a) What are the key differences between equity and debt financing? Discus the merits and demerits of each type of procuring finance at the firm level.

b) What are Hedge Funds? What investment strategies do the hedge fund managers use?

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.