My Finance Lab

  

Hi there, I need your help with the following: Homework 8: They are six questions.Final Exam: it is 11 questions. I need you to do the same you did for the midterm; however, this time I need the word file and the screen shots you will take to be combined in only one PDF file like the attached one. The attached is an example for the mid-term, I collected them all together. You need to do the same for the final exam. This is 50% of the credit in my grades. Thank you,
mid_term_answers.pdf

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Answer of Question No: 01
(a) Gross Income = (Revenue – Cost of Goods Sold) = (4517000 -3320000) = 1197000
(b) Operating Income = (Gross Income – Operating Expense) = 1197000 – 447000 = 750000
(c) Income before Tax = (Operating Income – Interest Expense) = (750000 -0) = 750000
(d) Tax Expense = (750000*34%) = 255000
(e) Net Income = (Income before Tax – Tax Expense) = (750000 – 255000) = 495000
Answer of Question No: 02
(a) Shareholder’ Equity = (Total Assets – Total Liabilities) = (50800 + 249500) – (29700 + 100400) =
170200
(b) Net Working Capital = Total Current Asset – Total Current Liabilities = (50800 – 29700) = 21100
(c) For accounts payable of $20800 and short term debt of $8900, total current liabilities be $29700.
Thus, working capital be $21100 (50800 – 29700).
Answer of Question No: 03
(a) Common Size Balance Sheet: Each of the components of the balance sheet has been considered as a
percentage of the total assets.
Cash & Cash Equivalents = (520/33030) = 1.6%
Accounts Receivables = (6020/33030) = 18.2%
Inventories = (9510/33030) = 28.8%
Current assets = (16050/33030) = 48.6%
Net Property, Plant, and Equipment = (16980/33030) = 51.4%
Total Asset = (33030/33030) = 100.0%
Accounts Payable = (7220/33030) = 21.9%
Short Term Debt = (6790/33030) = 20.6%
Current Liabilities = (14010/33030) = 42.4%
Long Term Liabilities = (7010/33030) = 21.2%
Total Liabilities = (21020/33030) = 63.6%
Total Owner’s Equity = (12010/33030) = 36.4%
Total Liabilities and Owner’s Equity = (33030/33030) = 100.0%
(b) Common Size Income Statement: Each of the components of the Income Statement has been
considered as a percentage of the total revenue.
Revenue = (30050/30050) = 100.0%
Cost of Goods Sold = (19960/30050) = 100.0%
Gross Profit = (10090/30050) = 100.0%
Operating Expense = (8030/30050) = 100.0%
Net Operating Income = (2060/30050) = 100.0%
Interest Expense = (940/30050) = 100.0%
Earnings before Tax = (1120/30050) = 100.0%
Taxes = (407/30050) = 1.4%
Net Income = (713/30050) = 2.4%
Answer of Question No: 04
(a) Present Value of $11000 in 10 years at 15% interest rate = [11000/(1+15%)10] = 2719.03
(b) Present Value of $34000 in 24 years at 15% interest rate = [34000/(1+15%)24] = 1187.77
(c) Picked up option A as 2719.03 > 1187.77 > 10000.
Answer of Question No: 05
(a) EAR (19% nominal Rate, payable Semiannually) = [1+ (0.19/2)](2*1) -1 = 19.90%
(b) EAR (21% nominal Rate, payable quarterly) = [1+ (0.21/4)](4*1) -1 = 22.71%
(c) Picked up option A as 19.90% < 22.71%. Answer of Question No: 06 (a) Future Value after 43 years = FVIFA (8%, 43 Years) * PMT = (329.5830*5600) = 1845664.83 (b) Future Value after 33 years payment = FVIFA (8%, 33 Years) * PMT = (145.9506*5600) = 817323.47 Answer of Question No: 07 (a) Money Borrowing = (120000 -25000) = 95000 (b) Annual Payment, PMT = 95000 / PVIFA (14%, 30 Years) = (95000 /7.002664) = 13566.27 Answer of Question No: 08 Annual Savings, PMT = 1800000 / FVIFA (11%, 35 Years) = (1800000 /341.5895548) = 5269.48 Answer of Question No: 09 (a) Annual Return = Capital Gain + Dividend Yield = [(897-1410)/1410] + 3.5% = (32.88%) (b) Picked up option D in consideration of the diversification benefit in making investment to a number of stocks. Answer of Question No: 10 (a) Expected Value = [(5%*100%) + (30%*30%) +(60%*15%) +(5%*-100%)] =18.00% (b) Picked up option A as investment preference and risk taking tendency of an investor depends upon his/her risk tolerance level. Answer of Question No: 11 (a) Expected Increase AAPL = (2.88*10.00%) = 28.8% DELL = (1.51*10.00%) = 15.1% HPQ = (1.34*10.00%) = 13.4% AEP = (0.65*10.00%) = 6.5% DUK= (0.35*10.00%) = 3.5% CNP = (0.97*10.00%) = 9.7% (b) Expected Decrease AAPL = (2.88*10.00%) = 28.8% DELL = (1.51*10.00%) = 15.1% HPQ = (1.34*10.00%) = 13.4% AEP = (0.65*10.00%) = 6.5% DUK= (0.35*10.00%) = 3.5% CNP = (0.97*10.00%) = 9.7% (c) Utilities stocks are less volatile due to comparatively lower values of beta, and less sensitiveness of the movement with the overall market movement. Answer of Question No: 12 (a) Beta of First Portfolio = [(2.20*20%) + (1.10*20%) +(0.40*30%) +(-1.30*30%)] = 0.390 Beta of Second Portfolio = [(2.20*30%) + (1.10*30%) +(0.40*20%) +(-1.30*20%)] = 0.810 (b) Picked up option A as due to 0.810 > 0.390.
(c) Required Rate of Return of First Portfolio = [4.5% + (7.5%*0.390)] = 7.43%
Required Rate of Return of Second Portfolio = [4.5% + (7.5%*0.810)] = 10.58%
Answer of Question No: 13
(a) PMT = -45, PV = 825, FV =-1000, n =28 in Excel Rate = 5.778%, YTM = (5.778%*2) = 11.55%
(b) PMT = -45, PV = 825, FV =-1000, n =56 in Excel Rate = 5.515%, YTM = (5.515%*2) = 11.03%
(C) PMT = -45, PV = 825, FV =-1000, n =14 in Excel Rate = 6.435%, YTM = (6.435%*2) = 12.87%
Answer of Question No: 14
(a) Present Value of AA rated Bond
PMT = -30, FV =-1000, n =34, i = 4% in Excel PV = 815.89
(b) Present Value of A rated Bond
PMT = -30, FV =-1000, n =34, i = 4.5% in Excel PV = 741.30
Answer of Question No: 15
(a) PMT = -80, PV = 1125, FV =-1000, n =14 in Excel Yield to Maturity, i = 6.60%
(b) PMT = -80, FV =-1000, n =14, i = 5.0% in Excel PV = 1296.96
(c) As intrinsic value =1296.96 > current market value = 1125, bond can be considered as undervalued
and be suggested to purchase.
Answer of Question No: 16
(a) Picked up option B as for lower bond rating investor will demand more return, and issuer will require
to pay more interest rate.
(b) Picked up option A as for higher bond rating investor will demand less return, and issuer will require
to pay less interest rate. Also, there is a negative relationship in between interest rate and bond price.
(c) Picked up option B as except share price all other factors has impact on the interest rate offered in
bond issuance.
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