영어 연습문제 (제6장~제7장)

[1] All else constant, a coupon bond that is selling at a premium, must have:
A) a coupon rate that is equal to the yield to maturity.
B) a market price that is less than par value.
C) semiannual interest payments.
D) a yield to maturity that is less than the coupon rate.
E) a coupon rate that is less than the yield to maturity.
Answer D

[2] Aspens is preparing a bond offering with a coupon rate of 5.5 percent. The bonds will be repaid in
10 years. The company plans to issue the bonds at par value and pay interest annually. Which one of
the following statements is correct? Assume a face value of $1,000.
A) The bonds will pay 19 interest payments and one principal payment.
B) The bonds will initially sell at a discount.
C) At maturity, the bonds will pay a final payment of $1,027.50.
D) The bonds will pay twenty equal coupon payments.
E) At issuance, the bond's yield to maturity is 5.5 percent.
Answer E

[3] Which one of these bonds is the most interest-rate sensitive?

A) 5-year zero coupon bond
B) 10-year zero coupon bond
C) 5-year, 6 percent, annual coupon bond
D) 10-year, 6 percent, semiannual coupon bond
E) 10-year, 6 percent, annual coupon bond
Answer B

[4] Suppose a five-year, $1000 bond with annual coupons has a price of $1050 and a yield to maturity
of 6%. What is the bond’s coupon rate?

Answer
1 1 $1,000
$1,050 = 𝐶 × 0.06 (1 − 1.065 ) + (1.06)5

$1,000 1 1
$1,050 − (1.06)5 = 𝐶 × 0.06 (1 − 1.065 )

$1,000
$1,050− 302.7418271
(1.06)5
𝐶= 1 1 = = $71.87
(1− ) 4.212363786
0.06 1.065

Thus, the coupon rate is 7.19%

[5] A zero coupon bond with a face value of $1,000 is issued with an initial price of $430.84 based on
semiannual compounding. The bond matures in 20 years. What is the implicit interest, in dollars, for
the first year of the bond's life?
Answer
$430.84 = $1,000/(1 + r/2)20(2)
r = .042547, or 4.2547%
Price = $1,000/(1 + .042547/2)19(2)
Price = $449.37
1
Implicit interestYear 1 = $449.37 − 430.84 = $18.53

[6] The following table summarizes prices of various default-free, zero-coupon bonds (expressed as a
percentage of face value):

Maturity (years) 1 2 3 4 5
Price (per $100 face value) $96.21 $91.83 $87.16 $82.51 $77.38

a. Compute the yield to maturity for each bond.

b. Plot the zero-coupon yield curve (for the first five years).
c. Is the yield curve upward sloping, downward sloping, or flat?

Answer
a. Use the following equation with FV = $100, P = price per $100 face value, and n = maturity (years)
from the table,
1⁄
𝐹𝑉𝑛 𝑛
1 + 𝑌𝑇𝑀𝑛 = ( )
𝑃

Price (P) Maturity (n) YTM

1⁄
$96.21 1 $100 1
( ) − 1 = 0.0394 = 3.94%
$96.21
1⁄
$91.83 2 $100 2
( ) − 1 = 0.0435 = 4.35%
$91.83
1⁄
$87.16 3 $100 3
( ) − 1 = 0.0469 = 4.69%
$87.16
1⁄
$82.51 4 $100 4
( ) − 1 = 0.0492 = 4.92%
$82.51
1⁄
$77.38 5 $100 5
( ) − 1 = 0.0526 = 5.26%
$77.38

b.

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 c. The yield curve is upward sloping.

[7] What is the duration of a level perpetuity with C cash flow each year?

Answer
∞ 𝐶
D=∑ 𝑡∙ /𝑃
𝑡=1 (1 + 𝑦)𝑡
Since P = C/y,
∞ 1
D=y∙∑ 𝑡∙
𝑡=1 (1 + 𝑦)𝑡
1
Let x = 1+𝑦. Then, D = y ∙ ∑∞
𝑡=1 𝑡 ∙ 𝑥
𝑡

S = 1 ∙ 𝑥1 + 2 ∙ 𝑥 2 + 3 ∙ 𝑥 3 + 4 ∙ 𝑥 4 ⋯
−xS = −1 ∙ 𝑥 2 − 2 ∙ 𝑥 3 − 3 ∙ 𝑥 4 ⋯
-------------------------------------------------------------------------
𝑥 𝑥
(1−x)S = x + 𝑥 2 + 𝑥 3 + 𝑥 4 ⋯ = 1−𝑥 => S ∙ (1−𝑥)𝑡

1+𝑦
D=y∙𝑆 =
𝑦

[8] DFB, Inc., expects earnings at the end of this year of $4.19 per share, and it plans to pay a $2.43
dividend at that time. DFB will retain $1.76 per share of its earnings to reinvest in new projects with
an expected return of 15.1% per year. Suppose DFB will maintain the same dividend payout rate,
retention rate, and return on new investments in the future and will not change its number of
outstanding shares.
a. What growth rate of earnings would you forecast for DFB?
b. If DFB’s equity cost of capital is 12.2%, what price would you estimate for DFB stock today?
c. Suppose DFB instead paid a dividend of $3.43 per share at the end of this year and retained only
$0.76 per share in earnings. If DFB maintains this higher payout rate in the future, what stock price
would you estimate now? Should DFB raise its dividend?

Answer
a. 𝑔 = 𝑅𝑒𝑡𝑒𝑛𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑒 × 𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑁𝑒𝑤 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
$1.76
𝑔 = $4.19 × 15.1% = 6.34%

𝐷𝑖𝑣𝑡 (1+𝑔)
b. 𝑃𝑡 = 𝑟−𝑔
$2.43
𝑃𝑡 = 0.122−0.0634 = $41.47
$0.76
c. 𝑔= × 15.1% = 2.74%
$4.19
$3.43
𝑃𝑡 = = $36.26
0.122−0.0274

DFB should not raise its dividend, since the stock price would fall (because the projects are positive
NPV: return exceeds cost of capital).

3
[9] Cooperton Mining just announced it will cut its dividend from $4.27 to $2.67 per share and use the
extra funds to expand. Prior to the announcement, Cooperton’s dividends were expected to grow at a
2.9% rate, and its share price was $49.06. With the new expansion, Cooperton’s dividends are expected
to grow at a 4.8% rate. What share price would you expect after the announcement? (Assume
Cooperton’s risk is unchanged by the new expansion.) Is the expansion a positive NPV investment?

Answer
𝐷𝑖𝑣1
𝑟𝐸 = +𝑔
𝑃0
$4.27
𝑟𝐸 = $49.06 + 0.029 = 0.116 = 11.6%

𝐷𝑖𝑣𝑡 (1+𝑔)
𝑃𝑡 =
𝑟−𝑔
$2.67
𝑃𝑡 = 0.116−0.048
= $39.26

In this case, cutting the dividend to expand is not a positive NPV investment.

[10] Colgate-Palmolive Company has just paid an annual dividend of $1.35. Analysts are predicting
dividends to grow by $0.12 per year over the next five years. After then, Colgate’s earnings are expected
to grow 6.7% per year, and its dividend payout rate will remain constant. If Colgate’s equity cost of
capital is 8.6% per year, what price does the dividend-discount model predict Colgate stock should sell
for today?

Answer
$1.35+0.12 $1.47+0.12 $1.59+0.12 $1.71+0.12 $1.83+0.12 1 $1.95(1.067)
𝑃0 = + (1.086)2 + (1.086)3 + (1.086)4 + (1.086)5 + (1.086)5 ( )
1.086 0.086−0.067

𝑃0 = $1.35 + $1.35 + $1.34 + $1.32 + $1.29 + $72.49 = $79.14

[11] Maynard Steel plans to pay a dividend of $2.92 this year. The company has an expected earnings
growth rate of 3.8% per year and an equity cost of capital of 10.4%.
a. Assuming Maynard’s dividend payout rate and expected growth rate remains constant, and
Maynard does not issue or repurchase shares, estimate Maynard’s share price.
b. Suppose Maynard decides to pay a dividend of $0.97 this year and use the remaining $1.95 per
share to repurchase shares. If Maynard’s total payout rate remains constant, estimate Maynard’s share
price.
c. If Maynard maintains the same split between dividends and repurchases, and the same payout rate,
as in part (b), at what rate are Maynard's dividends, earnings per share, and share price expected to
grow in the future?

Answer
a. Earnings growth = EPS growth = dividend growth = 3.8%.
𝐷𝑖𝑣1 $2.92
Thus, 𝑃0 = = = $44.24.
𝑟−𝑔 0.104−0.038
b. Using the total payout model,
𝐷𝑖𝑣1 +𝑅𝑒𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 $0.97+$1.95
𝑃0 = 𝑟−𝑔
= 0.104−0.038 = $44.24.
c. 𝑔 = 𝑟𝐸 − 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑦𝑖𝑒𝑙𝑑
$0.97
𝑔 = 0.104 − $44.24 = 0.087 = 8.2%

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[12] Heavy Metal Corporation is expected to generate the following free cash flows over the next five
years:

Year 1 2 3 4 5
FCF
52.2 68.7 77.2 75.6 80.5
($ millions)
After then, the free cash flows are expected to grow at the industry average of 4.1% per year. Using
the discounted free cash flow model and a weighted average cost of capital of 14.9%:
a. Estimate the enterprise value of Heavy Metal.
b. If Heavy Metal has no excess cash, debt of $306 million, and 42 million shares outstanding, estimate
its share price.

Answer
$80.5×(1+0.041)
a. 𝑉5 = = $775.93
0.149−0.041

$52.2 $68.7 $77.2 $75.6 $80.5+$775.93

𝑉0 = 1.149 + 1.1492 + 1.1493 + 1.1494 + 1.1495

𝑉0 = $45.43 + $52.04 + $50.89 + $43.38 + $427.65 = $619.39

𝑉+𝐶−𝐷
b. 𝑃= 𝑁
$619.39+0−$306
𝑃= = $7.46
42

[13]
IDX Technologies is a privately held developer of advanced security systems based in Chicago. As
part of your business development strategy, in late 2016 you initiate discussions with IDX’s founder
about the possibility of acquiring the business at the end of 2016. Estimate the value of IDX per share
using a discounted FCF approach and the following data:
■ Debt: $32 million
■ Excess cash: $104 million
■ Shares outstanding: 50 million
■ Expected FCF in 2017: $49 million
■ Expected FCF in 2018: $57 million
■ Future FCF growth rate beyond 2018: 6%
■ Weighted-average cost of capital: 9.4%

Answer
From 2018 on, we expect FCF to grow at a 6% rate. Thus, using the growing perpetuity formula, we
can estimate IDX’s Terminal Enterprise Value in 2017 = $57/(9.4% – 6%) = $1,676.47.
Adding the 2017 cash flow and discounting, we have
Enterprise Value in 2016 = ($49 + $1,676.47)/(1.094) = $1,577.21.
Adjusting for cash and debt (net debt), we estimate an equity value of
Equity Value = $1,577.21 + $104 – $32 = $1,649.21.
Dividing by number of shares:
Value per share = $1,649.21/50 = $32.98.

5
[14]
Sora Industries has 68 million outstanding shares, $120 million in debt, $44 million in cash, and the
following projected free cash flow for the next four years:

a. Suppose Sora’s revenue and free cash flow are expected to grow at a 5.5% rate beyond year 4. If
Sora’s weighted average cost of capital is 10%, what is the value of Sora’s stock based on this
information?
b. Sora’s cost of goods sold was assumed to be 67% of sales. If its cost of goods sold is actually 70%
of sales, how would the estimate of the stock’s value change?
c. Let’s return to the assumptions of part (a) and suppose Sora can maintain its cost of goods sold at
67% of sales. However, now suppose Sora reduces its selling, general, and administrative expenses
from 20% of sales to 16% of sales. What stock price would you estimate now? (Assume no other
expenses, except taxes, are affected.)
d. Sora’s net working capital needs were estimated to be 18% of sales (which is their current level in
year 0). If Sora can reduce this requirement to 12% of sales starting in year 1, but all other assumptions
remain as in part (a), what stock price do you estimate for Sora? (Hint: This change will have the largest
impact on Sora’s free cash flow in year 1.)

Answer
$33.3(1.055)
a. 𝑉4 = 0.10−0.055
= $780.7
$25.3 $24.6 $30.8 $33.3+$780.7
𝑉0 = 1.10
+ 1.102 + 1.103 + 1.104
𝑉0 = $23 + $20.33 + $23.14 + $555.97 = $622.44
𝑉+𝐶−𝐷
𝑃= 𝑁
$622.44+$44−$120
𝑃= = $8.04
68
b.
Year 0 1 2 3 4
Earnings & FCF Forecast
($ million)
1 Sales 433 468 516 547 574.3
2 Growth vs. Prior Year 8.1% 10.3% 6.0% 5.0%
3 Cost of Goods Sold (327.6) (361.2) (382.9) (402.0)
4 Gross Profit 140.4 154.8 164.1 172.3
Selling, General &
5 Admin. (93.6) (103.2) (109.4) (114.9)
6
 6 Depreciation (7.0) (7.5) (9.0) (9.5)
7 EBIT 39.8 44.1 45.7 47.9
8 Less: Income tax at 40% (15.9) (17.6) (18.3) (19.2)
9 Plus: Depreciation 7.0 7.5 9.0 9.5
Less: Capital
10 Expenditures (7.7) (10.0) (9.9) (10.4)
11 Less: Increases in NWC (6.3) (8.6) (5.6) (4.9)
12 Free Cash Flow 16.9 15.4 20.9 22.9

𝑉4 =
$22.9(1.055)
0.10−0.055
= $536.88
$16.9 $15.4 $20.9 $22.9+$536.88
𝑉0 = + + +
1.10 1.102 1.103 1.104
𝑉0 = $15.36 + $12.73 + $15.70 + $382.34 = $426.13
𝑉+𝐶−𝐷
𝑃= 𝑁
$426.13+$44−$120
𝑃= 68
= $5.15

c.
Year 0 1 2 3 4
Earnings & FCF Forecast
1($ million)
Sales 433 468 516 547 574.3
2 Growth vs. Prior Year 8.1% 10.3% 6.0% 5.0%
3 Cost of Goods Sold (313.6) (345.7) (366.5) (384.8)
4 Gross Profit 154.4 170.3 180.5 189.5
Selling, General &
5 Admin. (74.9) (82.6) (87.5) (91.9)
6 Depreciation (7.0) (7.5) (9.0) (9.5)
7 EBIT 72.5 80.2 84.0 88.1
8 Less: Income tax at 40% (29.0) (32.1) (33.6) (35.2)
9 Plus: Depreciation 7.0 7.5 9.0 9.5
Less: Capital
10 Expenditures (7.7) (10.0) (9.9) (10.4)
11 Less: Increases in NWC (6.3) (8.6) (5.6) (4.9)
12 Free Cash Flow 36.5 37.0 43.9 47.1

$47.1(1.055)
𝑉4 = 0.10−0.055
= $1,104.23
$36.5 $37 $43.9 $47.1+$1,104.23
𝑉0 = 1.10
+ 1.102 + 1.103 + 1.104
𝑉0 = $33.18 + $30.58 + $32.98 + $786.37 = $883.11
𝑉+𝐶−𝐷
𝑃= 𝑁
$883.11+$44−$120
𝑃= 68
= $11.87

d.

Year 0 1 2 3 4
Earnings & FCF Forecast
1($ million)
Sales 433 468 516 547 574.3
7
 2 Growth vs. Prior Year 8.1% 10.3% 6.0% 5.0%
3 Cost of Goods Sold (313.6) (345.7) (366.5) (384.8)
4 Gross Profit 154.4 170.3 180.5 189.5
Selling, General &
5 Admin. (93.6) (103.2) (109.4) (114.9)
6 Depreciation (7.0) (7.5) (9.0) (9.5)
7 EBIT 53.8 59.6 62.1 65.1
8 Less: Income tax at 40% (21.5) (23.8) (24.8) (26.0)
9 Plus: Depreciation 7.0 7.5 9.0 9.5
Less: Capital
10 Expenditures (7.7) (10.0) (9.9) (10.4)
11 Less: Increases in NWC 21.8 (5.8) (3.7) (3.3)
12 Free Cash Flow 53.4 27.5 32.6 34.9
$34.9(1.055)
𝑉4 = 0.10−0.055 = $818.21
$53.4 $27.5 $32.6 $34.9+$818.21
𝑉0 = 1.10 + 1.102 + 1.103 + 1.104
𝑉0 = $48.55 + $22.73 + $24.49 + $582.69 = $678.46
𝑉+𝐶−𝐷
𝑃= 𝑁
$678.46+$44−$120
𝑃= 68
= $8.86

[15]
Kurt's Interiors has annual revenue of $506,000 with costs of $369,400. Depreciation is $64,900 and
the tax rate is 21 percent. The firm has debt outstanding with a market value of $240,000 along with
7,500 shares of stock that is valued at $87 a share. The firm has $51,200 of cash, all of which is needed
to run the business. What is the firm's EV/EBITDA ratio?

Answer
EV/EBITDA = [$240,000 + 7,500($87) − ($51,200 − 51,200)]/($506,000 − 369,400)=6.53
[참고] 사업을 위해 필요한 현금은 부채를 갚는데 사용할 수 없으므로, Enterprise Value
계산시 차감하지 말아야 함.

[16] Kenneth Cole Productions (KCP) is acquired in 2012 for a purchase price of $15.25 per share.
KCP has 18.5 million shares outstanding, $45 million in cash, and no debt at the time of the acquisition.
a. Given a weighted average cost of capital of 11%, and assuming no future growth, what level of
annual free cash flow would justify this acquisition price?
b. If KCP’s current annual sales are $480 million, assuming no net capital expenditures or increases in
net working capital, and a tax rate of 35%, what EBIT margin does your answer in part (a) require?

Answer

a. EV = 15.25*18.5 – 45 = $237.1 million. FCF = wacc*EV = $26.1 million.

b. EBIT = FCF/(1 – tax) = $40.1 million. EBIT Margin = 40.1/480 = 8.4%.