05 Jun Question FINC 5000 Homework Assignment for Week 1:
Question
FINC 5000
Homework Assignment for Week 1:
Each week you will have a set of homework problems to complete. They are due by the
following Sunday night at 11:59 pm, US central time.
For Week 1, please turn in the answers to the following questions:
Chapter 1:
1. Describe the field of finance. How is it different from the field of accounting?
2. What are the three forms of business generally encountered in the US? What are the main
defining characteristics of each?
3. What should be the basic financial goal of a business?
4. In the context of a corporation seeking to maximize the wealth of its owners, how is wealth
defined?
5. What are the three broad factors that influence the market price of a corporations stock?
6. Name three ways in which businesses can raise money from external sources when they need
it for expansion or project funding.
Chapter 2:
7. What is the purpose of a balance sheet? What are some examples of typical balance sheet
accounts?
8. What is the purpose of an income statement? What are some examples of typical income
statement accounts?
9. What is the purpose of a statement of cash flows? What are some examples of typical
statement of cash flow accounts?
10. a. What are Free Cash Flows (FCF)?
b. What is NOPAT?
For the remaining questions in this assignment, base your answers on the following information
for Joes Fly-By-Night Oil Company, whose latest income statement and balance sheet are
shown below.
Joe’s Fly-by-Night Oil
INCOME STATEMENT, 2014
BALANCE SHEET, as of Dec 31, 2014
Sales
Cost of goods sold
Gross profit
S, G & A expenses
EBIT
Interest
Before-tax earnings
Taxes
Net income
ASSETS
Cash
Accounts receivable
Inventory
Current assets
Equipment (gross)
Less Accum Depreciation
Equipment (net)
Total assets
LIABILITIES AND EQUITY
Accounts payable
Current liabilities
Long-term debt
Total liabilities
Common stock (1,000 shares)
Retained earnings
Total equity
Total liabilities & Equity
EPS
$10,000
5,000
$5,000
3,000
$2,000
$100
$1,900
700
$1,200
$1.20
Dividends
Addition to retained earnings
$400
$800
$6,000
4,000
18,000
$28,000
28,000
(13,000)
$15,000
$43,000
$18,000
$18,000
$4,000
$22,000
$8,000
$13,000
$21,000
$43,000
Stock price on Dec 31, 2014$60.00
Number of common shares outstanding on Dec 31, 2014…1,000
11. What was Joes average, or effective tax rate in 2014?
12. What was Joes NOPAT in 2014?
13. What was Joes Free Cash Flow (FCF) in 2014? (Note: For this question, assume Joe
obtained no new plant and equipment or additional net working capital in 2014. Thus his Net
Investment in Operating Capital (NIOC) for 2014 is $0.00.)
14. Suppose you were an investor and you were considering whether to buy a corporate bond
from Joes Corporation or a Municipal Bond from the city of St. Louis. Joes corporate bond has
a yield of 6%. The St Louis city bond has a yield of 4%. The income from Joes bond is taxable.
The income from the St Louis city bond is tax-free. If your effective tax rate is 36%, which bond
would give you the higher after-tax yield?
15. What was Joes Net Worth at the end of 2014?
16. Why is the market value of a firms stock almost always higher than the book value of the
firms stock as shown on the balance sheet?
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