BTVN PDF

Preview

Summary

Homework
...

Description

Tut 1 – CF Q1: Agency Problems Who owns a corporation? Describe the process whereby the owners control the firm ’ s management. What is the main reason that an agency relationship exists in the corporate form of organization? In this context, what kinds of problems can arise? A: Who owns a corporation? - The shareholders. Describe the process whereby the owners control the firm ’ s management. - They have the right to elect directors, vote on major corporate actions and share in the profits of the corporation. What is the main reason that an agency relationship exists in the corporate form of organization?

This separation of ownership from control in the corporate form of organization is what causes agency problems to exist. Management may act in its own of someone else’s best interests, rather -

than those of the shareholders. If such events occur, they may contradict the goal of maximizing the share price of the equity of the firm- The s - The seperation of ownership from control. In this context, what kinds of problems can arise? - The problem between Manager vs. Shareholders. - The conflict – high cost leading to lower net income. FOCUS ON THE CORE. - Agency problem between Shareholders vs. Creditors * residual claim

Q2: Not-for-Profit Firm Goals Suppose you were the financial manager of a not-forprofit business (a not-for-profit hospital, perhaps). What kinds of goals do you think would be appropriate? A: A Non-Profit Firm is usually opened for social or political reasons, so: + minimize revenue (the lower cost the better) + maximize value of the equity

Q10: Goal of Financial Management Why is the goal of financial management to maximize the current share price of the company ’ s stock? In other words, why isn ’ t the goal to maximize the future share price? A: Why is the goal of financial management to maximize the current share price of the company ’ s stock? - There is no ambiguity in the criterion, and there is no short-run versus long-run issue. - The stockholders is the last who receive what is lef after employees, suppliers, and creditors are paid their due. If any of these group go unpaid, the stockholders get nothing. So if the stockholders are winning in the sense that the leftover, residual portion is growing.

TUT 2 – CF Concept Questions Q1: Compounding and Period As you increase the length of time involved, what happens to future values? What happens to present values? A: Increase the length of time involved will increase future value and decrease present values.

Q2: Interest Rates What happens to the future value of an annuity if you increase the rate r? What happens to the present value? A: Increase the interest rate will increase the future value and decrease the present value.

Q8: Time Value of Money Would you be willing to pay $24,099 today in exchange for $100,000 in 30 years? What would be the key considerations in answering yes or no? Would your answer depend on who is making the promise to repay?

Key consideration: Rate of return 24,099 x (1+r)^30 = 100,000 -> r=?

Questions & Problems Q10a: Continuous Compounding Compute the future value of $1,900 continuously compounded for a. 7 years at a stated annual interest rate of 12 percent. Q16: Calculating APR Find the APR, or stated rate, in each of the following cases: Q18: Interest Rates Well-known financial writer Andrew Tobias argues that he can earn 177 percent per year buying wine by the case. Specifically, he assumes that he will consume one $10 bottle of fine Bordeaux per week for the next 12 weeks. He can either pay $10 per week or buy a case of 12 bottles today. If he buys the case, he receives a 10 percent discount and, by doing so, earns the 177 percent. Assume he buys the wine and consumes the first bottle today. Do you agree with his analysis? Do you see a problem with his numbers? Q26: Growing Perpetuities Mark Weinstein has been working on an advanced technology in laser eye surgery. His technology will be available in the near term. He anticipates his first annual cash flow from the technology to be $175,000, received two years from today. Subsequent annual cash flows will grow at 3.5 percent in perpetuity. What is the present value of the technology if the discount rate is 10 percent? Q34: Growing Annuity Your job pays you only once a year for all the work you did over the previous 12 months. Today, December 31, you just received your salary of $65,000, and you plan to spend all of it. However, you want to start saving for retirement beginning next year. You have decided that one year from today you will begin depositing 5 percent of your annual salary in an account that will earn 10 percent per year. Your salary will increase at 4 percent per year throughout your career. How much money will you have on the date of your retirement 40 years from today?

TUT 2 – CF (TOPIC 2) Chap 5 Concept Questions Q1: Payback Period and Net Present Value If a project with conventional cash flows has a payback period less than the project’s life, can you definitively state the algebraic sign of the NPV? Why or why not? If you know that the discounted payback period is less than the project’s life, what can you say about the NPV? Explain. A: * The conventional cash flows (payback period) < the project’s life  initial investment of the project will recovered before the end  positive sign  positive NPV But NPV also depends on the discount rate. * The discounted payback period < the project’s life  NPV > 0  positive NPV Q9:

A: Discount rate = 10% * Profitability Index (Benefit-Cost Ratio) the ratio measure the relationship between the PV of future CFs and initial investment. Rule: If PI > 1  accepted and vice versa. Formula: PI = PV of future CFs/Initial cost * Net Present Value (NPV) the difference amount between the PV of future CFs and the initial investment. Rule: If NPV > 0  accepted. + Due to some disadvantages of PI rule (ignore the total market value) + The capital costs (investment for A is greater than B) + Cash flows of A is higher than B + Higher NPV

P1:

A: * Payback period: the time which is required to recover the initial cost of investment. * NPV formula: - NPV: Net present value

- i: Number of year - Co: Initial CF - Cfi: CF in I years a, Calculate payback period

We can see that the payback period cutoff is 2 years, so A is under the cutoff and less than payback period of B  A should be chosen. b, Discount rate = 15%

 B should be chosen.

P5:

A:

We have IRR > r (9%)  should accept the project

P17:

Discount rate = 12% a,

PI = Total/Initial investment b,

c, Based on the PI rule, Amaro should accept PA and PB (>1) d, Because PA and PC have the same initial investment, we cannot choose PC because its PI is less than PA’s PI. Then we will calculate the incremental cash flows of PA and PB, we have P(A-B)

3.17 > 1 then we take the project with higher PI  choose PA

P27:

A:

Chapter 6: Concept Questions C2:

a, Yes, the reduction in the sales of the company‘s other products, referred to as erosion, should be treated as an incremental cash flow. These lost sales are included because they are a cost (a revenue reduction) that the firm must bear if it chooses to produce the new product. (Có, vi cệgi m ả doanh sốố c ủa các s ản ph ẩm khác c ủa cống ty, đ ược g ọi là xói mòn, nên đ ược coi là m tộdòng tiêền gia tăng. Nh ng ữ doanh thu b mấốt ị này đ ược bao gốềm b ởi vì chúng là một chi phí (gi mảdoanh thu) mà cống ty ph i ch ả u nêốu ị h ọch nọ s nả xuấốt s ản ph ẩm m ới.) b, Yes, expenditures on plant and equipment should be treated as incremental cash flows. These are costs of the new product line. However, if these expenditures have already occurred (and cannot be recaptured through a sale of the plant and equipment), they are sunk costs and are not included as incremental cash flows. (Có, chi tiêu cho nhà máy và thiêốt b ịnên đ ược coi là dòng tiêền tăng dấền. Đấy là chi phí c ủa dòng s nả ph mẩm i. ớ Tuy nhiên, nêốu nh ng ữ chi tiêu này đã x yả ra (và khống th ểlấốy l ại đ ược thống

qua vi cệbán nhà máy và thiêốt b ị), thì chúng là chi phí chìm và khống đ ược bao gốềm d ưới dạng dòng tiêền gia tăng.) c.No, the research and development costs should not be treated as incremental cash flows. The costs of research and development undertaken on the product during the past three years are sunk costs and should not be included in the evaluation of the project. Decisions made and costs incurred in the past cannot be changed. They should not affect the decision to accept or reject the project. (Khống, chi phí nghiên c ứu và phát tri ển khống nên đ ược coi là dòng tiêền gia tăng. Các chi phí nghiên c ứu và phát tri ển đ ược th ực hi ện trên s ản ph ẩm trong ba năm qua là chi phí chìm và khống nên đ ượ c đ aư vào đánh giá c aủ d ựán. Các quyêốt đ ịnh đ ược đ ưa ra và chi phí phát sinh trong quá kh khống ứ th thay ể đ i. Hổ khống ọ nên nh ảh ng ưởđêốn quyêốt đ nh ị chấốp nh ận ho ặc t ừ chốối d ự án.) d. Yes, the annual depreciation expense must be taken into account when calculating the cash flows related to a given project. While depreciation is not a cash expense that directly affects cash flow, it decreases a firm‘s net income and hence, lowers its tax bill for the year. Because of this depreciation tax shield, the firm has more cash on hand at the end of the year than it would have had without expensing depreciation. (Có, chi phí khấốu hao hàng năm ph iảđ ượ c tnh đêốn khi tnh toán các dòng tiêền liên quan đêốn m t d ộán nhấốt ự đ nh. M ị c dùặ khấốu hao khống ph i là ả chi phí tiêền m t ặnhả h ưở ng tr c ựtiêốp đêốn dòng tiêền, nh ng ư nó làm gi m ả thu nh pậ ròng c aủ m tộcống ty và do đó, làm gi m ả hóa đ nơ thuêố trong năm. Vì lá chăốn thuêố khấốu hao này, cống ty có nhiêều tiêền m tặh nơ vào cuốối năm so với tr ướ c đấy mà khống cấền khấốu hao.) e, No, dividend payments should not be treated as incremental cash flows. A firm‘s decision to pay or not pay dividends is independent of the decision to accept or reject any given investment project. For this reason, dividends are not an incremental cash flow to a given project. The dividend policy is discussed in more detail in later chapters. (Khống, thanh toán c ổ t cứkhống nên đ ượ c coi là dòng tiêền gia tăng. Quyêốt đ ịnh tr ả hay khống tr c t ả c ổc aứ m ủt cống ộ ty là đ c l pộv ậ i quyêốt ớ đ nh chấốp ị nh n ậho c tặ chốối ừ bấốt kỳ d ự án đấều t ư nào. Vì lý do này, c tổ cứkhống ph iảlà m tộdòng tiêền gia tăng cho m tộd ựán nhấốt đ ịnh. Chính sách c ổt cứđ ượ c th oả lu nậ chi tiêốt h ơn trong các ch ương sau.) f. Yes, the resale value of plant and equipment at the end of a project‘s life should be treated as an incremental cash flow. The price at which the firm sells the equipment is a cash inflow, and any difference between the book value of the equipment and its sale price will create accounting gains or losses that result in either a tax credit or liability. (Có, giá tr bán ị l i cạ a nhà ủ máy và thiêốt b khi ị hêốt tu ổi th ọ c ủa d ự án nên đ ược coi là dòng tiêền tăng dấền. Giá mà cống ty bán thiêốt b làị m tộdòng tiêền, và bấốt kỳ s ự khác bi ệt nào gi ữa giá trị sổ

sách c a thiêốt ủ b và ịgiá bán c a nó ủ seẽ t o ra ạ các kho n lãi ả ho c lốẽặ kêố toán dấẽn đêốn tn d ng ụ thuêố ho ặc trách nhi ệm pháp lý.) g, Yes, salary and medical costs for production employees hired for a project should be treated as incremental cash flows. The salaries of all personnel connected to the project must be included as costs of that project. (Có, tiêền l ng ươvà chi phí y têố cho nhấn viên s nả xuấốt đ ược thuê cho m ột d ự án nên đ ược coi là dòng tiêền gia tăng. M c l ứ ng ươc a tấốt ủ c các ả nhấn viên kêốt nốối vớ i dự án phả i đượ c tnh vào chi phí c ủa d ự án đó.)

Q3:

A: a, Relevent, because as if the golf clubs is produced then the OP of selling the land will lost. b, Relevant, the company should wearing down price of the old products when the new one is introduced. c, No relevent, cause the cost was used in the past is irrelenvant to the production of the new club. Q7:

A:

Question & Problems Q1:

A: Cost of new machine = $9,000 Life = 5 years Straight line depreciation Sales = 1,500 souffles x $4.75 = $7,125 Costs = 1,500 x $2.3 = $3,450 Discount rate = 14% Tax rate = 34% * Using Tax shield appoarch

OCF = (Sales – Costs)(1 – tC) + tCDepreciation = (7,125 – 3,450)(1-0.34) + 0.34(9,000/5) = $3037.5 So, the NPV will be: NPV = -9,000 + 3037.5*3.4331 = $1,429.07 Rapheal should make the purchase. Q2:

Q6:

A: Q10:

Q15:

A: Q21:

Q30:

TUT 3 – CF

P6:

 choose take the test

P7:

P17:

P18 & P19:

P18:...