GB550: Financial Management
There are two Assignments due in Unit 4.
Assignment 1 of 2:
Complete Chapter 25 question, 25-1, p. 1005
Complete Chapter 25 problem, 25-2, p. 1007
Prepare this Assignment as a Word document. List each question, followed by your answer.
Directions for Submitting Assignment 1
Compose your Assignment in a MS Word document and save it as Username-GB550 Assignment 1-Unit#.doc (Example: TAllen- GB550 Assignment 1-Unit 4.doc). Submit your file by selecting the Unit 4: Assignment 1 Dropbox by the end of Unit 4.
Assignment 2 of 2:
Please complete all parts of spreadsheet problem 2-15 on page 89. It is recommended that you complete the problem using the Excel template located in Doc Sharing.
Directions for Submitting Assignment 2
Compose your Assignment in a MS Excel document and save it as Username-GB550 Assignment 2-Unit#.doc (Example: TAllen- GB550 Assignment 2-Unit 4.doc). Submit your file by selecting the Unit 4: Assignment 2 Dropbox by the end of Unit 4.
Assignment 1
25-1) Define the following terms, using graphs or equations to illustrateyour answers wherever feasible:
a) Portfolio; feasible set; efficient portfolio; efficient frontier
b) Indifference curve; optimal portfolio
c) Capital Asset Pricing Model (CAPM); Capital Market Line (CML)
d) Characteristic line; beta coeffiecient, b
e) Arbitrage Pricing Theory (APT)
25-2) An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free is 6%, the expected return on the first factor (r1) is 12%, and the expected return on the second factor (r2) is 8%. If bi1=0.7 and bi2-0.9, what is Crisp’s required return?
Assignment 2
problem 2-15 on page 89
| a. Using the financial statements shown below, calculate net operating working capital, total net operating capital, net operating profit after taxes, free cash flow, and return on invested capital for the most recent year. |
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| Lan & Chen Technologies: Income Statements for Year Ending December 31 |
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| (Thousands of Dollars) | 2013 | 2012 | ||||
| Sales | $945,000 | $900,000 | ||||
| Expenses excluding depreciation and amortization |
812,700 | 774,000 | ||||
| EBITDA | $132,300 | $126,000 | ||||
| Depreciation and amortization |
33,100 | 31,500 | ||||
| EBIT | $99,200 | $94,500 | ||||
| Interest Expense |
10,470 | 8,600 | ||||
| EBT | $88,730 | $85,900 | ||||
| Taxes (40%) | 35,492 | 34,360 | ||||
| Net income | $53,238 | $51,540 | ||||
| Common dividends |
$43,300 | $41,230 | ||||
| Addition to retained earnings |
$9,938 | $10,310 | ||||
| Lan & Chen Technologies: December 31 Balance Sheets |
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| (Thousands of Dollars) |
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| Assets | 2013 | 2012 | ||||
| Cash and cash equivalents | $47,250 | $45,000 | ||||
| Short-term investments | 3,800 | 3,600 | ||||
| Accounts Receivable | 283,500 | 270,000 | ||||
| Inventories | 141,750 | 135,000 | ||||
| Total current assets | $476,300 | $453,600 | ||||
| Net fixed assets | 330,750 | 315,000 | ||||
| Total assets | $807,050 | $768,600 | ||||
| Liabilities and equity | ||||||
| Accounts payable | $94,500 | $90,000 | ||||
| Accruals | 47,250 | 45,000 | ||||
| Notes payable | 26,262 | 9,000 | ||||
| Total current liabilities | $168,012 | $144,000 | ||||
| Long-term debt | 94,500 | 90,000 | ||||
| Total liabilities | $262,512 | $234,000 | ||||
| Common stock | 444,600 | 444,600 | ||||
| Retained Earnings | 99,938 | 90,000 | ||||
| Total common equity | $544,538 | $534,600 | ||||
| Total liabilities and equity | $807,050 | $768,600 | ||||
| Key Input Data | ||||||
| Tax rate | 40% | |||||
| Net operating working capital |
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| 2013 | NOWC = | Operating current assets | – | Operating current liabilities | ||
| 2013 | NOWC = | – | ||||
| 2013 | NOWC = | |||||
| 2012 | NOWC = | Operating current assets | – | Operating current liabilities | ||
| 2012 | NOWC = | – | ||||
| 2012 | NOWC = | |||||
| Total net operating capital |
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| 2013 | TOC = | NOWC | + | Fixed assets | ||
| 2013 | TOC = | + | ||||
| 2013 | TOC = | |||||
| 2012 | TOC = | NOWC | + | Fixed assets | ||
| 2012 | TOC = | + | ||||
| 2012 | TOC = | |||||
| Investment in total net operating capital |
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| 2013 | 2012 | |||||
| 2013 | Inv. In TOC = | TOC | – | TOC | ||
| 2013 | Inv. In TOC = | – | ||||
| 2013 | Inv. In TOC = | |||||
| Net operating profit after taxes | ||||||
| 2013 | NOPAT = | EBIT | x | ( 1 – T ) | ||
| 2013 | NOPAT = | x | ||||
| 2013 | NOPAT = | |||||
| Free cash flow | ||||||
| 2013 | FCF = | NOPAT | – | Net investment in operating capital |
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| 2013 | FCF = | – | ||||
| 2013 | FCF = | |||||
| Return on invested capital | ||||||
| 2013 | ROIC = | NOPAT | / | Total net operating capital |
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| 2013 | ROIC = | / | ||||
| 2013 | ROIC = | |||||
| b. Assume that there were 15 million shares outstanding at the end of the year, the year-end closing stock price was $65 per share, and the after-tax cost of capital was 8%. Calculate EVA and MVA for the most recent year. |
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| Additional Input Data | ||||||
| Stock price per share |
$65.00 | |||||
| # of shares (in thousands) |
15,000 | |||||
| After-tax cost of capital |
8.0% | |||||
| Market Value Added | ||||||
| MVA = | Stock price | x | # of shares | – | Total common equity | |
| MVA = | x | – | ||||
| MVA = | – | |||||
| MVA = | ||||||
| Economic Value Added | ||||||
| EVA = | NOPAT | – | (Operating Capital | x | After-tax cost of capital) |
|
| EVA = | – | x | ||||
| EVA = | – | |||||
| EVA = | ||||||
