Complete the following problems in Microsoft Excel. Your

work must be completed in the attached template.

Chapter 1: 1-6, 1-8

Chapter 2: 2-9, 2-12Chapter 3: 3-3, 3-4

Computations must be solved using Excel. Show all your work

to earn partial credit. Essay questions require references.Submit to

Assignments by midnight ET, Day 7 (Sunday).

1-6

In most large corporations, ownership and management are

separated. What are the main implications of this separation?

1-8

We can imagine the financial manager doing several things on

behalf of the firm’s stockholders. For example, the manager might:

a. Make shareholders as wealthy as possible by investing in

real assets.

b. Modify the firm’s investment plan to help shareholders

achieve a particular time pattern of consumption.

c. Choose high- or low-risk assets to match shareholders’

risk preferences.

d. Help balance shareholders’ checkbooks.

But in well-functioning capital markets, shareholders will

vote for only one of these goals. Which one? Why?

2-9

A. The cost of an automobile is $10,000. If the interest

rate is 5%, how much would you have to set aside now to provide this sum in

five years?

B. You have to pay $12,000 a year in school fees at the end

of each of the next six years. If the interest rate is 8%, how much do you set

aside today to cover these bills?

C. You have invested $60,476 at 8%. After paying the above

school fees, how much would you remain at the end of six years?

2-12

What is the PV of $100 received in:

A. Year 10 (at a discount rate of 1%)

B. Year 10 (at a discount rate of 13%)

C. Year 15 (at a discount rate of 25%)

D. Each of years 1 through 3 (at a discount rate of 12%)?

3-3

In February 2009 Treasury 6s of 2026 offered a semiannually

compounded yield of 3.5965%. Recognizing that coupons are paid semiannually,

calculate the bond’s price.

3-4

Here are the prices of three bonds with 10-year maturities:

Bond Coupon (%) Price

(%)

2 81.62

4 98.39

8 133.42

If coupons are paid annually, which bond offered the highest

yield to maturity?

Which had the lowest?

Which bonds had the longest and shortest durations?

**week 2**

#### Assignment Instructions

Complete the following problems in Microsoft Excel. Your work must be completed in the attached template.

Chapter 4: 4-10, 4-12

Chapter 5: 5-9, 5-16

Chapter 6: 6-2, 6-13

Computations must be solved using Excel. Show all your work to earn partial credit. Essay questions require references.

**FIN600 homework Template
Week 2**

Under

what conditions does r, a stock’s market capitalization rate, equal its

earnings¬price ratio EPS1/P0?

What is

meant by the “horizon value” of a business? How can it be estimated?

Respond

to the following comments:

a. “I like the IRR rule. I can use it to rank projects

without having to specify a discount rate.”

b. “I like the payback rule. As long as the minimum

payback period is short, the rule makes sure that the company takes no

borderline projects. That reduces risk.”

Some

people believe firmly, even passionately, that ranking projects on IRR is OK if

each project’s cash flows can be reinvested at the project’s IRR. They also say

that the NPV rule “assumes that cash flows are reinvested at the

opportunity cost of capital.” Think carefully about these statements. Are

they true? Are they helpful?

Mr. Art

Deco will be paid $100,000 one year hence. This is a nominal flow, which he

discounts at an 8% nominal discount rate:

PV =

100,000/1.08 = $92,593

The

inflation rate is 4%.

Calculate the PV of Mr. Deco’s payment using the equivalent

real cash flow and real discount rate. (You should get exactly the same answer

as he did.)

Each of

the following statements is true. Explain why they are consistent.

a. When a company introduces a new product, or expands

production of an existing product, investment in net working capital is usually

an important cash outflow.

b. Forecasting changes in net working capital is not

necessary if the timing of all cash inflows and outflows is carefully

specified.

week 3

Chapter 7: 7-2, 7-11

Chapter 8: w8-6, 8-18

Computations must be solved using Excel. Show all your work to earn partial credit. Essay questions require references.*Submit to Assignments by midnight ET, Day 7 (Sunday).*

**FIN600 homework Template
Week 3**

The

following table shows the nominal returns on U.S. Stocks and the rate of

inflation:

Year Nominal Return (%) Inflation (%)

2004 12.5 3.3

2005 6.4 3.4

2006 15.8 2.5

2007 5.6 4.1

2008 -37.2 0.1

a) What was the standard deviation of the

market returns?

b) Calculate the average real return.

Each of

the following statements is dangerous or misleading. Explain why.

a. A long-term United States government bond is always

absolutely safe.

b. All investors should prefer stocks to bonds because

stocks offer higher long-run rates of return.

c. The best practical forecast of future rates of return on

the stock market is a 5- or 10-year average of historical returns.

Suppose

that the Treasury bill rate were 6% rather than 4%. Assume that the expected

return on the market stays at 10%. Use the betas in Table 8.2 (p. 193) – also

provided below.

a.

Calculate the expected return from Dell.

b. Find the highest expected return that is offered by one

of these stocks.

c. Find the lowest expected return that is offered by one of

these stocks.

d. Would Ford offer a higher or lower expected return if the

interest rate were 6% rather than 4%? Assume that the expected market return

stays at 10%.

e. Would Exxon Mobil offer a higher or lower expected return

if the interest rate were 8%?

Some

true or false questions about the APT:

a. The APT factors cannot reflect diversifiable risks.

b. The market rate of return cannot be an APT factor.

c. There is no theory that specifically identifies the APT

factors. d. The

APT model could be true but not very useful, for example, if the relevant

factors change unpredictably.

Respond to each question – true or false – and why.

week 4

#### Assignment Instructions

Complete the following problems in Microsoft Excel. Your work must be completed in the attached template.

Chapter 9: 9-2, 9-16Chapter 10: 10-2, 10-14Computations must be solved using Excel. Show all your work to earn partial credit. Essay questions require references.*Submit to Assignments by midnight ET, Day 7 (Sunday).*

**FIN600 homework Template
Week 4**

A

company is 40% financed by risk-free debt. The interest rate is 10%, the

expected market risk premium is 8%, and the beta of the company’s common stock

is .5.

Risk

Free Debt Interest Rate Market Risk Premium Beta Taxes

40% 10% 8% 0.5 35%

a. What is the company cost of capital?

b. What is the after-tax WACC, assuming that

the company pays tax at a 35% rate?

What

types of firms need to estimate industry asset betas? How would such a firm

make the estimate? Describe the process step by step.

Problem

10-2

Explain

how each of the following actions or problems can distort or disrupt the

capital budgeting process.

a.

Overoptimism by project sponsors.

b. Inconsistent forecasts of industry and macroeconomic

variables.

c. Capital budgeting organized solely as a bottom-up

process.

Problem

10-14

Suppose

that the expected variable costs of Otobai’s project are ¥33 billion a year and

that fixed costs are zero.

a. How does this change the degree of operating leverage

(DOL)?

b. Now recompute the operating leverage assuming that the entire ¥33

billion of costs are fixed.

week 5

omplete the following problems in Microsoft Excel. Your work must be completed in the attached template.

Chapter 12: 12-6, 12-12Chapter 13: 13-11, 13-14Computations must be solved using Excel. Show all your work to earn partial credit. Essay questions require references.*Submit to Assignments by midnight ET, Day 7 (Sunday).*

FIN600 homework Template

Week 5

Here

are key financial data for House of Herring, Inc.:

Earnings

per share for 2015 $5.50

Number

of shares outstanding 40 million

Target

payout ratio 50%

Planned

dividend per share $2.75

Stock

price, y/e 2015 $130

House

of Herring plans to pay the entire dividend early in January 2016. All

corporate and personal taxes were repealed in 2014.

a. Other things equal, what will be House of Herring’s stock

price after the planned dividend payout?

b. Suppose the company cancels the dividend and announces

that it will use the money saved to repurchase shares. What happens to the

stock price on the announcement date? Assume that investors learn nothing about

the company’s prospects from the announcement. How many shares will the company

need to repurchase?

c. Suppose the company increases dividends to $5.50 per

share and then issues new shares to recoup the extra cash paid out as

dividends. What happens to the ex-dividend share prices? How many shares will

need to be issued? Again, assume investors learn nothing from the announcement

about House of Herring’s prospects.

Respond

to the following comment: “It’s all very well saying that I can sell

shares to cover cash needs, but that may mean selling at the bottom of the

market. If the company pays a regular cash dividend, investors avoid that

risk.”

Executive

Chalk is financed solely by common stock and has outstanding 25 million shares

with a market price of $10 a share. It now announces that it intends to issue

$160 million of debt and to use the proceeds to buy back common stock.

a.

How is the market price of the stock affected by the announcement?

b. How many shares can the company buy back with the $160

million of new debt that it issues? c. What is the

market value of the firm (equity plus debt) after the change in capital

structure?

d. What is the debt ratio after the change in structure?

e. Who (if anyone) gains or loses?

“MM

totally ignore the fact that as you borrow more, you have to pay higher rates

of interest.” Explain carefully whether this is a valid objection.

**week 6**

#### Assignment Instructions

Chapter 14: 14-2, 14-24

Chapter 15: 15-6, 15-9

Computations must be solved using Excel. Show all your work to earn partial credit. Essay questions require references.

*Submit to Assignments by midnight ET, Day 7 (Sunday).*

**FIN600 homework
Template Week 6**

Assume

that MM’s theory holds with taxes. There is no growth, and the $40 of debt is

expected to be permanent. Assume a 40% corporate tax rate.

a. How much of the firm’s value is accounted for by the

debt-generated tax shield?

b. How much better off will UF’s a shareholder be if the

firm borrows $20 more and uses it to repurchase stock?

Some

companies’ debt-equity targets are expressed not as a debt ratio, but as a

target debt rating on a firm’s outstanding bonds. What are the pros and cons of

setting a target rating, rather than a target ratio?

A

project costs $1 million and has a base-case NPV of exactly zero (NPV = 0).

What is the project’s APV in the following cases?

a. If the firm invests, it has to raise $500,000 by a stock

issue. Issue costs are 15% of net proceeds.

b. If the firm invests, its debt capacity increases by

$500,000. The present value of interest tax shields on this debt is $76,000.

The

WACC formula seems to imply that debt is “cheaper” than equity–that

is, that a firm with more debt could use a lower discount rate. Does this make

sense? Explain briefly.

week 7

#### Assignment Instructions

Complete the following problems in Microsoft Excel. Your work must be completed in the attached template.

Chapter 18: 18-2, 18-23Chapter 19: 19-11, 19-17Computations must be solved using Excel. Show all your work to earn partial credit. Essay questions require references.

*Submit to Assignments by midnight ET, Day 7 (Sunday).*

**FIN600 homework Template
Week 7**

Table

18.11 (p. 484 and also provided below) gives abbreviated balance sheets and

income statements for Este?e Lauder Companies. Calculate the following ratios:

Suppose

that you wish to use financial ratios to estimate the risk of a company’s

stock. Which of those that we have described in this chapter are likely to be

helpful? Can you think of other accounting measures of risk?

If a

firm pays its bills with a 30-day delay, what fraction of its purchases will be

paid in the current quarter? In the following quarter? What if the delay is 60

days?

Corporate

financial plans are often used as a basis for judging subsequent

performance.

What do you think can be learned from such comparisons?

What problems are likely to arise, and how might you cope with these

problems?