Submitted By shay72002

Words 976

Pages 4

Words 976

Pages 4

(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.

DSO= 20; Average Daily Sales= 20,000

20 = A/R / 20,000

20 x 20,000= A/R

400,000 = A/R

(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? Equity Multiplier= 2.5

Equity Ratio= 1/EM

1 / 2.5= .40

Debt Ratio + Equity Ratio= 1

Therefore Debt Ratio= 1-Equity Ratio= 1- 0.40 = .60%

(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?

Market Value per share= 75; Common Equity= 6,000,000; Number of shares outstanding= 800 million

Market-to-book ratio = market value per share/(common equity/number of shares outstanding)

Market-to-book ratio = $75/(6,000,000/800,000,000)

= $75/7.5

= 10 market-to-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?

Price per share = $8 x $3 = $24

P/E = $24 / 1.5 = 16 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?

Or, ROE= profit margin x asset turnover x equity multiplier

=3% asset turnover = sales/asset = 50/100= 2 equity multiplier= 2

ROE= 3% x2 x2= 12%

Intermediate Problems 6-10

(3-6)

Du Pont Analysis

Donaldson & Son has an…...

...BUSN602 Week 2 Homework Problems: Click Link Below To Buy: http://hwcampus.com/shop/busn602-week-2-homework-problems/ You will complete your homework in Microsoft Excel, in the template provided in the assignment. Your work must be organized and properly formatted. Short essay answers must include references. • Chapter 5: DQ5-1, E5-2; P5-2, P5-6 • Chapter 7: DQ7-17; E7-3, E7-4, P7-5 • Identify and define five economic indicators. Name your assignment file as “LastnameFirstinitial-BUSN602-Week2", and submit by midnight ET, Day 7. List and describe briefly the economic policy objectives of the nation. Important policy objectives of the federal government include economic growth, high employment, price stability, and a balance in international transactions. The achievement of these objectives is the responsibility of monetary policy, fiscal policy, and debt management carried out by the Federal Reserve System, the President, the Congress, and the U.S. Treasury. Describe the responsibilities of the various policy makers in trying to achieve the four economic policy objectives. Assume that Bank A receives a primary deposit of $100,000 and that it must keep reserves of 10 percent against deposits. a. Prepare a simple balance sheet of assets and liabilities for the bank immediately after the deposit is received. b. Assume Bank A makes a loan in the amount that can be “safely lent.” Show what the bank’s balance sheet of assets and liabilities would look like......

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...FINC600 Week 2 Assignment - Homework Problems Click Link Below To Buy: http://hwcampus.com/shop/finc600-week-2-assignment/ Problem 4-10 Under what conditions does r, a stock's market capitalization rate, equal its earnings¬price ratio EPS1/P0? Problem 4-12 What is meant by the "horizon value" of a business? How can it be estimated? Problem 5-9 Respond to the following comments: a. "I like the IRR rule. I can use it to rank projects without having to specify a discount rate." b. "I like the payback rule. As long as the minimum payback period is short, the rule makes sure that the company takes no borderline projects. That reduces risk." Problem 5-16 Some people believe firmly, even passionately, that ranking projects on IRR is OK if each project's cash flows can be reinvested at the project's IRR. They also say that the NPV rule "assumes that cash flows are reinvested at the opportunity cost of capital." Think carefully about these statements. Are they true? Are they helpful? Problem 6-2 Mr. Art Deco will be paid $100,000 one year hence. This is a nominal flow, which he discounts at an 8% nominal discount rate: PV = 100,000/1.08 = $92,593 The inflation rate is 4%. Calculate the PV of Mr. Deco’s payment using the equivalent real cash flow and real discount rate.......

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...BUSN602 Week 2 Homework Problems: Click Link Below To Buy: http://hwcampus.com/shop/busn602-week-2-homework-problems/ You will complete your homework in Microsoft Excel, in the template provided in the assignment. Your work must be organized and properly formatted. Short essay answers must include references. • Chapter 5: DQ5-1, E5-2; P5-2, P5-6 • Chapter 7: DQ7-17; E7-3, E7-4, P7-5 • Identify and define five economic indicators. Name your assignment file as “LastnameFirstinitial-BUSN602-Week2", and submit by midnight ET, Day 7. List and describe briefly the economic policy objectives of the nation. Important policy objectives of the federal government include economic growth, high employment, price stability, and a balance in international transactions. The achievement of these objectives is the responsibility of monetary policy, fiscal policy, and debt management carried out by the Federal Reserve System, the President, the Congress, and the U.S. Treasury. Describe the responsibilities of the various policy makers in trying to achieve the four economic policy objectives. Assume that Bank A receives a primary deposit of $100,000 and that it must keep reserves of 10 percent against deposits. a. Prepare a simple balance sheet of assets and liabilities for the bank immediately after the deposit is received. b. Assume Bank A makes a loan in the amount that can be “safely lent.” Show what the bank’s balance sheet of assets and liabilities would look like......

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...FINC600 Week 2 Assignment - Homework Problems Click Link Below To Buy: http://hwcampus.com/shop/finc600-week-2-assignment/ Problem 4-10 Under what conditions does r, a stock's market capitalization rate, equal its earnings¬price ratio EPS1/P0? Problem 4-12 What is meant by the "horizon value" of a business? How can it be estimated? Problem 5-9 Respond to the following comments: a. "I like the IRR rule. I can use it to rank projects without having to specify a discount rate." b. "I like the payback rule. As long as the minimum payback period is short, the rule makes sure that the company takes no borderline projects. That reduces risk." Problem 5-16 Some people believe firmly, even passionately, that ranking projects on IRR is OK if each project's cash flows can be reinvested at the project's IRR. They also say that the NPV rule "assumes that cash flows are reinvested at the opportunity cost of capital." Think carefully about these statements. Are they true? Are they helpful? Problem 6-2 Mr. Art Deco will be paid $100,000 one year hence. This is a nominal flow, which he discounts at an 8% nominal discount rate: PV = 100,000/1.08 = $92,593 The inflation rate is 4%. Calculate the PV of Mr. Deco’s payment using the equivalent real cash flow and real discount rate.......

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...FIN 516 Week 2 Homework Problem To Buy this Class Copy & paste below link in your Brower http://homeworkregency.com/downloads/fin-516-week-2-homework-problem/ Or Visit Our Website Visit : http://www.homeworkregency.com Email Us : homeworkregency@gmail.com FIN 516 Week 2 Homework Problem Problem 14-11 Based on Chapter 14: WACC and Modigiani & Miller Extension Models With Growth Assumptions Consider the entrepreneur described in Section 14.1 (and referenced in Tables 14.1–14.3). Suppose she funds the project by borrowing $750 rather than $500. a. According to MM Proposition I, what is the value of the equity? What are its cash flows if the economy is strong? What are its cash flows if the economy is weak? b. What is the return of the equity in each case? What is its expected return? c. What is the risk premium of equity in each case? What is the sensitivity of the levered equity return to systematic risk? How does its sensitivity compare to that of unlevered equity? How does its risk premium compare to that of unlevered equity? d. What is the debt-equity ratio of the firm in this case? e. What is the firm’s WACC in this case? Problem 14-18 Based on Chapter 14: WACC and Modigliani & Miller Extension Models With Growth Assumptions In mid-2012, AOL Inc. had $100 million in debt, total equity capitalization of $3.1 billion, and an equity beta of 0.90 (as reported on Yahoo! Finance). Included in AOL’s assets was $1.5 billion in cash and risk-free......

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...FIN 516 Week 2 Homework Problem To Buy this Class Copy & paste below link in your Brower http://homeworkregency.com/downloads/fin-516-week-2-homework-problem/ Or Visit Our Website Visit : http://www.homeworkregency.com Email Us : homeworkregency@gmail.com FIN 516 Week 2 Homework Problem Problem 14-11 Based on Chapter 14: WACC and Modigiani & Miller Extension Models With Growth Assumptions Consider the entrepreneur described in Section 14.1 (and referenced in Tables 14.1–14.3). Suppose she funds the project by borrowing $750 rather than $500. a. According to MM Proposition I, what is the value of the equity? What are its cash flows if the economy is strong? What are its cash flows if the economy is weak? b. What is the return of the equity in each case? What is its expected return? c. What is the risk premium of equity in each case? What is the sensitivity of the levered equity return to systematic risk? How does its sensitivity compare to that of unlevered equity? How does its risk premium compare to that of unlevered equity? d. What is the debt-equity ratio of the firm in this case? e. What is the firm’s WACC in this case? Problem 14-18 Based on Chapter 14: WACC and Modigliani & Miller Extension Models With Growth Assumptions In mid-2012, AOL Inc. had $100 million in debt, total equity capitalization of $3.1 billion, and an equity beta of 0.90 (as reported on Yahoo! Finance). Included in AOL’s assets was $1.5 billion in cash and risk-free......

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...FI515 Homework 2 Keller Graduate School of Management FI515 Managerial Finance Sept 09, 2011 Page 112 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. Formula for DSO = Receivables/ Ave sales per day = Receivables/( Annual sales/365) = 20 days x $20,000= $400,000 Solution: AR = $400,000 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 debt ratio? Formula for Debt ratio = Debt Ratio + Equity Ratio = 1 Equity Multiplier = 2.5 Therefore Equity Ratio = 1/EM Equity Ratio = 1/2.4 = 0.40 MEMORIZE this formula: Debt Ratio + Equity Ratio = 1 There for Debt Ratio = 1 - Equity Ratio = 1 - 0.40 = 0.60% Solution: D/A 60% 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? Winston market = $75 x 800 million = $60 billion Book Value = Assets ($10b in total asset) – Liabilities ($1b current liabilities + $3b long term debt) = $10b...

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...BUSN602 Week 2 Homework Problems: Click Link Below To Buy: http://hwcampus.com/shop/busn602-week-2-homework-problems/ You will complete your homework in Microsoft Excel, in the template provided in the assignment. Your work must be organized and properly formatted. Short essay answers must include references. • Chapter 5: DQ5-1, E5-2; P5-2, P5-6 • Chapter 7: DQ7-17; E7-3, E7-4, P7-5 • Identify and define five economic indicators. Name your assignment file as “LastnameFirstinitial-BUSN602-Week2", and submit by midnight ET, Day 7. List and describe briefly the economic policy objectives of the nation. Important policy objectives of the federal government include economic growth, high employment, price stability, and a balance in international transactions. The achievement of these objectives is the responsibility of monetary policy, fiscal policy, and debt management carried out by the Federal Reserve System, the President, the Congress, and the U.S. Treasury. Describe the responsibilities of the various policy makers in trying to achieve the four economic policy objectives. Assume that Bank A receives a primary deposit of $100,000 and that it must keep reserves of 10 percent against deposits. a. Prepare a simple balance sheet of assets and liabilities for the bank immediately after the deposit is received. b. Assume Bank A makes a loan in the amount that can be “safely lent.” Show what the bank’s balance sheet of assets and liabilities would look like......

Words: 579 - Pages: 3

...FIN 516 Week 2 Homework Problem http://homeworkregency.com/downloads/fin-516-week-2-homework-problem/ Problem 14-11 Based on Chapter 14: WACC and Modigiani & Miller Extension Models With Growth Assumptions Consider the entrepreneur described in Section 14.1 (and referenced in Tables 14.1–14.3). Suppose she funds the project by borrowing $750 rather than $500. a. According to MM Proposition I, what is the value of the equity? What are its cash flows if the economy is strong? What are its cash flows if the economy is weak? b. What is the return of the equity in each case? What is its expected return? c. What is the risk premium of equity in each case? What is the sensitivity of the levered equity return to systematic risk? How does its sensitivity compare to that of unlevered equity? How does its risk premium compare to that of unlevered equity? d. What is the debt-equity ratio of the firm in this case? e. What is the firm’s WACC in this case? Problem 14-18 Based on Chapter 14: WACC and Modigliani & Miller Extension Models With Growth Assumptions In mid-2012, AOL Inc. had $100 million in debt, total equity capitalization of $3.1 billion, and an equity beta of 0.90 (as reported on Yahoo! Finance). Included in AOL’s assets was $1.5 billion in cash and risk-free securities. Assume that the risk-free rate of interest is 3% and the market risk premium is 4%. a. What is AOL’s enterprise value? b. What is the beta of AOL’s business assets? c. What is AOL’s......

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...FIN 516 Week 2 Homework Problem To Buy this Class Copy & paste below link in your Brower http://homeworkregency.com/downloads/fin-516-week-2-homework-problem/ Or Visit Our Website Visit : http://www.homeworkregency.com Email Us : homeworkregency@gmail.com FIN 516 Week 2 Homework Problem Problem 14-11 Based on Chapter 14: WACC and Modigiani & Miller Extension Models With Growth Assumptions Consider the entrepreneur described in Section 14.1 (and referenced in Tables 14.1–14.3). Suppose she funds the project by borrowing $750 rather than $500. a. According to MM Proposition I, what is the value of the equity? What are its cash flows if the economy is strong? What are its cash flows if the economy is weak? b. What is the return of the equity in each case? What is its expected return? c. What is the risk premium of equity in each case? What is the sensitivity of the levered equity return to systematic risk? How does its sensitivity compare to that of unlevered equity? How does its risk premium compare to that of unlevered equity? d. What is the debt-equity ratio of the firm in this case? e. What is the firm’s WACC in this case? Problem 14-18 Based on Chapter 14: WACC and Modigliani & Miller Extension Models With Growth Assumptions In mid-2012, AOL Inc. had $100 million in debt, total equity capitalization of $3.1 billion, and an equity beta of 0.90 (as reported on Yahoo! Finance). Included in AOL’s assets was $1.5 billion in cash and risk-free......

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...Lorchineng Lo FI515 Homework 1 Minicase/2.6,2.7,2.9 Problems Minicase – Page 45 1. Corporate Finance is important to all managers because they want to know how their company is performing. If a company isn’t producing income, they won’t be in business for too long. By managing Corporate Finances, companies are able to expand their company lifeline, through maximizing their stocks and shareholders. 2. There are many different types of organizational forms: Sole Proprietorship, Partnership, Corporation, Corporation – S, Trust, and Non Profits. A company may start off as a Sole Proprietorship or Partnership, and work its way towards becoming a Corporation. The benefits of being a Sole Proprietorship are that it’s easy to set up and everything you own is dispersed properly through your decisions. The benefits of becoming a Corporation is knowing that you have a company that can grow and allow shareholders to be part of the equation. Growth is always an important step for business. 3. To go public a company must have an: Initial Public Offering, Small Corporate Offering Registration, or ACE – net. Agency Problems could include conflicts of interest arising between creditors, shareholders and management because of differing goals. Corporate governance refers broadly to the rules, processes, or laws by which businesses are operated, regulated, and controlled. 4. The primary objective of managers are to maximize the value of company growth, so...

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...7-2 - Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of this year (i.e., D1 = $1.50). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, rs, is 15%. What is the value per share of Boehm’s stock? D1= $1.50 per share g = 7% rs= 15% What is the value of a share of Boehm Stock? P^0 = D1 /(rs – g) P^0 = 1.50/(0.15-0.07) P^0 = $18.75 7-4 - Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each year. The preferred sells for $50 a share. What is the stock’s required rate of return? Dividend = $5 Preferred = $50 What is the stock’s required rate of return ^P 0 = D/rs rs = D/^P 0 rs = 5/50 rs = 0.10 or 10% 7-5 - A company currently pays a dividend of $2 per share (D0 = $2). It is estimated that the company’s dividend will grow at a rate of 20% per year for the next 2 years, then at a constant rate of 7% thereafter. The company’s stock has a beta of 1.2, the risk- free rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stock’s current price? D0 = $2.00 g = 20% for 2 years g = 7% there after Bi = 1.2 Rf = 7.5% RPm = 4% Rs = Rf +(bi* RPm) Rs = 7.5 +(1.2*4) Rs = 12.3 What is your estimate of the stock’s current price? D0 $2.00 g0 to 1 20.0% g1 to 2 20.0% gn 7.0% rs 12.3% Year 1 2 D1 D2 Expected dividends $2.40 $2.88 Expected P2 $58.14 ...

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...FI515 Week 7 Homework Problems pp. 681-682 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? Sales=$10,000,000 Inventory turnover ratio (old) 2 Inventory Turnover ratio (new) 5 Freed up Cash ? (old)=10,000,000/2=$5,000,000 (new)=10,000,000/5=$2,000,000 Freed up cash=old inventory-new inventory $5,000,000-2,000,000 =$3,000,000 Medwig 16-2 Receivables Investment 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? DSO= Accounts Receivables/Credit Sales(365) 17= Accounts Receivables/$3,500 Account Receivables= 17*$3,500=$59,500 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? Nominal cost of trade formula= discount percentage 100-discount percentage*365days credit is outstanding-discount period =397*36530-15 =0.03093*24.33 =0.75263 =75.26% Effective cost of trade formula= Periodic rate=0.03/0.97=0.3093 Periods/year=365/(30-15)=24.33 EAR=(1+periodic rate)n-1 =(1.03093)24.33-1=109.84% 16-4 Cost of Trade Credit ...

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...Problem 3-1: 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. The Days Sales Outstanding: Receivable / Average sales per day DSO= 20 days, Average daily sales = $20,000 Receivable 20 days= 20,000 Receivable = 20 x 20,000 = $400,000 Problem 3-2: 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 debt ratio? Debt Ratio: Total liabilities / Total assets Problem 3-3: Winston Washers’s stock price is $75 per share. Winston has $10 billion in total as- sets. 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? Common equity Book value per share = shares outstanding = 6 billion 800 million = $7.5 Market / Book Ratio: Market price per share Book value per share = 75 = 10 7.5 Problem 3-4: 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? EPS= $1.5 Cash flow per share = $3 Price per share Price/cash flow ratio = cash flow per share Price per share ...

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...3-1 Days Sales Outstanding Accounts Receivable Average Credit Sales Solution: ? = 20,000x20 = $400,000 (Accounts Receivable) 400,000 = 20 20,000 3-2 Debt Ratio Total Liabilities / Total Assets Solution: 60% 3-3 Market/Book Ratio Market price per share / Book value per share Book value per share = Common equity / shares outstanding Book value per share = $6,000,000,000 / 800,000,000 = 7.5 Solution: $75 / 7.5 = 10 3-4 PE Ratio Price/Earnings Ratio = Price per share / Earnings per share 8*3.00 = 24 24/$1.50 = 16 3-5 ROE ROE = ROA x Equity Multiplier ROA = Profit Margin x Total assets turnover ROA = .03 x 2 = .06 ROE = .06 x 2.0 = .12 = 12% 3-6 Du Pont Analysis Total Assets Turnover = 5 ROA = Profit Margin x Total Assets Turnover 10% = 2% x ? 10% / 2% = 5 Equity Multiplier = 1.5 ROE = Profit Margin x Total Assets Turnover x Equity Multiplier 15% = 2% x 5 x ? 15% / .1 = 1.5 3-7 Current and Quick Ratios Quick Ratio = Current Assets – Inventories / Current Liabilities Current Liabilities = $3,000,000 / 1.5 Current Liabilities = $2,000,000 1.0 = $3,000,000 - ? / $2,000,000 Inventories = $1,000,000 4-1 FV of Single Amount FV = PV (1+ I)^N FV = $10,000 (1+.10)^5 FV = $10,000 (1.10)^5 FV = $16,105.10 4-2 PV of Single Amount 1292.10 PV = FVn / (1+I)^N PV = $5,000 / (1+ .07)^20 PV = $5,000 / (1.07)^20 PV = $1292.10 4-6 FV of Ordinary Annuity FVAn = PMT { (1+I)^n / I – 1/I } FVAn = $300 [ (1+.07)^5 / .07 – 1/.07] FVAn = $300 [...

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