FIN615 Final Exam Fall 2017 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 Library 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% (34 000) (13 500) 25% (8 500) 2 125 30% 17 000 19 000 25% 42 500 31 875 10% 68 000 46 750 a) Expected value b) 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 Year 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 2000-2015 Year 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 2000-2015 period? ____________________________________________________________- 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 breakeven quantity per month? 14. If the fixed costs are reduced to $4800 per month what is the new breakeven 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% Preferred 50 000 shares of 3% par value $100 stock. Current price $63.00. Common stock 72 000 shares currently selling for $87.00. The 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 preferred 18. Cost of equity 19. WACC Use the following data for the remaining problems. Capstone Quarry 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 Quarry Company Contract Analysis Amount of Rock Salt per Year 23 000 Tons Revenue per Ton $ 145 Cost of Equipment $ 2 750 000 Life(years) 5 MACRS Class 5 Fixed Cost per year $ 475 000 Var Cost/Ton $ 85 Actual Salvage $ 105 000 Change in NWC $ 85 000 Required Return 12% Tax Rate 34% 20. Find the cash flows for each year 21. Net present value 22. Payback period 23. Discounted payback 24. IRR 25. MIRR Hint: Annual Cash Flows for Capstone Quarry 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
