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FIN 510 Enthusiastic Study / snaptutorial.com

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FIN 510 Enthusiastic Study / snaptutorial.com

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  1. FIN 510 All Assignments, Homework, Midterm For more classes visit www.snaptutorial.com FIN 510 Week 3 Signature Assignment Project Financial Statement Analysis (Nike) FIN 510 Midterm Exam (100% Score) FIN 510 Week 3 Signature Assignment Project Financial Statement Analysis (Amazon) FIN 510 Week 6 Project Capital Budgeting Analysis (Nike) FIN 510 Week 6 Project Capital Budgeting Analysis (Sprint) FIN 510 Week 1 Homework Problem FIN 510 Week 2 Homework Problems

  2. FIN 510 Week 3 Homework Problems FIN 510 Week 4 Homework Problems FIN 510 Week 5 Homework Problems FIN 510 Week 6 Homework Problems FIN 510 Week 7 Homework Problems *********************************************** FIN 510 Midterm Exam (100% Score) For more classes visit www.snaptutorial.com

  3. Question 1 10 / 10 pts (TCO A) Which of the following is NOT an advantage of a sole proprietorship? Single taxation Ease of setup Limited liability No separation of ownership and control Chapter: 1.1 The Four Types of Firms Question 2 10 / 10 pts (TCO A) You overhear your manager saying that she plans to book an ocean-view room on her upcoming trip to Miami for a meeting. You know that the interior rooms are much less expensive, but that your manager is traveling at the company's expense. This use of additional funds comes about as a result of:

  4. an agency problem. an adverse selection problem. a moral hazard. a publicity problem. Chapter: 1 Ownership Versus Control of Corporations Question 3 10 / 10 pts (TCO A) The firm's asset turnover measures the value of assets held per dollar of shareholder equity. the return the firm has earned on its past investments. the firm's ability to sell a product for more than the cost of producing it. how efficiently the firm is utilizing its assets to generate sales. Chapter 2

  5. Question 4 10 / 10 pts (TCO B) When we express the value of a cash flow or series of cash flows in terms of dollars today, we call it the _____ of the investment. If we express it in terms of dollars in the future, we call it the _____. present value; future value future value; present value ordinary annuity; annuity due discount factor; discount rate Chapter 4: Time Value of Money Question 5 10 / 10 pts (TCO D) Which of the following statements is FALSE? The bond certificate typically specifies that the coupons will be paid periodically until the maturity date of the bond.

  6. The bond certificate indicates the amounts and dates of all payments to be made. The only cash payments that the investor will receive from a zero coupon bond are the interest payments that are paid up until the maturity date. Usually, the face value of a bond is repaid at maturity. Chapter 5: Bonds, Bond Valuation and Interest Rates Question 6 10 / 10 pts (TCO D) Which of the following statements is FALSE? Estimating dividends, especially for the distant future, is difficult. A firm can only pay out its earnings to investors or reinvest their earnings. Successful young firms often have high initial earnings growth rates.

  7. According to the constant dividend growth model, the value of the firm depends on the current dividend level, divided by the equity cost of capital plus the growth rate. Chapter 7: Corporate Valuation and Stock Valuation Question 7 20 / 20 pts (TCO B) If today you put $10,000 into an account paying 9% annually, how much will there be in the account after 6 years? Show your work. Question 8 20 / 20 pts (TCO B) You take out a 6-year car loan for $20,000. The loan has a 4% annual interest rate. The payments are made monthly. What are the monthly payments? Show your work. Question 9 20 / 20 pts (TCO D) A particular bond has 8 years to maturity. It has a face value of $1,000. It has a YTM of 7% and the coupons are paid semiannually at

  8. a 9% annual rate. What does the bond currently sell for? Show your work. Question 10 20 / 20 pts (TCO D) A bond currently sells for $887 even though it has a par of $1,000. It was issued one year ago and had a maturity of 10 years. The coupon rate is 7% and the interest payments are made semiannually. What is its YTM? Show your work. Your Answer: Question 11 20 / 20 pts (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 8%. What is P0? Show your work. Question 12 20 / 20 pts (TCO D) A stock has just paid a dividend and declared an annual dividend of $20.00 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? Show your work. Question 13

  9. 20 / 20 pts (TCO A) The DuPont Identity expresses the firm's ROE in terms of? Explain in details. *********************************************** FIN 510 Week 1 Homework Problem For more classes visit www.snaptutorial.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

  10. 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?

  11. 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?

  12. 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).

  13. 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?

  14. 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. *********************************************** FIN 510 Week 2 Homework Problems For more classes visit www.snaptutorial.com FIN 515 Week 2 Homework Problems

  15. (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)

  16. 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)

  17. 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.)

  18. *********************************************** FIN 510 Week 3 Homework Problems For more classes visit www.snaptutorial.com FIN 515 Week 3 Homework Problems 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

  19. 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)

  20. 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? ***********************************************

  21. FIN 510 Week 3 Signature Assignment Project Financial Statement Analysis (Amazon) For more classes visit www.snaptutorial.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.

  22. 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.

  23. 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. g. h. i.*********************************************** FIN 510 Week 3Signature Assignment Project Financial Statement Analysis (Nike) For more classes visit www.snaptutorial.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

  24. 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

  25. 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. g.

  26. h. i.*********************************************** FIN 510 Week 4 Homework Problems For more classes visit www.snaptutorial.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?

  27. (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?

  28. (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

  29. 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? ***********************************************

  30. FIN 510 Week 5 Homework Problems For more classes visit www.snaptutorial.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

  31. 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: $10 million Projected sales Operating costs (not including $ 7

  32. depreciation) million $ 2 million Depreciation $ 2 million Interest expense 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 510 Week 6 Homework Problems For more classes visit www.snaptutorial.com Week 6

  33. (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

  34. ________________________________________ 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.) *********************************************** FIN 510 Week 6 Project Capital Budgeting Analysis (Nike) For more classes visit www.snaptutorial.com

  35. 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 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.

  36. 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 oNet present value oInternal rate of return oDiscounted 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. ***********************************************

  37. FIN 510 Week 6 Project Capital Budgeting Analysis (Sprint) For more classes visit www.snaptutorial.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 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.

  38. 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 oNet present value oInternal rate of return oDiscounted payback period. Your discussion of the results that you calculated above, including a recommendation for acceptance or rejection of the project

  39. Once again, you may embed your Excel spreadsheets into your document. Be sure to follow APA standards for this project. *********************************************** FIN 510 Week 7 Homework Problems For more classes visit www.snaptutorial.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?

  40. (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?

  41. (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?

  42. 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?

  43. e. What is the intrinsic price per share for 12/31/2010? ***********************************************

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