Finance Review Assignment – Coursework – jacksloan
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Finance Review Assignment
Final ReviewFree Cash Flow= EBIT (1-T) + depreciation – (cap ex.+change in nowc)Sales=24,500Operating costs=6,500Depreciation=1,350Bonds= 3,500 carrying 6.25% irTax rate=40%Net Operating Working Capital= 2,850NOWC=CA-(CL-Notes Payable)EBIT= sales-op costs- depreciation24,500-6,500-1,350=16,650=EBITFCF=16,650(1-.4)+1,350-(2,850)Average Tax Rate=Federal Tax Liability/ Taxable IncomeExemption 1=4,000Standard Deduction=6,300Salary=125,000Taxable Income = Income- Exemptions and DeductionsFederal Tax Liability= [Income- Base (marginal rate)]+ tax rateTVM-What you should pay for an annuity*If Annuity Payment is at beginning of year make sure calc is in beg modeAnnuity payment at end of each year=54,300Duration= 25 yearsOther investment earnings=6%N         I/Y        PV        PMT          FV25        6%        ?        54,300          0TVM-Pay after a set amount of periods and owe after payments*If payments are monthly make sure you multiply by 12*When are P1 and P2 different?$ Borrowed=35,000Ir=8%Payments=8 equal instalments at end of yearN        I/Y        PV        PMT        FV8        8%        35,000        ?        0PMT=-6,276.67Use AMORTP1=3P2=3INT=2,492.63P1=5P2=5BAL=15,944.92BondPrice equation=solve for PV

*Annual Payment percent does not equal I/Y*For PV subtract price for x year from total yearIE= If asking for a price 8 years from now subtract 8 from the total years (20-8)=12N        I/Y        PV        PMT        FV20        ?        -1025        65        1,000        =6.277N        I/Y        PV        PMT        FV12        6.277        ?        65        1000Stock ExampleConstant Growth Model=(1+Dividend growth)/(Required Return- Dividend growth)Use CAPM for Req. Return =Risk Free + Risk Premium x Beta=3 + 6.5 x 1.3*Equation for Market Risk Premium?1+7%/(11.45%-7%)=CGMDividend= $1.5Dividend Growth= 7% constantBeta=1.3Market Risk premium= 6.5%Risk Free Rate=3.00%7.Stock (intrinsic value)Free Cash Flow end of year 1=$24.50 million        Free Cash Flow end of year 2=$35 million        FCF growth=5.5% constant        WACC=9%        Long Term Debt=225 million        12 million shares of common stock outstanding        Draw timeline*                                        5.5% from here on         0                1                2                3        Horizon Value 2= FCF3/WACC(or discount rate)        FCF3 is chosen because it is the first year that growth became fully constantUse cash flow function CF0=0C01=FCF1CO2=FCF2+HV2NPVI=WACCValue of Common Equity= NPV- (Value of Liability + Preferred Equity)Stock Price = Value of Common Equity/# of shares outstanding=59.58        8.WACC ExampleWACC=wd rd(1-T)+wp rp + wc rs                -The firms noncalleable bonds mature in 25 years, have an 6.5% semi-annual coupon, a par value of 1000 and a market price of 1105 the firm has 800,000 bonds outstanding

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By: jacksloan
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