## Finance-AW-Q42 Online Services

**Test 2 (Matching)**

Matching Answers are listed below. Please type your correct matched answer.

______________ 1. When a bond sells for more than its face value, the bond is said to sell at a ?

______________ 2. When a bond sells for less than its face value, the bond is said to sell at a ?

______________ 3. Bond prices and changes in market interest rates are ______ related?

______________ 4. PV stands for what ?

______________ 5. FV stands for what ?

______________ 6. Bonds issued by a state or local government whose interest is exempt fromfederal income tax are called ?

_______________7. Is a periodic payment for the purpose of retiring the debt issue.

_______________ 8. The lowest bond rating to still be considered investment grade.

_______________9. An unsecured bond supported by the general credit of the issuing firm.

_______________10. Bonds that may be converted into (exchanged for) stock at the option of

the bondholder.

_______________11. The common name for an open end investment company is ?

______________ 12. Investment company’s assets minus liabilities divided by the number of shares outstanding.

_______________13. Is an equity instrument that usually pays a fixed dividend and has a

claim prior to common stock on the firm’s earnings and assets.

_______________14. A government issued security that has a maturity of less than a year.

_______________15. A government issued security that has a maturity of over 10 years.

_______________16. This feature permits the issuer to redeem the bond prior to maturity.

______________ 17. What are the three major forms of business organizations?

__________

__________

**Business Finance Test 2 (Matching)**

18. __________ The production level where total revenue equals total costs is commonly

referred to as ?

19. __________ A small corporation (fewer than 35 stockholder’s) may elect to be organized

as a ______ which enables them to avoid double taxation yet receive the

corporate advantages of limited liability and ease of transfer?

20. __________ A capital budgeting technique which determines how long is required for an

investment’s cash inflows to recover an investment’s cost.

21. __________ The term use to describe a weighted average of the costs of debt, preferred

stock, and common stock.

22. __________ This equation is called what k = i ( 1 – t )

23. ___________ Combination of debt and equity financing that minimizes the average cost of

capital.

24. ___________ When a firm either borrows or issues bonds or preferred stock paying a fixed

dividend the firm has increased this ?

25. __________ This capital budgeting technique uses the rate of return that equates the

present value of an investment cash flow’s with the cost of making the

investment.

26. __________ Present value of an investment’s cash flows minus the cost of the investment.

27. __________ Two investments for which the acceptance of one automatically excludes the

acceptance of the other.

28.. __________ Is the process of making long term investment decisions such as whether to

expand plant and equipment?

29. ___________ Options to sell a stock at a specified price within a specified time period are

called?

30. ___________ Projected financial statement that enumerates cash receipts and disbursements

for a period of time.

31. ___________ This method of forecasting is an alternative to percent of sales method and

plots the relationship of sales and assets over several years to determine if a

simple linear relationship exists.

32. ___________ In creating a cash budget, the first place to begin is with a forecast of ___?

33.. ___________ (Annual Sales / Account Receivable) equals _____?

Business Finance Test 2 (Matching)

Answers for Matching

Break Even Capital Budgeting

Sales Optimal Capital Structure

Call Stock Options Corporation

Put Stock Options Premium

Inverse Financial Leverage

Net Asset Value Mutually exclusive investments

Municipal Bonds Mutual Fund

After Tax Cost of Debt Debenture

Regression Analysis Future Value

Payback Preferred Stock

Treasury Bill Convertible Bonds

Internal Rate of Return (IRR) Present Value

Treasury Bond BBB

Discount CCC

Sinking Fund Partnership

Net Present Value (NPV) Callable

Economic Order Quantity Net Asset Value (NAV)

Accounts Receivable Turn Over Treasury Note

Weighted Average Cost of Capital (WACC) Cash Budget

Sole Proprietorship Inventory

S Corporation Expenses

**Business Finance Test 2**

Short Problems

______________1 . If a treasury bond is quoted at 97:25, what is the appropriate market price?

(format in dollars)

______________2. The dollar change in the DOW index between October 1, 2014 and

September 30, 2015. (Internet research problem)

______________3. The percentage increase in the S & P index between October 1, 2014 and

September 30, 2015

______________4. If a tax free bond is currently paying 4% and you are in a 25% marginal

tax bracket, what is the taxable equivalent interest rate?

______________5. As production increases, do variable costsper unit increase, decrease or

remain the same?

______________6. As production increases, do fixed costsper unit increase, decrease or

remain the same?

_____________ 7. An investment has the following possible outcomes based on the economy.

Booming economy $ 40,000; Normal Economy $ 25,000; Recession

Economy (-$ 15,000). Determine the expected value of the investment if

the following probabilities are given:

Booming economy 20% Normal Economy 50% Recession Economy 30%

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Business Finance Test 2(Problems)

1. A bond with 12 years to maturity has a semiannual interest payment of $ 35. If the bond

is currently selling for $ 890, a) what is the coupon rate b) what is the current yield and c) current yield to maturity.

2. What is the current price for a General Electric 6% corporate bond with 10 years to maturity if the market rate of interest for similar bonds is 7%? What would the current price be if the market rate of interest drops to 4%? What financial principal does this illustrate!

3. A thirty year corporate bond with twelve years remaining till maturity is currently selling for $ 1,088. The market rate of interest for a similar bond is 5.75%. What is the coupon (stated or contract) rate of interest.

4. Handy Dandy Inc is preparing to calculate its cost of debt. It presently has debt outstanding that pays $ 81 per year in interest and has seven years left unto maturity. The current market value of those bonds is $ 1,090. The company pays 35% in taxes. What is the after-tax cost of debt?

5. What should be the price of a preferred stock which pays a $ 3.00 dividend and has a yield of 7%? What should be the cost of preferred stock (k) which pays a $ 3.00 dividend and current market price of $ 36 ?

6. What should be the prices of the following preferred stocks if comparable securities yield

6.5%? Why are the valuations different?

a) Santa Fe Inc $ 2 preferred Stock ( $ 25 Par)

b) Cessna Inc $ 2 preferred ( $ 25 Par) with mandatory retirement in 5 years.

7. What is the net asset value of an investment company with $ 40,000,000 in assets,

$ 8,000,000 in liabilities and 4,000,000 shares outstanding?

8. ABC Technologies, Inc manufactures baseball bats. The bats currently sell for $ 65.00. The variable costs are $ 42.00 to manufacture and the fixed costs are $ 90,000. Determine the following:

a) Break even in units

b) Break even in dollars

c) If the company wishes to make $ 70,000 how many units must they sell.

d) If the company were to raise the selling price by 10% and reduce variable costs by 5%, what would be the new breakeven. (Fixed costs remain at $ 90,000)

e) The company spent an additional $ 14,000 for an extensive advertising campaign. If the

advertising campaign resulted in additional sales of 570 units, was the campaign profitable?

Note: I am expecting an actual dollar amount. Assume the original $ 65 selling price and

$ 42.00 variable cost.

Business Finance Test 2 (Problems)

9. Determine the Payback period, NPV and IRR for both project A and B (show answers). Which Project would you select and why? Be specific. Project A will require an initial investment of $ 200,000 and Project B will require and initial investment of $ 325,000. The cost of capital for both projects is 12%. The cash inflows for the next 5 years are listed below:

Project A Project B

0 ($ 200,000) ($ 325,000)

1 $ 50,000 $ 75,000

2 $ 80,000 $ ( 50,000) negative

3 $ 110,000 $ 160,000

4 $ 45,000 $ 100,000

5 $ 40,000 $ 190,000

10. Duster Inc the following capital structure:

Debt $ 900,000

Preferred Stock $ 100,000

Common Stock $ 1,000,000

Total Assets = $ 2,000,000

a) Determine the weight of each capital component.

b) If the interest rate on the debt before tax adjustment is 8% and the tax rate is 40% determine the cost of debt. Preferred dividends are $ 2.00 per share and preferred stock market price is $ 25. Determine the cost of preferred stock.

c) The common stock dividend is paying $ 3.00 and the price of the common is $ 20 with a growth rate of 5%. Determine the cost of common stock.

d) Using the figures you have calculated determine Duster Inc weighted average cost of

capital. (WACC)

**Group Business Finance,**

On the homework template, there is a slight error on Chapter 21 Problem 1 (c). The formula should be Common stock cash Dividend * ( 1 + g) / ( price of stock) + g The last “g” should not be contained within the bracket.

******Business Finance,

On the excel template for Chapter 7 Problem 22, there is one typing error in red. The Present Value (PV) and solution for Problem 22 should be $ 110,945.29. **********

Chapter 7 Problem 22 (Homework Guidance) | ||||||||

STEP 1 | Using an excel worksheet, Type in the letters and numbers listed below | |||||||

RATE | NPER | PMT | PV | FV | ||||

10% | 4 | ($35,000.00) | ? | N/A | ||||

STEP 2 | In the cell under PV (where the question mark is) Type the following: | |||||||

=PV( | ||||||||

STEP 3 | The following should appear | PV(rate,nper,pmt,fv,(type) | ||||||

STEP 4 | Follow excel instructions listed ie click on or type rate ie 10%,4,-35000,,)enter | |||||||

STEP 5 | The following answer $ 111,628.30 should appear for PV | |||||||

RATE | NPER | PMT | PV | FV | ||||

10% | 4 | ($35,000.00) | $110,945.29 | |||||

Note: | Please click on cell E17 to view the calculations. | |||||||

The $ 110,945.29 is the present value of the investment | ||||||||

RATE= | Interest Rate | |||||||

NPER = | Number of periods | |||||||

PMT = | the payments (more than 1) | |||||||

PV = | Present Value | |||||||

FV = | Future Value | |||||||

RATE | NPER | PMT | PV | FV | ||||

10% | 4 | N/A | ? | ($157,400.00) | ||||

$107,506.32 | Present Value of $ 157,400 received in four years. | |||||||

The $ 35,000 payments for four years is the better value. | ||||||||

Chapter 7 Problem 27 (Use same format) | ||||||||

RATE | NPER | PMT | PV | FV |

Week Three Homework Guidance and Check Answers

Chapter 7 Problem 22 Page 131 textbook

a)Using excel software create the following table:

Rate NPRT PMT PV FV

10% 4 $ 35,000 ? blank or 0

Next, use the following excel format instructions. Type the following in an excel cell =PV(

Excel will immediately give you the remaining formula to key in ie PV(rate, nper, pmt, (FV),type)

Insert the appropriate values by manually typing the amounts or by click on the cell containing the value. Remember to insert a comma “,” after each number is inserted. Since FV has no value insert a second comma after $ 35,000 as following $ 35,000,,

Ie Click on the excel cell containing 10% comma click on 4 comma click on $ 35,000 comma comma and enter.

Excel should generate the following answer PV = ($110,945.29). Remember to format using dollars to two decimal points.

b) Rate NPRT PMT PV FV

10% 4 blank or 0 ? $ 157,400

Use same process as above; PV = ($ 107,506.32)

Please call me at 419 339 1404 if you do not obtain this answer before trying the next homework problem.

Chapter 7 Problem 27 Page 131 textbook

Future value of contributions

Rate NPRT PMT PV FV

10% 8 -$1,000 blank or 0 ?

Future value of contributions = $ 11,436

Next, Determine value of terminal value

Rate NPRT PMT PV FV

10% 40 blank or 0 -$11,436 ?

Twin 1 final terminal future value = $ 517,582

Twin 2 Future Value

Rate NPRT PMT PV FV

10% 40 -$1,000 blank or 0 ?

Twin 2 final terminal future value FV = $ 442,593

Last step, is to solve for each twin’s withdrawal amount using the above terminal

Values as PV and solving for PMT.

a) The expected return is 12.5% (Use formula Expected return = (Probability(i) * return (i)) + (Probability (i2) * return (i2) + …..

b) The expected return is 14.7%

Chapter 9 Problems 10, 13 and 14 Page 210 (Ratios Review from accounting)

Equation are listed in the textbook. I also have attached a separate ratio file.

Chapter 11 Problem 3 Page 260

a) Use the following equation V = Do*(1+g) / ( k – g)

Stock A = $ 15.29 current pricemarket price for Stock A $ 23.00 (overvalued)

Stock B = ?

Stock C = /

Chapter 13 Problem 2 Page 291

a)

Rate NPRT PMT PV FV

10% 10 -$ 75 ? – $ 1,000

Remember PMT and FV are negative

Use excel format =PV(

PV = $ 846.39

Solve for b, c and d.

Chapter 13 Problem 6 Page 291

Rate NPRT PMT PV FV

8% 8 – $ 100 ? – $ 1,000

PV = $ 1,114.93

The bond is overpriced and should not be purchased.

Chapter 14 Page 304

Year 01 Times dividend earned = 5.0 ie $ 5,000,000 / $ 1,000,000 Net income / Interest

Year 02 ?

Year 03 ?

Chapter 15 short answer essay

Chapter 16

Stock FV 20 years = $ 6,727.50 Stock FV for 30 years = $ 17,449.50

Bond FV 20 years = ? Bond FV 30 years

Chapter 17 Problem 5 a) ? b) ?

**Business Finance**

Ratios

Liquidity Measures:

Working Capital = Current Assets – Current Liabilities

Current Ratio = Current Assets

Current Liabilities

Quick Ratio = Quick Assets

Current Liabilities

Activity Ratios:

Accounts Receivable Turnover = Net Sales

Average Accounts Receivable

Number of Days’ Sales In Receivables = Average Accounts Receivable

Average Daily Sales

Inventory Turnover = Cost of Goods Sold

Average Inventory

Number of Days’ Sales in Inventory = Average Inventory

Average Daily Cost of Goods Sold

Debt Ratios:

Fixed Assets to Long-Term Liabilities = Fixed Assets (Net)

Long-Term Liabilities

Liabilities to Stockholders Equity = Total Liabilities

Total Stockholders Equity

Times Interest Charges are Earned = (EBIT + Interest Expense)

Interest Expense

Survey of Accounting

Ratios

Profitability Ratios:

Ratio of Net Sales to Assets = Net Sales

Average Total Assets (excluding long-term investments)

Rate Earned on Total Assets = (Net Income + Interest Expense)

Average Total Assets

Rate Earned on Stockholders Equity = Net Income

Average Total Stockholders Equity

Rate Earned on Common Stockholders Equity = (Net Income – Preferred Dividends)

Average Common Stockholders Equity

Earnings per share on Common Stock = (Net Income – Preferred Dividends)

Shares of Common Stock Outstanding

Price-Earnings Ratio = Market Price per Share of Common Stock

Earnings per Share on Common Stock

Dividends per Share = Dividends

Shares of Common Stock Outstanding

Dividend Yield = Dividends per share of Common Stock Market Price per Share of Common Stock

Cash flow / share = (Net income + depreciation) / common stock shares

Price / Cash flow = Market Price of common stock / Cash flow

Book Value per share = Shareholder’s equity / commons stock shares

Market to Book ratio = Market price of common stock / Book value per share

Homework Week four | ||||||||

Chapter 19 Problem 1 Page 379 | ||||||||

Please complete the table | ||||||||

a) | Quantity | Total | Variable | Fixed | Total | Profits | ||

Revenue | Costs | Costs | Costs | (Loses) | ||||

0 | 0.00 | 0.00 | 6,000.00 | 6,000.00 | (6,000.00) | |||

500 | 4,250.00 | 1,600.00 | 6,000.00 | 7,600.00 | (3,350.00) | |||

1000 | 8,500.00 | 3,200.00 | 6,000.00 | 9,200.00 | (700.00) | |||

1500 | ||||||||

2000 | ||||||||

2500 | ||||||||

3000 | ||||||||

b) | estimate breakeven by utilizing the completed table | |||||||

Compute breakeven in units and dollars using the break even or cost, volume, profit equations | ||||||||

BE (units) = | (Fixed Costs) / ( Selling price per unit – Variable Cost per unit) | |||||||

c) | ??? | Complete if fixed costs are $ 10,000 instead of $ 6,000 using the BE(units formula) | ||||||

Chapter 19 Problem 5 | Page 381 | |||||||

Year | Investment A | Investment B | Investment C | |||||

1 | $2,000.00 | $3,000.00 | $500.00 | |||||

2 | $2,000.00 | $2,000.00 | $1,000.00 | |||||

3 | $2,000.00 | $1,000.00 | $3,000.00 | |||||

4 | $2,000.00 | $500.00 | $7,000.00 | |||||

5 | $2,000.00 | $9,000.00 | ||||||

Payback | ||||||||

Ranking | ||||||||

b) | Does the ranking make intuitive sense? Which is the best overall investment? |

**Finance – Accounting**

Breakeven Analysis – Cost Volume Profit

1. Breakeven in Sales (Units) = Fixed Costs

Unit Contribution Margin

***Unit Contribution Margin = (Selling Price per unit – Variable Cost per unit)

2. Breakeven in Sales (Dollars) = Fixed Costs

Contribution Margin Ratio

***Contribution Margin Ratio = (Sales – Variable Costs)

Sales

3. Target Profit Sales (in Units) = ( Fixed Costs + Target Profit)

Unit Contribution Margin

4. Target Profit Sales (in Dollars) = ( Fixed Cost + Target Profit )

Contribution Margin Ratio

5. Margin of Safety (in Units) = Sales – Sales at Break even point

6. Margin of Safety (as a %) = (Sales – Sales at Break even point)

Sales

7. Operating Leverage = Contribution Margin

Income From Operations

High Low Method

Y = b + mX

Y = Total Fixed Costs and Variable Costs ie dependent variable

X = independent variable number of items produced or activity driver

b = Fixed costs; Y intercept

m = Variable Cost per unit; Slope of the line; or numerical coefficient of X

m = ( Y2 – Y1 )

( X2 – X1 )

Y2 = Highest Y Value

Y1 = Lowest Y Value

X2 = Highest X Value

X1 = Lowest X Value

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