Work Shown

1) (TCO H) Your consulting firm was recently hired to improve the performance of Shin-Soenen Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firm’s cash conversion cycle. Using the following information and a 365-day year, what is the firm’s present cash conversion cycle?

Average inventory =
Annual sales =
Annual cost of goods sold =
Average accounts receivable =
Average accounts payable =
 $75,000
$600,000
$360,000
$160,000
$25,000
 

a. 120.6 days
b. 126.9 days
c. 133.6 days
d. 140.6 days
e. 148.0 days

2. (TCO G) Consider the information for the following four firms.

Firm Cash Debt Equity rD rE τc
Eenie 0 150 150 5% 10% 40%
Meenie 0 250 750 6% 12% 35%
Minie 25 175 325 6% 11% 35%
Moe 50 350 150 7.50% 15% 30%

Which is the weighted average cost of capital for Minie closest to?
A) 9.50%
B) 8.75%
C) 6.75%
D) 8.25%

3. (TCO E)

Division Asset
Beta
Next Period’s Expected Free Cash
Flow ($mm)
Expected
Growth
Rate
Oil Exploration 1.4 450 4.0%
Oil Refining 1.1 525 2.5%
Gas and Convenience Stores 0.8 600 3.0%

The risk-free rate of interest is 3% and the market risk premium is 5%.

1) Which is the cost of capital for the oil exploration division closest to?
A) 6.0%
B) 7.0%
C) 8.5%
D) 10.0%

4. (TCO B)You expect CCM Corporation to generate the following free cash flows over the next 5 years.

 

Year 1 2 3 4 5
FCF ($ millions) 25 28 32 37 40

Following Year 5, you estimate that CCM’s free cash flows will grow at 5% per year and that CCM’s weighted average cost of capital is 13%.

Which is the enterprise value of CCM Corporation closest to?
A) $396 million
B) $290 million
C) $382 million
D) $350 million

5. (TCO D) Which is the variance of the returns on the Index from 2000 to 2009 closest to?

Year End Index
Realized  Return
2000 23.6%
2001 24.7%
2002 30.5%
2003 9.0%
2004 -2.0%
2005 -17.3%
2006 -24.3%
2007 32.2%
2008 4.4%
2009 7.4%

A) 0.0450
B) 0.3400
C) 0.1935
D) 0.0375