# FIN 350 Complete Class

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FIN 350 Complete Class

FIN350

FIN 350 Week 1 Module 1 Practice Problems

Complete the following problems from the textbook:

• Chapter 1, P1-2

• Chapter 2, P2-4, P2-6, and Integrative Case 1

1. Do all work in Excel. Do not submit Word files or *.pdf files.

2. Submit a single spreadsheet file for this assignment. Do not submit multiple files.

3. Place each problem on a separate spreadsheet tab.

You are not required to submit this assignment to Turnitin.

FIN 350 Week 2 Module 2 Practice Problems

Complete the following problems from chapter 3 in the textbook:

• P3-3

• P3-6

• P3-10

• P3-16

• P3-18

• P3-20

• P3-21

1. Do all work in Excel. Do not submit Word files or *.pdf files.

2. Submit a single spreadsheet file for this assignment. Do not submit multiple files.

3. Place each problem on a separate spreadsheet tab.

You are not required to submit this assignment to Turnitin.

FIN 350 Week 3 Module 3 Practice Problems

P4–5 Classifying inflows and outflows of cash Classify each of the following items as an inflow (I) or an outflow (O) of cash, or as neither (N).

P4–6 Finding operating and free cash flows Consider the following balance sheets and selected data from the income statement of Keith Corporation.

a. Calculate the firm’s net operating profit after taxes (NOPAT) for the year ended December 31, 2015, using Equation 4.1.

b. Calculate the firm’s operating cash flow (OCF) for the year ended December 31, 2015, using Equation 4.3.

c. Calculate the firm’s free cash flow (FCF) for the year ended December 31, 2015, using Equation 4.4.

d. Interpret, compare, and contrast your cash flow estimates in parts b and c.

P4–9 Cash budget: Basic Grenoble Enterprises had sales of \$50,000 in March and \$60,000 in April. Forecast sales for May, June, and July are \$70,000, \$80,000, and \$100,000, respectively. The firm has a cash balance of \$5,000 on May 1 and wishes to maintain a minimum cash balance of \$5,000. Given the following data, prepare and interpret a cash budget for the months of May, June, and July.

(1) The firm makes 20% of sales for cash, 60% are collected in the next month, and the remaining 20% are collected in the second month following sale.

(2) The firm receives other income of \$2,000 per month.

(3) The firm’s actual or expected purchases, all made for cash, are \$50,000, \$70,000, and \$80,000 for the months of May through July, respectively.

(4) Rent is \$3,000 per month.

(5) Wages and salaries are 10% of the previous month’s sales.

(6) Cash dividends of \$3,000 will be paid in June.

(7) Payment of principal and interest of \$4,000 is due in June.

(8) A cash purchase of equipment costing \$6,000 is scheduled in July.

(9) Taxes of \$6,000 are due in June.

P4–15 Pro forma income statement The marketing department of Metroline Manufacturing estimates that its sales in 2016 will be \$1.5 million. Interest expense is expected to remain unchanged at \$35,000, and the firm plans to pay \$70,000 in cash dividends during 2016. Metroline Manufacturing’s income statement for the year ended December 31, 2015, and a breakdown of the firm’s cost of goods sold and operating expenses into their fixed and variable components are given below.

a. Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2016.

b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31, 2016.

c. Compare and contrast the statements developed in parts a and b. Which statement probably provides the better estimate of 2016 income? Explain why.

P4–18 Pro forma balance sheet Peabody & Peabody has 2015 sales of \$10 million. It wishes to analyze expected performance and financing needs for 2017, which is 2 years ahead. Given the following information, respond to parts a and b.

(1) The percents of sales for items that vary directly with sales are as follows: Accounts receivable, 12% Inventory, 18% Accounts payable, 14% Net profit margin, 3%

(2) Marketable securities and other current liabilities are expected to remain unchanged.

(3) A minimum cash balance of \$480,000 is desired.

(4) A new machine costing \$650,000 will be acquired in 2016, and equipment costing \$850,000 will be purchased in 2017. Total depreciation in 2016 is forecast as \$290,000, and in 2017 \$390,000 of depreciation will be taken.

(5) Accruals are expected to rise to \$500,000 by the end of 2017.

(6) No sale or retirement of long-term debt is expected.

(7) No sale or repurchase of common stock is expected.

(8) The dividend payout of 50% of net profits is expected to continue.

(9) Sales are expected to be \$11 million in 2016 and \$12 million in 2017.

(10) The December 31, 2015, balance sheet follows.

a. Prepare a pro forma balance sheet dated December 31, 2017.

b. Discuss the financing changes suggested by the statement prepared in part a.

FIN 350 Week 4 Module 4 Practice Problems

Complete the following problems from chapter 5 in the textbook:

• P5-2

• P5-6

• P5-14

• P5-22

• P5-29

• P5-39

1. Do all work in Excel. Do not submit Word files or *.pdf files.

2. Submit a single spreadsheet file for this assignment. Do not submit multiple files.

3. Place each problem on a separate spreadsheet tab.

You are not required to submit this assignment to Turnitin.

FIN 350 Week 5 Module 5 Practice Problems

Complete the following problems from chapter 6 in the textbook:

• P6-5

• P6-11

• P6-17

• P6-18

• P6-22

1. Do all work in Excel. Do not submit Word files or *.pdf files.

2. Submit a single spreadsheet file for this assignment. Do not submit multiple files.

3. Place each problem on a separate spreadsheet tab.

You are not required to submit this assignment to Turnitin.

FIN 350 Week 6 Module 6 Practice Problems

Complete the following problems from chapter 7 in the textbook:

• P7-2

• P7-8

• P7-10

• P7-14

• P7-17

• P7-19

1. Do all work in Excel. Do not submit Word files or *.pdf files.

2. Submit a single spreadsheet file for this assignment. Do not submit multiple files.

3. Place each problem on a separate spreadsheet tab.

You are not required to submit this assignment to Turnitin.

FIN 350 Week 7 Module 7 Practice Problems

1. Do all work in Excel. Do not submit Word files or *.pdf files.

2. Submit a single spreadsheet file for this assignment. Do not submit multiple files.

3. Place each problem on a separate spreadsheet tab.

P8–9 Rate of return, standard deviation, and coefficient of variation Mike is searching

for a stock to include in his current stock portfolio. He is interested in Hi-Tech,

Inc.; he has been impressed with the company’s computer products and believes

that Hi-Tech is an innovative market player. However, Mike realizes that any

time you consider a technology stock, risk is a major concern. The rule he follows

is to include only securities with a coefficient of variation of returns below 0.90.

Mike has obtained the following price information for the period 2012 through

2015. Hi-Tech stock, being growth-oriented, did not pay any dividends during these

4 years.

Stock price

Year Beginning End

2012 \$14.36 \$21.55

2013 21.55 64.78

2014 64.78 72.38

2015 72.38 91.80

a. Calculate the rate of return for each year, 2012 through 2015, for Hi-Tech stock.

b. Assume that each year’s return is equally probable, and calculate the average return

over this time period.

c. Calculate the standard deviation of returns over the past 4 years. (Hint: Treat

these data as a sample.)

d. Based on b and c, determine the coefficient of variation of returns for the security.

e. Given the calculation in d, what should be Mike’s decision regarding the inclusion

of Hi-Tech stock in his portfolio?

P8–14 Portfolio analysis You have been given the expected return data shown in the first

table on three assets—F, G, and H—over the period 2016–2019.

Expected return

Year Asset F Asset G Asset H

2016 16% 17% 14%

2017 17 16 15

2018 18 15 16

2019 19 14 17

Alternative Investment

1 100% of asset F

2 50% of asset F and 50% of asset G

3 50% of asset F and 50% of asset H

Asset

Expected

return, r

Risk (standard

deviation), sr

V 8% 5%

W 13 10

Using these assets, you have isolated the three investment alternatives shown in the

following table.

a. Calculate the expected return over the 4-year period for each of the three

alternatives.

b. Calculate the standard deviation of returns over the 4-year period for each of the

three alternatives.

c. Use your findings in parts a and b to calculate the coefficient of variation for

each of the three alternatives.

d. On the basis of your findings, which of the three investment alternatives do you

recommend? Why?

P8–27 Portfolio return and beta Jamie Peters invested \$100,000 to set up the following

portfolio 1 year ago.

Asset Cost Beta at purchase Yearly income Value today

A \$20,000 0.80 \$1,600 \$20,000

B 35,000 0.95 1,400 36,000

C 30,000 1.50 — 34,500

D 15,000 1.25 375 16,500

a. Calculate the portfolio beta on the basis of the original cost figures.

b. Calculate the percentage return of each asset in the portfolio for the year.

c. Calculate the percentage return of the portfolio on the basis of original cost,

using income and gains during the year.

d. At the time Jamie made his investments, investors were estimating that the market

return for the coming year would be 10%. The estimate of the risk-free rate of return

averaged 4% for the coming year. Calculate an expected rate of return for each stock

on the basis of its beta and the expectations of market and risk-free returns.

e. On the basis of the actual results, explain how each stock in the portfolio performed

relative to those CAPM-generated expectations of performance. What

factors could explain these differences?

P9–5 The cost of debt Gronseth Drywall Systems, Inc., is in discussions with its investment

bankers regarding the issuance of new bonds. The investment banker has informed

the firm that different maturities will carry different coupon rates and sell at

different prices. The firm must choose among several alternatives. In each case, the

bonds will have a \$1,000 par value and flotation costs will be \$30 per bond. The

company is taxed at a rate of 40%. Calculate the after-tax cost of financing with

each of the following alternatives.

Alternative

Coupon

rate

Time to

maturity (years)

or discount

A 9% 16 \$250

B 7 5 50

C 6 7 par

D 5 10 2 75

P9–7 Cost of preferred stock Taylor Systems has just issued preferred stock. The stock

has a 12% annual dividend and a \$100 par value and was sold at \$97.50 per share.

In addition, flotation costs of \$2.50 per share must be paid.

a. Calculate the cost of the preferred stock.

b. If the firm sells the preferred stock with a 10% annual dividend and nets \$90.00

after flotation costs, what is its cost?

P9–9 Cost of common stock equity: CAPM J&M Corporation common stock has a beta,

b, of 1.2. The risk-free rate is 6%, and the market return is 11%.

a. Determine the risk premium on J&M common stock.

b. Determine the required return that J&M common stock should provide.

c. Determine J&M’s cost of common stock equity using the CAPM.

P9–10 Cost of common stock equity Ross Textiles wishes to measure its cost of common

stock equity. The firm’s stock is currently selling for \$57.50. The firm expects to pay

a \$3.40 dividend at the end of the year (2016). The dividends for the past 5 years

are shown in the following table.

Year Dividend

2015 \$3.10

2014 2.92

2013 2.60

2012 2.30

2011 2.12

After underpricing and flotation costs, the firm expects to net \$52 per share on a

new issue.

a. Determine the growth rate of dividends from 2011 to 2015.

b. Determine the net proceeds, Nn, that the firm will actually receive.

c. Using the constant-growth valuation model, determine the cost of retained earnings, rr.

d. Using the constant-growth valuation model, determine the cost of new common

stock, rn.

P9–17 Calculation of individual costs and WACC Dillon Labs has asked its financial manager

to measure the cost of each specific type of capital as well as the weighted average

cost of capital. The weighted average cost is to be measured by using the following

weights: 40% long-term debt, 10% preferred stock, and 50% common stock equity

(retained earnings, new common stock, or both). The firm’s tax rate is 40%.

Debt The firm can sell for \$980 a 10-year, \$1,000-par-value bond paying annual

interest at a 10% coupon rate. A flotation cost of 3% of the par value is required

in addition to the discount of \$20 per bond.

Preferred stock Eight percent (annual dividend) preferred stock having a par

value of \$100 can be sold for \$65. An additional fee of \$2 per share must be paid

to the underwriters.

Common stock The firm’s common stock is currently selling for \$50 per share.

The dividend expected to be paid at the end of the coming year (2016) is \$4. Its

dividend payments, which have been approximately 60% of earnings per share in

each of the past 5 years, were as shown in the following table.

Year Dividend

2015 \$3.75

2014 3.50

2013 3.30

2012 3.15

2011 2.85

It is expected that to attract buyers, new common stock must be underpriced

\$5 per share, and the firm must also pay \$3 per share in flotation costs. Dividend

payments are expected to continue at 60% of earnings. (Assume that rr = rs.)

a. Calculate the after-tax cost of debt.

b. Calculate the cost of preferred stock.

c. Calculate the cost of common stock.

d. Calculate the WACC for Dillon Labs.

FIN 350 Week 8 Module 8 Practice Problems

Complete the following problems from chapter 10 in the textbook:

P10-4

P10-10

P10-11

P10-15

P10-21

P10-24

Do all work in Excel. Do not submit Word files or *.pdf files.

Submit a single spreadsheet file for this assignment, do not submit multiple files.

Place each problem on a separate spreadsheet tab.

Follow the directions in the “Guidelines for Developing Spreadsheets” located in the Course Materials.

FIN 350 Module 1 Discussion 1

Identify a party (other than stockholders) that can be classified as a stakeholder for a corporation. What obligation does the corporation have to this party? Describe a situation where stockholder claims on the organization might conflict with the claims of this stakeholder group. If you were CEO, how would you resolve these conflicts?

Identify a party (other than stockholders) that can be classified as a stakeholder for a corporation.

FIN 350 Module 1 Discussion 2

During the summer and fall of 2008, the U.S. financial system and financial systems around the world appeared to be on the verge of collapse. How did we get into this condition? What did we do to get out of it? How can we prevent another such scenario in the future?

FIN 350 Module 2 Discussion 1

Individuals performing ratio analysis include (1) banks evaluating potential loan applications from small businesses, (2) investment analysts evaluating the investment quality of a firm’s stock, and (3) internal management, assessing the firm’s current strengths and weaknesses. Select one of the three parties above, and for that party, identify which of the five ratio groups (liquidity, activity, debt, profitability, or market) would be of most value and which would probably be of least value. Explain the reasons behind your choices.

FIN 350 Module 2 Discussion 2

Who are the major policy makers for the Federal Reserve System and how do they rise to such an influential position? How do these policymakers influence national economic objectives? Refer to Figure 5.1 on page 100 of the textbook. What part of this relationship could be influenced by the citizens of the country? Why?

FIN 350 Module 3 Discussion 1

Is it possible for a firm to have a positive profit and yet have a negative cash flow? Describe a scenario under which this might occur? Where does the money from profits go in such a case?

FIN 350 Module 3 Discussion 2

If you were to examine the cash budgets of almost any organization, you would find distinct seasonal patterns of cash inflows and outflows. These patterns cause months during the year when almost every business is flush with cash, and other months in which things are extremely tight. Select an organization in which you are (were) employed, and describe the seasons of the year when this firm was flush with cash and the seasons when this firm was typically on a tight budget. Why did these times occur?

FIN 350 Module 4 Discussion 1

One of the basic financial principles is that the value of any asset (whether it be a stock, a bond, or a firm as a whole) is the present value of that asset’s future cash flows. As you learned in this chapter, finding present values requires determining a discount rate. Assume you want to buy a business, and you want to find the present value of its future cash flows. Name at least one variable you should consider in determining the correct discount rate to use and explain its role in discount rate determination. If possible, try to identify a variable that has not yet been mentioned by your classmates.

FIN 350 Module 4 Discussion 2

Look at the Focus on Ethics box (“How Fair Is Check Into Cash”) in Chapter 5 of the textbook. These, businesses quote an interest rate of 15% to loan customers (most of whom are fairly unsophisticated) and yet the EAR of the loan is close to 400%. Explain the wide discrepancy between these rates. What do you believe is the correct regulatory response to these types of lenders?

FIN 350 Module 5 Discussion 1

There is an inverse relationship between interest rate changes and changes in the market price of outstanding bonds. Explain the logic behind this principle. Given this relationship, do you believe it is currently a good time to buy bonds? Why or why not?

FIN 350 Module 5 Discussion 2

Agencies such as Moody’s, Fitch, and Standard & Poor’s rate the default risk of various municipal and corporate bonds. While their rating systems are proprietary, it is widely known that they rely on financial ratios as key inputs to their bond ratings. Which financial ratios (list at least two) do you believe would be the most helpful to rate corporate bonds? Why?

FIN 350 Module 6 Discussion 1

Several stock valuation models were described in the chapter, including zero-growth, constant growth, variable growth, free cash flow, book value, and P/E multiple models. Which of these do you believe would generate the most accurate value estimates for most firms? Explain your choice.

FIN 350 Module 6 Discussion 2

Read the Focus on Ethics box (“Psst! Have You Heard Any Good Quarterly Earnings Forecasts Lately?”). Explain what quarterly earnings guidance is, and what purpose it is supposed to serve. If you were a corporate CEO, would you discontinue this practice? Why or why not?

FIN 350 Module 7 Discussion 1

Diversification occurs when stocks with low correlations of returns are placed together in a portfolio. Identify at least one type of firm that might exhibit low correlations of returns with the overall stock market? Explain why the correlations of these firms are expected to be low.

FIN 350 Module 7 Discussion 2

In general, the cost of debt capital is lower than the cost of equity capital. For this reason, it might be expected that firms with high debt ratios would have a lower weighted average cost of capital. Explain at least one reason why this is not the case.

FIN 350 Module 8 Discussion 1

Which capital investment technique does the discussion in the textbook favor? Why? Do you agree with this assessment?

FIN 350 Module 8 Discussion 2

Assume your firm has multiple investments to consider each with differing risk levels. How can differing risk levels be incorporated into NPV analysis? How can they be incorporated into IRR analysis?