Posted: November 29th, 2017

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Chapter
4 Problems 4 – 8, 4 – 13, & 4 – 21
 
4
– 8
You want to buy a car, and a local bank will lend
you $20,000. The loan would be fully amortized over 5 years (60 months), and
the nominal interest rate would be 12%, with interest paid monthly. What is the
monthly loan payment? What is the loan’s EFF%?
4
– 13
Find the present value of the following ordinary annuities.
$400
per year for 10 years at 10%$200
per year for 5 years at 5%$400
per year for 5 years at 0%Now
rework parts a, b, and c assuming that payments are made at the beginning of
each year; that is, they are annuities due.
4
– 21
Sales for Hanebury Corporation’s just-ended year
were $12 million. Sales were $6 million 5 years earlier.
At
what rate did sales grow?Suppose
someone calculated the sales growth for Hanebury in part a as follows: “Sales
doubled in 5 years. This represents a growth of 100% in 5 years; dividing 100%
by 5 results in an estimated growth rate of 20% per year.” Explain what is
wrong with this calculation.
Chapter
5 Problems 5 – 9, 5 – 13

5
– 9
The Garraty Company has two bond issues outstanding.
Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a
maturity of 15 years, and Bond S has a maturity of 1 year.
What
will be the value of each of these bonds when the going rate of interest is (1)
5%, (2) 8%, and (3) 12%? Assume that there is only one more interest payment to
be made on Bond S.Why
does the longer-term (15-year) bond fluctuate more when interest rates change
than does the shorter-term bond (1 year)?
5
– 13
You just purchased a bond that matures in 5 years.
The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a
current yield of 8.21%. What is the bond’s yield to maturity?
Chapter
7 Problem 7 – 17
7
– 17
Kendra Enterprises has never paid a dividend. Free
cash flow is projected to be $80,000 and $100,000 for the next 2 years,
respectively; after the second year, FCF is expected to grow at a constant rate
of 8%. The company’s weighted average cost of capital is 12%.
What
is the terminal, or horizon, value of operations? (Hint: Find the value of all
free cash flows beyond Year 2 discounted back to Year 2.)Calculate
the value of Kendra’s operations.
Chapter
9 Problems 9 – 7 & 9 – 11
9
– 7
Shi Importer’s balance sheet shows $300 million in
debt, $50 million in preferred stock, and $250 million in total common equity.
Shi’s tax rate is 40%, rd =
6%, rps
= 5.8%,
and rs
=
12%. If Shi has a target capital structure of 30% debt, 5% preferred stock, and
65% common stock, what is its WACC?

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