2. At 9 percent interest, how long does it take to double your money? To quadruple it?

3. In 2006, a gold $3 coin minted in 1879 was auctioned for $9.000. For this to have been true, what was the annual increase in the value of the coin?

4. You can earn 0.45 percent per month at your bank. If you deposit $1.500, how long must you wait until your account has grown to $3,600?

5. You need $75,000 in 10 years. If you can earn 0.55 percent per month, how much will you have to deposit today?

6. If you put up $20,000 today in exchange for a 8.5 percent, 12-year annuity, what will the annual cash flow be?

7. Bath's Bank offers you a $50,000, seven-year term loan at 8 percent annual interest. What will your annual loan payment be?

8. Curly's Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $25,000 per year forever. If the required return on this investment is 7percent, how much will you pay for the policy? Suppose Curly's told you the policy cost $400.000. At what interest rate would this be a fair deal?

9. First National Bank charges 12.4 percent compounded monthly on its business loans. First United Bank charges 12.7 percent compounded semiannually. As a potential borrower, which bank would you go to for a new loan?

10. You are to make monthly deposits of $300 into a retirement account that pays 12 percent interest compounded monthly. If your first deposit will be made one month from now. How large will your retirement account be in 30years?

11. You have an investment that will pay you 1.05 percent per month. How much will you have per dollar invested in one year? In two years?

12. You want to buy a new sports car from Muscle Motors...

...future value?
A. interest-only loan
B. balloon loan
C. amortized loan
D. pure discount loan
E. bullet loan
22. How is the principal amount of an interest-only loan repaid?
A. The principal is forgiven over the loan period so does not have to be repaid.
B. The principal is repaid in equal increments and included in each loan payment.
C. The principal is repaid in a lump sum at the end of the loan period.
D. The principal is repaid in equal annual payments.
E. The principal is repaid in increasing increments through regular monthly payments.
23. An amortized loan:
A. requires the principal amount to be repaid in even increments over the life of the loan.
B. may have equal or increasing amounts applied to the principal from each loan payment.
C. requires that all interest be repaid on a monthly basis while the principal is repaid at the end of the loan term.
D. requires that all payments be equal in amount and include both principal and interest.
E. repays both the principal and the interest in one lump sum at the end of the loan term.
24. You need $25,000 today and have decided to take out a loan at 7 percent for five years. Which one of the following loans would be the least expensive? Assume all loans require monthly payments and that interest is compounded on a monthly basis.
A. interest-only loan
B. amortized loan with equal principal payments
C. amortized loan with equal loan payments
D. discount loan
E. balloon loan...

...Sample Test Problems
9.1 Which type of secondary market provides the most efficient market for securities?
9.2 Is preferred stock classified as debt or equity?
9.3 Burnes, Inc. is a mature firm that is growing at a constant rate of 5.5 percent per year. The firm’s last dividend was $1.50. If the required rate of return is 12 percent, what is the market value of this stock assuming dividend growth equals the growth rate of the firm?
9.4 Abacus Corp. will pay dividends of $2.25, $2.95 and $3.15 for the next three years. After three years, the firm will grow at a constant rate of 4 percent. If the required rate of return is 14.5 percent, what is the current value of the stock?
9.5 The preferred stock of Wellcare Inc. is currently trading at $115.79. If the required rate of return is 9.5 percent, what is the quarterly dividend paid by this stock?
10.1 Testco Corp. is considering adding a new product line. The cost of the factory and equipment to produce this product is $1,780,000, and the company expects increased cash flows from the sale of this product to be $450,000 for each of the next eight years. If the company uses a discount rate of 12 percent, what is the net present value of this project? What is the internal rate of return of this project?
10.2 Flowers Unlimited is considering purchasing an additional delivery truck. The cost of the new truck will be $42,000. Cost savings are expected to be $12,800 for the next two years and $8,900...

...Questions and Problems
Page 1 of 3
CorporateFinance eBook
9/e Content
Chapter8: Interest Rates and Bond Valuation
Questions and Problems
1. Valuing Bonds What is the price of a 10-year, zero coupon bond paying $1,000 at maturity if the YTM is: BASIC (Questions 1– 12) a. 5 percent? b. 10 percent? c. 15 percent? 2. Valuing Bonds Microhard has issued a bond with the following characteristics: Par: $1,000 Time to maturity: 25 years Coupon rate: 7 percent Semiannual payments Calculate the price of this bond if the YTM is: a. 7 percent b. 9 percent c. 5 percent 3. Bond Yields Watters Umbrella Corp. issued 12-year bonds 2 years ago at a coupon rate of 7.8 percent. The bonds make semiannual payments. If these bonds currently sell for 105 percent of par value, what is the YTM? 4. Coupon Rates Rhiannon Corporation has bonds on the market with 13.5 years to maturity, a YTM of 7.6 percent, and a current price of $1,175. The bonds make semiannual payments. What must the coupon rate be on these bonds? 5. 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, 15 years to maturity, and a coupon rate of 8.4 percent paid annually. If the yield to maturity is 7.6 percent, what is the current price of the bond? 6. Bond Yields A Japanese...

...
3210AFE
ADVANCE CORPORATEFINANCE
Financial Analysis Report
New Hope Coal Corporation
(4780 words)
STUDENT NAME: Member 1: S2704148 zhiqi Liu
Member 2: S2682143 Sai Tie
Member 3: S2730145 Lingfeng Zhan
Member 4: S2594576 Xindan Chen
Member 5: S2700906 Yinghui Huang
TABLES
Executive summary............................................................................................3
Introduction........................................................................................................6
Firm structure and corporate governance.......................................................6
Remuneration….................................................................................................8
Capital structure.................................................................................................9
CAPM BETA AND FACTOR MODEL ANALYSIS……………………….9
WACC Analysis..................................................................................................11
Firm Estimation by FCF and PE ratio.............................................................12
Growth project analysis.....................................................................................13
Mergers and Acquisitions Targets Analysis…………………………………16
Cost of Debt & Equity Funding........................................................................19
Risk...

...0.0907 x 205.8/251
After-tax WACC = 0.0789
Calculate the RV Division WACC using Stephens’s method in paragraph 20.
rE = rf + βequity(rm – rf)
rE = 0.0421 + 2.1(0.06)
rE = 0.1681
Using TRUST’s debt-to-equity mix of 21%:
Pre-tax divisional WACC = 0.1442 = (rD x 0.21) + (0.1681 x 0.79)
From above:
rD = 0.0543
After-tax divisional WACC = (1-0.3)(0.0543 x 0.21) + (0.1681 x 0.79)
After-tax divisional WACC = 0.1408
What could be deduced about the relative business risk of the RV Division compared to its industry competitors if the industry equity beta was 2.10?
Using industry equity beta to determine the cost of equity suggests that the RV Division’s equity risk is the same as that of the industry. This indicates that the difference in business risk between the RV Division and its industry competitors will stem from TRUST’s choice of capital structure, i.e. level of debt to equity.
If RV was financed completely by equity, the cost of equity is the cost of capital for RV. Using the industry beta to determine rE suggests that RV’s equity risk is the same as that of the industry. The variation in business risk between RV and its industry competitors thus stems from the introduction of debt into the capital structure.
Year Forecast
1 2 3 4 5 6
Sales 22000 23210 24487 25344 26231 26755
Variable cost 13200 13926 14692 15206 15738 16053
Fixed cost 2000 2060 2122 2185 2251 2319
Dep'n 1000 1100...

...CONCEPT QUESTIONS - CHAPTER 1
1.1 ( What are the three basic questions of corporatefinance?
a. Investment decision (capital budgeting): What long-term investment strategy should a firm adopt?
b. Financing decision (capital structure): How much cash must be raised for the
required investments?
c. Short-term finance decision (working capital): How much short-term cash flow does company need to pay its bills.
( Describe capital structure.
Capital structure is the mix of different securities used to finance a firm's investments.
( How is value created?
( List three reasons why value creation is difficult.
Value creation is difficult because it is not easy to observe cash flows directly. The reasons are:
a. Cash flows are sometimes difficult to identify.
b. The timing of cash flows is difficult to determine.
c. Cash flows are uncertain and therefore risky.
1.2 ( What is a contingent claim?
A contingent claim is a claim whose payoffs are dependent on the value of the firm at the end of the year. In more general terms, contingent claims depend on the value of an underlying asset.
( Describe equity and debt as contingent claims.
Both debt and equity depend on the value of the firm. If the value of the firm is greater than the amount owed to debt holders, they will get what the firm owes...

...PROBLEM SET 5:
INTEREST RATES, AMORTIZING LOANS, BOND VALUATION, STOCK VALUATION
1. A typical credit card agreement quotes an interest rate of 18 percent APR. Monthly payments are required. What is the actual interest rate you pay on such a credit card? 2. After carefully going over your budget, you have determined you can afford to pay €632 per month toward a new sports car. You call up your local bank and find out that the going rate is 1 percent per month for 48 months. How much you can borrow? 3. You ran a little short on your spring break vacation, so you put €1,000 on your credit card. You can only afford to make the minimum payment of €20 per month. The interest rate on the credit card is 1.5 percent per month. How long will you need to pay off the €1,000? 4. Suppose you borrow €10,000. You are going to repay the loan by making equal annual payments for five years. The interest rate on the loan is 14 percent per year. Prepare an amortization schedule for the loan. How much interest will you pay over the life of the loan? 5. You have recently finished your Master degree and you want to purchase a new BMW immediately. The car costs about €21,000. The bank quotes an interest rate of 15 percent APR for a 72-month loan with a 10 percent down payment. What will your monthly payment be? What is the effective interest rate on the loan? 6. A bond has a 10 percent coupon rate and a €1,000 face value. Interest is paid semiannually, and the bond has 20 years...

...develop in-depth understanding of Finance function of a corporation and build capacity to apply theory in real world situations. The course will present the ‘Big Picture’ of CorporateFinance so that students understand how things fit together. After successfully completing the course, students should be able to take optimal decisions in a corporate setting, when working as professionals in the field.
COURSE OUTLINE
Introduction toCorporateFinance:
Financial Management; CorporateFinance; CorporateFinance vs. Financial Management; Differences between ‘Finance’ and ‘Accounting’; Investment, Financing, and Dividend decisions
Role of Financial Management:
Goals of a Firm; Profit Maximization Approach vs. Shareholders' Wealth Maximization Approach; Time Value of Money and Uncertainty; Agency Problem; Social Responsibility
Business Environment, Taxes, and Financial Environment:
Forms of Business Organizations; Financial Instruments; Money Market and Capital Market Instruments; Financial Intermediaries; Financial Risk and Return
Concepts in Valuation / Time Value of Money:
Present Value vs. Future Value; Simple Interest vs. Compound Interest; Annuities vs. Simple Compounding and Discounting; Future Value of an Ordinary Annuity and Annuity Due
Concepts in Valuation: (Continued)
Present value...

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