Cordona Corp. has bonds outstanding that will mature 12 years from now. These bonds are currently quoted at 110 percent above par value. The issue makes annual payments of $80 on $1,000 bond face value. What is Cordona’s cost of debt?
> a. If a firm has a return on equity (ROE) of 15 percent, a financial multiplier of 2, and does not pay any tax, what is its return on invested capital before tax? b. If a firm has an ROE of 15 percent, a financial cost effect of 0.9, and a pre-tax ROIC o
> Return on equity (ROE) can be estimated using financial statements (book value) or financial market data (market value). The book value of ROE over an accounting period is earnings after tax divided by owners’ equity. The market value of ROE is the retur
> From the balance sheets and income statements of OS Distributors in Exhibits 6.1, 6.2, and 6.3, compute the firm’s return on invested capital before tax (ROICBT) , return on capital employed before tax (ROICBT), return on business assets (ROBA), and retu
> The International Industrial Company has an investment project with the following cash flows: a. What is the net present value of these cash flows at 0, 25, 50, and 100 percent discount rates? b. What is the internal rate of return of this project? c. Un
> Ambersome Inc. has decided against borrowing and to have all its assets financed by equity. Furthermore, it intends to keep its payout ratio at 40 percent. Its assets turnover ratio is 0.9, its profit margin (defined as earnings before interest and tax d
> Indicate the effects of the following transactions on operating margin, invested capital turnover, and debt ratio. Use + to indicate an increase, – to indicate a decrease, and 0 to indicate no effect.
> Below are the last three years’ financial statements for Sentec Inc., a distributor of electrical fixtures. a. Compute Sentec Inc.’s working capital requirement (WCR) at year-end 1, year-end 2, and year-end 3. b. Prepa
> You can purchase a car with one of the following two financing plans. You make a down payment of $12,000 and 36 monthly payments of $400 starting immediately. Alternatively, you can make 60 monthly payments of $492 starting next month without any down pa
> Which of the following three companies has a matching, a conservative, and an aggressive financing strategy? Explain why.
> Mirandel Inc. is considering the acquisition of Tarantel Corp. Mirandel’s earnings after tax are $2 million, it has two million shares outstanding, and its price-to-earnings ratio (PER) is 20. Tarantel’s earnings are $1.5 million, it has 0.5 million shar
> Below are selected accounting data of four US firms: a. For each of the firms, compute the following: working capital requirement (WCR), WCR-to-revenue ratio, collection period in days (using 365 days per year), and inventory turnover (using revenue rath
> Following the bankruptcy of Lehmann Brothers on September 15, 2008, the short- term credit market came to a halt. Many companies found themselves unable to renew their short-term debt and fell into financial distress. If, at that time, your company held
> Algebra Ltd. is selling inventory management software for small to mid-sized firms. Currently, the computer program is sold only for cash. In order to increase its revenues, the company is considering the alternative of offering a credit for one month to
> It is often the case that suppliers offer their customers to either pay the full amount of the invoice within a certain number of days, for example within 30 days, or receive a discount if they pay earlier, for example within 15 days. The first option wo
> Maltonese Inc. has five million shares outstanding selling at $60 each, and its price- to-earnings ratio (PER) is 10. Targeton Corp. has 1.5 million shares outstanding with a market price of $30 each, and its PER is 6. Maltonese is considering the acquis
> Indicate which of the following four statements are right or wrong: a. Because working capital requirement (WCR) = net long-term financing ( NLF ) + net short-term financing (NSF), I can reduce my investment in the operating cycle by either reducing my l
> Use the following information to complete the balance sheet below. a. Collection period: 40 days b. Inventory turnover: 6 times sales c. Working capital requirement/sales: 20 percent d. Liabilities/total assets: 60 percent e. Cash in days of sales: 20 da
> Mars Electronics is a distributor for the Global Electric Company (GEC), a large manufacturer of electrical and electronics products for consumer and institutional markets. Below are the semi-annual financial statements of the company for the last year a
> Indicate the effects of the following transactions on net long-term financing (NLF), working capital requirement (WCR), net short-term financing (NSF), and net profit. Use  to indicate an increase,  to indicate a decre
> Indicate the effect of the following transactions on working capital requirement (WCR), net operating cash flow (CFOPE) , cash flow from investing activities (CFINV) , cash flow from financing activities (CFFIN) , and owners’ equity. Us
> a. What would be the compounded value of one dollar in three years if the annual interest rate is 3 percent in Year 1 and is expected to rise to 5 percent in Year 2 and 6 percent in Year 3? b. What constant annual interest rate would produce the same com
> Explain why each of the following statements is generally incorrect: a. “Price-earnings ratios should increase when the yield on government securities rises.” b. “A company’s discounted cash-flow value is usually dominated by the magnitude of its expecte
> Prepare the managerial balance sheet of the following US company balance sheet (the company applies US GAAP):
> Indicate the effect of the following transactions on the working capital requirement: a. More customers pay with cash instead of credit b. More of raw material is paid for with cash c. More discounts are offered to customers d. More finished goods are pr
> From the following data, reconstruct the balance sheet at the end of the year.
> The following chart plots the net present value (NPV) of projects A and B at different discount rates. The projects have similar risk and are mutually exclusive. a. What is the significance of the point on the graph where the two lines intersect? b. What
> Below is some income statement information on company ABD. Prepare an income statement for each of the three years. Show your computations.
> Below is some income statement information on company DEF. Prepare an income statement for each of the three years. Show your computations.
> Below are incomplete balance sheets of OQ Corporation (figures in millions). a. Compute the missing amounts, and show the balance sheet at year-ends 1, 2, 3, and 4. Show your computations. b. Comment on the asset and liability structure of the firm.
> Below are incomplete balance sheets of ABC Corporation (figures in millions). a. Compute the missing amounts and show the balance sheet at year-ends 1, 2, 3, and 4. Show your computations. b. What transactions might explain the change in total assets bet
> a. How would you explain that a firm can generate a profit, when at the same time its cash flow from operations is negative? b. How would you explain that a firm showing a net loss can have a positive cash flow from operations?
> Find the missing values for the following three firms. Show your computations.
> Below are the recent performances of four investment funds, a market index (M), and a risk-free asset (F): a. Fill in the empty cells in the table above. b. What are the alphas of the above portfolios? How did the investment funds perform?
> Why are companies with a weak board of directors likely to be under-levered (they would use less debt than the optimal amount they could issue)?
> A bank is charging you an annual interest rate that is compounded monthly. If the effective interest rate you are paying is 6.17 percent, what is the annual percentage rate (APR)?
> Shares of the Pacific Electric Corporation (PEC) have an estimated beta of 1.10. PEC funds its assets with 50 percent debt at an average after-tax cost of debt of 6 percent. The excess return on the market portfolio is 5 percent and the risk-free rate is
> A project with a cash outlay now is followed by positive expected cash flows in the future and a payback period less than its economic life. Is its net present value posi- tive or negative? Explain. Now suppose that the discounted payback period is less
> What are the potential sources of value creation and value destruction in a leveraged buyout when compared with an acquisition?
> Because the cost of debt is lower than the cost of equity, firms must increase their use of debt as much as possible to increase the firm’s value. What is your answer to this argument? From the capital asset pricing model presented in Chapter 12, how can
> Alberton Inc., an all-equity-financed equipment manufacturer, has announced that it will change its capital structure to one that will have 30 percent of debt, using the proceeds from the debt issue to buy back shares. The firm has one million shares out
> Assume a zero corporate tax rate. Because both the risk of a firm’s equity and debt increase with debt financing, then the value of the firm should decrease when it uses more and more debt. True or false?
> How can shareholders expropriate wealth from bondholders?
> Chloroline Inc. has two million shares outstanding and no debt. Earnings before interest and tax (EBIT) are projected to be $15 million under normal conditions, $5 million for a downturn in the economic environment, and $20 million for an economic expans
> FarWest Inc. manufactures telecommunication equipment and communication soft- ware. The equipment division is asking the finance department of FarWest for an estimate of its cost of capital. FarWest can borrow long term at 7 percent; its corporate tax ra
> Stock A has an expected return of 13 percent and a 25 percent volatility. Stock B has an expected return of 9 percent and a 30 percent volatility. An investor can only purchase one of the two stocks. a. An investor bought stock A. What is her attitude to
> You have been asked to estimate the cost of capital for the CAT corporation. The com- pany has 4 million shares and 125,000 bonds outstanding at par value $1,000. In addi- tion, it has $20 million in short-term debt from its bank. The target capital stru
> Suppose that Tale Inc. has the following target capital structure: 50 percent stock, 40 percent debt, and 10 percent preferred stock. Its cost of equity is estimated at 10 percent, that of debt 6 percent, and that of preferred stock 4.5 percent. The tax
> According to the capital asset pricing model: where E (Ri) – the expected return on security i – is the sum of the return on a risk-free investment /the expected extra return over the risk-free rate for taking on the r
> The dividend of Onogo Inc. is currently $2 per share and is supposed to grow at 5 percent a year forever. Its share price is $50. Its beta is 1.08. The market risk premium is 5 percent and the risk-free rate is 4 percent. What is your best estimate of On
> Your chief operating officer argues the following: a. “Our stock price is currently $60, and our dividend per share is $6. It means that it costs us 10 percent to use shareholders’ cash ($6 divided by $60).” b. “From our balance sheet our liabilities are
> Do you agree or disagree with the following statements? Explain. a. “The best forecast of future returns on the stock market is the average over the past ten years of historical returns.” b. “Because stocks offer a higher return over the long term than b
> A diversified company plans to sell a division as part of a restructuring program. The division to be sold is a regional airline that was acquired by a previous management. The finance department has been asked by the chief executive officer (CEO) to est
> The following table shows the annual realized returns on the following US securities from 1997 to 2016: the stock market (S&P 500), corporate bonds, government bonds, and Treasury bills. a. Theory suggests that the riskier the investment, the higher
> The Rolleston Company (TRC), an all-equity financed company, generates perpetual free cash flow of $40 million. It holds $100 million of cash, has 50 million shares outstanding, and its shareholders require a 10 percent return on their investment in the
> A junior employee, who just turned 25, decides to set up a personal retirement fund to supplement her government-funded pension plan during her first 20 years of retirement. She wants to have an annual income of $50,000 starting when she turns 65 and end
> What is the interest rate that makes you indifferent between $1,000 in one year and $1,180 in three years?
> What should the company do now to regain its customers trust?
> Did United Airlines engage in effective crisis management, and why or why not? If you were the public relations manager at United Airlines, what steps would you have recommended the company take when these incidents occurred?
> Did these incidents constitute a crisis, as defined in the chapter?
> Did these incidents impact the firm corporate identity or corporate image, or both, as described in the chapter?
> What was the impact of the incidents described in the case on United Airlines reputation?
> Would Salesforce philanthropic programs lead you to consider working for this company, and why or why not?
> If you were a corporate philanthropy manager for Salesforce, how would you evaluate the impact of the company giving? What kinds of impacts would you attempt to measure?
> What are the benefits and risks to Salesforce of its approach to philanthropy?
> Do you consider Salesforce various charitable initiatives to exemplify strategic philanthropy, as defined in this chapter? Why or why not?
> What does integrated philanthropy mean, and how does it compare with the philanthropic initiatives of other companies discussed in this chapter?
> If you applied the strategic radar screens model to this case, which of the eight environments would be most significant, and why?
> What evidence do you see in this case of the three kinds of corporate philanthropy discussed in this chapter: contributions of cash, in-kind products or services, and employee time?
> What more, if anything, could IKEA do now to improve sustainability in the cotton sector?
> What motivated actors throughout the complex cotton supply chain to comply with IKEA sustainability goals?
> What were the advantages and disadvantages to IKEA of working collaboratively with other companies and NGOs to improve sustainability in its cotton supply chain?
> What characteristics of the cotton supply chain made enforcing its code of conduct especially challenging for IKEA?
> What social, ethical, and environmental risks were present in IKEA cotton supply chain?
> Draw a supply chain map of IKEA cotton supply chain.
> What do you think Xiuying will do? What do you think she should do? Why?
> If an employer request to change someone name is intended to make it easier for others to pronounce, is this a violation of Title VII? Why or why not?
> If you were an HR manager for one of the companies described in the case, what changes would you make to ensure that the hiring process was fair and inclusive? What changes would you make to promote an inclusive and equitable corporate culture?
> Describe the performance “expectations gap found in the case. What were the stakeholders (consumers, employees, legislators) expectations, and how did they differ from Robinhood’s performance?
> Even though it was discovered that a disgruntled employee fraudulently sent posts to Black applicants rejecting their applications based on their names, should Mantality be held responsible?
> Do you think that Jinghua, Francisco, and Dhiriti nicknames promote or hamper workplace inclusion? Explain your answer.
> What dimensions of diversity are represented in a name?
> How would the PRO Act affect situations similar to the union campaign described in this case?
> Why do you believe that Amazon opposed the unionization of its employees? Would unionization of its workers benefit Amazon in any way?
> Amazon efforts to counter efforts to unionize are legal, but are these efforts ethical?
> Amazon has consistently defeated worker efforts to unionize. What factors make it particularly difficult for Amazon workers to unionize?
> Why do you think management was unresponsive to employee concerns? What factors could prevent managers from addressing employee concerns?
> Which workplace rights were violated in this situation?
> Was the settlement fair to consumers, or not?
> What was the public issue facing Robinhood in this case?
> What are the advantages and disadvantages to consumers of a class action lawsuit of the kind described here?
> If you were an owner of a VW, Audi, or Porsche vehicle equipped with a defeat device, what would be your options? What would you choose to do, and why?
> What were the potential benefits and risks to Volkswagen of its decision to defraud consumers and regulators?
> Did Volkswagen violate any U.S. consumer protection laws, and if so, which ones?
> In what ways were consumers (car owners) harmed by Volkswagen actions?
> What do you recommend senior executives and the board of Wynn Resorts do now?
> Do you think Wynn Resorts institutional and individual shareholders used the rights described in this chapter effectively to protect their interests? Why or why not?
> Did the board of directors of Wynn Resorts operate according to the principles of good corporate governance, as described in this chapter? Why or why not?
> Do you think Steve Wynn executive compensation was justified, and why or why not?
> If you were the chief technology officer of a company that was developing autonomously driven vehicles, what steps would you take to manage this technology appropriately?
> If you were a member of Robinhood’s leadership team, what would you have decided to do (or not to do) in the face of emerging concerns about online investing apps?
