FIN 5409 — CORPORATE FINANCE

Final Exam -June 2014

1List and explain (with examples) the three functions of a Financial Manager.

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2ABC COMPANYAs of 12/30/2012ABC CompanyMonth ending

AssetsLiabilities & EquityIncome Statement12/30/2012

Cash$1,000 Accounts Payable Loans$1,000 Sales$50,000

Accounts Receivable$2,000 Accounts Payable Inventory $2,000 Cost of sales$25,000

Inventory$3,000 Gross Profit$25,000

Total Current Assets$6,000 Total Current Liabilities$3,000 Salaries & Benefits$8,000

Operating Expenses$10,000

Plant & Property $10,000 Long term debt$8,000 EBIDT$7,000

Equity$5,000 Depreciation$1,000

Total Assets$16,000 Total Liabilities & equity$16,000 Interest$1,500

Taxes$2,000

Shares outstanding2,500NIAT$2,500

Beta1.25

Return on Equity

Calculate:Return on Assets

Debt to equity Ratio

3Assume you are a bank and ABC Company in Question 2 is asking you for a working capital line of credit to purchase inventory.

List two financial ratios you would use to make your decision. Calculate the ratios Using the financial data from question 2. Explain  why you selected each ratio.

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4Calculate the missing amounts:

2

Present ValueInterest RatePeriodsPaymentsFuture Value

$1,000.00 8%10Years$500 per quarter

$1,870.00 12%5YearsMonth$10,000.00 

$2,675.00 24%Months$75 Month$0.00 

$3,450.00 8Years$250 Annually$4,000.00 

4%30Years$758 Monthly$0.00 

5You are considering purchasing the bond described below:

Face Value$1,000

YTM8

Coupon Rate10%

Coupon PaymentsSemi-annually

You are looking for an annual return of 14%.

How much would you pay for the Bond (Use Excel Financial Functions)

$1,000 at Maturity value

Coupon payments value

Total Bond PV

6You are considering purchasing the stock described below: You expect to hold the stock for 5 years and then sell it for a capital gain of 100%.  You are also looking for a return of 16% on an average beta stock.

Today’s price$20.00

Dividends$2.00 Paid quarterly

Beta1.12.

Using the Excel financial formulas, calculate the amount you would pay for the Stock.

7Your company is trying to decide between the following equal risk investments. It’s required return is 18%

YearInvestment/IncomeYearInvestment/Income

0($10,000)0($20,000)

1$2,000 1$5,000

2$5,000 2$6,000

3($5,000)3$6,000

4$20,000 4$22,000

NPVNPV

IRRIRR

Which one should it chose– Why?

8A Company has a tax rate of 30% and  the following debt/equity structure:

AmountInterest rate

Debt$30,000 8%

Preferred Stock$10,000 10%

Equity$30,000 18%

Calculate the firms WACC (Weighted Average Cost of Capital)(show your work)

9Describe the relationship between:  (give an example)

a.Capital structure

b.Leverage

c.Risk

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