Managerial Finance

1. Based on the corporate valuation model, the value of a company's operations is $900 million. Its balance sheet shows $70 million in accounts receivable, $50 million in inventory, $30 million in short-term investments that are unrelated to operations, $20 million in accounts payable, $110 million in notes payable, $90 million in long-term debt, $20 million in preferred stock, $140 million in retained earnings, and $280 million in total common equity. If the company has 25 million shares of stock outstanding, what is the best estimate of the stocks price per share?

2. The Chadmark Corporation's budgeted monthly sales are $3,000. In the first month, 40% of its customers pay and take the 2% discount.

The remaining 60% pay in the month following the sale and don't receive a discount. Chadmark's bad debts are very small and are excluded from this analysis. Purchases for next month's sales are constant each month at $1,500. Other payments for wages, rent, and taxes are constant at $700 per month. Construct a single month's cash budget with the information given. What is the average cash gain or (loss) during a typical month for the Chadmark Corporation?

3. (TCO G) Clayton Industries is planning its operations for next year, and Ronnie Clayton, the CEO, wants you to forecast the firm's additional funds needed (AFN). The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Dollars are in millions.
Last year's sales = S₀ $350
Last year's accounts payable $40
Sales growth rate = g 30%
Last year's notes payable $50
Last year's total assets =A₀*$500
Last year's accruals $30
Last year's profit margin =PM 5%
Target payout ratio 60%

4. Zhdanov Inc. forecasts that its free cash flow in the coming year, that is, at t = 1, will be -$10 million, but its FCF at t = 2 will be $20 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of capital is 14%, what is the firm's value of operations, in millions?

5. The ramirez Company's last dividend was $1.75. Its dividend growth rate is expected to be constant at 25% for 2 years after which dividends are xpected to grow at 6% forever. Its required return is 12%. What is the best estimate of the current stock price?

6. You were hired as a consultant to Quigley Company, whose target capital structure is 35% debt, 10% preferred, and 55% common equity.  The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of retained earnings is 11.25%, and the tax rate is 40%.  The firm will not be issuing any new stock.  What is Quigley's WACC?

7. (TCO C) Your company has been offered credit terms of 4/30, net 90 days. What will be the nominal annual percentage cost of its nonfree trade credit if it pays 120 days after the purchase? (Assume a 365-day year.)


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