to meet this goal?
Question 4.
Question :
(TCO B) You take out a 4 year car loan for $18,000. The loan has a 4%
annual interest rate. The payments are made monthly. What are the
monthly payments? Show your work.
Question 5.
Question :
(TCO B) You currently have $10,000 in your retirement account. If you
deposit $500 per month and the account pays 5% interest, how much
will be in the account in 10 years? Show your work.
Question 6.
Question :
(TCO B) You have a two children, A and B. Child A is not going to
college but is working in a business to learn the ropes. Child A plans on
opening a business someday. Child B is attending college. You put a
certain amount of money into an account. From this account, Child B
will receive $2,000 per month for the next four years. Whatever is left at
that time will go to Child A to help start the business. You want Child A
to receive $96,000 at that time. The account pays 7% annually,

compounded monthly. How much money do you need to start the
account? Show your work.
Question 7.
Question :
(TCO F) A project requires an initial cash outlay of $40,000 and has
expected cash inflows of $12,000 annually for 7 years. The cost of
capital is 10%. What is the project’s NPV? Show your work.
Question 8.
Question :
capital is 10%. What is the project’s payback period? Show your work.
Question 9.
Question :
capital is 10%. What is the project’s IRR? Show your work.
Question 10.
Question :
capital is 10%. What is the project’s discounted payback period? Show
your work.
Question 11.

Question :
(TCO F) Company A has the opportunity to do any, none, or all of the
projects for which the net cash flows per year are shown below. Projects
A and C can be done together. Projects B and C can be done together.
But Projects A and B are mutually exclusive. The company has a cost of
capital of 18%. Which should the company do and why? You must use
at least two capital budgeting methods. Show your work.
===============================================
Bonds-1. Interest on a certain issue of bonds is paid annually with a
coupon rate of 8%. The bonds have a par value of $1,000. The yield to
maturity is 9%. What is the current market piece of these bonds? The
bonds will mature in 5 years.
Bonds-2. A certain bond has 12 years left to maturity. Interest is paid
annually at a coupon rate of 10%. The bonds are currently selling for
$850. What is their YTM?
Bonds-3. A certain bond pays a semiannual coupon rate at a 10%
annual rate. The bond has a par value of $1,000. There are eight years to

maturity. The yield to maturity is 9%. What is the current price of the
bond?
Bonds-4. A particular corporate bond has a par value of $1,000. Coupon
payments are $40 and are paid twice a year. Seven years are left on the
life of the bond.The YTM is 9%. What is the price of the bond?
Bond-5. A given bond has 5 years to maturity. It has a face value of
$1,000. It has a YTM of 5% and the coupons are paid semiannually at a
10% annual rate. What does the bond currently sell for?
Bond-6. A given bond has five years left to maturity. Interest is paid
annually and the annual coupon rate is 9%. The par value of the bond is
$1,000. The bond currently sells for $1,000. What is the yield to
maturity?
Chapter 9 (pages 303–203):
1.Assume Evco, Inc., has a current price of $50 and will pay a $2
dividend in 1 year, and its equity cost of capital is 15%. What price must
you expect it to sell for right after paying the dividend in 1 year in order
to justify its current price?
5.NoGrowth Corporation currently pays a dividend of $2 per year, and it
will continue to pay this dividend forever. What is the price per share if
its equity cost of capital is 15% per year?
6.Summit Systems will pay a dividend of $1.50 this year. If you expect
Summit’s dividend to grow by 6% per year, what is its price per share if
its equity cost of capital is 11%?
7.Dorpac Corporation has a dividend yield of 1.5%. Dorpac’s equity cost
of capital is 8%, and its dividends are expected to grow at a constant
rate.
a. What is the expected growth rate of Dorpac’s dividends?

b. What is the expected growth rate of Dorpac’s share price?
12.Procter & Gamble will pay an annual dividend of $0.65 1 year from
now. Analysts expect this dividend to grow at 12% per year thereafter
until the fifth year. After then, growth will level off at 2% per year.
According to the dividend-discount model, what is the value of a share
of Procter & Gamble stock if the firm’s equity cost of capital is 8%?
A certain bond pays a semiannual coupon rate at a 10% annual rate. The
bond has a par value of $1,000. There are eight years to maturity. The
yield to maturity is 9%. What is the current price of the bond?
===============================================
Calculating WACC for a Real Firm (graded)
The Weighted Average Cost of Capital (WACC) for a firm can be
calculated or found through research. Select two firms in the same
industry. The industry may be that in which you currently work or it
may be an industry in which you are interested. Calculate or find the
WACC for the two firms. How do the WACCs compare? Are the
WACCs what you would expect? What causes the differences between
the two firms' WACCs?

===============================================
FIN 515 Week 5 DQ 2 Finding Stock Values for Real Stocks
Using Beta and the SML
Finding Stock Values for Real Stocks Using Beta and the SML (graded)
Our second discussion topic concerns the calculation of stock values
using the Capital Asset Pricing Model (CAPM). We will start with a
discussion of risk and work towards practical application of the model.
The textbook provides a list of betas for a selection of stocks. Choose a
few firms from that list and discuss whether the betas are what you
would expect. Be sure to explain why or why not.
===============================================

(10-8)
NPVs, IRRs, and MIRRs for Independent Projects
Edelman Engineering is considering including two pieces of equipment,
a truck and an overhead pulley system, in this year’s capital budget. The
projects are independent. The cash outlay for the truck is $17,100 and
that for the pulley system is $22,430. The firm’s cost of capital is 14%.
After-tax cash flows, including depreciation, are as follows:
Year Truck Pulley
1 $5,100 $7,500
2 5,100 7,500
3 5,100 7,500
4 5,100 7,500
5 5,100 7,500
Calculate the IRR, the NPV, and the MIRR for each project, and indicate
the correct accept-reject decision for each.
(10-9)
NPVs and IRRs for Mutually Exclusive Projects

Davis Industries must choose between a gas-powered and an electric-
powered forklift truck for moving materials in its factory. Since both
forklifts perform the same function, the firm will choose only one. (They
are mutually exclusive investments.) The electric-powered truck will
cost more, but it will be less expensive to operate; it will cost $22,000,
whereas the gas-powered truck will cost $17,500. The cost of capital that
applies to both investments is 12%. The life for both types of truck is
estimated to be 6 years, during which time the net cash flows for the
electric-powered truck will be $6,290 per year and those for the gas-
powered truck will be $5,000 per year. Annual net cash flows include
depreciation expenses. Calculate the NPV and IRR for each type of
truck, and decide which to recommend.
(11-2)
Operating Cash Flow
Cairn Communications is trying to estimate the first-year operating cash
flow Operating Cash Flow (at t = 1) for a proposed project. The financial
staff has collected the following information:
Projected sales $10 million
Operating costs (not including depreciation) $ 7 million
Depreciation $ 2 million
Interest expense $ 2 million
The company faces a 40% tax rate. What is the project’s operating cash
flow for the first year (t = 1)?
(11-3)
Net Salvage Value

Allen Air Lines is now in the terminal year of a project. The equipment
originally cost $20 million, of which 80% has been depreciated. Carter
can sell the used equipment today to another airline for $5 million, and
its tax rate is 40%. What is the equipment’s after-tax net salvage value?
===============================================
FIN 515 Week 5 problem Set
4. You bought a stock one year ago for $50 per share and sold it today
for $55 per share. It paid a $1 per share dividend today.
a. What was your realized return?
b. How much of the return came from dividend yield and how much
came from capital gain?
20. Consider two local banks. Bank A has 100 loans outstanding, each
for $1 million, that it expects will be repaid today. Each loan has a 5%
probability of default, in which case the bank is not repaid anything. The
chance of default is independent across all the loans. Bank B has only
one loan of $100 million outstanding, which it also expects will be
repaid today. It also has a 5% probability of not being repaid. Explain

the difference between the type of risk each bank faces. Which bank
faces less risk? Why?
22. Consider the following two, completely separate, economies. The
expected return and volatility of all stocks in both economies is the
same. In the first economy, all stocks move together—in good times all
prices rise together and in bad times they all fall together. In the second
economy, stock returns are independent—one stock increasing in price
has no effect on the prices of other stocks. Assuming you are risk-averse
and you could choose one of the two economies in which to invest,
which one would you choose? Explain.
30. What does the beta of a stock measure?
35. Suppose the market risk premium is 5% and the risk-free interest rate
is 4%. Using the data in Table 10.6 (also shown above), calculate the
expected return of investing in
a. Starbucks’ stock.
b. Hershey’s stock.
c. Autodesk’s stock.
2. You own three stocks: 600 shares of Apple Computer, 10,000 shares
of Cisco Systems, and 5,000 shares of Colgate-Palmolive. The current
share prices and expected returns of Apple, Cisco, and Colgate-
Palmolive are, respectively, $500, $20, $100 and 12%, 10%, 8%.
a. What are the portfolio weights of the three stocks in your portfolio?
b. What is the expected return of your portfolio?
c. Suppose the price of Apple stock goes up by $25, Cisco rises by $5,
and Colgate-Palmolive falls by $13. What are the new portfolio weights?

d. Assuming the stocks’ expected returns remain the same, what is the
expected return of the portfolio at the new prices?
50. Suppose Autodesk stock has a beta of 2.16, whereas Costco stock
has a beta of 0.69. If the risk-free interest rate is 4% and the expected
return of the market portfolio is 10%, what is the expected return of a
portfolio that consists of 60% Autodesk stock and 40% Costco stock,
according to the CAPM?
Chapter 12 (page 431):
26. Unida Systems has 40 million shares outstanding trading for $10 per
share. In addition, Unida has $100 million in outstanding debt. Suppose
Unida’s equity cost of capital is 15%, its debt cost of capital is 8%, and
the corporate tax rate is 40%.
· a. What is Unida’s unlevered cost of capital?
· b. What is Unida’s after-tax debt cost of capital?
· c. What is Unida’s weighted average cost of capital?
27. You would like to estimate the weighted average cost of capital for a
new airline business. Based on its industry asset beta, you have already
estimated an unlevered cost of capital for the firm of 9%. However, the
new business will be 25% debt financed, and you anticipate its debt cost
of capital will be 6%. If its corporate tax rate is 40%, what is your
estimate of its WACC?
===============================================
FIN 515 Week 5 Quiz

Question 1
(TCO C) Company A has a beta of 2.77. Company B has a beta of .73.
Company C has a beta of .90. The risk free rate is 6% and the market
risk premium is 4%. What is the expected return of investing in
Company B? Show your work.
Question 2.
(TCO C) Your stock portfolio consists of only two stocks. You have
$30,000 in Company A and $35,000 in Company B. Company A has an
actual return of -8% and Company B has a return of 12%. What is the
return on your portfolio? Show your work.
Question 3.
(TCO E) A company has a capital structure of 40% debt and 60%
equity. The YTM on the company’s bonds is 9%, and the company’s
effective tax rate is 40%. The CFO has estimated the company’s WACC
to be 9.96%. What is the company’s cost of equity? Show your work.
===============================================
FIN 515 Week 6 Course Project 2 (2 Different Projects)

This Tutorial contains 2 Different Course Projects
Second Project
The purpose of this project is for you to have some practice working wit
h financial concepts in the real world. This will involve integrating some
material from throughout the course. The project will also involve the d
evelopment of your own approach to doing the work. The project does n
ot provide a step-by-step procedure for you to follow.
Your task is to determine the WACC for a given firm using what you kn
ow about WACC as well as data you can find through research. Your del
iverable is to be a brief report in which you state your determination of
WACC, describe and justify how you determined the number, and provi
de relevant information as to the sources of your data.
Assumptions
As you recall, the formula for WACC is
rWACC = (E/E+D) rE + D/(E+D) rD (1-TC)
The formula for the required return on a given equity investment is
ri= rf + βi * (RMkt-rf)
RMkt-
rf is the Market Risk Premium. For this project, you may assume the Ma
rket Risk Premium is 4% unless you can develop a better number.
rf is the risk free rate. The YTM on 10 year US Treasury securities is a g
ood approximation.
You may assume a corporate tax rate of 40%.
One good source for financial data for companies as well as data about t

heir equity is http://finance.yahoo.com. By looking around this site, you
should be able to find the market capitalization (E) as well as the β for a
ny publicly traded company.
There are not many places left where data about corporate bonds is still a
vailable. One of them is http://finra-
markets.morningstar.com/BondCenter. To find data for a particular com
pany’s bonds, find the Quick Search feature, then be sure to specify corp
orate bonds and type in the name of the issuing company. This should gi
ve you a list of all of the company’s outstanding bond issues. Clicking o
n the symbol for a given bond issue will lead you to the current amount
outstanding and the yield to maturity. You are interested in both. The tot
al of all bonds outstanding is D in the above formula.
If you like, you can use the YTM on a bond issue that is not callable as t
he pre-tax cost of debt for the company.
Deliverable
Write a two or three page report that contains the following elements:
1.Your calculated WACC.
2.How data was used to calculate WACC. This would be the formula an
d the formula with your values substituted.
3.Sources for your data.
4.A discussion of how much confidence you have in your answer. What
were the limiting assumptions that you made, if any.
===============================================
FIN 515 Week 6 DQ 1 Examples of Real Agency Problems and
How They Could Have Been Prevented

Examples of Real Agency Problems and How They Could Have Bee
n Prevented (graded)
Do some research and find some historical or current real life examples
of agency problems.
Will the measures discussed in the text help to prevent problems like yo
ur examples in the future?
What else would you advise? You may provide examples of agency prob
lems from your own experience.
If you do that, be careful to provide enough anonymity that you won't ge
t in trouble.
===============================================
FIN 515 Week 6 DQ 2 The Role of Financial Managers in
Ethical Corporate Governance

The Role of Financial Managers in Ethical Corporate Governance (
graded)
Does the financial manager have a greater responsibility or a lesser respo
nsibility for maintaining ethical corporate governance?
Why or why not? What is or will be your approach to ethical corporate g
overnance now or in the future?
===============================================
Week 6
(12–1)
AFN Equation
Baxter Video Products’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.
(13-2)
Value of Operations of Constant Growth Firm
EMC Corporation has never paid a dividend. Its current free cash flow
of $400,000 is expected to grow at a constant rate of 5%. The weighted
average cost of capital is WACC = 12%. Calculate EMC’s value of
operations.
(13-3)
Horizon Value
Current and projected free cash flows for Radell Global Operations are
shown below. Growth is expected to be constant after 2012, and the
weighted average cost of capital is 11%. What is the horizon
(continuing) value at 2012?
Actual
________________________________________ Projected
________________________________________
2010 2011 2012 2013
________________________________________
Free cash flow (millions of dollars) $606.82 $667.50 $707.55 $750.00

(13-4)
EROIC and MVA of Constant Growth Firm
A company has capital of $200 million. It has an EROIC of 9%,
forecasted constant growth of 5%, and a WACC of 10%. What is its
value of operations? What is its intrinsic MVA? (Hint: UseEquation 13-
5.)
===============================================
Chapter 29 (pages 983-984):
1.What inherent characteristic of corporations creates the need for a syst
em of checks on manager behavior?
2. What are some examples of agency problems?

3.What are the advantages and disadvantages of the corporate organizati
onal structure?
4.What is the role of the board of directors in corporate governance?
1.What inherent characteristic of corporations creates the need for a syst
em of checks on manager behavior?
2.What are some examples of agency problems?
3.What are the advantages and disadvantages of the corporate organizati
onal structure?
Managing Agency Conflict
4.Suppose Goodyear Tire and Rubber Company is considering divesting
one of its manufacturing plants. The plant is expected to generate free c
ash flows of $1.5 million per year, growing at a rate of 2.5% per year. G
oodyear has an equity cost of capital of 8.5%, a debt cost of capital of 7
%, a marginal corporate tax rate of 35%, and a debt-
equity ratio of 2.6. If the plant has average risk and Goodyear plans to m
aintain a constant debt-equity ratio, what after-
tax amount must it receive for the plant for the divestiture to be profitabl
e?
5.Suppose Alcatel-
Lucent has an equity cost of capital of 10%, market capitalization of $10
.8 billion, and an enterprise value of $14.4 billion. Suppose Alcatel-
Lucent’s debt cost of capital is 6.1% and its marginal tax rate is 35%.
• a.What is Alcatel-Lucent’s WACC?

• b.If Alcatel-Lucent maintains a constant debt-
equity ratio, what is the value of a project with average risk and the follo
wing expected free cash flows?
c. Alcatel-Lucent’s debt-to-value ratio is d = (14.4 –
10.8) / 14.4 = 0.25. The project’s debt capacity is equal to d times the le
vered value of its remaining cash flows at each date.
10.Is it necessarily true that increasing managerial ownership stakes will
improve firm performance?
11.How can proxy contests be used to overcome a captured board?
12.What is a say-on-pay vote?
13.What are a board’s options when confronted with dissident sharehold
ers?
Illustrate how management focus on forecasting, planning, and business
strategy can create wealth for a company in your industry.
Explain how it's possible for sales growth to decrease the value of a prof
itable company.
What are some actions an entrenched management might take that woul
d harm shareholders?
Singal Inc. is preparing its cash budget. It expects to have sales of $50,0
00 in January, $60,000 in February, and $70,000 in March. If 50% of sal
es are for cash, 30% are credit sales paid in the month after the sale, and
another 20% are credit sales paid 2 months after the sale, what are the ex
pected cash receipts for March?

The Chadmark Corporation's budgeted monthly sales are $10,000. In the
first month, 20% of its customers pay and take the 5% discount. The re
maining 80% pay in the month following the sale and don't receive a dis
count.
What is the average cash gain or (loss) during a typical month for the Ch
admark Corporation?
===============================================
FIN 515 Week 6 Project Calculating the Weighted Average Cost
of Capital (Nike)
Once again, your team is the key financial management team for your
company. The company’s CEO is now looking to expand its operations
by investing in new property, plant, and equipment. In order to
effectively evaluate the project’s effectiveness, you have been asked to
determine the firm’s weighted average cost of capital. To determine the
cost of capital, here is what you have been asked to do.

1. Go to Yahoo Finance (http://finance.yahoo.com) and capture the
income statement information for the company you selected. (Be sure
that your company has debt on their balance sheet. This will be required
in your project.)
a. Enter your company’s name or ticker symbol. Your company’s
information should appear.
b. Click on the Financials tab, and select the income statement option.
Three years’ worth of income statements should appear. Copy and paste
this data into a spreadsheet.
c. Repeat step b. above for the balance sheets of the company.
d. Click on “Historical Prices.” Capture the closing price of the stock as
of the balance sheet date for the three fiscal years used in steps b and c
above.
2. Calculate the Weighted Average Cost of Capital (WACC) for the
company:
Cost of Debt
i. Determine the market value of the firm’s debt issues. Be sure to
review the firm’s 10-K. Also, the website http://finra-
markets.morningstar.com/BondCenter may be of assistance.
ii. You will need to calculate the firm’s composite YTM on its bonds.
This can be achieved by calculating a weighted-average YTM for its
bond issues.
iii. After calculating the YTM for the bond issues, calculate the firm’s
after-tax cost of debt. If the firm’s marginal tax rate cannot be identified
in its 10-K, assume that the tax rate will be 35%.

b. Cost of Equity
i. Calculate the firm’s cost of equity using the capital asset pricing model
(CAPM). The formula for the CAPM is ri = rf + βi × (RMkt - rf).
ii. Assume the risk-free rate (rf) is the current rate of 10-year U.S.
Treasury Bonds.
iii. Calculate the market rate (RMkt) by calculating the market return on
the Standard & Poor’s 500 for the past 2 calendar years.
iv. The beta for the firm can be obtained from Yahoo! Finance.
c. Calculate the WACC
i. Determine the market capitalization of the firm’s common equity and
preferred equity, if any.
ii. Determine the firm’s capital structure based on the market value of
the firm’s equity and debt. The market value of the firm’s debt can be
obtained from the Morningstar website, listed in the Cost of Debt section
above.
iii. Calculate the WACC. As you recall, the formula for WACC is
rWACC = E ÷ (E + D) rE + D ÷ (E + D) rD (1 - TC).
Deliverable
Prepare a narrated PowerPoint presentation using VoiceThread or
WebEx that shows the steps you performed to calculate the WACC for
your firm. Feel free to embed your Excel spreadsheets in the
presentation to demonstrate your calculations. Be sure to discuss how

the values were obtained or derived to arrive at your WACC result.
Finally, be sure to discuss any strengths or limitations in the calculations
you performed, and discuss your analysis about the overall validity of
your results. Both members of the team must be part of the narration in
the presentation.
===============================================
FIN 515 Week 7 DQ 1 Industry Approaches to Working Capital
Financing
Industry Approaches to Working Capital Financing (graded)
Do some research on two firms in your industry or an industry in which
you are interested.
Can you get an idea of their working capital management policies from
publicly available information?
How do the two companies differ in their apparent working capital mana
gement policies? Which policy do you think is better and why?

===============================================
FIN 515 Week 7 DQ 2 Your Preference for Working Capital
Management Policy
Your Preference for Working Capital Management Policy (graded)
Consider the company you work for or a company in which you are inter
ested.
Also, do some research to find some current cost estimates for various m
eans of financing working capital.
What would be your recommendation to the company for financing its w
orking capital needs?
If the information is publicly available, or if you have access to it AND
have permission to discuss it, how does your recommendation compare
what the firm is actually doing?
===============================================

Week 7
(16-1)
Cash Management
Williams & Sons last year reported sales of $10 million and an inventory
turnover ratio of 2. The company is now adopting a new inventory
system. If the new system is able to reduce the firm’s inventory level
and increase the firm’s inventory turnover ratio to 5 while maintaining
the same level of sales, how much cash will be freed up?
(16-2)
Receivables Investment
Medwig Corporation has a DSO of 17 days. The company averages
$3,500 in credit sales each day. What is the company’s average accounts
receivable?

(16-3)
Cost of Trade Credit
What is the nominal and effective cost of trade credit under the credit
terms of 3/15, net 30?
(16-4)
Cost of Trade Credit
A large retailer obtains merchandise under the credit terms of 1/15, net
45, but routinely takes 60 days to pay its bills. (Because the retailer is an
important customer, suppliers allow the firm to stretch its credit terms.)
What is the retailer’s effective cost of trade credit?
(16-5)
Accounts Payable
A chain of appliance stores, APP Corporation, purchases inventory with
a net price of $500,000 each day. The company purchases the inventory
under the credit terms of 2/15, net 40. APP always takes the discount but

takes the full 15 days to pay its bills. What is the average accounts
payable for APP?
(13-10)
Corporate Valuation
The financial statements of Lioi Steel Fabricators are shown below—
both the actual results for 2010 and the projections for 2011. Free cash
flow is expected to grow at a 6% rate after 2011. The weighted average
cost of capital is 11%.
 a. If operating capital as of 12/31/2010 is $502.2 million, what is
the free cash flow for 12/31/2011?
 b. What is the horizon value as of 12/31/2011?
 c. What is the value of operations as of 12/31/2010?
 d. What is the total value of the company as of 12/31/2010?
 e. What is the intrinsic price per share for 12/31/2010?

(13-10)
Corporate Valuation
The financial statements of Lioi Steel Fabricators are shown below—
both the actual results for 2010 and the projections for 2011. Free cash
flow is expected to grow at a 6% rate after 2011. The weighted average
cost of capital is 11%.
 a. If operating capital as of 12/31/2010 is $502.2 million, what is
the free cash flow for 12/31/2011?
 b. What is the horizon value as of 12/31/2011?
 c. What is the value of operations as of 12/31/2010?
 d. What is the total value of the company as of 12/31/2010?

 e. What is the intrinsic price per share for 12/31/2010?
===============================================
1. Answer the following questions:
a. What is the difference between a firm’s cash cycle and its operating c
ycle?
2. How will a firm’s cash cycle be affected if a firm increases its invento
ry, all else being equal?
2. How will a firm’s cash cycle be affected if a firm begins to take the di
scounts offered by its suppliers, all else being equal?

4.The Greek Connection had sales of $32 million in 2012, and a cost of
goods sold of $20 million. A simplified balance sheet for the firm appear
s below:
a- Calculate The Greek Connection’s net working capital in 2012.
2. Calculate the cash conversion cycle of The Greek Connection in 2012.
2. The industry average accounts receivable days is 30 days. What woul
d the cash conversion cycle for The Greek Connection have been in 201
2 if it had matched the industry average for accounts receivable days?
5.Assume the credit terms offered to your firm by your suppliers are 3/5,
Net 30. Calculate the cost of the trade credit if your firm does not take t
he discount and pays on day 30.

1.Which of the following companies are likely to have high short-
term financing needs? Why?
a. A clothing retailer
b. A professional sports team
c. An electric utility
d. A company that operates toll roads
e. A restaurant chain
2.Sailboats Etc. Is a retail company specializing in sailboats and other sa
iling-
related equipment. The following table contains financial forecasts as we
ll as current (month 0) working capital levels. During which months are t
he firm’s seasonal working capital needs the greatest? When does it have
surplus cash?
===============================================
FIN 515 Week 7 Project Capital Budgeting Analysis (Nike)

Once again, your team is the key financial management team for your
company. The company’s CEO is now looking to expand its operations
by investing in new property, plant, and equipment. Your team recently
calculated the WACC for your company, which will now be useful in
evaluating the project’s effectiveness. You are now asked to do some
capital budgeting analysis that will determine whether the company
should invest in these new plant assets.
The parameters for this project are:
Your team will be using the same company for this project that you used
in the Week 6 project. The company is now looking to expand its
operations and wants you to do some analysis using key capital
budgeting tools to do this. The parameters for this project are as follows.
The firm is looking to expand its operations by 10% of the firm’s net
property, plant, and equipment. (Calculate this amount by taking 10% of
the property, plant, and equipment figure that appears on the firm’s
balance sheet.)
The estimated life of this new property, plant, and equipment will be 12
years. The salvage value of the equipment will be 5% of the property,
plant and equipment’s cost.
The annual EBIT for this new project will be 18% of the project’s cost.

The company will use the straight-line method to depreciate this
equipment. Also assume that there will be no increases in net working
capital each year. Use the same marginal tax rate that you used in the
Week 6 project.
The hurdle rate for this project will be the WACC that you calculated in
Week 6.
Deliverable for this Project
Prepare a narrated PowerPoint presentation using VoiceThread or
Webex that will highlight the following items.
• Your calculations for the amount of property, plant, and equipment and
the annual depreciation for the project
• Your calculations that convert the project’s EBIT to free cash flow for
the 12 years of the project.
• The following capital budgeting results for the project
o Net present value
o Internal rate of return
o Discounted payback period.
• Your discussion of the results that you calculated above, including a
recommendation for acceptance or rejection of the project

Once again, you may embed your Excel spreadsheets into your
document. Be sure to follow APA standards for this project.
===============================================

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