Preview

Finance mid term test

Good Essays
Open Document
Open Document
1723 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Finance mid term test
Please circle the section that you attend Tuesday/ Wednesday Morning/ Wednesday Afternoon/ Thursday Morning/ Thursday Afternoon Name______________________________ Student Number ____________________ There are 3 long questions and 14 short questions totally. Make sure you answer all of them. The last question is on page 11. Formulae FV ( PV(1 ( r ( m)n. FVA ( PMT EMBED Equation.3 . PVA ( PMT EMBED Equation.3 . V0 ( EMBED Equation.3 . Where EMBED Equation.3 is the yield-to-maturity (YTM) of nth year zero-coupon bond and y is YTM. YTM ( EMBED Equation.3 . EMBED Equation.3 Long questions Please show all steps for full credits. 1. HKBU Investment just hires Peter in its IPO division. Peter is asked to calculate the fair value of the stock of Orange Computer Inc. (OCI). OCI specializes in providing stylist digital communication product globally and is experiencing a period of rapid growth. However, other firms are expected to imitate its products in the future. The after-tax free cash flow (but before interest incomes or interest expenses) in t1 is forecast to be 400M. It is expected to grow at an annual rate of 25 for 2 years (from CF1 to CF2 and CF2 to CF3), at 15 in the following year (from CF3 to CF4), and at a constant annual rate of 4 thereafter. OCI has bonds outstanding with par value of 800M, coupon rate of 6, and maturity of 25 years. OCI also holds U.S. government bills worth 300M now. It wants to have 900M shares of stock. Sharon, Peters boss, gives him the following information. The weighted-average cost of capital (WACC) for the whole firm is 14. The yield-to-maturity of the bonds is 10. The risk-free rate is 4. Please help Peter to calculate the intrinsic value of each share of stock at t0. (11 marks) Kevin finds the following information on two stocks in paper industry StockStock priceEarningsgrowth rateEBITDA (M)P/BROEAmanda2.50.11204302.814.4Zoe785.71515121.89.6 Kylie finds additional information StockTotal
Continue Reading
View Writing Issues

You May Also Find These Documents Helpful

  • Good Essays

    Finance 4000 Midterm 1 Sample Test Solutions
    • 1422 Words
    • 7 Pages

    Finance 4000 Midterm 1 Sample Test Solutions

    Suppose that, instead of preparing a lump sum today, Mike will deposit a fixed amount of money every year for the next 12 years in the same bank account. The first deposit will start at the end of this year. How much amount must he deposit per year?…

    • 1422 Words
    • 7 Pages
    Good Essays
    Read More
  • Good Essays

    Financial Analysis Task 2
    • 2376 Words
    • 10 Pages

    Financial Analysis Task 2

    There are a couple of concerns with Competition Bikes Inc., ProForma for year 9. The first concern is the amount of money that is allocated to research and development. For the previous three years, they have been all over the board with their budgets. The sixth year was $71,460, the seventh year was $98,280, and the eight year was $82,284. This is concerning that the budget has fluctuated so much. In the ninth year they have allocated $85,861. This budget line item should be analyzed so there is not so much variance in the budget between year to year.…

    • 2376 Words
    • 10 Pages
    Good Essays
    Read More
  • Powerful Essays

    Bu 312
    • 1316 Words
    • 6 Pages

    Bu 312

    2. (Former Midterm Exam Question) ABC Company is planning a real asset investment. ABC is a start-up firm, and therefore, it has no previous investments. Also, ABC has no other investments planned or contemplated other than the one described in this problem. For an investment of $I today, the expected cash flow to ABC in one year is $140,000. This cash flow is the profit on the investment, plus salvage, net of taxes and commissions, etc. The internal rate of return on the project is 40%. Currently, ABC has no debt in its financial structure and its book equity is zero. Book equity is the sum of share-capital and retained earnings. In order to undertake its investment, ABC needs to do some financing. They plan to sell ABC sells new shares to new shareholders in the amount of $I to finance their business investment. Immediately after the share issue and the required capital expenditure of $I, ABC’s market to book ratio for equity is 1.20 (there remains, nonetheless, one year before the expected cash flow benefit of $140,000 is received).…

    • 1316 Words
    • 6 Pages
    Powerful Essays
    Read More
  • Satisfactory Essays

    Finance Excercise 2
    • 316 Words
    • 2 Pages

    Finance Excercise 2

    Video Concepts, Inc. (VCI) markets video equipment and film through a variety of retail outlets. Presently, VCI is faced with a decision as to whether it should obtain the distribution rights to an unreleased film titled Touch of Orange. If this film is distributed by VCI directly to large retailers, VCI’s investment in the project would be $150,000 and the total market for the film is estimated at 100,000 units. Other data are as follows:…

    • 316 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    FINANCIAL ACCOUNTING FINAL EXAM
    • 951 Words
    • 7 Pages

    FINANCIAL ACCOUNTING FINAL EXAM

    3) Sheffield Company had the following information taken from its 2006 adjusted trial balance: Sales, $400,000; Sales Discounts, $12,000; Beginning Inventory, $20,000; and Purchases, $200,000. A physical count of the merchandise on hand at the end of the year showed $25,000. Compute the gross margin (gross profit) that would appear in the income statement. (10P)…

    • 951 Words
    • 7 Pages
    Satisfactory Essays
    Read More
  • Powerful Essays

    Finance 3504 Syllabus Fall 2014

    • 1772 Words
    • 8 Pages

    Finance 3504 Syllabus Fall 2014

    You will demonstrate your proficiency in each area via three exams and three case analyses (using Excel). This course provides an intensive introduction to corporate financial decision-making and will prepare you for subsequent courses in the finance major. By the end of the course you should be able to:…

    • 1772 Words
    • 8 Pages
    Powerful Essays
    Read More
  • Better Essays

    Finance Exam
    • 1661 Words
    • 7 Pages

    Finance Exam

    1. The accounting measure of a firm's equity value generated by applying accounting principles to asset and liability acquisitions is called ________.…

    • 1661 Words
    • 7 Pages
    Better Essays
    Read More
  • Good Essays

    Managerial Finance Final Exam
    • 1352 Words
    • 6 Pages

    Managerial Finance Final Exam

    Which of the following is NOT normally regarded as being a barrier to hostile takeovers? (Points : 5)…

    • 1352 Words
    • 6 Pages
    Good Essays
    Read More
  • Better Essays

    Chapter Two and Three Problems
    • 971 Words
    • 4 Pages

    Chapter Two and Three Problems

    Please complete the following 7 exercises below in either Excel or a word document (but must be single document). You must show your work where appropriate (leaving the calculations within Excel cells is acceptable). Save the document, and submit it in the appropriate week using the Assignment Submission button.…

    • 971 Words
    • 4 Pages
    Better Essays
    Read More
  • Good Essays

    Corporate Finance: Sample Test Problems
    • 1228 Words
    • 5 Pages

    Corporate Finance: Sample Test Problems

    The preferred stock of Wellcare Inc. is currently trading at $115.79. If the required rate of return is 9.5 percent, what is the quarterly dividend paid by this stock?…

    • 1228 Words
    • 5 Pages
    Good Essays
    Read More
  • Satisfactory Essays

    Accounting Test 1
    • 504 Words
    • 6 Pages

    Accounting Test 1

    QUESTION 1 1. Annie's Attic has the following account balances for the dates given: Cash, Sept 1 $40,000 Cash, Sept 30 60,000 Accounts receivable, Sept 1 10,000 Accounts receivable, Sept 30 14,000 Owner's equity, Sept 1 ? Owner's equity, Sept 30 ? Supplies, Sept 1 30,000 Supplies Sept 30 24,000 Accounts payable, Sept 1 6,000 Accounts payable, Sept 30 ?…

    • 504 Words
    • 6 Pages
    Satisfactory Essays
    Read More
  • Powerful Essays

    Financial Accounting Practice Exam
    • 3687 Words
    • 15 Pages

    Financial Accounting Practice Exam

    Assume working capital is $45,000 and the current ratio is 4:1. What are current liabilities?…

    • 3687 Words
    • 15 Pages
    Powerful Essays
    Read More
  • Good Essays

    Personal Finance Assignment 7
    • 947 Words
    • 3 Pages

    Personal Finance Assignment 7

    1. Describe at least three specific individual differences that may give you an advantage in the workplace. (1-3 sentences. 1.5 points) Co-workers with diverse cultural backgrounds bring unique experiences and perceptions to the table in groups and work teams. Another advantage of workplace diversity is the opportunity for employees' personal growth. Being exposed to new ideas, cultures and perspectives can help individuals to reach out intellectually and gain a clearer view of their surroundings and their place in the world. Diversity can strengthen your company's relationships with specific customer groups by making communication more effective.…

    • 947 Words
    • 3 Pages
    Good Essays
    Read More
  • Satisfactory Essays

    Solutions to Valuation Questions
    • 1713 Words
    • 7 Pages

    Solutions to Valuation Questions

    Solutions to Valuation Questions 1. Assume you expect a company’s net income to remain stable at $1,100 for all future years, and you expect all earnings to be distributed to stockholders at the end of each year, so that common equity also remains stable for all future years (assumes clean surplus). Also, assume the company’s β = 1.5, the market risk premium is 4% and the 20-30 year yield on risk free treasury bonds is 5%. Finally, assume the company has 1,000 shares of common stock outstanding. a. Use the CAPM to estimate the company’s equity cost of capital. • re = RF + β * (RM – RF) = 0.05 + 1.5 * 0.04 = 11% b. Compute the expected net distributions to stockholders for each future year. • D = NI – ΔCE = $1,100 – 0 = $1,100 c. Use the dividend discount (i.e., free cash flow to equity investors) valuation model to estimate the company’s current stock price. • Pe = D / re = $1,100 / 0.11 = $10,000 • price per share = $10,000 / 1,000 = $10 2. Same facts as in (1) above, but assume you expect the company’s income to be $1,100 in the coming year and to grow at the rate of 5% in every subsequent year into infinity. Also, assume that the company’s common equity as of the end of the most recent fiscal year is $8,000, and the investment needed to support the growth in net income causes common equity to increase by 5% each year. Assume the company is an all-equity firm; i.e., all financing comes from stockholders and none comes for debtholders. In this case, the company’s balance sheet has net operating assets (NOA) of $8,000, common equity (CE) of $8,000, and zero net financial obligations (NFO). a. Compute D1 for the coming year and the rate of growth in Dt for every year thereafter. • D1 = NI1 – ΔCE1 = 1,100 – 0.05 * 8,000 = 700 • D2 = NI2 – ΔCE2 = (1,100 * 1.05) – 0.05 * (1.05 * 8,000) = 1.05 * (1,100 – 0.05 * 8,000) = 735 = 700 * (1 + 0.05) • D3 = NI3 – ΔCE3 = (1,100 * 1.052) – 0.05 * (1.052 * 8,000) = 771.75 = 735 * (1 + 1.05) • so D is 700 in year 1 and grows at 5%…

    • 1713 Words
    • 7 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    Introduction to Finance First Assignement Second Test
    • 1004 Words
    • 5 Pages

    Introduction to Finance First Assignement Second Test

    Question 7 (10 points) The Johnson family is worried about their ability to pay college tuition for their daughter Chloe. Tuition rates are currently $9,500 per year at the state college and have been increasing at a rate of 7% annually. Chloe will begin college in 7 years. The Johnson’s have $9,500 set aside now in a college plan that will earn 6% per year. They recently heard about a plan to pre-pay tuition at current rates, that is pay $9,500 per year of college. Should they pre-pay Chloe’s first year now or keep the money invested and pay the tuition 7 years from now? How much are they saving in FV terms with this decision? Don't Pre-pay; 781 Don't Pre-pay; 685 Pre-pay; 970 Pre-pay; 685 Pre-pay; 781 Don't Pre-pay; 970 We don’t need to make any calculations in order to determine which option is better, the right option to choose is of course pre-pay, what we need to find now is how much they will save in choosing this option.   1,07 7  − 1   × 9.500$ = ( 1 + 0,009 ) × 9.500$ = 1,0097 × 9.500$ = 1,065 × 9.500$ = 10.114,9$ 1+     1,06 ( 10.114,9 − 9.500 ) $ = 614,9$ There isn’t any option equal to this solution but the nearest one is 685, so Pre-pay; 685 will be the right option.…

    • 1004 Words
    • 5 Pages
    Good Essays
    Read More

Related Topics