课程名称︰财务管理 课程性质︰系必修 课程教师︰何宪章 开课学院：管理学院 开课系所︰财金系 考试日期（年月日）︰99/11/17 考试时限（分钟）：180分钟 是否需发放奖励金：是 （如未明确表示，则不予发放） 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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