PROBLEM #1:
In your textbook, use the financial statements (and additional assumptions below) for Hatfield from the Mini Case at the end of Chapter 12 (p. 519) to answer the questions.
A. Using the "Selected Additional Data" from the Mini Case, perform an abbreviated financial analysis and comment on Hatfield's strengths and weaknesses relative to the industry within the areas of Liquidity, Asset Management, Debt Management, Profitability, and Market Value.
B. Using the following assumptions, create forecasted (pro forma) financial statements for Hatfield and find AFN. Please be sure to show all work as neatly as possible, and you should complete at least two passes. Additional assumptions:
- Expected Sales Growth of 10%
- Interest Rate of all Debt is 8%
- Hatfield is operating at full capacity
- Tax rate is 40%
- Dividend Payout Rate will remain the same as prior year
- Any AFN will be raised using a Line of Credit
PROBLEM #2:
Use the following table to answer the questions:
|
State of Economy
|
Prob.
|
T-Bills
|
High Tech, Inc.
|
Contra, Inc.
|
Market Portfolio
|
|
Recession
|
0.1
|
2%
|
-30%
|
18%
|
-12%
|
|
Below Avg.
|
0.4
|
2%
|
-5%
|
12%
|
0%
|
|
Average
|
0.3
|
2%
|
10%
|
8%
|
10%
|
|
Above Avg.
|
0.1
|
2%
|
20%
|
0%
|
15%
|
|
Boom
|
0.1
|
2%
|
25%
|
-10%
|
22%
|
|
Beta
|
|
0.00
|
1.50
|
0.75
|
1.00
|
A. Calculate the expected rate of return (ER), standard deviations, and coefficients of variation (CV) for T-Bills, High Tech, and Contra.
B. Based on your CV calculations above, should you choose High Tech or Contra?
C. Using the Security Market Line (SML) equation from the CAPM, calculate the required rates of return for each investment (T-Bills, High Tech, and Contra). How do these returns compare to the ERs found earlier in Part A?
PROBLEM #3:
You plan to buy a new house for $250,000. You will definitely put $50,000 down, but you are unsure as to how to finance the remainder. The bank will give you a 30-year loan at an annual rate of 5% compounded monthly (first payment in one month). But, you also know that a mortgage broker will give you a 20-year loan with quarterly payments of $4,200.
A. Calculate the effective annual rate (EAR) for each loan.
B. Based on your answer to Part A, which loan should you choose? Briefly explain.
PROBLEM #4:
Your child is going to start college in Fall 2026. The annual tuition today is $32,000, and it is expected to grow by 3% annually until that year. For simplicity, you may assume that tuition will remain constant at the 2026 rate for the four years that your child attends. You expect to pay this constant tuition in Fall 2026, 2027, 2028, and 2029. Assume a rate of return of 7% a year on your deposits.
A. You plan to make 6 equal annual deposits starting today and running throughFall 2021 that will be sufficient to pay the expected tuition. How much should these deposits be?
B. After having made the first 4 deposits as planned, you learn that tuition will actually be $48,000 a year for the four years. Two more of the original planned deposits will not be enough to pay for the four years of tuition. Instead of the last two planned deposits, what amount should the last two deposits be such that the four $48,000 tuition bills are covered?
PROBLEM #5:
In your textbook, answer all parts to Problem #4-20 on page 182.