FIN 515 NERD Lessons in Excellence / fin515nerd.com

FIN 515 Complete Project Financial Statement Analysis
(Nike)
FOR MORE CLASSES VISIT
www.fin515nerd.com
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)
==============================================
FIN 515 Course Project 1 and 2
www.fin515nerd.com
This Tutorial contains
Week 3 Course Project (3 Sets)
Week 6 Course Project (2 Sets)
==============================================
FIN 515 Entire Course

www.fin515nerd.com
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
Beta 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
Corporate Governance
FIN 515 Week 6 Course Project 2 (2 Different Projects)
FIN 515 Week 7 DQ 1 Industry Approaches to Working Capital
Financing
FIN 515 Week 7 DQ 2 Your Preference for Working Capital
Management Policy
==============================================
FIN 515 Final Exam (all 3 Sets)
www.fin515nerd.com
FIN 515 Final Exam Set 1
==============================================
www.fin515nerd.com
1. (TCO A) In the United States, which of the following types of
organization 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
leverage, by discounting the free cash flow of the investment using
the WACC.
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).
The new CFO believes (a) that an improved inventory management
system could lower the average inventory by $4,000, (b) that
improvements in the credit department could reduce receivables by
$2,000, and (c) that the purchasing department could negotiate better
credit terms and thereby increase accounts payable by $2,000.
Furthermore, she thinks that these changes would not affect either
sales or the costs of goods sold. If these changes were made, by how
many days would the cash conversion cycle be lowered?
2. (TCO A) Sole proprietorships have all of the following advantages
except (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
discounts, and it actually pays after 58 days. What is the effective
annual percentage 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 to 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 and dividends to grow at a rate of 25% for the next 4 years,
after which competition 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, the 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
system. Galt Industries is an all-equity firm that specializes in this
business. Suppose Galt’s equity beta is 0.75, the risk-free rate is 3%,
and the market risk premium is 6%. If your firm’s project is all equity
financed, then which is your estimate of your cost of capital closest
to?
4. (TCO B) In a TVM calculation, if incoming cash flows are
positive, outgoing 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 interest 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
outstanding, then which is the share price for CCM closest to?
Question 4. 4. (TCO B) Which of the following is an annuity due?
(Points : 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
components of the DuPont Identity would you want to increase 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. (Points : 20)
Question 5. 5. (TCO G) If net income, total assets, and book value of
equity 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 2009 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
expected 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 dividend 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 grow at a 5% annual rate. The return on equity for similar
stocks is 12%. What 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
market price? (Points : 10)
9. A bond currently sells for $1,000 and 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 semiannually. What is its
YTM? (Points : 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 semiannually. What is its YTM? (Points : 10)
10. A company has 10 million shares outstanding trading for $7 per
share. It also has $300 million in outstanding debt. If its 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 capital?
(Points : 30)
Question 10. 10. (TCO D) Explain thoroughly how stock portfolios
affect the risk to an investor. (Points : 30)

11. Name and describe the three functions of managerial finance. For
each, 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 effective corporate tax rate is 40%, what is its
weighted average cost of capital? (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 of 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
the net cash flows per year are shown below. The company 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
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)
==============================================

www.fin515nerd.com
Question 1.1. (TCO A) Double taxation is a drawback for which of
the following types of business organization except?
Question 2.2. (TCO A) Sole proprietorships have all of the following
advantages 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
equity stayed the same, what would be the effect on the DuPont
Identity of an increase in sales?
Question 6.6. (TCO D) A stock has just paid a dividend and will pay a
dividend 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?
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?
Question 8.8. (TCO D) A given bond has 5 years to maturity. It has a
face value of $1,000. It has a YTM of 6% and the coupons are paid
semiannually 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
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
semiannually. What is its YTM?
Question 10.10. (TCO D) Using examples, explain the difference
between systematic risk and nonsystematic risk. Explain why the
distinction is important for both investors and issuers of stock.

Question 11.11. (TCO E) A company has 100 million shares
of capital is 12%, and its 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
can 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
the projects for which the net cash flows per year are shown below.
The company 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.
==============================================
www.fin515nerd.com
1. (TCO A) In the United States, which of the following types of
organization 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
the interest rates are stated.
Question 5.5. (TCO G) If you were a manager of a company, which
of the three right side components of the DuPont Identity would you
want to increase 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. (Points : 20)
Question 6.6. (TCO D) A stock pays an annual dividend of $2.50 and
that 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 dividend is expected to grow at a 5% annual rate. The return on
equity for similar stocks is 12%. What is P0? (Points : 20)
Question 8.8. (TCO D) 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 market price? (Points : 10)
Question 9.9. (TCO D) A bond currently sells for $887 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 semiannually. 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 than one, less than one, and less than zero. (Points : 30)
Question 11.11. (TCO E) A company has 10 million shares
of capital is 9%, and its effective corporate tax rate is 40%, what is its
weighted average cost of capital? (Points : 30)
Question 12.12. (TCO A) What is the difference between capital
structure and capital budgeting? Explain and give an example of a
capital structure 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 the projects for which the net cash flows per year are shown below.
Year A B C
==============================================
FIN 515 Midterm Exam All 3 Sets
www.fin515nerd.com
Question included in these Midterms could be found on this link
FIN 515 Midterm Exam Set 1 (New)
Link:http://www.fin515nerd.com/product-72-FIN-515-Midterm-
Exam-Set-1-(New)

Link:http://www.fin515nerd.com/product-73-FIN-515-Midterm-
Exam-Set-2-(New)
Link:http://www.fin515nerd.com/product-48-FIN-515-Week-4-
Midterm
==============================================
www.fin515nerd.com
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.
payback period? Show your work.
IRR? Show your work.

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.
==============================================
www.fin515nerd.com
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
years. The cost of capital is 10%. What is the project’s payback
period? Show your work. (Points : 10)
years. The cost of capital is 10%. What is the project’s IRR? Show

years. 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.
==============================================
www.fin515nerd.com
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?
==============================================
www.fin515nerd.com

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
www.fin515nerd.com
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.
==============================================
www.fin515nerd.com
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)
www.fin515nerd.com
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
www.fin515nerd.com
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

www.fin515nerd.com
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 4 DQ 2 Differences in YTM of Real Life Bonds
FIN 515 Week 5 DQ 2 Finding Stock Values for Real Stocks Using
Beta 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
Corporate Governance
FIN 515 Week 7 DQ 1 Industry Approaches to Working Capital
Financing
Management Policy
==============================================
www.fin515nerd.com
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.
==============================================
www.fin515nerd.com
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
www.fin515nerd.com
(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.)
==============================================
www.fin515nerd.com
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)?Top of Form
==============================================
www.fin515nerd.com
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
www.fin515nerd.com
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)
www.fin515nerd.com
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
www.fin515nerd.com
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
www.fin515nerd.com
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.
==============================================
www.fin515nerd.com
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?
==============================================
www.fin515nerd.com
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?

==============================================
www.fin515nerd.com
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
www.fin515nerd.com
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
www.fin515nerd.com
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?
==============================================
FIN 515 Week 4 DQ 2 Differences in YTM of Real Life
Bonds
www.fin515nerd.com
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.
==============================================
www.fin515nerd.com
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?
==============================================

www.fin515nerd.com
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.
==============================================
www.fin515nerd.com
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?
==============================================

www.fin515nerd.com
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
www.fin515nerd.com
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.
==============================================

www.fin515nerd.com
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
www.fin515nerd.com
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
www.fin515nerd.com
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)
www.fin515nerd.com
This Tutorial contains 2 Different Course Projects

Second Project
The purpose of this project is for you to have some practice working
with financial concepts in the real world. This will involve integrating
some material from throughout the course. The project will also
involve the development of your own approach to doing the work.
The project does not provide a step-by-step procedure for you to
follow.
Your task is to determine the WACC for a given firm using what you
know about WACC as well as data you can find through research.
Your deliverable is to be a brief report in which you state your
determination of WACC, describe and justify how you determined the
number, and provide 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 Market 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 good approximation.
You may assume a corporate tax rate of 40%.
One good source for financial data for companies as well as data
about their 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 any publicly traded company.
There are not many places left where data about corporate bonds is
still available. One of them is http://finra-
markets.morningstar.com/BondCenter. To find data for a particular
company’s bonds, find the Quick Search feature, then be sure to
specify corporate bonds and type in the name of the issuing company.

This should give you a list of all of the company’s outstanding bond
issues. Clicking on 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 total 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 the 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
and 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
www.fin515nerd.com
Examples of Real Agency Problems and How They Could Have Been
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 your examples in the future? What else
would you advise? You may provide examples of agency problems
from your own experience. If you do that, be careful to provide
enough anonymity that you won't get in trouble.
==============================================

FIN 515 Week 6 DQ 2 The Role of Financial Managers in
Ethical Corporate Governance
www.fin515nerd.com
The Role of Financial Managers in Ethical Corporate Governance
(graded)
Does the financial manager have a greater responsibility or a lesser
responsibility for maintaining ethical corporate governance? Why or
why not? What is or will be your approach to ethical corporate
governance now or in the future?
==========================================
www.fin515nerd.com
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.)
==========================================
www.fin515nerd.com
Chapter 29 (pages 983-984):
1.What inherent characteristic of corporations creates the need for a
system of checks on manager behavior?
2. What are some examples of agency problems?
3.What are the advantages and disadvantages of the corporate
organizational 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
system of checks on manager behavior?
2.What are some examples of agency problems?

3.What are the advantages and disadvantages of the corporate
organizational 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 cash flows of $1.5 million per year, growing at a rate of
2.5% per year. Goodyear 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 maintain a constant debt-equity ratio, what after-tax amount
must it receive for the plant for the divestiture to be profitable?
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 following
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 levered 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
shareholders?
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
profitable company.

What are some actions an entrenched management might take that
would harm shareholders?
Singal Inc. is preparing its cash budget. It expects to have sales of
$50,000 in January, $60,000 in February, and $70,000 in March. If
50% of sales 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 expected 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 remaining 80% pay in the month following the sale and don't
receive a discount.
What is the average cash gain or (loss) during a typical month for the
Chadmark Corporation?
==========================================
FIN 515 Week 6 Project Calculating the Weighted Average
Cost of Capital (Nike)
www.fin515nerd.com
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
www.fin515nerd.com
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
management policies? Which policy do you think is better and why?
==========================================
Management Policy
www.fin515nerd.com
Your Preference for Working Capital Management Policy (graded)
Consider the company you work for or a company in which you are
interested. Also, do some research to find some current cost estimates
for various means of financing working capital. What would be your
recommendation to the company for financing its working 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?
==========================================
www.fin515nerd.com
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?
==========================================

www.fin515nerd.com
1. Answer the following questions:
a. What is the difference between a firm’s cash cycle and its operating
cycle?
2. How will a firm’s cash cycle be affected if a firm increases its
inventory, all else being equal?
2. How will a firm’s cash cycle be affected if a firm begins to take
the discounts 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
appears 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
would the cash conversion cycle for The Greek Connection have been
in 2012 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 the 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
sailing-related equipment. The following table contains financial
forecasts as well as current (month 0) working capital levels. During
which months are the firm’s seasonal working capital needs the
greatest? When does it have surplus cash?
==========================================
FIN 515 Week 7 Project Capital Budgeting Analysis (Nike)
www.fin515nerd.com
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.

FIN 515 NERD Lessons in Excellence / fin515nerd.com

More Related Content

What's hot (14)

Similar to FIN 515 NERD Lessons in Excellence / fin515nerd.com (20)

Recently uploaded (20)

FIN 515 NERD Lessons in Excellence / fin515nerd.com