Corporate Finance Assignment 1 1 Assignment 1 Due date: 24 Oct. 2011 (Monday) This assignment is to be completed independently by each student. Please write legibly and show all the steps. Please put your student ID, official name on your work to submit. 1. Cash flows and financial analysis: Income Statement of 2007 and Balance Sheet of 2006 and 2007 for Nabors Inc. are shown below. Nabors, Inc. 2007 Income Statement ($ in millions) Net sales $9,610 Less: Cost of goods sold 6,310 Less: Depreciation 1,370 Earnings before interest and taxes 1,930 Less: Interest paid 630 Taxable Income $1,300 Less: Taxes 455 Net income $845 Nabors, Inc. 2006 and 2007 Balance Sheets ($ in millions) 2006 2007 2006 2007 Cash $ 310 $ 405 Accounts payable $ 2,720 $ 2,570 Account rec. 2,640 3,055 Notes payable 100 0 Inventory 3,275 3,850 Total $ 2,820 $ 2,570 Total $ 6,225 $ 7,310 Long-term debt 7,875 8,100 Net fixed assets 10,960 10,670 Common stock 5,000 5,250 Retained earnings 1,490 2,060 Total assets $ 17,185 $ 17,980 Total liab.&equity $ 17,185 $ 17,980 1) What is the operating cash flow for 2007? 2) What is cash flow from assets for 2007? 3) What is cash flow to creditors for 2007? What is cash flow to stockholders for 2007? 4) What is operating margin and ROE in 2007? 5) If Nabors Inc. has 358 million shares outstanding at the end of fiscal year 2007, and PE ratio was 10.9 at the same time, what is the market price of stock at that time? 6) What is the total debt ratio at the end of fiscal year 2007? Corporate Finance Assignment 1 2 2. You hope to buy your dream house six years from now. Today your dream house costs $189m900. You expect housing prices to rise by an average of 4.5 percent per year over the next six years. How much will your dream house cost by the time you are ready to buy it? 3. You would like to give your daughter $40,000 towards her college education thirteen years from now. How much money must you set aside today for this purpose if you can earn 6.3 percent on your funds? 4. Alpha, Inc. is saving money to build a new factory. Six years ago they set aside $250,000 for this purpose. Today, that account is worth $306,958. What rate of interest is Alpha earning on this money? 5. Your older sister deposited $5,000 today at 8 percent interest for five years. You would like to have just as much money at the end of the nest five years as your sister. However, you can only earn 6 percent interest. How much more money must you deposit today than your sister if you are to have the same amount at the end of five years? 6. You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $50,000 today or receive payments for $641 a month for ten years. You can earn 6.5 percent on your money. Which option should you take and why? 7. The McDonald Group purchased a piece of property for $1.2 million. They paid a down payment of 20 percent in cash and financed the balance. The loan terms require monthly payments for 15 years at an annual percentage rate of 7.75 percent compounded monthly. What is the amount of each mortgage payment? 8. Today, you signed loan papers agreeing to borrow $4,954.85 at 9 percent compounded monthly. The loan payment is $143.84 a month. How many loan payments must you make before the loan is paid in full?