here are the questions:
1. Which of the following statements is correct? (Points : 5)
The MIRR and NPV decision criteria can never conflict.
The IRR method can never be subject to the multiple IRR problem, while the MIRR
method can be.
One reason some people prefer the MIRR to the regular IRR is that the MIRR is based
on a generally more reasonable reinvestment rate assumption.
The higher the WACC, the shorter the discounted payback period.
The MIRR method assumes that cash flows are reinvested at the crossover rate.
2. The ABC Corporation's budgeted monthly sales are $4,000. In the first month, 40% of
its customers pay and take the 3% discount.
The remaining 60% pay in the month following the sale and don't receive a discount.
ABC's bad debts are very small and are excluded from this analysis.
Purchases for next month's sales are constant each month at $2,000. Other payments
for wages, rent, and taxes are constant at $500 per month.
Construct a single month's cash budget with the information given. What is the average
cash gain or (loss) during a typical month for the ABC Corporation?
3. Chua Chang & Wu Inc. is planning its operations for next year, and the CEO wants
you to forecast the firm's additional funds needed (AFN). The firm is operating at full
capacity. Data for use in your forecast are shown below. Based on the AFN equation,
what is the AFN for the coming year?
Last year's sales = Last year's accounts
Sales growth rate = Last year's notes
Last year's total
$135,000 Last year's accruals $20,000
assets = A0*
Last year's profit
20% Target payout ratio 25%
margin = PM
4. Zervos Inc. had the following data for 2008 (in millions). The new CFO believes (a)
that an improved inventory management system could lower the average inventory by
$4,000, (b) that improvements in the credit department could reduce receivables by
$2,000, and (c) that the purchasing department could negotiate better credit terms and
thereby increase accounts payable by $2,000. Furthermore, she thinks that these
changes would not affect either sales or the costs of goods sold. If these changes were
made, by how many days would the cash conversion cycle be lowered?
Annual sales: unchanged
Cost of goods sold:
unchanged $110,000 $110,000
Average inventory: $80,000 $80,000
lowered by $4,000 $20,000 $16,000
Average receivables: $16,000 $14,000
lowered by $2,000 $10,000 $12,000
Average payables: 365 365
increased by $2,000
Days in year
5. A firm buys on terms of 2/8, net 45 days, it does not take discounts, and it actually
pays after 58 days. What is the effective annual percentage cost of its nonfree trade
credit? (Use a 365-day year.)
6. (TCO E) Daves Inc. recently hired you as a consultant to estimate the company's
WACC. You have obtained the following information. (1) The firm's noncallable bonds
mature in 20 years, have an 8.00% annual coupon, a par value of $1,000, and a market
price of $1,050.00. (2) The company's tax rate is 40%. (3) The risk-free rate is 4.50%,
the market risk premium is 5.50%, and the stock's beta is 1.20. (4) The target capital
structure consists of 35% debt and the balance is common equity. The firm uses the
CAPM to estimate the cost of common stock, and it does not expect to issue any new
shares. What is its WACC?
7. Zhdanov Inc. forecasts that its free cash flow in the coming year, that is, at t = 1, will
be -$10 million, but its FCF at t = 2 will be $20 million. After Year 2, FCF is expected to
grow at a constant rate of 4% forever. If the weighted average cost of capital is 14%,
what is the firm's value of operations, in millions?
8. Based on the corporate valuation model, Bernile Inc.'s value of operations is $750
million. Its balance sheet shows $50 million of short-term investments that are unrelated
to operations, $100 million of accounts payable, $100 million of notes payable, $200
million of long-term debt, $40 million of common stock (par plus paid-in-capital), and
$160 million of retained earnings. What is the best estimate for the firm's value of equity,