FIN571 Week-1 Financial Ratio

Analysis
Financial Ratio Analysis
Purpose of Assignment
The purpose of this assignment is to help students gain a better understanding of the financial
statements used for corporate financial reporting and the key ratios used to make business
decisions.
Assignment Steps
Select a Fortune 500 Company from one of the following industries:
• Pharmaceutical

• Energy

• Retail

• Automotive

• Computer Hardware
Review the balance sheet and income statement in the company's 2015 Annual Report.
Calculate the following ratios using Microsoft® Excel®:
• Current Ratio

• Quick Ratio

• Debt Equity Ratio

• Inventory Turnover Ratio

• Receivables Turnover Ratio

• Total Assets Turnover Ratio

• Profit Margin (Net Margin) Ratio

• Return on Assets Ratio

Analyze in 1,050 words why each ratio is important for financial decision making.
Submit your analysis as well as your calculations.

FIN571 Week-2 Stock Valuation and

Analysis
Stock Valuation and Analysis
View more »Expand view

Purpose of Assignment

The purpose of this assignment is to allow students the opportunity to research a Fortune 500
company stock using the popular online research tool Yahoo Finance. The tool allows the student to
review analyst reports and other key financial information necessary to evaluate the stock value and
make an educated decision on whether to invest.

Assignment Steps

Resources: Yahoo Finance

Select a Fortune 500 Company from one of the following industries:

• Pharmaceutical

• Energy

• Retail

• Automotive

• Computer Hardware

• Manufacturing

• Mining

Access Yahoo Finance and enter the company name.

Review the financial information and statistics provided for the stock you selected and answer the
following:

• What is the ticker symbol of the company you chose?

• What is the Current Stock Price?

• What is the Market Cap for the stock you chose?

• What is the Price to Earnings Ratio?

• What is the Dividend and Yield?

• What is the Enterprise Value?

• What is the Beta?

• Was there a Stock Split, and if so, when?

• What was the closing stock price for the last 5 days?

• What was the 52 Week High for this stock?

• What is the Book Value per Share?

• What type of rating are analysts recommending (i.e. buy, hold, etc.)?

• What is the target price analysts are predicting for this stock?
 • What is the analyst's average revenue estimate for next year?

• What are some of the significant news items and press releases made by the company
over the last year?

Explain in 700 words why you would or would not recommend investing in this stock.

• Describe the relationship between the value of the stock and the price to earnings
ratio.

• What information does the Market Capitalization (Market Cap) and Beta provide to the
investor?

FIN571 Week 3 Using the Payback

Method, IRR, and NPV
Using the Payback Method, IRR, and NPV
Purpose of Assignment
The purpose of this assignment is to allow the student to calculate the project cash flow using net
present value (NPV), internal rate of return (IRR), and the payback methods.
Assignment Steps
Resources: Corporate Finance
Create a 350-word memo to management including the following:
• Describe the use of internal rate of return (IRR), net present value (NPV), and the
payback method in evaluating project cash flows.
• Describe the advantages and disadvantages of each method.

Calculate the following time value of money problems:

1. If you want to accumulate $500,000 in 20 years, how much do you need to
deposit today that pays an interest rate of 15%?
2. What is the future value if you plan to invest $200,000 for 5 years and the interest
rate is 5%?
3. What is the interest rate for an initial investment of $100,000 to grow to $300,000
in 10 years?
4. If your company purchases an annuity that will pay $50,000/year for 10 years at a
11% discount rate, what is the value of the annuity on the purchase date if the first
annuity payment is made on the date of purchase?
5. What is the rate of return required to accumulate $400,000 if you invest $10,000
per year for 20 years. Assume all payments are made at the end of the period.
Calculate the project cash flow generated for Project A and Project B using the NPV method.
 • Which project would you select, and why?

• Which project would you select under the payback method? The discount rate is
10% for both projects.
• Use Microsoft® Excel® to prepare your answer.

• Note that a similar problem is in the textbook in Section 5.1.

Sample Template for Project A and Project B:

Show all work.

Submit the memo and all calculations.

FIN571 Week 4 Rate of Return for

Stocks and Bonds
Purpose of Assignment
The purpose of this assignment is to allow the student an opportunity to calculate the rate of return
of equity and debt instruments. It allows the student to understand the effects of dividends; capital
gains; inflation rates; and how the nominal rate of return affects valuation and pricing. The
assignment also allows the student to apply concepts related to CAPM, WACC, and Flotation Costs to
understand the influence of debt and equity on the company's capital structure.
Assignment Steps
Resources: Corporate Finance
Calculate the following problems and provide an overall summary of how companies make financial
decisions in no more than 700 words, based on your answers:
1. Stock Valuation: A stock has an initial price of $100 per share, paid a dividend of $2.00 per
share during the year, and had an ending share price of $125. Compute the percentage total
return, capital gains yield, and dividend yield.
2. Total Return: You bought a share of 4% preferred stock for $100 last year. The market price
for your stock is now $120. What was your total return for last year?
3. CAPM: A stock has a beta of 1.20, the expected market rate of return is 12%, and a risk-free
rate of 5 percent. What is the expected rate of return of the stock?
4. WACC: The Corporation has a targeted capital structure of 80% common stock and 20%
debt. The cost of equity is 12% and the cost of debt is 7%. The tax rate is 30%. What is the
company's weighted average cost of capital (WACC)?
 5. Flotation Costs: Medina Corp. has a debt-equity ratio of .75. The company is considering a
new plant that will cost $125 million to build. When the company issues new equity, it incurs
a flotation cost of 10%. The flotation cost on new debt is 4%. What is the initial cost of the
plant if the company raises all equity externally?
Submit your summary and all calculations.

FIN571 Week 5 Capital Market

Efficiency Paper
Capital Market Efficiency Paper
Purpose of Assignment
The purpose of this assignment is to allow the student an opportunity to explain what it means to
have an efficient capital market. Students will gain an understanding of the different levels of market
efficiency and how behavioral finance can inhibit reaching market transparency.
Assignment Steps
Resources: Microsoft® Word
Explain in 525 words what it means to have efficient capital market, including:
• Describe the behavioral challenges in achieving efficiency.

• Discuss the three forms of market efficiency.

• What are the implications to corporate finance?

• Would you consider the real estate market an efficient capital market? Please explain
why or why not.

FIN571 Week 6 Final Exam SCORE

97 PERCENT

Question 1
Which one of these is a correct definition?

Long-term debt is defined as a residual claim on a firm's assets.

 Tangible assets are fixed assets such as patents.
Current assets are assets with short lives, such as inventory.
Current liabilities are debts that must be repaid in 18 months or less.
Net working capital equals current assets plus current liabilities.

Question 2
The primary goal of financial management is to:

Minimize operational costs and maximize firm efficiency.

Maintain steady growth in both sales and net earnings.
Maximize the current value per share of the existing stock.
Maximize current dividends per share of the existing stock.
Avoid financial distress.

Question 3
Which one of the following statements about preferred stock is true?

There is no significant difference in the voting rights granted to preferred and common
shareholders.
Unlike dividends paid on common stock, dividends paid on preferred stock are a tax-deductible
expense.
If preferred dividends are non-cumulative, then preferred dividends not paid in a particular year
will be carried forward to the next year.
Preferred stock usually has a stated liquidating value of $100 per share.
Dividends on preferred stock payable during the next twelve months are considered to be a
corporate liability.

Question 4
A firm has a total debt ratio of .47. This means the firm has 47 cents in debt for every:

$.53 in total assets.

$1 in total equity.
$.53 in total equity.
$1 in fixed assets.
 $1 in current assets.

Question 5
The higher the inventory turnover, the:

Lesser the amount of inventory held by a firm.

Greater the amount of inventory held by a firm.
Less time inventory items remain on the shelf.
Higher the inventory as a percentage of total assets.
Longer it takes a firm to sell its inventory.

Question 6
The process of planning and managing a firm's long-term assets is called:

Capital budgeting.
Working capital management.
Agency cost analysis.
Financial depreciation.
Capital structure.

Question 7
All else equal, the contribution margin must increase as:

The variable cost per unit declines.

Sales price per unit declines.
The sales price minus the fixed cost per unit increases.
Both the sales price and variable cost per unit increase.
The fixed cost per unit declines.

Question 8
An interest rate that is compounded monthly, but is expressed as if the rate were compounded
annually, is called the _____ rate.
 Periodic interest
Effective annual
Stated interest
Daily interest
Compound interest

Question 9
Futures contracts contrast with forward contracts by:

Providing an option for the buyer rather than an obligation.

Allowing the parties to negotiate the contract size.
Allowing the seller to deliver any day during the delivery month.
Marking to the market on a weekly basis.
Requiring contract fulfillment by the two originating parties.

Question 10
The discount rate that makes the net present value of an investment exactly equal to zero is called
the:

Equalizer.
External rate of return.
Internal rate of return.
Profitability index.
Average accounting return.

Question 11
Book value:

Is adjusted to market value whenever the market value exceeds the stated book value.
Generally tends to exceed market value when fixed assets are included.
Is equivalent to market value for firms with fixed assets.
Is based on historical cost.
Is more of a financial than an accounting valuation.
Question 12
A project has an initial cost of $2,250. The cash inflows are $0, $500, $900, and $700 for Years 1 to 4,
respectively. What is the payback period?

3.98 years
2.97 years
2.84 years
never
3.92 years

Question 13
Lois is purchasing an annuity that will pay $5,000 annually for 20 years, with the first annuity
payment made on the date of purchase. What is the value of the annuity on the purchase date given
a discount rate of 7 percent?

$56,677.98
$56,191.91
$66,916.21
$52,970.07
$54,282.98

Question 14
The excess return you earn by moving from a relatively risk-free investment to a risky investment is
called the:

Arithmetic average return.

Risk premium.
Geometric average return.
Time premium.
Inflation premium.

Question 15
Ratios that measure a firm's ability to pay its bills over the short run without undue stress are known
as:

Asset management ratios.

Profitability ratios.
Market value ratios.
Long-term solvency measures.
Liquidity measures.

Question 16
Which term defines the tax rate that applies to the next dollar of taxable income earned?

Total
Deductible
Marginal
Residual
Average

Question 17
Which one of the following statements is false?

Investments in accounts receivable equal average daily sales times average collection period.
Aging schedules are used to monitor accounts receivable.
If sales are seasonal, the percentages shown on an aging schedule will vary during the year.
An aging schedule includes only overdue accounts.
Collection efforts may involve legal action.

Question 18
The underlying assumption of the dividend growth model is that a stock is worth:

An amount computed as the next annual dividend divided by the required rate of return.
The present value of the future income that the stock is expected to generate.
 The same amount as any other stock that pays the same current dividend and has the same
required rate of return.
The same amount to every investor regardless of their desired rate of return.
An amount computed as the next annual dividend divided by the market rate of return.

Question 19
One disadvantage of the corporate form of business ownership is the:

Limited liability protection provided for all owners.

Firms ability to raise cash.
Double taxation of profits.
Unlimited life of the firm.
Difficulties encountered when changing ownership.

Question 20
All else held constant, interest rate risk will increase when the time to maturity:

Decreases or the coupon rate increases.

Increases or the coupon rate increases.
Decreases or the coupon rate decreases.
Decreases and the coupon rate equals zero.
Increases or the coupon rate decreases.

Question 21
The costs of avoiding a bankruptcy filing by a financially distressed firm are classified as _____ costs.

Flotation
Capital structure
Indirect bankruptcy
Financial solvency
Direct bankruptcy

Question 22
The market price of a bond increases when the:

Discount rate decreases.

Coupon is paid annually rather than semiannually.
Coupon rate decreases.
Par value decreases.
Face value decreases.

Question 23
A firm has a debt-equity ratio of .64, a pretax cost of debt of 8.5 percent, and a required return on
assets of 12.6 percent. What is the cost of equity if you ignore taxes?

16.38%
8.55%
8.06%
15.22%
11.12%

Question 24
Under the _______ method, the underwriter buys the securities for less than the offering price and
accepts the risk of not selling the issue, while under the _______ method, the underwriter does not
purchase the shares but merely acts as an agent.

Seasoned; unseasoned
Firm commitment; best efforts
Best efforts; firm commitment
Negotiated offer; competitive offer
Competitive offer; negotiated offer

Question 25
The cash flow resulting from a firm's ongoing, normal business activities is referred to as the:

Cash flow to retained earnings.

Operating cash flow.
 Cash flow to investors.
Net capital spending.
Additions to net working capital.

Question 26
Which one of the following is an example of a nondiversifiable risk?

A well-managed firm reduces its work force and automates several jobs
A key employee suddenly resigns and accepts employment with a key competitor
A well-respected president of a firm suddenly resigns
A well-respected chairman of the Federal Reserve Bank suddenly resigns
A poorly managed firm suddenly goes out of business due to lack of sales

Question 27
Which one of these statements is correct concerning the cash cycle?

A positive cash cycle is preferable to a negative cash cycle.

Adopting a more liberal accounts receivable policy will tend to decrease the cash cycle.
Increasing the accounts payable period increases the cash cycle.
The longer the cash cycle, the more likely a firm will need external financing.
The cash cycle can exceed the operating cycle if the payables period is equal to zero.

Question 28
An efficient capital market is one in which:

Security prices reflect all available information.

Taxes are irrelevant.
All investments earn the market rate of return.
Brokerage commissions are zero.
Securities always offer a positive NPV.

Question 29
You plan to invest $6,500 for three years at 4 percent simple interest. What will your investment be
worth at the end of the three years?

$7,280.00
$6,941.11
$7,250.00
$7,311.62
$6,760.00

Question 30
What is the present value of $6,811 to be received in one year if the discount rate is 6.5 percent?

$6,671.13
$7,253.72
$6,643.29
$6,395.31
$6,023.58

FIN571 Week 6 Assignment – Apple

Prepare a financial plan for a fortune 500 company (Apple) you select for your business
plan. This financial plan will be included in your final business plan in your capstone
course.

Describe the business, including the type of business.

Create the business case.

•Determine why funding is needed for the company.

•Determine the sources of funding. Consider self-funding, borrowing, equity, venture

capital, etc.
•Evaluate the requirements of each funding source you determined appropriate.

•Analyze the associated risks of each funding source.

•Decide which sources are the best fit for your company based on the requirements of
each. Justify your decision.

•Estimate the cost of capital for both short-term and long-term funding sources. Research
current estimated APRs for your selected sources of funding. Consider creating a table or
chart to display this information.

Create a profit-and-loss statement for a 3-year period. Project revenue, stating realistic
assumptions, such as growth per year, in your projections.

Estimate direct costs, including capital, marketing, labor, and supply costs.

FIN571 Week-6 Signature Assignment

Short-Term Funding
Signature Assignment: Short-Term
Funding WEEK 6
About Your Signature Assignment
This signature assignment is designed to align with specific program student learning outcome(s)
in your program. Program Student Learning Outcomes are broad statements that describe what
students should know and be able to do upon completion of their degree. The signature
assignments may be graded with an automated rubric that allows the University to collect data
that can be aggregated across a location or college/school and used for program
improvements.
Purpose of Assignment
The purpose of this assignment is to allow the student an opportunity to apply their
understanding of cash flow management, break-even analysis, and short-term and long-term
financing in starting and growing a business.
Assignment Steps
Resources: OECD Database, Corporate Finance
Prepare a 12- to 15-slide PowerPoint® presentation with speaker notes requesting initial funding
of $500,000 to start and run a start-up company. The proposed start-up company could be an
existing business model (coffee shop, pet store, etc.) or could be something entirely new and
exciting.
Create the presentation in the following format, with at least one slide to cover each of the
following areas:
• Title Page

• Table of Contents

• Executive Summary

• Information about the Industry

• Marketing Plan

• Competitor Analysis

• 3 Year Income Statement (Profit & Loss) Projections

• Include your assumptions for why and how you will achieve your sales growth and
what significant expenses and investments you expect to incur to achieve your
revenue goals.
• 3 Year Proposed Funding Schedule (Sources and uses of the funds received.)

• Break-Even Analysis

• Academic and Business References

Review the following scenarios and assumption, and explain how it impacts your decision to
expand:
• After Year 3, the investors are interested in your company expanding internationally
to possibly outsource labor or to reduce manufacturing costs. What countries would
you expand to first, and why? What factors would you need to consider in making this
decision?
• What is the corporate tax rate in the countries you are considering expanding your
business to, and how will that affect your decision to expand globally? (Use OECD
Database or another resource to determine the corporate tax rate).
• The investors want to see a decision tree detailing the decisions you would make if
you received $300K now and $200K at the end of three years instead of $500K up
front.
• The investors would like your team to provide advantages and disadvantages of
using debt financing versus selling company stock to raise capital for growth.
• Briefly explain the venture capital process. Does it make sense for your company to
raise funds through venture capital?
Format your presentation consistent with APA guidelines.