Assignment 1 Due date: 23:59 18-Jun (Sat) A. Ross. Fundamentals of Corporate Finance. McGraw-Hill. Student Name: _________________________ Student ID: _________________ The assignment can be HAND WRITTEN (Then scan it as PDF) or TYPED. Please submit it through Blackboard. Chapter 2 Q25. & Q26. Use the following information for Taco Swell, Inc., for Problems 25 and 26 (assume the tax rate is 34 percent): Q25. Draw up an income statement and balance sheet for this company for 2015. Hints: i. Other expenses have to be deducted to get the Net Profit. ii. Net fixed assets are calculated after deducting the depreciation. iii. Use the equation “Assets = Liabilities + Equity” to get the total equity (no need to find the individual value of paid-in capital and retained earnings. 1 Q26. For 2015, calculate the cash flow from assets, cash flow to creditors, and cash flow to stockholders. 2 Chapter 3 Q17. Just Dew It Corporation reports the following balance sheet information for 2014 and 2015. Use this information to work Problem 17. Based on the balance sheets given for Just Dew It, calculate the following financial ratios for each year (2014 & 2015): a. Current ratio 2014: 2015: 3 b. Quick ratio = (Current Assets – Inventory)/Current Liabilities 2014: 2015: c. NWC to total assets ratio 2014: 2015: d. Debt–equity ratio = (Current Liabilities + Long-term Debt)/Total Equity 2014: 2015: e. Total debt ratio = (Current Liabilities + Long-term Debt)/Total Assets 2014: 2015: 4 Chapter 6 Q57. Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $20,000 per month for 25 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 10 years at an estimated cost of $380,000. Third, after he passes on at the end of the 25 years of withdrawals, he would like to leave an inheritance of $900,000 to his nephew Frodo. He can afford to save $2,500 per month for the next 10 years. If he can earn a 10 percent EAR (monthly rate of 0.797%) before he retires and a 7 percent EAR (monthly rate of 0.565%) after he retires, how much will he have to save each month in years 11 through 30? Chapter 7 Q17. Bond J is a 3 percent coupon bond. Bond K is a 12 percent coupon bond. Both bonds have nine years to maturity, make semiannual payments, and have a YTM of 8 percent. If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? What if rates suddenly fall by 2 percent instead? 5 Chapter 8 Q30. a. In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the “terminal” stock price using a benchmark PE ratio. Suppose a company just paid a dividend of $1.36. The dividends are expected to grow at 13 percent over the next five years. In five years, the estimated payout ratio is 40 percent and the benchmark PE ratio is 19. What is the target stock price in five years? b. What is the stock price today assuming a required return of 11 percent on this stock? 6
