Assignment #1: Review of PMBA Finance Content

Assignment #1: Review of PMBA Finance Content
FINC 5050-2: Fall 2019

Due: 10/10/2019

(50 points)

The following questions should be answered using Excel.  You should hand in a printed copy of your Excel spreadsheets at the beginning of class and submit your Excel spreadsheets via Email.

1. (12 points) Based on the annual income statements and balance sheets of Costco Wholesale Corporation (ticker symbol: COST) found on http://morningstar.com, calculate the annual rate of growth (% change) in Costco’s revenue, gross profit, operating income, net income, and total assets in 2018 (relative to 2017).  Additionally, calculate the firm’s gross margin (gross profit/revenue), operating margin (operating profit/revenue), profit margin (net income/revenue), operating return on assets (OROA = operating income/assets), and return on assets (ROA = net income/assets) for fiscal year 2017 and 2018.  Based on your calculations, what were the strengths and weaknesses of Costco’s financial performance in fiscal year 2018 compared to their performance in fiscal year 2017?
2. (5 points) What is the difference between the present value of $200 per year cash payments for the next 40 years and the present value of $200 per year cash payments in perpetuity?  Assume in either case, the first payment occurs one year from today and that the appropriate discount rate is 12%/year.
3. (6 points) What is the present value of the following series of cash payments: $1,200 per year for four consecutive years starting one year from today, followed by annual cash payments that increase by 3% per year in perpetuity (i.e. cash payment in year 5 is $1,200*1.03, cash payment in year 6 is $1,200*1.03², etc.)?  Assume the appropriate discount rate is 9%/year.
4. (5 points) Use goal seek in Excel, to solve for the yield to maturity (market rate of return) on a corporate bond with a coupon rate of 5% per year, a maturity of 14 years, and a market value (price) of $1,080.
5. (10 points) Use the dividend discount model to value a share of Toyota’s stock (ticker symbol: TM) as of December 31, 2019.  In your application of this model, use the data provided on the most recent Toyota Value Line report (history of their annual dividend payments, forecasts of future annual dividend payments, past and forecasted growth rates in dividends, and Value Line’s estimate of Toyota’s equity beta).
6. (12 points) Estimate Boeing’s (ticker symbol: BA) weighted average cost of capital (WACC).     Provide data sources and dates for each input used in your estimation of Boeing’s WACC.