Financial Management Worksheet

Spring 2018 BUS 335: Midterm Section II

Please read all questions carefully.

Please provide LEGIBLE answers. You are encouraged to use word processors, for example Microsoft Word, as much as possible Where you use formulas, show them.

For full credit, show all your work.

1. Suppose you make an investment of $3,750. This first year the investment returns 11%, the second year it returns 7.5%, and the third year in returns 9%. How much would this investment be worth, assuming no withdrawals are made? (3 points)

2. A business you inherited will pay you $25,000 per year for 25 years. You will receive the first payment today. Suppose the fair return on the business is 7.5%, how much should you ask for it if you decide to sell the business? (3 points)

3. Suppose you received an offer in the mail to sign up for a new credit card with no annual free. The offers states that you will be charged an annual percentage rate (APR) of 16% on outstanding balance. You will be billed monthly. What is the effective annual

interest rate for this credit card? (2 points)

4. Suppose that the monthly mortgage payment on your house is exactly $800. You have 180 payment remaining on the mortgage. Your mortgage has an interest rate of 6% compounded monthly. The next payment is due immediately. What is the balance

of the mortgage? (3 points)

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5. What is the price of a 5 year zero-coupon bond with a face value of $1000 and a yield

of 8%? (2 points)

6. TSW Inc. had the following data for last year: Net income = $800; Net operating profit after taxes (NOPAT) = $700; Total assets = $3,000; and Total operating capital = $2,000. Information for the just-completed year is as follows: Net income = $1,000; Net operating profit after taxes (NOPAT) = $1,000; Total assets = $2,600; and Total operating

capital = $2,500. How much free cash flow did the firm generate during the just completed

year? (3 points)

7. Suppose that, two years ago, you purchased a 10 year bond with 8% annual coupon at par. You figure out that the current yield on the bond is 5.5% after you receive the second annual coupon payment. What is the value of the bond today? If you buy the

bond at today’s price, what is the yield to maturity on the bond? (4 points)

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