Reference no: EM133114425

Why is the study of financial management important to your professional life regardless of the specific area of responsibility you may have within the business firm? Why is it important to your personal life?

Problem 1: Worldwide Rugs is a rug importer located in the United States that resells its import products to local retailers. Last year Worldwide Rugs imported $2.5 million worth of rugs from around the world, all of which were paid for prior to shipping. On receipt of the rugs, the importer immediately resold them to local retailers for $3 million. To allow its retail clients time to resell the rugs, Worldwide Rugs sells to retailers on credit. Prior to the end of its business year, Worldwide Rugs collected 85% of its outstanding accounts receivable. 

• What is the accounting profit that Worldwide Rugs generated for the year? 500,000 
• Did Worldwide Rugs have a successful year from an accounting perspective? 
• What is the financial cash flow that Worldwide Rugs generated for the year? 50,000
• Did Worldwide Rugs have a successful year from a financial perspective? e. If the current pattern persists, what is your expectation for the future success of Worldwide Rugs? 

Problem 2: Lahey Industries has outstanding a $1,000 par-value bond with an 8% coupon interest rate. The bond has 12 years remaining to its maturity date. 

• If interest is paid annually, find the value of the bond when the required return is (1) 7%, (2) 8%, and (3) 10%. 
• Indicate for each case in part a whether the bond is selling at a discount, at a  premium, or at its par value. 
• Using the 10% required return, find the bond's value when interest is paid semi annually.

Problem 3: Perry Motors' common stock just paid its annual dividend of $1.80 per share. The  required return on the common stock is 12%. Estimate the value of the common  stock under each of the following assumptions about the dividend: 

a. Dividends are expected to grow at an annual rate of 0% to infinity. 

b. Dividends are expected to grow at a constant annual rate of 5% to infinity. 

c. Dividends are expected to grow at an annual rate of 5% for each of the next 3  years, followed by a constant annual growth rate of 4% in years 4 to infinity.