Tim Smith is shopping for a used car. He has found one priced at $4500. The salesman has told Tim that if he can come up with a down payment of $500 the dealer will finance the balance of the price at an annual rate of 14% over 2 years (24 months).  

a.  Assuming that Tim accepts the dealer's offer, what will his monthly (end-of-month) payment amount be?
b.  Use a financial calculator or spreadsheet to help you figure out what Tim's monthly payment would be if the dealer were willing to finance the balance of the car price at an annual rate of 9%?

b) Write brief notes about the key features, relevance and there role in the capital markets for the following: I. Private Equity Funds II. Venture Capital Funds III. Exchange Traded Funds

General Electric got a SR 100, 000, 000 loan repaid over a 5-year period at 0.5% per month interest.
What is the difference in the amount of interest in the second month’s payment if interest is charged on the principle of the loan rather on the unrecovered balance?

a) Discuss the role of the financial markets in providing the platform for investors to interact

and help in providing the financing and investment requirements of market participants.

a) Discuss the process of going public through an IPO. Your answer should also include the Part played by the underwriter in the issuance of the IPO.

b) With respect to fixed income securities, discuss the concept of:

I. Treasury Bills

II. Municipal Bonds

1. Cash Conversion Cycle & Ratios

Target

Sales = 74,433,000,000

Cost of goods sold = 53,299,000,000

Inventory = 9,497,000,000

Accounts receivable = 468,000,000

Accounts payable = 1,127,000,000

Inventory conversion period = 65.04

Average collection period = 2.29

Payables deferral period = 7.72

CCC = 59.61

Nike

Sales = 36,397,000,000

Cost of goods sold = 20,441,000,000

Inventory = 5,261,000,000

Accounts receivable = 3,498,000,000

Accounts payable = 2,279,000,000

Inventory conversion period = 93.94

Average collection period = 35.08

Payables deferral period = 40.69

CCC = 88.33

McDonalds

Sales = 21,025,000,000

Cost of goods sold = 2,200,000,000

Inventory = 51,100,000

Accounts receivable = 2,441,500,000

Accounts payable = 1,207,900,000

Inventory conversion period = 8.48

Average collection period = 42.39

Payables deferral period = 2.00

CCC = 48.87

Best Buy

Sales = 42,151,000,000

Cost of goods sold = 32,275,000,000

Inventory = 5,209,000,000

Accounts receivable = 1,049,000,000

Accounts payable = 4,873,000,000

Inventory conversion period = 58.91

Average collection period = 9.08

Payables deferral period = 55.11

CCC = 12.88

Amazon

Sales = 232,887,000,000

Cost of goods sold = 139,156,000,000

Inventory = 17,174,000,000

Accounts receivable = 16,677,000,000

Accounts payable = 38,192,000,000

Inventory conversion period = 45.05

Average collection period = 26.14

Payables deferral period = 100.18

CCC = -28.99

*Compare and analyze thoroughly the CCC for the five companies

1. Analyze the CCC for the five companies. How does the CCC compare across the different companies?

2. Analyze the relationship between CCC and the company’s profitability for all five companies

3. Analyze the relationship between CCC and the size of the company (measured by total assets) for all five companies

A company is projected to have a free cash flow of $486 million next year, growing at a 4.1% rate until the end of year 3. After that, cash flows are expected to grow at a stable rate of 2.9%. The company's cost of capital is 9.4%. The company owes $143 million to lenders and has $6 million in cash. If it has 293 million shares outstanding, what is your estimate for its stock price? Round to one decimal place.

Thorpe and Company is currently an​ all-equity firm. It has three million shares selling for ​$32 per share. Its beta is 0.8​, and the current​ risk-free rate is 2.1​%. The expected return on the market for the coming year is 9.1​%. Thorpe will sell corporate bonds for ​$32,000,000 and retire common stock with the proceeds. The bonds are​ twenty-year semiannual bonds with a 9.4​%coupon rate and ​$1,000 par value. The bonds are currently selling for ​$893.61 per bond. When the bonds are​ sold, the beta of the company will increase to 1.3 What was the WACC of Thorpe and Company before the bond​ sale? What is the adjusted WACC of Thorpe and Company after the bond sale if the corporate tax rate is 15%​? Hint​: The weight of equity before selling the bond is​ 100%.

Here are the cash flows for two mutually exclusive projects:

Project                 C0                           C1                           C2                           C3

A                             -20,000                 +8,000                   +8,000                   +8,000

B                             -20,000                 0                              0                              +25,000

At what interest rate would you prefer project A to B? (Hint: try drawing a NPV profile.)

                a)            If the discount rate is below 3%.

                b)            If the discount rate is above 3%.

                c)            If the discount rate is above 4%.

                d)            A is never preferred to B at any discount rate.

Which project has the highest IRR?

a.Project A

b. Project B

c. They have equal IRRs.

The WACC is 10% for all projects.

                        Project A

                                Project B

Project C

1. Which project has the superior payback period?

a)            Project C

b)           Project A

c)            Project B

2. If you use a cutoff period of 3 years with the discounted payback period rule, which project(s) would you accept?

a)           Project A

b)            Project B

c)            Project C

d)            All Projects

3. Which projects have positive NPVs?

1. Project A
2. Project B
3. Project C
4. Projects B and C

A project has the following cash flows :

C0                           C1                           C2

+6,750                   +4,500                   -18,000

Calculate the NPV of the project for a discount rate of i) 0% ii)33%   iii) 50% and iv) 100%. Which discount rate provides the largest NPV?

                a)            0%

                b)            33%

                c)            50%

                d)            100%

Titan Mining Corporation has 8.9 million shares of common stock outstanding and 330,000 5.3 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $37 per share and has a beta of 1.15; the bonds have 15 years to maturity and sell for 118 percent of par. The market risk premium is 7.7 percent, T-bills are yielding 4 percent, and the company’s tax rate is 24 percent.

a.

What is the firm's market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .3216.)

Debt?

Equity?

b.If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows?

MamaMia’s Pizza purchases its pizza delivery boxes from a printing supplier. MamaMia’s delivers on average 225 pizzas each month (assume deterministic demand). Boxes cost 43 cents each, and each order costs $12.50 to process. Because of limited storage space, the manager wants to charge inventory holding at 25 percent of the cost. The lead time is 7 days, and the restaurant is open 360 days per year, assuming 30 days per month.

1. Draw a graph that sows the relationships among inventory carrying (holding) cost, order cost, and total annual cost.

The company's financial year is the calender year. Certain costs (incl. wages, rents and taxes) of 202500 € total are paid out in the middle of each month.

The company's first financial year is, exceptionally, only six months of length (1.7.-31.12.). At the beginning of the first financial year, the company has taken out a loan of 7200000 € total that has not been amortized. However, an interest of 5 % p.a. has been paid at the end of the financial year. The company has made an initial investment of 10800000 €. Half of the investment has been paid during the previous financial year and the rest must be paid at the beginning of the second financial year. Nothing has been sold yet during the the first financial year.

The revenues of the second financial year are estimated according to shipped (billed) quantities of 30000 units at a unit price of 300 € per unit. The variable costs consist of purchasing the materials and are expected to be 171 € per unit. At the end of the second financial year, 3600000 € of the debt must be amortized and an interest must be paid.   

The company then specifies the plan for the second financial year. 28 % of the annual volumes are delivered during the first half of the year and 72 % during the second. Monthly volumes are constant during both phases and the customers are given one month for payments. The company purchases the materials for the second financial year in three equal instalments. The first batch has arrived at the end of December, but the bill is not due until at the end of January. The next batches arrive at the beginning of May and September. In order for the business to run smoothly during the next year as well, the company purchases an additional batch of materials for 7500 units towards the end of December (20.12). Each batch is payable in 14 days.

It is recommended to make a table of months having the monthly information of incoming and outgoing payments allocated to the three cash flows, changes in cash and equivalents and total cash and equivalents.

Calculate the cash flow from operating activities and the cash flow from investment activities of the first financial year.