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Final Exam Page 1 1. (TCO A) Which of the following does NOT always increase a orders market value? (Points 5) change magnitude the expected step-up rate of sales Increasing the expected operating profitability (NOPAT/Sales) Decreasing the large(p) requirements (Capital/Sales) Decreasing the weighted average cost of capital Increasing the expected rate of return on invested capital 2. (TCO F) Which of the following statements is correct? (Points 5) For a project with normal cash flowings, any change in the WACC will change both the NPV and the IRR.To bump the MIRR, we prototypic compound cash flows at the regular IRR to find the TV, and then we discount the TV at the WACC to find the PV. The NPV and IRR methods both assume that cash flows can be reinvested at the WACC. However, the MIRR method assumes reinvestment at the MIRR itself. If two projects have the same cost, and if their NPV profiles cross in the swiftness properly quadrant, then the project with the higher IRR probably has more of its cash flows coming in the later years.If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the lower IRR probably has more of its cash flows coming in the later years. 3. (TCO D) The Ramirez Companys last dividend was $1. 75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends be expected to grow at a rate of 6% forever. Its required return (rs) is 12%. What is the best estimate of the current stock price? a. $41. 58 b. $42. 64 c. $43. 71 d. $44. 80 e. $45. 92(Points 20) 4. TCO G) The first principle Corporations budgeted monthly sales are $4,000. In the first month, 40% of its customers pay and take the 3% discount. The runing 60% pay in the month following the sale and dont receive a discount. ABCs full-grown debts are very small and are excluded from this analysis. Purchases for next months sales are constant each month at $2,000. Other payment s for wages, rent, and taxes are constant at $500 per month. Construct a single months cash budget with the information given. What is the average cash gain or (loss) during a typical month for the ABC Corporation? (Points 20) 5. TCO G) Clayton Industries is planning its operations for next year, and Ronnie Clayton, the CEO, wants you to forecast the firms 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? Dollars are in millions. Last years sales = S0 $350 Last years accounts payable $40 Sales growth rate = g 30% Last years notes payable $50 Last years total assets = A0* $500 Last years accruals $30 Last years profit margin = PM 5% Target payout ratio 60% a. $102. b. $108. 2 c. $113. 9 d. $119. 9 e. $125. 9 (Points 30) Final Exam Page 2 1. (TCO H) Desai Inc. has the following data, in thousands. expect a 365-day year, what is the firms cash co nversion cycle? Annual sales = Annual cost of goods sold = Inventory = Accounts receivable = Accounts payable = $45,000 $30,000 $4,500 $1,800 $2,500 a. 28 days b. 32 days c. 35 days d. 39 days e. 43 days (Points 30) 2. (TCO C) 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. ) a. 14. 34% b. 15. 10% c. 15. 89% d. 16. 69% e. 17. 52%(Points 30) 3. (TCO E) Daves Inc. recently hired you as a consultant to estimate the companys WACC. You have obtained the following information. (1) The firms 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 companys tax rate is 40%. (3) The risk-free rate is 4. 50%, the market risk insurance premium is 5. 50%, and the stocks beta is 1. 20. (4) The target capital structure consists of 35% debt and the balance is common e quity.The firm uses the CAPM to estimate the cost of common stock, and it does not expect to fill in any new shares. What is its WACC? a. 7. 16% b. 7. 54% c. 7. 93% d. 8. 35% e. 8. 79%(Points 30) 4. (TCO B) Leak Inc. forecasts the free cash flows (in millions) shown below. If the weighted average cost of capital is 11% and FCF is expected to grow at a rate of 5% after Year 2, what is the Year 0 value of operations, in millions? Assume that the ROIC is expected to remain constant in Year 2 and beyond (and do not make any half-year adjustments). Year 1 2 Free cash flow -$50 $100 a. $1,456 b. 1,529 c. $1,606 d. $1,686 e. $1,770(Points 35) 5. (TCO G) Based on the corporate valuation model, Hunsaders value of operations is $300 million. The balance sheet shows $20 million of short-term investments that are unrelated to operations, $50 million of accounts payable, $90 million of notes payable, $30 million of long-term debt, $40 million of preferred stock, and $100 million of common e quity. The company has 10 million shares of stock outstanding. What is the best estimate of the stocks price per share? a. $13. 72 b. $14. 44 c. $15. 20 d. $16. 00 e. $16. 80(Points 35)