Chapter 6 Ch. 6: Questions 2 & 20 (Questions and Problems section) #2 Present Value and Multiple Cash Flows [LO1] Investment X offers to pay you $4,700 per year for eight years, Investment Y offers to pay you $6,700 per year for five years. Which of these cash flow streams has the higher pre the discount rate is 5 percent? If the discount rate is 15 percent? 5% Investment X Answer: 4700*8 4700 x 1/1.05 4700 x 1/1.05(2) 4700 x 1/1.05(3) 4700 x 1/1.05(4) 4700 x 1/1.05(5) 4700 x 1/1.05(6) 4700 x 1/1.05(7) 4700 x 1/1.05(8) 15% Years 1 2 3 4 5 6 7 8 Answer: 4700*8 4700 x 1/1.15 4700 x 1/1.15(2) 4700 x 1/1.15(3) 4700 x 1/1.15(4) 4700 x 1/1.15(5) 4700 x 1/1.15(6) 4700 x 1/1.15(7) 4700 x 1/1.15(8) Years 1 2 3 4 5 6 7 8 $ 37,600.00 $ 4,476.19 $ 4,263.04 $ 4,060.04 $ 3,866.70 $ 3,682.57 $ 3,507.21 $ 3,340.20 $ 3,181.15 $ 30,377.10 Investment X $ 37,600.00 $ 4,086.96 $ 3,553.88 $ 3,090.33 $ 2,687.24 $ 2,336.73 $ 2,031.94 $ 1,766.90 $ 1,536.44 $ 21,090.42 Investment Y 6700*5 $ 33,500.00 Years 1 2 3 4 5 $ 6,380.95 $ 6,077.10 $ 5,787.71 $ 5,512.11 $ 5,249.63 $ 29,007.50 Investment Y 6700*5 $ 33,500.00 Years 1 2 3 4 5 $ 5,826.09 $ 5,066.16 $ 4,405.36 $ 3,830.75 $ 3,331.08 $ 22,459.44 Answer: At 5% Discount rate the Investment X has the higher present value, but at 15% Invest higher present value. #20 Calculating Loan Payments [LO2, 4] You want to buy a new sports coupe for $79,500, and the finance dealership has quoted you an APR of 5.8 percent for a 60-month loan to buy the car. What will your payments be? What is the effective annual rate on this loan? Answer: I was looking a different way to calulate these numbers. I do not know if this is c Please let me know if I should delete this? Is this correct ? Doe this have the co 1 Principle -79500 Months x 60 2 79500= Payment x {[1-1/1.058 5)]/.058} 79500/4.2353 79500/5 Difference 18770.8/12 Effective Annual Rate [1+(.058/12)]12 - 1 = 5.95% x 4.2353 $ 18,770.80 $ 15,900.00 $ 2,870.80 $ 14,354.00 $ 1,564.23 you $4,700 per year for eight years, whereas sh flow streams has the higher present value if e is 15 percent? I took 6700 x 1/1.05 I took 6700 x 1/1.05(2) I took 6700 x 1/1.05(3) I took 6700 x 1/1.05(4) I took 6700 x 1/1.05(5) I took 6700 x 1/1.15 I took 6700 x 1/1.15(2) I took 6700 x 1/1.15(3) I took 6700 x 1/1.15(4) I took 6700 x 1/1.15(5) present value, but at 15% Investment Y has the pe for $79,500, and the finance office at the n to buy the car. What will your monthly ate on this loan? e numbers. I do not know if this is correct, or if I will receive credit for this? this correct ? Doe this have the correct values ? Interest 0.0058 equals Interest a year Total Interest Payment? Monthly Payment $ 1,572.70 Chapter 7 Ch. 7: Questions 3 &11 (Questions and Problems section) 3. Valuing Bonds [LO2] Even though most corporate bonds in the United States make c coupon payments. Suppose a German company issues a bond with a par value of €1,000, 23 to maturity is 4.7 percent, what is the cu Answer 58x[1-1/(1+4.7)23/.047+5000/(1+.047)23 The price of the bond would be the PV of the coupon payments plus th C 58 N 23 I 4.7 K 1 P $ 1,000.00 11. Valuing Bonds [LO2] Union Local School District has a bond outstanding with a coupo maturity on this bond is 3.9 percent, and the bond has a par v Answer C 37 N 16 I 3.9 K 2 P $ 5,000.00 Value of Bond: p= 37 /2 ({ 1- [ 1/ (1+.039) 16*2 $ 4,881.80 s in the United States make coupon payments semiannually, bonds issued elsewhere often have annual with a par value of €1,000, 23 years to maturity, and a coupon rate of 5.8 percent paid annually. If the yield is 4.7 percent, what is the current price of the bond? Equals $ 846.47 V of the coupon payments plus the PV of the par value. ond outstanding with a coupon rate of 3.7 percent paid semiannually and 16 years to maturity. The yield to ent, and the bond has a par value of $5,000. What is the price of the bond? p= 37 /2 ({ 1- [ 1/ (1+.039) 16*2 ]} + 1,000 [ 1 / ( 1 + .039)16*2 ] 736.7 2695.41 Chapter 8 Question 6 Input area: Stock price Required return $ 63.00 10.5% Next year's dividend $ 3.31 Current dividend $ 3.14 Output area: Chapter 5 Question 3 Output area: $ $ $ $ Present value 5,039.79 39,332.59 1,730.78 3.37 Input area: Years Interest rate Future value 13 9% $ 15,451 4 7% $ 51,557 29 24% $ 886,073 40 35% $ 550,164 Chapter 5 Question 4 Input area: Present value $ 181 335 48,000 40,353 Output area: Years 4 18 19 25 Interest rate Future value 13.18% $ 297 6.72% 1,080 7.37% 185,382 10.86% 531,618 Question and Problem Sets Grading Guide FIN/370 Version 11 Finance for Business Copyright Copyright © 2017 by University of Phoenix. All rights reserved. University of Phoenix® is a registered trademark of Apollo Group, Inc. in the United States and/or other countries. Microsoft®, Windows®, and Windows NT® are registered trademarks of Microsoft Corporation in the United States and/or other countries. All other company and product names are trademarks or registered trademarks of their respective companies. Use of these marks is not intended to imply endorsement, sponsorship, or affiliation. Edited in accordance with University of Phoenix® editorial standards and practices. Question and Problem Sets Grading Guide FIN/370 Version 11 Individual Assignment: Question and Problem Sets Purpose of Assignment Students should be able to calculate time value of money problems including solving for; present value, future value, rate and payment, determine the value and yield of corporate bonds and use the dividend discount model to calculate the value and expected return of a common stock. Resources Required Tutorial help on Excel® and Word functions can be found on the Microsoft® Office website. There are also additional tutorials via the web that offer support for office products. Fundamentals of Corporate Finance: Ch. 5, 6, 7 and 8 Grading Guide Content Met Partially Met Not Met Total Available Total Earned 6 #/6 Complete the following: • Chapter 5 o Questions 3 & 4 (Question and Problems section): Microsoft® Excel® templates provided for Problems 3 and 4. • Chapter 6 o Questions 2 & 20 (Questions and Problems section) • Chapter 7 o Questions 3 &11 (Questions and Problems section) • Chapter o Questions 1 & 6 (Questions and Problems section): Microsoft® Excel® template provided for Problem 6. Shows all work and analysis for each question. Prepare the exercises and problems in a Microsoft® Word document or Excel® Spreadsheet. Comments: 2 Question and Problem Sets Grading Guide FIN/370 Version 11 Writing Guidelines Met Partially Met Not Met Total Available Total Earned 2 #/2 8 #/8 The paper—including tables and graphs, headings, title page, and reference page—is consistent with APA formatting guidelines and meets course-level requirements. Intellectual property is recognized with in-text citations and a reference page. Paragraph and sentence transitions are present, logical, and maintain the flow throughout the paper. Sentences are complete, clear, and concise. Rules of grammar and usage are followed including spelling and punctuation. Assignment Total Additional comments: # Comments: 3 1 Question and Problem Sets -Week 2 Mitchell Rehkopf FIN-370 July 23rd, 2017 Instructor Thomas Gruber 2 Question and Problem Sets - Week 2 Chapter 5: Questions 3 & 4 (Question and Problems section): Question 3. Calculating Present Values For each of the following, compute the present value: Please see the attached Excel spreadsheet Question 4. Calculating Interest Rates Solve for the unknown interest rate in each of the following: Please see the attached Excel spreadsheet Chapter 6: Questions 2 & 20 (Questions and Problems section) Question 2. Present Value and Multiple Cash Flows Investment X offers to pay you $4,700 per year for eight years, whereas Investment Y offers to pay you $6,700 per year for five years. Which of these cash flow streams has the higher present value if the discount rate is 5 percent? If the discount rate is 15 percent? Please see the attached Excel spreadsheet 3 20. Calculating Loan Payments You want to buy a new sports coupe for $79,500 and the finance office at the dealership has quoted you an APR of 5.8 percent for a 60-month loan to buy the car. What will your monthly payments be? What is the effective annual rate on this loan? See below: EMI = (value)*(month rate)/ (1-1/(1+ monthly rate)^t) Value = 79500 Monthly rate = 0.058/12 = 0.00483 EMI = (79500)*(0.00483)/(1 – 1/(1+0.00483)^60) = (383.985)/(1-0.7489) = 383.985/0.2510 = $1529.82 EAR = (1+0.058/12)^12 -1 = (1.00483)^12 -1 = 1.0596-1 = 0.0596 EAR = 5.96% Chapter 7: Questions 3 &11 (Questions and Problems section) Question 3. Valuing Bonds Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 23 years to 4 maturity, and a coupon rate of 5.8 percent paid annually. If the yield to maturity is 4.7 percent, what is the current price of the bond? Please see the attached Excel spreadsheet Question 11. Valuing Bonds Union Local School District has a bond outstanding with a coupon rate of 3.7 percent paid semiannually and 16 years to maturity. The yield to maturity on this bond is 3.9 percent, and the bond has a par value of $5,000. What is the price of the bond? Please see the attached Excel spreadsheet Chapter 8: Questions 1 & 6 (Questions and Problems section) Question 1. Stock Values The Jackson–Timberlake Wardrobe Co. just paid a dividend of $1.95 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. If investors require a return of 10.5 percent on The Jackson–Timberlake Wardrobe Co. stock, what is the current price? What will the price be in three years? In 15 years? Stock Price can be calculated using the following formula: T=0 D = 1.95 g = growth rate = 0.04 required rate = 10.5 = 0.105 5 Current Price T=0 P = [1.95*(1+0.04)^1]/(0.105-0.04) Current Price = $31.2 Price in 3 years T=3 P = [1.95*(1+0.04)^4]/(0.105-0.04) P = $35.01 Price in 15 years T = 15 P = [1.95*(1+0.04)^16]/(0.105-0.04) P = $56.19 Question 6. Stock Valuation. Suppose you know that a company’s stock currently sells for $63 per share and the required return on the stock is 10.5 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it’s the company’s policy to always maintain a constant growth rate in its dividends, what is the current dividend per share? Please see the attached Excel spreadsheet 6 References Jordan, B., Ross, S., & Westerfield R. (2016). Fundamentals of Corporate Finance (11th ed.). New York, NY: McGraw-Hill. https://phoenix.vitalsource.com/#/books/1259798224/cfi/6/36!/4/2/2@0:0 https://courses.lumenlearning.com/boundless-finance/chapter/overview-of-the-workingcapital-financing-decision/ https://www.lynda.com/search?q=Discounted+Cash+Flow+Valuation https://www.lynda.com/Accounting-tutorials/Stocks/382578/449121-4.html https://www.lynda.com/Accounting-tutorials/Bonds/382578/449120-4.html https://www.lynda.com/Accounting-tutorials/Income-approach-time-valuemoney/428722/459214-4.html
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