Question: Highly Suspect Corp. has current liabilities of $

> Storico Co. just paid a dividend of $3.15 per share. The company will increase its dividend by 20 percent next year and then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent dividend growt

> In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the “terminal” stock price using a benchmark PE ratio. Suppose a company just paid a dividend of $1.36.

> Bronco, Inc., imposes a payback cutoff of three years for its international investment projects. If the company has the following two projects available, should it accept either of them? ,,,

> RAK, Inc., currently has an EPS of $2.45 and an earnings growth rate of 8 percent. If the benchmark PE ratio is 23, what is the target share price five years from now?

> Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows:Year …………………………………………………………………………………………….. Cash Flow0 ……………………………………………………………………………………………… −$1,275,0001 …………………………………………………………………………………………

> Big Dom’s Pawn Shop charges an interest rate of 27 percent per month on loans to its customers. Like all lenders, Big Dom must report an APR to consumers. What rate should the shop report? What is the effective annual rate?

> McKeekin Corp. has a project with the following cash flows: Year ………………………………………………………………….. Cash Flow0 ………………………………………………………………………… $25,0001 ………………………………………………………………………… − 11,0002 …………………………………………………………………………….. 7,000What is the IRR of the project? What

> A project has the following cash flows: Year …………………………………………………………………………………………. Cash Flow0 ………………………………………………………………………………………………... $59,0001 ……………………………………………………………………………………………….. − 34,0002 ………………………………………………………………………………………………… − 39,000What is the IRR fo

> The Yurdone Corporation wants to set up a private cemetery business. According to the CFO, Barry M. Deep, business is “looking up.” As a result, the cemetery project will provide a net cash inflow of $145,000 for the firm during the first year, and the c

> Use the Black-Scholes model for pricing a call, put-call parity, and Problem 25 to show that the Black-Scholes model for directly pricing a put can be written as:P = E × e Rt × N (d2) − S × N (d1)

> This problem is useful for testing the ability of financial calculators and spreadsheets. Consider the following cash flows. How many different IRRs are there? (Hint: Search between 20 percent and 70 percent.) When should we take this project?Year ………………

> An investment under consideration has a payback of seven years and a cost of $685,000. If the required return is 11 percent, what is the worst-case NPV? The best-case NPV? Explain. Assume the cash flows are conventional.

> E-Eyes.com just issued some new preferred stock. The issue will pay an annual dividend of $20 in perpetuity, beginning 20 years from now. If the market requires a return of 5.65 percent on this investment, how much does a share of preferred stock cost to

> Mannix Corporation stock currently sells for $57 per share. The market requires a return of 11 percent on the firm’s stock. If the company maintains a constant 3.75 percent growth rate in dividends, what was the most recent dividend per share paid on the

> Suppose the company in the previous problem uses a discount rate of 11 percent and a reinvestment rate of 8 percent on all of its projects. Calculate the MIRR of the project using all three methods using these interest rates.Data from Problem 19:Solo Cor

> An investment project provides cash inflows of $745 per year for eight years. What is the project payback period if the initial cost is $1,700? What if the initial cost is $3,300? What if it is $6,100?

> An investment will pay you $80,000 in 10 years. If the appropriate discount rate is 9 percent compounded daily, what is the present value?

> Solo Corp. is evaluating a project with the following cash flows: Year ………………………………………………………………………………………………. Cash Flow0 …………………………………………………………………………………………………… −$47,0001 …………………………………………………………………………………………………………. 16,9002 ……………………………………………………………………………………………

> An investment has an installed cost of $527,630. The cash flows over the four-year life of the investment are projected to be $212,200, $243,800, $203,500, and $167,410, respectively. If the discount rate is zero, what is the NPV? If the discount rate is

> Consider the following two mutually exclusive projects: Whichever project you choose, if any, you require a return of 11 percent on your investment.a. If you apply the payback criterion, which investment will you choose? Why?b. If you apply the discount

> The Sloan Corporation is trying to choose between the following two mutually exclusive design projects: a. If the required return is 10 percent and the company applies the profitability index decision rule, which project should the firm accept?b. If the

> In the previous problem, instead of a perpetual growth rate in adjusted cash flow from assets, you decide to calculate the terminal value of the company with the price-sales ratio. You believe that Year 5 sales will be $16.9 million and the appropriate p

> What is the profitability index for the following set of cash flows if the relevant discount rate is 10 percent? What if the discount rate is 15 percent? If it is 22 percent? Year ……………………………………………………………………………….. Cash Flow0 ………………………………………………………………………………

> Light Sweet Petroleum, Inc., is trying to evaluate a generation project with the followingcash flows:Year …………………………………………………………………………………………… Cash Flow0 ………………………………………………………………………………………… −$48,000,0001 ……………………………………………………………………………………………… 71,000,0002 ………

> Consider the following two mutually exclusive projects:

> Bruin, Inc., has identified the following two mutually exclusive projects:b. If the required return is 11 percent, what is the NPV for each of these projects? Which project will the company choose if it applies the NPV decision rule?c. Over what range of

> For the cash flows in the previous problem, what is the NPV at a discount rate of zero percent? What if the discount rate is 10 percent? If it is 20 percent? If it is 30 percent?

> Spartan Credit Bank is offering 8.1 percent compounded daily on its savings accounts. If you deposit $6,500 today, how much will you have in the account in 5 years? In 10 years? In 20 years?

> What is the IRR of the following set of cash flows? Year ……………………………………………………………………………………… Cash Flow0 …………………………………………………………………………………………… −$15,4001 ………………………………………………………………………………………………… 7,3002 …………………………………………………………………………………………………. 9,1003 ………………………………………

> What is the payback period for the following set of cash flows?Year …………………………………………………………………………………….. Cash Flow0 ……………………………………………………………………………………………. −$8,3001 ………………………………………………………………………………………….……. 2,1002 ……………………………………………………………………………………………….. 3,0003 ……

> Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $3.65 next year. The growth rate in dividends for all three companies is 4 percent. The required return for each company’s stock is 8 percent, 11 percent, and 14 percent, respectively.

> Bedekar, Inc., has an issue of preferred stock outstanding that pays a $3.40 dividend every year in perpetuity. If this issue currently sells for $91 per share, what is the required return?

> Burnett Corp. pays a constant $8.25 dividend on its stock. The company will maintain this dividend for the next 13 years and will then cease paying dividends forever. If the required return on this stock is 11.2 percent, what is the current share price?

> The put-call parity condition is altered when dividends are paid. The dividend adjusted put-call parity formula is:S × e dt + P =E × e Rt + Cwhere d is again the continuously compounded dividend yield.a. What effect do you think the dividend yield will h

> Suppose you know that a company’s stock currently sells for $74 per share and the required return on the stock is 10.6 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it’s

> Grateful Eight Co. is expected to maintain a constant 3.7 percent growth rate in its dividends indefinitely. If the company has a dividend yield of 5.6 percent, what is the required return on the company’s stock?

> Hudson Corporation will pay a dividend of $3.28 per share next year. The company pledges to increase its dividend by 3.75 percent per year indefinitely. If you require a return of 10 percent on your investment, how much will you pay for the company’s sto

> For the company in the previous problem, what is the dividend yield? What is the expected capital gains yield?Previous problem:The next dividend payment by Savitz, Inc., will be $2.34 per share. The dividends are anticipated to maintain a growth rate of

> What is the future value of $3,100 in 17 years assuming an interest rate of 8.4 percent compounded semiannually?

> The most recent financial statements for Alexander Co. are shown here:Assets and costs are proportional to sales. The company maintains a constant 40 percent dividend payout ratio and a constant debt-equity ratio. What is the maximum increase in sales th

> Given the information for Kerber’s Tennis Shop, Inc., in Problems 8 and 9, suppose you also know that the firm’s net capital spending for 2018 was $1,250,000 and that the firm reduced its net working capital investment by $45,000. What was the firm’s 201

> Wims, Inc., has current assets of $4,900, net fixed assets of $27,300, current liabilities of $4,100, and long-term debt of $10,200. What is the value of the shareholders’ equity account for this firm? How much is net working capital?

> Smolira Golf Corp. has 20,000 shares of common stock outstanding, and the market price for a share of stock at the end of 2018 was $58. What is the price-earnings ratio? What are the dividends per share? What is the market-to-book ratio at the end of 201

> Prepare the 2018 statement of cash flows for Smolira Golf Corp.

> Construct the DuPont identity for Smolira Golf Corp.

> Find the following financial ratios for Smolira Golf Corp. (use year-end figures rather than average values where appropriate):Short-term solvency ratios:Current ratio. Quick ratio. Cash ratio. Asset utilization ratios:Total asset turnover. Inventory tur

> Prince Albert Canning PLC had a net loss of £29,157 on sales of £315,650. What was the company’s profit margin? Does the fact that these figures are quoted in a foreign currency make any difference? Why? In dollars, sales were $395,183. What was the net

> BQ, Inc., is considering making an offer to purchase iReport Publications. The vice president of finance has collected the following information:BQ also knows that securities analysts expect the earnings and dividends of iReport to grow at a constant rat

> For the company in Problem 6, what is the sustainable growth rate?Data from Problem 6:The most recent financial statements for Bello Co. are shown here:

> Pop Evil Inc.’s net income for the most recent year was $16,481. The tax rate was 34 percent. The firm paid $3,681 in total interest expense and deducted $4,385 in depreciation expense. What was the cash coverage ratio for the year?

> Firm A and Firm B have debt-total asset ratios of 65 percent and 45 percent, respectively, and returns on total assets of 5 percent and 9 percent, respectively. Which firm has a greater return on equity?

> In response to complaints about high prices, a grocery chain runs the following advertising campaign: “If you pay your child $1.50 to go buy $50 worth of groceries, then your child makes twice as much on the trip as we do.” You’ve collected the following

> The Maurer Company has a long-term debt ratio of .35 and a current ratio of 1.30. Current liabilities are $955, sales are $7,210, profit margin is 8.3 percent, and ROE is 17.5 percent. What is the amount of the firm’s net fixed assets?

> DTO, Inc., has sales of $16.7 million, total assets of $12.9 million, and total debt of $5.7 million. If the profit margin is 5 percent, what is net income? What is ROA? What is ROE?

> A company has net income of $196,500, a profit margin of 6.8 percent, and an accounts receivable balance of $119,630. Assuming 65 percent of sales are on credit, what is the company’s days’ sales in receivables?

> Y3K, Inc., has sales of $6,183, total assets of $2,974, and a debt-equity ratio of .57. If its return on equity is 11 percent, what is its net income?

> Based on the balance sheets given for Just Dew It, calculate the following financial ratios for each year: b. Quick ratio.c. Cash ratio.d. NWC to total assets ratioe. Debt-equity ratio and equity multiplier.f. Total debt ratio and long-term debt ratio.

> Harrods PLC has a market value of £95 million and 4.5 million shares outstanding. Selfridge Department Store has a market value of £32 million and 1.8 million shares outstanding. Harrods is contemplating acquiring Selfridge. Harrods’s CFO concludes that

> For each account on this company’s balance sheet, show the change in the account during 2018 and note whether this change was a source or use of cash. Do your numbers add up and make sense? Explain your answer for total assets as compar

> The most recent financial statements for Bello Co. are shown here:

> Prepare the 2018 combined common-size, common-base year balance sheet for Just Dew It.

> Prepare the 2018 common-base year balance sheet for Just Dew It.

> Prepare the 2017 and 2018 common-size balance sheets for Just Dew It.

> SME Company has a debt-equity ratio of .57. Return on assets is 7.9 percent, and total equity is $620,000. What is the equity multiplier? Return on equity? Net income?

> The market value of the equity of Hudgins, Inc., is $645,000. The balance sheet shows $53,000 in cash and $215,000 in debt, while the income statement has EBIT of $91,000 and a total of $157,000 in depreciation and amortization. What is the enterprise va

> Heritage, Inc., had a cost of goods sold of $68,314. At the end of the year, the accounts payable balance was $15,486. How long on average did it take the company to pay off its suppliers during the year? What might a large value for this ratio imply?

> SDJ, Inc., has net working capital of $2,170, current liabilities of $4,590, and inventory of $3,860. What is the current ratio? What is the quick ratio?

> The 2017 balance sheet of Kerber’s Tennis Shop, Inc., showed $650,000 in the common stock account and $3.98 million in the additional paid-in surplus account. The 2018 balance sheet showed $805,000 and $4.2 million in the same two accounts, respectively.

> Return to the case of the diagnostic scanner used in Problems 1 through 6. Suppose the entire $4,800,000 purchase price of the scanner is borrowed. The rate on the loan is 8 percent, and the loan will be repaid in equal installments. Create a lease-versu

> The 2017 balance sheet of Kerber’s Tennis Shop, Inc., showed long-term debt of $1.87 million, and the 2018 balance sheet showed long-term debt of $2.21 million. The 2018 income statement showed an interest expense of $255,000. What was the firm’s cash fl

> The 2017 balance sheet of Dream, Inc., showed current assets of $4,810 and current liabilities of $2,230. The 2018 balance sheet showed current assets of $5,360 and current liabilities of $2,970. What was the company’s 2018 change in net working capital,

> The most recent financial statements for Assouad, Inc., are shown here:

> Logano Driving School’s 2017 balance sheet showed net fixed assets of $2.4 million, and the 2018 balance sheet showed net fixed assets of $3.3 million. The company’s 2018 income statement showed a depreciation expense of $319,000. What was net capital sp

> Pompeii, Inc., has sales of $46,200, costs of $23,100, depreciation expense of $2,200, and interest expense of $1,700. If the tax rate is 22 percent, what is the operating cash flow, or OCF?

> Suppose the firm in Problem 3 had 80,000 shares of common stock outstanding. What is the earnings per share, or EPS, figure? What is the dividends per share figure?Problem 3:Suppose the firm in Problem 2 paid out $95,000 in cash dividends. What is the ad

> Suppose the firm in Problem 2 paid out $95,000 in cash dividends. What is the addition to retained earnings?Data from Problem 2:Griffin’s Goat Farm, Inc., has sales of $796,000, costs of $327,000, depreciation expense of $42,000, interest expense of $34,

> For 2018, calculate the cash flow from assets, cash flow to creditors, and cash flow to stockholders

> Draw up an income statement and balance sheet for this company for 2017 and 2018

> On the balance sheet, the net fixed assets (NFA) account is equal to the gross fixed assets (FA) account (which records the acquisition cost of fixed assets) minus the accumulated depreciation (AD) account (which records the total depreciation taken by t

> Automobiles are often leased, and several terms are unique to auto leases. Suppose you are considering leasing a car. The price you and the dealer agree on for the car is $41,900. This is the base capitalized cost. Other costs added to the capitalized co

> Griffin’s Goat Farm, Inc., has sales of $796,000, costs of $327,000, depreciation expense of $42,000, interest expense of $34,000, and a tax rate of 21 percent. What is the net income for this firm?

> Consider the following abbreviated financial statements for Parrothead Enterprises:a. What is owners’ equity for 2017 and 2018?b. What is the change in net working capital for 2018?c. In 2018, Parrothead Enterprises purchased $2,496 in

> Cardinal Industries had the following operating results for 2018: Sales = $33,106; Cost of goods sold = $23,624; Depreciation expense = $5,877; Interest expense = $2,650; Dividends paid = $1,888. At the beginning of the year, net fixed assets were $19,82

> The most recent financial statements for Cardinal, Inc., are shown here:

> In Problem 16, suppose Raines Umbrella Corp. paid out $102,000 in cash dividends. Is this possible? If net capital spending and net working capital were both zero, and if no new stock was issued during the year, what do you know about the firm’s long-ter

> During 2018, Raines Umbrella Corp. had sales of $705,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $445,000, $95,000, and $140,000, respectively. In addition, the company had an interest expense of $70,000 a

> Bishop, Inc., is obligated to pay its creditors $7,800 during the year. a. What is the market value of the shareholders’ equity if assets have a market value of $9,400? b. What if assets equal $6,700?

> Prepare a 2018 balance sheet for Rogers Corp. based on the following information: Cash = $127,000; Patents and copyrights = $660,000; Accounts payable = $210,000; Accounts receivable = $115,000; Tangible net fixed assets = $1,610,000; Inventory = $286,00

> Square Hammer Corp. shows the following information on its 2018 income statement: Sales = $305,000; Costs = $176,000; Other expenses = $8,900; Depreciation expense = $18,700; Interest expense = $12,900; Taxes = $23,345; Dividends = $19,500. In addition,

> Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $6 million. The machinery can be sold to the Romulans today for $5.1 million. Klingon’s current balance sheet shows net fixed assets of $3.4 million, current liabilities of $895,

> An asset costs $630,000 and will be depreciated in a straight-line manner over its three-year life. It will have no salvage value. The lessor can borrow at 6 percent and the lessee can borrow at 9 percent. The corporate tax rate is 21 percent for both co

> In the chapter, we discussed the two versions of the sustainable growth rate formula. Derive the formula ROE × b from the formula given in the chapter, where ROE is based on beginning of period equity. Also, derive the formula ROA × b from the internal g

> Based on the result in Problem 30, show that the internal and sustainable growth rates are as given in the chapter. Hint: For the internal growth rate, set EFN equal to zero and solve for g. Data from Problem 30: Define the following: Assu

> What is Tobin’s Q for Smolira Golf? What assumptions are you making about the book value of debt and the market value of debt? What about the book value of assets and the market value of assets? Are these assumptions realistic? Why or w

> The most recent financial statements for Kerch, Inc., are shown here (assuming no income taxes):

> Sig, Inc., wishes to maintain a growth rate of 12 percent per year and a debt-equity ratio of .43. The profit margin is 5.9 percent, and the ratio of total assets to sales is constant at 1.80. Is this growth rate possible? To answer, determine what the d

> Redo Problem 26 using sales growth rates of 30 and 35 percent in addition to 20 percent. Assume the firm wishes to maintain its debt-equity ratio. Illustrate graphically the relationship between EFN and the growth rate, and use this graph to determine th

> Redo Problem 24 using sales growth rates of 15 and 25 percent in addition to 20 percent. Illustrate graphically the relationship between EFN and the growth rate, and use this graph to determine the relationship between them. At what growth rate is the EF

> In Problem 24, suppose the firm wishes to keep its debt-equity ratio constant. What is EFN now?Data from Problem 24:The most recent financial statements for Crosby, Inc., follow. Sales for 2018 are projected to grow by 20 percent. Interest expense will r

> In the previous problem, suppose the firm was operating at only 80 percent capacity in 2017. What is EFN now?Data from Problem 24The most recent financial statements for Crosby, Inc., follow. Sales for 2018 are projected to grow by 20 percent. Interest e