Project #7776 - Finance Assignments

Modulo 2

Questions:

3.
 Define the three rules of time travel and discuss why they are important. How can you use them to compare and combine cash flows?
4.
 Compute the n-period effective annual rate in the following problem and give the best answer: Tim plans to open a new bank account and calls several banks to find out where he can earn the most interest on his money. After talking with several banks, Tim has three options. Which bank account should he choose to earn the highest return on his money?

 8% compounded daily

 8.25% compounded quarterly

 8.4% compounded annually

Essays:

Responses to essay questions should be a minimum of 250 words, using APA format. Please refer to the APA Style Guide for more information on formatting requirements.

Points will be deducted for failure to follow APA formatting guidelines or repeated use of improper formatting.

1.
Apply the valuation principle to the following situation and make an argument for the best opportunity:

You are a financial manager for a wholesale children’s toy distributor. The suppliers are from China, Japan, and the Netherlands. A customer offers $14 million for a 1000 lb shipment. Buying the particular shipment the customer wishes to purchase from China would cost you $9 million plus shipping costs of $125.00 per pound. Japan offers to sell you the same shipment for a flat rate of $9,090,000. From the Netherlands, you can buy the same shipment for $ 9,050,000 plus shipping of $95.00 per pound.

2.
Explain why Treasury securities are considered risk free, and describe the impact of default risk on interest rates.

Modulo 3

Berk, Johnathan and Peter DeMarzo. (2011). Corporate Finance: The Core, 2nd ed. Arlington Street Boston, MA. Pearson Prentice Hall.

 

Ch. 6:  155-181

Ch. 7:  182-216

Ch. 8:  217-250

Ch. 9:  251-290

 

Module 3:

Responses to essay questions should be a minimum of 250 words, using APA format.

Discuss:

1.
1. For the given cash flows below, assume the cash flow is the same in the next 2 years. Compute the NPV for each project, and compute the incremental IRR. Compare and explain why NPV always gives the correct decision.
                  Project     Initial Investment     Year 1 Cash Flow    
                        A                     500,00              125,00                            
                        B                      500,00              120,00                                        
2.
    In what ways can the IRR make you give a flawed decision and what relationship the NVP have with the IRR?
3.
    What is the best way to select a project that has resource restrictions? Explain.
4.
    Why must opportunity costs must be included in cash flows, while sunk costs and interest expense must not?

Modulo 4

Berk, Johnathan and Peter DeMarzo. (2011). Corporate Finance: The Core, 2nd ed. Arlington Street Boston, MA. Pearson Prentice Hall.

 

Ch. 10:  291-329

Ch. 11:  330-376

 

Assignments:

 

 

Questions:

1.
Define and discuss the volatility and return characteristics of large stocks versus large stocks and bonds and what affects they have on pricing risk? Give examples to support your answer.
2.
Why,in an efficient capital market, does the cost of capital depend on systematic risk rather than diversifiable risk. Explain your answer using an example from the text.
3.
What is an expected return and why must it equal a required return? In what circumstances are these two important?
4.
What are the three main assumptions of the CAPM and what are their effects on a portfolio. GIve examples of your explanation.

Essays:

Responses to essay questions should be a minimum of 250 words, using APA format. Please refer to the APA Style Guide for more information on formatting requirements.

Points will be deducted for failure to follow APA formatting guidelines or repeated use of improper formatting.

1.
Define and contrast idiosyncratic and systematic risk and the risk premium required for taking each on. Can beta be helpful in this instance? Explain your answer.
2.
Define the following terms and explain how they affect one another. More specifically, for what purposes are they used and how do they relate to one another: efficient portfolio, individual investor, short selling, Sharpe ratio, beta and CAPM.

Modulo 5

Berk, Johnathan and Peter DeMarzo. (2011). Corporate Finance: The Core, 2nd ed. Arlington Street Boston, MA. Pearson Prentice Hall.

 

Ch. 12:  377-411

Ch. 13:  412-448

 

Questions:

1.
What is operating leverage and how does it influence a project?
2.
What are the two methods for estimating debit cost of capital, and what do you do when there is default risk? Explain the circumstances in which you would use each method.
3.
In what instances would an investor want to “beat the market” and “hold the market”? Discuss the strategies for each and their dependence on an investor’s information and trading skills.
4.
In what ways do uninformed investors trade too much? Discuss how uninformed investors use the CAPM and how their behaviors deviate.

Essays:

Responses to essay questions should be a minimum of 250 words, using APA format. Please refer to the APA Style Guide for more information on formatting requirements.

Points will be deducted for failure to follow APA formatting guidelines or repeated use of improper formatting.

1.
What additional assumptions (to the main three) are important when applying the Capital Asset Pricing Model and what are the underlying strengths and weaknesses of this application? Discuss the reliability of the model and give examples in your explanation.
2.
Discuss the Arbitrage Pricing Theory and the Fama-French factor and the “preciseness” of techniques used to calculate cost of capital. How does one decide on which technique is best to use?

 

Modulo 6

Ch. 14:  449-477

Ch. 15:  478-508

 

 

Questions:

1.
What type of capital structure should a firm choose and why? In you answer, be sure to include capital structure fallacies and their effects on a firm’s decision.
2.
Define and discuss MM Proposition I with it’s implications, and the roles of homemade leverage and the Law of One Price in the development of the proposition.
3.
What is leveraged recapitalization and what effects does it have on the value of equity?
4.
Define the optimal fraction of debt and the growth rate of a firm. What is the relationship between the two?

 

 

Essays:

Responses to essay questions should be a minimum of 250 words, using APA format. Please refer to the APA Style Guide for more information on formatting requirements.

Points will be deducted for failure to follow APA formatting guidelines or repeated use of improper formatting.

1.
1. Define the three conditions that make up a perfect capital market, and then compare and contrast the effects of perfect capital markets and imperfect capital markets on value. Can they create or destroy value? Explain.
2.
2. Define EBIT and discuss why the optimal level of leverage from a tax-saving perspective is the level at which interest equals EBIT. Does this have a connection with under-leveraging corporations,both domestically and internationally?

 

Modulo 7

Ch. 16:  509-550

Ch. 17:  551-592

 

 

Questions:

1.
What are agency costs, and how are agency costs of financial distress different from agency benefits of leverage? Explain their impact on calculating the value of a firm with financial distress.
2.
When securities are fairly priced, why would the original shareholders of a firm pay the present value of bankruptcy and financial distress costs?
3.
What are the dividend payment process and the open-market repurchase process? In your answer, be sure to explain the effects they have in a perfect world.
4.
What are the benefits and drawbacks of accumulating cash balances rather than paying dividends and what effects do dividend policy have on this type of decision?

Essays:

Responses to essay questions should be a minimum of 250 words, using APA format. Please refer to the APA Style Guide for more information on formatting requirements.

Points will be deducted for failure to follow APA formatting guidelines or repeated use of improper formatting.

1.
What impact does asymmetric information have on the optimal level of leverage? In your answer, be sure to describe the implications of adverse selection and the lemons principle for equity issuance, as well as the empirical implications.
2.
Compare and contrast mature profitable firms with stable cash flows with firms with higher risk (dependencies on economy) with unstable cash flows. What risks do they take in regards to leverage use, tax shields, and trading information between managers and investors?

 

Modulo 8

Ch. 18:  593-640

Ch. 19:  641-665

 

Questions:

1.
What is a constant interest coverage policy and how does it impact the levered value of a project?
2.
Why should issuance costs and mispricing costs be included in the assessment of the project’s value? How do you include them?
3.
Why is it important to calculate the value of the interest tax shield if a firm adjusts its debt annually to a target level?
4.
For what reasons would a firm use a financial model in projecting future cash flows from an investment, and what are the primary factors to consider when making the cash flow estimates?

Essays:

Responses to essay questions should be a minimum of 250 words, using APA format. Please refer to the APA Style Guide for more information on formatting requirements.

Points will be deducted for failure to follow APA formatting guidelines or repeated use of improper formatting.

1.
In what situations should the WACC and the APV be used? How do personal taxes affect the use of these two methods? Use examples when explaining your answer.
2.
Explain the useof IRR and cash multiples as alternative valuation metrics, and discuss the drawbacks of those methods. In your answer, include how sensitivity analysis affects the evaluation process.

 

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Due By (Pacific Time) 06/24/2013 12:00 am
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