FIN 571 Week 1 Connect Problems (Week 1 Problem Set)

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FIN 571 Week 1 Connect Problems (Week 1 Problem Set)

It means the proportion of debt of the company in its capital

structure is lesser than the equity. The company is less leveraged so

the interest burden on the company is minimal. Wal-Mart has capacity

to borrow from the market for its CAPEX in the future. The interest

coverage ratio is 13 times in January 2010, which is 21.9 for the

industry. Wal-Mart needs to improve profitability to improve interest

coverage ratio for the reduction of risk of the lenders of the company

(Wal-Mart Stores Inc: Financial Statement, 2010).

The total revenues received by the organization in the year

ending January 2010 were $408.2 billion whereas revenues in the

year ending January 2009 were $404.3 billion dollars.

The revenues in the year ending January 2008 stood at

$377 billion dollars. Thus, it can be easily analyzed that

the total revenues of the organization has grown over

the years steadily. This has also impacted the net

income of the organization and thus, increments could

also be seen in the net income of the organization. Net

Income, which stood in the year ending 2008 at $12.7

billion, increased to $13.4 billion for the year ending

2009 and again increased to $14.3 billion in the year

ending 2010 (Wal-Mart Stores Inc: Financial Statement,

2010).

4.(Set 2)Which one of these best fits the description of an agency

cost?

increasing the dividend payments per share

the benefits received from reducing production costs per unit

the payment of interest on a firms debts

the payment of corporate income taxes

the payment required for an outside audit of the firm

5.The primary goal of financial management is to:

maximize current dividends per share of the existing stock.

avoid financial distress.

minimize operational costs and maximize firm efficiency.

maximize the current value per share of the existing stock.

maintain steady growth in both sales and net earnings.

6.Which one of the following business types is best suited to raising

large amounts of capital?

limited partnership

corporation

sole proprietorship

limited liability company

general partnership

7.Accounting profits and cash flows are generally:

the same since accounting profits reflect when cash flows occur.

different because of GAAP rules regarding the recognition of income.

different because cash inflows must occur before revenue recognition.

the same since they reflect current laws and accounting standards.

the same due to the requirements of GAAP.

8.One year ago, you invested $2,690. Today it is worth $3,800.50.
What rate of interest did you earn?

8. (Set 2)

Your credit card company charges you 1.00 percent per month. What
is the annual percentage rate on your account?

9. (Set 1)

What is the future value of $920 a year for 5 years at a 6 percent

interest?

9. (Set 2)

Your credit card company charges you 1.00 percent per month. What
is the annual percentage rate on your account?

10.You just paid $361,000 for an annuity that will pay you and your
heirs $12,300 a year forever. What rate of return are you earning on
this policy?

Some time ago, Julie purchased eleven acres of land costing $15,590.
Today, that land is valued at $63,123. How long has she owned this
land if the price of the land has been increasing at 6 percent per year?

11.First City Bank pays 6 percent simple interest on its savings

account balances, whereas Second City Bank pays 6 percent interest
compounded annually.
If you made a $57,000 deposit in each bank, how much more money
would you earn from your Second City Bank account at the end of 10
years? (Do not round intermediate calculations and round your answer
to 2 decimal places, e.g., 32.16.)

11. (Set 2)

First City Bank pays 6 percent simple interest on its savings account
balances, whereas Second City Bank pays 6 percent interest
compounded annually.

If you made a $60,000 deposit in each bank, how much more money
would you earn from your Second City Bank account at the end of 10
years? (Do not round intermediate calculations and round your answer
to 2 decimal places, e.g., 32.16.)

11450.86

12.a. Compute the future value of $2,000 compounded annually

for 10 years at 7 percent. (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)

b. Compute the future value of $2,000 compounded annually for

10 years at 12 percent. (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)

c. Compute the future value of $2,000 compounded annually for

15 years at 7 percent. (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)
12. (Set 2)

10.00 points

a. Compute the future value of $1,000 compounded annually for

10 years at 8 percent. (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)

b. Compute the future value of $1,000 compounded annually for

10 years at 11 percent. (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)

c. Compute the future value of $1,000 compounded annually for

15 years at 8 percent. (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)

13. (Set 2)

10.00 points

For each of the following, compute the present value (Do not round
intermediate calculations and round your answers to 2 decimal places,
e.g., 32.16.):
Present Value Years Interest Rate Future value

Wilkinson Co. has identified an investment project with the following

cash flows:

If the discount rate is 9 percent, what is the present value of these cash
flows? (Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)

If the discount rate is 16 percent, what is the present value of these

cash flows? (Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)

If the discount rate is 25 percent, what is the present value of these

cash flows? (Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)

15.You own 300 shares of Western Feed Mills stock valued at $36.72
per share. What is the dividend yield if your annual dividend income
is $322?

15.Four months ago, you purchased 1,200 shares of Lakeside Bank

stock for $21.20 a share. You have received dividend payments equal
to $.55 a share. Today, you sold all of your shares for $22.20 a share.
What is your total dollar return on this investment?
Question 16 (Another Set)

Suppose a stock had an initial price of $54 per share, paid a dividend
of $1.30 per share during the year, and had an ending share price of
$64.

Compute the percentage total return. (Do not round intermediate

calculations and enter your answer as a percent rounded to 2 decimal
places, e.g., 32.16.)

17.

Youve observed the following returns on SkyNet Data Corporations

stock over the past five years: 14 percent, 7 percent, 17 percent, 15
percent, and 10 percent. Suppose the average inflation rate over this
period was 1.4 percent, and the average T-bill rate over the period was
5.1 percent.

a. What was the average real return on the stock? (Do not round
intermediate calculations and enter your answer as a percent rounded
to 2 decimal places, e.g., 32.16.)

b. What was the average nominal risk premium on the stock?

(Do not round intermediate calculations and enter your answer as a
percent rounded to 1 decimal place, e.g., 32.1.)

Question 17 (another Set)

Youve observed the following returns on SkyNet Data Corporations
stock over the past five years: 17 percent, 15 percent, 19 percent, 29
percent, and 10 percent. Suppose the average inflation rate over this
period was 2.6 percent, and the average T-bill rate over the period was
4.3 percent.

a. What was the average real return on the stock? (Do not round
intermediate calculations and enter your answer as a percent rounded
to 2 decimal places, e.g., 32.16.)

b. What was the average nominal risk premium on the stock?

(Do not round intermediate calculations and enter your answer as a
percent rounded to 1 decimal place, e.g., 32.1.)