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4 Problems 4 – 8, 4 – 13, & 4 – 21
4
– 8
You want to buy a car, and a local bank will lend
you $20,000. The loan would be fully amortized over 5 years (60 months), and
the nominal interest rate would be 12%, with interest paid monthly. What is the
monthly loan payment? What is the loan’s EFF%?
4
– 13
Find the present value of the following ordinary annuities.

$400
per year for 10 years at 10% 
$200
per year for 5 years at 5% 
$400
per year for 5 years at 0% 
Now
rework parts a, b, and c assuming that payments are made at the beginning of
each year; that is, they are annuities due.
4
– 21
Sales for Hanebury Corporation’s justended year
were $12 million. Sales were $6 million 5 years earlier.

At
what rate did sales grow? 
Suppose
someone calculated the sales growth for Hanebury in part a as follows: “Sales
doubled in 5 years. This represents a growth of 100% in 5 years; dividing 100%
by 5 results in an estimated growth rate of 20% per year.” Explain what is
wrong with this calculation.
Chapter
5 Problems 5 – 9, 5 – 13
5
– 9
The Garraty Company has two bond issues outstanding.
Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a
maturity of 15 years, and Bond S has a maturity of 1 year.

What
will be the value of each of these bonds when the going rate of interest is (1)
5%, (2) 8%, and (3) 12%? Assume that there is only one more interest payment to
be made on Bond S. 
Why
does the longerterm (15year) bond fluctuate more when interest rates change
than does the shorterterm bond (1 year)?
5
– 13
You just purchased a bond that matures in 5 years.
The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a
current yield of 8.21%. What is the bond’s yield to maturity?
Chapter
7 Problem 7 – 17
7
– 17
Kendra Enterprises has never paid a dividend. Free
cash flow is projected to be $80,000 and $100,000 for the next 2 years,
respectively; after the second year, FCF is expected to grow at a constant rate
of 8%. The company’s weighted average cost of capital is 12%.

What
is the terminal, or horizon, value of operations? (Hint: Find the value of all
free cash flows beyond Year 2 discounted back to Year 2.) 
Calculate
the value of Kendra’s operations.
Chapter
9 Problems 9 – 7 & 9 – 11
9
– 7
Shi Importer’s balance sheet shows $300 million in
debt, $50 million in preferred stock, and $250 million in total common equity.
Shi’s tax rate is 40%, r_{d }=
6%, r_{ps
}= 5.8%,
and r_{s
}=
12%. If Shi has a target capital structure of 30% debt, 5% preferred stock, and
65% common stock, what is its WACC?