Detailed Question: practice Questions for the final exam for Managerial Finance class,
I need the answer to be as the following
1- formulas
2- show work or steps
3- short (couple sentences or comment) for the results.to let me understand the different issues.
4- during the exam, I'm allowed to have two or three pages of formula supported with steps or anything they need except numbers, so please create formula sheet beside the work so I can have it with me in the exam.
5- some of the questions can be solved by financial calculator so please show its steps beside the original answer so I can follow by using my calculator.
Practice Questions for Final
1) You have just landed an internship in the CFO's office of Hawkesworth Inc. Your first task is to estimate the Year 1 cash flow for a project with the following data. What is the Year 1 cash flow?
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Sales revenues
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$13,000
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Depreciation
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$4,000
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Other operating costs
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$6,000
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Tax rate
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35.0%
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2) DeVault Services recently hired you as a consultant to help with its capital budgeting process. The company is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and would have a zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's NPV?
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Risk-adjusted WACC
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10.0%
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Net investment cost (depreciable basis)
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$65,000
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Straight-line deprec. rate
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33.3333%
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Sales revenues, each year
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$65,500
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Operating costs (excl. deprec.), each year
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$25,000
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Tax rate
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35.0%
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3) Harvey's Industrial Plumbing Supply's target capital structure consists of 40% debt and 60% equity. Its capital budget this year is forecast to be $650,000. It also wants to pay a dividend of $225,000. If the company follows the residual dividend policy, how much net income must it earn to meet its capital requirements, pay the dividend, and keep the capital structure in balance?
4) Larsen Films' is analyzing its cost structure. Its fixed operating costs are $470,000, its variable costs of $2.80 per unit produced, and its products sell for $4.00 per unit. What is the company's breakeven point, i.e., at what unit sales volume would income equal costs?
5) Hernandez Corporation expects to have the following data during the coming year. What is Hernandez's expected ROE?
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Assets
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$200,000
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Interest rate
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8%
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D/A
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65%
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Tax rate
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40%
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EBIT
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$25,000
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6) Bailey and Sons has a levered beta of 1.10, its capital structure consists of 40% debt and 60% equity, and its tax rate is 40%. What would Bailey's beta be if it used no debt, i.e., what is its unlevered beta?
7) An all-equity firm with 200,000 shares outstanding, Antwerther Inc., has $2,000,000 of EBIT, which is expected to remain constant in the future. The company pays out all of its earnings, so earnings per share (EPS) equal dividends per shares (DPS). Its tax rate is 40%.
The company is considering issuing $5,000,000 of 10.0% bonds and using the proceeds to repurchase stock. The risk-free rate is 6.5%, the market risk premium is 5.0%, and the beta is currently 0.90, but the CFO believes beta would rise to 1.10 if the recapitalization occurs.
Assuming that the shares can be repurchased at the price that existed prior to the recapitalization, what would the price be following the recapitalization?
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Shares outstanding
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200,000
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Interest rate
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10%
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EBIT
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$2,000,000
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Risk-free rate
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6.5%
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Dividend payout ratio
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100%
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Market risk premium
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5.0%
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Tax rate
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40%
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Beta - before recap
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0.90
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Bonds issued = stock repurchased
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$5,000,000
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Beta - after recap
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1.10
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8) Firms HD and LD are identical except for their level of debt and the interest rates they pay on debt-HD has more debt and pays a higher interest rate on that debt. Based on the data given below, what is the difference between the two firms' ROEs?
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Applicable to Both Firms
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Firm HD's Data
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Firm LD's Data
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Assets
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$200
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Debt ratio
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50%
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Debt ratio
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30%
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EBIT
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$40
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Interest rate
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12%
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Interest rate
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10%
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Tax rate
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35%
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Applicable to Both Firms
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Firm HD's Data
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Firm LD's Data
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Assets
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$200
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Debt ratio
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50%
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Debt ratio
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30%
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EBIT
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$40
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Interest rate
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12%
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Interest rate
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10%
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Tax rate
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35%
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