Click the button to modify questions and answers. No guarantee of 100% accuracy.Created by Muskie McKay

Random Number 0.727622628

Integer Below Ten 7Integer Below Hundred 53Integer Below Thousand 478Integer Below Ten Thousa 4032

Small Decimal 0.09Medium Decimal 0.31Large Decimal 0.69

Second Small Decimal 0.06Second Medium Decimal 0.23Second Large Decimal 0.67

Between 1-7 1Between 8-12 10Between 13-24 13Between 75-95 77Between 1-96 56

Less Than 250 157Less Than 500 316A Couple Hundred 951Less than 15000 7394

Financial Reporting AnalysisBased on Question 1 in Muskie's problem set

(in millions of US dollars)Cash collections on receivables 1473Cash dividends on common stock paid 90Cash dividends on preferred stock paid 126Cash purchases of inventories 812Cash receipts of dividends 24Depreciation expense 76Interest payments 67Payments of expenses 179Proceeds from issurance of common stock 690Proceeds from bridge financing 737Proceeds from sale of equipment 136Repurchasing of issued shares 471Purchase of land 235Purchase of trading securities 31

Use the following information to calculate the cashflow from operating activities and cashflow from financing activities.

Cash collections on receivables $ 1,473.00 Cash purchase of inventories $ (812.00)Cash receipts of dividends $ 24.00 Interest payments $ (67.00)Payments of expense $ (179.00)Purchase of trading securities $ (31.00)Operating cash flows $ 408.00

Cash dividends on common stock paid $ (90.00)Cash dividends on preferred stock paid $ (126.00)

$ 690.00 Proceeds from bridge financing $ 737.00 Repurchasing of issued shares $ (471.00)Financing Cash flows $ 740.00

Proceeds from the issuance of common stock

Financial Reporting AnalysisBased on question 2 in Muskie's Problem Set

1-Jan Number of shares outstanding 530,0001-Mar Number of shares issued 2300030-Jun 3.5% cash dividend declared

1-Jul Number of shares reacquired 310001-Oct Two-for-one stock split

Calculated the weighted average shares for the year.

1-Jan Beginning balance X 12/12 5300001-Mar New Shares issued 10/12 1916730-Jun 3.5% Cash dividend

1-Jul Reacquired shares: X 6/12 X -1 -155001-Oct 2-for-1 split 533667

Weighted average shares outstanding 1067333

Corporate FinanceBased on question 5 from Muskie's Problem Set

Next Year's Dividen $3.66 Retention rate of 0.81ROE 7.89Stock Price $73

Using the following information what is the cost of equity capital for Sears Mining?

g = 6.3909

Cost of Equity r = 11.40

First calculate g which is equal to the dividend retention rate times the ROE.

Next take the dividend in year one over the current stock price and add the growth rate g

Corporate FinanceBased on question 6 in Muskie's Problem Set

Before-tax cost of new debt 10.67 %Corporate Tax Rate 0.41 per dollarTarget debt-to-equity ratio 0.8Current Stock Price $63 Next year's dividend $1.67 Estimated growth rate 9.69 %Estimated Beta 1.23

John Smith, CFA has been assigned the task by his employer Smothers Brothers Brokerage to determine the weighted cost of capital of Zulu Corp. He has been provided the following information:

Cost of Equity = 12.34

Wd = .8 / 1.8 0.44We = 1 -Wd 0.56

WACC = 9.653908

First determine the cost of equity using the dividend discount model. Beta is of no use in this question.

Next use the targe debt-to-equity ratio to work out the weighting for debt and equity.

Finally use the WACC formula and the corporate tax rate and the before tax cost of debt.

Corporate FinaceBased on Question 9 in Muskie's Problem Set

Days 153Price $9,761.00Face Value $10,000.00

Calculate the bond equivalent yield for a U.S. Treasury bill with the following characteristics:

239Then determine the yearly return: 2.45%

5.84%

This is one of many yeild formulas you have to remember. Some use a 360 day year while some use a 365 day year. This one has a 365 day year!

First calculate the dollar return by subtracting the price from the face value:

Finally work out the return for only the days you hold the bond

Equity InvestmentBased on question 21 in Muskie's Problem Set

Yakamichi Corp paid $1.69 annual dividend last yearand distributed 61 percent of its earnings toshareholders. The firm's ROE is 23.09 percent.If investors require 17 percent rate of returnon this stock, the estimated value of Yakamichi's stock is:

Dividend Growth Rate:g= ROE * (1 - dividend payout ratio)

g= 9.01%

Stock's Intrinsic Value:P= d0(1+g)/(k-g)

P= $23.04

First you need to calculate the dividend growth rate before solving for the stock's intrinsic value:

Fixed IncomeBased on question 25 of Muskie's Problem Set

What is the value of a 5 year5 percent coupon bond selling at a yield of3 percent assuming the coupon payments are

made semiannually?

N 10PMT 2.5

I 1.50%FV 100

CPT PV ($109.22)

This is a simple TVM question you have the option of adjusting your calculator to two payments per period or doubling N and halfing the yield and coupon. Some study guide thinks you should do the latter and having failed once that is what I'm now doing, the danger is you'll leave your calculator set on two payments per period in you haste to do the next TVM question.

Financial Reporting AnalysisBased on question 31 from Muskie's question set

Cash flow from operations $951 Purchase of Plant $478 Sale of Land $316 Interest Expense $77 Depreciation and Amortization $69

An analyst gathered the following information about a company:

The company has a tax rate of 35% and prepares its financial statement under U.S. GAAP

The company's free cash flow to the firm is?

Free Cash Flow $789

This was one of many questions I got wrong, this one though I could not remember the correct formula which is:Free Cash Flow = Net Cash Flow from Operating Activities - Dividends - (Purchases of Plant Assets - Sales of Plant Assets)I assumed Cash flow from operations is "Net Cash Flow from Operating Activities"

Financial Reporting and AnalysisBased on question 32 in Muskie's Problem set

A company issues $1,000,000 of 7year annual, 9.50% coupon bonds. Upon issurancetheir YTM was 6.00% Based on this information, theinitial balance sheet interest expense and the first year's income statement armortization are?

First you need to calculate the PV.FV -$1,000,000.00

PMT -$95,000.00N 7I 6.0%

PV $1,195,383.35

$71,723.00

$23,277.00

1st Calculate PMT $95,000.002nd Calculate PV $1,195,383.353rd Calculate PV * YTM ie Interest Expense $71,723.004th Calculate PMT - Interestest Expense ie Amortization $23,277.00

Then you calculate the Interest Expense, which is the PV * YTM:Then the Ammortization which is the difference between PMT and Interest Expense

Financial Statement AnalysisBased on question 35 Muskie's Problem set

At the end of its last fiscal year, Vintner's Supply Corp.reported retained earnings of $770,000 This year, Vintner's reported year-end retained earnings of

$1,570,000 paid dividends of $100,000 paid interest expense of$10,000 and had net income of $130,000

Vintner's other comprehensive income for this year is?

$800,000 Next add back net income $930,000

$830,000

$30,000

First you must subtract the beginning retained earnings from the end retained earning.

You must subtract dividends paid as that is done after net income is calculate.

Now you subtract change in retained earnings to determine the amount of other comprehensive income for the year.

Financial Statement AnalysisBased on question 44 Muskie's Problem Set

On January 1st, 2006 Immobile Company entered into a 10 year capital lease agreement for machinery in exchange

for equal, annual year-end payments of $31,000 and a guaranteed residual value of $10,000 at the end ofthe lease. The capital lease has a present value of $337,820 based on an implicit interest rate of 9% . Assuming thecompany uses the straight-line method of depreciation, the total amount of lease related expenses in 2007 is?

Depreciation expense 32782.00 1Interest expense 2007:

Lease payment 2006 31000.00Interest expense, 2006 30403.80Reduction of lease obligation 2006 596.20Lease obligation 1/1/2006 balance 337820.00Lease obligation 1/1/2007 balance 337223.80times Interest Rate 30350.14 2

Total lease-related expense 2007 ### 1 + 2

QuantitativeBased on question 49 from Muskie's Problem set

Expected Return of A 9%Expected Return of B 10%

Fund A BA 100 64B 64 169

The standard deviation of the portfolio is?

An investor has a portfolio of two mutual funds, A and B, 25% invested in A. The following table shows the expected return and the covariance matrix for the two mutal funds:

Variance 125.3125Standard Deviation 11.19

We first solve for the portfolio variance using the two asset formula.

The key thing to remember is from the covariance matrix is it is the return multiplied by the standard deviation of the asset squared.

The Covariance is the number that appears twice in the covariance matrix.

Equity InvestmentsBased on question 55 Muskie's problem set

A stock is not expected to pay dividends of $1.69 per shareuntil two years from now. At this time, the dividend distribution is going to be 61% of net income, earnings growth is projected to be 9% , and the return on equity is expected to be

13% If the required rate of return is 11.0%for the first two years and 15% thereafter,what is the approximate value of the stock today?

Dividend Growth Rate

g = ROE * (1 - dividend payout ratio) 0.0507

Dividend Discount ModelP2 = d2 / (k - g) 17.02

Time Value of MoneyFV 17.02N 2I 0.11

PV $13.81

AccountingBased on Question 14 from Muskie's Problem Set

Suppose a company uses trade credit with a 6%discount on the 10 th day and the full amount due 53days after the close of the sale. The effective borrowingcost of skipping the discount on day 10 is?

Discount 6%Difference 94%Days to close 53Discount Period 10Interest Paid Days 43Exponential 8.488372093

Cost 69.08%

1st Determine the difference between discount and full price 94%2nd Determine the how many days of credit usuage 433rd Determine the simple interest rate 6.38%4th One plus simple interest rate raised to 365/days of credit u 1.6908332425th Subtract one 69.08%

Equity ValuationBased on question 22 in Muskie's Problem Set

The market equalibrium rate on the stock of Williams Brothers is10.00% . Its expected return on equity is 13.50%

and its expected earnings per share is $1.23 .If the firm's plowback ratio is 16.00% , its price to earningsratio will be?

Dividend Payout Ratio 0.84Market Equalibrium Rate 10.00%ROE 13.50%Plowback ratio 16.00%

P/E 10.71429

Accounting Inventory AdjustmentBased on Question 74 from Muskie's Question Set

20X8 20X9Raw Materials $130,000 $140,000 Finished Product 478,000 530,000

$608,000 $670,000

$ (35,000) $ (42,000) $ 573,000 $ 628,000

Tax rate is 35%

Theta Corp. uses LIFO inventory accounting. The footnotes to the 20X9 financial statements contain the following information:

Less adjustments to LIFO basis

If FIFO had been used for both years, the 20X9 net income would have changed by?

Change in LIFO Reserve x (1- Tax Rate)Change in LIFO Reserve $ 7,000.00

Net Income Change $4,550.00

Net Income Change=

Portfolio TheoryBased on Question 76 from Muskie's Question Set

Dr. Filly plans to invest $157 with a portion in a risky asset anda portion in a risk-free asset.The risky asset has an expected return of 23%and a standard deviation of 31% while the risk-fre asset has anexpected return of 6%

0.09

What percentages of Dr. Filly's money must be invested in the risk-free asset and the risky asset, respectively, to form a portfolio with a standard deviation of

Risky Risk-Free

31% 0%

w1 1-w1

STD^2 w1^2(std1)^2 w2^2(std2)^2 2w1w2Cov(r1,r2)0.0081 w1^2(std1)^2 0 0

w1^2= 0.0081 divided by (std1)^2std1^2= 0.0961

w1^2= 0.08428720083

w1= 0.2903225806 Riskyw2= 0.7096774194 Risk Free

Standared DeviationWeight in Portfolio

It is easy to see how the second term is zero'ed out, but the final term is also unnecessary because we are using the risk-free asset as one of our portfolio members.

I seem to solve these ones by assuming all the deviation comes from the risky asset and then figuring out what portion of the portfolio I should put into it to get the desired portfolio STD.

Forward Rate Agreement so DerivativesBased on question 78 in Muskie's problem set

Suppose two parties agree to a $53,000,000 1X4 FRA contract

on the LIBOR at a rate of 3.00% In one month's time the

following LIBOR rates are observed:

LIBOR

1 month 3.00% 30

2 months 3.09% 60

3 months 3.18% 90

4 months 3.27% 120

5 months 3.36% 150

6 months 3.45% 180

What is the paymet amount due to the FRA buyer?

# of days in Period

DerivativesBased on Question 78 from Muskie's Problem Set

3.18%

0.18%

$53,000,000

The payment due to the FRA buyer before discounting is:Principal * Rate Difference * Number of Days/360 $23,850

$23,664.07

The payment on a 1x4 FRA is based on the three-month LIBOR rate one month from now.The difference between the agreed and realized rate is Future Rate - Contract RateSince the deposite is for 90 days and the notational principal is:

To arrive at the correct payment, this amount must be discounted back from the three-month LIBOR deposit maturity date to expiration on the FRA, using the three-month LIBOR and discounting 90 days.

QuantitativeBased on Question 79 Muskie's Problem Set

2003 $1.00 2004 $1.50 2005 $2.00 2006 $2.50 2007 $3.00

Over the last five years, the earnings per share data for a firm were as follows:

Over this period, the EPS compound annual rate was?

QuantitativeBased on Question 79 from Muskie's Problem Set

Using your financial calculator:

N 4PV -1FV 3

PMT 0

Compute I/Y 31.61%

In order to calculate the compound growth rate, we only need the beginning and the ending EPS values.

Financial Statement AnalysisBased on question 52 from Muskie's Problem Set

Common Stock $0.69 par 1000000 oustanding $690,000

10% $100 par 5000 outstanding $500,000 12% convertible bonds ### 500 $500,000

Each ### bond is convertible into 77shares of common stock. In addition, the company had 700,000options outstanding the entire year. Each option allows the holder to acquire one share of common stock at a price of $3 The average market price of the common stock for the year was $13

Net Income for the year was $1,400,000 and the income tax rate is45% The company paid dividends to common stock of $140,000 for the year.

Noncumulative Preferred Stock

Calculate the basic earnings per share and diluted earnings per share for the year.

Financial Statement AnalysisBased on Question 52 in Muskie's Problem Set

Basic EPS

Basic EPS =

Basic EPS = $1.35Diluted EPS

Options are Dilutive 538462

0.86EPS with options: Net Income - Preferred Shares Dividends 1350000

Option Adjusted Shares Issued 1538462Diluted EPS = $0.88

If-Converted MethodConvertible Bond OnlyBasic EPS If-Converted

Net Income $1,400,000.00 $1,400,000.00Preferred Dividends 50000 50000

33000Numerator $1,350,000.00 $1,383,000.00

1000000 1000000If Converted 0 38500Denominator 1000000 1038500EPS $1.35 $1.33

Bonds are antidilutive

Options OnlyBasic EPS If-Converted

Net Income $1,400,000.00 $1,400,000.00Preferred Dividends 50000 50000Numerator $1,350,000.00 $1,350,000.00

1000000 1000000If Converted 0 538462Denominator 1000000 1538462EPS $1.35 $0.88

(Net Income - (preferred stock dividend rate X par rate X preferred shares issued))/common shares outstanding

Number of Options Issued X (Average Share Price - Exercise Price)/Average Share Price

Per share bond effect:

Borrowed Sum X Interest Rate X (1 - Tax Rate)/(Bonds Issued X Share Conversion Rate)

After-Tax Cost of Interest

Weighted Average Shares Outstanding

Weighted Average Shares Outstanding

QuantitativeBased on Example in Schweiser

Calculate a 95% confidence interval for the mean of a sample of size 23 drawn from a normal distribution with mea 10and standard deviatio 3 .

QuantitativeBased on example in Schweiser

First calculate the standard deviations of the mean for sample size 23

Standard Deviation over square root of sample size 0.626

A 95.00% confidence interval will extend 1.96 standard deviatabove and below the mean, so our confidence interval is:mean + or - 1.96 times the first number we calculated

Confidence Interval Lower Bound 8.774Confidence Interval Upper Bound 11.23