15 Marks! Question 1 ABC, Inc. has current assets of $58, fixed assets of $264. current liabilities of $45, and long- term debts of S125. What is the value of shareholders' equity? 15 Marks] Question 2 Your grandfather put some money in an account for you on the day you were born. You are now 18 years old and are allowed to withdraw the money for the first time. The account pays a 12% interest rate per year (EAR) and currently has $4,200 in it. a) How much money would be in the account if you leave the money there until your 25th birthday? b) How much money did your grandfather originally put in the account? Question 3 15 Marks The risk-free rate is 5%, and the expected return of the market nortfolio is 10%. Assuming a stock has a beta of 1.5, what is the expected return (required return of this stock based on capital asset pricing model? Question 4 15 Marks] Young Pharmaceuticals is considering a drug project that costs $3.8 million today and is expected to generate constant annual cash flow of $267.000 that continues indefinitely, with the first cash flow arriving in one year from today. At what discount rate would Young be indifferent between accepting or rejecting the project? Question 5 [10 Marks] You notice that PepsiCo (PEP) has a stock price of $72.62 and earnings per share (EPS) of $3.93. Its competitor, the Coca-Cola Company (KO), has EPS of $2.13. Estimate the value of a share of Coca-Cola stock using only this data. Question 6 [10 Marks! A stock has had returns of 24 percent, 12 percent, 38 percent,-2 percent, and 21 percent over the last five years. What is the geometric return for the stock? Question 7 [10 Marks) Suppose a five-year bond with face value of $1000 and annual coupons has a price of $990 and a yield to maturity of 6%. What is the bond's coupon rate? Question 8 [10 Marks) You have a loan outstanding. It requires making twenty annual payments at the end of the next twenty years of $4000 each (/ to 1-20). Your bank has offered to restructure the loan so that instead of making twenty payments as originally agreed, you will make only a one-time payment in twenty five years (25). If the interest rate on the loan is 5%, what one-time payment will the bank require you to make so that it is indifferent between the two forms of payment? Question 9 [10 Marks Bay Properties is considering starting a commercial real estate division. It has prepared the following four-year forecast of cash flow from assets (CFFA) for this division: Year 1 Year 2 Year 3 Years CFFA - $159,000 $14.000 $98.000 $221.000 Assume cash flows after year 4 will grow at a steady rate of 3% per year, forever. If the cost of capital for this division is 10% in Year 1-3 and 5% afterward, what is the value today of this division? Question 10 [15 Marks Bilbo plans to save for his retirement in 30 years (t=30) from today, with constant annual saving of $50,000 starting from year 1 ( 1) through year 30 (=30). Bilbo aims to maintain constant annual expense in the retirement from year 31 (t=37) to year 50 ( 150). The discount rate for Bilbo's entire life is 10%. If Bilbo also wants to leave $10.000.000 to his son Frodo in year 50 (150), what is his maximum annual expense in the retirement? Question 11 [15 Marks Happy Times, Inc., wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe's Party Supply. Happy Times currently has debt outstanding with a market value of $115 million and a YTM of 6 percent. The company's market capitalization is $360 million, and the required return on equity is 11 percent. Joe's currently has debt outstanding with a market value of $45 million. The EBIT for Joe's next year (t = 1) is projected to be $17 million. EBIT is expected to grow at 10 percent per year for the next five years (t = 1 tot =5) before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 9 percent, 15 percent, and 8 percent, respectively. Joe's has 2 million shares outstanding and the tax rate for both companies is 20 percent. a) What is the WACC of Happy Times? b) What is the CFFA of Joe's Party Supply in the first year (t = 1)? c) Based on these estimates, what is the maximum share price that Happy Times should be willing to pay for Joe's