Project #52340 - Corporate Finance

Section III.   Quantitative Problem Solving

You must use the proper equation, with plugged in values, as well as show your work to get full credit. Questions with just numerical answers will not be graded.

 

1. A growing perpetuity is a stream of cash flows that occurs at regular intervals and growth at a constant rate forever. If each cashflow is $150, and the bank pays a rate of 5%. What is the present value of your fund if the growth rate is 2%?

 

 

2. You plan to place $20,000 in an IRA. The bank is offering 5% interest. However, because of your brilliant smile bank will add another 3% if you open up the plan with them. You know that you will require $2,000 at the end of each year to cover taxes, while you are still working. At the time you open up the IRA you plan to work for another 15 years. How much money will you have in this account when you retire in 15 years?

 

 

3. Your company’s cost of capital is 9.3%. What is the stock price for equity that pays a $4.73 dividend with a constant growth of 1.3%?

 

 

4. What is your required rate of return for a stock that is current selling for $25 a share with a 6$ growth rate and paying a $1.76 dividend?

 

 

5. A 30-year bond with a face value of $1000 offers a return of 9.7% and has a coupon rate of 5.5% with quarterly payments.  What is the specific coupon payment for this bond?      

           

 

6. What is the future value of a lump sum deposit of $159 in a bank for 28 years at 4.9% interest?

 

 

7. What is the present value of an annuity due of $200 at 2.78% for 17 years?

 

 

8. You buy a new car every 5 years in cash. The car you want cost $30,000. Because you have no money you will need to start saving. You know that you can earn 6% if you open up a new savings account. How much would you need to save then deposit at the end of each year to buy the car?

 

9. What is the value of an ordinary annuity of $550 at 5% for 32 years?

 

 

 

 

10. Sabrato Real Estate is considering starting a commercial real estate division. It has prepared the following four-year forecast of free cash flows for this division

 

 

Year 1

Year 2

Year 3

Year 4

Free Cash Flow

-$185000

-$12,000

$99,000

$240,000

 

Assume cash flows after year 4 will grow 3% per year, forever. If the cost of capital for this division is 14%, what is the continuation value in year 4 for cash flows after year 4? What is the value today of the division?

 

 

 

11. Facebook (Fb) has a share price of $22.00 today. If Fb is expected to pay a

dividend of $0.88 this year, and its stock price is expected to grow $23.54 at the end of the year, what is Fb’s dividend yield, equity cost of capital, as well as total expected return?

 

 

 

12. What is the value of a 26 year corporate $10,000 bond with a 10% return paying 7.5% annually?

 

 

 

13. What is the YTM on a $10,000 Bond with a 9% annual coupon due in 10 year bond selling at $8,870?

 

 

14. What is the value of a 10-year $10,000 Bond with 10% semiannual coupon bond, if the return is 13%?

 

 

15. Calculate the Required Rate of Return (rs) given rRF = 7%, rM = 12%, and b = 1.2, what is the required rate of return on the firm’s stock?

 

 

16.Find the Expected Dividend Stream for the Next 3 Years and Their PVs

D0 = $4 and g is a constant 6%.

 

A.    What is the stock’s current value?

 

 

B.     What are the Dividend Yield, Capital Gains Yield, and Total Return for the First Year? (

 

 

17.If the risk free rate is 6.5% and the expected market return is 15% what is the return o a stock with a Beta of .085?

A.    What is the market premium? What is the return?

 

 

 

18.A company has 38% debt in bonds that were issued at 8.5%. They cannot sell preferred stock just yet; however the return on their current stock is 12.5%. They have just lowered their corporate tax rate to 25% with new government credits. What is their WACC?

 

 

19.Your company has asked you as the CFO to review data and to make a decision on where to budget its funds. The following data is available.

 

 

 

A.    What are their NPVs

B.     What are their IRRs

C.     What are their MIRRs

D.    Which project investment do you tell your company to pursue?

 

 

20.  Using the table of data below

 

 

A.    What are the E[r] for US Treasuries, Exxon, and eBay?

B.     What are their σ(variances)?

C.    What are their standard deviations?

D.    What are their coefficients of variations?

E.     Which stock did best during the “tech” boom (1996 to 2002)?

 

 

 

 

Subject Business
Due By (Pacific Time) 12/17/2014 06:00 pm
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