# Finance

Nov 2nd, 2013
Steve1995
Category:
Price: \$20 USD

Question description

Honda Motor Company is considering offering a \$3,000 rebate on its minivan, lowering the vehicle’s price from \$32,000 to \$29,000. The marketing group estimates that this rebate will increase sales over the next year from \$42,000 to \$58,000 vehicles. Honda’s profit margin with the rebate is \$4,000 per vehicle.  If the change in sales is the only consequence of this decision, what are its benefits and costs? Is it a good idea?

The benefits are \$_________ millions. (round to 1 decimal)

2. Suppose the current market price of corn is \$4.50 per bushel, your firm has a technology that can convert, bushel of corn 3 gallon of ethanol. If the cost of conversion is \$ 1.92 per bushel, at what  market price of ethanol does conversion become attractive?

The price at which the con version becomes attractive is\$ ____________ per gallon. (round to nearest cent.)

3. Suppose the risk-free interest rate is 2%

A. Having \$100 today is equivalent to having what amount in one year?

It is equivalent to having \$ ____________ in one year.(round to the nearest cent.)

4. Your firm has a risk-free investment opportunity where it can invest \$165,000 today and receive \$180.000 in one year.

For what level of interest rate is this project attractive?

The project will be attractive when the interest rate is any positive value less than or equal to  _________%(round to 2ndecimal places.)

5. Your firm has identified three potential investment projects. The project and their cash flows are shown below:

Project  Cash Flow Today Millions  Cash Flow in One Year Million

A.  -\$9.00  \$21.00

B.  \$4.00  \$4.00

C.  \$21.00  -\$9.00

Supposed all cash flow are certain and the risk-free, interest rate .38%

A.  What is the NPA of each project?

The NPV of project A is \$_______________ million. (round to 2 decimal places)

6. What is the present value of \$9,000 received

A. 13 years from today when the interest rate is 8% per year.

B. 22 years from today when the interest rate is 10% per year?

C. 7  years from today when the rate is 4% per year?

A. The present value is \$ ______________. (round to the nearest dollars.)

7. Your daughter is currently 7 years old. You anticipate that she will be going to college in 11 years. You would like to have \$120,000., in a savings account to fund her education at that time. If the accounts promises to pay a fixed interest rate of 6% per year, how much money do you need to put into the account today to ensure that you will have \$120,000 in 11 years?

Your deposit to should be \$ ________. (round to dearest dollars.)

8. Suppose you receive \$150 at the end of each year for the next three years

A. Interest rate is 7% what is he present value of these cash flows\$ ____________.(round to the nearest )

9. You have just received a windfall from an investment you made in a friend’s business. He will be paying you \$11,000 at the end of this year, \$22,000 at the end of the following years, and \$33,000 at the end of the year. After that (three years from today). The interest rate is 6.0% per year

A. What is the present value of your windfall?

The present value of your windfall \$ ______________, (round to the nearest dollars.)

10. You have an investment opportunity that requires an initial investment of \$ 9,500 today and will pay  \$ 12,000 in one year. What is the IRR of this opportunity?

Internal rate of return (IRR) is ________________%.( round to the nearest integer.)

1. You are a shareholder in a C corporation. The corporation earns \$6.00 per share before taxes. Once it has paid taxes it will distribute the rest of its earnings to you as a dividend. The corporate tax rate is 38%, and the personal tax rate on (both dividend and non-dividend) income is 28%. How much is left for you after all taxes are paid?

The amount that remains is____ per share( round to nearest cent).

2. You are a shareholder in an S corporation. The corporation earns \$10.00 per share before taxes. Once it has paid any applicable taxes it will distribute it earnings to you as a dividend. The corporation tax rate is 42% and the personal tax rate on (both dividend and non-dividend) income is 35%. How much is left for you after all taxes are paid?

The amount that remains is _____ per share.( round to the nearest cent).

3.Are hostile takeovers necessarily bad for the firms or their investors? Explain

select one choice:

A.  Yes. They allow new investors to profit at the expense of  employees and existing investors. If existing investors and employees were better off being taken over, there would be no reason for the takeover to be hostile.

B.  No. They are a means of disciplining managers who are not working in the interests of shareholders.

C.  Yes. They allow the entity taking over, the raider, somewhere. The only source of profit is existing shareholders and employees, so hostile takeovers must be bad for existing shareholders.

D.  Both A and B are correct answer.

4. What firm financial statements  can be found in a  firm’s 10 K filing? What checks are there on the accuracy of these statements?

What firm financial statements can be found in a firm’s 10 K filing ( select best choice).

A.  Balance sheet, income statement, statement of cash flows, and statement of stockholder’s equity.

B.  Balance sheet, asset and liability statement, statements of cash flows, and statement of stockholder’s equity.

C.  Balance sheet, cash budget, earnings statement, and statement of stockholder’s equity.

D.  Balance sheet, income statement of cash  flows, and statement of income and expense.

5. In July 2007, Apple had cash of \$7.15 billion, current assets of \$18.80 billion, current liabilities of 7.05 billion, and inventories of \$0.30 billion.

A.  What was Apple’s current ratio?

B.  What was Apple’s quick ratio?

C.  In July 2007, Dell had a quick ratio of 1.30 and a current ratio of 1.35. What can you say about the asset liquidity of Apple relative to Dell

A.  Apple’s current ratio is ______________.(round to 2 decimal places)

6. In November 2007, Abercrombies and Fitch(ANF) had a book equity of \$1,470 million, a price per share of \$76.00, and 87.00 million shares outstanding. At the same time, The Gap(GPS) had a book equity of \$5.200 million, a share price of \$21.00, and 800.00 million share outstanding

A. What is the market-to-book ratio of each company?

ANF’s market-to-book ratio is_________.(round to 2 decimal places)

7.  You are analyzing the leverage of two firms and you note the following(All values in millions of dollars):

Debt  Book Equity  Market Equity  Operation Income  Interest Expense

Firm A:  497.0  297.0  398.0  99.0  49.0

Firm B  79.0  34.0  39.0  7.6  6.6

A.  What is the market debt-to-equity ratio of each firm?

The market debt-to-equity ratio of firm A is _____________(round to 2 decimal places)

B.  The market -debt-to-equity ratio of firm B is ________________. (round to 2 decimal places)

8. In January 2009, American Airlines(AMR) had a market capitalization of \$1.7 billion, debt of \$11.1 billion, and cash of \$4.6 billion. American Airlines had revenue of \$23.8 billion. British Airways(BABWF) had a market capitalization of \$2.2 billion. Debt of \$4.7 billion, cash of \$2.6 billion, and revenue of W\$13.1 billion.

A.  Compare the market capitalization-to-revenue ratio (also called the price-to-sales ratio) for American Airlines and British Airways.

The market capitalization-to-revenue ratio for American Airlines________________.(round to 2 decimal places)

9. Supposed your firm receives a \$7.0 million oder on the last day of the year. You fill the order with \$2.4 million worth of inventory.  The customer picks up the entire order the same day  and pays \$1.6 million up front in cash; you also, issue a bill for the customer to pay the remaining balance of \$5.4 million in 30 days. Suppose your firm’s tax rate is 0.0%(I,e, ignore taxes). Determine the consequences of this transaction for each of the following:

A. Revenues

B. Earnings

C. Receivables

D. Inventory

E. Cash

A.  Revenues change by \$_______________million.(use a negative sign(-) for a decrease in value.(round to 1 decimal place).

10. Nokela Industries purchases a W\$44.4 million cyclo-converter. The cyclo-converter will be depreciated by \$11.0 million per year over 4 years, starting this year. Suppose Nokela’s tax rate is 35%.

A.  What impact will the cost of the purchase have on earnings will be for each of the next 4 years?

The impact on earnings will be \$__________million each year for 4 years.

(Express a decline in earnings as a negative number. (round to 1 decimal places)

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