Be sure to show all work and remember these are to be completed individually.
1. You are the CFO of a publicly-traded company and are presented with a proposal to retool one of your manufacturing facilities. While the equipment is dated, you believe it still has at least 5 more years of useful life. The cost would be $50 million. The main catalyst for the proposal is sustainability as your firm has been targeted by the media for its emissions policies. As a financial manager in the firm, should you approve it? Why or why not? What other information might you want before deciding? SHOW WORK
2. Provide an example of an agency problem that you encountered or continue to encounter in your organization. Why? How was it (could it) be dealt with?
Being a developer I personally have not encountered an agency problem(s) within my end of the business. Although, with our sister mortgage companies I do see a few agency problems. Recently
3. Syndax Pharmaceuticals (SNDX) went public on March 3, 2016. Go to www.sec.gov (Securities and Exchange Commission) and find their 424B (prospectus). What was the offer price? How much capital did they raise? Who were the underwriters? What price did it close on the first day of trading? Suppose you purchased the security on March 5, which marketplace would the transaction take place (primary or secondary)? Would the company receive cash from the transaction?
Offer Price: $12.00 per share
4. Calculate the tax burden for a company with $11,000,000 in pretax earnings. What is the marginal tax rate? Average tax rate? Which one is the most important? Why? SHOW WORK
.15($50,000) = $7,500
.25($75,000 - 50,000) = 6,250
.34($100,000 - 75,000) = 8,500
.39($335,000 - 100,000) = 91,650
.34($11,000,000 - 10,000,000) = 340,000
453,900 / 11,000,000 =
Average Tax Rate = 41%
Marginal Tax Rate = 38%
5. You are in the market to buy a new car and fall in love with a Lexus with an estimated price of $50k. You are presented with 2 offers. Based on your exceptional credit history, you qualify for 0% financing for a 5-year term. Alternatively, you can take a rebate of $3000. If you choose the rebate, you will finance the remainder where your local bank quoted you a rate of 7.9% over 5 years. Which option is better? Why (Be sure to show all steps)? SHOW WORK
6. Congratulations! You just won the Powerball with a jackpot of $100,000,000. You are given 2 options. Take the lump sum of $41,198,675 or annuity of $3,333,3333.33 per year for 30 years. Assume there are no tax consequences. Which do you prefer and why? SHOW WORK
7. After a promotion at work and in the past 5 years a growing family, it is decided that you need more space. After searching for 4 months you find the home of your dreams. You make an offer and after a few rounds of negotiating it is accepted. The purchase price is $465,575. You have enough to put 20% down to avoid PMI, the rest will be financed. After working with your banker, he quotes you two rates that are comparable (no points) in all aspects except term length and rate. The 30-year rate is 3.54% and the 15-year is 3.00%. What is your monthly payment under both scenarios? Which do you choose? Why? SHOW WORK
8. Which investment is a better choice? Why? The cash flows are as follows (assume 8% required return): SHOW WORK
|
Year
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Investment A
|
Investment B
|
|
1
|
10000
|
|
|
2
|
9000
|
|
|
3
|
8000
|
|
|
4
|
7000
|
5000
|
|
5
|
6000
|
6000
|
|
6
|
5000
|
7000
|
|
7
|
4000
|
8000
|
|
8
|
|
9000
|
|
9
|
|
10000
|
|
10
|
|
11000
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9. Go to Amscot's webpage at https://www.amscot.com/cash-advance.aspx. Compute the EAR assuming a 14-day hold for $100 cash advance. SHOW WORK
10. Three years ago you reduced your exposure to fixed income securities because you were concerned that interest rates were going to rise. You sold your entire portfolio of corporate bonds. You were wrong and interest rates continued to drop. Your IBM bonds had a coupon of 8%, had 15 years to maturity and investors required 6% at the time. Your GE bonds had a coupon of 7% and 18 years to maturity. Today, investors require 4% on both bonds. What should these bonds be selling for? Which bond is more susceptible to interest rate risk? Why? SHOW WORK
PV = (Rate, NPER, PMT, FV)
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IBM
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GE
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Coupon = 8% (1000 x .08=80) 80/2 = 40
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Coupon = 7% (1000 x .07=70) 70/2 = 35
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PMT = 40
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PMT = 40
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YTM = 4% (.04/2 = .02)
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YTM = 4% (.04/2 = .02)
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Rate = .02
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Rate = .02
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|
|
|
|
PV =
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PV =
|
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FV= 1,000
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FV= 1,000
|
|
PMT= 40
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PMT= 35
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NPER=15
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NPER=18
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Rate= .02
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Rate= .02
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11. I would like you to calculate the value of Walmart using constant growth. Go to the web and find its dividend. Assume that this will grow at 5% indefinitely and investors require 9%. What is its intrinsic value? How does this compare to its market price? Why is there a discrepancy? SHOW WORK
Po = 0.5 (1.05)/.09 - .05 Po = $13.13
12. Apple recently paid a $2.08 dividend, which is 22.13% of their earnings. Over the next 3 years, analysts estimate AAPLs earnings to be $9.15, $10.07, and $10.75. After this period, it is anticipated that the payout ratio will increase to 28.5% and the dividend growth rate will remain constant at 6%. Using the two-stage growth formula, what is the intrinsic value of Apple? SHOW WORK
13. Best Buy issued a 5% coupon, 20-year bond 10 years ago when it is was rated investment grade. In the past few years, it is has experienced severe financial difficulties and now that bond is trading for just over $700 ($704.28 to be exact). What are these bonds yielding? SHOW WORK
14. Google trades at $692.78 and analysts have a consensus price target of $750. They do not pay a dividend. What is investors' required return on the stock assuming constant growth? SHOW WORK
15. In problem 13, what is the PV of the coupons and PV of par value? SHOW WORK