Midterm Finance

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Free Cash Flow = $1284 (operating cash flow) – (-$109) - ($346(change in networking capital)) = $1047

Answer- $1047

9. Calculate cash flow to creditors

Cash flow to creditors= 143(interest paid) – (899-1555(long term debt 2017- long term debt 2016)) = $799

Answer- $799

10. Calculate cash flow to stockholders

Cash flow to stockholders =

Dividends paid Owners Equity 3700[pic 1][pic 2]

Net new equity raised- 2017-2016 : 3700-3200= 500 – Addition to retained earning in 2017

11. You can afford car payments of $210 a month for 60 months. The bank will lend you this money at 5.9 percent interest. How much can you borrow?

Present value of $210 annuities for 60 months/ the rate by 12 to make monthly.

5.9/12 = 0.49167%.

PVIFA0.49167%60 *210 = 210 * 51.8498 = $10,888.54.

A. $14,713.06

B. $11,951.19

C. $10,888.54

D. $7,466.12

12. Thirty-eight years ago, your mother started an annuity deposit quarterly. If the account has paid 6% on average and the account balance today is $343,927.66, how much she deposited every three months?

Rate is 6% per annum / 4 : 6%/4 = 1.5%,

4*38 = 152.

FV= A((1+R)^N -1)/R))

343,927.66 = FVIFA1.5%152 * A

343,927.66 = 574.1697A

A= $599

A. $313

B. $425

C. $599

D. $755

13. Mary and Jacob just married. Due to their financial education from their colleges, they already plan to save for their future. Mary plans to save $200 a month, starting today, for twenty years. Jacob plans to save $225 a month for twenty years, starting one month from today. Both Mary and Jacob expect to earn an average return of 9.5 percent on their savings. At the end of the twenty years, Mary will have approximately __________less than Jacob.

Mary- 200 for 240 months rate of return

9.5%/12 =0.79167

FVIFA0.79167%240 *200 = 711.92*200 = 142,384.11

Jacob- 225 starting next month, 225 next month

225*(1+0.0097167) = 226.78.

The future value of annuities in 240 months. = 711.92*226.78 = 161,449.22

161,449.22 – 142,384.11 = 19,066

A $16,671

B. $17,798

C. $17,939

D. $19,066

14. Using the information below, you want to know which bank you need to apply your student loan.

- The First Bank offers personal loans at 7.5 percent compounded quarterly.

- The Second Bank offers similar loans at 7.25 percent compounded monthly.

Based on the information above, which one is correct analysis result?

Effective rate = (1+r/n) ^n – 1

(1+7.5%/4)^4 – 1 = 7.7%

(1+7.25/12)^12 – 1 = 7.50%

A. The First Bank loan has an effective rate of 7.67 percent.

B. The First Bank loan has an effective rate of 7.78 percent.

C. The Second Bank loan has an effective rate of 7.50 percent.

D. The Second Bank loan has an effective rate of 7.67 percent.

15. A 9 percent $1,000 bond matures in 18 years, pays interest semi-annually, and has a yield to maturity of 8.25 percent. What is the current market price of the bond?

Market price of bond = present value of maturity value + present value of annual coupons.

Present value of maturity value = PVIF8.25%18 *1000 = $240.05

Present value of annual coupons. = PVIFA8.25%18*(9%*1000) = 9.2115 *90= $829.04

$829.04+$240.05= $1070

A. $1,070

B. $1,025

C. $893

D. $755

16. Natural Beauty Inc. announced yesterday that their next annual dividend will be $1.50 and that future dividends will be increasing by 4 percent annually. How much are you willing to pay for one share of this stock if your required return is 15 percent?

Po = Do (1+g) / r-g

1.50(1+0.04) / 0.15-0.04 = 14.18%

17. One year ago, you purchased a 6 percent annual coupon bond for a clean price of $1,100. The bond now has nine years remaining until maturity. Today, the yield to maturity on this bond is 6.80 percent. How does today’s price of this bond compare to your purchase price?

Present value of maturity value = PVIF6.8%9 *1100 = 0.5532 *1100=608.49

Coupon payments = 6%*1100 = 66 *PVIFA6.80 = 66*6.5710 = 433.69

608.49+433.69 = $1042.18

Price of the bond today- $1042.18

Purchase price- $1,100.

18. San Dimas Auto Group just paid their annual dividend of $1.40. The stock is selling for $12.48 a share and has a required return of 14 percent. What is the