worksheet

chapter 11 only tabs at bottom of worksheet

Instructions

Name: Save file as ‘lastnamefirstinitial-FINC400-4 E

x

ample: Finance

A

-FINC400-4 FINC 400 Principles of Financial Management Week 4 Homework Problems Complete the following problems:

Problem

9-

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1

7

Problem

10-6

Problem

11

-7

Problem

9-19

Problem

10-1

3

Problem

11-1

5

Problem

9-27

Problem

10-24

Problem

11-19

Master 11/

20

11-kT

9-17

– Refer to problems at the end of the chapter for details and instructions:

i

20

IFA

A x

A

=

50,000 7.469

Problem 9-17
								Use the template to complete the problem :
Western Sweepstakes
Discount Rate						=		12%
			Periods = n
	Annuity		50,000
			PV		7.469
						Solution:
				PVIF	PVA
373,450

9-19

– Refer to problems at the end of the chapter for details and instructions:

Use the template to complete the problem :

Periods = n 5 PV x

IF

= FV

2,000

2.488

Discount Rate = i

%

Periods = n 3 PV x FVIF = FV
Present Value of Investment 4,976 4,976

FVIF 1.521

Problem 9-19
Bruce Sutter
		Discount Rate = i		20%
		FV
	Present Value of Investment	–			2,000		2.488	$		4,976
		FVIF
	15
	1.521	$7,569

9-27

– Refer to problems at the end of the chapter for details and instructions:

Use the template to complete the problem :

Discount Rate = i

Periods = n 11
Annuity 2,000
Solution: A x FVIFA =

2,000 15.645

Problem 9-27
Information
		8%
	FVIFA		15.645
FVA
$31,290

10-6

– Refer to problems at the end of the chapter for details and instructions:

Use the template to complete the problem :

A *

Present Value of Interest Payments =

to Maturity = i

FV * PVIF

Present Value of Principal Payment at Maturity =

PVIFA

PVIF

Par Value $1,000

Interest 11%

Time to Maturity=n 15 Present Value of Interest Payments =

Yield to Maturity = i 14%

Annuity = A $110 Present Value of Principal Payment at Maturity =

PVIFA

Total Present Value or Price of the Bond =

PVIF

Par Value $1,000

Interest 11% Present Value of Interest Payments = A * PVIFA

Time to Maturity=n 1 Present Value of Interest Payments =

Yield to Maturity = i 14% Present Value of Principal Payment at Maturity = FV * PVIF

Annuity = A $110 Present Value of Principal Payment at Maturity =

PVIFA

Total Present Value or Price of the Bond =

PVIF 0.877

Problem 10-6
Solution: Hartford Telephone Company
		a)				Par Value				$1,000
			Interest			11%
				Present Value of Interest Payments =			PVIFA
			Time to Maturity=n	30	$770.33
				Yield			1		4%
				Present Value of Principal Payment at Maturity =
			Annuity = A			$110	$20.00
7.003				Total Present Value or Price of the Bond =	$790.33
0.020
		b)
		Present Value of Interest Payments = A * PVIFA
$675.62
		Present Value of Principal Payment at Maturity = FV * PVIF
$140.00
6.142	$815.62
0.140
c)
$96.47
$877.00
	0.877	$973.47

10-13

– Refer to problems at the end of the chapter for details and instructions:

Use the template to complete the problem :

Par Value $1,000

Interest 12%

Time to Maturity=n 20

4%

Yield to Maturity = i

10%

Annuity = A

PVIFA

3%

PVIF

Solution:

Real Rate of Return 3%
Inflation Rate 3%
Risk Premium 4%
Total Return 10%

Present Value of Interest Payments = A * PVIFA

Present Value of Interest Payments =

Present Value of Principal Payment at Maturity = FV * PVIF

Present Value of Principal Payment at Maturity =

Total Present Value or Price of the Bond =

Problem 10-13
Tom Cruise Lines, Inc.
	Real Rate of Return				3%
	Inflation Rate	5%
	Risk Premium
				10%		Total Return
$120
8.514	Inflation Rate in 5 years
0.149
Compute new required rate of return (yield to maturity)
$1,021.68
$149.00
$1,170.68

10-24

– Refer to problems at the end of the chapter for details and instructions:

Use the template to complete the problem :

8%

Solution:

a)

=

b) Price of Preferred Stock =

Problem 10-24
North Pole Cruise Lines
Annual Dividend	$8.00
Original Required Rate of Return
New Required Rate of Return	6%
Show your work!
ORIGINAL PRICE
	Price of Preferred Stock	$8.00/.08=$100
CURRENT VALUE
$8.00/.06=$133.33

11-7

– Refer to problems at the end of the chapter for details and instructions:

Use the template to complete the problem :

issued last year at

8%

10%

20%

Cost of debt this year

a)
Solution:
b)

Problem 11-7
Goodsmith Charitable Foundation
	Debt
Cost of debt last year
	Cost of debt this year	higher than last year
12.0%
Corporate Tax Rate (b)	35.0%
If the Goodsmith Charitable Foundation borrowed money this year, what would the aftertax cost of debt be, based on their cost last year and the 20 percent increase?
If the receipts of the foundation were found to be taxable by the IRS (at a rate of 35 percent because of involvement in political activities), what would the aftertax cost of debt be?

11-15

– Refer to problems at the end of the chapter for details and instructions:

Use the template to complete the problem :

Yield

Solution:

=Pp

Problem 11-15
Riley Coal Co.	Aftertax Cost of Debt
10.6%
Corporate Tax Rate = T		35%
Dividend = Dp	$4.40
Price of	Preferred Stock	$50	Aftertax	Cost of Preferred Stock
Floatation Cost = F	$2.00
Based on the facts above, is the treasurer correct?

11-19

– Refer to problems at the end of the chapter for details and instructions:

Use the template to complete the problem :

Debt 35%

Preferred Stock

Cost of Preferred Stock 10%

Solution:

Problem 11-19
United Business Forms
Capital Structure
Aftertax Cost of Debt	7%
15%
Common Equity	50%	Cost of Common Equity	13%
Cost (aftertax)	Weights	Weighted Cost
Debt (Kd)
Preferred Stock (Kp)
Common Equity (Ke)
Weighted Average Cost of Capital (Ka)