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FINC1901 Corporate Finance Mid-Term Revision Questions

This document contains 4 multiple part questions related to corporate finance and investment portfolio analysis. Question 1 asks the examinee to calculate free cash flow given increases and decreases to various asset and liability accounts. Question 2 asks them to calculate the net cash effect given changes in various balance sheet accounts. Question 3 asks them to calculate the present value and amount willing to pay given a series of projected cash flows. Question 4 provides portfolio information and asks them to calculate portfolio beta, returns on individual assets and the portfolio, required returns compared to market expectations, and identification of over and underperforming assets.

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rosario correia
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91 views

FINC1901 Corporate Finance Mid-Term Revision Questions

This document contains 4 multiple part questions related to corporate finance and investment portfolio analysis. Question 1 asks the examinee to calculate free cash flow given increases and decreases to various asset and liability accounts. Question 2 asks them to calculate the net cash effect given changes in various balance sheet accounts. Question 3 asks them to calculate the present value and amount willing to pay given a series of projected cash flows. Question 4 provides portfolio information and asks them to calculate portfolio beta, returns on individual assets and the portfolio, required returns compared to market expectations, and identification of over and underperforming assets.

Uploaded by

rosario correia
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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FINC1901 Corporate Finance

Mid-term Revision Questions

QUESTION 1

During the year, Xero Inc, experienced an increase in total fixed assets of $500,000. The depreciation
was equal to $200,000. It also experienced an increase in current assets of $150,000 and an increase in
accounts payable of $75,000. If net profits after taxes for the year were $700,000, calculate the firm’s
free was cash flows for the year.

QUESTION 2

After studying the balance sheet of Save Money Corporation, you have noticed the following: an
increase of $800 in inventory, an increase of $330 in accounts payable, a decrease of $890 in short-term
debt and an increase of $950 in accounts receivable. The net fixed assets (total fixed assets less
depreciation) increased $1,000 and depreciation for the year was $200. What is the net cash effect of
these changes?

QUESTION 3

Consider the following forecasted cash-flows from one potential investment opportunity:

Year Cash flow


1 800
2 900
3 1000
4 1500
5 2000

a) Determine the present value of these cash-flows using a 5% discount rate.


b) How much you would be willing to pay for this investment opportunity?
FINC1901 Corporate Finance
Mid-term Revision Questions

QUESTION 4

Jamie Peters invested $100,000 to set up the following portfolio 1 year ago.

Asset Cost Beta at purchase Yearly Income Value today


A $20,000 0.80 $1,600 $20,000
B $35,000 0.95 $1,400 $36,000
C $30,000 1.50 - $34,500
D $15,000 1.25 $375 $16,500

c) Calculate the portfolio beta on the basis of the original cost figures.

d) Calculate the percentage return of each asset in the portfolio for the year.

e) Calculate the percentage return of the portfolio on the basis of the original cost and using total
income and gains during the year.

f) At the time Jamie made his investments, investors were estimating that the market return for
the coming year to be 10%. The estimate of the risk-free rate of return averaged 5% for the
coming year. Calculate the required return for each stock and compare it with the expected
market return. Identify and explain which stocks are underperforming and which stocks are
over-performing.

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