Problem (2-4)

Talbot Enterprises recently reported an EBITDA of $8 million and net income of $2.4 million. It had $2.0 million of interest expense, and its corporate tax rate was 40%. What was its charge for depreciation and amortization?Problem (3-11)
Complete the balance sheet and sales information in the table that follows for J. White Industries using the following financial data:
Total assets turnover: 1.5
Gross profit margin on sales: (Sales - Cost of goods sold)/Sales = 25%
Total liabilities-to-assets ratio: 40%
Quick ratio: 0.80
Days sales outstanding (based on 365-day year): 36.5 days
Inventory turnover ratio: 3.75

Problem (12-2)
Refer to Problem 12-1.
What would be the additional funds needed if the company's year-end 2013 assets had been $7 million?
Assume that all other numbers, including sales, are the same as in Problem 12-1 and that the company is operating at full capacity.
Why is this AFN different from the one you found in Problem 12-1?
Is the company's "capital intensity" ratio the same or different?

Question (13-4)
What are some actions an entrenched management might take that would harm shareholders?

Question (13-5)
How is it possible for an employee stock option to be valuable even if the firm's stock price fails to meet shareholders' expectations?

Problem (4-8)
You want to buy a car, and a local bank will lend you $20,000. The loan would be fully amortized over 5 years (60 months), and the nominal interest rate would be 12%, with interest paid monthly. What is the monthly loan payment? What is the loan's EFF%?

Problem (4-13)
Find the present value of the following ordinary annuities (see the Notes to Problem 4-12).

a. $400 per year for 10 years at 10%
b. $200 per year for 5 years at 5%
c. $400 per year for 5 years at 0%
d. Now rework parts a, b, and c assuming that payments are made at the beginning of each year; that is, they are annuities due.

Problem (4-21)
Sales for Hanebury Corporation's just-ended year were $12 million. Sales were $6 million, 5 years earlier.
a. At what rate did sales grow?
b. Suppose someone calculated the sales growth for Hanebury in part a as follows: "Sales doubled in 5 years. This represents a growth of 100% in 5 years; dividing 100% by 5 results in an estimated growth rate of 20% per year. " Explain what is wrong with this calculation.

Problem (5-9)
The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year.

a. What will be the value of each of these bonds when the going rate of interest is (1) 5%, (2) 8%, and (3) 12%? Assume that there is only one more interest payment to be made on Bond S.
b. Why does the longer-term (15-year) bond fluctuate more when interest rates change than does the shorter-term bond (1 year)?

Problem (5-13)
You just purchased a bond that matures in 5 years. The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%. What is the bond's yield to maturity?

Problem (6-6)
The market and Stock J have the following probability distributions:

Probability rM rJ

0.3 15% 20%
0.4 9 5
0.3 18 12

a. Calculate the expected rates of return for the market and Stock J.
b. Calculate the standard deviations for the market and Stock J.

Problem (6-8)
As an equity analyst you are concerned with what will happen to the required return to Universal Toddler Industries ' s stock as market conditions change. Suppose rRF = 5%,
rM =12%, and bUTI = 1.4.

a. Under current conditions, what is r UTI, the required rate of return on UTI stock?
b. Now suppose rRF (1) increases to 6% or (2) decreases to 4%. The slope of the SML remains constant. How would this affect rM and r UTI?
c. Now assume rRF remains at 5% but rM (1) increases to 14% or (2) falls to 11%. The slope of the SML does not remain constant. How would these changes affect rUTI?

Problem (7-17)
Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of 8%. The company's weighted average cost of capital is 12%.

a. What is the terminal, or horizon, value of operations? (Hint: Find the value of all free cash flows beyond Year 2 discounted back to Year 2.)

b. Calculate the value of Kendra's operations.

Problem (8-3)

Assume that you have been given the following information on Purcell Industries:

Current stock price = $15 Strike price of option = $15
Time to maturity of option = 6 months Risk-free rate = 6%
Variance of stock return = 0.12
d1 = 0.24495 N(d1) = 0.59675
d2 = 0.00000 N(d2) = 0.50000

According to the Black-Scholes option pricing model, what is the option's value?

Problem (9-7)
Shi Importer's balance sheet shows $300 million in debt, $50 million in preferred stock, and$250 million in total common equity. Shi ' s tax rate is 40%, rd = 6%, rps = 5.8%, and rs = 12%.If Shi has a target capital structure of 30% debt, 5% preferred stock, and 65% common stock, what is its WACC?

Problem (9-11)
Radon Homes's current EPS is $6.50. It was $4.42 5years ago. The company pays out 40%of its earnings as dividends, and the stock sells for $36.
a. Calculate the historical growth rate in earnings. (Hint: This is a 5-year growth period.)
b. Calculate the next expected dividend per share, D1. (Hint: D0 = 0.4($6.50) = $2.60.) Assume that the past growth rate will continue.
c. What is Radon's cost of equity, rs?