Please see the assignment
FIN 201 Final Exam - SPRING 2013 Question There are five (5) questions on this exam. They are located beginning in the column A successively down in this file. There are multiple parts to each question. The number of parts is indicated next to the question. In some cases, time lines and other materials extend several columns to the right. Be careful not to overlook important material. Also be sure to remember this material when adding columns to the spreadsheet. Grade Summary Value Points off 1 10 2 10 3 10 4 10 5 10 Grade 100 Before you begin, use the "save as" command (F12) and change the name of the file to "FIN 201 - Final Exam (Fall 2013) - Last Name - First Name" inserting your last and first names. Please make regular backups during the exam. Also please retain a copy of your completed exam on your hard drive. Question 1: (Parts a, b, and c) Your portfolio consists of the following stocks: Company Chipotle Mexican Grill Biglari Holdings Heartland Express Old Dominion Freightlines Investment $120,000 $89,000 $106,000 $68,000 $383,000 Beta 1.00 1.05 0.80 1.15 Required Return 5.00% 5.25% 4.00% 5.75% Additional Information: Yield on 30 Day Treasury Bills 0.10% Yield on 30 Year Treasury Bonds 3.89% Yield on 20 Year AA Corporate Bonds 4.58% Market Risk Premium 5.00% a. In the space in table above, estimate the required return for each stock. b. Estimate the Required Return of the Portfolio. c. Chipotle Mexican Grill and Biglari Holdings are restaurant companies. Heartland Express and Old Dominion Freightlines are trucking companies. Since people will always want to eat and will always need to ship things, this portfolio is an ideal portfolio to use to save for your retirement. Explain why this statement is true or false. Question 2 (Parts a, b, c, d) GoFast Logistics is a trucking company that serves the entire US market. Its current financial information is shown below. Book Value of Debt Book Value of Equity Market Value of Debt Market Value of Equity Stock Information Current Price Beta Last Dividend Expected Growth Bond Information Current Price Maturity Coupon Rate $129,284,315 $118,947,056 $145,768,065 $628,920,664 $52.00 0.80 $1.50 4.70% $1,087.50 8 years 6.00% Interest is paid semi-annually. Other information Yield on 30 Day Treasury Bills Yield on 30 Year Treasury Bonds CAPM Market Risk Premium Equity Risk Premium over Bonds Corporate Tax Rate 0.10% 3.89% 5.00% 4.00% 35% a. Estimate the Component cost of the firm's debt (in percent to two decimal places). b. Estimate the firm's Cost of Equity using the DCF method (in percent to two decimal places). c. Estimate the firm's Cost of Equity using the CAPM method (in percent to two decimal places). d. Estimate the firm's Cost of Equity using the "Bonds plus Risk Premium" method (in percent to two decimal places). Question 3 (Parts a and b) Cash Flows 13-Dec-13 $1,200 Interest Rate 13-Dec-14 $1,400 13-Dec-15 $1,250 13-Dec-16 $1,150 13-Dec-17 $1,725 13-Dec-18 $1,650 13-Dec-19 $1,250 13-Dec-20 $1,525 13-Dec-21 $1,175 13-Dec-22 $1,850 13-Dec-23 $2,000 14.0% Compounded Daily a. Estimate the Effective Rate of Interest b. Estimate the Present Value of the series today. Question 4 (Parts a, b, c, and d) Highland Properties is an operater of hotels and resorts. The firm has been very successful and growing rapidly. Over the next five years, growth is expected to be 28 percent per year. Beginning in the sixth year, growth is expected to slow to 14 percent and continue for two more years. Beginning in the eighth year, growth is expected to settle into a long-term rate of 4.5 percent per year. The firm's beta is 1.45. The current risk-free rate is 3.9 percent and the market risk premium is 5 percent. Highland Properties just paid a dividend of $1.47 per share. a. Estimate the appropriate discount rate to use in valuing Highland Properties' stock. b. Estimate the current value of Highland Properties' stock. c. Estimate the Expected Capital Gain Yield over the first year. d. Estimate the Expected Capital Gain Yield in year ten. Question 5 (Parts a and b) Shown below is information from the most recent annual reports of Chipotle Mexican Grill (CMG) and Biglari Holdings (BH), owner of Steak & Shake and Western Sizzlin restaurants. Sales Net Income Total Assets Total Equity 2012 Fiscal Year CMG BH $2,731,224 $733,905 $278,827 $24,745 $1,668,667 $773,787 $1,245,926 $349,125 a. Calculate each firms Return on Assets (ROA) and Return on Equity (ROE). Based on these metrics, which firm has the better performance? CMG BH ROA ROE Question 6 (Parts a, b and c) Allied Grid is an Electric Utility and is heavily funded with debt. The company has an outstanding bond issue with 15 years to maturity and a 6.5 percent coupon rate. Interest is paid semi-annually. The bond has a $1000 par value and has a yield to maturity of 5.89 percent at its current price. a. Estimate the current value (today's price) of the bond. b. Allied's bond is callable in three years. Under the terms of the redemption provision, Allied will have to pay a call premium equal to one half of a year's coupon interest if it call the bond. Estimate the bond's Yield to Call. c. Is the bond's Yield to Maturity or Yield to Call a better estimate of what an investor can expect to earn by buying and holding this bond? Explain. Yield to maturity is a relatively accurate measure of return which is a better estimate of what an investor can expect to earn by buying and holding this bond. Yield to maturity factors in the coupon rate and the price you paid for the bond, but also how far you have to go get your principal back and how much that principal will be
