FIN Final Exam
Record your answers to the questions on the Excel answer sheet provided. You must also SHOW YOUR WORK OR EXPLAIN YOUR ANSWERS on all problems.
There are a total of 100 points in the exam. The exam is 30% of your overall course grade.
The exam is open book, which means that you may refer to the text, lectures, your notes, conference posts, and other course materials presented in LEO for this class. You may not use Li
ary services or the Internet as to research questions.
This exam is an individual assignment. Collaboration is NOT allowed on this exam. Under no circumstances should you seek the aid of another person. Nor should you provide such aid to others.
All policies in the syllabus related to standards for submission for graduate‐level work and course specific grading policies, including policies on plagiarism and other academic misconduct apply to this exam.
By putting your name on the exam/answer sheet, you are promising to abide by the honor code.
1) You are thinking of buying a miniature golf course to operate. It is expected to generate cash flows of $45,000 per year in years one through three and $55,000 per year in years four through eight. If the appropriate discount rate is 12%, what is the most you would pay for this golf course?
2) Your team is evaluating two mutually exclusive projects. The initial cost of each investment is $50,000. The probability of the cash flows is shown below. If the project will have a 5 year life and the appropriate cost of capital is 9% calculate the following:
Probability
CF(A)
CF(B)
10%
XXXXXXXXXX34,000)
XXXXXXXXXX13,500)
25%
XXXXXXXXXX8,500)
XXXXXXXXXX2,125
30%
XXXXXXXXXX17,000
XXXXXXXXXX19,000
25%
XXXXXXXXXX42,500
XXXXXXXXXX31,875
10%
XXXXXXXXXX68,000
XXXXXXXXXX46,750
a) Expected value
) NPV
c) Standard deviation
d) IRR
e) MIRR
Use the information below for the next problem
Depreciation
34,000
EBIT
179,000
Investment in Operating Assets
69,000
Tax Rate
34%
Find the free cash flow
3. Calculate the free cash flow
Use the following information for the next problem
The Security Market Line
Security X
Market
Beta
0.76
1
Expected Return
?
12%
If the risk free rate is
2.80%
Find the expected return on security X
4. What is the expected return for Security X?
Use the following information for the next three problems,
Yea
Cash Flow
1
$12,500
2
$14,000
3
$10,000
4
$11,000
5
$16,000
5. What is the NPV of above project if the initial investment was $35,000? Assume a cost of capital of 11%
6. Calculate the IRR assuming a cost of capital of 11%.
7. Calculate the MIRR of the project assuming a cost of capital of 11%. ___________________________________________________________________________
8. Suppose that you are approached with an offer to purchase an investment that will provide cash flows of $1,600 per year for 18 years. The cost of purchasing this investment is $9,200. You have an alternative investment opportunity, of equal risk, that will yield 9% per year. What is the NPV that makes you indifferent between the two options?
___________________________________________________________________
9. The Claustrophobic Solution, Inc., a residential window and door manufacturer, has the following historical record of earnings per share (EPS) from 2015 to 2007:
2015
2014
2013
2012
2011
2010
2009
2008
2007
EPS
$1.28
$1.22
$1.18
$1.13
$1.10
$1.05
$1.00
$0.95
$0.90
The company’s payout ratio has been 57% over the last nine years and the last quoted price of the firm’s share of stock was $15. Flotation costs for new equity will be 7%. The company has 34,000,000 of common shares of stock outstanding and a debt-equity ratio of 0.45.
If dividends are expected to grow at the same arithmetic average growth rate of the last nine years, what is the dividend payment per share in 2016?
_________________________________________________________________________-
Use the following data for the next 3 questions
The following are the company sales from XXXXXXXXXX
Yea
Xylophone
2000
$230
2001
$573
2002
$994
2003
$1,683
2004
$3,192
2005
$6,140
2006
$8,892
2007
$13,586
2008
$18,376
2009
$29,476
2010
$33,598
2011
$44,208
2012
$58,473
2013
$96,368
2014
$149,306
2015
$209,397
10. Fit an exponential trend curve to the data- show the equation
11. Calculate the projected sales in 2016
12. What is the CAGR over the XXXXXXXXXXperiod?
____________________________________________________________-
Use the following data for the next 3 problems
Roxie’s Surf Shop is expanding their product line, adding a high end surf board to their existing basic product.
Their fixed costs for the equipment needed for the new boards is $5700 per month.
The new board will cost $278 per board and they can be sold for $450.
13. How many new boards per month will they need to sell to
eakeven quantity per month?
14. If the fixed costs are reduced to $4800 per month what is the new
eakeven quantity?
15. If the fixed costs are $5300 and they want to have at least $1000 per month in profit how many boards should they sell?
Use the information below for the next 4 answers
Debt 5,000 bonds par $1,000 with a maturity 20 years; semi annual compounding. Coupon rate 8%. Price $1,310. Tax rate=33%
Prefe
ed 50,000 shares of 3% par value $100 stock. Cu
ent price $63.00.
Common stock 72,000 shares cu
ently selling for $ XXXXXXXXXXThe beta of the firm is 1.17, the risk free rate is 2.78%, Market return (Rm) =8.6%.
16. Cost of debt
17. Cost of prefe
ed
18. Cost of equity
19. WACC
Use the following data for the remaining problems.
Capstone Qua
y is analyzing whether a new contract proposal will be a good idea. The relevant data is shown below. The net working capital will be paid in the same time period as the cost of the equipment and will be recovered at the end of the project. Remember to calculate the after-tax gain or loss of salvage as part of your terminal cash flow.
Capstone Qua
y Company Contract Analysis
Amount of Rock Salt per Yea
23,000 Tons
Revenue per Ton
$ XXXXXXXXXX
Cost of Equipment
$ 2,750,000
Life(years)
5
MACRS Class
5
Fixed Cost per yea
$ XXXXXXXXXX,000
Var Cost/Ton
$ XXXXXXXXXX
Actual Salvage
$ XXXXXXXXXX,000
Change in NWC
$ XXXXXXXXXX,000
Required Return
12%
Tax Rate
34%
20. Find the cash flows for each yea
21. Net present value
22. Payback period
23. Discounted payback
24. IRR
25. MIRR
Hint:
Annual Cash Flows for Capstone Qua
y
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
Initial Outlay
Unit Sales
Sales
Variable Costs
Fixed Costs
Depreciation
Taxable Cash Flows
Taxes
Add: Depreciation
Annual After-Tax Cash Flow
Terminal Cash Flow
Total Annual Cash Flows
answers
FIN 615 Final Exam ANSWER SHEET for: (insert your name)
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