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principles corporate finance
Questions and Answers of
Principles Corporate Finance
You can find swap rates for the U.S. dollar and the euro on www.ft.com. Plot the current swap curves as in Figure 26.3.
Take another look at our two-step binomial trees for Amazon in Figure 21.2. Use the risk-neutral method to value six-month call and put options with an exercise price of $750. Assume the Amazon stock
Use the spreadsheet for the guano project in Chapter 6 to undertake a sensitivity analysis of the project. Make whatever assumptions seem reasonable to you. What are the critical variables? What
On October 17, 2013, an 8 year Treasury Bond with a face value of$1,000.00, paying $20.00 in coupon payments per year had a discount rate per year (yield) of 2.35%. Consider a bond that paid a $35.00
On October 17, 2013, a 4 year Treasury Bond with a face value of$1,000 and an annual coupon rate of 1.88% had a yield to maturity of 1.08%.This bond makes 2 (semi-annual) coupon payments per year and
On October 17, 2013, a 4 year Treasury Bond with a face value of$1,000 and an annual coupon rate of 1.88% had a yield to maturity of 1.08%.This bond makes 2 (semi-annual) coupon payments per year and
On October 17, 2013, a 4 year Treasury Bond with a face value of$1,000 and an annual coupon rate of 1.88% had a yield to maturity of 1.08%.This bond makes 2 (semi-annual) coupon payments per year and
There is a system of five bond variables: (1) Number of Periods to Maturity (T), (2) Face Value (PAR), (3) Discount Rate / Period (r), (4) Coupon Payments (PMT), and (5) Bond Price (P). Given any
An annual bond has a face value of $900, makes an annual coupon payment of $17.00 per year, has a discount rate per year of 5.37%, and has 10 years to maturity. What is price of this bond?
A 4 year Treasury Bond with a face value of $1,000 and an annual coupon rate of 6.50% had a yield to maturity of 3.15%. This bond makes 2 (semiannual)coupon payments per year and thus has 8 periods
Perform instant experiments on whether changing various inputs causes an increase or decrease in the Bond Price and by how much.(a.) What happens when the annual coupon rate is increased?(b.) What
A 4 year Treasury Bond with a face value of $900, and an annual coupon rate of 4.20% has a yield to maturity of 3.03%. This bond makes 2(semiannual) coupon payments per year and thus has 8 periods
A 4 year Treasury Bond with a face value of $900, and an annual coupon rate of 6.30% has a yield to maturity of 4.79%. This bond makes 2(semiannual) coupon payments per year and thus has 8 periods
Given four of the bond variables, determine the fifth bond variable.(a.) Given Number of Periods to Maturity is 10, Face Value is $1,000.00, Discount Rate / Period is 3.27%, and Coupon Payment is
Currently a stock pays a dividend per share of $6.64. A security analyst projects the future dividend growth rate over the next five years to be 12.0%, 11.0%, 10.0%, 9.0%, 8.0% and then 7.0% each
Currently a stock pays a dividend per share of $43.37. A security analyst projects the future dividend growth rate over the next five years to be 21.0%, 18.0%, 15.0%, 13.5%, 11.5% and then 11.0% each
Given the cash flow streams, compute the current value of the firm and the value added by the firm using Adjusted Present Value. 123 A B FIRM AND PROJECT VALUATION 3 Inputs 4 Valuation Object 5 Date
Given the cash flow streams, compute the current value of the firm and the value added by the firm using Free Cash Flow to Equity. 123 FIRM AND PROJECT VALUATION 3 Inputs 4 Valuation Object 5 Date 0
Given the cash flow streams, compute the current value of the firm and the value added by the firm using Free Cash Flow to the Firm. 123 FIRM AND PROJECT VALUATION 3 Inputs 4 Valuation Object 5 Date
Given the cash flow streams, compute the current value of the firm and the value added by the firm using a Dividend Discount Model. 123 FIRM AND PROJECT VALUATION 3 Inputs 4 Valuation Object 5 Date 0
Given the cash flow streams, compute the current value of the firm and the value added by the firm using Residual Income. 123 FIRM AND PROJECT VALUATION 3 Inputs 4 Valuation Object 5 Date 0 Proj
Eliminate the (stage two) infinite horizon cash flows and recompute the value of the firm and the value added by the firm using the same five methods. Then, switch to evaluating a project while
Given bond prices and yields as published by the financial press or other information sources, obtain the U.S. Treasury Yield Curve. 2 Excel 2013 A FIGURE 11.1 The Yield Curve - Obtaining It From
Given the yield curve as published by the financial press, consider a coupon bond has a face value of $1,000, an annual coupon rate of 3.5%, makes 2 (semiannual) coupon payments per year, and 8
Given the yield curve as published by the financial press, calculate the implied forward rates at all maturities Excel 2013 FIGURE 11.3 The Yield Curve - Using It To Determine Forward Rates. C D E F
Given bond prices and yields as published by the financial press or other information sources, obtain the U.S. Treasury Yield Curve. Excel 2013 FIGURE 11.3 The Yield Curve - Using It To Determine
Given the yield curve as published by the financial press, consider a coupon bond has a face value of $1,500, an annual coupon rate of 3.9%, makes 2(semiannual) coupon payments per year, and 8
Given the yield curve as published by the financial press, calculate the implied forward rates at all maturities. Excel 2013 FIGURE 11.3 The Yield Curve - Using It To Determine Forward Rates. C D E F
How does the US yield curve change over time?
What determines the volatility of changes in the yield curve?
Are there differences in the volatility of short rates, medium rates, long rates, etc.?
How volatile are short rates versus medium rates versus long rates?(a.) Get a visual sense of the answer to this question by clicking on the right arrow of the scroll bar to run through all of the
Determine the relationship between the volatility of the yield curve and the level of the yield curve. Specifically, for each five year time period (70-74, 75-79, 80-84, etc.) calculate the variance
For a particular firm, the value of its debt is $1,300 and the value of its equity is $1,800. Given the firm’s risk exposure, the unlevered cost of equity capital is 11.00%. The cost of debt is
For a particular firm, the value of its debt is $1,300 and the expected free cash flow on all future dates forever is $500. Given the firm’s risk exposure, the unlevered cost of equity capital is
For a particular firm, the value of its debt is $1,300 and the expected free cash flow on all future dates forever is $500. Given the firm’s risk exposure, the unlevered cost of equity capital is
For a particular firm, the value of its debt is $3,000 and the value of its equity is $3,500. Given the firm’s risk exposure, the unlevered cost of equity capital is 14.50%. The cost of debt is
For a particular firm, the value of its debt is $3,000 and the expected free cash flow on all future dates forever is $1,100. Given the firm’s risk exposure, the unlevered cost of equity capital is
For a particular firm, the value of its debt is $3,000 and the expected free cash flow on all future dates forever is $900. Given the firm’s risk exposure, the unlevered cost of equity capital is
Select a company with publicly traded stock. Locate the historical 10K financial statements for that company over the past few years. Forecast your company's financial statements over the next three
Suppose the Euro/Dollar Exchange Rate is €1 = $1.3640, the annual US riskfree rate is 4.47%, the US inflation rate is 2.69%, and the annual Eurozone riskfree rate is 4.27%. What is the one-year
Suppose the Euro/Dollar Exchange Rate is €1 = $1.3640, the annual US riskfree rate is 4.47%, the US inflation rate is 2.69%, the annual Eurozone riskfree rate is 4.27%, the Eurozone inflation rate
Suppose the Euro/Dollar Exchange Rate is €1 = $1.083, the annual US riskfree rate is 4.61%, the US inflation rate is 3.69%, and the annual Eurozone riskfree rate is 6.39%. What is the one-year
Suppose the Euro/Dollar Exchange Rate is €1 = $1.6371, the annual US riskfree rate is 6.90%, the US inflation rate is 4.72%, the annual Eurozone riskfree rate is 2.15%, the Eurozone inflation rate
What is the annual standard deviation of Facebook stock based on continuous returns? A B C D E F G H BINOMIAL OPTION PRICING Estimating Volatility 12345678 9 6 Stock: 7 Symbol: (1) Download three
At the close of trading on October 11, 2013, SPY, an Exchange Traded Fund (ETF) based on the S&P 500 index, traded at 170.30. European call and put options on SPY with the exercise prices shown
The S&P 500 index closes at 2000. European call and put options on the S&P 500 index with the exercise prices shown below trade for the following prices::All options mature in 88 days. The
An annuity pays $132.38 each period for 5 periods. For these cash flows, the appropriate discount rate / period is 3.5%. What is the present value of this annuity?
An annuity pays $63.92 each period for 4 periods. For these cash flows, the appropriate discount rate / period is 9.1%. What is the period 5 future value of this annuity?
Consider a system of four annuity variables.(a) An annuity pays $63.00 each period for 3 periods. For these cash flows, the appropriate discount rate / period is 8.0%. What is the present value of
An annuity pays $80.00 each period for 5 periods. For these cash flows, the appropriate discount rate / period is 6.0%. What is the present value of this annuity?
An annuity pays $80.00 each period for 5 periods. For these cash flows, the appropriate discount rate / period is 6.0%. What is the period 5 future value of this annuity?
There is a tight connection between all of the inputs and output to annuity valuation. Indeed, they form a system of four annuity variables: (1)Payment, (2) Discount Rate / Period, (3) Number of
A project requires a current investment of $100.00 and yields future expected cash flows of $21.00, $34.00, $40.00, $33.00, and $17.00 in periods 1 through 5, respectively. All figures are in
A project requires a current investment of $100.00 and yields future expected cash flows of $21.00, $34.00, $40.00, $33.00, and $17.00 in periods 1 through 5, respectively. All figures are in
A project requires a current investment of $179.32 and yields future expected cash flows of $35.19, $63.11, $88.54, $82.83, and $68.21 in periods 1 through 5, respectively. All figures are in
A project requires a current investment of $107.39 and yields future expected cash flows of $48.31, $58.53, $82.80, $106.31, and $62.18 in periods 1 through 5, respectively. All figures are in
A project requires a current investment of $100.00 and yields future expected cash flows of $21.00, $34.00, $40.00, $33.00, and $17.00 in periods 1 through 5, respectively. All figures are in
A project requires a current investment of $100.00 and yields future expected cash flows of $21.00, $34.00, $40.00, $33.00, and $17.00 in periods 1 through 5, respectively. All figures are in
A project requires a current investment of $64.39 and yields future expected cash flows of $29.27, $37.33, $44.94, $51.76, and $42.49 in periods 1 through 5, respectively. All figures are in
A project requires a current investment of $308.47 and yields future expected cash flows of $97.39, $144.97, $163.28, $184.99, and $96.41 in periods 1 through 5, respectively. All figures are in
To purchase a house, you take out a 30 year mortgage. The present value (loan amount) of the mortgage is $300,000. The mortgage charges an interest rate / year of 8.00%. What is the annual payment
Examine the same 30 year mortgage for $300,000 as in the previous section. Consider what would happen if the interest rate / year dropped from 8.00% to 7.00%. How much of each year's payment goes to
To purchase a house, you take out a 30 year mortgage. The present value(loan amount) of the mortgage is $237,832. The mortgage charges an interest rate / year of 7.27%. What is the annual payment
In purchasing a house, you need to obtain a mortgage with a present value(loan amount) of $175,000. You have a choice of: (A) a 30 year mortgage at an interest rate / year of 9.74% or (B) a 15 year
Consider a 30 year mortgage for $462,264 as in the previous section. What would happen if the interest rate / year dropped from 10.21% to 7.95%. How much of each year's payment goes to paying
You are trying to decide whether to lease a car for four years or buy a new car now and sell it four years later. The annual lease payment would be$4,100 with payments made at the beginning of each
A corporation is trying to decide whether to lease a machine for five years and pay the residual purchase cost to buy the machine in the last year of the lease or buy the machine now. The annual
You are trying to decide whether to lease a car for four years or buy a new car now and sell it four years later. The annual lease payment would be$7,300 with payments made at the beginning of each
A corporation is trying to decide whether to lease a machine for five years and pay the residual purchase cost to buy the machine in the last year of the lease or buy the machine now. The annual
Given monthly total return data on individual stocks, US portfolios, and country portfolios, estimate the Static CAPM under three market portfolio benchmarks (SPDR “Spider” Exchange Traded Fund,
Given monthly total return data on individual stocks, US portfolios, and country portfolios, estimate the APT or Intertemporal CAPM (ICAPM)under two sets of factors (Fama-French 3 factors and 3 macro
Download ten years of monthly total return data for individual stocks, US portfolios, and country portfolios. Then use that data to estimate the Static CAPM under three market portfolio benchmarks
Download ten years of monthly total return data for individual stocks, US portfolios, and country portfolios. Then use that data to estimate the APT or Intertemporal CAPM (ICAPM) under two sets of
The expected future cash flows for a firm have been forecasted in two stages and correspond to two time periods. Stage one is a finite horizon from years 1 to 5. Stage two is the remaining infinite
Starting from their historical financial statements, forecast the expected future cash flows for a real firm in two stages corresponding to two time periods. Stage one is a finite horizon from years
Perform instant experiments on whether changing various inputs causes an increase or decrease in the firm’s value / share and by how much.(a.) What happens when the date 0 firm capital is
Suppose a firm is considering the following project, where all of the dollar figures are in thousands of dollars. In year 0, the project requires an$11,350 investment in plant and equipment, is
Consider the same project as Project NPV - Basics. Let's examine the details of how you forecast the project cash flows. Suppose that Direct Labor, Materials, Selling Expenses, and Other Variable
Consider the same project as above. Suppose we add that the project will require working capital in the amount of $0.87 in year 0 for every unit of next year's forecasted sales and this amount will
Consider the same project as above. Assume that the product life-cycle of seven years is viewed as a safe bet, but that the scale of demand for the product is highly uncertain. Analyze the
Suppose a firm is considering the following project, where all of the dollar figures are in thousands of dollars. In year 0, the project requires $37,500 investment in plant and equipment, is
Consider the same project as problem 1, but modify it as follows. Suppose that Direct Labor, Materials, Selling Expenses, and Other Variable Costs are forecast to be $4.10, $4.20, $1.10, and $2.20,
Consider the same project as problem 2, but modify it as follows: suppose that the project will require working capital in the amount of $1.58 in year 0 for every unit of next year's forecasted sales
Consider the same project as problem 3. Assume that the product life-cycle of seven years is viewed as a safe bet, but that the scale of demand for the product is highly uncertain. Analyze the
Suppose a firm is considering a labor-saving investment. In year 0, the project requires a $6,300 investment in equipment (all figures are in thousands of dollars). This investment is depreciated
For the same cost-reducing project as the previous section, analyze the sensitivity of the Project’s NPV to the assumed With Investment Labor Costs.
Suppose a firm is considering a labor-saving investment. In year 0, the project requires a $11,700 investment in equipment (all figures are in thousands of dollars). This investment is depreciated
For the same cost-reducing project as problem 1, analyze the sensitivity of the Project NPV to the assumed With Investment Labor Costs.
A project has a fixed cost of $30,000, variable costs of $4.00 per unit, and generates sales revenue of $6.00 per unit. What is the break-even point in unit sales, where accounting profit exactly
Suppose a firm is considering the following project, where all of the dollar figures are in thousands of dollars. In year 0, the project requires $11,350 investment in plant and equipment, is
A project has a fixed cost of $80,000, variable costs of $8.20 per unit, and generates sales revenue of $14.40 per unit. What is the break-even point in unit sales, where accounting profit exactly
Suppose a firm is considering the following project, where all of the dollar figures are in thousands of dollars. In year 0, the project requires $24,490 investment in plant and equipment, is
Construct actual (historical) financial statements for Cutting Edge B2B Inc. in preparation for forecasting their financial statements.
Given actual financial statements for Cutting Edge B2B Inc., forecast their financial statements for the next three years. Explore the impact of the financing choice variables: debt or equity.
Given historical and forecasted Income Statements and Balance Sheets for Cutting Edge B2B Inc., create the historical and forecasted Cash Flow Statement.
Given historical and forecasted financial statements for Cutting Edge B2B Inc., create the historical and forecasted financial ratios.
Given historical and forecasted financial statements for Cutting Edge B2B Inc., analyze the sensitivity of the 2007 External Funds Needed to the assumed 2007 Sales Growth Rate.
Given historical 10K financial statements for Nike, Inc., forecast their financial statements over the next three years.
Given historical financial statements for Global Impact P2P on the Problems tab, forecast their financial statements for the next three years.Then explore the company's needs for additional financing
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