Homework Assignment for Week 1:
Each week you will have a set of homework problems to complete.
They are due by the
following Sunday night at 11:59 pm, US central time.
For Week 1, please turn in the answers to the following questions:
Describe the field of finance.
How is it different from the field of accounting?
What are the three forms of business generally encountered in the US? What are the main
defining characteristics of each?
What should be the basic financial goal of a business?
In the context of a corporation seeking to maximize the wealth of its owners, how is wealth
What are the three broad factors that influence the market price of a corporations stock?
Name three ways in which businesses can raise money from external sources when they need
it for expansion or project funding.
What is the purpose of a balance sheet? What are some examples of typical balance sheet
What is the purpose of an income statement? What are some examples of typical income
What is the purpose of a statement of cash flows? What are some examples of typical
statement of cash flow accounts?
What are Free Cash Flows (FCF)?
What is NOPAT?
For the remaining questions in this assignment, base your answers on the following information
for Joes Fly-By-Night Oil Company, whose latest income statement and balance sheet are
Joe's Fly-by-Night Oil
INCOME STATEMENT, 2014
BALANCE SHEET, as of Dec 31, 2014
Cost of goods sold
S, G & A expenses
Less Accum Depreciation
LIABILITIES AND EQUITY
Common stock (1,000 shares)
Total liabilities & Equity
Addition to retained earnings
Stock price on Dec 31, 2014$60.
Number of common shares outstanding on Dec 31, 2014...
What was Joes average, or effective tax rate in 2014?
What was Joes NOPAT in 2014?
What was Joes Free Cash Flow (FCF) in 2014? (Note: For this question, assume Joe
obtained no new plant and equipment or additional net working capital in 2014.
Thus his Net
Investment in Operating Capital (NIOC) for 2014 is $0.
Suppose you were an investor and you were considering whether to buy a corporate bond
from Joes Corporation or a Municipal Bond from the city of St.
Joes corporate bond has
a yield of 6%.
The St Louis city bond has a yield of 4%.
The income from Joes bond is taxable.
The income from the St Louis city bond is tax-free.
If your effective tax rate is 36%, which bond
would give you the higher after-tax yield?
What was Joes Net Worth at the end of 2014?
Why is the market value of a firms stock almost always higher than the book value of the
firms stock as shown on the balance sheet?
Calculate Joes ROE for 2014.
b Construct a Du Pont equation (use the extended, or modified version shown in the Week 1,
chapters 2 & 3 lesson notes) and comment on the sources of Joes ROE as revealed by the
End of Assignment Questions
- Assignments that are submitted after the deadline will be assessed a late penalty unless
it has been cleared with your instructor beforehand or the situation was beyond your
Contact your instructor ASAP if it appears you are going to submit an
- Please put all the questions and problems in one file before you submit the assignment
Do not do the questions in Word and the problems in Excel and submit
two files, for example.
It is too hard for your instructor to keep track of the files when
more than one is submitted.
- If your answer to a homework problem involves mathematical calculations, please
show the calculations.
If you are doing the assignment in Excel no extra effort is
required because your instructor can see the formulas you used, but if you are doing the
assignment in Word you should write out the calculations manually.
calculations is necessary in order for your instructor to give you any partial credit if
you make a mistake and come up with the wrong answer.
Answers to numerical problems:
Question 11: 36.
Question 12: $1,263
Question 13: $1,263
Question 14: After-tax yield on corporate bond = 3.
Question 15: $21,000
Question 17a: 5.
Question 17b: Net profit margin = 12%, total asset turnover = .
23, equity multiplier = 2.