Spring finance discussion questions part 1

Must be submitted by due date and time. Late submissions will not be acceptable.

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Must be 100% original. If any non-original work is used, it must be referenced and cited correctly using APA format.

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EACH ANSWER must be at least a full paragraph long. The longer the paragraph for each answer, the better your chances for having the opportunity to complete Part 2.

 

1.  Describe the costs and benefits of each of the major forms of business.

2.  Describe the goals of a financial manager.

3.  Describe the roles the Sarbanes-Oxley Act of 2002 play in financial reporting.

4.  Describe what happens to the present value of a cash flow stream when the discount rate increases.

 

5.  Five years ago, Laissez-Faire Recliners issued $10,000,000 of corporate bonds with a 30-year maturity. The bonds have a coupon rate of 10.125%, pay interest semiannually, and have a par value of $1,000 per bond. The bonds are currently trading at a price of $879.625 per bond. A 25-year Treasury bond with a 6.825% coupon rate (paid semiannually) and $1,000 par is currently selling for $975.42. Determine the yield spread between the corporate bond and the Treasury bond. Show all work (show all calculations).

 

6.  Explain why investors are more concerned with the real returns than the nominal returns on their investments.

7.  Determine if the minimum variance portfolio is always an efficient portfolio. Is an efficient portfolio always the minimum variance portfolio?

 

(Use the following to answer question 8.) Durango Cereal Company is considering adding two new kinds of cereal to its product line—one geared toward children and the other toward adults. The company is currently at full capacity and will have to invest a large sum in machinery and production space. However, given the nature of cereal production, the investment in machinery will be more costly for the children’s cereal (Poofy Puffs) than for the adult cereal (Filling Fiber). The expected cash flows for the two cereals are:

Year     Poofy Puffs                Filling Fiber

0          $-24,890,000             $-13,500,000

1             12,950,000                    7,230,000

2             10,923,000                    8,100,000

3               8,231,000                    8,629,000

4               7,242,000                    5,238,900

Management requires a minimum return of 15% in order for the project to be acceptable. The discount rate for projects of this level of risk is 10%. Management requires projects with this type of risk to have a minimum payback of 1.75 years.

8. Calculate (show all work) payback methods, discounted payback methods, net present values, internal rate of return, and profitability index. Determine what Durango should do based on calculations.

 

(Use the following for question 9.) Go to: http://tobsefin.swlearning.com and calculate Sara Lee Corporation’s (ticker symbol, SLE) cash flows for the last four years, using the formula: Cash flow = Net income + Depreciation.

9.  Determine if the figures match Sara Lee’s net cash flow from operating activities. If not, list specific reasons why they are different and ways the corporation can ensure this does not occur again in the future.

 

10.  Describe the relationship between the equity risk premium and the aggregate value of the stock market.

11.  If a stock is incorrectly price by $0.05 and it costs $.25 to exploit the opportunity, is this market inefficient? Determine what makes the market efficient or inefficient.

12.  Determine the role par value plays in the pricing and sale of common stock by the issuing corporation.

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