1. Balance Sheet accounts for a project are as follows: Cash $ 9,000 AP 13,000 A

Question

1. Balance Sheet accounts for a project are as follows:

Cash $     9,000                         AP                   13,000

AR            12,000                        Accruals          2,000

Inventory   12,000                      Notes pay      10,000

                  Dividend payout is 80%            M 3%    

If sales are $300,000 and increase by 30%, no addition to fixed assets is needed, using the AFN equation, what is their need for additional funds?

a. $7,440

b. $3,060

c. none

d. $1,440

2. You are looking at investing in ABC Company. Risk free rate is 2%, rm 10%, Beta is 1.2. What is the required return using CAPM? So, if they had an expected return of 11%, should you invest?

a. 11.6%, no

b. 14%, no

c. 11.6%, yes

d. 14%, yes

3. The total valuation of MVP Company is $30 million, consisting of 400,000 shares of stock at P0 $60 and $6 million in debt. If they restructure to a 50-50 target capital structure they will repurchase ________ shares of stock.

a. 50,000

b. 100,000

c. 150,000

d. 300,000

Please show work.

Explanation / Answer

1 Additional Funds Needed = =(33000 * 0.3)-(25000*0.3)-(0.03*390000*0.2) = 60

Answer is C. None

2. Expected Return: 2+ 1.2*(10-2) = 11.6 %

Since the return is more than expected return, we should invest

Ans: c. 11.6%, yes

3. The answer is C. 150,000

Since stock value is = 400000*60 = $24 million, MVP will have to buy $9million worth of share which equals 150,000

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