9.15

Dantzler Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows (FCFs) during the next 3 years, after which FCF is expected to grow at a constant 5% rate. Dantzler's WACC is 11%.

1. What is Dantzler's horizon, or continuing, value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.) Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. Do not round intermediate calculations. Round your answer to two decimal places.
   $ _____ million
   
2. What is the firm's market value today? Assume that Dantzler has zero non-operating assets. Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. Do not round intermediate calculations. Round your answer to two decimal places.
   $ ____ million
   
3. Suppose Dantzler has $148.90 million of debt and 6 million shares of stock outstanding. What is your estimate of the current price per share? Write out your answer completely. For example, 0.00025 million should be entered as 250. Do not round intermediate calculations. Round your answer to the nearest cent.
   $ ____

During one of the lectures, typical royalty rates were discussed. What would the range of typical (medium) royalty rates be for: a. A firm that licenses its technology that provides a minor improvement to an existing technology or process? b. A firm that licenses its technology that provides a revolutionary improvement to a technology or process?

It has been argued in the finance literature that great majority of mergers lead to value destruction. Citing empirical evidence, discuss whether you agree or disagree with this statement.

1. Given all-time low interest rates, companies should borrow long term and use the borrowed money to takeover other firms. Discuss with suitable reasons, citing empirical evidence, whether you agree or disagree with this statement

An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial outlay at t = 0 of $12.8 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t = 1 of $15.36 million. Under Plan B, cash flows would be $2.2744 million per year for 20 years. The firm's WACC is 12.4%.

a) Construct NPV profiles for Plans A and B. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. If an amount is zero, enter "0". Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to two decimal places.

Discount rate NPV Plan A NPV Plan B

0% $------- million $-------- million

5 ------- million ------- million

10 -------- million -------- million

12 --------million -------- million

15 --------- million --------- million

17 --------- million ---------- million

20 ---------million ----------million

1. Identify each project's IRR. Do not round intermediate calculations. Round your answers to two decimal places.

   Project A: -------- %

   Project B: --------%

   Find the crossover rate. Do not round intermediate calculations. Round your answer to two decimal places.

   ----------- %

2. Is it logical to assume that the firm would take on all available independent, average-risk projects with returns greater than 12.4%?

   Yes or no

   If all available projects with returns greater than 12.4% have been undertaken, does this mean that cash flows from past investments have an opportunity cost of only 12.4%, because all the company can do with these cash flows is to replace money that has a cost of 12.4%? Yes or no

The table lists foreign exchange rates for August 25, 2017. On that day, how many dollars would be required to purchase 800 units of each of the following: British pounds, Canadian dollars, EMU euros, Japanese yen, Mexican pesos, and Swedish kronas? Use the direct quotation for your calculations. Round your answers to the nearest cent.

Explain a summary of each of these and what it has to do with income tax.

Cooperate Tax

Individual Tax

Gross Income – Moving expenses

Form 1040

Joint Tax Return

Depreciation, depletion and amortization

Truman Industries, Inc. (TI) is considering a capital budgeting project. The appropriate discount rate for this project is 4%. The initial cost of the project will be $1,500,000. The project is expected to produce positive after tax cash flows of $440,000 per year for the next 5 years. What are the PI, IRR and regular payback for the project? Should this project be accepted? Why or why not?

The following information is for Wall Street Holdings, the smallest bank holding company in North Dakota. (Bank holding company ID: 1966215. You can look it up at the FDIC.)

Based on this information, answer the following questions about Wall Street’s financials.

1. According to asset-based liquidity ratios, Wall Street is:                          [5 pts]

1. Extremely less liquid than a typical bank.
2. Somewhat less liquid than a typical bank.
3. Somewhat more liquid than a typical bank.
4. Extremely more liquid relative to typical banks.

2. What was Wall Street’s Net Overhead Expense Ratio in 2012?                [5 pts]

1. $307 (x$1,000).
2. 0.38%.
3. 1.44%.
4. 1.82%.

3. According to the 2012 Retention Ratio and ROE, what is the internal growth rate of Wall Street’s equity capital (everything based on end-of-year numbers)?          [5 pts]

1. 0.00%
2. 0.32%
3. 2.27%
4. 2.75%

Calculate:

1) Covariance

2) Expected return on a portfolio XY

2) Risk on a portfolio XY

Weight of each asset is 50%.

Average annual return:

asset X: 11.74%

asset Y: 11.14%

Standard deviation:

asset X: 8.9

asset Y: 2.78

1. Name one lesson shared by Leighton or guest speakers during the semester on career advancement. [5 pts]

2. A(n) ______________ is a written contract signed by a borrower and states the principal amount of the loan, the interest rate on the loan, and the terms under which repayment must take place. [5 pts]
   
   

3. Credit unions play an important role in the financial services markets today. Yet, there disagreement between credit unions and banks about their role in the market place. Explain BOTH from a credit union and a bank perspective the nature of this disagreement.    [10 pts]

• [Credit union perspective]

• [Bank perspective]

1. In talking about credit policy and the potential risk of a loan, we described liquidity, cashflow and collateral as all important elements in such an analysis. Which of these three is most important? Why?                 [5 pts]

1. We reviewed sample documents that banks use when evaluating the creditworthiness of a business borrower. Name two of them:    [5 pts]

-

-

2. Approximately what percentage of loans are typically ‘past due’ payment? Stated differently, what percentage of loans a bank makes will ‘go bad’ on average?                          [5 pts]
   1. <1%
   2. Between 1% & 3%
   3. Between 3% & 5%
   4. >5%

3. Fee income has become increasingly important to banks’ profitability. Name 3 examples of fee income for banks: