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Pages:

2 pages/≈550 words

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1 Source

Level:

APA

Topic:

Mathematics & Economics

Type:

Math Problem

Language:

English (U.S.)

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MS Word

Topic:

# Financial Management (Math Problem Sample)

Instructions:

Problem Set 3
1. You invest $50,000 in George's House Painting, Inc, borrowing $30,000 of the money at 9%. If you expect to earn a 20% return on your investment under this arrangement, what would you expect to earn on a % basis, if you put up the entire $50,000 from your own money? Assume no taxes.
2. The market value of your firm's equity is $500 million, which is also the value of your total debt. Your cost of debt (rd) is 6% and your cost of equity is (re) is 10%. What is your weighted average cost of capital (WACC) if your tax rate is 40%?
3. What is operating leverage?
4. Clayton Industries is planning its operations for next year, and Ronnie Clayton, the CEO, wants you to forecast the firm's additional funds needed (AFN). Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Dollars are in millions.
Last year's sales = S0 $350 Last year's accounts payable $40
Sales growth rate = g 30% Last year's notes payable (to bank) $50
Last year's total assets = A0 $500 Last year's accruals $30
Last year's profit margin = M 5% Target payout ratio 60%
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