FIN 203 Final Review Essay

Name____________________________________

FIN 203

GEHY

Signature________________________

FRANK G. ZARB SCHOOL OF BUSINESS

HOFSTRA COLLEGE OR UNIVERSITY

December 18, 2013

FINAL EXAM

SAMPLE

Answer any 4 away of five questions. If you answer every five inquiries, Question five will be lowered.

1 . You may have $100, 500 invested in this portfolio. $55, 000 is invested in IBM: Economic downturn

Normal

Growth

a.

m.

c

d.

e.

Likelihood of Express of Economic system

0. 12-15

0. sixty five

0. 20

IBM

zero. 05

zero. 08

0. 13

TWTR

-0. 17

0. 12

0. up to 29

What is the expected return and common deviation of every stock? Precisely what is the portfolio expected come back and normal deviation? You are considering adding another stock, DNKN, with a beta of 1. a few to the stock portfolio. The market risk premium is definitely 8% and the risk-free charge is installment payments on your 5%. What is the anticipated return with this asset? You choose to open a unique account for another securities firm. Your goal is always to have a portfolio beta of 1. 12. The portfolio consists of twenty percent U. S. Treasury expenses, 50% inventory A, and 30% inventory B. Stock A contains a risklevel corresponding to that of the overall market. What is the beta of inventory B? Please interpret what this beta measure symbolizes relative to the beta from the market.

What is the difference among systematic and unsystematic risk? Be sure to talk about which is diversifiable risk and non-diversifiable risk.

2 .

Year

A

0

-400, 500

1

fifty-five, 000

2

55, 500

3

55, 000

four

225, 1000

5

225, 000

The discount rate is 10%. These are 3rd party projects.

a)

b)

c)

d)

The length of time does every project take to payback over a nominal basis? What about on the discounted basis? Which project(s) would you select if you applied the NPV method? So why? Which project(s) would you select if you utilized the IRR methods. For what reason? If these were mutually exclusive assignments, what is the cross-over level for these two projects? Clarify the significance of the rate.

Explain to Grandma the challenge of multiple rates of returns underneath the IRR approach? Under what conditions can you have multiple IRRs?

e)

B

-600, 000

three hundred, 000

300, 000

60, 000

50, 000

60, 000

3.

SummerTyme Inc is considering a new 3 year development project that needs an initial set asset investment of $3. 9 , 000, 000. The fixed asset will probably be depreciated straight-line to absolutely no over its three-year existence, after which time it will be worthless. The project is predicted to generate $2, 650, 500 in annual sales, with costs of $840, 500. The duty rate is 35%. The discount level is 12%.

a.

w.

c.

deb.

What is the OCF every year for this task?

Assuming the necessary return on this project is usually 12%, precisely what is the project's NPV? Precisely what is the project's IRR? Should you accept or perhaps reject this project? Suppose the job requires a preliminary investment in net seed money of 300 dollar, 000, plus the fixed advantage will have a market value of $210, 1000 at the end with the project. Precisely what is the project's year zero net cash flow? Year you? Year two? Year three or more? What is the newest NPV?

Go over how sunk costs, option costs, side effects, financing costs, and fees should be treated in capital budgeting examination and how come. Limit your answer to two sentences for each.

e.

some.

Evenflow Corp has 9 million stocks of prevalent stock spectacular, 250, 500 shares exceptional of favored stocks, and 8, 500 semiannual bonds outstanding.

a.

b.

c.

a.

w.

c.

d.

e.

There are 8, 000 semiannual bonds paying a 6. five per cent coupon with 20 years to maturity and currently advertising for $920 per 1000 dollar face value.

The preferred stocks are selling to get $93 paying $5constant returns. The current selling price of the stock is $57 and the beta is 1 . 05. The marketplace risk premium is 8% and some. 5% risk-free rate.

Precisely what is the measured average expense of capital (WACC) if the minor tax level is 35%? If the cashflow from assets are -$135, 000 in year 0, $46, 000 in yr 1, $57, 000 in year a couple of, and $62, 000 in year a few, should the organization accept or reject the project?

The floatation costs for providing debt, desired stock and common...



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