Corporate Finance Essay

1564 words - 7 pages

Corporate Finance
10 Problems From Chapter 1 through 10
Sorang Kim
BHU MBA 671 Corporate Finace
Professor Mensah Dartey
April 14, 2013

Chapter 1, Problem 6 (pp. 6 ~ 8)
You are a shareholder in a C corporation. The corporation earns $2 per share before taxes. Once it has paid taxes it will distribute the rest of its earnings to you as a dividend. The corporate tax rate is 40% and the personal tax rate on (both dividend and non-dividend) income is 30%. How much is left for you after all taxes are paid?

Profit after corporate taxes=corporate earnings*(1-corporate tax rate)
Profit after personal taxes=profit after corporate ...view middle of the document...

C is best because we are able to receive all the cash flow today

Chapter 4, Problem 44 (pp.110~116)
You are thinking of making an investment in a new plant. The plant will generate revenues of $1 million per year for as long as you maintain it. You expect that the maintenance cost will start at $50,000 per year and will increase 5% per year thereafter. Assume that all revenue and maintenance costs occur at the end of the year. You intend to run the plant as long as it continues to make s positive cash flow (as long as the cash generated by the plant exceeds the maintenance costs). The plant can be built and become operational immediately. If the plant costs $10 million to build, and the interest rate is 6% per year, should you invest in the plant?

0 | 1 | 2 | N |
-10,000,000 | 1,000,000 | 1,000,000 | 1,000,000 |
| -50,000 | -50,000(1.05) | -50,000(1.05)ⁿ¯¹ |
The plant will not be continued when
a. 62 years annuity of 1,000,000 with interest rate of 6%
PV of annuity=c*(1-1/(1+r)ⁿ)/r (n=62)
b. 62 years growing annuity of 50,000 increasing at 5% per year with interest rate of 6%
**g – growing rate
PV of growing annuity=c*1/(r-g)*(1-(1+g/1+r)ⁿ)
Total PV of annuity=16,217,006-2,221,932=13,995,074
Since NPV is positive, the opportunity will be taken.

Chapter 5, Problem 22 (pp.133~139)
You need a new car and the dealer has offered you a price of $20,000, with the following payment options: a) pay cash and receive $2,000 rebate, or b) pay a $5,000 down payment and finance the rest with a 0% APR loan over 30 months. But having just quit your job and started an MBA program, you are in debt and you expect to be in debt for at least the next 2½ years. You plan to use credit cards to pay your expenses; luckily you have one with a low (fixed) rate of 15% APR (monthly). Which option is best for you?

PV=monthly payment * 1/r * (1-1/(1-r)ⁿ),
r=15/12=1.25%, monthly payment=15,000/30=500, n=30
PV=500 * 1/0.125 * (1-1/(1+0.0125)ⁿ)
=500 * 1/0.0125 * (1-1/1.45)
=500 * 1/0.0125 * 0.45/1.45=500*24.82=12,413
Total Payment=12,413+5,000=17,413
It is better taken loan from dealer.

Chapter 6, Problem 29 (pp171~174)
Natasha’s Flowers, a local florist, purchases fresh flowers each day at the local flower market. The buyer has a budget of $1000 per day spend. Different flowers have different profit margins, and also a maximum amount the shop can sell. Based on past experience, the shop has estimated the following NPV of purchasing each type:
| NPV per bunch | Cost per bunch | Maximum bunches | Profitability Index per...

Other Papers Like Corporate Finance

Introduction to Corporate Finance Essay

1958 words - 8 pages Chapter 1 Introduction to Corporate Finance Week 1 by Hee Soo Lee Learning Goals The basic types of financial management decisions and the role of the financial manager The financial implications of the different forms of business organization The goal of financial management The conflicts of interest that can arise between owners and managers The various types of financial markets      2 Chapter Structure

Corporate Finance Review Outline

923 words - 4 pages efficiency? * Weak form * Security prices reflect all information found in past prices and volume. * Implication? * Semi-strong form * Security prices reflect all publicly available information. * Strong form * Security prices reflect all information—public and private. * What are the implications of market efficiency for corporate finance? * The price of

Iag Corporate Finance Analysis

2346 words - 10 pages IAG INTERNATIONAL AIRLINES GROUP Corporate finance 2013 ------------------------------------------------- Index 1. Company profile 1. Core activities 2. Competitors 3. External finance 1. Corporate governance 4. Corporate governance 5. Compensation of member of the Board of Directors 6. Investor relation section 2. Stock price data and analysis 7. Daily stock prices

Corporate Finance Course Assignment

2280 words - 10 pages The German University in Cairo Corporate Finance Course Assignment submitted by: Mohamed Ibrahim Amin Date: May 24, 2014 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549   FORM 10-Q   (Mark One)   |  | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |   For the quarterly period ended December 31, 2013   |  | TRANSITION REPORT PURSUANT TO

Corporate Finance Case

4887 words - 20 pages financing 10 2.5.1 Tax Advantage 10 2.5.2 Corporate Tax Rate 11 2.5.3 Credit rating 11 2.5.4 Interest rate 11 2.5.5 Company’s Industry 12 2.5.6 Company’s growth rate 12 2.5.7 Some other arguments about Harvey Norman 12 2.6 Evidence of financial distress 13 2.7 Optimal Capital Structure 14 3. Dividend Policy 15 3.1 HVN’s Dividend history 15 3.2 Competitors Dividend Analysis 16

Corporate Finance Assignment

2073 words - 9 pages taxed percentages from the dividends or capital gains. References Myers, S. C. (1984): The capital structure puzzle, The Journal of Finance 39(3), 575-592. Myers, S. C. & Majluf, N. S. (1984): Corporate financing and investment decisions when firms have information that investors do not have The Journal of Financial Economics, 13(2), 187-221

Acf 465-Applied Corporate Finance

3208 words - 13 pages LAHORE UNIVERSITY OF MANAGEMENT SCIENCES Course Outline for APPLIED CORPORATE FINANCE Instructor’s Name: Dr. Naim Sipra Room No. 161 Telephone Ext: 2161 Office Hours for students: Fridays 3-5 pm ________________________________________________________________________ Course Title APPLIED CORPORATE FINANCE Course Code ACF 465 Introduction The objective of this course is to reinforce and expand on

Intro To Corporate Finance Chap. 1

2073 words - 9 pages •Chapter 1 INTRODUCTION TO CORPORATE FINANCE GOAL Today, corporate finance managers must make decision in a much more coordinated manner and generally has direct responsibilities for a control process. Because there are financial implications in virtually all segments of business, she/he must have sufficient knowledge of finance to work these implications into the area. At

International Corporate Finance/Fin Gm571 Week 3

1782 words - 8 pages Lawrence Sports Simulation Team International Corporate Finance/FIN GM571 Alternative Working Capital Policies to Consider The short-term financing strategy Lawrence Sports (LS) is not efficacious. It is in need of improvement and is a problem that LS must consider an alternative working capital policy. The current policy places LS in an overly dependent financial position on the company’s primary customer, Mayo Stores. When Mayo

Corporate Finance

1028 words - 5 pages overhaul of finance. The direction of efforts to improve banks’ liquidity position is to encourage them to hold more deposits; the aim of bail-in legislation planned to come into force by 2018 is to make senior debt absorb losses in the event of a bank failure. The logic behind both of these reform initiatives is that bank deposits have two, contradictory properties. They are both sticky, because they are insured; and they are flighty, because they can

Corporate Finance

552 words - 3 pages MBA 570 Summer 2 Due: August 4, 2012 1) The advantages and disadvantages of short vs long-term mortgage loans can be beneficial differently depending on each individual person and their circumstance. Advantages of long term mortgages include: lower monthly payments and buying power. The longer it takes to pay something off the lower the payments will be less of a strain on the individual. Another advantage to longer-term mortgages is that

Related Essays

Corporate Finance Essay

2784 words - 12 pages CORPORATE GOVERNANCE CHAPTER 1 Presenter's name Presenter's title dd Month yyyy 1. INTRODUCTION WHAT IS CORPORATE GOVERNANCE? • Corporate governance is the system of principles, policies, procedures, and clearly defined responsibilities and accountabilities used by stakeholders to overcome the conflicts of interest inherent in the corporate form. Hence, the importance of understanding the different forms of business. • Corporate

Corporate Finance Essay 1674 Words

1674 words - 7 pages ). “Managerial power and rent extraction in the design of executive compensation.” University of Chicago Law Review 69, 751-846. * Berk, J., and Demarzo, P. (2007) “Corporate Finance.” Person Education, Inc. * Boundless (Online). Available at: (Accessed: 24 November 2013

Corporate Finance Essay 1146 Words

1146 words - 5 pages .: Fundamentals Front Matter Preface © The McGraw−Hill of Corporate Finance, Sixth Companies, 2002 Edition, Alternate Edition  COMPREHENSIVE TEACHING AND LEARNING PACKAGE xvi This edition of Fundamentals has more options than ever in terms of the textbook, instructor supplements, student supplements, and multimedia products. Mix and match to create a package that is perfect for your course! Textbook As with the previous edition, we are

Corporate Finance Essay 3390 Words

3390 words - 14 pages , L.J. (2007). Corporate Finance (pp. 250-359). Canada: Thomson South-Western. 4) Grant, T. (n.d). Debt Lender vs. Equity Investor. The Nest. Retrieved from: 5) Howell, R. (n.d). Advantages and disadvantages of Retained Earnings. Chron. Retrieved from: 6) Little, K. (n.d