I need help with question 3 (a. and b.) and question 4. These questions are found on page 4.

FIN 6020 (Dr. Wiant) Mid-term (v17f-M10) Page 1 MIDTERM Exam - Fall 2017 Instructions: Please complete and submit your completed Exam to the Midterm Exam Dropbox (Assessment/Assignments) before the Dropbox deadline. (Only submissions to the Dropbox that are on time will be accepted. Late or email submission attachments will not be accepted for this exam.) This is an open book, open notes exam. It is an individual assignment. You are to complete it on your own without assistance from others and without assisting others. You are expected to show your work and present it in a clear fashion. You may submit a Word document for the discussion component and an Excel workbook for the calculation based questions. Or, you may submit your exam in an Excel workbook for all of the exam. You will need to be careful with your formatting. You are to show your work in the calculations. Answers without work are not gradable. In Excel, the cell formulas represent your work and are sufficient. Simply typing in an answer only is not sufficient. Please do provide me an email to let me know that you have submitted your exam and that you completed the exam yourself and with no assistance from others. (This is a necessary email.) Good luck! Dr. Wiant FIN 6020 (Dr. Wiant) Mid-term (v17f-M10) Page 2 1. (15 points) Stock Value - uneven growth. Your assistant has estimated (forecast) the dividends expected for the common stock of DD&CJ, Inc. over the next three years to be $.45, $1.72, and $3.35, respectively. Thereafter, dividend payments are estimated to grow at 2.25% per year. You are considering the purchase of DD&CJ stock. If you require a 11.75% rate of return, what is the value per share of DD&CJ, Inc. common stock? FIN 6020 (Dr. Wiant) Mid-term (v17f-M10) Page 3 2. (10 points) Discuss historical performance analysis. Address the methodology, areas to be evaluated and the corresponding ratios to the area. Describe how ratios are evaluated. That is, what are the ways we look at ratios? Include in your discussion the benefits and limitations of this kind of analysis. FIN 6020 (Dr. Wiant) Mid-term (v17f-M10) Page 4 3. (10 points) Your research team has provided their forecast of the following financial areas of iJKL Corporation (in the table below) for 2017, but did not complete the Proforma Statements that result from the forecasts. iJKL Corp. - Forecasts Sales Net Profit Margin Dividends Total Assets Long Term Debt Common Stock Last year's (2016) Retained Earnings 2016 2,017 92,875,000 4.75% 0 72,500,000 28,500,000 32,225,000 2,750,000 a. Using this data, complete the proforma financial statements below (next page) by filling in the appropriate (Yellow and Blue) blanks. You do not need the other (dark grey) blanks. b. Based on your proforma financial statements, what is the firm's estimated Additional Funds Needed for 2017? 4. (10 points) What does the answer above indicate? That is, discuss your result, what it implies, and how management would use it. FIN 6020 (Dr. Wiant) Mid-term (v17f-M10) Page 5 iJKL Corporation Proforma Financial Statements Income Statements (000s) Sales Cost of goods sold Gross profit Operating Expenses Advertising Depreciation EBIT Interest EBT Taxes EAT 2016 2017 2016 2017 Dividends Balance Sheets (000s) Cash Accounts receivable Inventory Total current assets Prepaid advertising Land Buildings and equipment Less: accumulated depreciation Total fixed assets Total assets Accounts payable Bank notes Total current liabilities Long-term debt Common stock Retained earnings Total liabilities & equity AFN FIN 6020 (Dr. Wiant) Mid-term (v17f-M10) Page 6 5. (15 points) Cost of Debt JPR, Inc has one outstanding bond issue, which has twelve years remaining to maturity and a coupon rate of 4.625%. Interest payments are made semiannually, the firm's tax rate is .40, and the bonds are currently trading at $1,227.00. a. What is the yield to maturity on the bonds? b. Ignoring flotation costs, what is the firm's cost of debt (before tax)? c. What is its after-tax cost of debt? FIN 6020 (Dr. Wiant) Mid-term (v17f-M10) Page 7 6. Cost of Capital Now (use the following information) suppose that: The cost of debt is 3.25% (before tax), Flotation costs (F) = 7% of issue price, The debt is trading at $1,085.00, There are 7,456 bonds outstanding, The tax rate is .40, D0 = $3.25, g = 3.15%, Beta = 1.38, rRF = 1.75%, RPm = 5%, The firm has 200,000 shares of common stock outstanding, Common stock shares are trading at $57.00/share (P0). a. (5 points) Given the above information, what is the Market value of the firm's debt? $___________________ Given the above information, what is the Market value of the firm's equity? $___________________ Now calculate the weight of debt for the firm (Wd). You will use this to calculate the WACC. Now calculate the weight of equity for the firm (Wce). You will use this to calculate the WACC. b. (10 points) What is the cost of existing common equity (retained earnings)? (Briefly describe your approach/method as well as your answer) c. (10 points) What is the firm's WACC? (Briefly describe your approach/method as well as your answer) FIN 6020 (Dr. Wiant) Mid-term (v17f-M10) Page 8 7. (15 points) Joanne and Bill are holding the winning Lottery ticket for the Tennessee Education Enhancement lottery pool. It will be paid to them over the next 29 years. But, they \"want their money now\". B.J.Wantyormoni, your new boss, is considering buying their Lottery ticket for cash now. He wants you to describe how to value this winning Lottery Ticket. Please do so. That is - Describe how to value a business asset