1. You own a classic automobile that is currently valued at $150,000. if the value increases by 6.5 percent annually, how much will the automobile be worth ten years from now?
2. Crandall Oil has total sales of $1,349,800 and costs of $903,500. Depreciation is $42,700 a year and the tax rate is 34 percent. The firm does not have any interest expense. Last year, the firm spent $40,000 on fixed assets, and it increased net working capital by $10,000.
a) Construct a pro forma income statement
b) What's the EB1T?
c) What's the operating cash flow (OCF)?
d) What is the Cash flow from assets (CFFA)?
3. A Life Insurance is selling a perpetuity contract that pays $1,900 a month. The contract sells for $150,000.
a) What's the monthly return this contract?
b) What's the APR?
c) What's the Effective Annual Return (EAR)?
4. Oscar's Dog House has net profit of $56,000 and sales of $1,000,000. It has total asset of $8,000,000. Its book value (equity) is $5,300,000 and it pays out 35% of earnings as dividend.
a) What's its net profit margin, equity multiplier and total asset turnover ratio?
b) What is the return on equity (ROE) using the DuPont Identity?
5. A stock has a beta of 1.5. The market currently has risk free rate of 4% and the expected return of 12%.
a) What is the current market risk premium?
B) What are the three factors under CAPM to determine a stock return?
C) What is the expected return on this stock according to CAPM?
6. You would like to give your daughter $75,000 towards her college education 17 years from now. How much money must you set aside today for this purpose if you can earn 8 percent on your investments?
7. You are considering a project that requires $13,000 investment. The project will provide annual cash inflows of $4,500, $5,700, and $8,000 at the end of each year for the next three years, respectively.
a) What is the present value of these cash flows, given a 10% discount rate?
b) What's the net present value (NPV)?
c) What is the IRR of this project? (Write out the equation, no calculation necessary)
8. XYZ bank has an issue of preferred stocks with a $1.5 annual dividend per share. It's quoted at $30 per share. XYZ wants to sell more preferred to raise capital.
What's the cost of its preferred?
9. Spencer Tools would like to offer a special product to its best customers. It requires $55000 of investment for new equipment, and use a 5-year depreciation schedule.
The fixed costs are estimated at $21,000. The product sells for $22.50 per unit and variable cost is $10 per unit.
a) What's the depreciation tax shield a year?
b) What is accounting breakeven units?
c) What's cash break-even units?
d) What's the DOL at the accounting breakeven units?
10. ABC Corp. has a stock market value of $1 billion. It has long term debt of $500 million outstanding at the borrowing cost of 7%. Its stock has a beta of 1.2 and the market return is 10% with a risk free rate of 4%. Its tax rate is 35%.
a) What's company cost of equity under CAPM?
b) What's company after tax cost of debt?
c) What's the company's WACC?