Question: Consider the following premerger information about

> Sanders Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $270,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value after the seven years. Op

> This problem is useful for testing the ability of financial calculators and computer software. Consider the following cash flows. How many different IRRs are there? When should we take this project? Year ………………….Cash Flow 0 ………………………………..−$ 1,008 1 …………

> Consider the following abbreviated financial statements for Weston Enterprises: a. What is owners’ equity for 2011 and 2012? b. What is the change in net working capital for 2012? c. In 2012, Weston Enterprises purchased $2,160 in new

> Solar Engines manufactures solar engines for tractor trailers. Given the fuel savings available, new orders for 125 units have been made by customers requesting credit. The variable cost is $11,400 per unit, and the credit price is $13,000 each. Credit i

> Consider the following premerger information about firm X and firm Y : Assume that Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $5 per share. Assuming that neither firm has any debt before or after the merg

> You own $100,000 worth of Smart Money stock. One year from now, you will receive a dividend of $2.25 per share. You will receive a $2.40 dividend two years from now. You will sell the stock for $65 per share three years from now. Dividends are taxed at t

> Argos Corp. has 9 percent coupon bonds making annual payments with a YTM of 7.81 percent. The current yield on these bonds is 8.42 percent. How many years do these bonds have left until they mature?

> Young screenwriter Carl Draper has just finished his first script. It has action, drama, and humor, and he thinks it will be a blockbuster. He takes the script to every motion picture studio in town and tries to sell it but to no avail. Finally, ACME stu

> A firm is considering an investment in a new machine with a price of $18 million to replace its existing machine. The current machine has a book value of $6 million and a market value of $4.5 million. The new machine is expected to have a four-year life,

> Suppose it is your task to evaluate two different investments in new subsidiaries for your company, one in your own country and the other in a foreign country. You calculate the cash flows of both projects to be identical after exchange rate differences.

> An investment under consideration has a payback of six years and a cost of $434,000. If the required return is 12 percent, what is the worst-case NPV? The best-case NPV? Explain. Assume the cash flows are conventional.

> What is the future value in six years of $1,000 invested in an account with a stated annual interest rate of 9 percent, a. Compounded annually? b. Compounded semiannually? c. Compounded monthly? d. Compounded continuously? e. Why does the future value in

> The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2012 are projected to grow by 20 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expense

> Cusic Industries had the following operating results for 2012: sales = $19,900; cost of goods sold = $14,200; depreciation expense = $2,700; interest expense = $670; dividends paid = $650. At the beginning of the year, net fixed assets were $15,340, curr

> Saché, Inc., expects to sell 700 of its designer suits every week. The store is open seven days a week and expects to sell the same number of suits every day. The company has an EOQ of 500 suits and a safety stock of 100 suits. Once an order is placed, i

> You have found the following stock quote for RJW Enterprises, Inc., in the financial pages of today’s newspaper. What is the annual dividend? What was the closing price for this stock that appeared in yesterday’s paper

> Indicate whether you think the following claims regarding takeovers are true or false. In each case, provide a brief explanation for your answer. a. By merging competitors, takeovers have created monopolies that will raise product prices, reduce producti

> If Jares, Inc., has an equity multiplier of 1.55, total asset turnover of 1.75, and a profit margin of 4.3 percent, what is its ROE?

> You purchase a bond with a coupon rate of 5.9 percent and a clean price of $1,053. If the next semiannual coupon payment is due in four months, what is the invoice price?

> Your buddy comes to you with a sure-fire way to make some quick money and help pay off your student loans. His idea is to sell T-shirts with the words “I get” on them. “You get it?” He says, “You see all those bumper stickers and T-shirts that say ‘got m

> Nuber Company has a debt–equity ratio of .80. Return on assets is 9.7 percent, and total equity is $735,000. What is the equity multiplier? Return on equity? Net income?

> Scott Investors, Inc., is considering the purchase of a $360,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method. The market value of the computer will be $60,000 in five

> You are evaluating a project that costs $75,000 today. The project has an inflow of $155,000 in one year and an outflow of $65,000 in two years. What are the IRRs for the project? What discount rate results in the maximum NPV for this project? How can yo

> Friendly’s Quick Loans, Inc., offers you “three for four or I knock on your door.” This means you get $3 today and repay $4 when you get your paycheck in one week (or else). What’s the effective annual return Friendly’s earns on this lending business? If

> For the company in the previous problem, suppose fixed assets are $690,000 and sales are projected to grow to $830,000. How much in new fixed assets are required to support this growth in sales?

> In Problem 18, suppose Raines Umbrella Corp. paid out $34,000 in cash dividends. Is this possible? If spending on net fixed assets and net working capital was zero, and if no new stock was issued during the year, what was the change in the firm’s long-te

> In Problem 15, what is the break-even price per unit under the new credit policy? Assume all other values remain the same. Problem 15 Current Policy New Policy Price per unit $295 $302 Cost per unit Unit sales per month $230 $234 1,105 1,125

> Fifth National Bank just issued some new preferred stock. The issue will pay an annual dividend of $8 in perpetuity, beginning five years from now. If the market requires a return of 5.6 percent on this investment, how much does a share of preferred stoc

> You purchase a bond with an invoice price of $950. The bond has a coupon rate of 6.8 percent, and there are 2 months to the next semiannual coupon date. What is the clean price of the bond?

> Each business day, on average, a company writes checks totaling $17,000 to pay its suppliers. The usual clearing time for the checks is four days. Meanwhile, the company is receiving payments from its customers each day, in the form of checks, totaling $

> You purchase a bond with an invoice price of $950. The bond has a coupon rate of 6.8 percent, and there are 2 months to the next semiannual coupon date. What is the clean price of the bond?

> A financial ratio by itself tells us little about a company because financial ratios vary a great deal across industries. There are two basic methods for analyzing financial ratios for a company: Time trend analysis and peer group analysis. In time trend

> Bridgton Golf Academy is evaluating different golf practice equipment. The “Dimple-Max” equipment costs $94,000, has a three-year life, and costs $8,600 per year to operate. The relevant discount rate is 12 percent. Assume that the straight-line deprecia

> Consider two mutually exclusive new product launch projects that Nagano Golf is considering. Assume the discount rate for Nagano Golf is 15 percent. Project A: Nagano NP-30. Professional clubs that will take an initial investment of $550,000 at time 0.

> One of your customers is delinquent on his accounts payable balance. You’ve mutually agreed to a repayment schedule of $700 per month. You will charge 1.3 percent per month interest on the overdue balance. If the current balance is $21,500, how long will

> Thorpe Mfg., Inc., is currently operating at only 90 percent of fixed asset capacity. Current sales are $725,000. How much can sales increase before any new fixed assets are needed?

> During 2012, Raines Umbrella Corp. had sales of $630,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $470,000, $95,000, and $140,000, respectively. In addition, the company had an interest expense of $70,000 a

> We know that the actual relationship between a nominal rate, R, a real rate, r, and an inflation rate, h, can be written as follows: 1 + r = (1 + R)y(1 + h) This is the domestic Fisher effect. a. What is the nonapproximate form of the international Fish

> The Chocolate Ice Cream Company and the Vanilla Ice Cream Company have agreed to merge and form Fudge Swirl Consolidated. Both companies are exactly alike except that they are located in different towns. The end-of-period value of each firm is determined

> In Problem 14, what is the break-even price per unit that should be charged under the new credit policy? Assume that the sales figure under the new policy is 3,400 units and all other values remain the same. Problem 14 Current Policy New Policy $108

> Mau Corporation stock currently sells for $58.32 per share. The market requires a return of 11.5 percent on the firm’s stock. If the company maintains a constant 5 percent growth rate in dividends, what was the most recent dividend per share paid on the

> The next dividend payment by ECY, Inc., will be $3.20 per share. The dividends are anticipated to maintain a growth rate of 6 percent, forever. If ECY stock currently sells for $63.50 per share, what is the required return?

> In Problem 10, are the shareholders of Firm T better off with the cash offer or the stock offer? At what exchange ratio of B shares to T shares would the shareholders in T be indifferent between the two offers? Problem 10 Firm B Firm T Shares outstand

> You are evaluating Project A and Project B. Project A has a short period of future cash flows, while Project B has relatively long future cash flows. Which project will be more sensitive to changes in the required return? Why?

> Conoly Co. has identified an investment project with the following cash flows. If the discount rate is 10 percent, what is the present value of these cash flows? What is the present value at 18 percent? At 24 percent? Year ………………………Cash Flow 1 ………………………

> Firm A and Firm B have debt–total asset ratios of 35 percent and 55 percent and returns on total assets of 9 percent and 7 percent, respectively. Which firm has a greater return on equity?

> Why is the goal of financial management to maximize the current share price of the company’s stock? In other words, why isn’t the goal to maximize the future share price?

> Suppose the spot and six-month forward rates on the Norwegian krone are Kr 5.61 and Kr 5.72, respectively. The annual risk-free rate in the United States is 3 percent, and the annual risk-free rate in Norway is 5 percent. a. Is there an arbitrage opportu

> Why do so many firms file for legal bankruptcy when private workouts are so much less expensive?

> Acquiring firm stockholders seem to benefit little from takeovers. Why is this finding a puzzle? What are some of the reasons offered for it?

> Lealos, Inc., is considering a change in its cash-only sales policy. The new terms of sale would be net one month. Based on the following information, determine if Lealos should proceed or not. Describe the buildup of receivables in this case. The requir

> At least part of Dell’s corporate profits can be traced to its inventory management. Using just-in-time inventory, Dell typically maintains an inventory of three to four days’ sales. Competitors such as Hewlett-Packard and IBM have attempted to match Del

> No More Books Corporation has an agreement with Floyd Bank, whereby the bank handles $3.2 million in collections a day and requires a $350,000 compensating balance. No More Books is contemplating canceling the agreement and dividing its eastern region so

> Why might the revenue and cost figures shown on a standard income statement not represent the actual cash inflows and outflows that occurred during a period?

> The Germinating Flower Co. has earnings of $1.75 per share. The benchmark PE for the company is 18. What stock price would you consider appropriate? What if the benchmark PE were 21?

> Say you own an asset that had a total return last year of 12.5 percent. If the inflation rate last year was 5.3 percent, what was your real return?

> Niko has purchased a brand new machine to produce its High Flight line of shoes. The machine has an economic life of five years. The depreciation schedule for the machine is straight-line with no salvage value. The machine costs $575,000. The sales price

> You are discussing a project analysis with a coworker. The project involves real options, such as expanding the project if successful, or abandoning the project if it fails. Your coworker makes the following statement: “This analysis is ridiculous. We lo

> You are evaluating two different silicon wafer milling machines. The Techron I costs $215,000, has a three-year life, and has pretax operating costs of $35,000 per year. The Techron II costs $270,000, has a five-year life, and has pretax operating costs

> Suppose you are offered $7,000 today but must make the following payments: Year ………………………Cash Flows ($) 0 ……………………………………………….$ 7,000 1 …………………………………………………−3,700 2 ………………………………………………..−2,400 3 ………………………………………………..−1,500 4 ………………………………………………...−1,200 a.

> Projects A and B have the following cash flows: a. If the cash flows from the projects are identical, which of the two projects would have a higher IRR? Why? b. If C1B = 2C1A, C2B = 2C2A, and C3B = 2C3A, then is IRR A = IRR B ? Year Project A Proje

> Compute the future value of $1,900 continuously compounded for a. 7 years at a stated annual interest rate of 12 percent. b. 5 years at a stated annual interest rate of 10 percent. c. 12 years at a stated annual interest rate of 5 percent. d. 10 years at

> The TMCC security is bought and sold on the New York Stock Exchange. If you looked at the price today, do you think the price would exceed the $24,099 original price? Why? If you looked in the year 2019, do you think the price would be higher or lower th

> The Steiben Company has an ROE of 13.1 percent and a payout ratio of 40 percent. a. What is the company’s sustainable growth rate? b. Can the company’s actual growth rate be different from its sustainable growth rate? Why or why not? c. How can the compa

> Who owns a corporation? Describe the process whereby the owners control the firm’s management. What is the main reason that an agency relationship exists in the corporate form of organization? In this context, what kinds of problems can arise?

> Given the information for Anna’s Tennis Shop, Inc., in the previous two problems, suppose you also know that the firm’s net capital spending for 2012 was $945,000 and that the firm reduced its net working capital investment by $87,000. What was the firm’

> Critics have charged that compensation to top managers in the United States is simply too high and should be cut back. For example, focusing on large corporations, Larry Ellison of Oracle has been one of the best compensated CEOs in the United States, ea

> Suppose your company imports computer motherboards from Singapore. The exchange rate is given in Figure 31.1. You have just placed an order for 30,000 motherboards at a cost to you of 141.30 Singapore dollars each. You will pay for the shipment when it a

> Several firms have entered bankruptcy, or threatened to enter bankruptcy, at least in part as a means of reducing labor costs. Whether this move is ethical, or proper, is hotly debated. Is this an ethical use of bankruptcy?

> Cholern Electric Company (CEC) is a public utility that provides electricity to the central Colorado area. Recent events at its Mile-High Nuclear Station have been discouraging. Several shareholders have expressed concern over last yearâ€&#153

> Air Spares is a wholesaler that stocks engine components and test equipment for the commercial aircraft industry. A new customer has placed an order for eight high-bypass turbine engines, which increase fuel economy. The variable cost is $2.4 million per

> The newspaper reported last week that Bennington Enterprises earned $34 million this year. The report also stated that the firm’s return on equity is 16 percent. Bennington retains 80 percent of its earnings. What is the firm’s earnings growth rate? What

> An investment offers a 14 percent total return over the coming year. Alan Wingspan thinks the total real return on this investment will be only 10 percent. What does Alan believe the inflation rate will be over the next year?

> You are considering investing in a company that cultivates abalone for sale to local restaurants. Use the following information: Sales price per abalone…………………………… =$35 Variable costs per abalone……………………. =$6.10 Fixed costs per year………………………. =$375,000

> An option can often have more than one source of value. Consider a logging company. The company can log the timber today or wait another year (or more) to log the timber. What advantages would waiting one year potentially have?

> Take a look back at Figure 31.1 to answer the following questions: a. If you have $100, how many euros can you get? b. How much is one euro worth in dollars? c. If you have 5 million euros, how many dollars do you have? d. Which is worth more, a New Zeal

> Howell Petroleum is considering a new project that complements its existing business. The machine required for the project costs $3.8 million. The marketing department predicts that sales related to the project will be $2.5 million per year for the next

> A major college textbook publisher has an existing finance textbook. The publisher is debating whether to produce an “essentialized” version, meaning a shorter (and lower-priced) book. What are some of the considerations that should come into play? To a

> A project has an initial cost of I, has a required return of R, and pays C annually for N years. a. Find C in terms of I and N such that the project has a payback period just equal to its life. b. Find C in terms of I, N, and R such that this is a profit

> Consider the following two mutually exclusive projects available to Global Investments, Inc.: The appropriate discount rate for the projects is 10 percent. Global Investments chose to undertake Project A. At a luncheon for shareholders, the manager of

> An investor purchasing a British consol is entitled to receive annual payments from the British government forever. What is the price of a consol that pays $150 annually if the next payment occurs one year from today? The market interest rate is 4.6 perc

> Cheryl Colby, CFO of Charming Florist Ltd., has created the firm’s pro forma balance sheet for the next fiscal year. Sales are projected to grow by 10 percent to $420 million. Current assets, fixed assets, and short-term debt are 20 percent, 75 percent,

> Consider the ratio EBITD/Assets. What does this ratio tell us? Why might it be more useful than ROA in comparing two companies?

> The 2011 balance sheet of Anna’s Tennis Shop, Inc., showed $490,000 in the common stock account and $3.4 million in the additional paid-in surplus account. The 2012 balance sheet showed $525,000 and $3.7 million in the same two accounts, respectively. If

> In recent years, large financial institutions such as mutual funds and pension funds have become the dominant owners of stock in the United States, and these institutions are becoming more active in corporate affairs. What are the implications of this tr

> Some countries encourage movements in their exchange rate relative to those of some other country as a short-term means of addressing foreign trade imbalances. For each of the following scenarios, evaluate the impact the announcement would have on an Ame

> Suppose the exchange rate for the Swiss franc is quoted as SF 1.09 in the spot market and SF 1.11 in the 90-day forward market. a. Is the dollar selling at a premium or a discount relative to the franc? b. Does the financial market expect the franc to st

> Firms sometimes use the threat of a bankruptcy filing to force creditors to renegotiate terms. Critics argue that in such cases the firm is using bankruptcy laws “as a sword rather than a shield.” Is this an ethical tactic?

> The shareholders of Flannery Company have voted in favor of a buyout offer from Stultz Corporation. Information about each firm is given here: Flannery’s shareholders will receive one share of Stultz stock for every three shares they h

> What types of actions might the management of a firm take to fight a hostile acquisition bid from an unwanted suitor? How do the target firm shareholders benefit from the defensive tactics of their management team? How are the target firm shareholders ha

> The Arizona Bay Corporation sells on credit terms of net 30. Its accounts are, on average, 6 days past due. If annual credit sales are $9.3 million, what is the company’s balance sheet amount in accounts receivable?

> It takes Cookie Cutter Modular Homes, Inc., about five days to receive and deposit checks from customers. Cookie Cutter’s management is considering a lockbox system to reduce the firm’s collection times. It is expected that the lockbox system will reduce

> For each of the short-term marketable securities given here, provide an example of the potential disadvantages the investment has for meeting a corporation’s cash management goals: a. U.S. Treasury bills. b. Ordinary preferred stock. c. Negotiable certif

> Suppose the real rate is 2.4 percent and the inflation rate is 3.1 percent. What rate would you expect to see on a Treasury bill?

> U.S. Treasury bonds are not rated. Why? Often, junk bonds are not rated. Why?

> B&B has a new baby powder ready to market. If the firm goes directly to the market with the product, there is only a 55 percent chance of success. However, the firm can conduct customer segment research, which will take a year and cost $1.2 million. By g

> An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $7,100,000 and will be sold for $1,400,000 at the end of the project. If the tax rate is 35 percent, what is the aftertax salva

> When the Beacon Computer Company filed for bankruptcy under Chapter 7 of the U.S. bankruptcy code, it had the following balance sheet information: Assuming there are no legal fees associated with the bankruptcy, as a trustee, what distribution of liqu

> “When evaluating projects, we’re only concerned with the relevant incremental aftertax cash flows. Therefore, because depreciation is a noncash expense, we should ignore its effects when evaluating projects.” Critically evaluate this statement.

> Suppose the following two independent investment opportunities are available to Greenplain, Inc. The appropriate discount rate is 10 percent. a. Compute the profitability index for each of the two projects. b. Which project(s) should Greenplain accept