Assigned Problems Solutions FIN 2_201410

Solution Ch 3 -
1) 10,000,000 (net benefit)

3) $1.78 per gallon.

4) a) Stock bonus: $6300; b) depends on the expected value of the stock price.

6) a) $208; b) $192.31

7) NPV=$16.000

8) r=6.25%

9) a) NPV=$3.63 million

11) The first supplier is better (cost=194,339.62 versus 198,113.21)

12) Take a loan from Bank One at 5.5% and invest in Bank Enn at 6%

14) $1.215 per euro.

16) a) $138; b) arbitrage profit=$18; c) arbitrage profit=$12.

19) a) 7,272.73; 12,727.27; 12,727.27; b) $132,727.27; c) $132,727.27

Solution Ch 4 -
8) 74,409.39

10) 684,844

13) 3,152

15) 5,729.69

16) 52,63

17) 38,69

20) 2,130,833

22) a. 1,295,282.59
 b. 566,416.06

26) 21,861,255.8

27) 130.000

33) 23,471,58

36) 24.176

41) 20,868.91

42) 12,823.91

44) 9,366.29

51) 2.29%

Solution Ch 5 -

3) 126,964

4) 9,42%

10) 73,254.81

14) 254,900

15) 543,069

19) 30 months

23) a. 987,93

b. 1.053,85

c. 170 months

d.50,969

39) 733

40) a.32,871

b.27,661
Solution Ch 6 - Bonds
2) a. The maturity is 10 years.
b. The coupon rate is 4%.
c. The face value is $1000.

4) a. P = $89.85
b. P = $79.36
c. 6.05%

10) a. premium.
b. $1,054.60

13) a. A=>15.3% B=>9.9% C=>11.2% D=> 7.4%

b. Bond A is more sensitive because it has longer maturity and no coupons

15) a. 3.17%
b. 5%
c. We can’t simply compare IRRs.

17) P=1032.09, Premium.

21) The par coupon rate is 4.676%.

22) a. The bond is trading at a premium

b. YTM = 4.77%

c. P=$991.39

23) The price of the coupon bond is too low, so there is an arbitrage opportunity.

24) Given the spot rates implied by Bonds A, B, and D, the price of Bond C should be $1,105.21. Its price
really is $1,118.21, so it is overpriced by $13 per bond. Yes, there is an arbitrage opportunity

30) a. P=1,008.36

b. $9,917.13 => 9,918 bonds.

c. 6.5%, or A rated.

d. 7.5% or BB bonds.

Solution Ch 7 –
1) You should take the project. The maximum IRR is 20%, it can only increase 10%

3) NPV= $275 million , 30%.

5) a. $9.895 million

b. 9.391 million

7) a. Make graph of the NPV with Y axis = NPV and X axis = Cost of capital

b. 12.72%.

c. Yes, because the NPV is positive

d. 0.72%

9) Irr - 12.2% NPV= -986.71 Dont take it

14) If the opportunity cost of capital is between 2.93% and 8.72%, the investment should be undertaken.

16) It doesnt exist.

20) a. 5 years

b. NPV = 0.31 million

22)

a. NPVa= 119.83 NPVb= 130.37 NPVc = 124.65

b. Ranking the projects by their IRR is not valid in this situation because the projects have different
scales and different patterns of cash flows over time.

24) Since the incremental IRR of 7.522% is less than the cost of capital of 8%, you should take the
Playhouse.

28) a. a. Huawei 83.9%, Cisco 36.3%

b. Huawei $28.0 m, Cisco $44.1m

c. IRR = 111.9%

d. No,

31)
Solution Ch 8 –
1) a. $12 million

b. $16 million

2) Year 1=(878) Year2: 1,918

5) a. Unlevered Net Income (9,000) 1,020 5,100 8,862 13,692

b. Unlevered Net Income (9,000) 780 4,620 8,142 12,732

9) a. Unlevered Net Income 39.0 41.6

b. Free Cash Flow 29.0 29.6

10) a. FCF = 35,000 8,025 8,025 ..........… 8,025 18,025

b .9.56

12) $248.8K in present value terms

17) a. FCF in years 1-7: $0.63m In year 8:. $1.544m

b. 1,2458m

23) a. $57.3 million.

b. Initial Sales 90 100 110

NPV 20.5 57.3 94.0

c. Growth Rate 0% 2% 5%
NPV 57.3 72.5 98.1

d. NPV is positive for discount rates below the IRR of 20.6%.

Solution Ch 9–

1) $55.50

3) a. $48.00

b. $50.00

c. $48.00

6) $30
10) a. 6%

b. $50

c. $44 , No

11) $41.67

13) $39.4378

15) $68.45

17) a. $50

b. $50.

c. 8%

19) a. $820

b.$ 9.53

21) a. $ 8.11

b. $5.13

c. $12.07

d. $9.00

25) a. $24.77

b. $37.32

c. $34.22

d. $97.73

26) a. $30.77

b. $16.21 - $58.64

c. $27.10

d. $22.25 - 33.08

27) a. Using EV/EBITDA = $30.38, Using P/E= $30.36

b. Using EV/EBITDA = $23.67, Using P/E $28.38

30) a. $100

b. That forecast might be to high

31) a. -206

b. No, price will drop

32) a. greater than 50%

b. Yes,

c. It might be an illiquid market.

Solution Ch 12–
1) 5.85%

3) ALCOA is 7.75% higher

18) 8.25%

19) a. 7.75%

b. 7.875%

c. In the first case, we assumed the debt had a beta of zero, so rd = rf = 4%

In the second case, we assumed rd = ytm = 4.5%

d. 8.03%

23) a. Soft drink = 1,250 Chemical = 2.125

b. Beta = 0.85, Ke = 8.25%

24) Beta in Hockey Tea, 1.64

25) a. 35.12 million

b. 25.24 million

c. 21.4% Risk is increased.

27) WACC = 8.4%