SOAL 1 – Break Even Analysis
Consider a project to supply Detroit with 35,000 tons of machine screws annually for automobile
production. You will need an initial $3,200,000 investment in threading equipment to get the project
started; the project will last for five years. The accounting department estimates that annual fixed cost
will be $450,000 and that variable cost should be $185 per ton; accounting will depreciate the initial
fixed asset investment straight line to zero over the five year project life. It also estimates a salvage value
of $500,000 after dismantling costs. The marketing department estimates that the automakers will let
the contract at a selling price of $230 per ton. The engineering department estimates you will need an
initial net working capital of $360,000. You required 13 percent return and face a marginal tax rate of 38
percent on this project.
a. What is estimated OCF for this project ? The NPV ? Should you pursue this project ?
b. Suppose you believe that the accounting department’s initial cost and salvage value projection
are accurate only to within ± 15 % ; the marketing department’s price estimates is accurately
only to within ±10 percent; and the engineering department’s net working estimate is
accurately only to within ± 5 percent. What is your worst case scenario ? your best case scenario
? Do you still want to pursue the project ?
c. Calculate accounting, cash, and financial break even quantities !
d. Find the degree of leverage for the company at the base case output level of 35,000 units.
SOAL 2 – Risk & Return Stock
Consider the following information about the stock
Probability of State of Rate of return if state occurs
State of Economy
Economy Stock A Stock B
Boom 0.35 0.24 0.36
Normal 0.50 0.17 0.13
Bust 0.15 0.00 -0.28
a. If your portofolio is invested 40% in A and 60% in B, what is the expected return, the Variance,
and standar deviation for each stock ?
b. what is the portfolio expected return ?
c. If the expected T – bill rate is 3.80 %, what is the expected risk premium on the portofolio
d. Suppose you given the following information ; Beta A = 1.35, Beta B = 0.80. Which stock has the
most systematic risk ? Which one has the most total risk ? Which stock should be purchase?
Please explain using CAPM approach.
SOAL 3 – WACC
Given the following information the Evenflow Power, Co. find the WACC. Assume the company’s tax rate
is 35%.
1
Debt : 8,000.6.5% coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 92 % of
par ; the bonds make semiannual payment
Common stock : 250,000 shares outstanding, selling for $57 per share; the beta is 1.05
Preferreed stock : 15,000 shares of 5% preferred stock outstanding, currently selling for $93 per share
Market : 8 % market risk premium and 4.5% risk free rate
SOAL 4 – DIVIDEND
How it is possible that dividends are so important, but at the the same time, dividend policy is
irrelevant? Please explain the Pros – cons of paying dividends ? What is the meaning of clientele effect ?
a. The Owner’s equity accounts for Quadrangle International are shown here
Common stock ($1 par value) $ 30,000
Capital surplus $285,000
Retained Earning $649,180
Total owner’s equity $964,180
If Quadrangle stock currently sells for $30 per share and 10% stock dividend is declared, how
many new shares will be distributed ? Show how the equity accounts would change.
If Quadrangle declared a 25% stock dividend, how would the account changes ?
c. The market value balance sheet for Avondale Corp is shown here. Avondale has declared a 25%
stock dividend. The stock goes ex dividend tomorrow (the chronology for a stock dividend is
similar to that for a cash dividend). There are 12,000 shares of stock outstanding. What will the
ex – dividend price be ?
Market Value Balance Sheet
Cash $ 93,000 Debt $131,000
Fixed Assets $ 509,000 Equity $471,000
Total $ 602,000 Total $602,000
SOAL 5 – CASH CYCLE, CREDIT POLICY, EOQ
Consider the following financial statement information for the Mediate Corporation
Item Beginning Ending
Inventory $9,780 $11,380
Acc. Receivable $6,108 $8,655
2
Acc. Payable $7,636 $7,813
Credit Sales $89,804
COGS $56,384
a. Calculate the operating and cash cycle. How do you interpret your answer?
b. Happy Times currently has an all – cash credit policy. It is considering making a change in
the credit policy by going to terms of net 30 days. Based on the following information,
what do you recommend ? The required return is 0.95% per month
Current Policy New
Policy
Price per unit $290 $295
Cost per unit $230 $234
Unit sales per 1,105 1,125
month
b. The Trektronics store begins each week with 300 phrases in stock. This stock is depleted each
week and reordered. If the carrying cost per phrase is $41 per year and the fixed order cost is
$95, what is the total carrying cost ? What is the restocking cost ? Should Trektronics increase or
decrease its order size ? Describe an optimal inventory policy for Trektonics in terms of order size
and order frequency.
