課程名稱︰財務管理
課程性質︰系必修
課程教師︰何憲章
開課學院：管理學院
開課系所︰財金系
考試日期（年月日）︰99/11/17
考試時限（分鐘）：180分鐘
是否需發放獎勵金：是
（如未明確表示，則不予發放）
Financial Management Mid-Term Exam
*Note:Answer to the 4th decimal point, list your formula and calculation
procedures.
1.A company had total assets of $400,000 and equity of $250,000 at the
beginning of the year. At the end of the year, net income for the year was
$100,000 and dividends were $75,000.
(1)If the company only uses retained earnings for it's financing without
raising any debt, what is its Internal Growth Rate?
(2)If the company uses retained earnings and debt financing to maintain
constant debt-equity ratio of 60%, what is its Sustainable Growth Rate?
2.You plan to fund your new-born child's college education. Starting on his
18th birthday, you need to pay his tuition and board for 4 years. Tuition and
board expenses are currently $460,000 per year with 3% annual growth rate.
Starting on his 1st birthday for 18 years, you decided to invest a constant
percentage of your annual salary which is $1,000,000 for the 1st year and will
be increased at annual growth rate of 2%. If our annual investment rate of
return is 4%, which will be used as the discount rate,
(1)How much fund will you need to have on his 18th birthday?
(2)What percentage of your annual salary should be invested?
3.Suppose 5 years age, you finaced your house with a 20 years mortgage loan
of $8,000,000 at a stated annual interest rate of 7%, compounded monthly and
you asked the bank to charge you the installment at monthly growth rate of
3/12%. Now, when you just paid the 60th monthly payment, another bank offers
you 6%annual mortgage rate compounded monthly for 15 years and you ask the
bank to charge you the installment also at monthly growth rate of 3/12%.
But the current mortgage bank will charge a prepayment penalty of 2% loan
balance. You seriously consider refinance.
(1)What was your 1st monthly mortgage payment?
(2)What will be your 61th monthly payment?
(3)What is your loan balance now? After adding the prepayment penalty, what
will be the new refinance loan amount?
(4)What will be the new 61th monthly payment? Should you refinance?
4.A company is considering to invest in a $400,000 machine, which will produce
and sell 100,000 golf balls for the 1st year and increase 10,000 units each
year until 4th year. The unit price will be $4 for the 1st year and increase
by 5% each year, the 1st year unit variable cost will be $2 and increase by
6% each year, and the fixed cost will be $50,000 each year. The machine will
be depreciated with straight-line method in 4 years and can be sold at 4th
year. An initial net working capital at year 0 of $20,000 is required,
then net working capital in each year will be equal to 10% of sales for
that year except for the last year. The company's tax rate is 35%.
(1)List the company's Operating Cash Flows and Total Cash Flows for years 0
to 4.
(2)If the company's required rate of return, r is 18%, what is the NPV of the
project? Should it invest in it?
5.You consider to open a store with initial investment of $10 million. The
time horizon is 10 years. You believe that there is a optimistic 60%
probability of $3 million total annual cash flow and a pessimistic 40%
probability of $1 million total annual cash flow. The discount rate is 20%
(1)According to traditional Net Present Value(NPV) method, what's the
project's NPV? Should you invest in it?
(2)According to Real Option to Expand method, if the next year your optimistic
forecast turns out to be true, you may expand to 10 stores. Suppose other
assumptions remain the same, then what's the project's NPV? Should you invest
in it? And what is the option value?
(3)According to Real Option to Abandon method, if next year your pessimistic
forecast turns out to be true, you may abandon it and sell it for $8 million.
Suppose other assumptions remain the same, then what's the project's NPV?
Should you invest in it? And what is the option value?
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