Why would the amount of debt/EBITDA be an important ratio when examining the problem of high debt, particularly with respect to the leveraged loans?

Question 1- Discuss briefly the single-person decision theory under the conditions of uncertainty.

Question 2- Discuss the role of net income in firm valuation under the ideal conditions VS. its role under the presence of uncertainty. Does the net income have information content in these two conditions? What basic assumption needs to be changed to make the net income to have information content?

Question 3- Discuss the CAPM model: its content/formula, assumptions and limitations?

Question 4- What does the efficient market mean? How is it achieved?

Mention three pros and cons for each of the following derivatives

1. futures

2. forwards

3. options

Cholesterol Dairy Products has plants in five provinces and operates a very large home delivery service. Sales last year were $100 million, and the balance sheet at year-end is similar in percent of sales to that of previous years (and this will continue in the future). All assets and current liabilities will vary directly with sales. Assume the firm is already using capital assets at full capacity. Balance Sheet (in $ millions) Assets Liabilities and Shareholders' Equity Cash $5 Accounts payable $7 Accounts receivable 11 Accrued wages 6 Inventory 22 Accrued taxes 5 Current assets $38 Current liabilities $18 Capital assets 38 Long-term debt 15 Common stock 20 Retained earnings 23 Total assets $76 Total liabilities and shareholder's equity $76 The firm has an aftertax profit margin of 6 percent and a dividend payout ratio of 20 percent. a. If sales grow by 15 percent next year, determine how many dollars of new funds are needed to finance the expansion. (Enter the answer in millions. Round the final answer to 3 decimal places.) The firm needs $ million in external funds. b. Prepare a pro forma balance sheet with any financing adjustment made to long term debt. (Input all answers as positive values. Be sure to list the assets and liabilities in order of their liquidity. Enter the answers in millions. Round the final answers to 3 decimal places.) Balance Sheet ($ millions) Assets Liabilities and Shareholders' Equity Current assets Current liabilities $ $ Current assets $ Current liabilities $ $ Total assets $ Total liabilities and shareholders' equity $ c. Calculate the current ratio and total debt to assets ratio for each year. (Round the final answers to 2 decimal places.) Year 1 Year 2 Current ratio X X Total debt / assets % %

Does it appear as if financial distress costs should be a significant determinant of Fortune 100 firms’ capital structures? What about for small growth firms?

Water, Inc., expects to sell 3.7 million bottles of drinking water each year in perpetuity. This year each bottle will sell for $1.46 in real terms and will cost $.82 in real terms. Sales income and costs occur at year-end. Revenues will rise at a real rate of 1.8 percent annually, while real costs will rise at a real rate of .8 percent annually. The real discount rate is 5 percent. The corporate tax rate is 23 percent.

What is the company worth today? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567.)

An 8 year bond with a par value of $1000 has a semiannual coupon of 7.1% and yield of 5%. What is the approximate price of this bond? Please provide excel formula.

a) $864

b) $1,000

c)$1085

d) $1106

e)$1137

Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt; its beta is 1.55 (given its target capital structure). Vandell has $10.14 million in debt that trades at par and pays an 8% interest rate. Vandell’s free cash flow (FCF0) is $1 million per year and is expected to grow at a constant rate of 5% a year. Both Vandell and Hastings pay a 40% combined federal and state tax rate. The risk-free rate of interest is 5% and the market risk premium is 5%. Hastings Corporation estimates that if it acquires Vandell Corporation, synergies will cause Vandell’s free cash flows to be $2.6 million, $2.7 million, $3.4 million, and $3.60 million at Years 1 through 4, respectively, after which the free cash flows will grow at a constant 5% rate. Hastings plans to assume Vandell’s $10.14 million in debt (which has an 8% interest rate) and raise additional debt financing at the time of the acquisition. Hastings estimates that interest payments will be $1.6 million each year for Years 1, 2, and 3. After Year 3, a target capital structure of 30% debt will be maintained. Interest at Year 4 will be $1.439 million, after which the interest and the tax shield will grow at 5%. Indicate the range of possible prices that Hastings could bid for each share of Vandell common stock in an acquisition.

Round your answers to the nearest cent. Do not round intermediate calculations. The bid for each share should range between $_____ per share and $______ per share.

Balance Sheet Analysis

Complete the balance sheet and sales information in the table that follows for J. White Industries using the following financial data:

Total assets turnover: 1.8
Gross profit margin on sales: (Sales - Cost of goods sold)/Sales = 25%
Total liabilities-to-assets ratio: 40%
Quick ratio: 1.10
Days sales outstanding (based on 365-day year): 39.5 days
Inventory turnover ratio: 4.0

Do not round intermediate calculations. Round your answers to the nearest whole dollar.

Balance Sheet

Consider Walgreens. Most of their stores are leased from corporate owners, REITs or other entities.

            a.         What does Walgreens gain by leasing and not owning?

            b.         What do they lose?

1) As you plan for a new corporate project, you find that during the first year of the project's life the expectation is that revenues will total $100,000, variable costs will be 60% of revenues, fixed costs will be $30,000, and depreciation will be $10,000. Given a corporate tax rate of 40%, find the free cash-flow for the first year of the project. Enter your number in dollars, with no decimals.

2) Same as for the question above, you plan for a new corporate project, and find that during the first year of the project's life the expectation is that revenues will total $100,000, variable costs will be 60% of revenues, fixed costs will be $30,000, and depreciation will be $10,000. Now, you believe that revenues are likely to increase at the rate of 5% per year every year, while the rest of the data remains as described before. Given a corporate tax rate of 40%, find the free cash-flow for the second year of the project. Enter your number in dollars, with no decimals

What is the projects profitability index?

• 8.19%

• 7.68%

• 7.46%

• 7.96%

• 7.56%