lOMoAR cPSD| 47882337 REVISION
1. TYPE 1: Calculate Cash Flow from Asset
Ex1.1: Bonner Collision has shareholders' equity of $141,800. The firm owes a total of
$126,000 of which 60 percent is payable within the next year. The firm net fixed assets of
$161,900. What is the amount of the net working capital?
Ex1.2: Crandall Oil has total sales of $1,349,800 and costs of $903,500. Depreciation is
$42,700 and the tax rate is 34 percent. The firm does not have any interest expense. What is the operating cash flow?
Ex1.3: What is the cash flow from assets for 2011 of M&M Foods
2. TYPE 2: Time value of money (Finding FV, PV of Annuity and Perpetuity)
Ex 2.1: You just won the grand prize in a national writing contest! As your prize, you will
receive $2,000 a month for ten years. If you can earn 7 percent on your money, what is this prize worth to you today? lOMoAR cPSD| 47882337
Ex 2.2: Alexa plans on saving $3,000 a year and expects to earn an annual rate of 10.25 percent.
How much will she have in her account at the end of 45 years?
Ex2.3: You are planning to save for retirement over the next 35 years. To do this, you will
invest $750 per month in a stock account and $300 per month in a bond account. The return of
the stock account is expected to be 10% per year, and the bond account will pay 6% per year.
When you retire, you will combine your money into an account with a return of 5%. How much
can you withdraw each month from your account assuming a 25-year withdrawal period.
Ex2.3: You borrow $165,000 to buy a house. The mortgage rate is 4.5 percent and the loan
period is 20 years. Payments are made monthly. If you pay the mortgage according to the loan
agreement, how much total interest will you pay?
3. TYPE 3: Bond Valuation
Ex3.1: Grand Adventure Properties offers a 9.5 percent coupon bond with annual payments.
The yield to maturity is 11.2 percent and the maturity date is 11 years from today. What is the
market price of this bond if the face value is $1,000?
4. TYPE 4: Stock Valuation
Ex4.1: How much are you willing to pay for one share of Jumbo Trout stock if the company
just paid a $0.70 annual dividend, the dividends increase by 2.5 percent annually, and you
require a 10 percent rate of return?
Ex4.2: Free Motion Enterprises paid a $2 per share annual dividend last week. Dividends are
expected to increase by 20 percent in year 1 and 15% in year two. After that dividends are
expected to increase by 3 percent annually. What is one share of this stock worth to you today
if your required rate of return is 13 percent? (3 points) lOMoAR cPSD| 47882337
Ex4.3: The current dividend yield on Clayton's Metals common stock is 3.2 percent. The
company just paid a $1.48 annual dividend and announced plans to pay $1.54 next year. The
dividend growth rate is expected to remain constant at the current level. What is the required rate of return on this stock?
5. TYPE 5: Capital Budgeting Techniques
Ex 5.1: You are considering the following two mutually exclusive projects. The required rate
of return is 14.6 percent for project A and 13.8 percent for project B. The management numbers
of payback and discounted payback periods for both projects are 3 years. Which project should
you accept based on NPV/ Payback/ Discounted Payback Analysis.
Ex 5.2: Day Interiors is considering a project with the following cash flows. What is the IRR of this project?
6. TYPE 6: Compute expected return, SD of portfolio
Ex 6.1: What is the expected return and SD on a portfolio which is invested 25 percent in stock
A, 55 percent in stock B, and the remainder in stock C? lOMoAR cPSD| 47882337
Ex 6.2: You own a portfolio with the following expected returns given the various states of the
economy. What is the overall portfolio expected return and SD? 7. TYPE 7: WACC
Ex 7.1: Mangrove Fruit Farms has a $250,000 bond issue outstanding that is selling at 92
percent of face value. The firm also has 1,500 shares of preferred stock and 15,000 shares of
common stock outstanding. The preferred stock has a market price of $35 a share compared to
a price of $24 a share for the common stock. What is the weight of the preferred stock as it
relates to the firm's weighted average cost of capital?
Ex 7.2: Boulder Furniture has bonds outstanding that mature in 15 years, have a 6 percent
coupon, and pay interest annually. These bonds have a face value of $1,000 and a current
market price of $1,075. What is the company's after tax cost of debt if its tax rate is 32 percent?