Finance: Bonds Fundamentals, Valuation, and Market Mechanics

Focus on the customer underlies the execution of an organization's strategy.

True

Which of the following has a planning horizon within 6-18 months?

Aggregate Planning

The aggregate planning contains critical information to guide lower-level scheduling and is the starting point of business planning.

False

The master production scheduling is updated every semester.

False

Which of the following is used to align plans within your company?

S&OP

Aggregate planning helps you align your production capacity to market demand.

True

Which of the following is not a capacity-focused option to match supply and demand?

Backorders

For seasonal products and services, the best option to align supply and demand is to build inventory.

True

Which of the following is a demand-focused option to match supply and demand?

Backorders

Backordering is a good option to match supply and demand because it has no trade-offs.

False

Members of a product family all use the same set of production resources.

True

Colleagues discussing specific models/colors for next month are talking about aggregate planning.

False

In the Chase strategy, you can manipulate _________ to match supply and demand.

Chase; workforce size

You measure the capacity of your production process based on the process bottleneck.

True

In aggregate planning, you must consider how your strategy affects other key dimensions of performance, not only costs.

True

The center of gravity model requires that you place locations on a grid coordinate system.

True

The core benefit of an ERP system is that it:

Offers a single source of truth because it stores all data in one place

Keeping old systems alive in parallel during ERP transition helps mitigate unpredictability.

True

An ERP system is a set of distributed databases.

False

Simply applying ERP over existing processes is one of the challenges in implementation.

True

Production control decisions determine the flow of work into and through the production process.

True

In Shortest Processing Time, you process the order with the earliest due date.

False

Removing one constraint from the system means the system no longer has resources limiting capacity.

False

In the DBR scheduling approach, the "drum" refers to the process of synchronizing the schedule.

True

Anyone who has access to the Gantt chart can quickly see how resources are being allocated.

True

Bond Fundamentals & Valuation

Bonds are the backbone of the world's pension funds.

True

Two main reasons for understanding bonds: financing source and personal investment role.

True

Bonds are also known as "fixed income."

True

In the bond market, firms raise debt financing directly from ________.

investors

AXE Inc: $1,000 face value, 7.5% annual coupon, quarterly payments. Single interest payment?

$18.75

AXE Inc: Final cash flow a bondholder will receive?

none of the above ($1,018.75)

Written agreement between the bond issuer and bondholders?

indenture

Period of time for which a bond remains outstanding?

maturity

Stated interest payment made on a bond?

coupon

LLY Corp: 30-year, 7.25% semiannual coupon, 10% market return. Expected price?

none of the above ($739.72)

Price of bond: 25 years, $1,000 face, 13% annual coupon, 7.5% required return?

$1,613.08

Market price of Bond B: face = $1,000, 8% annual coupon, 3-year maturity, 7.8% required return?

$1,005.17

Price of Bond A if rates increase to 10%: face = $1,000, 8% annual coupon, 15-year maturity?

$847.88

Market price: $1,000 face, 10% annual coupon, 10-year maturity, 7.8% required return?

$1,148.96

Some Co: 15-year, $1,000 face, 8% quarterly coupon, 7.2% required return. Price?

$1,073.01

Another Co: 10-year, $1,000 face, 8.25% annual coupon, priced at 98.4%. Required return?

8.49%

AXE Inc: 20-year, $1,000 face, 7.5% semiannual coupon, quoted at 95% of par. YTM?

8.0%

Years to maturity: 7.5% semiannual coupon, $1,055.33 price, 6.5% YTM?

6.97 years

AJB Co: 13.90% YTM, 9.5% annual coupon, $1,000 face, 5-year maturity. Current yield?

11.20%

Jobby McJobberton's: $700 price, 8% semiannual coupon, 25-year maturity. Expected return?

11.74%

Tonic Juice Corp: 15-year, $1,000 par, 12% annual coupon, $1,062.20 price. Expected return?

11.13%

Name for bonds issued by cities, counties, or states?

municipal bonds

Term for bonds that have no coupon payments?

zeroes

Yield to maturity: 10-year zero-coupon bond priced at $456 with $1,000 face?

8.17%

Yield to maturity: 1-year T-bill priced at 96.8% of par?

3.3%

Name for an unsecured bond?

debenture

Price increase: 15-year 7% semiannual coupon bond. YTM changed from 9.1% to 8.2% in one year.

$71.19

Yield change: 10-year $1,000 face 7% bond bought for $925. Price today is $1,004.

8.12%; 6.94%

If returns required by bondholders have increased 1.5%, bond prices have ________.

decreased

Relationship between bond price and yield to maturity?

inverse

Equity & WACC

Stockholders have a __________ claim on firm earnings and assets.

residual

Common stock shareholders have the right to vote on company management/policy.

True

Knowing about equity is only important for Wall Street bankers.

False

Equity often is a big part of individual investment portfolios.

True

Which of the following securities represents ownership in a firm?

preferred stock

Difference between preferred and common stock?

All of the above

Which of the following is NOT a characteristic of common stock?

It pays fixed dividends.

Which one of the following does NOT describe preferred stock?

It has the lowest priority to claim assets in bankruptcy.

An investor who buys shares of common stock becomes a part-owner of the firm.

True

Which of the following securities is considered a hybrid security?

preferred stock

If a company skips a preferred dividend, they cannot pay common dividends until preferred are paid.

True

Definition of corporate governance?

the rules and regulations for managers of the firm

Price: Preferred stock, $3.50 perpetuity dividend, 11% required return?

$31.82

Value: Preferred stock, $3.50 constant dividend, 10.5% required return?

$33.33

Value: Preferred stock, $6.25 dividend, 9% required return?

$69.44

Value: Preferred stock, 12% dividend on $100 par, 18% discount rate?

$66.67

Expected Return: Spaceman Corp, $35.29 share price, $2.26 dividend?

6.40%

Awesome Inc: $230.77 price, $7.80 next year dividend, 11% discount rate. Growth rate?

7.62%

Enrique Co: $35.36 price, $3.78 next year dividend, 3% growth. Expected return?

13.69%

Price: Recently paid $1.20 dividend, 3.75% growth, 13% required return?

$13.46

Some Co: $5.60 next year dividend, 4% growth, 13% required return. Price?

none of the above ($62.22)

Current Price: Just paid $2.56 dividend, 5% growth, 15% required return?

$26.88

Dividend next year: Recently paid $5.00 dividend, 6% growth?

$5.30

If ROA > Cost of Capital, the firm is destroying value.

False

Banks make profits by having higher interest for depositors and lower for borrowers.

False

Cost of capital includes: bondholder coupons and equity holder opportunity cost.

both of the above

In WACC, weights are based on the mix of debt, common stock, and preferred stock.

True

After-tax cost of debt: 15-year, 6.2% coupon, 12.3% flotation, $1,135.22 price, 35% tax?

4.06%

Monthly payment and After-tax cost: $7M loan, 8-year, 9.4% rate, 34% tax?

$104,010; 6.2%

Before-tax cost of debt: AlterU 15-year bonds, $1,180 price, 7% flotation, 6% coupon.

5.06%

After-tax cost of debt: 10-year, 6% semiannual coupon, 96% par, $18 flotation, 39% tax?

4.15%

After-tax cost of debt: 20-year, 10% coupon, $1,098 price, 5% flotation, 34% tax?

6.28%

NEXTOLL Required Return: Beta 1.4, Market 15%, Risk-free 3.1%?

19.76%

Preferred Cost of Capital: $43.37 price, $0.75 dividend, $39.28 net price?

1.91%

AlterU Cost of Equity: $67.75 price, 17% flotation, $2.28 recent dividend, 5% growth?

9.26%

YIPE Inc Cost of Equity: $2.98 next year dividend, 5% growth, $39.87 share price?

12.47%

Cost of Equity: $3 constant preferred dividend, $45 price, 6% flotation?

7.09%

Blackstone Cost of Equity: Beta 1.1, Market 14%, Risk-free 3%, 4% flotation?

15.70%

GoFigure Inc WACC: $150M equity (18.2% cost), $351M debt (10.7% cost), 34% tax?

10.40%

Great Minds Inc WACC: 45% debt (7%), 35% preferred (9%), 20% common (15%), 35% tax?

8.20%

30/70 Debt-Equity WACC: 7.5% debt, 14.5% equity, 35% tax?

11.61%

Multi-component WACC: 15% Int Eq, 30% Ext Eq, 12% Pref, 20% ST Debt, 23% LT Debt?

9.93%

Machinery WACC: 30% Debt, 45% Common, 25% Preferred?

11.30%