All Finance Questions Solution In Excel File
3. How many years would it take $50
to triple if you invested it in a bank that
pays 8.25% per year?
4. You want to buy a new sports car 4 years from now, and you
plan to save $4,400 per year,beginning immediately.
You will make 4 deposits in an account that pays 5.75% interest.
Under these assumptions, how much will you have 3 years from
5. What’s the present value of a 5-year ordinary annuity of
$2,250 per year plus an additional $3,500 at the end of Year 5 if
the interest rate is 6%?
6. What’s the future value of $2,500 after 5 years if the
appropriate interest rate is 7.5%, compounded semiannually?
7. An investment promises the following cash flow stream: $1500
at Time 0; $2,750 at the end of Year 1 (or at t = 1); $3,150 at the
end of Year 2; and $4,800 at the end of Year 3. At a discount rate
of 10.0%, what is the present value of the cash flow stream?
8. Suppose you are buying your first house for $250,000, and are
making a $50,000 down payment. You have arranged to finance the
remaining amount with a 10-year, monthly payment, amortized
mortgage at a 3.4% nominal interest rate. What will your equal
monthly payments be?
9. You plan to borrow $30,000 at an 8% annual interest rate. The
terms require you to amortize the loan with 10 equal end-of-year
payments. How much interest would you be paying in Year 4?
10. You just deposited $4,000 in a bank account that pays a 6%
nominal interest rate, compounded quarterly. If you also add
another $9,000 to the account one year (12 months) from now and
another $7,500 to the account two years from now, how much will be
in the account three years (12 quarters) from now?
11. Your sister turned 35 today, and she is planning to
save $6,000 per year for retirement, with the first deposit to be
made one year from today. She will invest in a mutual fund that
will provide a return of 8.5% per year. She plans to retire 30
years from today, when she turns 65, and she expects to live for 25
years after retirement, to age 90. Under these assumptions, how
much can she spend in each year after she retires? Her first
withdrawal will be made at the beginning of
her first retirement year.
12. You anticipate that you will need $2,000,000 when you retire
40 years from now. You plan to make 40 deposits, beginning today,
in a bank account that will pay 7% interest, compounded annually.
You expect to receive annual raises of 4%, so you will increase the
amount you deposit each year by 4%. (That is, your 2nd deposit will
be 4% greater than your first, the 3rd will be 4% greater than the
2nd, etc.) How much must your 1st deposit be if you are to meet
14. Medium Size Retailers, Inc. (MSR) has EBIT of $225,000,
interest expense of $30,000, dividend income of $15,000, short term
capital gains of $15,000, and long term capital losses of $18,000.
What is MSR’s income tax liability?
15. Frederickson Office Supplies recently reported $12,500 of
sales, $7,250 of operating costs other than depreciation, and
$1,750 of depreciation. The company had no amortization charges and
no non-operating income. It had $8,000 of bonds outstanding that
carry a 9.0% interest rate, and its federal-plus-state income tax
rate was 40%. How much was the firm’s taxable income, or earnings
before taxes (EBT)?
16. Over the years, Janjigian Corporation’s stockholders have
provided $19,250 of capital, part when they purchased new issues of
stock and part when they allowed management to retain some of the
firm’s earnings. The firm now has 1,500 shares of common stock
outstanding, and it sells at a price of $48.00 per share. How much
value has Janjigian’s management added to stockholder wealth over
the years, i.e., what is Janjigian’s MVA?
18. HHH Inc. reported $14,500 of sales and $7,025 of
operating costs (including depreciation). The company had $18,750
of investor-supplied operating assets (or capital), the weighted
average cost of that capital (the WACC) was 9.5%, and the
federal-plus-state income tax rate was 35%. What was HHH’s Economic
Value Added (EVA), i.e., how much value did management add to
stockholders’ wealth during the year?
19. Wells Water Systems recently reported $8,750 of sales,
$4,750 of operating costs other than depreciation, and $1,100 of
depreciation. The company had no amortization charges, it had
$3,250 of outstanding bonds that carry a 6.75% interest rate, and
its federal-plus-state income tax rate was 35%. In order to sustain
its operations and thus generate sales and cash flows in the
future, the firm was required to spend $750 to buy new fixed assets
and to invest $250 in net operating working capital. How much free
cash flow did Wells generate?
An investor is considering starting a new business. The company
would require $500,000 of assets, and it would be financed entirely
with common stock. The investor will go forward only if she thinks
the firm can provide a 17.5% return on the invested capital, which
means that the firm must have an ROE of 17.5%. How much net income
must be expected to warrant starting the business?
23. Helmuth Inc.’s latest net income was $1,250,000, and it had
295,000 shares outstanding. The company wants to pay out 40% of its
income as dividends. What dividend per share should it declare?
24. Heaton Corp. sells on terms that allow customers 45 days to
pay for merchandise. Its sales last year were $525,000, and its
year-end receivables were $70,000. If its DSO is less than the
45-day credit period, then customers are paying on time. Otherwise,
they are paying late. By how much are customers paying early or
late? Base your answer on this equation: DSO – Credit period = days
early or late, and use a 365-day year when calculating the DSO. A
positive answer indicates late payments, while a negative answer
indicates early payments.
25. Last year Mason Inc. had a total assets turnover of 1.33 and an
equity multiplier of 1.75. Its sales were $195,000 and its net
income was $8,549. The CFO believes that the company could have
operated more efficiently, lowered its costs, and increased its net
income by $4,950 without changing its sales, assets, or capital
structure. Had it cut costs and increased its net income in this
amount, by how much would the ROE have changed?
Rick Kish has a $100,000 stock portfolio. $32,000is invested in
a stock with a beta of 0.85 and the remainder is invested in a
stock with a beta of 1.75. These are the only two investments in
his portfolio. What is his portfolio’s beta?
29. ABC Company’s stock has a beta of 1.40, the risk-free rate
is3.75%, and the market risk premium is6.50%. What is ABC’s
required rate of return using CAPM?
31. Hocking Manufacturing Company has a beta of 0.65, while
Levine Industries has a beta of 1.70. The required return on the
stock market is 10.00%, and the risk-free rate is 4.25%. What is
the difference between Hocking’s and Levine’s required rates of
32. Rodriguez Roofing’s stock has a beta of 1.30, its required
return is 11.50%, and the risk-free rate is4.00%. What is the
required rate of return on the stock market?
35. Garvin Enterprises’ bonds currently sell for $875. They have
a 6-year maturity, an annual coupon of $65, and a par value of
$1,000. What is their current yield?
36. Sadik Inc.’s bonds currently sell for $1,250 and have a par
value of $1,000. They pay a $135 annual coupon and have a 15-year
maturity, but they can be called in 8 years at $1,135. What is
their yield to call (YTC)?
37. Moerdyk Corporation’s bonds have a 20-year maturity, a 6.25%
coupon rate with interest paid semiannually, and a par value of
$1,000. The nominal required rate of return on these bonds is
8.25%. What is the bond’s intrinsic value?
38. Niendorf Corporation’s 5-year bonds yield 7.75%, and 5-year
T-bonds yield 4.80%. The real risk-free rate is r* = 2.75%, the
inflation premium for 5-year bonds is IP = 1.65%, the default risk
premium for Niendorf’s bonds is DRP = 1.50% versus zero for
T-bonds, and the maturity risk premium for all bonds is found with
the formula MRP = (t – 1) x 0.1%, where t = number of years to
maturity. What is the liquidity premium (LP) on Niendorf’s
39. A 20-year, $1,000 par value bond has an 8.5% coupon rate
with interest paid semiannually. The bond currently sells for $800.
What is the capital gains yield on these bonds?
40. O’Brien Ltd.’s outstanding bonds have a $1,000 par value,
and they mature in 15 years. Their nominal yield to maturity is
9.75%, they pay interest semiannually, and they sell at a price of
$900. What is the bond’s nominal (annual) coupon interest rate?
All Finance Questions Solution In Excel File