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# The Discounted Cash Flows Model

### Should Paul Stone take the discount? Lengthen the cash conversion cycle.

Paul Stone can get 3/15, net 65 from his suppliers. Paul would like to delay paying the suppliers as long as possible because his cash account balance is very low, but his Dad, a famous financial expert, recommends that he borrow from his local bank at 10% and pay early to take advantage of the discount. Which of the following s

### Finance: Calculate equity, cash flow, total fixed assets, return on sales, perpetuity value

1. During the last year Bruce had Net Income of \$150, paid \$20 in dividends, and sold new stock for \$40. Beginning equity for the year was \$700. Ending Equity was? 2. The Beverly's had an operating income (EBIT) of \$260,000 last year. The firm had \$18,000 in depreciation expenses, \$15,000 in interest expenses, and \$60,000 i

### Initial project cash flow related to net working capital, Initial Cash flow, Addition of a new product line

3 questions 1) All of the following are anticipated effects of a proposed project. Which of these should be included in the initial project cash flow related to net working capital? a) an inventory decrease of \$5000 b) an increase in accounts receivable of \$1500 C)an increase in fixed assets of \$7600 d) a decrease in ac

### Approximate Cost of Giving Up the Cash Discount

Lyman Nurseries purchased seeds costing \$25000 with terms of 3/15 net 30 EOM on January 12. How much will the firm pay if it takes the cash discount? What is the approximate cost of giving up the cash discount, using the simplified formula?

### Calculating Present and Future Values: Example Problems

1) Present Values: Compare the present value of a \$100 cash flow for the following combination of discount rates and times: a. r= 8 percent, t = 10 years b. r= 8 percent, t = 20 years c. r= 4 percent, t = 10 years d. r= 4 percent, t = 20 years 2) Future Value: Compute the future value of a \$100 cash flow for the same

### Nabors, Inc. Balance Sheet Calculations: cash flow, working capital, non-cash

Nabors, Inc. 2005 and 2006 Balance Sheets (\$ in millions) 2005 2006 2005 2006 Cash \$

### Cash flow to creditors..

2. At the beginning of the year, long-term debt of a firm is \$280 and total debt is \$340. At the end of the year, long-term debt is \$260 and total debt is \$350. The interest paid is \$30. What is the amount of the cash flow to creditors? \$50 -\$20 \$20 \$30 \$50

### Common value stock-Constant growth

Use the constant-growth model (Gordon model) to the find the value of each firm shown in the attached table.

### US Treasury Bond Yield

Offering the US government's 9.25% 2016 Treasury Bond for "129.38." a. What is the amount of the coupon interest payment you would receive each year if you bought the bond? (Assume annual payments) b. How many payments would you receive if you bought the bond and held it to maturity? (In other words, how many years doe

### Valuation Model

Make a recommendation as to which valuation model would serve best. Please see attached.

### Multi choice questions Accounting Concepts: Hico, Jasper, Bane, Pair, Ware, Knoll

1. The balance sheet of the Hico Company contained the following accounts and balances: Based on the above information only, the amount or balance for Land must be A. \$500 B. \$950 C. \$450 D. \$550 2. Which of the following could represent the effects of an asset source transaction on a company's financial statements?

### Calculating Project NPV

The best Manufacturing Company is considering a new investment. Finanacial projections for the investment are tabulated here. The corporate tax rate is 34 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working

### Match the definitions on the left with the answers on the right.

Match the definitions on the left with the answers on the right. 1. ___ Aging of Accounts Receivable A. Evaluate liquidity by dividing current assets by current liabilities 2. ___ Balance Sheet B. A report of the sales, costs, and net income of the company for a period of time (usually annually) 3. ___ Cash Discount C. Abil

### Evaluating investments: Screening, Ranking, and Discounting

I have read through my textbook and searched the web. I feel like this is a trick question. Which one is a true statement and why? Why the others are false. Which of the following statements is correct? a. Screening is the process of finding the best among available acceptable alternatives. b. Ranking is the process of de

### This question deals with review of the financial management policies and practices of Johnson and Johnson over the past two years. Also it calculates the important financial ratios.

Calculate the FINANCIAL & MARKET RATIOS for the year ended 31/12/07 & 31/12/06 Critically evaluate and comment on the results - Spotlight the areas the management should focus more - Calculate k (cost of equity) by applying both the Gordon's Growth Model and the CAPM. - Calculate the cost of each component of Capital for

### Common stock value - Constant growth

Use the constant-growth model (gordon model) to find the value of each firm shown in the following table. Firm Dividend expected next year dividend growth rate required return A \$1.20 8% 13% B 4.00 5 15

### Intrinsic Value vs Market Value, Opportunity Cost Rate

Q1-3, What is a firm's fundamental, or intrinsic, value? What might cause a firm's intrinsic value to be different than its actual market value? Q2-2, What is an opportunity cost rate? How is this rate used in discounted cash flow analysis, and where is it shown on a time line? Is the opportunity rate a single numbe

### 1. Evaluate Machine A and Machine B. Assume: A. The life of each machine is 3 years B. The company thinks it knows how to make 14% on investments no more risky than this one. 2. Determine, via Present Value Method, which machine should be recommended. Explain your decision. What assumptions are you making about the machines? What assumptions are you making in your methodology? 3. Please explain in details how/what/why you did what you did in this exercise and list the solutions which you have came up with. In other words, provide a written summary of this exercise so that I understand exactly how you did it.

1. Evaluate Machine A and Machine B. Assume: A. The life of each machine is 3 years B. The company thinks it knows how to make 14% on investments no more risky than this one. 2. Determine, via Present Value Method, which machine should be recommended. Explain your decision. What assumptio

### Choosing a project's discount rate

For a company which earns 10 Percent on its call account deposits,borrows longterm at 12 percent and its main investments are in the form of call account deposits,what will be the best DISCOUNT RATE to use in project evaluation NPV,as an alternative to using WACC? How can such a rate be justified?

### PV of costs of machines for Bison

Bison Mfg. is considering two options for purchasing comparable machinery. Machine 1 will cost \$27,500 plus an annual maintenance fee of \$1,500 per year for four years. Machine 2 will cost \$25,000 with a varying maintenance charge. The estimated cost of maintenance is \$1,000 in the first year, \$3,000 in the second year, a

### Valuation in Mergers

Problem 25-1 Valuation: Vandell's free cash flow (FCF) is million per year and is expected to grow at a constant rate of 5% a year, its beta is 1.4. What is the value of Vandell's operations? If Vandell has \$10.82 millions in debt, What is the current value of Vandell's stock? (Hi nt Use the corporate valuation model o

### Compute the present value of a \$100 cash flow for the following combinations of discount rates and times

1. Present Values. Compute the present value of a \$100 cash flow for the following combinations of discount rates and times: a. r = 8 percent, t = 10 years. b. r = 8 percent, t = 20 years. c. r = 4 percent, t = 10 years. d. r = 4 percent, t = 20 years. 2. Future Values. Compute the future value of a \$100 cash flow for t

### Discounted payback using the cash flows of an investment project

Calculating discounted payback. An investment project has annual cash inflows of \$6,500, \$7,000, \$7,500, and \$8,000, and a discount rate of 14%. What is the discounted payback period for these cash flows if the initial cost is \$8,000? What if the initial cost is \$13,000? What if it is \$18,000?

### Lloyd Enterprises has a project which has the following cash flows

Lloyd Enterprises has a project which has the following cash flows: Year Cash Flow 0 -\$200,000 1 50,000 2 100,000 3 150,000 4 40,000 5 25,000 The cost of capital is 10 percent. What is the project's discounted payback?

### Mutually Exclusive Investments Explained in this Solution

Frank Zanca is considering three different investments that his broker has offered to him. The different cash flows are as follows: (6 points) End of Year A B C 1 300 400 2 300 3 300 4 300 300 600 5 300 6 300 7 300 8 300 600 Because Frank has enough savings for only one investment, his broker has propos

### Payback, NPV, and MIRR Analysis

Please see the attachment for this question on choosing from two projects.

### In game theory analysis, what is a "dominant strategy"?

1. In game theory analysis, what is a "dominant strategy"? 2. A firm's most recent annual dividend was \$2 per share; its shares sell for \$40 in the stock market, and the company expects its dividend to grow at a constant rate of 5% in the foreseeable future. Using the dividend growth (Gordon) model, what would you estima

### Regis Clothiers can borrow from its bank at 11 percent to take a cash discount. The terms of the cash discount are 2/15, net 60. Should the firm borrow the funds?

1. Regis Clothiers can borrow from its bank at 11 percent to take a cash discount. The terms of the cash discount are 2/15, net 60. Should the firm borrow the funds? 2. A pawn shop will lend you \$2000 for 45 days at a cost of \$5 interest. What is your effective rate of interest? 3. Randall Corporation plans to borrow \$200,

### Capital Budgeting Purposes

What are the purposes of capital budgeting? What factors influence a capital budgeting analysis, and how do they influence it? How is capital budgeting used in your organization? How does the time value of money influence financial decisions made by your organization?

### What impact does the number of years until maturity have on the value of a bond?

1. What impact does the number of years until maturity have on the value of a bond? 2.List three capital budgeting methods (decision rules) and rank them from least to most useful. Defend your ranking. 3. Should capital budgeting projects be evaluated on their pre-tax or after tax cash flows? Why? 4. What is a stockhold