Assignment I - Numericals - Summer 2021

1
BUS 349_Summer 2021

Assignment 1
Date: 17th May, 2021

Instructions:
Do the questions on A4 sheet in the same order (strictly). Show the workings neatly. Scan and
upload the assignment on Blackboard before the due date of 28th May, 2021. Fraser Valley Cover
page must be attached stating the names of group members.
Q 1 to Q 14- 3marks= 42; Q 15=6 marks, Q 16=4 marks

TOTAL=52
Chapter 2: Cash Flows

Q1 Lindley Textiles recently reported $12,500 of sales, $7,250 of operating costs other than depreciation, and
$1,000 of depreciation. The company had no amortization charges and no non-operating income. It had
$8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was
40%. How much was Lindley's operating income, or EBIT?
a. $3,462
b. $3,644
c. $3,836
d. $4,038
e. $4,250
Q2. Frederickson Office Supplies recently reported $12,500 of sales, $7,250 of operating costs other than
depreciation, and $1,250 of depreciation. The company had no amortization charges and no non-operating
income. It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state
income tax rate was 40%. How much was the firm's taxable income, or earnings before taxes (EBT)?
a. $3,230.00
b. $3,400.00
c. $3,570.00
d. $3,748.50
e. $3,935.93
Q 3 Swinnerton Clothing Company's balance sheet showed total current assets of $2,250, all of which were
required in operations. Its current liabilities consisted of $575 of accounts payable, $300 of 6% short-term
notes payable to the bank, and $145 of accrued wages and taxes. What was its net operating working
capital that was financed by investors?
a. $1,454
b. $1,530
c. $1,607
d. $1,687
e. $1,771
Q 4 Over the years, Janjigian Corporation's stockholders have provided $15,250 of capital, part when they
purchased new issues of stock and part when they allowed management to retain some of the firm's
earnings. The firm now has 1,000 shares of common stock outstanding, and it sells at a price of $42.00
per share. How much value has Janjigian's management added to stockholder wealth over the years, i.e.,
what is Janjigian's MVA?
a. $21,788
b. $22,935
2
c. $24,142
d. $25,413
e. $26,750
Q 5 Meric Mining Inc. recently reported $15,000 of sales, $7,500 of operating costs other than depreciation, and
$1,200 of depreciation. The company had no amortization charges, it had outstanding $6,500 of bonds
that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 35%. How much was the
firm's net income after taxes? Meric uses the same depreciation expense for tax and stockholder reporting
purposes.
a. $3,284.55
b. $3,457.42
c. $3,639.39
d. $3,830.94
e. $4,022.48
Q 6 On 12/31/2013, Heaton Industries Inc. reported retained earnings of $675,000 on its balance sheet, and it
reported that it had $172,500 of net income during the year. On its previous balance sheet, at 12/31/2012,
the company had reported $555,000 of retained earnings. No shares were repurchased during 2013. How
much in dividends did Heaton pay during 2013?
a. $47,381
b. $49,875
c. $52,500
d. $55,125
e. $57,881
Q 7 Tibbs Inc. had the following data for the year ending 12/31/12: Net income = $300; Net operating profit
after taxes (NOPAT) = $400; Total assets = $2,500; Short-term investments = $200; Stockholders' equity
= $1,800; Total debt = $700; and Total operating capital = $2,300. What was its return on invested capital
(ROIC)?
a. 14.91%
b. 15.70%
c. 16.52%
d. 17.39%
e. 18.26%
Q 8 Zumbahlen Inc. has the following balance sheet. How much total operating capital does the firm have?
Cash $ 20.00 Accounts payable $ 30.00

Short-term investments 50.00 Accruals 50.00
Accounts receivable 20.00 Notes payable 30.00
Inventory 60.00 Current liabilities $110.00
Current assets $150.00 Long-term debt 70.00
Gross fixed assets $140.00 Common stock 30.00
Accumulated deprec. 40.00 Retained earnings 40.00
Net fixed assets $100.00 Total common equity $ 70.00
Total assets $250.00 Total liab. & equity $250.00
a. $114.00
b. $120.00
c. $126.00
d. $132.30
e. $138.92
Q 9 Edwards Electronics recently reported $11,250 of sales, $5,500 of operating costs other than depreciation,
and $1,250 of depreciation. The company had no amortization charges, it had $3,500 of bonds that carry a
6.25% interest rate, and its federal-plus-state income tax rate was 35%. How much was its net cash flow?
3
(Net Cash Flow = Net Income + Depreciation)

a. $3,284.75
b. $3,457.63
c. $3,639.61
d. $3,831.17
e. $4,032.81
Q 10 Bartling Energy Systems recently reported $9,250 of sales, $5,750 of operating costs other than
depreciation, and $700 of depreciation. The company had no amortization charges, it had $3,200 of
outstanding bonds that carry a 5% interest rate, and its federal-plus-state income tax rate was 35%. In
order to sustain its operations and thus generate sales and cash flows in the future, the firm was required
to make $1,250 of capital expenditures on new fixed assets and to invest $300 in net operating working
capital. By how much did the firm's net income exceed its free cash flow?
a. $673.27
b. $708.70
c. $746.00
d. $783.30
e. $822.47
Chapter 6: RISK AND RETURN

Q 11 Consider the following average annual returns for Stocks A and B and the Market. Which of the possible
answers best describes the historical betas for A and B?
Years Market Stock A Stock B

1 0.03 0.16 0.05
2 0.05 0.20 0.05
3 0.01 0.18 0.05
4 0.10 0.25 0.05
5 0.06 0.14 0.05
a. bA > +1; bB = 0.
b. bA = 0; bB = 1.
c. bA < 0; bB = 0.
d. bA < 1; bB = 1.
e. bA > 0; bB = 1.
Q12 Martin Ortner holds a $200,000 portfolio consisting of the following stocks:
Stock Investment Beta

A $50,000 0.95
B 50,000 0.80
C 50,000 1.00
D 50,000 1.20
Total $200,000
What is the portfolio's beta?

a. 0.938
b. 0.988
c. 1.037
d. 1.089
4
e. 1.143
Q 13. Consider the following information and then calculate the required rate of return for the Universal
Investment Fund, which holds 4 stocks. The market's required rate of return is 13.25%, the risk-free rate
is 7.00%, and the Fund's assets are as follows:
Stock Investment Beta

A $ 200,000 1.50
B $ 300,000 0.50
C $ 500,000 1.25
D $1,000,000 0.75
a. 9.58%
b. 10.09%
c. 10.62%
d. 11.18%
e. 11.77%
Q 14 Returns for the Alcoff Company over the last 3 years are shown below. What's the standard deviation of the
firm's returns?
Year Return
2010 21.00%
2009 12.50%
2008 25.00%
a. 20.08%
b. 20.59%
c. 21.11%
d. 21.64%
e. 22.18%
Chapter 10: The Basics of Capital Budgeting: Evaluating Cash Flows

Q 15 Payback, NPV, and MIRR
Your division is considering two investment projects, each of which requires an up-front expenditure of
$25 million. You estimate that the cost of capital is 10% and that the investments will produce the
following after-tax cash flows (in millions of dollars):
Year Project A Project B

1 5 20
2 10 10
3 15 8
4 20 6
1. What is the regular payback period for each of the projects?
2. What is the discounted payback period for each of the projects?
3. If the two projects are independent and the cost of capital is 10%, which project or projects
should the firm undertake?
5
4. If the two projects are mutually exclusive and the cost of capital is 5%, which project should the
firm undertake?
5. If the two projects are mutually exclusive and the cost of capital is 15%, which project should the
firm undertake?
6. What is the crossover rate?
7. If the cost of capital is 10%, what is the modified IRR (MIRR) of each project?
Q 16. Last Tuesday, Cold Goose Metal Works Inc. lost a portion of its planning and financial data when both its
main and its backup servers crashed. The company’s CFO remembers that the internal rate of return
(IRR) of Project Zeta is 13.8%, but he can’t recall how much Cold Goose originally invested in the
project nor the project’s net present value (NPV). However, he found a note that detailed the annual net
cash flows expected to be generated by Project Zeta. They are:
YearYear
Cash Cash Flow
Year 1$1,80$1800,000
Year 2$3,37$3,375,000
Year 3$3,37$3,375,000
Year 4$3,37$3,375,000
The CFO has asked you to compute Project Zeta’s initial investment using the information currently available
to you. He has offered the following suggestions and observations:
A project’s IRR represents the return the project would generate when its NPV is zero or the discounted
value of its cash inflows equals the discounted value of its cash outflows—when the cash flows are
discounted using the project’s IRR.
The level of risk exhibited by Project Zeta is the same as that exhibited by the company’s average project,
which means that Project Zeta’s net cash flows can be discounted using Cold Goose’s 8% WACC.
Given the data and hints, Project Zeta’s initial investment is

(i)$8,490,228
(ii)$8,849,868
(iii)$8,490,228
(iv)$8,605,839
And its NPV is

(i) $1,229,867
(ii) $1,414,437
(iii) $1,352,854
(iv) $1,168,374 (rounded to the nearest whole dollar).

Assignment I - Numericals - Summer 2021

Uploaded by

Copyright:

Available Formats

Assignment I - Numericals - Summer 2021

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Assignment I - Numericals - Summer 2021

Uploaded by

Copyright:

Available Formats

1

BUS 349_Summer 2021

Date: 17th May, 2021

Q 1 to Q 14- 3marks= 42; Q 15=6 marks, Q 16=4 marks

Chapter 2: Cash Flows

Cash $ 20.00 Accounts payable $ 30.00

(Net Cash Flow = Net Income + Depreciation)

Chapter 6: RISK AND RETURN

Years Market Stock A Stock B

Stock Investment Beta

What is the portfolio's beta?

Stock Investment Beta

Chapter 10: The Basics of Capital Budgeting: Evaluating Cash Flows

Year Project A Project B

Given the data and hints, Project Zeta’s initial investment is

And its NPV is

You might also like