Managerial Finance

Problem 4: P5-32, Page 242 Value of mixed stream (12 points) Table A-2 Similar to P5-36 Project A Calculator Use CF1 = -$2,000, CF 2 = $3,000, CF3 = $4,000, CFA = $6,000, CF5 = $8,000 Set 1 = 12 Solve for PV = $ Using financial tables: look up 12% interest then the year to find variable to multiply by: Table: -2000 x .893 (year 1 variable at 12%) = -1786 3000 x table A2 variable; year 2 at 12% = 4000 x table variable; year 3 at 12% = 6000 x table variable; year 4 at 12% = 8000 x table variable; year 5 at 12% = Then add all figures for total PV = Project B CF: = $10,000, CF2 = $5,000, CF3 =$5,000, CF4 = $5,000, CFs = $5,000, CF6 = $7,000 Set I = 12 Solve for NPV = $ 10,000 x table variable; year 1 at 12% = 5,000 x table variable; year 2 at 12% = 5,000 x table variable; year 3 at 12% = 5,000 x table variable; year 4 at 12% = 5,000 x table variable; year 5 at 12% = 7,000 x table variable; year 6 at 12% = Then add all figures for total PV = Problem 5: P7-21; Page 340 Management action and stock value (20 points) Similar to P7-8 Po = D../ir-g) a. PO = $3.15 = (0.15 -0.05) = $31.50 (Example) $3.00 x growth of .05 = .15, Add to $3.00 = $3.15 then divide by (r-g) b. PO = D/(r-g) Step 1 $3.00 x growth of .06 = ???; add that number to the $3.00 base; that is the D for the formula D = Next divide D number by the (r-g) which is .14 - 06 Formula is D/1.14-.06) For each remaining alternative C, D, E use the same formula You will need to solve for D first, then (r-g); each alternative has a different D, r and g C. PO =