GC FIN650 week 2-7 problem sets and case study
Complete the following problems from Chapters 2 and 3 inFinancial Management: Theory and Practice:
Chapter 2:
Topics: Balance Sheet, Income and Cash Flow Analysis, Free Cash Flows
Problems: 2-4, 2-11, 2-12
Chapter 3:
Topics: DuPont Analysis, Balance Sheet Analysis, Comprehensive Ratio Analysis
Problems: 3-1, 3-6, 3-7, 3-8, 3-12, 3-13, 3-14
General Instructions:
Use the Topic 2 Excel Resource (if needed).
Please show all work for each problem.
You are not required to submit this assignment to Turnitin.
Week 3
Congratulations. You have been promoted to vice president and director of your mid-size firm’s pension fund management team located in Cincinnati, OH. Before you have even had the opportunity to settle into your new office, your senior vice president tapped you to take her place and present an investment seminar to "a group of investment decision-makers" comprised of government analysts from all over the tri-state area but that is the extent of the information you’ve been provided. After doing some quick research, you’ve identified that the specific target audience for this presentation is composed primarily of individuals with little or no professional investment experience who are attending this seminar to build their skills.
In order to address the range of information these individuals need to know and the likely range of questions that may crop up, you’ll need to be able to:
- Describe the essential characteristics of a bond and how these characteristics interact to determine bond value, inclusive of how both the interest rate and coupon rate influence bond value and pricing.
- Summarize call provisions and sinking fund provisions. Explain how these types of provisions individually make bonds more or less risky for a) an investor, and b) the issuer.
- The value of an asset whose value is based on expected future cash flows is determined by the present value of all future cash flows the assets will generate. Given the case scenario and target audience provided, select and discuss a simple asset situation that could apply to exemplify this concept.
- Define what it means when a bond is callable. Provide two measures you can review to understand what type of returns to expect if the bond is called or if it is not called.
- Describe the type of returns one could one expect with a callable bond trading at a premium price and provide your rationale. Explain the significance of the designation "premium price." Discuss why or why not a callable bond trading at a premium price would be an appropriate investment for the target audience’s organizations.
- Select an example scenario appropriate to the seminar’s target audience Write a general expression for the yield on a probable debt security (rd) and define these terms in regards to that hypothetical security: real risk-free rate of interest (r*), inflation premium (IP), default risk premium (DRP), liquidity premium (LP), and maturity risk premium (MRP).
- Define the nominal risk-free rate (rRF) and provide an example relevant to your target audience of a specific security that can be used as an estimate of rRF.
- Describe interest rate risk and reinvestment rate risk and how these relate to the maturity risk premium. Based on reinvestment rate risk, provide an example on how a 1-year bond or a 10-year bond would be a better investment for a typical community as represented by those attending your seminar.
- Select an example appropriate to your seminar target audience to explain the concepts of a) term structure and interest rates and b) yield curve.
- Review corporate bankruptcy law. If a firm were to default on its bonds, describe how the company assets could be/would be liquidated. What is a likely outcome for bondholders? Select and describe an example scenario that applies to your seminar attendees’ organizations.
Prepare this assignment according to the guidelines found in the APA Style Guide, located in the Student Success Center. An abstract is not required.
This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.
You are required to submit this assignment to Turnitin. Please refer to the directions in the Student Success Center.
Week 4
Details:
Complete the following problems from Chapter 12 inFinancial Management: Theory and Practice:
Chapter 12:
Topics: Additional Funds Needed, Forecasted Statements and Ratios, Financing Deficits
Problems: 12-2, 12-4, 12-5, 12-7, 12-8, 12-9
General Instructions:
Use the Topic 4 Excel Resource (if needed).
Please show all work for each problem.
You are not required to submit this assignment to Turnitin.
wek 5
Note that the estimated returns of American Foam (Am. Foam), a bedding company, do not always move in the same direction as the overall economy. For example, when the economy is below average, consumers purchase fewer mattresses than they would if the economy were stronger. However, if the economy is in a flat-out recession, a large number of consumers who were planning to purchase a more expensive inner-spring mattress may purchase a cheaper foam mattress instead. Under these circumstances, we would expect American Foam’s stock price to be higher if there is a recession than if the economy was just below average.
Barney Smith’s economic forecasting staff has developed probability estimates for the state of the economy, and its security analysts have developed a sophisticated computer program that was used to estimate the rate of return on each alternative under several state of the economy scenarios. Alta Industries (Alta Inds) is an electronics firm; Repo Men collects past-due debts; and American Foam, as per above, manufactures mattresses and various other foam products. Barney Smith also maintains an "index fund" which owns a market-weighted fraction of all publicly traded stocks; you can invest in that fund, and thus obtain average stock market results.
Given the situation as described, answer the following questions.
- Describe investment returns, and what "best case" and "worst case" returns you might hope to achieve for your new client. What is the return on an investment that costs $1,000 and is sold after one year for $1,100? Would you recommend this type of investment for your task at hand?
- Explain why the Treasury bill's (aka, T-bill) return is independent of the state of the overall economy? Do T-bills promise a completely risk-free return? Provide your rationale.
- Why are Alta Ind.’s returns expected to move with the economy whereas Repo Men’s are expected to move counter to the economy?
- Calculate the expected return (), the standard deviation (?p), and the coefficient of variation (CVp) for the portfolio profiled in Table 1. Provide your answers with calculations.
- How does the risk of this two-stock portfolio compare with the risk of the individual stocks if those stocks were held in isolation? In what ways do "portfolio effects" impact how investors think about the risk of individual stocks?
- If you decided to hold a simple one-stock portfolio, and consequently were exposed to more risk than diversified investors, could you expect to be compensated for all of your risk; that is, could you earn a risk premium on that part of your risk that you could have eliminated by diversifying? Explain.
- Describe how market risk is measured for individual securities. How are beta coefficients calculated? Calculate beta using the following historical returns for the stock market and for another company, P.Q. Unlimited (PQU) as per Table 2 on the attached resource, "Topic 5 Assignment Graphic Tables." Note: Use the Excel formula function to calculate beta and interpret your results.
- Write out the Security Market Line (SML) equation and use it to calculate the required rate of return on each alternative. Compare the expected rates of return with the required rates of return. How do these perform against your predictions?
- Does the fact that Repo Men has an expected rate of return less than the T-bill rate of return make any sense? Why or why not?
- What would be the market risk and the required return of a 50-50 portfolio of Alta Industries and Repo Men? Or of Alta Industries and American Foam? Based on your analysis and conclusions, which would you recommend to your client?
Prepare this assignment according to the guidelines found in the APA Style Guide, located in the Student Success Center. An abstract is not required.
This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.
You are required to submit this assignment to Turnitin. Please refer to the directions in the Student Success Center.
FIN-650-RS-Topic5AssignmentTables.docx
Complete the following problems from Chapters 7, 14, and 15 inFinancial Management: Theory and Practice:
Chapter 7:
Topics: Equity Valuation Models, Preferred Stock Valuation Model, and Free Cash Flow Valuation Model
Problems: 7-3, 7-4, 7-5, 7-9, 7-12, 7-13, 7-14, 7-17, 7-18, 7-20
Chapter 14:
Topics: Dividend Distribution Policies and Alternative Dividend Policies
Problems: 14-9, 14-10
Chapter 15:
Topics: Break-Even Point and Capital Structure Analysis
Problems: 15-7, 15-8, 15-9
General Instructions:
Use the Topic 6 Excel Resource (if needed).
Please show all work for each problem.
You are not required to submit this assignment to Turnitin.
Week 7
The new product line would generate incremental sales of 1,350 units per year for 4 years at an incremental cost of $100 per unit in the first year, excluding depreciation. Each unit can be sold for $200 each in the first year. The sales price and cost are expected to increase by 3% per year due to inflation. Further, to handle the new line, the firm’s net working capital would have to increase by an amount equal to 15% of sales revenues. The firm’s tax rate is 40%, and its overall weighted average cost of capital is 12%.
- Calculate and provide the annual sales revenues and costs (other than depreciation). Why is it important to include inflation when estimating cash flows?
- Construct 4 years of annual incremental operating cash flow statements for IOW Casting Company. Estimate the required net working capital for each year, and the cash flow due to investments in net working capital. Calculate the after-tax salvage cash flow.
- Calculate the net cash flows for each of the 4 years. Based on these cash flows, what are the project’s NPV, IRR, MIRR, PI, payback, and discounted payback? Do these indicators suggest the project should be undertaken? Explain.
- What does the term “risk” mean in the context of capital budgeting? To what extent can risk be quantified, and, when risk is quantified, is the quantification based primarily on statistical analysis of historical data or on subjective, judgmental estimates? Provide your rationale.
- Describes sensitivity analysis and discuss a) its primary weakness; and b) its primary usefulness? For the IOW project, perform a sensitivity analysis on the unit sales, salvage value, and cost of capital. Assume that each of these variables can vary from its expected, or “base-case” value by ± 10%, ± 20%, and ± 30%. Include a sensitivity diagram, and discuss the results.
- Assume that Sydney Johnson is confident of her estimates of all the variables that affect the project’s cash flowsexceptunit sales and sales price. If product acceptance is poor, unit sales could be only approximately 1,000 units a year and the unit price would be set at $150. Conversely, an excellent consumer response could produce sales of 2,000 units and a unit price of $220. Sidney believes that there is a 25% chance of poor acceptance, a 25% chance of excellent acceptance, and a 50% chance of average acceptance (the base case). What is the worst-case NPV? The best-case NPV? Use the worst-, base-, and best-case NPVs and probabilities of occurrence to find the project’s expected NPV, standard deviation, and coefficient of variation.
- Explain scenario analysis and any problems, issues, or concerns that surround this type of projection.
- Define simulation analysis, and discuss its principal advantages and disadvantages.
- Assume that IOW’s average project has a coefficient of variation in the range of 0.2 to 0.4. Would the new product line be classified as high risk, average risk, or low risk? What type of risk is being measured here?
- IOW typically adds or subtracts 5 percentage points to the overall cost of capital to adjust for risk. Given this consideration, should the new line be accepted? Explain.
- Describe other subjective risk factors that should be considered before the final decision is made, and their individual impact on the project.
Provide all work in your answers that requires calculations.
Prepare this assignment according to the guidelines found in the APA Style Guide, located in the Student Success Center. An abstract is not required.
This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.
You are required to submit this assignment to Turnitin. Please refer to the directions in the Student Success Center.
-
Rating:
/5
Solution: GC FIN650 week 2-7 problem sets and case study (except week 5 case)