FIN 571 Final Exam Guide (New) FOR MORE CLASSES VISIT

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1 FIN 571 Final Exam Guide (New) 1.A proxy fight occurs when: the board of directors disagree on the members of the management team. 2. A stakeholder is any person or entity: 3.Which one of the following is least apt to help convince managers to work in the best interest of the stockholders? threat of a proxy fight pay raises based on length of service implementation of a stock option plan 4.Financial managers primarily create firm value by: maximizing current sales. investing in assets that generate cash in excess of their cost. 5.First City Bank pays 7 percent simple interest on its savings account balances, whereas Second City Bank pays 7 percent interest compounded annually. If you made a $59,000 deposit in each bank, how much more money would you earn from your Second City Bank account at the end of 9 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., ) What is the future value of $3,136 invested for 12 years at 6.50 percent compounded annually? 7.What is the present value of $12,750 to be received 3 years from today if the discount rate is 5.50 percent? use this website: 8. Six months ago, you purchased 1,200 shares of ABC stock for $21.20 a share and have received total dividend payments of $.60 a share. Today, you sold all of your shares for $22.20 a share. What is your total dollar return on this investment? 9.Six months ago, you purchased 100 shares of stock in ABC Co. at a price of $43.89 a share. ABC stock pays a quarterly dividend of $.10 a share. Today, you sold all of your shares for $45.13 per share. What is the total amount of your capital gains on

2 this investment? 10.Which one of these accounts is classified as a current asset on the balance sheet? 11.Shelton, Inc., has sales of $395,000, costs of $183,000, depreciation expense of $48,000, interest expense of $29,000, and a tax rate of 40 percent. (Do not round intermediate calculations.) What is the net income for the firm? 12.On a balance sheet, deferred taxes are classified as: FIN 571 Final Exam Guide Set 2 (NEW). Financial managers should primarily strive to: 2. The process of planning and managing a firm's long-term assets is called: 3. Which one of the following actions by a financial manager creates an agency problem? 4. Which one of these is a cash outflow from a corporation? 5. For each of the following, compute the present value 6. Gerold invested $115 in an account that pays 5 percent simple interest. How much money will he have at the end of 5 years? 7. What is the future value of $920 a year for 5 years at a 6 percent interest? 8. You bought 360 shares of stock at a total cost of $7, You received a total of $ in dividends and sold your shares for $19.98 a share. What was your total rate of return? 9. A year ago, you purchased 500 shares of New Tech stock at a price of $49.03 per share. The stock pays an annual dividend of $.10 per share. Today, you sold all of your shares for $58.14 per share. What is your total dollar return on this investment? 10. The financial statement summarizing a firm's accounting performance over a period of time is the: 11. Which one of these accounts is classified as a current asset on the balance sheet? 12. Net working capital is defined as:

3 FIN 571 Week 1 Connect Problems (Math and Accounting Review) IN 571 Week 1 Connect Problems (Math & Accounting Review) 1. Functions Excel will make your life as a finance student much easier. This section will show how to use various functions in Excel. Once you understand the how and why of a particular financial equation, you can make 1. Which Excel cell entry will calculate the square root of 165? 2. Which statements about Excel s FV function are correct? 3. Which fields are required to calculate net present value (NPV) in Excel? 4. Which Excel function is used to calculate the amount of each annuity payment? 5. Which fields are required to calculate the rate of return (RATE) for a present value calculation in Excel? 2. The Balance Sheet This lesson will help you refresh your knowledge on the basics of the balance sheet. Brushing up on these concepts now will help you tackle your finance coursework later. General Ledger for XYZ Company. The following is a portion of the general ledger for XYZ Company as of December 31, 20X1, and the statement of stockholders equity for XYZ Company for the year ended December 31, 20X1. Use this information to answer questions (1) through (5). 1. What is the total amount of current assets to be reported on XYZ Company s 12/31/X1 classified balance sheet? 2. What is the total amount of long-term assets to be reported on XYZ Company s 12/31/X1 classified balance sheet? 3. What is the total amount of current liabilities to be reported on XYZ Company s 12/31/X1 classified balance sheet? 4. What is the ending

4 balance in retained earnings to be reported on XYZ Company s 12/31/X1 classified balance sheet? 5. What is the total amount of stockholders equity to be reported on XYZ Company s 12/31/X1 classified balance sheet? 3. Calculating Interest This lesson will help fill in the basics on how to calculate interest when tackling financial problems. 1. What is the amount of interest earned after two years on a $100 deposit paying 4 percent simple interest annually? 2. What is the amount of compound interest earned after three years on a $100 deposit paying 8 percent interest annually? 3. A business just took out a loan for $100,000 at 10% interest. If the business pays the loan off in three months, how much did the business pay in interest? 4. What is the annual percentage yield (APY) for a deposit paying 5 percent interest with monthly FIN 571 Week 1 Connect Problems (Week 1 Problem Set) IN 571 Week 1 Connect Problems (Week 1 Problem Set) 1.The ultimate control of a corporation lies in the hands of the corporate: president. board of directors. chairman of the board. chief executive officer. stockholders. 1. (Set 2) If a firm is currently profitable, then: it will always have sufficient cash to pay its bills in a timely manner. the timing of the cash flows on proposed projects is irrelevant. its current cash inflows must exceed its current cash outflows. its cash flows are known with certainty. its reported sales exceed its costs. 2.Which one of these is a cash outflow from a corporation? sale of an asset dividend payment

5 profit retained by the firm sale of common stock issuance of debt 2.(Set 2) Short-term finance deals with: acquiring and selling fixed assets. financing long-term projects. capital budgeting. 3.For a firm to create value it must: avoid the issuance of debt securities. have a greater cash inflow from its stockholders than its outflow to them. avoid payments to the government so dividends can be increased. 3.(Set 2) A stakeholder is any person or entity: owning shares of stock of a corporation. to whom the firm currently owes money. that initially started a firm and currently has management control over that firm. owning bonds or other long-term debt issued by a corporation. other than a stockholder or creditor who potentially has a financial interest in the firm. 4.If a firm is currently profitable, then: its cash flows are known with certainty. its reported sales exceed its costs. the timing of the cash flows on proposed projects is irrelevant. it will always have sufficient cash to pay its bills in a timely manner. its current cash inflows must exceed its current cash outflows. 4.(Set 2)Which one of these best fits the description of an agency cost? increasing the dividend payments per share the benefits received from reducing production costs per unit the payment of interest on a firm s debts the payment of corporate income taxes the payment required for an outside audit of the firm 5.The primary goal of financial management is to: maximize current dividends per share of the existing stock. avoid financial distress. minimize operational costs and maximize firm efficiency. maximize the current value per share of the existing stock. maintain steady growth in both sales and net earnings. FIN 571 Week 1 DQ 1

6 What is ethics? If you follow all applicable rules and regulations, are you an ethical person? FIN 571 Week 1 DQ 2 Assume that interest rates have increased substantially. Would this tend to increase or decrease the market value (meaning the price an investor in the firm's paper is willing to pay) of a firm s liabilities (relative to the book value of liabilities)? This question is referring to a firm's liability such as a bond or debenture that has been issued in the markets. What happens to the price an investor who is looking to purchase that bond or debenture is willing to pay if the market interest rate increases above the rate that the bond or debenture pays.

7 FIN 571 Week 1 Individual Assignment Business Structures Watch the "Your Business Structure" and "Corporate Business Structures" videos on the Electronics Reserve Readings page. Identify the different business structures. Write a 350 to 700 word explanation of how each business structure might and might not be advantageous. Click the Assignment Files tab to submit your assignment. FIN 571 Week 2 Connect Problems FIN 571 Week 2 Connect Problems 1. Sankey, Inc., has current assets of $4,230, net fixed assets of $25,700, current liabilities of $3,500, and long-term debt of $14,400. (Do not round intermediate calculations.) What is the value of the shareholders' equity account for this firm? How much is net working capital? 2. Which one of the following assets is

8 generally the most liquid? 3. Which one of the following accounts is included in stockholders' equity? Operating cash flow is defined as: 4. It is easier to evaluate a firm using its financial statements when the firm: If a firm is currently profitable, then: 5. Which one of these accounts is classified as a current asset on the balance sheet? During 2015, Rainbow Umbrella Corp. had sales of $720,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $500,000, $90,000, and $85,000, respectively. In addition, the company had an interest expense of $90,000 and a tax rate of 35 percent. (Ignore any tax loss carryback or carryforward provisions.) a. What is the company's net income for 2015? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.) Net income $ b. What is its operating cash flow? (Do not round intermediate calculations.) Operating cash flow $ 6. Please use excel sheet in case the values changes Sankey, Inc., has current assets of $4,500, net fixed assets of $23,500, current liabilities of $2,750, and long-term debt of $12,900. (Do not round intermediate calculations.) What is the value of the shareholders' equity account for this firm? Shareholders' equity $ How much is net working capital? Net working capital $ 7. Please use excel sheet in case the values changes Shelton, Inc., has sales of $396,000, costs of $184,000, depreciation expense of $49,000, interest expense of $30,000, and a tax rate of 35 percent. (Do not round intermediate calculations.) What is the net income for the firm? Suppose the company paid out $39,000 in cash dividends. What is the addition to retained earnings? 8. Please use excel sheet in case the values changes During the year, the Senbet Discount Tire Company had gross sales of $1.12 million. The firm s cost of goods sold and selling expenses were $531,000 and $221,000, respectively. The firm also had notes payable of $860,000. These notes carried an interest rate of 6 percent. Depreciation was $136,000. The firm s tax rate was 40 percent. a. What was the firm s net income? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to the nearest whole number, e.g., 32.) b. What was the firm s operating cash flow? (Do not round intermediate calculations. Enter your answer in dollars, not

9 millions of dollars, e.g., 1,234,567. Round your answer to the nearest whole number, e.g., 32.) 9. Please use excel sheet in case the values changes Use the following FIN 571 Week 2 DQ 1 In order to receive proper credit, please reply to this message when posting your answers to WK2 DQ1. Suppose you own $1 million worth of 30-year Treasury bonds. Is this asset riskless? You own $1 million worth of 90-day Treasury bills. You roll over this investment every 90 days by reinvesting the proceeds in another issue of 90-day Treasury bills. Is this investment riskless? Can you think of an asset that is truly riskless?

10 FIN 571 Week 2 DQ 2 Suppose rf is 5% and rm is 10%. According to the SML and the CAPM, an asset with a beta of 2.0 has a required return of negative 5% [= 5 2(10 5)]. Can this be possible? Does this mean that the asset has negative risk? Why would anyone ever invest in an asset that has an expected and required return that is negative? Explain FIN 571 Week 2 Individual Assignment Business Structure Advice Write a 350 to 700 word response to the following Dear Consultant,

11 I am currently starting a business and developing my business plan. I'm in need of some advice on how to start forming my business. I am not sure exactly how it will be financed and whether or not I want to take on partners. I am interested and willing to learn the intricacies of my options to determine how to best proceed with my plan. Please advise on what my options are, the advantages and disadvantages of each, and possible tax consequences for each scenario? Respectfully, John Owner Click the Assignment Files tab to submit your assignment. FIN 571 Week 2 Individual Assignment Ethics and Finance The Sarbanes-Oxley Act of 2002 (SOX) was passed as the result of the Enron scandal and other instances of accounting fraud. This act was passed to strengthen the role of the Securities and Exchange Commission (SEC). Research a case of corporate financial abuse related

12 to the Sarbanes-Oxley Act of 2002 and apply this to your current work or desired place of employment. Create a 1,400-word analysis of the application of SOX in which you include the following: Discuss the mistakes made by the company and their leadership. Discuss the steps leadership could have taken to prevent or mitigate the repercussions. Explain the role of market pressures on unethical behavior. Examine the influence of the basics of finance and how the Sarbanes-Oxley Act of 2002 changed things. Evaluate the influence of Sarbanes-Oxley Act on ethical behavior. Are businesses more ethical since the enactment? Explain the changes companies needed to make in how they use and present financial statements. Discuss how SOX has affected your current place of employment if at all, and if not, how it has affected others in the same industry. Cite a minimum of 2 scholarly sources. Format your paper consistent with APA guidelines. Click the Assignment Files tab to submit your assignment. FIN 571 Week 2 Individual Assignment Ratio Analysis Problems Ratio Analysis Problems Ratio Analysis (Individual Assignment)

13 You may use excel or word.doc format for this assignment. Please post your homework as a word.doc or excel file in the class discussion section below by the due date. 1. Analysis of cost of goods sold problem Gross Profit Margin 60% 55% 51% What is happening to cost of goods sold? As was done in the week 2 online lecture on ratio analysis, please assume sales of 1 dollar each year as you do your analysis. This problem follows the process shown in the Week 2 Ratio Analysis online lecture section titled: "Another Income Statement Analytical Approach: Percent of Sales" (5 points) 2. Overhead (or Sales, General and Administrative Expense) problem Gross Profit Margin 40% 39% 41% Operating Margin (NOI/Sales) 15% 10% 5% What is happening to S,G and A (or overhead expenses)? Please set up an illustration assuming sales of 1.00 dollar each year just as you did in problem number one. (5 points) 3. Balance Sheet Problem

14 Annual Sales Growth (over prior yr) + 1% 0% +1% Current Ratio 3.5X 2X 1.2X Average Collection Period 25 days 30 days 55 days What is happening to liquidity? Why? What are some follow-up questions your would ask? (5 points) 4. Using the data provided below, which is the better managed company? Why? Please support your answers by calculating appropriate ratios. (5 points) Company A Company B Sales 10 million dollars 20 million dollars Net Income 1 million dollars 2 million dollars Total Assets 10 million dollars 15 million dollars Click the Assignment Files tab to submit your assignment. FIN 571 Week 2 Learning Team Reflection

15 Read the Ethics case, "A Sad Tale: The Demise of Arthur Anderson" located in the WileyPLUS Week Fundamentals of Corporate Finance Chapter readings. Discuss the mistakes made by Arthur Anderson and potential actions that leadership could have taken to prevent the organizational failure. Write a 350- to 700-word summary of your discussion. Click the Assignment Files tab to submit your assignment. FIN 571 Week 3 Connect Problems FIN 571 Week 3 Connect Problems If the Garnett Corp. has a 15 percent ROE and a 25 percent payout ratio, what is its sustainable growth rate? 1.If the Hunter Corp. has an ROE of 15 and a payout ratio of 18 percent, what is its sustainable growth rate 2.The most recent financial statements for Williamson, Inc., are shown here Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year s sales are projected to be $8,418. What is the external financing needed? 3.The maximum rate at which a firm can grow while maintaining a constant debt-equity ratio is best defined by its: 4.Financial planning, when properly executed: 5.Projected future financial statements are called: 6.Which account is least apt to vary directly with sales? 7.Which one of

16 the following depicts a correct relationship? 8.One of the primary weaknesses of many financial planning models is that they: 9.In the financial planning model, the external financing needed (EFN) as shown on a pro forma balance sheet is equal to the changes in assets: 10.The external funds needed (EFN) equation projects the addition to retained earnings as: 11.Marcie's Mercantile wants to maintain its current dividend policy, which is a payout ratio of 35 percent. The firm does not want to increase its equity financing but is willing to maintain its current debt-equity ratio. Given these requirements, the maximum rate at which Marcie's can grow is equal to: 12.The sustainable growth rate will be equivalent to the internal growth rate when, and only when,: 13.The minimum level of inventory that a firm wants to keep on hand at all times is referred to as: 14.The operating cycle can be decreased by: 15.The cash cycle is defined as the time between: 16.Selling goods and services on credit is: 17.The three components of credit policy are: 18.Given a fixed level of sales and a constant profit margin, an increase in the accounts payable period can result from: 19.On September 1 FIN 571 Week 3 DQ 1 Why are interest rates on short-term loans not necessarily comparable to each other? Give three possible reasons.

17 FIN 571 Week 3 DQ 2 Optical Supply Company offers credit terms of 2/10, net 60. If Optical Supply is considering a change in its credit terms to one of those indicated, explain whether the change should increase or decrease sales. (a) 2/10, net 30, (b) net 60, (c) 3/15, net 60, (d) 2/10, net 30, 30 extra FIN 571 Week 3 Individual Assignment Interpreting Financial Results Resource: Financial Statements for the company assigned by your instructor in Week 2. Review the assigned company's financial statements from the past three years.

18 Calculate the financial ratios for the assigned company's financial statements, and then interpret those results against company historical data as well as industry benchmarks: Compare the financial ratios with each of the preceding three (3) years (e.g with 2013; 2013 with 2012; and 2012 with 2011). Compare the calculated financial ratios against the industry benchmarks for the industry of your assigned company. Write a 500 to 750 word summary of your analysis. Show financial calculations where appropriate. Click the Assignment Files tab to submit your assignment. FIN 571 Week 3 Learning Team Reflection Watch the "Concept Review Video: Working Capital Management" video located in thewileyplus Assignment: Week 3 Videos Activity.

19 Discuss strategies these business owners used to manage their working capital. Write a word summary of your discussion. Click the Assignment Files tab to submit your assignment. FIN 571 Week 3 Team Assignment Financial Statement Interpretation Select three publicly traded companies. Choose one each from the following sectors: manufacturing, service, and retail. At least one of the three companies should be foreign. If possible, choose from among the team members' places of business or similar industries. Calculate the following: Current ratio Quick ratio Net profit margin Asset utilization Financial leverage Analyze the Return on Equity (ROE) for the last 2 years using the DuPont method. Develop a 2,100- word comparison of your three companies in which you include the following: Discuss the differences in the industries Discuss the different measurement conventions and how this affects presentations. Contrast IASB basis for accounting (IFRS) and FASB/GAAP accounting. Compare the three companies and their strategies for managing their working capital. Discuss the financial ratios and analyses and what they indicate about the companies and their financial forecast. Incorporate the calculated ratios and analysis into the

20 paper. Include the financial statements for the 3 companies as an appendix to the paper. Cite at least 3 scholarly sources. Format the paper consistent with APA guidelines. Click the Assignment Files tab to submit your assignment. FIN 571 Week 4 Connect Problems IN 571 Week 4 Connect Problems Q-1 Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of 1,000, 20 years to maturity, and a coupon rate of 7 percent paid annually. If the yield to maturity is 8.1 percent, what is the current price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., ) Q-1 (Set 2) Watters Umbrella Corp. issued 30-year bonds 2 years ago at a coupon rate of 7.4 percent. The bonds make semiannual payments. If these bonds currently sell for 83 percent of par value, what is the YTM? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., ) 2.Microhard has issued a bond with the following characteristics: Par: $1,000 Time to maturity: 15 years Coupon rate: 11 percent Semiannual payments Calculate the price of this bond if the YTM is (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., ): Q-2 (Set 2) Union Local School District has bonds outstanding with a coupon rate of 3.7 percent paid semiannually and 15

21 years to maturity. The yield to maturity on these bonds is 4.3 percent and the bonds have a par value of $5,000. What is the dollar price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., ) Q-3 (Set 1) Yan Yan Corp. has a $2,000 par value bond outstanding with a coupon rate of 5.5 percent paid semiannually and 16 years to maturity. The yield to maturity of the bond is 5.8 percent. What is the dollar price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., ) Q-3 (Set 2) A Japanese company has a bond outstanding that sells for 90 percent of its 100,000 par value. The bond has a coupon rate of 5.7 percent paid annually and matures in 19 years. What is the yield to maturity of this bond? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., ) Q-4 (Set 1) The next dividend payment by ECY, Inc., will be $1.96 per share. FIN 571 Week 4 DQ 1 A firm uses a single discount rate to compute the NPV of all its potential capital budgeting projects, even though the projects have a wide range of nondiversifiable risk. The firm then undertakes all those projects that appear to have positive NPVs. Briefly explain why such a firm would tend to become riskier over time.

22 FIN 571 Week 4 DQ 2 Phyllis believes that the firm should use straight-line depreciation for a capital project because it results in higher net income during the early years of the project s life. Joanna believes that the firm should use the modified accelerated cost recovery system depreciation because it reduces the tax liability during the early years of the project s life. Assuming you have a choice between depreciation methods, whose advice should you follow? Why? FIN 571 Week 4 Individual Assignment Analyzing Pro Forma Statements

23 Decide upon an initiative you want to implement that would increase sales over the next five years, (for example, market another product, corporate expansion, and so on). Using the sample financial statements, create pro forma statements of five year projections that are clear, concise, and easy to read. Be sure to double check the calculations in your pro forma statements. Make assumptions that support each line item increase or decrease for your forecasted statements. Discuss and interpret the financials in relation to the initiative. Make recommendations on potential discretionary financing needs. Write a word analysis of the company's short term and long term financing needs and determine strategies for the company to manage working capital. Click the Assignment Files tab to submit your assignment. FIN 571 Week 4 Learning Team Reflection

24 Watch the "Concept Review Video: Stock Valuation" video located in the WileyPLUS Assignment: Week 4 Videos Activity. Discuss how markets and investors value a stock. Write a word summary of your discussion. Click the Assignment Files tab to submit your assignment. FIN 571 Week 4 Team Assignment Operating Leverage and Forecasting Operating Leverage and Forecasting Problems Team Assignment Please complete the following problems. When calculating earnings per share and PE ratios, please show your work. This problem is similar to the examples shown in the lecture. You manufacture hunting pack systems in China for 80 dollars each, including shipping. The manufacturing costs only include variable costs. Variable costs are not calculated as a percentage of sales in this case. Sales are a function of the number of packs sold and the price per pack. Likewise, variable costs are a function of the number of packs sold and the cost to produce each pack. You sell these packs to retailers for 200 dollars each. In the current year you will sell 100,000 packs. Your

25 fixed costs including such items as insurance, marketing, travel, shows, office supplies, warehouse rentals etc. totals 5 million dollars this year and are not part of the 80 dollars per pack manufacturing cost. The federal income tax rate for your company is 40 percent. Your company is publicly traded on the NASDAQ with 1,000,000 shares outstanding. Please create a current income statement using the same format as found in the lecture. (5 points) Please calculate earnings per share. (2 points) Please calculate the price/earnings multiple assuming that the current stock price is 10 dollars per share. (2 points) Create a two-year forecast of the income statement from the information provided in problem number one. Please create three columns of data: current year, year 2, and year 3. Assume that sales increase ten percent per year for year's two and three. Please show the earnings per share for each of the three years. (10 points) FIN 571 Week 5 Connect Problems 1.The difference between the present value of an investment s future cash flows and its initial cost is the: payback period. internal rate of

26 return. profitability index. discounted payback period. net present value. 2.Which statement concerning the net present value (NPV) of an investment or a financing project is correct? An investment project that has positive cash flows for every time period after the initial investment should be accepted. Any type of project should be accepted if the NPV is positive and rejected if it is negative. A financing project should be accepted if, and only if, the NPV is exactly equal to zero. Any type of project with greater total cash inflows than total cash outflows, should always be accepted. An investment project should be accepted only if the NPV is equal to the initial cash flow. 3.The primary reason that company projects with positive net present values are considered acceptable is that: they create value for the owners of the firm. the investment's cost exceeds the present value of the cash inflows. the project's rate of return exceeds the rate of inflation. the required cash inflows exceed the actual cash inflows. they return the initial cash outlay within three years or less. 4.Accepting a positive net present value (NPV) project: indicates the project will pay back within the required period of time. is expected to increase the stockholders value by the amount of the NPV. ignores the inherent risks within the project. guarantees all cash flow assumptions will be realized. means the present value of the expected cash flows is equal to the project s cost. 5.The net present value method of capital budgeting analysis does all of the following except: use all of a project's cash flows. discount all future cash flows. consider all relevant cash flow information. incorporate risk into the analysis. provide a specific anticipated rate of return. 6.What is the net present value of a project with an initial cost of $36,900 and cash inflows of $13,400, $21,600, and $10,000 for Years 1 to 3, respectively? The discount rate is 13 percent. 7.Maxwell Software, Inc., has the following mutually exclusive projects. a-1. Calculate the payback period for each project. (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., ) Payback period

27 FIN 571 Week 5 DQ 1 Because the weighted average is always a correct measure of a required return, why do firms not create securities to finance each project and offer them in the capital market in order to accurately determine the required return for the project? FIN 571 Week 5 DQ 2 The development of the new issue junk bond market had important implications for capital structure choice. The existence of a viable junk bond market means that firms can comfortably maintain higher degrees of leverage than they could prior to the development of this market. Do you agree or disagree? Justify your answer.

28 FIN 571 Week 5 Individual Assignment DCF and WACC Problems Discounted Cash Flows and WACC Homework Problems Please post the answers (and show your work) in the assignments section by midnight the last day of the week assigned. Calculate the future value of 1,535 invested today for 8 years at 6 percent. (5 points) What is the total present value of the following cash stream, discounted at 8 percent? (5 points) Year Amount

29 If you invested $2,000 per year into an IRA for 30 years and received 6 percent return each year, what would the account balance be in 30 years? (5 points) 4. A friend gives you a proposition. If you give him 1,500 dollars today, he will guarantee your receive 12 percent a year for the next 5 years. How much money will you receive from him at the end of 5 years? (5 points) 5. You want to buy a new Computer Aided Design (CAD) system for your business. The cost of the system is $150,000 and you expect to save over $40,000 per year in reduced labor costs. Please calculate the net present value of the CAD if your required return is 10 percent and the life of the system is expected to be 5 years. (10 points) 6. Your company is considering converting its heating system in the main office from coal to heating oil. The initial cost of removing the coal fired furnace and installing an new oil fired unit is $60,000. The life of the analysis is 7 years. In the past you spent $25,000 per year on coal. The new company says you will spend no more than $15,000 per year on heating oil. If your required return is 12 percent, should you

30 make this investment? Please calculate the net present value of this project. (10 points) FIN 571 Week 5 Learning Team Reflection Watch the "Concept Review Video: Cost of Capital" video located in the WileyPLUS Assignment: Week 5 Videos Activity. Discuss some of the corporate finance challenges faced by this company. Write a word summary of your discussion. Click the Assignment Files tab to submit your assignment. FIN 571 Week 5 Team Assignment Capital Budgeting Assignment, Part 1 (New Heritage Doll)

31 Acting as the executive team for a small company, your team will apply the principles of capital budgeting to invest in growth and cash flow improvement opportunities in three phases over 10 simulated years. Each opportunity has a unique financial profile and you must analyze the effects on working capital. Examples of opportunities include taking on new customers, capitalizing on supplier discounts, and reducing inventory. The team must understand how the income statement, balance sheet, and statement of cash flows are interconnected and be able to analyze forecasted financial information to consider possible effects of each opportunity on the firm's financial position. The company operates on thin margins with a constrained cash position and limited available credit. You must optimize use of internal and external credit as you balance the desire for growth with the need for maintaining liquidity. Create a 1,050-word analysis of the team members' decisions during each phase (1-3) and how they influenced each member's final results. Analyze the influence of member's decisions on sales outcomes or metrics of SNC. Analyze the influence of member's decisions on EBIT outcomes or metrics of SNC. Assess the influence of member's decisions on Net Income outcomes or metrics of SNC. Analyze the influence of member's decisions on Free Cash Flow outcomes or metrics of SNC. Assess the influence of member's decisions on Total Firm Value outcomes or metrics of SNC. Cite a minimum of two scholarly references. Format your assignment consistent with APA guidelines. FIN 571 Week 5 Working Capital Simulation Managing Growth, Part 1 (New Heritage Doll)

32 Acting as the executive team for a small company, your team will apply the principles of capital budgeting to invest in growth and cash flow improvement opportunities in three phases over 10 simulated years. Each opportunity has a unique financial profile and you must analyze the effects on working capital. Examples of opportunities include taking on new customers, capitalizing on supplier discounts, and reducing inventory. The team must understand how the income statement, balance sheet, and statement of cash flows are interconnected and be able to analyze forecasted financial information to consider possible effects of each opportunity on the firm's financial position. The company operates on thin margins with a constrained cash position and limited available credit. You must optimize use of internal and external credit as you balance the desire for growth with the need for maintaining liquidity. Sign-in to the Harvard Business Simulation and review each of the following: Welcome Statement How to Play Terminology Primer More Details (this includes information to help you understand how to play the simulation) Complete the Harvard Business Simulation individually and track and save your results. Create a 1,050- word analysis of the team members' decisions during each phase (1-3) and how they influenced each member's final FIN 571 Week 6 Individual Assignment Working Capital Simulation Managing Growth Assignment

33 Resources: Harvard Business Publishing: Working Capital Simulation: Managing Growth Assignment Ch offundamentals of Corporate Finance WileyPLUS Assignments All additional resources from each week Review the following scenario: Acting as the CEO of a small company, you will apply the principles of capital budgeting to invest in growth and cash flow improvement opportunities in three phases over 10 simulated years. Each opportunity has a unique financial profile and you must analyze the effects on working capital. Examples of opportunities include taking on new customers, capitalizing on supplier discounts, and reducing inventory. You must understand how the income statement, balance sheet, and statement of cash flows are interconnected and be able to analyze forecasted financial information to consider possible effects of each opportunity on the firm's financial position. The company operates on thin margins with a constrained cash position and limited available credit. You must optimize use of internal and external credit as you balance the desire for growth with the need for maintaining liquidity. Sign-in to the simulation and review each of the following: Welcome Statement How to Play

34 Terminology Primer More Details (this includes information to help you understand how to play the simulation) Write a paper of no more than 1,400 words that analyzes your decisions during each phase (1-3) and how they influenced each of the following final outcomes (metrics) of SNC: Sales FIN 571 Week 6 Learning Team Reflection Watch the "Corporate Finance Video: Stable Money Makers" located in the WileyPLUS Assignment: Week 6 Videos Activity. Identify a capital improvement that could help Betty with her Alpaca business. Write a summary of no more than 700 words explaining how the capital improvement you identified could help the business. Click the Assignment Files tab to submit your assignment.

35 FIN 571 Week 6 Team Assignment Capital Budgeting Assignment, Part 2 (New Heritage Doll) The executive team of New Heritage Doll has completed the decision making for capital budgeting for the firm. Now the team must decide which decisions and approach were the best for the company. The executive team must create a presentation to be given to the board members of New Heritage Doll Compare the decisions and results of all members of the team. Create a 20-slide Microsoft PowerPoint presentation that includes detailed speaker notes that act as the script of the presentation in which you include the following: Summarize the decisions made by each member. Explain why those decisions were made. Analyze the effects the team's decisions had on New Heritage Doll working capital. Select one plan from the team's results to propose as the best option for SNC Defend this option to the board including all supporting documentation. Cite a minimum of three scholarly sources. Click the Assignment Files tab to submit your assignment. FIN 571 Week 6 Working Capital Simulation Managing Growth, Part 2 (New Heritage Doll)

36 The executive team of New Heritage Doll has completed the decision making for capital budgeting for the firm. Now the team must decide which decisions and approach were the best for the company. The executive team must create a presentation to be given to the board members of SNC. Compare the decisions and results of all members of the team. Create a 20-slide Microsoft PowerPoint presentation that includes detailed speaker notes that act as the script of the presentation in which you include the following: Summarize the decisions made by each member. Explain why those decisions were made. Analyze the effects the team's decisions had on New Heritage Doll 's working capital. Select one plan from the team's results to propose as the best option for New Heritage Doll Defend this option to the board including all supporting documentation. Cite a minimum of three scholarly sources. Click the Assignment Files tab to submit your assignment