BUSN 379 Entire Course NEW

DEVRY BUSN 379 Week 1 Homework NEW
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8. Calculating OCF. Hammett, Inc., has sales of
$34,630, costs of $10,340, depreciation expense of
$2,520, and interest expense of $1,750. If the tax
rate is 35 percent, what is the operating cash flow,
or OCF?
14. Weiland Co. shows the following information
on its 2014 income statement: sales = $167,000;
costs = $88,600; other expenses = $4,900;
depreciation expense = $11,600; interest expense
= $8,700; taxes = $18,620; dividends = $9,700. In
addition, you’re told that the firm issued $2,900 in
new equity during 2014, and redeemed $4,000 in
outstanding long-term debt.
a. Calculating Cash Flows. What is the 2014
operating cash flow?
19. Net Income and OCF. During the year, Belyk
Paving Co. had sales of $2,600,000. Cost of goods
sold, administrative and selling expenses, and
depreciation expense were $1,535,000, $465,000,

and $520,000, respectively. In addition, the
company had an interest expense of $245,000 and
a tax rate of 35 percent. (Ignore any tax loss
carryback or carryforward provisions.)
a. What is Belyk’s net income?
b. What is its operating cash flow?
c. Explain your results in (a) and (b).

DEVRY BUSN 379 Week 2 Case Assignment (Sunset
Boards, Inc) NEW
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CASE
Case I is due at the end of this week. Prepare a
memo in Word, which answers the questions in the
Chapter 2 Case, Cash Flows and Financial
Statements at Sunset Boards, Inc., on page 51 of
the textbook. Use Excel to solve any financial
calculations. You will be graded on correct
financial analysis, proper use of technology,
business-like presentation of technology, and
business-like presentation.
Questions:
2. In light of your discussion in the previous
question, what do you think about Tad’s expansion

plans.
1. How would you describe Sunset Boards’ cash
flows for 2014? Write a brief discussion.

DEVRY BUSN 379 Week 2 Homework CHAPTER 4
(8, 17, 18) and CHAPTER 5 (1, 4, 12) NEW
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CHAPTER 4 (8, 17, 18)
8. Calculating the Number of Periods. Calculating
Rates of Return. In 2011, an 1880-O Morgan silver
dollar sold for $13,113. What was the rate of
return on this investment?
17. Calculating Present Values. Suppose you are
still committed to owning a $150,000 Ferrari (see
Question 9). If you believe your mutual fund can
achieve a 10.25 percent annual rate of return, and
you want to buy the car in 10 years on the day you
turn 30, how much must you invest today?
18. Calculating Future Values. You have just made
your first $5,000 contribution to your individual
retirement account. Assuming you earn a 10.1

percent rate of return and make no additional
contributions, what will your account be worth
when you retire in 45 years? What if you wait 10
years before contributing? (Does this suggest an
investment strategy?)
CHAPTER 5 (1, 4, 12)
1.Present Value and Multiple Cash Flows. Rooster
Co. has identified an investment project with the
following cash flows. If the discount rate is 10
percent, what is the present value of these cash
flows? What is the present value at 18 percent? At
24 percent?
4. Calculating Annuity Present Values. An
investment offers $6,700 per year for 15 years,
with the first payment occurring 1 year from now.
If the required return is 8 percent, what is the
value of the investment? What would the value be
if the payments occurred for 40 years? For 75
years? Forever?
12. Calculating EAR. Find the EAR in each of the
following cases:

DEVRY BUSN 379 Week 3 Homework Chapter 6-16,
Chapter 7 (11,12) NEW
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Chapter 6: 16
Chapter 7: 11 and 12
Chapter 6: 16
Interest Rate Risk. Both Bond Bill and Bond Ted
have 7 percent coupons, make semiannual
payments, and are priced at par value. Bond Bill
has 3 years to maturity, whereas Bond Ted has 20
years to maturity. If interest rates suddenly rise by
2 percent, what is the percentage change in the
price of Bond Bill? Of Bond Ted? If rates were to
suddenly fall by 2 percent instead, what would the
percentage change in the price of Bond Bill be
then? Of Bond Ted? Illustrate your answers by
graphing bond prices versus YTM. What does this

problem tell you about the interest rate risk of
longer-term bonds?
Chapter 7: 11 and 12
Problem 11
Valuing Preferred Stock. E-Eyes.com has a new
issue of preferred stock it calls 20/20 preferred.
The stock will pay a $20 dividend per year, but the
first dividend will not be paid until 20 years from
today. If you require a return of 8 percent on this
stock, how much should you pay today?
12. Stock Valuation. Alexander Corp. will pay a
dividend of $2.72 next year. The company has
stated that it will maintain a constant growth rate
of 4.5 percent a year forever. If you want a return
of 12 percent, how much will you pay for the
stock? What if you want a return of 8 percent?
What does this tell you about the relationship
between the required return and the stock price?

DEVRY BUSN 379 Week 4 Case Study Assignment
(S&S Air’s) NEW
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CASE 4
Case
Case II is due at the end of this week. For this
assignment, prepare a memo in Word, which
answers the questions in the Chapter 5 case, S & S
Air’s Mortgage, on page 165 of the textbook. Use
Excel to do any financial calculations. You will be
graded on correct financial analysis, proper use of
technology, and business-like presentation.
Park Sexton and Todd Story, the owners of S&S Air,
Inc., were impressed by the work Chris had done

on financial planning. Using Chris’s analysis, and
looking at the demand for light aircraft, they have
decided that their existing fabrication equipment
is sufficient, but it is time to acquire a bigger
manufacturing facility. Mark and Todd have
identified a suitable structure that is currently for
sale, and they believe they can buy and refurbish it
for about $35 million. Mark, Todd, and Chris are
now ready to meet with Christie Vaughan, the loan
officer for First United National Bank. The meeting
is to discuss the mortgage options available to the
company to finance the new facility.
Christie begins the meeting by discussing a 30-
year mortgage. The loan would be repaid in equal
monthly installments. Because of the previous
relationship between S&S Air and the bank, there
would be no closing costs for the loan. Christie
states that the APR of the loan would be 6.1
percent. Todd asks if a shorter mortgage loan is
available. Christie says that the bank does have a
20-year mortgage available at the same APR.
Mark decides to ask Christie about a “smart loan”
he discussed with a mortgage broker when he was
refinancing his home loan. A smart loan works as
follows: Every two weeks a mortgage payment is
made that is exactly one-half of the traditional
monthly mortgage payment. Christie informs him

that the bank does have smart loans. The APR of
the smart loan would be the same as the APR of the
traditional loan. Mark nods his head. He then
states this is the best mortgage option available to
the company since it saves interest payments.
Christie agrees with Mark, but then suggests that a
bullet loan, or balloon payment, would result in
the greatest interest savings. At Todd’s prompting,
she goes on to explain a bullet loan. The monthly
payments of a bullet loan would be calculated
using a 30-year traditional mortgage. In this case,
there would be a 5-year bullet. This would mean
that the company would make the mortgage
payments for the traditional 30-year mortgage for
the first five years, but immediately after the
company makes the 60th payment, the bullet
payment would be due. The bullet payment is the
remaining principal of the loan. Chris then asks
how the bullet payment is calculated. Christie tells
him that the remaining principal can be calculated
using an amortization table, but it is also the
present value of the remaining 25 years of
mortgage payments for the 30-year mortgage.
Todd has also heard of an interest-only loan and
asks if this loan is available and what the terms
would be. Christie says that the bank offers an
interest-only loan with a term of 10 years and an

APR of 3.5 percent. She goes on to further explain
the terms. The company would be responsible for
making interest payments each month on the
amount borrowed. No principal payments are
required. At the end of the 10-year term, the
company would repay the $35 million. However,
the company can make principal payments at any
time. The principal payments would work just like
those on a traditional mortgage. Principal
payments would reduce the principal of the loan
and reduce the interest due on the next payment.
Mark and Todd are satisfied with Christie’s
answers, but they are still unsure of which loan
they should choose. They have asked Chris to
answer the following questions to help them
choose the correct mortgage.
QUESTIONS
1. What are the monthly payments for a 30-year
traditional mortgage? What are the payments for a
20-year traditional mortgage?
2. Prepare an amortization table for the first six
months of the traditional 30-year mortgage. How
much of the first payment goes toward principal?
3. How long would it take for S&S Air to pay off the
smart loan assuming 30-year traditional mortgage
payments? Why is this shorter than the time

needed to pay off the traditional mortgage? How
much interest would the company save?
4. Assume S&S Air takes out a bullet loan under the
terms described. What are the payments on the
loan?
5. What are the payments for the interest-only
loan?
6. Which mortgage is the best for the company?
Are there any potential risks in this action?

DEVRY BUSN 379 Week 4 Homework Chapter 8: 3,
4, 5, and 6 NEW
WEEK 4
Chapter 8: 3, 4, 5, and 6
3. Calculating Payback. Global Toys Inc., imposes a
payback cutoff of three years for its international
investment projects. If the company has the
following two projects available, should it accept
either of them?
Year Cash Flow (A) Cash Flow (B)
0 ?$55,000 ?$ 95,000
1 19,000 18,000
2 27,000 26,000

3 24,000 28,000
4 9,000 260,000
4. Calculating AAR. You’re trying to determine
whether or not to expand your business by
building a new manufacturing plant. The plant has
an installation cost of $14 million, which will be
depreciated straight-line to zero over its four-year
life. If the plant has projected net income of
$1,253,000, $1,935,000, $1,738,000, and
$1,310,000 over these four years, what is the
project’s average accounting return (AAR)?
5. Calculating IRR. A firm evaluates all of its
projects by applying the IRR rule. If the required
return is 11 percent, should the firm accept the
following project?
Year Cash Flow
0 ?$153,000
1 78,000
2 67,000
3 49,000

6. Calculating NPV. For the cash flows in the
previous problem, suppose the firm uses the NPV
decision rule. At a required return of 9 percent,
should the firm accept this project? What if the
required return was 21 percent?

DEVRY BUSN 379 Week 5 Homework Chapter 11
(4, 7, 17, and 29) NEW
WEEK 5
Chapter 11: 4, 7, 17, and 29
Problem 4
Portfolio Expected Return. You have $10,000 to
invest in a stock portfolio. Your choices are Stock X
with an expected return of 14 percent and Stock Y
with an expected return of 11 percent. If your goal
is to create a portfolio with an expected return of
12.4 percent, how much money will you invest in
Stock X? In Stock Y?

Problem 7
7. Calculating Returns and Standard Deviations.
Based on the following information, calculate the
expected return and standard deviation for the
two stocks.
Problem 17
Using CAPM. A stock has a beta of 1.15 and an
expected return of 10.4 percent. A risk-free asset
currently earns 3.8 percent.
a. What is the expected return on a portfolio that is
equally invested in the two assets?
b. If a portfolio of the two assets has a beta of .7,
what are the portfolio weights?
c. If a portfolio of the two assets has an expected
return of 9 percent, what is its beta?
d. If a portfolio of the two assets has a beta of 2.3,
what are the portfolio weights? How do you
interpret the weights for the two assets in this
case? Explain.
Problem 29

29. SMLSuppose you observe the following
situation:
a. Calculate the expected return on each stock.
b. Assuming the capital asset pricing model holds
and stock A’s beta is greater than stock B’s beta by
.25, what is the expected market risk premium?

DEVRY BUSN 379 Week 6 Case Study Assignment
(Bullock Gold Mining) NEW
devry/busn-379-week-6-case-study-
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CASE 6
Seth Bullock, the owner of Bullock Gold Mining, is
evaluating a new gold mine in South Dakota. Dan
Dority, the company’s geologist, has just finished
his analysis of the mine site. He has estimated that
the mine would be productive for eight years, after
which the gold would be completely mined. Dan
has taken an estimate of the gold deposits to Alma
Garrett, the company’s financial officer. Alma has
been asked by Seth to perform an analysis of the
new mine and present her recommendation on
whether the company should open the new mine.
Alma has used the estimates provided by Dan to
determine the revenues that could be expected

from the mine. She has also projected the expense
of opening the mine and the annual operating
expenses. If the company opens the mine, it will
cost $650 million today, and it will have a cash
outflow of $72 million nine years from today in
costs associated with closing the mine and
reclaiming the area surrounding it. The expected
cash flows each year from the mine are shown in
the table on this page. Bullock Mining has a 12
percent required return on all of its gold mines.
Year Cash Flow
0 ?$650,000,000
1 80,000,000
2 121,000,000
3 162,000,000
4 221,000,000
5 210,000,000
6 154,000,000
7 108,000,000
8 86,000,000
9 ?72,000,000
QUESTIONS
1. Construct a spreadsheet to calculate the
payback period, internal rate of return, modified
internal rate of return, and net present value of
the proposed mine.

2. Based on your analysis, should the company
open the mine?
3. Bonus question: Most spreadsheets do not have
a built-in formula to calculate the payback period.
Write a VBA script that calculates the payback
period for a project.
1 We could, of course, calculate the average of the
six book values directly. In thousands, we would
have ($500 + 400 + 300 + 200 + 100 + 0)/6 = $250.
2 The AAR is closely related to the return on
assets, or ROA, discussed in Chapter 3. In practice,
the AAR is sometimes computed by first
calculating the ROA for each year and then
averaging the results. This produces a number that
is similar, but not identical, to the one we
computed.

(3,5,6,15) and Chapter 13 (1) NEW
CHAPTER 12
3. Calculating Cost of Equity. Stock in CDB
Industries has a beta of .90. The market risk
premium is 7 percent, and T-bills are currently
yielding 3.5 percent. CDB’s most recent dividend
was $1.80 per share, and dividends are expected to
grow at a 5 percent annual rate indefinitely. If the
stock sells for $47 per share, what is your best
estimate of CDB’s cost of equity?
5. Calculating Cost of Preferred Stock. Sixth Fourth
Bank has an issue of preferred stock with a $6.25
stated dividend that just sold for $108 per share.
What is the bank’s cost of preferred stock?
6. Calculating Cost of Debt. ICU Window, Inc., is
trying to determine its cost of debt. The firm has a
debt issue outstanding with seven years to

maturity that is quoted at 108 percent of face
value. The issue makes semiannual payments and
has an embedded cost of 6.1 percent annually.
What is ICU’s pretax cost of debt? If the tax rate is
38 percent, what is the after tax cost of debt?
15. Finding the WACC. Given the following
information for Janicek Power Co., find the WACC.
Assume the company’s tax rate is 35 percent.
Debt: 8,500 7.2 percent coupon bonds outstanding,
$1,000 par value, 25 years to maturity, selling for
118 percent of par; the bonds make semiannual
payments.
Chapter 13
Question 1
EBIT and Leverage. Kaelea, Inc., has no debt
outstanding and a total market value of $125,000.
Earnings before interest and taxes, EBIT, are
projected to be $10,400 if economic conditionsare
normal. If there is strong expansion in the
economy, then EBIT will be 20 percent higher. If
there is a recession, then EBIT will be 35
percentlower. Kaelea is considering a $42,000
debt issue with a 6 percent interest rate. The
proceeds will
be used to repurchase shares of stock. There are

currently 6,250 shares outstanding. Ignore taxes
for this problem.
a) Calculate earnings per share, EPS, under each of
the three economic scenarios before
any debt is issued. Also, calculate the percentage
changes in EPS when the economy expands or
enters a recession.
b) Repeat part (a) assuming that Kaelea goes
through with recapitalization. What do you
observe?

(6,7,14) NEW
6. Calculating Net Float. Each business day, on
average, a company writes checks totaling $19,500
to pay its suppliers. The usual clearing time for the
checks is four days. Meanwhile, the company is
receiving payments from its customers each day,
in the form of checks, totaling $37,200. The cash
from the payments is available to the firm after
two days.
a. Calculate the company’s disbursement float,
collection float, and net float.
b. How would your answer to part (a) change if the
collected funds were available in one day instead
of two?
7. Size of Accounts Receivable. Essence of Skunk
Fragrances, Ltd., sells 6,500 units of its perfume

collection each year at a price per unit of $270. All
sales are on credit with terms of 1/10, net 30. The
discount is taken by 40 percent of the customers.
What is the amount of the company’s accounts
receivable? In reaction to sales by its main
competitor, Sewage Spray, Essence of Skunk is
considering a change in its credit policy to terms of
3/10, net 30 to preserve its market share. How will
this change in policy affect accounts receivable?
14. The Trektronics store begins each month with
740 phasers in stock. This stock is depleted each
month and reordered. If the carrying cost per
phaser is $26 per year and the fixed order cost is
$340, what is the total carrying cost? What is the
restocking cost? Should the company increase or
decrease its order size? Describe an optimal
inventory policy for the company in terms of order
size and order frequency

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