Financial Management

Hi, I need help with my assignment in Financial Management. Can you help me?1.The last dividend paid by Klein Company was $1.00. Klein’s growth rate is expected to be a constant 5% for two years, after which dividends are expected to grow at a rate of 10% forever. Klein’s required rate of return on equity (ks) is 12%. What is the current price of Klein’s common stock?2.The Satellite Building Company has fallen on hard times. Its management expects to pay no dividends for the next two years. However, the dividend for Year 3, D3, will be $1.00 per share, and the dividend is expected to grow at a rate of 3% in Year 4, 6% in Year 5, and 10% in Year 6 and thereafter. If the required return for Satellite is 20%, what is the current equilibrium price of the stock? 3.DAA’s stock is selling for $15 per share. The firm’s income, assets, and stock price have been growing at an annual 15% rate and are expected to continue to grow at this rate for three more years. No dividends have been declared as yet, but the firm intends to declare a dividend of D3 = $2.00 at the end of the last year of its supernormal growth. After that, dividends are expected to grow at the firm’s normal growth rate of 6%. The firm’s required rate of return is 18%. Do you think, the stock is overvalued, undervalued, or priced just right?4.You are considering an investment in the common stock of Cowher Corp. The stock is expected to pay a dividend of $2 per share at the end of the year (i.e., 1 = $2.0 ). The stock has a beta equal to 1.2. The risk-free rate is 6%. The market risk premium is 5%. The stock’s dividend is expected to grow at some constant rage, g. The stock currently sells for $40 a share. Assuming the market is in equilibrium, what does the market believe the stock price will be at the end of three years? (In other words, what is P3?)5.Suppose you are willing to pay $30 today for a share of stock that you expect to sell at the end of one year for $32. If you require an annual rate of return of 12%, what must be the amount of the annual dividend which you expect to receive at the end of Year 1?You can use Microsoft Excel or Word to complete this assignment. Submit it as an attachment.

Originally posted 2018-07-14 00:53:17. Republished by Blog Post Promoter

Financial Management

Question 1: (Cost of Capital) 8 pointsPine Tree Farms Corporation (PTFC) has a target capital structure of 40% debt, 10% preferred stock, and 50% common stock. Currently PTFC has a capital structure of 75% debt, 10% preferred stock, and 15% common stock. The after tax cost of debt is 4%. The preferred stock has a par value of $100 per share, a $7 per share dividend, and a market price of $60 per share. The common stock of PTFC trades at $86 per share and has a projected dividend (D1) of $2. 55. The stock price and dividend are expected to continue to grow at 7% per year for the foreseeable future. The CFO expects the company to have $590,000 available from retained earnings. What is PTFC’s weighted average cost of capital (WACC)?Question 2: (Capital Budgeting) 6 pointsConsider Projects A and B, with net cash flows as follows: —- Net Cash Flows —-Project A Project BInitial Cost at T-0 (Now) ($20,000) ($20,000)cash inflow at the end of year 1 10,000 6,000cash inflow at the end of year 2 8,000 16,000cash inflow at the end of year 3 6,000 26,000a. Construct NPV Profiles for these two projects. b. If the two projects were mutually exclusive, which would you accept if your firm’s cost of capital were 4%? Which would you accept if your firm’s cost of capital were 9%?Question 3: (Capital Budgeting) 2 pointsCalculate the IRR of the following project: Year Cash Flow0 ($60,000)1 $22,0002 $24,0003 $26,000Question 4: (Capital Budgeting) 2 pointsCalculate the Modified Internal Rate of Return (MIRR) of the project in Question 3, assuming your firm’s cost of capital is 6%. Question 5: (Capital Structure) 4 pointsFirms R and S are similar firms in the same industry. Firms R and S have the same profit margin and total asset turnover when compared. However, Firm R’s capital structure is 60% debt, 40% equity, and Firm S’s capital structure is 30% debt, 70% equity. Given the above conditions, which firm will experience the highest return on equity (ROE)?Question 6: (Capital Structure) 4 pointsA consultant has collected the following information regarding Hobbit Manufacturing: Operating income (EBIT) $600 million, Interest expense $0, Tax rate 40%, Debt $0, Cost of equity 7%, WACC 7% . The company has no growth opportunities (g = 0), so the company pays out all of its earnings as dividends . Hobbit can borrow money at a pre-tax rate of 6%. The consultant believes that if the company moves to a capital structure consisting of 30% debt and 70% equity (based on market values), which would require taking on debt in the amount of $1,617 million, that the cost of equity will increase to 8% and the pre-tax cost of debt will remain at 6%, but the value of the firm will rise. Is the consultant correct? If the company makes this change, what will be the increase in total market value for the firm?Question 9: (Forecasting) 8 pointsJolly Joe’s Novelties, Inc. had the financial data shown below last year. Jolly Joe’s has just invented a new toy which they expect will cause sales to double from $100,000 to $200,000, increasing net income to $10,000. The company feels they can handle the increase without adding any fixed assets. a. Will Jolly Joe’s need any new outside funding if they pay no dividends? b. If so, how much?Question 8: (Working Capital Management) 6 pointsSuppose it takes Jolly Joe’s Novelties, Inc. 5 days to build and sell toys (on average). Also suppose it takes the firm’s customers 30 days, on average, to pay for the toys after they have purchased them on credit. Finally, suppose the firm is able to delay paying for the materials it uses in the manufacturing process for 30 days. Given these conditions, how long is Jolly Joe’s cash conversion cycle?Question 9: (Working Capital Management) 6 pointsIf Jolly Joe’s buys $100 worth of supplies on credit with terms 2/15 n30 and pays the bill on the 30th day after the purchase: a. What is the approximate, or “nominal,” cost of trade credit as an annual rate?b. What is the exact cost of trade credit as an annual rate?

Originally posted 2018-07-11 22:53:17. Republished by Blog Post Promoter

Financial Management

Part 1) Using a 5% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below (note, the inflows are for each year). Based on your calculations rank the projects and support you answer.Project 1 Initial Invest= $500,000, Cash inflows of $100,000 for years 1-5 and $50,000 for years 6-10. Project 2 Initial Invest= $1,000,000, Cash inflows of $400,000 for years 1-3, $0 for years 4-7 and $250,000 for years 8-10. Project 3 Initial Invest= $800,000, Cash inflows of $300,000 for years 1-5, $0 for years 6-9 and $100,000 for year 10. (Part 2) Assuming a budget of $1,200,000 what are your recommendations for the three projects in the above problem. Explain. Assuming a budget of $2,000,000 what are your recommendations for the above problem? Explain.

Financial Management

1.Risk & Return and the CAPM. Based on the following information, calculate the required return based on the CAPM: Risk Free Rate = 3.5% Market Return =10% Beta = 1.082. Holding Period Return Based on the following information calculate the holding period return: P0 = $10.00 P1 = $12.00 D1 = $1.223.Holding Period Return Based on the following information calculate the holding period return: P0 = $11.00 P1 = $11.40 D1 = $1.024. Sources of Risk & Diversification – convertible bond. Address each source of risk from the portfolio perspective and how diversification impacts them. Your response should be at least 250 words in length. You are required to use at least your textbook as source material for your response. All sources used, including the textbook, must be referenced, paraphrased and quoted material must have accompanying citations.

Financial Management

1. Valuation – preferred stock What is the value of a share of preferred stock that pays a $9.50 dividend, assume k is 12%.2.Valuation – convertible bond You purchased one of AAA Corp.’s 9%, 15-year convertible bonds at its $1,000 par value a year ago when the company’s common stock was selling for $25. Similar bonds without a conversion feature returned 10% at the time. The bond is convertible into stock at a price of $35. The stock is now selling for $40. Assume no dividends.a) You exercise the conversion feature today and immediately sold the stock you received. Calculate the total return on your investment. b) What would your return have been if you had invested $1,000 in AAA’s stock instead of the bond?3. Valuation – zero-coupon bond A U.S. Government bond with a face amount of $10,000 with 13 years to maturity is yielding 5.5%. What is the current selling price?4. Valuation – preferred stock What is the value of a share of preferred stock that pays a $4.50 dividend, assume k is 10%.5. Valuation – corporate bond A $1,000 corporate bond with 10 years to maturity pays a coupon of 8% (semi-annual) and the market required rate of return isa) 7.2% and b) 10%. What is the current selling price for a) and b)?

Financial Management

1. Perpetuity problem  What is the value of a perpetuity with an annual payment of $100 and a discount rate of 6%?2. Future value of annuity problem You deposit $10,000 into a retirement account at the end of the next 10 years earning 9% interest, what is the future value of your retirement after 10 years? 3. Future value of single sum problem You put $5,000 in an investment account today which will earn 6% over the next 11 years, what is the future value? 4. Future value of annuity problem You deposit $5,000 into a retirement account at the end of the next 15 years earning 8% interest, what is the future value of your retirement after 15 years?5. Present value of annuity problem You will receive $1,200 at the end of the next 15 years, assuming a 8% discount rate, what is the present value of the cash flows?

Financial Management

1. Construct a pro forma income statement for the first year and second year for the following assumptions: Units of Sales in Year 1: 110,000Price per Unit: $11Variable cost per unit: 30%Fixed Costs: $125,000Income taxes: 15%Interest Expense: $200,000In year 2, Price per unit increases to $11.50, and unit of sales increases by 5%, all other assumptions remain the same.2. calculate the sustainable growth based on the following information: D= 30%ROE = 25%3. Calculate a table of interest rates based on the following information: The pure interest rate is 1.6%Inflation expectations for year 1 = 3%, year 2 =3.5%, years 3-5 =5%The default risk is .1% for year one and increases by .2% over each yearLiquidity premium is 0 for year 1 and increases by .2% each yearMaturity risk premium is 0 for years 1 and 2 and .2% for years 3-5

Financial Management

Assignment 1: Interest Rates and the Cost of CapitalGeneral Questions: Respond to the following questions thoroughly, in 150–300 words for each question. Use your textbook as your first and major reference. Compare long-term instruments and short-term risks, in terms of the various types of risk to which investorsare exposed. Explain your answers. What methods can be used by the FED to influence interest rates? Are these methods effective? Use examples where appropriate. If a company is going to finance a project entirely with retained earnings, what would be the cost of that capital? Why?

Financial Management

Assignment 1: Stocks and BondsGeneral Questions: Respond to the following questions thoroughly, in 150–300 words for each question. Use your textbook as your first and major reference. Contrast the differences/similarities of common stocks and bonds. Explain how they would be used in the corporate environment. With all investments, there are an expected percentage return and certain types of return that can be expected. Describe the possible forms in which a return could be received for bonds, common stock, and preferred stock. Deliverables: Answer the General Questions and post your responses to the Discussion Area by Saturday, October 24, 2015. Be sure to explain your answers thoroughly, use specific examples, and cite your sources. Participate in the discussions, responding to at least two other responses

Financial Management

Stock price $18. 37 Inventory balance $300,000 Expenses (excluding COGS) $1,120,000 Shares outstanding 290,000 Average issue price of shares $5. 00 Gross margin 40 Interest rate 8 TIE ratio 8 Inventory turnover 12 x Current ratio 1. 5 Quick ratio . 75 Fixed asset turnover 1. 5 Complete the following abbreviated financial statements, and calculate per share ratios indicated. (Hint: Start by subtracting the formula for the quick ratio from that for the current ratio and equating that to the numerical difference. ) Set up an income statement that includes revenue, COGS, GM, EBIT, EBT, and EAT. Set up a balance sheet that includes Current assets, Fixed assets, Total assets, current liabilities, long-term debt, Equity (paid in capital*, and retained earnings), total equity, and total liabilities & equity.

Financial Management

Question 1: (Cost of Capital) 8 pointsPine Tree Farms Corporation (PTFC) has a target capital structure of 40% debt, 10% preferred stock, and 50% common stock. Currently PTFC has a capital structure of 75% debt, 10% preferred stock, and 15% common stock. The after tax cost of debt is 4%. The preferred stock has a par value of $100 per share, a $7 per share dividend, and a market price of $60 per share. The common stock of PTFC trades at $86 per share and has a projected dividend (D1) of $2.55. The stock price and dividend are expected to continue to grow at 7% per year for the foreseeable future. The CFO expects the company to have $590,000 available from retained earnings.What is PTFC’s weighted average cost of capital (WACC)?Question 2: (Capital Budgeting) 6 pointsConsider Projects A and B, with net cash flows as follows: —- Net Cash Flows —-Project A Project BInitial Cost at T-0 (Now) ($20,000) ($20,000)cash inflow at the end of year 1 10,000 6,000cash inflow at the end of year 2 8,000 16,000cash inflow at the end of year 3 6,000 26,000a. Construct NPV Profiles for these two projects.b. If the two projects were mutually exclusive, which would you accept if your firm’s cost of capital were 4%? Which would you accept if your firm’s cost of capital were 9%?Question 3: (Capital Budgeting) 2 pointsCalculate the IRR of the following project: Year Cash Flow0 ($60,000)1 $22,0002 $24,0003 $26,000Question 4: (Capital Budgeting) 2 pointsCalculate the Modified Internal Rate of Return (MIRR) of the project in Question 3, assuming your firm’s cost of capital is 6%.Question 5: (Capital Structure) 4 pointsFirms R and S are similar firms in the same industry. Firms R and S have the same profit margin and total asset turnover when compared. However, Firm R’s capital structure is 60% debt, 40% equity, and Firm S’s capital structure is 30% debt, 70% equity. Given the above conditions, which firm will experience the highest return on equity (ROE)?Question 6: (Capital Structure) 4 pointsA consultant has collected the following information regarding Hobbit Manufacturing: Operating income (EBIT) $600 million, Interest expense $0, Tax rate 40%, Debt $0, Cost of equity 7%, WACC 7% . The company has no growth opportunities (g = 0), so the company pays out all of its earnings as dividends . Hobbit can borrow money at a pre-tax rate of 6%. The consultant believes that if the company moves to a capital structure consisting of 30% debt and 70% equity (based on market values), which would require taking on debt in the amount of $1,617 million, that the cost of equity will increase to 8% and the pre-tax cost of debt will remain at 6%, but the value of the firm will rise. Is the consultant correct? If the company makes this change, what will be the increase in total market value for the firm?Question 9: (Forecasting) 8 pointsJolly Joe’s Novelties, Inc. had the financial data shown below last year. Jolly Joe’s has just invented a new toy which they expect will cause sales to double from $100,000 to $200,000, increasing net income to $10,000. The company feels they can handle the increase without adding any fixed assets. a. Will Jolly Joe’s need any new outside funding if they pay no dividends? b. If so, how much?Question 8: (Working Capital Management) 6 pointsSuppose it takes Jolly Joe’s Novelties, Inc. 5 days to build and sell toys (on average). Also suppose it takes the firm’s customers 30 days, on average, to pay for the toys after they have purchased them on credit. Finally, suppose the firm is able to delay paying for the materials it uses in the manufacturing process for 30 days. Given these conditions, how long is Jolly Joe’s cash conversion cycle?Question 9: (Working Capital Management) 6 pointsIf Jolly Joe’s buys $100 worth of supplies on credit with terms 2/15 n30 and pays the bill on the 30th day after the purchase: a. What is the approximate, or “nominal,” cost of trade credit as an annual rate?b. What is the exact cost of trade credit as an annual rate?

Financial Management

Question 1(4 marks) Briefly explain the key objective of corporate financial management and why this might not be the same as maximising accounting profit. Question 2(4 marks) For the year ended 30 June 2012, a sole trader earned $240,000 in revenue and incurred operating and depreciation expenses of $100,000 and $20,000 respectively. The trader also received fully franked dividends of $30,000 and unfranked dividends of $10,000 from investments in blue chip companies. What the trader’s (a) income tax liability and (b) after tax income? [Ignore Medicare levy]. Please refer to Individual income tax rate 2012-13Taxable incomeTax on this income0 – $18,200Nil$18,201 – $37,00019c for each $1 over $18,200$37,001 – $80,000$3,572 plus 32. 5c for each $1 over $37,000$80,001 – $180,000$17,547 plus 37c for each $1 over $80,000$180,001 and over$54,547 plus 45c for each $1 over $180,000Question 3(4 marks) Briefly describe the principal characteristics of primary and secondary capital markets. Give example of recent initial public offering of shares/bonds in Australian market. Question 4(4 marks) (a) You plan to save $30,000 after two years to purchase a band new car you’ve always wanted. The bank is currently offering 6% interest rate on deposit per annum compounded quarterly. How much would you have to invest today? (b) Assume you borrowed a sum of $30,000 repayable by six equal quarterly instalments (loan repayments) at an interest rate of 8% per annum (2% per quarter). What is the necessary loan payment at the end of each quarter?Question 5(4 marks) (a) If the current market yield for 90 day bank accepted bills 4. 2%, the market price of a $2,000,000 would be? (b) Basis of credit analysis for some time has been the so called ‘five Cs of credit’. In your own words elaborate the five Cs of credit. If you were assessing a loan application, what would be the most important C and why?Question 6 (4 marks) Briefly explain the significance of systematic risk and how it is measured. Question 7(4 marks) Briefly explain the inverse relation between price and yield in the bond market. Question 8(4 marks) Bathurst Copper Mine is experiencing a period of rapid growth due to demands from China. Earnings and dividends are expected to grow at a rate of 24% over the next two years, 16% in third year and then at a constant rate of 6% thereafter. Bathurst Copper Mine’s last dividend which has been paid was $1. 15 If the required rate of return on the stock is 14%, what is the price of the stock today?Question 9(4 marks) (a) If a company is considering investing $200,000 in new equipment, for which the expected cash flows are as follows: CASH FLOW Initial outlay -$150,000 Year 1 $50,000 Year 2 $40,000 Year 3 $30,000 Year 4 $20,000 Year 5 $20,000 If the company has an 18% required rate of return, should this project be accepted? (b)A company must invest in either of the following two projects. Project A Project B Initial Outlay $100,000 $150,000 Useful Life 5 years 5 years Net Present Value 130,000 $140,000 If the required rate of return is 12% which project should the company accept?Question 10(4 marks) ABC Ltd is considering two mutually exclusive projects. The cash flows associated with the projects are as follows: Year Project A Project B 0 -$150000 -$150,000 1 $45,000 $0 2 $45,000 $0 3 $45,000 $0 4 $45,000 $80,000 5 $45,000 $200,000 The required rate of return on these projects is 12%. (a)What is each project’s payback period? (b)What is each project’s net present value? (c)What is each project’s internal rate of return? (d)What has caused ranking conflict? (e)Which project should be accepted? Why?Marking criteriaWhere necessary, state any assumptions you have made. Assignments should show all workings and students will be penalized for failing to do this. You will be assessed on: your understanding of the problem,your choice of method for solving the problem,your application of techniques,the accuracy of your answers,written communication skills,critical thinking and analysis. Question 11 (5 marks) Briefly define sensitivity analysis and steps involving use of it. In your own words why do you think it is important to use sensitivity analysis in assessing a project?Question1 2 (5 marks) Calculate the firm’s Weighted Average Cost of Capital: Source of Finance Market Value Cost Bank Overdraft $400,000 6% Preference Shares $200,000 16% Ordinary Shares $1,200,000 12% Debentures $500,000 8% Trade Creditors (average) $100,000 5%Question 13(5 marks) (a)What are the main features of debt funds and equity funds? (b)In your own words briefly state the advantages and disadvantages of both debt and equity instruments. Question 14(5 marks) A company is considering raising $12 million through a rights issue. It has 10 million ordinary shares outstanding, currently selling for $8. 40 each. The subscription price on the new shares will be $6 per share. i. How many shares must be sold to raise the desired funds? ii. How many shares must a shareholder own in order to have one right? iii. What is the theoretical value of the shares ex-rights? iv. What is the value of the right? RationaleThis assignment is designed to assess student learning of the material covered in Weeks 7-11. Marking criteriaWhere necessary, state the assumptions you have made. All workings must be shown and students will be penalised for failing to do this. You will be assessed on: your understanding of the problem,your choice of method for solving the problem,your application of techniques,the accuracy of your answers,written communication skills,critical thinking and analysis.

Financial Management

Canyon Drilling, Inc. has just come under new management. One of the first things the new management wants to accomplish is to identify its capital structure and the cost of additional funding, if needed. According to the accounting department, the current balance sheet is accurate and reflects the financial structure of the company. They have also calculated the marginal tax rate to be 40%. The company%u2019s beta is currently 1. 15. Your Chief Financial Officer, Marge, has also provided you the following information about the market and the company%u2019s financials: Company SpecificsDebt: 3,600 par value ($1,000) bonds outstanding. All have a 7% coupon, and will mature in 20 years. Market value is currently $1,050 and interest is paid once a year. Equity: Common StockThe company has 40,000 shares of common stock outstanding, and has a market price of $50 per share. The stock last paid a dividend of $1. 40 and had a constant growth of 5% per year. Preferred StockThe company has 7,500 shares of 5% preferred stock outstanding. All have $100 par value and are selling for $80 per share. Floatation costs: Debt = 4%, Equity = 5%Market SpecificsMarket risk premium = 7%Risk free rate = 4%Return on the average stock = 11%Required: Assuming the same capital structure is to be maintained, what is the optimal capital structure for Canyon Drilling?What is the component cost of capital for the firm?Calculate Canyon Drilling%u2019s after tax weighted average cost of capital, using the information above. Deliverables: In an executive summary of 3 to 5 pages, submit your findings from the above-noted requirements in a Microsoft Word or Excel document to the W2: Assignment 2 Dropbox, by Tuesday, July 2, 2013. Use an MS Excel document to illustrate your calculations.

: Financial Management

Firms should use their weighted average cost of capital (WACC) when they are funding their capital projects from a variety of financing sources. However, when the firm plans on using only a single debt or equity source to fund a particular project, it should use the after-tax cost of that specific source of capital to evaluate that project. TrueFalseIf a proposed investment has an NPV of zero, it means that you can expect to get a zero percent return from it if it is adopted. TrueFalseConflicts between two mutually exclusive projects, where the NPV method chooses one project but the IRR method chooses the other, should generally be resolved in favor of the project with the higher NPV. TrueFalseQuestion 5 >Whenever a firm goes into debt, it is using financial leverage. TrueFalseThree factors affecting a firm’s business risk are the variability of demand for the firm’s products, variability of the products’ sales prices, and the extent to which operating costs are fixed. TrueFalseQuestion 7 1 ptsAs a firm’s sales grow its current asset accounts tend to increase. For instance, as sales increase the firm’s inventories increase and its level of accounts payable will increase. Thus, spontaneously generated funds will arise from transaction accounts that increase as sales increase. TrueFalseQuestion 8 1 pts An increase in a current asset must be accompanied by a corresponding increase in a current liability. An increase in a current asset must be accompanied by a corresponding increase in a current liability. TrueFalseIf a firm takes actions that reduce its days sales outstanding (DSO), then, other things held constant, this will lengthen its cash conversion cycle (CCC). TrueFalseSuppose the RiskFree Rate is 8%, the Expected Return this year on the S&P 500 stock market index is 13%, and the stock of Joe’s Junkyard has a Beta of 1. 4. Given these conditions what is the required rate of return for Joe’s stock?8%13%15%21%To raise money to finance the capital budget projects you’ve been evaluating, your firm plans to borrow money at an interest rate of 14%, before-tax. If your firm’s effective tax rate is 40%, what is the aftertax cost in percent of the new loan?15. 96%14. 40%14. 00%8. 40%5. 60%Here is a condensed version of your firm’s balance sheet: Total liabilities. . . . . . . . . . . . . . . . . . $30,000,000Preferred stock. . . . . . . . . . . . . . . . $10,000,000Common Stock. . . . . . . . . . . . . . . . $60,000,000Total assets. . . $100,000,000 Total liabilities & equity. . . $100,000,000If your firm’s aftertax cost of debt is 6%, the cost of preferred stock is 10%, and the cost of common stock is 11%, what is the Weighted Average Cost of Capital (WACC)?9%8%9. 4%Some other value . Michigan Mattress Company is considering the purchase of land and the construction of a new plant. The land, which would be bought immediately (at t = 0), has a cost of $100,000 and the building, which would be erected at the end of the first year (t = 1), would cost $500,000. It is estimated that the firm’s after-tax cash flow will be $100,000 starting at the end of the second year, and that this incremental inflow would increase at a 10 percent rate annually over the next 10 years. What is the approximate payback period?two yearsfour yearssix yearseight yearsten yearsLloyd Enterprises has a project which has the following cash flows: Year Cash Flow0 -$200,0001 50,0002 100,0003 150,0004 40,0005 25,000The cost of capital is 10 percent. What is the project’s discounted payback?Sometime in the first yearSometime in the second yearSometime in the third yearSometime in the fourth yearSometime in the fifth yearWhich of the following events is likely to encourage a company to raise its target debt ratio?An increase in the corporate tax rate. An increase in the personal tax rate. An increase in the company’s operating leverage. Question 16 2 ptsA firm can use retained earnings without paying a flotation cost. Therefore, while the cost of retained earnings is not zero, the cost of retained earnings is generally lower than the after-tax cost of debt financing. The capital structure that minimizes the firm’s cost of capital is also the capital structure that maximizes the firm’s stock price. The capital structure that minimizes the firm’s cost of capital is also the capital structure that maximizes the firm’s earnings per share. If a firm finds that the cost of debt financing is currently less than the cost of equity financing, an increase in its debt ratio will always reduce its cost of capital. Enterprises has total assets of $300 million and EBIT of $45 million. The company currently has no debt in its capital structure. The company is contemplating a recapitalization where it will issue debt at 10 percent and use the proceeds to buy back shares of the company’s common stock. If the company proceeds with the recapitalization, its operating income, total assets, and tax rate will remain the same. Which of the following will occur as a result of the recapitalization?The company’s ROA and ROE will increaseThe company’s ROA and ROE will decrease. The company’s ROA will decrease and ROE will increaseThe company’s ROA will increase and ROE will decreaseCan’t tell without knowing more information. If you constructed a set of pro forma financial statements for 2014 and found that projected Total Assets exceeded projected Total Liabilities and Equity by $11,250, you would know that: your forecasting method is inaccurateyour forecasting assumptions or calculations must be in error, because projected Assets and projected Liabilities and Equity must always balanceyou must arrange for $11,250 in additional financingyour firm will have $11,250 of excess funds available in 2014Considering each action independently and holding other things constant, which of the following actions would reduce a firm’s need for additional capital?An increase in the dividend payout ratio. A decrease in the profit margin. A decrease in the days sales outstanding. An increase in expected sales growth. Consider the following condensed Income Statement: 2013Sales$8,000,000COGS6,500,000Gross Profit1,500,000Sales growth in 2014 is expected to be 15%If COGS is assumed to vary directly with sales, then Gross Profit for 2014 will be: $7,475,000$1,725,000$1,200,000$1,500,000Kenney Corporation recently reported the following income statement for 2013 (numbers are in millions of dollars): Sales$7,000Total operating costs3,000EBIT4,000Interest200Earnings before tax (EBT)3,800Taxes (40%)1,520Net income available to common shareholders2,280The company forecasts that its sales will increase by 10 percent in 2014 and its operating costs will increase in proportion to sales. The company’s interest expense is expected to remain at $200 million, and the tax rate will remain at 40 percent. The company plans to pay out 50 percent of its net income as dividends, the other 50 percent will be additions to retained earnings. What is the forecasted addition to retained earnings for 2014?$1,140$1,260$1,440$1,790$1,810Question 22 2 pts Other things held constant, which of the following will cause an increase in net working capital?Cash is used to buy marketable securitiesA cash dividend is declared and paidMerchandise is sold at a profit, but the sale is on creditLong-term bonds are retired with the proceeds of a preferred stock issueMissing inventory is written off against retained earningsPaul Stone can get 3/15, net 65 from his suppliers. Paul would like to delay paying the suppliers as long as possible because his cash account balance is very low, but his Dad, a famous financial expert, recommends that he borrow from his local bank at 10% and pay early to take advantage of the discount. Which of the following should Paul do?Pay within 15 days, borrowing from the bank, if necessary, to get the money. Pay on the 16th dayPay on the 65th daySend a hit man after his DadStone’s Stones and Rocks buys on terms of 2/10, net 30 from its suppliers. If it pays on the 8th day, taking the discount, what is the percent cost of the trade credit that it receives?91. 84%33. 39%2%0%

Financial Management

Question 1(4 marks) Briefly explain the key objective of corporate financial management and why this might not be the same as maximising accounting profit. Question 2(4 marks) For the year ended 30 June 2012, a sole trader earned $240,000 in revenue and incurred operating and depreciation expenses of $100,000 and $20,000 respectively. The trader also received fully franked dividends of $30,000 and unfranked dividends of $10,000 from investments in blue chip companies. What the trader’s (a) income tax liability and (b) after tax income? [Ignore Medicare levy]. Please refer to Individual income tax rate 2012-13Taxable incomeTax on this income0 – $18,200Nil$18,201 – $37,00019c for each $1 over $18,200$37,001 – $80,000$3,572 plus 32. 5c for each $1 over $37,000$80,001 – $180,000$17,547 plus 37c for each $1 over $80,000$180,001 and over$54,547 plus 45c for each $1 over $180,000Question 3(4 marks) Briefly describe the principal characteristics of primary and secondary capital markets. Give example of recent initial public offering of shares/bonds in Australian market. Question 4(4 marks) (a) You plan to save $30,000 after two years to purchase a band new car you’ve always wanted. The bank is currently offering 6% interest rate on deposit per annum compounded quarterly. How much would you have to invest today? (b) Assume you borrowed a sum of $30,000 repayable by six equal quarterly instalments (loan repayments) at an interest rate of 8% per annum (2% per quarter). What is the necessary loan payment at the end of each quarter?Question 5(4 marks) (a) If the current market yield for 90 day bank accepted bills 4. 2%, the market price of a $2,000,000 would be? (b) Basis of credit analysis for some time has been the so called ‘five Cs of credit’. In your own words elaborate the five Cs of credit. If you were assessing a loan application, what would be the most important C and why?Question 6 (4 marks) Briefly explain the significance of systematic risk and how it is measured. Question 7(4 marks) Briefly explain the inverse relation between price and yield in the bond market. Question 8(4 marks) Bathurst Copper Mine is experiencing a period of rapid growth due to demands from China. Earnings and dividends are expected to grow at a rate of 24% over the next two years, 16% in third year and then at a constant rate of 6% thereafter. Bathurst Copper Mine’s last dividend which has been paid was $1. 15 If the required rate of return on the stock is 14%, what is the price of the stock today?Question 9(4 marks) (a) If a company is considering investing $200,000 in new equipment, for which the expected cash flows are as follows: CASH FLOW Initial outlay -$150,000 Year 1 $50,000 Year 2 $40,000 Year 3 $30,000 Year 4 $20,000 Year 5 $20,000 If the company has an 18% required rate of return, should this project be accepted? (b)A company must invest in either of the following two projects. Project A Project B Initial Outlay $100,000 $150,000 Useful Life 5 years 5 years Net Present Value 130,000 $140,000 If the required rate of return is 12% which project should the company accept?Question 10(4 marks) ABC Ltd is considering two mutually exclusive projects. The cash flows associated with the projects are as follows: Year Project A Project B 0 -$150000 -$150,000 1 $45,000 $0 2 $45,000 $0 3 $45,000 $0 4 $45,000 $80,000 5 $45,000 $200,000 The required rate of return on these projects is 12%. (a)What is each project’s payback period? (b)What is each project’s net present value? (c)What is each project’s internal rate of return? (d)What has caused ranking conflict? (e)Which project should be accepted? Why?Marking criteriaWhere necessary, state any assumptions you have made. Assignments should show all workings and students will be penalized for failing to do this. You will be assessed on: your understanding of the problem,your choice of method for solving the problem,your application of techniques,the accuracy of your answers,written communication skills,critical thinking and analysis. Question 11 (5 marks) Briefly define sensitivity analysis and steps involving use of it. In your own words why do you think it is important to use sensitivity analysis in assessing a project?Question1 2 (5 marks) Calculate the firm’s Weighted Average Cost of Capital: Source of Finance Market Value Cost Bank Overdraft $400,000 6% Preference Shares $200,000 16% Ordinary Shares $1,200,000 12% Debentures $500,000 8% Trade Creditors (average) $100,000 5%Question 13(5 marks) (a)What are the main features of debt funds and equity funds? (b)In your own words briefly state the advantages and disadvantages of both debt and equity instruments. Question 14(5 marks) A company is considering raising $12 million through a rights issue. It has 10 million ordinary shares outstanding, currently selling for $8. 40 each. The subscription price on the new shares will be $6 per share. i. How many shares must be sold to raise the desired funds? ii. How many shares must a shareholder own in order to have one right? iii. What is the theoretical value of the shares ex-rights? iv. What is the value of the right? RationaleThis assignment is designed to assess student learning of the material covered in Weeks 7-11. Marking criteriaWhere necessary, state the assumptions you have made. All workings must be shown and students will be penalised for failing to do this. You will be assessed on: your understanding of the problem,your choice of method for solving the problem,your application of techniques,the accuracy of your answers,written communication skills,critical thinking and analysis.

Financial Management

If a nurse deposits $1,000 today in a bank account and the interest is compounded annually for 12 percent, what will be the value of this investment: Five years from nowTen years from nowFifteen years from nowTwenty years from now

Financial Management

Question 1 , Hildy is a company that commenced operations many years ago. relevant details relating to the company’s capital structure are extracted from its balance sheet as follows : Components – Debentures ($100 par, 12% coupon-annual) Book Value $4,000,000Components – Preference Shares ($3 par, 7% cumulative) Book Value $1,500,000Components – Ordinary Shares ($1 par) Book Value $7,500,000market yield on the debentures is 15%. Current price of debenture is $94. preference shares are trading on the market at $3. 00, and a dividend of 21c per share has just been paid. forecasts in relation to market returns are as follows : expected risk-free rate of return =5%, expected return on the market porfolio = 15. 0%, and the systematic risk of Hildy ordinary shares is 0. 6. These shares are traded on the market at $1. 2 each. Tax rate is 30%Calculate the following : Cost of debtCost of preference sharesCost of ordinary sharesThe company’s weighted cost of capital (WACC)End of question

Financial Management

Canyon Drilling, Inc. has just come under new management. One of the first things the new management wants to accomplish is to identify its capital structure and the cost of additional funding, if needed.According to the accounting department, the current balance sheet is accurate and reflects the financial structure of the company. They have also calculated the marginal tax rate to be 40%. The company%u2019s beta is currently 1.15.Your Chief Financial Officer, Marge, has also provided you the following information about the market and the company%u2019s financials:Company SpecificsDebt:3,600 par value ($1,000) bonds outstanding. All have a 7% coupon, and will mature in 20 years. Market value is currently $1,050 and interest is paid once a year.Equity:Common StockThe company has 40,000 shares of common stock outstanding, and has a market price of $50 per share. The stock last paid a dividend of $1.40 and had a constant growth of 5% per year.Preferred StockThe company has 7,500 shares of 5% preferred stock outstanding. All have $100 par value and are selling for $80 per share.Floatation costs: Debt = 4%, Equity = 5%Market SpecificsMarket risk premium = 7%Risk free rate = 4%Return on the average stock = 11%Required:Assuming the same capital structure is to be maintained, what is the optimal capital structure for Canyon Drilling?What is the component cost of capital for the firm?Calculate Canyon Drilling%u2019s after tax weighted average cost of capital, using the information above.Deliverables:In an executive summary of 3 to 5 pages, submit your findings from the above-noted requirements in a Microsoft Word or Excel document to the W2: Assignment 2 Dropbox, by Tuesday, July 2, 2013. Use an MS Excel document to illustrate your calculations.

Financial Management

Question 1(4 marks) Briefly explain the key objective of corporate financial management and why this might not be the same as maximising accounting profit.Question 2(4 marks) For the year ended 30 June 2012, a sole trader earned $240,000 in revenue and incurred operating and depreciation expenses of $100,000 and $20,000 respectively. The trader also received fully franked dividends of $30,000 and unfranked dividends of $10,000 from investments in blue chip companies. What the trader’s (a) income tax liability and (b) after tax income? [Ignore Medicare levy]. Please refer to Individual income tax rate 2012-13Taxable incomeTax on this income0 – $18,200Nil$18,201 – $37,00019c for each $1 over $18,200$37,001 – $80,000$3,572 plus 32.5c for each $1 over $37,000$80,001 – $180,000$17,547 plus 37c for each $1 over $80,000$180,001 and over$54,547 plus 45c for each $1 over $180,000Question 3(4 marks) Briefly describe the principal characteristics of primary and secondary capital markets. Give example of recent initial public offering of shares/bonds in Australian market.Question 4(4 marks) (a) You plan to save $30,000 after two years to purchase a band new car you’ve always wanted. The bank is currently offering 6% interest rate on deposit per annum compounded quarterly. How much would you have to invest today? (b) Assume you borrowed a sum of $30,000 repayable by six equal quarterly instalments (loan repayments) at an interest rate of 8% per annum (2% per quarter). What is the necessary loan payment at the end of each quarter?Question 5(4 marks) (a) If the current market yield for 90 day bank accepted bills 4.2%, the market price of a $2,000,000 would be? (b) Basis of credit analysis for some time has been the so called ‘five Cs of credit’. In your own words elaborate the five Cs of credit. If you were assessing a loan application, what would be the most important C and why?Question 6 (4 marks) Briefly explain the significance of systematic risk and how it is measured.Question 7(4 marks) Briefly explain the inverse relation between price and yield in the bond market.Question 8(4 marks) Bathurst Copper Mine is experiencing a period of rapid growth due to demands from China. Earnings and dividends are expected to grow at a rate of 24% over the next two years, 16% in third year and then at a constant rate of 6% thereafter. Bathurst Copper Mine’s last dividend which has been paid was $1.15 If the required rate of return on the stock is 14%, what is the price of the stock today?Question 9(4 marks) (a) If a company is considering investing $200,000 in new equipment, for which the expected cash flows are as follows:CASH FLOW Initial outlay -$150,000 Year 1 $50,000 Year 2 $40,000 Year 3 $30,000 Year 4 $20,000 Year 5 $20,000 If the company has an 18% required rate of return, should this project be accepted? (b)A company must invest in either of the following two projects.Project A Project B Initial Outlay $100,000 $150,000 Useful Life 5 years 5 years Net Present Value 130,000 $140,000 If the required rate of return is 12% which project should the company accept?Question 10(4 marks) ABC Ltd is considering two mutually exclusive projects. The cash flows associated with the projects are as follows:Year Project A Project B 0 -$150000 -$150,000 1 $45,000 $0 2 $45,000 $0 3 $45,000 $0 4 $45,000 $80,000 5 $45,000 $200,000 The required rate of return on these projects is 12%. (a)What is each project’s payback period? (b)What is each project’s net present value? (c)What is each project’s internal rate of return? (d)What has caused ranking conflict? (e)Which project should be accepted? Why?Marking criteriaWhere necessary, state any assumptions you have made. Assignments should show all workings and students will be penalized for failing to do this.You will be assessed on:your understanding of the problem,your choice of method for solving the problem,your application of techniques,the accuracy of your answers,written communication skills,critical thinking and analysis.Question 11 (5 marks) Briefly define sensitivity analysis and steps involving use of it. In your own words why do you think it is important to use sensitivity analysis in assessing a project?Question1 2 (5 marks) Calculate the firm’s Weighted Average Cost of Capital:Source of Finance Market Value Cost Bank Overdraft $400,000 6% Preference Shares $200,000 16% Ordinary Shares $1,200,000 12% Debentures $500,000 8% Trade Creditors (average) $100,000 5%Question 13(5 marks) (a)What are the main features of debt funds and equity funds? (b)In your own words briefly state the advantages and disadvantages of both debt and equity instruments.Question 14(5 marks) A company is considering raising $12 million through a rights issue. It has 10 million ordinary shares outstanding, currently selling for $8.40 each. The subscription price on the new shares will be $6 per share. i. How many shares must be sold to raise the desired funds? ii. How many shares must a shareholder own in order to have one right? iii. What is the theoretical value of the shares ex-rights? iv. What is the value of the right? RationaleThis assignment is designed to assess student learning of the material covered in Weeks 7-11.Marking criteriaWhere necessary, state the assumptions you have made. All workings must be shown and students will be penalised for failing to do this.You will be assessed on:your understanding of the problem,your choice of method for solving the problem,your application of techniques,the accuracy of your answers,written communication skills,critical thinking and analysis.

Financial Management

Week 10 DiscussionTop of Form”Financial Management” Please respond to the following:From the case study and e-Activity, determine whether or not you agree with Meg Whitman’s approach for Hewlett-Packard to spend more funds on research and development, rather than on continued acquisitions. Provide a rationale for your response.

Financial Management

Question 1 ; Hildy is a company that commenced operations many years ago. relevant details relating to the company’s capital structure are extracted from its balance sheet as follows :Components – Debentures ($100 par, 12% coupon-annual) Book Value $4,000,000Components – Preference Shares ($3 par, 7% cumulative) Book Value $1,500,000Components – Ordinary Shares ($1 par) Book Value $7,500,000market yield on the debentures is 15%. Current price of debenture is $94. preference shares are trading on the market at $3.00, and a dividend of 21c per share has just been paid. forecasts in relation to market returns are as follows : expected risk-free rate of return =5%; expected return on the market porfolio = 15.0%; and the systematic risk of Hildy ordinary shares is 0.6. These shares are traded on the market at $1.2 each. Tax rate is 30%Calculate the following : Cost of debtCost of preference sharesCost of ordinary sharesThe company’s weighted cost of capital (WACC)End of question

Financial Management

Click . aiuniv. edu/LCMSFileShareCommon/3a6/803/25a/763/4e8/d8a/243/264/bbc/69e/c0/FINA310_U2_f1. pdf”>here to download the selected financial statements for Micro Chip Computer Corporation. Answer questions 1 and 2 below based on the financial data. Determine the year-to-year percentage annual growth in total net sales. Based only on your answers to question #1, do you think the company achieved its sales goal of +10% annual revenue growth in 2009? Determine the target revenue figure, and explain why you do or do not feel that the company hit its target. Next, consider Micro Chip’s Consolidated Statement of Operations for the year ended September 25, 2008. Download the file . aiuniv. edu/LCMSFileShareCommon/104/434/6c6/c09/476/d93/81a/a2c/33c/88e/a6/FINA310_U2_f2. pdf”>here and answer questions 1 and 2. Use the Percentage Sales Method and a 25% increase in sales to forecast Micro Chip’s Consolidated Statement of Operations for the period of September 26, 2008 through September 25, 2009. Assume a 15% tax rate and restructuring costs of 5% of the new sales figure. Discuss your results from question number #1. What assumptions have you made? Do any of your assumptions seem unreasonable?To receive full credit on this assignment, please show all work, including formulae and calculations used to arrive at the financial values. Students using Microsoft Excel must provide an adequate explanation of the methodology used to arrive at that answer. Assignment Guidelines:Download the financial statements and consolidated statement of operations by clicking on the links above in the assignment description. Analyze the statements and then answer the four questions listed in the assignment description. Show all work including calculations and formulas. If applicable, provide a detailed explanation of how you used Microsoft Excel to arrive at your answers. Organize your answers, mathematical calculations, and Microsoft Excel data into a Word document of 1 2 pages. Your submitted assignment (125 points) must include the following:A double-spaced Word document of 1 2 pages that contains your answers to the four questions listed in the assignment description, any calculations you performed, and all formulae that were used. Also, provide your Microsoft Excel data table(s) along with an explanation of how you arrived at your answers if applicable.

Financial management

Financial management

Financial management is a critical component of the broader subject of risk management. Inadequate financial management makes an organization vulnerable to a number of risk exposures.

Organizations in the finance sector have a greater impact on the aggregate economy than organizations in other sectors. The consensus among scholars and academics alike is that the private banking industry was insufficiently regulated prior to the most recent financial crisis. This lead to inappropriately relaxed risk management environments within banks, which lead to the near collapse of the global economy.

For this assignment, you will write a minimum three-page paper (not including APA title or references pages)In this paper, please address the following questions:

  • What are the specific ways banks impact the economy?
  • How was the regulatory environment revised?
  • Is the regulation effective?
  • What risk management standards had to be employed as a result of legislation?
  • What are the consequences of failure to meet the standards outlined by regulators?
  • Would a firm be prudent to properly manage their level of leverage and liquidity if it were not regulated? Why or why not? What tools can organizations employ to manage these risks?

Financial Management

“An Overview of Financial Management”  Please respond to the following:

  •  * From the e-Activity, examine ethical behavior within firms in relation to financial management. Provide two (2) examples of companies that have been guilty of ethics-based malfeasance related to financial management and determine why their comeuppance was deserved.
  • * From the scenario, recommend two (2) actions that Trevose Fitness Center (TFC) could take in order to raise capital that will, in turn, enable it to reach its expansion goals. Defend your response. Support your recommendation with two (2) real-world examples of successful implementations of these actions.