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DEVRY BUSN379 FULL COURSE [ ALL DISCUSSIONS ALL HOMEWORK ALL CASES AND FINAL EXAM ]

Question week 1

Financial Management (graded)What are some of the most important financial management decisions? Can you provide some real-life examples?

Business Ethics (graded)Do you believe that the firm’s social responsibilities conflict with the ultimate goal of shareholder’s wealth maximization? Consider issues such as the protection of the environment and the creation of jobs.week 2

Time Value of Money (graded)Why does money have a time value? Can you provide at least one real-life scenario in which you can apply the concept of time value of money?

Loans and Interest Rates (graded)What is the difference between the annual percentage rate (APR) and the effective annual rate (EAR)? Which rate do you believe is more relevant for financial decisions and why?WEEK 3

Bond Valuation and Risk (graded)What are some of the most important risks associated with bonds?

Stock Valuation (graded)Are there any instances in which companies should not pay dividends?How do dividends impact the value of a share of stock?WEEK 4

Net Present Value and Related Tools (graded)Discuss the pros and cons of net present value.

Internal Rate of Return (graded)Are there situations where a manger would prefer to use IRR? Why?

EK 5

Basics of Risk (graded)What is the difference between systematic and nonsystematic risk? What are some examples of each?

Measuring Risk (graded)What are some statistical measures of risk and what type of risk do they measure?WEEK 6

Cost of Capital (graded)How can you explain the concept of cost of capital? Do you believe that a firm should use the same cost of capital for all of its projects? Why or why not?

Leverage (graded)What is the impact of financial leverage on wealth creation? What is the relationship between financial leverage and risk?WEEK 7

Short-Term Planning (graded)How are the operating and cash cycles of the firm different? Why are they important?

Cash Management (graded)What strategies can a firm use to optimize its cash cycle?HOMEWORKSWEEK 1Homework (graded)

Please complete the following exercises from Chapter 2 of your textbook and post them in the Dropbox. Chapter 2: 8, 14, and 19Problem 8Calculating OCF. Hammett, Inc., has sales of $34,630, costs of $10,340, depreciation expense of $2,520, and interest expense of $1,750. If the tax rate is 35 percent, what is the operating cash flow, or OCF?14. Calculating Cash Flows. Weiland Co. shows the following information on its 2014 income statement: sales = $167,000; costs = $88,600; other expenses = $4,900; depreciation expense = $11,600; interest expense = $8,700; taxes = $18,620; dividends = $9,700. In addition, you’re told that the firm issued $2,900 in new equity during 2014, and redeemed $4,000 in outstanding long-term debt.a. Calculating Cash Flows. What is the 2014 operating cash flow?b. What is the 2014 cash flow to creditors?c. What is the 2014 cash flow to stockholders?d. If net fixed assets increased by $23,140 during the year, what was the addition to NWC?Problem 19Net Income and OCF. During the year, Belyk Paving Co. had sales of $2,600,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,535,000, $465,000, and $520,000, respectively. In addition, the company had an interest expense of $245,000 and a tax rate of 35 percent. (Ignore any tax loss carryback or carryforward provisions.)

a.What is Belyk’s net income?a.What is its operating cash flow?a.Explain your results in (a) and (b).WEEK 2Homework (graded)

Please complete the following exercises from Chapters 4 and 5 of your textbook and post them in the Dropbox. Chapter 4: 8, 17, and 18Chapter 5: 1, 4, and 12@) Calculating the Number of Periods. Calculating Rates of Return. In 2011, an 1880-O Morgan silver dollar sold for $13,113. What was the rate of return on this investment?Problem 17Calculating Present Values. Suppose you are still committed to owning a $150,000 Ferrari (see Question 9). If you believe your mutual fund can achieve a 10.25 percent annual rate of return, and you want to buy the car in 10 years on the day you turn 30, how much must you invest today?18)Calculating Future Values. You have just made your first $5,000 contribution to your individual retirement account. Assuming you earn a 10.1 percent rate of return and make no additional contributions, what will your account be worth when you retire in 45 years? What if you wait 10 years before contributing? (Does this suggest an investment strategy?)Chapter 5: 1, 4, and 12Present Value and Multiple Cash Flows. Rooster Co. has identified an investment project with the following cash flows. If the discount rate is 10 percent, what is the present value of these cash flows? What is the present value at 18 percent? At 24 percent?Year Cash Flow1 $ 8302 6103 1,1404 1,3902)Calculating Annuity Present Values. An investment offers $6,700 per year for 15 years, with the first payment occurring 1 year from now. If the required return is 8 percent, what is the value of the investment? What would the value be if the payments occurred for 40 years? For 75 years? Forever?3)Calculating EAR. Find the EAR in each of the following cases:figureStated Rate (APR) Number of Times Compounded Effective Rate (EAR)10% Quarterly17 Monthly13 Daily9 SemiannuallyWEEK 3Homework (graded)

Chapter 6: 16Chapter 7: 11 and 12Homework (graded)Chapter 6: 16Interest Rate Risk. Both Bond Bill and Bond Ted have 7 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 3 years to maturity, whereas Bond Ted has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Bill? Of Bond Ted? If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Bill be then? Of Bond Ted? Illustrate your answers by graphing bond prices versus YTM. What does this problem tell you about the interest rate risk of longer-term bonds?Chapter 7: 11 and 12Problem 11Valuing Preferred Stock. E-Eyes.com has a new issue of preferred stock it calls

20/20 preferred. The stock will pay a $20 dividend per year, but the first dividend will not be paid until 20 years from today. If you require a return of 8 percent on this stock, how much should you pay today?Problem 12Stock Valuation. Alexander Corp. will pay a dividend of $2.72 next year. The company has stated that it will maintain a constant growth rate of 4.5 percent a year forever. If you want a return of 12 percent, how much will you pay for the stock? What if you want a return of 8 percent? What does this tell you about the relationship between the required return and the stock price?WEEK 4Please complete the following exercises from Chapter 8 of your textbook and post them in the Dropbox.Chapter 8: 3, 4, 5, and 63. Calculating Payback. Global Toys Inc., imposes a payback cutoff of three years for its international investment projects. If the company has the following two projects available, should it accept either of them?Year Cash Flow (A) Cash Flow (B)0 ?$55,000 ?$ 95,0001 19,000 18,0002 27,000 26,0003 24,000 28,0004 9,000 260,000LO 2 4. Calculating AAR. You’re trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $14 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,253,000, $1,935,000, $1,738,000, and $1,310,000 over these four years, what is the project’s average accounting return (AAR)?LO 3 5. Calculating IRR. A firm evaluates all of its projects by applying the IRR rule. If the required return is 11 percent, should the firm accept the following project?Year Cash Flow0 ?$153,0001 78,0002 67,0003 49,000LO 4 6. Calculating NPV. For the cash flows in the previous problem, suppose the firm uses the NPV decision rule. At a required return of 9 percent, should the firm accept this project? What if the required return was 21 percent?WEEK 5Chapter 11: 4, 7, 17, and 29Problem 4Portfolio Expected Return. You have $10,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 14 percent and Stock Y with an expected return of 11 percent. If your goal is to create a portfolio with an expected return of 12.4 percent, how much money will you invest in Stock X? In Stock Y?Problem 77. Calculating Returns and Standard Deviations. Based on the following information, calculate the expected return and standard deviation for the two stocks.

Problem 17Using CAPM. A stock has a beta of 1.15 and an expected return of 10.4 percent. A risk-free asset currently earns 3.8 percent.a. What is the expected return on a portfolio that is equally invested in the two assets?b. If a portfolio of the two assets has a beta of .7, what are the portfolio weights?c. If a portfolio of the two assets has an expected return of 9 percent, what is its beta?d. If a portfolio of the two assets has a beta of 2.3, what are the portfolio

weights? How do you interpret the weights for the two assets in this case? Explain.Problem 2929. SMLSuppose you observe the following situation:

a. Calculate the expected return on each stock.b. Assuming the capital asset pricing model holds and stock A’s beta is greater than stock B’s beta by .25, what is the expected market risk premium?WEEK 6Chapter 12 problemProblem 3Bond Prices. Lycan, Inc., has 6 percent coupon bonds on the market that have 9 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 8 percent, what is the current bond price?Problem 5Coupon Rates. Merton Enterprises has bonds on the market making annual payments, with 12 years to maturity, and selling for $963. At this price, the bonds yield 7.5 percent. What must the coupon rate be on Merton’s bonds?Problem 6Bond Prices. App Store Co. issued 20-year bonds one year ago at a coupon rate of 6.1 percent. The bonds make semiannual payments. If the YTM on these bonds is 5.3 percent, what is the current bond price?Problem 15Bond Price Movements. Bond X is a premium bond making annual payments. The bond has a coupon rate of 9 percent, a YTM of 7 percent, and has 13 years to maturity. Bond Y is a discount bond making annual payments. This bond has a coupon rate of 7 percent, a YTM of 9 percent, and also has 13 years to maturity. What are the prices of these bonds today? If interest rates remain unchanged, what do you expect the prices of these bonds to be in one year? In three years? In eight years? In 12 years? In 13 years? What’s going on here? Illustrate your answers by graphing bond prices versus time to maturity.WEEK 7Please complete the following exercises from Chapter 17 of your textbook and post them in the Dropbox.Chapter 17: 6, 7, and 146. Calculating Net Float. Each business day, on average, a company writes checks totaling $19,500 to pay its suppliers. The usual clearing time for the checks is four days. Meanwhile, the company is receiving payments from its customers each day, in the form of checks, totaling $37,200. The cash from the payments is available to the firm after two days.a. Calculate the company’s disbursement float, collection float, and net float.b. How would your answer to part (a) change if the collected funds were available in one day instead of two?LO 2 7. Size of Accounts Receivable. Essence of Skunk Fragrances, Ltd., sells 6,500 units of its perfume collection each year at a price per unit of $270. All sales are on credit with terms of 1/10, net 30. The discount is taken by 40 percent of the customers. What is the amount of the company’s accounts receivable? In reaction to sales by its main competitor, Sewage Spray, Essence of Skunk is considering a change in its credit policy to terms of 3/10, net 30 to preserve its market share. How will this change in policy affect accounts receivable?LO 3 14. EOQ. The Trektronics store begins each month with 740 phasers in stock. This stock is depleted each month and reordered. If the carrying cost per phaser is $26 per year and the fixed order cost is $340, what is the total carrying cost? What is the restocking cost? Should the company increase or decrease its order size? Describe an optimal inventory policy for the company in terms of order size and order frequency.Intermediate (Question 15)CASESCASE 4CaseCase II is due at the end of this week. For this assignment, prepare a memo in

Word, which answers the questions in the Chapter 5 case, S & S Air's Mortgage, on page 165 of the textbook. Use Excel to do any financial calculations. You will be graded on correct financial analysis, proper use of technology, and business-like presentation.Park Sexton and Todd Story, the owners of S&S Air, Inc., were impressed by the work Chris had done on financial planning. Using Chris’s analysis, and looking at the demand for light aircraft, they have decided that their existing fabrication equipment is sufficient, but it is time to acquire a bigger manufacturing facility. Mark and Todd have identified a suitable structure that is currently for sale, and they believe they can buy and refurbish it for about $35 million. Mark, Todd, and Chris are now ready to meet with Christie Vaughan, the loan officer for First United National Bank. The meeting is to discuss the mortgage options available to the company to finance the new facility.Christie begins the meeting by discussing a 30-year mortgage. The loan would be repaid in equal monthly installments. Because of the previous relationship between S&S Air and the bank, there would be no closing costs for the loan. Christie states that the APR of the loan would be 6.1 percent. Todd asks if a shorter mortgage loan is available. Christie says that the bank does have a 20-year mortgage available at the same APR.Mark decides to ask Christie about a “smart loan” he discussed with a mortgage broker when he was refinancing his home loan. A smart loan works as follows: Every two weeks a mortgage payment is made that is exactly one-half of the traditional monthly mortgage payment. Christie informs him that the bank does have smart loans. The APR of the smart loan would be the same as the APR of the traditional loan. Mark nods his head. He then states this is the best mortgage option available to the company since it saves interest payments.Christie agrees with Mark, but then suggests that a bullet loan, or balloon payment, would result in the greatest interest savings. At Todd’s prompting, she goes on to explain a bullet loan. The monthly payments of a bullet loan would be calculated using a 30-year traditional mortgage. In this case, there would be a 5-year bullet. This would mean that the company would make the mortgage payments for the traditional 30-year mortgage for the first five years, but immediately after the company makes the 60th payment, the bullet payment would be due. The bullet payment is the remaining principal of the loan. Chris then asks how the bullet payment is calculated. Christie tells him that the remaining principal can be calculated using an amortization table, but it is also the present value of the remaining 25 years of mortgage payments for the 30-year mortgage.Todd has also heard of an interest-only loan and asks if this loan is available and what the terms would be. Christie says that the bank offers an interest-only loan with a term of 10 years and an APR of 3.5 percent. She goes on to further explain the terms. The company would be responsible for making interest payments each month on the amount borrowed. No principal payments are required. At the end of the 10-year term, the company would repay the $35 million. However, the company can make principal payments at any time. The principal payments would work just like those on a traditional mortgage. Principal payments would reduce the principal of the loan and reduce the interest due on the next payment.Mark and Todd are satisfied with Christie’s answers, but they are still unsure of which loan they should choose. They have asked Chris to answer the following questions to help them choose the correct mortgage.QUESTIONS1. What are the monthly payments for a 30-year traditional mortgage? What are the payments for a 20-year traditional mortgage?2. Prepare an amortization table for the first six months of the traditional 30-year mortgage. How much of the first payment goes toward principal?3. How long would it take for S&S Air to pay off the smart loan assuming 30-year traditional mortgage payments? Why is this shorter than the time needed to pay off the traditional mortgage? How much interest would the company save?4. Assume S&S Air takes out a bullet loan under the terms described. What are the payments on the loan?5. What are the payments for the interest-only loan?6. Which mortgage is the best for the company? Are there any potential risks in this action?CASE 6

Seth Bullock, the owner of Bullock Gold Mining, is evaluating a new gold mine in South Dakota. Dan Dority, the company’s geologist, has just finished his analysis of the mine site. He has estimated that the mine would be productive for eight years, after which the gold would be completely mined. Dan has taken an estimate of the gold deposits to Alma Garrett, the company’s financial officer. Alma has been asked by Seth to perform an analysis of the new mine and present her recommendation on whether the company should open the new mine.Alma has used the estimates provided by Dan to determine the revenues that could be expected from the mine. She has also projected the expense of opening the mine and the annual operating expenses. If the company opens the mine, it will cost $650 million today, and it will have a cash outflow of $72 million nine years from today in costs associated with closing the mine and reclaiming the area surrounding it. The expected cash flows each year from the mine are shown in the table on this page. Bullock Mining has a 12 percent required return on all of its gold mines.

Year Cash Flow0 ?$650,000,0001 80,000,0002 121,000,0003 162,000,0004 221,000,0005 210,000,0006 154,000,0007 108,000,0008 86,000,0009 ?72,000,000QUESTIONS

1. Construct a spreadsheet to calculate the payback period, internal rate of return, modified internal rate of return, and net present value of the proposed mine.

2. Based on your analysis, should the company open the mine?

3. Bonus question: Most spreadsheets do not have a built-in formula to calculate the payback period. Write a VBA script that calculates the payback period for a project.

1 We could, of course, calculate the average of the six book values directly. In thousands, we would have ($500 + 400 + 300 + 200 + 100 + 0)/6 = $250.2 The AAR is closely related to the return on assets, or ROA, discussed in Chapter 3. In practice, the AAR is sometimes computed by first calculating the ROA for each year and then averaging the results. This produces a number that is similar, but not identical, to the one we computed.CASE 2CaseCase I is due at the end of this week. Prepare a memo in Word, which answers the questions in the Chapter 2 Case, Cash Flows and Financial Statements at Sunset Boards, Inc., on page 51 of the textbook. Use Excel to solve any financial calculations. You will be graded on correct financial analysis, proper use of technology, business-like presentation of technology, and business-like presentation.Questions:

2. In light of your discussion in the previous question, what do you think about Tad's expansion plans.1. How would you describe Sunset Boards' cash flows for 2014? Write a brief discussion.

FINAL EXAM1.(TCO 1) ) Likeline, Inc., has sales of $445,000, costs of $173,000, depreciation expense of $72,000, interest expense of $36,000, and a tax rate of 35 percent. What is their net income?(Points : 20) Question 2.2.(TCO 1) Hammett, Inc. has sales of $19,570, costs of $9,460, depreciation expense of $2,130, and interest expense of $1,620. If the tax rate is 35 percent, what is the operating cash flow, or OCF?(Points : 20) Question 3.3.(TCOs 2 and 3) App Co. issued 15-year, $1,000 bonds at a coupon rate of 6 percent. The bonds make annual payments. If the YTM on these bonds is 5 percent, what is the current bond price?(Points : 20) Question 4.4.(TCO 3) Sixteenth Bank has an issue of preferred stock with a $10 stated dividend that just sold for $70 per share. What is the bank’s cost of preferred stock? (Show your work and round your answer to two decimal places.(Points : 20) Question 5.5.(TCOs 3 and 5) You own a portfolio that has $2,500 invested in Stock A and $3,500 invested in Stock B. If the expected returns on these stocks are 10 percent and 16 percent, respectively, what is the expected return on the portfolio? (Show your work.)(Points : 20) Question 6.6.(TCO 3) A stock has a beta of 1.25, the expected return on the market is 12 percent, and the risk-free rate is 2 percent. What must the expected return on this stock be? (Show your work and express your percentage in two decimal places).(Points : 20) Question 7.7.(TCO 4) Suppose Tom, Ltd. just issued a dividend of $2.00 per share on its common stock. The company’s dividends have been growing at a rate of 7%. If the stock currently sells for $50.00, what is your best estimate of the company’s cost of equity? (Show your work.)(Points : 20) Question 8.8.(TCO 4) Given the following information, calculate the weighted average cost for the Han Corp. Percent of capital structure:Preferred stock 15%Common equity 60%Debt 25%

Additional information:Corporate tax rate 34%Dividend, preferred $9.50Dividend, expected common $1.50Price, preferred $100.00Growth rate 9%Bond yield 6%Price, common $75.00(Points : 40) Question 9.9.(TCO 7) What are some important factors to consider when conducting a credit evaluation and scoring?(Points : 20) Question 10.10.(TCO 1) Explain the concept of the stakeholder in contemporary finance.(Points : 20) Question 11.11.(TCO 6) What are the factors that make up the capital asset pricing model? Where would you typically find the data for these factors?(Points : 20)