REVIEW

EX1
TAN corporation earned net income of 350 mil VNĐ during the year ending December 31, 2021. The
total assets of the year reported on the same day was 2,578 mil VNĐ and in the year TAN has a bank
loan valued 578 mil VNĐ. Calculate return on equity of TAN?
EX2
TAN has excess cash of 24 mil VND and other assets of 120 mil VND. Equity is worth 60 mil VND.
The firm has 500 shares of stock outstanding and net income of 120 mil VND. The firm has decided
to spend all of its excess cash on a share repurchase program. How many shares of stock will be
outstanding after the stock repurchase is completed? Knowing that TAN firm has a market value
equal to its book value.
EX3
In 20X1, TAN has total liabilities = 500 mil VNĐ and account receivables = 142 mil VNĐ, net
income = 99 mil VNĐ, and total shareholders’ equity = 900 mil VNĐ billion. Calculate TAN’s debt
ratio?
EX4
Given the data of TAN corporation as follow: Sales = 500 mil VNĐ; Cost of goods sold = 300 mil
VNĐ; Average total assets = 9,750 mil VNĐ; Average inventory = 120 mil VNĐ. Calculate the days
in inventory?
EX6
balance sheet ($) income statement ($)
Cash 888,000 Net sales 2,900,000
Account receivables 777,000 Cost of goods sold 1,790,000
Other current assets 666,000 Gross profit …………….
Non-current assets 555,000 Operating expenses 500,000
Total assets ……………. Net income .……………

Current liabilities 789,000

Non-current liabilities 897,000
Stockholders’ equity 1,200,000
Total liabilities and equity ……………..
Fill in the blank and compute the following ratios:
(a) current ratio?
(b) quick ratio?
(c) cash ratio?
(d) debt ratio?
(e) receivable turnover?
(f) asset turnover?
(g) return on assets
(h) return on equity?
EX7
Income Statement 2020

Cost of goods sold 500 mil VNĐ

Depreciation 70 mil VNĐ

Interest 48 mil VNĐ

Dividend paid 77 mil VNĐ

Selling and general expenses 120 mil VNĐ

Addition to retained earnings 123 mil VNĐ

Tax rate 35%

What are the sales for 2020?

EX8
TAN has 6000 shares of stock outstanding with a par value of 10,000VND per share and a market
price of 13,000VND a share. The balance sheet shows 60,000,000 VND in the common stock
account, 18,000,000VND in the capital in excess of par value account, and 19,000,000 VND in the
retained earnings account. The firm just announced a 6-for-4 stock split. What will the market price
per share be after the split?
EX9
TAN corporation had Sales (credit) of 900 mil VND and Cost of Goods Sold of 500 mil VND. At the
beginning of the year its Accounts Receivable were 70 mil VND, its Accounts Payable were 150 mil
VND and its Inventory was 200 mil VND. The figures at the end of the year were 90 mil VND, 120
mil VND, and 150 mil VND. Calculate cash cycle operations?
EX10

Balance Sheet
Assets 2020 2019
Current assets
Cash and marketable securities 661 530
Accounts receivable 166 247
Inventories 8,209 7,611
Other current assets 215 298
Total current assets 9,251 8,686

Fixed assets
Tangible fixed assets
Property, plant, and equipment 31,477 28,836
Less accumulated depreciation 8,755 7,475
Net tangible fixed assets 22,722 21,361

Long term investments 253 509

Other long-term assets 460 313
Total assets 32,686 30,869

Liabilities and Shareholders' Equity 2020 2019

Current liabilities
Debt due for repayment 1,021 1,104
Accounts payable 4,543 4,137
Other current liabilities 2,458 2,510
Total current liabilities 8,022 7,751

Long term debt 5,039 5,576

Deferred income taxes 660 670
Other long term liabilities 910 774
Total liabilities 14,631 14,771

Common Stock and other paid-in- capital 735 729

Retained earnings and capital surplus 17,320 15,369
Total shareholders' equity 18,055 16,098
Total liabilities and shareholders' equity 32,686 30,869

Income Statement 2020

 Net sales 90,000
Cost of goods sold 60,000
Selling, general, and administrative expenses 15,000

Depreciation 2,000
Earning before interest and taxes (EBIT) ?
Interest expense 500
Earning before taxes (EBT) ?
Tax (20%) ?
Net Income ?

Dividends (20%) ?
Addition to retained earnings (80%) ?

Look up the latest financial statement for a company:

a. Fill in the blank (?) of Income statement.
b. Calculate the following financial ratios:
• Return on asset (ROA), return on equity (ROE)
• Current ratio, quick ratio
• Cash cycle (Average Days in Inventory, Average collection period, Average payment period
• Return on asset (ROA), return on equity (ROE)
• Current ratio, quick ratio
c. Cash cycle (Average Days in Inventory, Average collection period, Average payment period).
EX11
TAN Corporation has a beta of 1.1 and a debt-to-equity ratio of 1.2. The market rate of return is 13
percent, the tax rate is 35 percent, and the risk-free rate is 3 percent. The pre-tax cost of debt is 9
percent. What is the WACC?
EX12
TAN Corporation has a beta of 1.1 and a debt-to-equity ratio of 1.2. The market rate of return is 13
percent, the tax rate is 35 percent, and the risk-free rate is 3 percent. The after-tax cost of debt is 9
percent. What is the WACC?
EX13
TAN Corporation went public by issuing 2,000,000 shares of common stock at 10,000VNĐ per share.
The shares are currently trading at 55,000VNĐ per share. Current risk free rate is 6% and market risk
premium is 8% and the company has a beta coefficient of 1.2.
During last year, TAN issued 500,000 bonds, the face value of bonds is 1,000,000 VNĐ and the bonds
are currently trading at 800,000 VNĐ.
a/ Calculate the cost of equity?
b/ If the tax rate is 35%, the cost of debt is 12%, calculate the weighted average cost of capital?
EX14
TAN Corporation went public by issuing 2,000,000 shares of common stock at 10,000VNĐ per share.
The shares are currently trading at 55,000VNĐ per share. Current risk free rate is 6% and market rate
is 8% and the company has a beta coefficient of 1.2.
During last year, TAN issued 500,000 bonds, the face value of bonds is 1,000,000 VNĐ and the bonds
are currently trading at 800,000 VNĐ.
a/ Calculate the cost of equity?
b/ If the tax rate is 35%, the after cost of debt is 12%, calculate the weighted average cost of capital?
EX15
A company is 40% financed by risk-free debt. The interest rate is 10%, the expected
market risk premium is 8%, and the beta of the company’s common stock is 0.5.
What is the company cost of capital? What is the after-tax WACC, assuming that the
company pays tax at a 35% rate?
EX16
The total market value of the common stock of the TAN Company
is 600 million VND, and the total value of its debt is 500 million VND. The treasurer estimates that
the beta of the stock is currently 1.3 and that the expected risk premium on the market
is 8%. The Treasury bill rate is 3%. Assume for simplicity that TAN debt is risk free and the company
does not pay tax.
a. What is the required return on TAN?
b. Estimate the company cost of capital and WACC?
EX17
A levered firm has a target capital structure of 20 percent debt and 80 percent equity.
The aftertax cost of debt is 6 percent, the tax rate is 35 percent, and the cost of equity
is 14 percent. The firm is considering a project that is equally as risky as the overall
firm. The project has an initial cash outflow of 3 billion VND and annual cash inflows of
400 million VND at the end of each year for six years. What is the NPV of the project?
EX18
TAN Corporation has a target capital structure of 42 percent debt and 58 percent
equity. The pretax cost of debt is 8 percent, the tax rate is 35 percent, and the cost of
equity is 12 percent. The firm is considering a project that is equally as risky as the
overall firm. The project has an initial cash outflow of 2 billion VND and annual cash
inflows of 500 mil VND at the end of each year for five years. Should TAN invest in this project?
EX19
The market value of Charcoal Corporation's common stock is $20 million, and the
market value of its risk-free debt is $5 million. The beta of the company's common
stock is 1.25, and the market risk premium is 8%. If the Treasury bill rate is 5%, what
is the company’s WACC? (Tax rate is 30%)
EX20

The amount of each

Sources of fund Figures
source of fund
Long term debt from the interest rate of 12%.
2 bil VND
bank
Consider to issue 10% coupon bond with a
Bond 3 bil VND face value of 1 mil VND, price of bond is
1,2 mil VND, and 5 years to maturity.
If the risk-free rate is 4%, the expected
Stock 4 mil VND market rate of return is 8%, and the
company’s stock beta is 1.62.
Estimate WACC, tax rate is 20%.
EX21
A company has forecast sales in the first 3 months of the year as follows (figures in millions): January,
$60; February, $80; March, $100. 60% of sales are usually paid for in the month that they take place
and 40% in the following month. Receivables at the end of December were $24 million. What are the
forecasted collections on accounts receivable in March?
EX22
A company has forecast sales in the first 3 months of the year as follows (figures in millions): January,
$90; February, $20; March, $30. 70% of sales are usually paid for in the month that they take place
and 30% in the following month. Receivables at the end of December were $20 million. What are the
forecasted collections on accounts receivable in March?
EX23
A company has forecast sales in the first 3 months of the year as follows (figures in millions): January,
$80; February, $60; March, $40. 70% of sales are usually paid for in the month that they take place,
20% in the following month, and the final 10% in the next 2 month. Receivables at the end of
December were $23 million. What are the forecasted collections on accounts receivable in March?
EX24
Complete the Cash Budgeting.
Sales Purchases
+ For cash 60% + May 30
+ For credit 40% + Credit 1 month
+ May 180 Minimum Cash 100
June July August
 1. Total sales 300 320 280
2. Purchases of materials
+ For cash 70 80 60
+ For credit 40 30 40
3. Other expenses 30 30 30
4. Taxes, interest,… 10 10 10
5. Capital investment 100 0 0
EX25
TAN company has forecast sales in the first 3 months of the year as follows (figures in millions):
January, $200; February, $140; March, $100. 55% of sales are usually paid for in the month that they
take place, 25% in the following month, and the final 20% in the next 2 month. Receivables at the
end of December were $100 million. What are the forecasted collections on accounts receivable in
March?
EX26
On Jun 1st, a firm had a beginning cash balance of $300. May sales were $780 and Jun sales were
$610. During Jun the firm had cash expenses of $160 and payments on accounts payable of $320.
The accounts receivable period is 30 days. What is the firm's beginning cash balance on July 1st?
EX27
TAN Corporation has sales of 900 mil VND and cost of goods sold of 600 mil VND. The firm had
a beginning inventory of 100 mil VND and an ending inventory of 150 mil VND. What is the length
of the inventory period?
EX28
Sales (mil VNĐ)
Jul Aug Sep Oct Nov Dec
Bar 800 900 600 700 800 950
Karaoke 600 500 720 920 1,100 890
Most of TAN Services Corporation’s sales are made to corporate clients. Past experience indicates
that 30% of BAR sales are for cash, 40% is collected in the month following the sale, 30% is collected
two months following the sale. In the past, 44% of KARAOKE sales have been for cash and 56%
have been charged and collected in the month following the sale. Prepare a schedule showing TAN
Corporation’s projected cash receipts in October, November and December?
EX29
TAN corporation has forecast sales in the 3 months of the year as follows:
June: 120 mil VND; July: 130 mil VND; August: 180 mil VND. 60% of sales are usually paid for in
the month that they take place and 40% in the following month. Receivables at the end of May were
60 mil VND.
a. What are the forecasted collections on accounts receivable in August?
b. What are the receivable at the end of August?
EX30

First Second Third Fourth

Quarter Quarter Quarter Quarter
Receivables at start of period (mil
VND) 200
TAN sales (mil VND) 800 900 700 500
We assume that sales in the last quarter of the previous year were 150 mil VND
First Second Third Fourth
Quarter Quarter Quarter Quarter
Cash at start of period (mil VND) 100
Assume that 55% of sales are cashed in in the immediate quarter and 45% are cashed in the following
quarter.
Uses of cash:
First Second Third Fourth
Uses of cash Quarter Quarter Quarter Quarter
Payments on account payable 250 280 320 260
Increase in inventory 150 150 170 180
Labor and Other expenses 110 110 110 110
Capital expenditures 70 20 35 49
Taxes, interest and dividends 66 66 66 66
Total uses 646 626 701 665
a. Calculate receivables at the end of period?
b. Construct table showing TAN’s cumulative financing requirement in this year. We assume
that minimum operating cash balance is 100 million.
EX31
TAN stock is quite cyclical. In a boom economy, the stock is expected to return 20 percent in
comparison to 12 percent in a normal economy and a negative 13 percent in a recessionary period.
The probability of a recession is 25%. There is a 15% chance of a boom economy. What is the
standard deviation of the returns this stock?
EX32
Mega Corporation has the following returns for the past three years: 7%, 15% and 10%.
Calculate the variance of the return and the standard deviation of the returns.
EX33
The default rate of TAN’ new customers has been running at 20%. The average sale for each new
customer amounts to 500 mil VND, generating a profit of 200 mil VND and a 40% chance of a repeat
order next year. The default rate on repeat orders is only 5%. If the interest rate is 9%, what is the
expected profit from each new customer?
EX34
Stock A has an expected return of 10% per year and stock B has an expected return of 20%. If 40%
of the funds are invested in stock A, and the rest in stock B, what is the expected return on the portfolio
of stock A and stock B?
EX35
Stock M and Stock N have had the following returns for the past three years of -12%, 10%, 32%; and
15%, 6%, 24% respectively. Calculate the covariance between the two securities.
EX36
Stock X has a standard deviation of return of 10%. Stock Y has a standard deviation of return of 20%.
The correlation coefficient between stocks is 0.6. If you invest 60% of the funds in stock X and 40%
in stock Y, what is the standard deviation of a portfolio?
EX37
The annual return for three years for stock B comes out to be 0%, 10% and 26%. Annual returns for
three years for the market portfolios are +6%, 18%, 24%. Calculate the beta for the stock.
EX38
Following William Sharpe (2007)1, we have the following data for the US stockmarket, the
stockmarket is comprised:
62.0% equity stocks, 31.0% bonds and 7.0% in cash,
with the following estimates:
cash provides an annualized risk-free return, rf = 5.0%,
bonds have an expected annualized expected return, E(RB) = 6.4%,
with annualized standard deviation, sB = 5.6%,
and that
equity stocks have an expected annualized return, E(RE) = 10.96%,
with annualized standard deviation, sE = 17.5%,
with
correlation between equity stocks and bond returns, 𝐶𝑂𝑅𝑅(𝑅! , 𝑅" ) = 0.65.
Calculate for the following year,
(a) the expected return on a portfolio that is invested 65.0% in stocks and 35.0% in bonds.
(b) the standard deviation of the above portfolio.
EX39
TAN Corporation uses 900,000 tons of rice per year. The carrying costs are $210/ton. The cost per
order is $500. Calculate the economic order quantity per order?
EX40
TAN Corporation uses 900,000 tons of rice per year. The carrying costs are $210/ton. The cost per
order is $500. Calculate the optimal number of orders per year?
EX41
TAN Corporation uses 900,000 tons of rice per year. The carrying costs are $210/ton. The cost per
order is $500. Calculate the optimal annual order costs?
EX42
TAN Corporation uses 900,000 tons of rice per year. The carrying costs are $210/ton. The cost per
order is $500. Calculate the optimal carrying costs

1
William Sharpe shared the 1990 Nobel Prize in Economics.
EX43
TAN Corporation uses 900,000 tons of rice per year. The carrying costs are $210/ton. The cost per
order is $500. Calculate the total costs of optimal inventory?
EX44
TAN’s supplier offers him credit terms of 3/10, net 60. What does it mean?
EX45
TAN’s supplier offers him credit terms of 3/10, net 60. What is the cost of forgoing the discount on
a 800 mil VND purchase?
EX46
The default rate of TAN’ new customers has been running at 20% (1-p). The average sale for each
new customer amounts to 500 mil VND, generating a profit of 200 mil VND and a 40% chance of a
repeat order next year. The default rate on repeat orders is only 5%. If the interest rate is 9%, what is
the expected profit from each new customer?