Spring 2021 Final Exam XXXXXXXXXXFIN 200 Problem 1 (20 Points) A bond is maturing in 7 years and paying annual coupons of 5% If the annual required rate of return is 4%, compute: 1. The PV of the...

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Spring 2021 Final Exam FIN 200 Problem 1 (20 Points) A bond is maturing in 7 years and paying annual coupons of 5% If the annual required rate of return is 4%, compute: 1. The PV of the bonds; 2. The duration of the bond; 3. The modified duration (volatility); 4. Interpret your result in question 3. Problem 2 (20 Points) You have the following bond maturing in 4 years: Face Value = 1.000$; Semiannual dividends = 35$; Annual Interest rate= 5% 1. Compute the PV of the cash flows? 2. What will happen to the bond price if the interest rate decreases to 6%? 3. What will be the price if the annual interest is 4%? Problem 3 (30 Points) Valuation of companies can be done by forecasting a series of cash flows and then estimating a horizon value. Your firm projects net cash flow in years 1 through 5 as follows: Year 1 Year 2 Year 3 Year 4 Year 5 100 Million $ 120 Million $ 135 Million $ 140 Million $ 147 Million $ Assume that the company is expecting a growth rate of 6% starting year 5 and a discount rate of 12%; compute the PV of the company? Show the details of all your calculations. Problem 4 (30 Points) Compute the pay back, discounted pay back, NPV and IRR of the following projects; Assume a discount rate of 10% C0 C1 C2 C3 Project A -2000 500 500 5000 Project B -2000 500 1800 0 Project C -2000 1800 500 0 Spring 2021 Final Exam FIN 350 Use your own words to answer the exam questions in order to demonstrate your understanding of the course material. Problem 1 A retiree strongly believe that investing in a non-dividend paying growth firm will eventually cause him to lose all his shares. Explain why and how this happens? Problem 2 Managers are reluctant to make dividend changes. Why ? Problem 3 High dividend policy is more difficult to manage for a weak firm than a strong firm. Explain in details why? Problem 4 The company has the following simplified Balance Sheet Asset value 1250 Debt 500 Equity 750 Total 1250 1250 The cost of debt is 6% and the cost of equity is 12% Compute the company’s WACC ? Problem 5 Rio is a company specialized in producing healthcare products. Its free cash flows in millions are expected to be as follow: Year 1 Year 2 Year 2 Year 4 Year 5 Year 6 3.5 3.2 3.4 5.9 6.1 6.0 Cash flows will settle down starting year 6 and will record a growth of 3% per year. Assume a WACC of 9%. 1. Compute the horizon value at year 6 ? 2. Compute the present value of the company? 2. If the market value of debt is $36 million, compute the total value of equity?