Listen to the narrated PowerPoint for the Chapter 7 Mini-Case: Kikos and the South Korean Won. This case discusses risks of derivative products to international businesses – especially during periods of economic volatility.

Please provide at least 1 (one) well- written and well-reasoned answer to the following discussion questions  +. Follow the guidelines in the rubric.

 

Discussion Questions:

1. What were the expectations—and the fears—of the South Korean exporting firms that purchased the KiKos?
2. What is the responsibility of a bank that is offering and promoting these derivative products to its customers? Does it have some duty to protect their interests?
3. Who do you think was at fault in this case?
4. If you were a consultant advising firms on their use of foreign currency derivative products, what lessons would you draw from this case, and how would you communicate that to your clients?

Currently Digby is paying a dividend of $20.68 (per share). If this dividend were raised by $3.64, given its current stock price what would be the Dividend Yield?
Select: 1

$3.64

10.2%

12.0%

$24.32

Which company has the most efficient SG&A / Sales ratio?
Select: 1

Baldwin

Digby

Chester

Andrews

In the Month of March, Baldwin received orders of 172 units at a price of $15.00 for their product Bid, and in April receives an order for 43 units of their product Bid at $15.00. Baldwin uses the accrual method of accounting and offers 30 day credit terms. Baldwin delivers 0 units in March, 172 units in April and 43 units in May. They received payment for 172 units in April, and payment for 43 units in May. How much revenue is recognized on the March income statement from this order? How much in the April Income statement? (Answer in thousands)
Select: 1

$1,075 , $1,075

$2,580 , $645

0, $2,580

$3,225 , 0

Your Competitive Intelligence team is predicting that the Baldwin Company will invest in adding capacity to their Brat product this year. Assume Baldwin’s product Brat invests in increasing its capacity by 10% this year. Because of this new information, your company anticipates all other products in the Core segment will increase their capacity by the same amount. How much can the industry produce in the Core segment the next year? Consider only products primarily in the Core segment last year. Ignore current inventories. Figures in thousands (000).
Select: 1

7,275

4,625

9,502

8,252

8,525

7,543

12,925

Last year Aft charged $1,237,600 Depreciation on the Income Statement of Andrews. If early this year Aft purchased a new depreciable asset, the effect on Andrews’s financial statements would be (all other items remaining equal):
Select: 1

No impact on Net Cash from operations

Just impact the Balance Sheet

Increase Net Cash from operations

Decrease Net Cash from operations on the Cash Flow Statement

Assume Baldwin Corp. is downsizing the size of their workforce by 15% (to the nearest person) next year from various strategic initiatives. Baldwin is planning to conduct exit interviews to learn more about how they can improve in processes and increase productivity. The exit interviews are estimated to cost $100 per employee in additional to normal separation costs of $5000. How much will the company pay in separation costs if these exit interviews are implemented next year?
Select: 1

$120,330

$681,870

$1,655,970

$292,230

Assume Baldwin is producing 2,945 units of Bold next year. What would Bold’s plant utilization be?
Select: 1

109.44%

155.00%

158.10%

151.90%

Baldwin’s balance sheet has $94,142,000 in equity. Next year they expect Assets to increase by $4,000,000 and Liabilities to decrease by $2,000,000. If that happens, what will be Baldwin’s book value?
Select: 1

$45,014,000

$100,142,000

$96,142,000

$88,142,000

Instructions: Enter all answers directly in this worksheet. When finished select Save As, and save this document using your last name and student ID as the file name. Upload the data sheet to Blackboard as a .doc, .docx or .rtf file when you are finished.

 

Question 1: (10 points). (Net present value calculation) Dowling Sportswear is considering building a new factory to produce aluminum baseball bats. This project would require an initial cash outlay of $4,000,000 and would generate annual net cash inflows of $900,000 per year for 7 years. Calculate the project’s NPV using a discount rate of 5 percent. (Round to the nearest dollar.)

 

a. If the discount rate is 5 percent, then the project’s NPV is:

$

 

Question 2: (30 points). (Net present value calculation) Big Steve’s, makers of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $90,000 and will generate net cash inflows of $19,000 per year for 11 years. To answer Choose an item questions, click on the orange text and use the pull down menu to select the best answer.

 

a. What is the project’s NPV using a discount rate of 7 percent? (Round to the nearest dollar.)

 

If the discount rate is 7 percent, then the project’s NPV is:

$

 

Should the project be accepted?

 

The project Choose an item. accepted because the NPV is Choose an item. and therefore Choose an item. value to the firm.

 

b. What is the project’s NPV using a discount rate of 16 percent?

 

If the discount rate is 16 percent, then the project’s NPV is:

$

 

Should the project be accepted?

 

The project Choose an item. accepted because the NPV is Choose an item. and therefore Choose an item. value to the firm.

 

If the project’s required discount rate is 16%, then the project Choose an item. accepted because the IRR is Choose an item. Than the required discount rate.

 

c. What is this project’s internal rate of return? (Round to two decimal places.)

 

This project’s internal rate of return is:

%

 

Should the project be accepted? Why or why not?

 

If the project’s required discount rate is 7%, then the project Choose an item. accepted because the IRR is Choose an item. the required discount rate.

 

If the project’s required discount rate is 16%, then the project Choose an item. accepted because the IRR is Choose an item. the required discount rate.

 

Question 3: (15 points). (Related to Checkpoint 11.2) (Equivalent annual cost calculation) Barry Boswell is a financial analyst for Dossman Metal Works, Inc. and he is analyzing two alternative configurations for the firm’s new plasma cutter shop. The two alternatives that are denoted A and B below perform the same task and although they each cost to purchase and install they offer very different cash flows. Alternative A has a useful life of 7 years whereas Alternative B will only last for 3 years. The after-tax cash flows from the two projects are as follows:

 

 

 

a. Calculate each project’s equivalent annual cost (EAC) given a discount rate of 10 percent. (Round to the nearest cent.)

 

a. Alternative A’s equivalent annual cost (EAC) at a discount rate of 10% is:	$
b. Alternative B’s equivalent annual cost (EAC) at a discount rate of 10% is	$

 

b. Which of the alternatives do you think Barry should select? Why? (Select the best choice below.)

 

a.   This cannot be determined from the information provided.

b.  Alternative B should be selected because its equivalent annual cost is less per year than the annual equivalent cost for Alternative A.

c.   Alternative A should be selected because its equivalent annual cost is less per year than the annual equivalent cost for Alternative B.

d.  Alternative A should be selected because it has the highest NPV.

 

 

 

Question 4: (10 points). (IRR calculation) What is the internal rate of return for the following project: An initial outlay of $9,000 resulting in a single cash inflow of $15,424 in 7 years. (Round to the nearest whole percent.)

 

 

a. The internal rate of return for the project is:

%

 

Question 5: (10 points). (IRR calculation) Jella Cosmetics is considering a project that costs $750,000 and is expected to last for 9 years and produce future cash flows of $180,000 per year. If the appropriate discount rate for this project is 17 percent, what is the project’s IRR? (Round to two decimal places.)

 

 

a. The project’s IRR is:

%

 

Question 6: (10 points) (IRR, payback, and calculating a missing cash flow) Mode Publishing is considering a new printing facility that will involve a large initial outlay and then result in a series of positive cash flows for four years. The estimated cash flows associated with this project are:

 

If you know that the project has a regular payback of 2.9 years, what is the project’s internal rate of return?

 

a. The IRR of the project is:

%

 

Question 7: (15 points) (Mutually exclusive projects and NPV) You have been assigned the task of evaluating two mutually exclusive projects with the following projected cash flows:

 

If the appropriate discount rate on these projects is 11 percent, which would be chosen and why? (Round to the nearest cent.)

 

 

a. The NPV of Project A is:	$
b. The NPV of Project B is:	$

 

 

Which project would be chosen and why? (Select the best choice below.)

 

a.     Cannor choose without comparing their IRRs.

b.    Choose A because its NPV is higher.

c.     Choose both because they both have positive NPVs.

d.    Choose B because its NPV is higher.

 

Final Exam Page 1

1. (TCO A) Which of the following does NOT always increase a company’s market value? (Points : 5) [removed]Increasing the expected growth rate of sales [removed]Increasing the expected operating profitability (NOPAT/Sales) [removed]Decreasing the capital requirements (Capital/Sales) [removed]Decreasing the weighted average cost of capital [removed]Increasing the expected rate of return on invested capital   2. (TCO F) Which of the following statements is correct? (Points : 5) [removed]The NPV, IRR, MIRR, and discounted payback (using a payback requirement of 3 years or less) methods always lead to the same accept/reject decisions for independent projects. [removed]For mutually exclusive projects with normal cash flows, the NPV and MIRR methods can never conflict, but their results could conflict with the discounted payback and the regular IRR methods. [removed]Multiple IRRs can exist, but not multiple MIRRs. This is one reason some people favor the MIRR over the regular IRR. [removed]If a firm uses the discounted payback method with a required payback of 4 years, then it will accept more projects than if it used a regular payback of 4 years. [removed]The percentage difference between the MIRR and the IRR is equal to the project’s WACC. 3. (TCO D) 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, i.e., g = 0. 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%. What is the current price of the common stock? a. $26.77 b. $27.89 c. $29.05 d. $30.21 e. $31.42 (Points : 20)     4. (TCO G) Singal Inc. is preparing its cash budget. It expects to have sales of $30,000 in January, $35,000 in February, and $35,000 in March. If 20% of sales are for cash, 40% are credit sales paid in the month after the sale, and another 40% are credit sales paid 2 months after the sale, what are the expected cash receipts for March? a. $24,057 b. $26,730 c. $29,700 d. $33,000 e. $36,300 (Points : 20)

Final Exam Page 2

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? Original Revised Annual sales: unchanged Cost of goods sold: unchanged Average inventory: lowered by $4,000 Average receivables: lowered by $2,000 Average payables: increased by $2,000 Days in year $110,000 $80,000 $20,000 $16,000 $10,000 365 $110,000 $80,000 $16,000 $14,000 $12,000 365 a. 34.0 b. 37.4 c. 41.2 d. 45.3 e. 49.8 (Points : 30)   The formula for calculating the Cash conversion cycle is CCC = DIO + DSO – DPO Where DIO represents Days inventory Outstanding DSO represents Days Sales Outstanding DPO represents Days Payable outstanding Cash conversion cycle impact by inventory reduction DIO = (Average inventory / Cost of goods sold) * 365 Original DIO = ($20,000/$80,000) *365 =91.25 days Revised DIO= ($16,000/$80,000 *365) = 73 days Cash conversion cycle impact by reduced accounts receivable DPO = (Accounts payable / Cost of goods sold) * 365 Original DPO =($10,000/$80,000)*365 = 45.625 days Revised DPO = ($12,000/$80,000) *365 = 54.75 days Cash conversion cycle impact by increased a/c payable DSO = (Total receivables / Total credit sales) * 365 Original DSO = ($16,000/$110,000 *365) = 53.09 days Revised DSO = ($14,000/$110,000 *365) = 46.45 days CCC = DIO + DSO – DPO Original CCC = 91.25 + 53.09 – 45.63 = 98.71 days Revised CCC = 73 + 46.45 – 54.75 = 64.7 days Total impact = original CCC – Revised CCC = 98.71 – 64.7 = 34.01 days So, cash conversion cycle will be lowered by 34.0 days

 

2. (TCO C) Bumpas Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its nonfree trade credit? (Assume a 365-day year.) a. 20.11% b. 21.17% c. 22.28% d. 23.45% e. 24.63% (Points : 30)   EAR = (1 + 2/98)365/35 – 1 = 1.2345 – 1 = 0.2345 = 23.45%.

 

3. (TCO E) You were hired as a consultant to the Quigley Company, whose target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of common from retained earnings is 11.25%, and the tax rate is 40%. The firm will not be issuing any new common stock. What is Quigley’s WACC? a. 8.15% b. 8.48% c. 8.82% d. 9.17% e. 9.54% (Points : 30)

 

4. (TCO B) A company forecasts the free cash flows (in millions) shown below. The weighted average cost of capital is 13%, and the FCFs are expected to continue growing at a 5% rate after Year 3. Assuming that the ROIC is expected to remain constant in Year 3 and beyond, what is the Year 0 value of operations, in millions? Year: 1 2 3 Free cash flow: -$15 $10 $40 a. $315 b. $331 c. $348 d. $367 e. $386 (Points : 35)   We need to discount the future cash flows at 13% with the growth of 5%   = -15X(1+13%)^-1 + 10X(1+13%)^-2 + 40X(1+13%)^-3 + 42/(13%-5%)X(1+13%)^-3   = -13.27 + 7.83 + 27.72 + 363.85   = $ 386.13 is the worth of the business

 

5. (TCO G) Based on the corporate valuation model, Hunsader’s value of operations is $300 million. The balance sheet shows $20 million of short-term investments that are unrelated to operations, $50 million of accounts payable, $90 million of notes payable, $30 million of long-term debt, $40 million of preferred stock, and $100 million of common equity. The company has 10 million shares of stock outstanding. What is the best estimate of the stock’s price per share? a. $13.72 b. $14.44 c. $15.20 d. $16.00 e. $16.80 (Points : 35)

 

Assuming that book values of debt are close to market values of debt, the total market value of the company is:

= $300 + $20 = $320 million.

Market value of equity = Total market value – Value of debt

= $320 – (Notes payable + Long-term debt + Preferred stock)

= $320 – ($90 + $30 + $40) = $160 million.

Price per share = Market value of equity / Number of shares

= $160 / 10 = $16

 

 

6. TCO G) Clayton Industries is planning its operations for next year, and Ronnie Clayton, the CEO, wants you to forecast the firm’s additional funds needed (AFN). The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Dollars are in millions.

Last year’s sales = S0	$350		Last year’s accounts payable	$40
Sales growth rate = g	30%		Last year’s notes payable	$50
Last year’s total assets = A0*	$500		Last year’s accruals	$30
Last year’s profit margin = PM	5%		Target payout ratio	60%

a. $102.8
b. $108.2
c. $113.9
d. $119.9
e. $125.9 (Points : 30)

 

 

Page 1   1. (TCO A) Which of the following does NOT always increase a company’s market value? (Points : 5) [removed] Increasing the expected growth rate of sales [removed] Increasing the expected operating profitability (NOPAT/Sales) [removed] Decreasing the capital requirements (Capital/Sales) [removed] Decreasing the weighted average cost of capital [removed] Increasing the expected rate of return on invested capital   2. (TCO F) Which of the following statements is correct? (Points : 5) [removed] The MIRR and NPV decision criteria can never conflict. [removed] The IRR method can never be subject to the multiple IRR problem, while the MIRR method can be. [removed] One reason some people prefer the MIRR to the regular IRR is that the MIRR is based on a generally more reasonable reinvestment rate assumption. [removed] The higher the WACC, the shorter the discounted payback period. [removed] The MIRR method assumes that cash flows are reinvested at the crossover rate.   3. (TCO D) The Ramirez Company’s last dividend was $1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (rs) is 12%. What is the best estimate of the current stock price? a. $41.58 b. $42.64 c. $43.71 d. $44.80 e. $45.92 (Points : 20)   Cash flows are: Year 1 1.75 * 1.25 = 2.1875 Year 2 2.1875 *1.25 = 2.734 Stock price at end of year 2 2.734 *(1.06)/(.12-.06)= 48.30 Gordon Growth model Discount cash flows back to present at .12 (rate of return) 2.1875/1.12 + 2.734/(1.12)^2 + 48.30/1.12^2 $42.64 (b)     4. (TCO G) The ABC Corporation’s budgeted monthly sales are $4,000. In the first month, 40% of its customers pay and take the 3% discount. The remaining 60% pay in the month following the sale and don’t receive a discount. ABC’s bad debts are very small and are excluded from this analysis. Purchases for next month’s sales are constant each month at $2,000. Other payments for wages, rent, and taxes are constant at $500 per month. Construct a single month’s cash budget with the information given. What is the average cash gain or (loss) during a typical month for the ABC Corporation? (Points : 20)   They will have a net cash surplus of $1452. ___________________________________________ Cash Budget ___________________________________________ +Sales Collection 60% for prior month               2400 40% from current month      1552 3% disc                                      ____ Receipts                                     3952 -Less payments purchases                                         2000 other                                 500 ____ Total                                     2500 Cash                                     +1452 ____________________________________________       5. (TCO G) Howton & Howton Worldwide (HHW) is planning its operations for the coming year, and the CEO wants you to forecast the firm’s additional funds needed (AFN). The firm is operating at full capacity. Data for use in the forecast are shown below. However, the CEO is concerned about the impact of a change in the payout ratio from the 10% that was used in the past to 50%, which the firm’s investment bankers have recommended. Based on the AFN equation, by how much would the AFN for the coming year change if HHW increased the payout from 10% to the new and higher level? All dollars are in millions. Last year’s sales = S0 $300   Last year’s accounts payable $50 Sales growth rate = g 40%   Last year’s notes payable $15 Last year’s total assets = A0* $500   Last year’s accruals $20 Last year’s profit margin = PM 20%   Initial payout ratio 10% a. $31.9 b. $33.6 c. $35.3 d. $37.0 e. $38.9 (Points : 30)   AFN = projected increase in assets – spontaneous increase in liabilities – increase in retained earnings The company is at full capacity, so assets must grow at the same rate as projected sales: $500*1.4=$700, projected increase in assets = $700 – $500 = $200 Total sales = $300 *1.4 = $420 spontaneous increase in liabilities = X, 20/500 = X/700 => X = 28 For payout ratio = 10%: Increase in Retained earnings = Net Income = 420 X 20% = 84, Dividend = 10% = 84X10%=8.4. Increase in retained earnings = 84-8.4 = 75.6 AFN = $200 – $28 – $75.6 = $96.4 million For payout ratio = 50%: Increase in Retained earnings = Net Income = $420 * 20% = $84, Dividend = 50% = $84 * 50%=$42. Increase in retained earnings = $84 – $42 = $42 AFN = $200 – $28 – $42 = $130 million AFN change = $130 – $96.4 = $33.6   Page 2   1. (TCO H) Your consulting firm was recently hired to improve the performance of Shin-Soenen Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firm’s cash conversion cycle. Using the following information and a 365-day year, what is the firm’s present cash conversion cycle? Average inventory = Annual sales = Annual cost of goods sold = Average accounts receivable = Average accounts payable = $75,000 $600,000 $360,000 $160,000 $25,000 a. 120.6 days b. 126.9 days c. 133.6 days d. 140.6 days e. 148.0 days (Points : 30)   2. (TCO C) Bumpas Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its nonfree trade credit? (Assume a 365-day year.) a. 20.11% b. 21.17% c. 22.28% d. 23.45% e. 24.63% (Points : 30)   EAR = (1 + 2/98)365/35 – 1 = 1.2345 – 1 = 0.2345 = 23.45%.     3. (TCO E) Daves Inc. recently hired you as a consultant to estimate the company’s WACC. You have obtained the following information. (1) The firm’s noncallable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000, and a market price of $1,050.00. (2) The company’s tax rate is 40%. (3) The risk-free rate is 4.50%, the market risk premium is 5.50%, and the stock’s beta is 1.20. (4) The target capital structure consists of 35% debt and the balance is common equity. The firm uses the CAPM to estimate the cost of common stock, and it does not expect to issue any new shares. What is its WACC? a. 7.16% b. 7.54% c. 7.93% d. 8.35% e. 8.79%   rd=YTM =7.51%  rs=rRf+(rm-rRf)*beta=4.5+5.5*1.2=11.1%   WACC=Wd*rd*(1-T)+Wc*rs=0.35*7.51*(1-0.40)+0.65*11.1=8.79%   Key: E   (Points : 30)     4. (TCO B) A company forecasts the free cash flows (in millions) shown below. The weighted average cost of capital is 13%, and the FCFs are expected to continue growing at a 5% rate after Year 3. Assuming that the ROIC is expected to remain constant in Year 3 and beyond, what is the Year 0 value of operations, in millions? Year:                      1         2        3 Free cash flow:     -$15     $10     $40 a. $315 b. $331 c. $348 d. $367 e. $386   Verified in 2 places as well. First, find the horizon, or terminal, value: HV4 = FCF3(1 g)/(WACC – g) = $40(1.05)/(0.13 – 0.05) = $525 Then find the PV of the free cash flows and the horizon value: Value of operations = -$15/(1.13) $10/(1.13)2 ($40 $525)/(1.13)3 = $386 (Points : 35)     5. (TCO G) Based on the corporate valuation model, the value of a company’s operations is $900 million. Its balance sheet shows $70 million in accounts receivable, $50 million in inventory, $30 million in short-term investments that are unrelated to operations, $20 million in accounts payable, $110 million in notes payable, $90 million in long-term debt, $20 million in preferred stock, $140 million in retained earnings, and $280 million in total common equity. If the company has 25 million shares of stock outstanding, what is the best estimate of the stocks price per share? a. $23.00 b. $25.56 c. $28.40 d. $31.24 e. $34.36 verified 2 places, pretty sure. (Points : 35)

Total market value = Value of operations non – operating assets
= $900 + $30 = $930 million.
Market value of equity = Total market value – (Value of debt Value of Preferred stock)
= $930 – (Long-term debt Preferred stock)
= $320 – ($90 $20 $110)
= $710 million.
Price per share = Market value of equity / Number of shares

= $710 / 25 = $28.4.

 

 

Week 8 : Final Week – Final Exam Page 1

1. (TCO A) Which of the following does NOT always increase a company’s market value? (Points : 5) [removed] Increasing the expected growth rate of sales [removed] Increasing the expected operating profitability (NOPAT/Sales) [removed] Decreasing the capital requirements (Capital/Sales) [removed] Decreasing the weighted average cost of capital [removed] Increasing the expected rate of return on invested capital   2. (TCO F) Which of the following statements is correct? (Points : 5) [removed] For a project with normal cash flows, any change in the WACC will change both the NPV and the IRR. [removed] To find the MIRR, we first compound cash flows at the regular IRR to find the TV, and then we discount the TV at the WACC to find the PV. [removed] The NPV and IRR methods both assume that cash flows can be reinvested at the WACC. However, the MIRR method assumes reinvestment at the MIRR itself. [removed] If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the higher IRR probably has more of its cash flows coming in the later years. [removed] If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the lower IRR probably has more of its cash flows coming in the later years.   3. (TCO D) 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, i.e., g = 0. 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%. What is the current price of the common stock? a. $26.77 b. $27.89 c. $29.05 d. $30.21 e. $31.42 (Points : 20)     4. (TCO G) The ABC Corporation’s budgeted monthly sales are $4,000. In the first month, 40% of its customers pay and take the 3% discount. The remaining 60% pay in the month following the sale and don’t receive a discount. ABC’s bad debts are very small and are excluded from this analysis. Purchases for next month’s sales are constant each month at $2,000. Other payments for wages, rent, and taxes are constant at $500 per month. Construct a single month’s cash budget with the information given. What is the average cash gain or (loss) during a typical month for the ABC Corporation? (Points : 20)   They will have a net cash surplus of $1452. ___________________________________________ Cash Budget ___________________________________________ +Sales Collection 60% for prior month               2400 40% from current month    1552 3% disc                                ____ Receipts                                       3952 -Less payments purchases                                           2000 other                                                     500 ____ Total                                                      2500 Cash                                                     +1452 ____________________________________________     5. (TCO G) Howton & Howton Worldwide (HHW) is planning its operations for the coming year, and the CEO wants you to forecast the firm’s additional funds needed (AFN). The firm is operating at full capacity. Data for use in the forecast are shown below. However, the CEO is concerned about the impact of a change in the payout ratio from the 10% that was used in the past to 50%, which the firm’s investment bankers have recommended. Based on the AFN equation, by how much would the AFN for the coming year change if HHW increased the payout from 10% to the new and higher level? All dollars are in millions. Last year’s sales = S0 $300   Last year’s accounts payable $50 Sales growth rate = g 40%   Last year’s notes payable $15 Last year’s total assets = A0* $500   Last year’s accruals $20 Last year’s profit margin = PM 20%   Initial payout ratio 10% a. $31.9 b. $33.6 c. $35.3 d. $37.0 e. $38.9 (Points : 30)

Week 8 : Final Week – Final Exam Page 2

1. (TCO H) The Dewey Corporation has the following data, in thousands. Assuming a 365-day year, what is the firm’s cash conversion cycle? Annual sales = Annual cost of goods sold = Inventory = Accounts receivable = Accounts payable = $45,000 $31,500 $4,000 $2,000 $2,400 a. 25 days b. 28 days c. 31 days d. 35 days e. 38 days (Points : 30)     2. (TCO C) Bumpas Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its nonfree trade credit? (Assume a 365-day year.) a. 20.11% b. 21.17% c. 22.28% d. 23.45% e. 24.63% (Points : 30)     3. (TCO E) You were hired as a consultant to the Quigley Company, whose target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of common from retained earnings is 11.25%, and the tax rate is 40%. The firm will not be issuing any new common stock. What is Quigley’s WACC? a. 8.15% b. 8.48% c. 8.82% d. 9.17% e. 9.54% (Points : 30)     4. (TCO B) Leak Inc. forecasts the free cash flows (in millions) shown below. If the weighted average cost of capital is 11% and FCF is expected to grow at a rate of 5% after Year 2, what is the Year 0 value of operations, in millions? Assume that the ROIC is expected to remain constant in Year 2 and beyond (and do not make any half-year adjustments). Year:                      1          2 Free cash flow:     -$50     $100 a. $1,456 b. $1,529 c. $1,606 d. $1,686 e. $1,770 (Points : 35)     5. (TCO G) Based on the corporate valuation model, the value of a company’s operations is $1,200 million. The company’s balance sheet shows $80 million in accounts receivable, $60 million in inventory, and $100 million in short-term investments that are unrelated to operations. The balance sheet also shows $90 million in accounts payable, $120 million in notes payable, $300 million in long-term debt, $50 million in preferred stock, $180 million in retained earnings, and $800 million in total common equity. If the company has 30 million shares of stock outstanding, what is the best estimate of the stock’s price per share? a. $24.90 b. $27.67 c. $30.43 d. $33.48 e. $36.82 (Points : 35)

 

 

 

TransformarUse -mente to form adverbs.

Modelo

seguro seguramente

1. frío 
2. feliz 
3. básico 
4. triste 
5. calmado 

¿Lógico o ilógico?Indicate whether each statement is lógico or ilógico.

1. Soy una persona optimista; a menudo pienso en cosas positivas.
   •  lógico
   •  ilógico
2. Mariela sufre muchos dolores de cabeza. Debe trabajar más.
   •  lógico
   •  ilógico
3. Fiebre se escribe así: efe – i – e – b grande – ere – e.
   •  lógico
   •  ilógico
4. A Felipe no le gustan mucho las películas; va al cine constantemente.
   •  lógico
   •  ilógico

ConversacionesChoose the correct adverbs to complete the conversations.

1. —Éstas son las pastillas que usted debe tomar. Recuerde, son cuatro pastillas al día; debe tomarlas…

   —Perdone, doctora, ¿puede hablar más  a tiempo despacio? Es que con este dolor de cabeza  apenas perfectamente escucho.

2. —¿Te enfermas  casi con frecuencia?

   — Bastante Sinceramente, me enfermo una vez al año.

3. —¿Qué te dijo el médico?

   —Que debo nadar  pronto por lo menos una hora, tres veces por semana porque  a veces así siento dolor en los huesos. La natación es muy buena para la circulación y  además menos no lastima los huesos.

AdverbiosFill in the blanks with words from the list. Two words will not be used.a tiempocasimuchas vecespocorápidotarde

1. Mi amigo Onofre y yo estudiamos medicina. A nuestra profesora de biología le importa mucho la puntualidad. Si los estudiantes llegan(1) , ella está de buen humor; pero si no, ¡ojo (watch out)! (2)  Onofre y yo llegamos (3)  a clase, y ahora bajaron nuestras notas (grades). ¡Vamos a tener que caminar(4)  a clase!