Question: Calculate the nominal annual cost of nonfree

> You have a $7,000 balance on your car loan at 11% interest. Your favorite aunt has just left you $10,000 in her will. You can put the money in a money market account at your bank and pay off your car loan, or you can invest the money in mutual funds. Wha

> What do you think happens to your budget when your financial position changes?

> Discuss some methods for maintaining and protecting your wealth. What is the insurance trade-off?

> Describe some advantages and disadvantages of using personal financing to achieve your financial goals. What is the personal financing trade-off?

> Describe some advantages and disadvantages of using personal financing to achieve your financial goals. What is the personal financing trade-off?

> Discuss how managing liquidity fits into your financial plan. What is the liquidity trade-off?

> Judy (from problem 1) is also considering investing the $12,500 in a certificate of deposit (CD). She is guaranteed a return of 4% on a four-year CD. How much would Judy earn from the CD? Which of the two alternatives offers the better return? Data from

> Referring to the previous question, what other factors should Miguel consider with regard to his retirement goal? What recommendation would you give Miguel regarding his goal? Data from Question 5: Miguel, a recent 22-year-old college graduate, wants t

> What is a beneficiary? Why is it important to be specific with regard to beneficiaries and assets in your will?

> How can contributions to charitable organizations help in estate planning?

> What is an irrevocable living trust?

> Beyond the will, what does estate planning involve?

> Jill just inherited $7 million from her grandfather in 2015. How much of the inheritance is subject to estate tax?

> What is a revocable living trust? How can a revocable living trust be used to help your estate? How does a revocable living trust affect estate taxes?

> What is a trust? What is the difference between a living trust and a testamentary trust?

> Why is it important to calculate the value of your estate periodically?

> Discuss estate taxes. When is an estate subject to and not subject to estate taxes? What is the top federal estate tax rate? What other taxes may be levied against an estate?

> What is probate? Describe the probate process.

> When would you change your will? How can your will be changed?

> List and briefly discuss the key components of a will.

> Describe two common types of wills.

> List the requirements for a valid will

> What is a will? Why is a will important? What happens if a person dies without a will?

> What is an estate? What is estate planning? What is the main goal of estate planning?

> In the nineteenth century, people traveled the country selling tonics that were guaranteed to cure all the ailments of humankind. In the twenty-first century, the “snake oil salesmen” have been replaced with individuals making professional presentations

> Lisa has an estate worth $3.21 million and three children who will receive her assets on her death. Should she create a will give that her estate is worth less than the $5.43 million threshold that is exempt from estate taxes?

> How can you use annual gifts to reduce the tax burden on your heirs?

> What is an executor? Why is it important to name an executor in your will?

> How should estate plan documents be maintained?

> What is a durable power of attorney for health care? Why is it needed even if you have a living will?

> What is a power of attorney?

> What is a living will? What are its implications for estate planning?

> How do gifts fit into estate planning?

> What is a standard family trust? Give an illustration.

> With your help, Dave and Sharon Sampson have now established a financial plan. Among their key financial planning decisions were the following: • Budgeting. They decided to revise their budget to make it possible to start saving. By reducing their spend

> With your help, Dave and Sharon Sampson have now established a financial plan. Among their key financial planning decisions were the following: • Budgeting. They decided to revise their budget to make it possible to start saving. By reducing their spend

> With your help, Dave and Sharon Sampson have now established a financial plan. Among their key financial planning decisions were the following: • Budgeting. They decided to revise their budget to make it possible to start saving. By reducing their spend

> Next on the Sampsons’ financial planning checklist is saving for retirement. Dave’s employer offers a 401(k) plan, but Dave has not participated in it up to this point. Now he wants to seriously consider contributing. His employer will allow him to inves

> In its most recent financial statements, Del-Castillo Inc. reported $70 million of net income and $900 million of retained earnings. The previous retained earnings were $855 million. How much in dividends did the firm pay to shareholders during the year?

> Kendall Corners Inc. recently reported net income of $3.1 million and depreciation of $500,000. What was its net cash flow? Assume it had no amortization expense.

> Talbot Enterprises recently reported an EBITDA of $8 million and net income of $2.4 million. It had $2.0 million of interest expense, and its corporate tax rate was 40%. What was its charge for depreciation and amortization?

> Molteni Motors Inc. recently reported $6 million of net income. Its EBIT was $13 million, and its tax rate was 40%. What was its interest expense? (Hint: Write out the headings for an income statement and then fill in the known values. Then divide $6 mil

> Porporate bonds issued by Johnson Corporation currently yield 8%. Municipal bonds of equal risk currently yield 6%. At what tax rate would an investor be indifferent between these two bonds?

> Zang Industries has hired the investment banking firm of Eric, Schwartz, & Mann (ESM) to help it go public. Zang and ESM agree that Zang’s current value of equity is $60 million. Zang currently has 4 million shares outstanding and will issue 1 million ne

> The Beranek Company, whose stock price is now $25, needs to raise $20 million in common stock. Underwriters have informed the firm’s management that they must price the new issue to the public at $22 per share because of signaling effects. The underwrite

> On March 1, Minnerly Motors obtains a business loan from a local bank. The loan is a $25,000 interest-only loan with a nominal rate of 11%. Interest is calculated on a simple interest basis with a 365-day year. What is Minnerly’s interest charge for the

> A computer costs $500 in the United States. The same model costs 550 euros in France. If purchasing power parity holds, what is the spot exchange rate between the euro and the dollar?

> Breuer Investment’s convertible bonds have a $1,000 par value and a conversion price of $50 a share. What is the convertible issue’s conversion ratio?

> The D.J. Masson Corporation needs to raise $500,000 for 1 year to supply working capital to a new store. Masson buys from its suppliers on terms of 3/10, net 90, and it currently pays on the 10th day and takes discounts. However, it could forgo the disco

> A chain of appliance stores, APP Corporation, purchases inventory with a net price of $500,000 each day. The company purchases the inventory under credit terms of 2/15, net 40. APP always takes the discount but takes the full 15 days to pay its bills. Wh

> A large retailer obtains merchandise under the credit terms of 1/15, net 45, but routinely takes 60 days to pay its bills. (Because the retailer is an important customer, suppliers allow the firm to stretch its credit terms.) What is the retailer’s effec

> Medwig Corporation has a DSO of 17 days. The company averages $3,500 in credit sales each day. What is the company’s average accounts receivable?

> In the spot market, 7.8 pesos can be exchanged for 1 U.S. dollar. A pair of headphones costs $15 in the United States. If purchasing power parity holds, what should be the price of the same headphones in Mexico?

> What is and how did Modigliani and Miller use the arbitrage concept in developing their theory that (with no corporate taxes) capital structure has no effect on value or the cost of capital? What real-world impediments exist to creating one’s own “homema

> MM and Miller also assumed that debt is riskless. How does the possibility of default on debt cause equity to take on the characteristics of an option? What types of incentives for shareholders does this lead to?

> In what circumstances is the compressed adjusted present value (APV) model useful and how would it be applied?

> What is the compressed adjusted present value (APV) model and how does this differ from the Modigliani and Miller models? (Hint: think of the discount rate on the tax shield. What is “compressed” about this model?)

> MM and Miller assumed that firms do not grow. If they grow, how would this affect the value of the debt tax shield? What does growth do to the required rate of return on equity and the WACC as a firm increases its use of debt?

> What is the essence of Miller’s contribution to the theory of capital structure, and how does it relate to the earlier MM with-taxes position?

> Define each of the following terms: a. Liquidity ratios: current ratio; quick, or acid test, ratio b. Asset management ratios: inventory turnover ratio; days sales outstanding (DSO); fixed assets turnover ratio; total assets turnover ratio c. Financial l

> Why is it sometimes misleading to compare a company’s financial ratios with those of other firms that operate in the same industry?

> How might (a) seasonal factors and (b) different growth rates distort a comparative ratio analysis? Give some examples. How might these problems be alleviated?

> Profit margins and turnover ratios vary from one industry to another. What differences would you expect to find between a grocery chain such as Safeway and a steel company? Think particularly about the turnover ratios, the profit margin, and the DuPont e

> If euros sell for $1.50 (U.S.) per euro, what should dollars sell for in euros per dollar?

> Over the past year, M. D. Ryngaert & Co. has realized an increase in its current ratio and a drop in its total assets turnover ratio. However, the company’s sales, quick ratio, and fixed assets turnover ratio have remained constant. What explains these c

> Financial ratio analysis is conducted by managers, equity investors, long term creditors, and short-term creditors. What is the primary emphasis of each of these groups in evaluating ratios?

> Using Rhodes Corporation’s financial statements (shown below), answer the following questions. a. What is the net operating profit after taxes (NOPAT) for 2015? b. What are the amounts of net operating working capital for both years?

> The Berndt Corporation expects to have sales of $12 million. Costs other than depreciation are expected to be 75% of sales, and depreciation is expected to be $1.5 million. All sales revenues will be collected in cash, and costs other than depreciation m

> The Moore Corporation has operating income (EBIT) of $750,000. The company’s depreciation expense is $200,000. Moore is 100% equity financed, and it faces a 40% tax rate. What is the company’s net income? What is its net cash flow?

> The Shrieves Corporation has $10,000 that it plans to invest in marketable securities. It is choosing among AT&T bonds, which yield 7.5%, state of Florida muni bonds, which yield 5% (but are not taxable), and AT&T preferred stock, with a dividend yield o

> The Wendt Corporation had $10.5 million of taxable income. a. What is the company’s federal income tax bill for the year? b. Assume the firm receives an additional $1 million of interest income from some bonds it owns. What is the tax on this interest in

> The Talley Corporation had a taxable income of $365,000 from operations after all operating costs but before: (1) interest charges of $50,000, (2) dividends received of $15,000, (3) dividends paid of $25,000, and (4) income taxes. What are the firm’s

> An investor recently purchased a corporate bond that yields 9%. The investor is in the 36% combined federal and state tax bracket. What is the bond’s after-tax yield?

> The Bookbinder Company has made $150,000 before taxes during each of the last 15 years, and it expects to make $150,000 a year before taxes in the future. However, in 2015 the firm incurred a loss of $650,000. The firm will claim a tax credit at the time

> Suppose the exchange rate between U.S. dollars and the Swiss franc is SFr1.6 = $1 and the exchange rate between the dollar and the British pound is £1 = $1.50. What then is the cross rate between francs and pounds?

> Jenny Cochran, a graduate of The University of Tennessee with 4 years of experience as an equities analyst, was recently brought in as assistant to the chairman of the board of Computron’s Industries, a manufacturer of computer compon

> What four statements are contained in most annual reports?

> What is operating capital, and why is it important?

> The first part of the case, presented in Chapter 6, discussed the situation of Computron Industries after an expansion program. A large loss occurred in 2015, rather than the expected profit. As a result, its managers, directors, and investors are conce

> David Lyons, CEO of Lyons Solar Technologies, is concerned about his firm’s level of debt financing. The company uses short-term debt to finance its temporary working capital needs, but it does not use any permanent (long-term) debt. Other solar technolo

> An unlevered firm has a value of $500 million. An otherwise identical but levered firm has $50 million in debt. Under the MM zero-tax model, what is the value of the levered firm?

> Two investors are evaluating General Electric’s stock for possible purchase. They agree on the expected value of D1 and also on the expected future dividend growth rate. Further, they agree on the risk of the stock. However, one investor normally holds s

> How are the balance sheet and the income statement related to one another? How would you explain to a layperson the primary purpose of each of the statements? Which of the numbers in the income statement is considered to be most important?

> If Congress wants to stimulate the economy, explain how it might alter each of the following: (a) personal and corporate tax rates, (b) depreciation schedules, and (c) the differential between the tax rate on personal income and long-term capital gain

> Taxes affect many financial decisions. Explain how: (a) interest and dividend payments are treated for tax purposes, from both a company’s and an investor’s perspective, and (b) how dividends and capital gains are treated for tax purposes by individuals

> How is multinational financial management different from financial management as practiced by a firm that has no direct contacts with foreign firms or customers? What special problems and challenges do multinational firms face? What factors cause compani

> The income statement shows “flows” over a period of time, while the balance sheet shows accounts at a given point in time. Explain how these two concepts are combined when we calculate free cash flow.

> How and why are regular accounting data modified for use in financial management?

> Differentiate between net income, EPS, EBITDA, net cash flow, NOPAT, free cash flow, MVA, and EVA. What is the primary purpose of each item; that is, when and how is it used?

> How could (accurate) balance sheet and income statement information be used, along with other information, to make a statement of cash flows? What is the primary purpose of this statement?

> WorldCom capitalized some costs that should, under standard accounting practices, have been expensed. Enron and some other companies took similar actions to inflate their reported income and to hide debts. (a) Explain how such improper and illegal actio

> Is it true that the “flatter” (more nearly horizontal) the demand curve for a particular firm’s stock and the less important investors regard the signaling effect of the offering, the more important the role of investment banks when the company sells a n

> Why are financial ratios used? Name five categories of ratios, and then list several ratios in each category. Would a bank loan officer, a bond analyst, a stock analyst, and a manager be likely to put the same emphasis and interpretation on each ratio?

> How might one establish norms (or target values) for the financial ratios of a company that is just getting started? Where might data for this purpose be obtained? Could information of this type be used to help determine how much debt and equity capital

> How would each of the following factors affect ratio analysis? (a) The firm’s sales are highly seasonal. (b) The firm uses some type of window dressing. (c) The firm issues more debt and uses the proceeds to repurchase stock. (d) The firm leases more

> Explain how ratio analysis in general, and the DuPont system in particular, can be used by managers to help maximize their firms’ stock prices

> Much has been made about the sweeping changes that are occurring in Europe as a result of the euro. Will the euro help European firms become more efficient? Will it change the way multinational corporations manage cash? Manage exchange risk? Borrow funds

> How do managers, bankers, and security analysts’ use: (a) trend analysis, (b) benchmarking, (c) percent change analysis, and (d) common size analysis?

> Suppose a company has a DSO that is considerably higher than its industry average. If the company could reduce its accounts receivable to the point where its DSO was equal to the industry average without affecting its sales or its operating costs, how wo

> The rationale behind granting stock options is to induce employees to work harder and be more productive. As the stock price increases (presumably due to their hard work), the employees share in this added wealth. Another way to share this wealth would b