nsu fin5130 midterm latest 2017 october

Midterm exam Question 1 What is the modified internal rate of return (MIRR) of this project? Assume that the required rate is 10% Year CF 0 $5 500 1 $ 450 2 $1 800 3 $3 200 4 $ 550 5 $2 250 Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example if your answer is 12.345% then enter as 12.35 in the answer box. Question 2 ABC Company purchased a new machinery 4 years ago for $51 625. Today it is selling this equipment for $26 953. What is the after-tax salvage value if the tax rate is 25 percent? The MACRS allowance percentages are as follows commencing with year one: 20.00 32.00 19.20 11.52 11.52 and 5.76 percent. Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example if your answer is $12.345 then enter as 12.35 in the answer box. Question 3 ABC Inc. is considering an investment of $1 564 million with after-tax cash inflows of $408 million per year for six years and an additional after-tax salvage value of 24 million in Year 6. The required rate of return is 9%. What is the investment’s Profitability Index (PI)? Enter your answer rounded off to two decimal points. Question 4 You have a $63 152 portfolio that consists of $17 106 invested in Stock A $10 492 invested in Stock B $2 872 invested in Stock C and the remainder in Stock D. The portfolio has a return of 24.8 percent. The return for Stock A is 16.6 percent for Stock B is 29.5 percent and for Stock C is 7.4 percent. What is the return for Stock D? Enter your answer as a percentage rounded off to two decimal points. Do not enter % in the answer box. For example if your answer is 12.345% then enter as 12.35 in the answer box.z Question 5 What is the NPV of this project if the required rate is 16%? Year CF 0 -$1 849 1 $981 2 $697 3 $1 874 Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example if your answer is $12.345 then enter as 12.35 in the answer box. Question 6 ABC Company is considering a new project. The project is expected to generate annual sales of $67 291 variable costs of $19 854 and fixed costs of $21 187. The depreciation expense each year is $14 236 and the tax rate is 30 percent. What is the annual operating cash flow? Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example if your answer is $12.345 then enter as 12.35 in the answer box. Question 7 A 12-year project is expected to generate annual sales of $174 653 variable costs of $43 580 and fixed costs of $39 515. The annual depreciation is $28 961 and the tax rate is 27 percent. What is the annual operating cash flow? Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example if your answer is $12.345 then enter as 12.35 in the answer box. Question 8 What is the Profitability Index (PI) of this project if the required rate is 8%? Year CF 0 -$3 821 1 $1 789 2 $1 567 3 $1 469 4 $502 5 $1 172 Enter your answer rounded off to two decimal points. For example if your answer is 12.345 then enter as 12.35 in the answer box. Question 9 Suppose the real rate is 19.12% and the inflation rate is 6.06%. What is the nominal rate? Use the Fisher Equation to get the answer. Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example if your answer is 0.12345 then enter as 12.35 in the answer box. Question 10 One year ago you puchased 233 shares of ABC stock for $54.47 per share. During the year you received a dividend of $8.12 per share. Today you sold all your shares for $62.41. What are the percentage return on your investment? Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example if your answer is 0.12345 then enter as 12.35 in the answer box. Question 11 Over the past six years a stock had annual returns of 10 percent 5 percent 7 percent 8 percent 2 percent and -11 percent respectively. What is the standard deviation of these returns? Enter your answer as a percentage rounded off to two decimal points. Do not enter % in the answer box. For example if your answer is 12.345% then enter as 12.35 in the answer box. Question 12 Five years ago ABC Company invested $45 462 in a machinery. The investment in net working capital was $7 083 which would be recovered at the end of the project. Today ABC Company is selling the machinery for $20 034. The book value of the machinery is $14 753. The tax rate is 32 percent. What are the terminal cash flows in Year 5? Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example if your answer is $12.345 then enter as 12.35 in the answer box. Question 13 You have invested $37 835 portfolio in three securities. The three securities comprise of the risk-free asset Stock A and Stock B. The beta of stock A is 2.3 while the beta of stock B is 0.7. 39% of the portfolio is invested in the risk-free security. What is the dollar amount invested in stock B if the beta of the portfolio is 1.3? Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example if your answer is $12.345 then enter as 12.35 in the answer box. Question 14 The risk-free rate is 5.4% the market risk premium is 6.3% and the stock’s beta is 1.12. What is the required rate of return on the stock E(Ri)? Use the CAPM equation. Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example if your answer is 0.12345 then enter as 12.35 in the answer box. Question 15 Based on the following information what is the portfolio beta? Stock Value Beta A $22 665 3.46 B $23 061 1.92 C $11 694 0.12 D $20 988 2.74 Enter your answer rounded off to two decimal points. For example if your answer is 12.345 then enter as 12.35 in the answer box. Question 16 What is the project’s initial investment outlay based on the following information: The machinery could be purchased for $29 268. Shipping and installation costs would cost another $1 633. The project would require an initial investment in net working capital of $2 679. Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example if your answer is $12.345 then enter as 12.35 in the answer box. Question 17 What is the NPV of this project if the required rate is 8%? Year CF 0 -$1 061 1 $701 2 $821 3 $2 427 4 $623 5 $1 000 Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example if your answer is $12.345 then enter as 12.35 in the answer box. Question 18 ABC Company is considering an investment that will cost the company $551 at time=0. The after-tax cash flows are expected to be $85 each year for 7 years. What is the payback period? Enter your answer rounded off to two decimal points. Question 19 A project has an initial requirement of $63 136 for equipment. The equipment will be depreciated to a zero book value over the 5-year life of the project. The investment in net working capital will be $12 100. All of the net working capital will be recouped at the end of the 5 years. The equipment will have an estimated salvage value of $17 432. The annual operating cash flow is $51 547. The cost of capital is 5 percent. What is the project’s net present value if the tax rate is 28 percent? Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example if your answer is $12.345 then enter as 12.35 in the answer box. Question 20 Which of the following income or expense items should be ignored when estimating cash flows for investment projects? (choose only one option) Answers: operating expenses incremental sales financing costs opportunity costs Question 21 The beta of a market portfolio is: Answers: 2 1.5 1 Infinite 0 Question 22 A sunk cost is: Answers: depreciated to zero balance over the life of the project. an opportunity cost. a cost that has already been incurred. a cost that is recovered at the start of the project. a cost that is recovered at the end of the project. Question 23 ABC Company is issuing a new bond with a par value of $1 000 and a coupon rate of 5%. The time to maturity is 15 years and the Yield to Maturity is 5.53%. If coupon payments are semi-annual what is today’s price of this bond? Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example if your answer is $12.345 then enter as 12.35 in the answer box. Question 24 A project requires $99 440 of equipment that is classified as a 7-year property. What is the depreciation expense in Year 2 given the following MACRS depreciation allowances starting with year one: 14.29 24.49 17.49 12.49 8.93 8.92 8.93 and 4.46 percent? Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example if your answer is $12.345 then enter as 12.35 in the answer box. Question 25 Project A requires an initial investment of $5 000 at t = 0. Project A has an expected life of 4 years with cash inflows of $2 000 $2 500 $1 500 $1 750 at the end of Years 1 2 3 and 4 respectively. The project has a required return of 12%. What is the equivalent annual annuity? Enter your answer rounded off to two decimal points. Mini case 1 Late assignments will not be accepted so please plan accordingly. You need to show your working notes for credit. You must submit your work using excel files (with .xls or .xlsx for credit). You must upload your files on Blackboard under the Assignment Dropbox for credit. This assignment will require you to analyze time series of monthly returns. Start by retrieving MONTHLY data for the period of 09/01/2013 – 08/31/2017 from Yahoo website for ? S&P 500 Index (ticker: ^GSPC) ? Verizon Communications Inc. (ticker: VZ) ? Chevron Corporation (ticker: CVX) ? Pfizer Inc. (ticker: PFE) Instructions for downloading the data from Yahoo! Website (https://finance.yahoo.com/): To obtain the monthly data for each company on Yahoo! Finance website enter the ticker symbol under Quote Lookup. Then click on “Historical Data”. Enter “Time Period” as given above. For “Frequency” make sure Monthly is selected and then click on “Apply”. Click on “Download Data”. Saving your final file: Keep only Date and Adj Close columns for each company. Put all three sets of data in one excel file to do further analysis. Very important: Save your final file as a .xls or .xlsx file before you start the computations. Comma delimited (.csv) files do not retain the formulae and cell references after closing the file. You will receive a grade of zero if your file does not contain cell references and formulae to show how you arrived at the various answers. Calculating Returns: Use the ‘Adj Close’ column to obtain returns for each period. Remember that the Adjusted Close column has already adjusted the prices for dividends and stock splits so you do not have to adjust for it again. Just use the adjusted close column to obtain the return for each month t as follows: Rt ? Adjusted Closet ?1 Adjusted Closet?1 Solve for the following: A. What is the average return and standard deviation of returns for (i) S&P 500 (ii) Verizon (iii) Chevron and (iv) Pfizer. Comment on what you find. B. Calculate the covariance and the correlation coefficient of returns between (i) Verizon and Chevron (ii) Verizon and Pfizer and (iii) Chevron and Pfizer. Comment on the statistics. C. Calculate the stock betas: (i) Calculate Verizon’s beta for the 09/01/2013 – 08/31/2017 period (ii) Calculate Chevron’s beta for the 09/01/2013 – 08/31/2017 period and (iii) Calculate Pfizer’s beta for the 09/01/2013 – 08/31/2017 period. Comment on the betas. D. If you were to form a portfolio that had 34% of S&P 33% of Verizon and 33% of Chevron what would be the average return and the standard deviation of returns for your portfolio? (Ignore the fact that both Verizon and Chevron may already be included in the S&P 500) E. If you were to add Pfizer to your portfolio so that you now had 25% S&P 25% Verizon 25% Chevron and 25% Pfizer what would be the new average return and standard deviation of returns for your portfolio? Is Pfizer a good addition to your portfolio? Why do you think so? (Ignore the fact that Verizon Chevron and Pfizer may already be included in the S&P 500) Mini case 2 This assignment will require you to prepare the cash budget and determine the cash surplus and shortage each month. The management estimates total sales for the period January through June based on actual sales from the immediate past six months. The following assumptions are made: Historical Sales Forecasted Sales July 2016 $ 100 000 January 2017 $ 110 000 August 2016 $ 125 000 February 2017 $ 90 000 September 2016 $ 105 000 March 2017 $ 120 000 October 2016 $ 155 000 April 2017 $ 80 000 November 2016 $ 60 000 May 2017 $ 70 000 December 2016 $ 70 000 June 2017 $ 60 000 a. 50% of the Sales are collected immediately. 30% of the Sales will be collected one month after the sale. 10% will be collected two months after the sale. 6% will be collected three months after the sale. The remainder will be collected four months after the sale. Bad debts are insignificant. b. Purchases were $50 000 in July 2016 and are expected to grow by 2% each month. The purchases will be paid in the same month. c. Wages and salaries of $30 000 will be paid each month. d. Depreciation expenses are $20 000 each month. e. Rent of $15 000 will be paid at the end of each calendar quarter. f. Machinery worth $150 000 will be purchased in March. Prepare the cash budget from January to June. Determine the cash surplus and shortages for each month from January to June. Provide your analysis.