Question: Makers Corp. had additions to retained earnings

> Colosseum Corp. has a zero coupon bond that matures in five years with a face value of $65,000. The current value of the company’s assets is $62,000, and the standard deviation of its return on assets is 34 percent per year. The risk-free rate is 7 perce

> In the previous problem, assume that the company uses cumulative voting, and there are four seats in the current election. How much will it cost you to buy a seat now?Previous problem:After successfully completing your corporate finance class, you feel t

> After successfully completing your corporate finance class, you feel the next challenge ahead is to serve on the board of directors of Schenkel Enterprises. Unfortunately, you will be the only person voting for you. If the company has 650,000 shares outs

> First National Bank charges 13.1 percent compounded monthly on its business loans. First United Bank charges 13.4 percent compounded semiannually. As a potential borrower, which bank would you go to for a new loan?

> The Jackson-Timberlake Wardrobe Co. just paid a dividend of $2.15 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. If investors require a return of 10.5 percent on the company’s stock, what

> You find a zero coupon bond with a par value of $10,000 and 17 years to maturity. If the yield to maturity on this bond is 4.2 percent, what is the price of the bond? Assume semiannual compounding periods.

> McConnell Corporation has bonds on the market with 14.5 years to maturity, a YTM of 5.3 percent, a par value of $1,000, and a current price of $1,045. The bonds make semiannual payments. What must the coupon rate be on these bonds?

> West Corp. issued 25-year bonds two years ago at a coupon rate of 5.3 percent. The bonds make semiannual payments. If these bonds currently sell for 105 percent of par value, what is the YTM?

> Weismann Co. issued 15-year bonds a year ago at a coupon rate of 4.9 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 4.5 percent, what is the current bond price?

> Gabriele Enterprises has bonds on the market making annual payments, with eight years to maturity, a par value of $1,000, and selling for $948. At this price, the bonds yield 5.1 percent. What must the coupon rate be on the bonds?

> A Japanese company has a bond outstanding that sells for 105.43 percent of its ¥100,000 par value. The bond has a coupon rate of 3.4 percent paid annually and matures in 16 years. What is the yield to maturity of this bond?

> At one point, certain U.S. Treasury bonds were callable. Consider the prices in the following three Treasury issues as of May 15, 2017:

> Zevon Industries has a zero coupon bond issue that matures in two years with a face value of $40,000. The current value of the company’s assets is $26,700, and the standard deviation of the return on assets is 60 percent per year.a. Assume the risk-free

> Jallouk Corporation has two different bonds currently outstanding. Bond M has a face value of $20,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $900 every six months over the subsequent eight years, and finall

> Find the APR, or stated rate, in each of the following cases:

> The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY).a. Suppose that today you buy a bond with

> Bond P is a premium bond with a coupon rate of 9 percent. Bond D has a coupon rate of 5 percent and is currently selling at a discount. Both bonds make annual payments, have a YTM of 7 percent, and have 10 years to maturity. What is the current yield for

> You want to have $2.5 million in real dollars in an account when you retire in 40 years. The nominal return on your investment is 10.3 percent and the inflation rate is 3.7 percent. What real amount must you deposit each year to achieve your goal?

> You are looking at an investment that has an effective annual rate of 11.6 percent. What is the effective semiannual return? The effective quarterly return? The effective monthly return?

> Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 23 years to maturity, and a coupon rate

> Suppose your company needs to raise $53 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 5.3 percent, and you’re evaluating two issue alternatives: a semiannual coupon bond with a coupon

> Imagination Dragons Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 25-year zero coupon bonds with a par value of $1,000 each to raise the money. The required return ona. the bonds will be 4.9 percent. Assume se

> If the appropriate discount rate for the following cash flows is 9 percent compounded quarterly, what is the present value of the cash flows? Year …………………………….……………………. Cash Flow1 …….……………………………………………..…………. $ 8152 ………………………………………………………………… 9903………………………

> Suppose the following bond quotes for IOU Corporation appear in the financial page of today’s newspaper. Assume the bond has a face value of $2,000 and the current date is April 19, 2018. What is the yield to maturity of the bond? What

> A company has a single zero coupon bond outstanding that matures in five years with a face value of $17.5 million. The current value of the company’s assets is $15.9 million, and the standard deviation of the return on the firm’s assets is 41 percent per

> Find the EAR in each of the following cases:

> Excey Corp. has 8 percent coupon bonds making annual payments with a YTM of 7.2 percent. The current yield on these bonds is 7.55 percent. How many years do these bonds have left until they mature?

> You purchase a bond with a coupon rate of 5.3 percent and a clean price of $951. If the next semiannual coupon payment is due in two months, what is the invoice price?

> Calculate the internal growth rate for the company in Problem 22. Now calculate the internal growth rate using ROA × b for both beginning of period and end of period total assets. What do you observe?Data from Problem 22:Gilmore, Inc., had equity of $145

> You’ve collected the following information about Molino, Inc.:What is the sustainable growth rate for the company? If it does grow at this rate, how much new borrowing will take place in the coming year, assuming a constant debt-equity

> Based on the following information, calculate the sustainable growth rate for Hendrix Guitars, Inc.:,,,

> In Question 1, assume the company pays out half of net income in the form of a cash dividend. Costs and assets vary with sales, but debt and equity do not. Prepare the pro forma statements and determine the external financing needed.Data from Question 1:

> A firm wishes to maintain an internal growth rate of 7.1 percent and a dividend payout ratio of 25 percent. The current profit margin is 6.5 percent, and the firm uses no external financing sources. What must total asset turnover be?

> Ramble On Co. wishes to maintain a growth rate of 12 percent per year, a debt-equity ratio of .90, and a dividend payout ratio of 25 percent. The ratio of total assets to sales is constant at 0.85. What profit margin must the firm achieve?

> You purchase a bond with an invoice price of $948. The bond has a coupon rate of 5.9 percent, and there are four months to the next semiannual coupon date. What is the clean price of the bond?

> For the company in Problem 16, suppose fixed assets are $520,000 and sales are projected to grow to $790,000. How much in new fixed assets are required to support this growth in sales? Assume the company wants to operate at full capacity.Data from Proble

> Hodgkiss Mfg., Inc., is currently operating at only 91 percent of fixed asset capacity. Current sales are $715,000. How fast can sales grow before any new fixed assets are needed?

> Assuming the following ratios are constant, what is the sustainable growth rate?,,,

> Based on the following information, calculate the sustainable growth rate for Kaleb’s Heavy Equipment:,,,

> The Wildcat Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling system for its oil exploration business. Management has decided that it must use the system to stay competitive; it will provide $2.3 million in annual p

> If Synyster Corp. has an ROE of 14.7 percent and a payout ratio of 30 percent, what is itss ustainable growth rate?

> If A7X Co. has an ROA of 7.6 percent and a payout ratio of 25 percent, what is its internal growth rate?

> From the previous two questions, prepare a pro forma balance sheet showing EFN, assuming an increase in sales of 15 percent, no new external debt or equity financing, and a constant payout ratio.Data from Problem 9:Consider the following income statement

> The balance sheet for the Heir Jordan Corporation follows. Based on this information and the income statement in the previous problem, supply the missing information using the percentage of sales approach. Assume that accounts payable vary with sales, wh

> Consider the following simplified financial statements for the Wims Corporation (assuming no income taxes):

> Chamberlain Co. wants to issue new 20-year bonds for some much-needed expansion projects. The company currently has 6 percent coupon bonds on the market that sell for $1,083, make semiannual payments, and mature in 20 years. What coupon rate should the c

> Based only on the following information for Thrice Corp., did cash go up or down? By how much? Classify each event as a source or use of cash.Decrease in inventory ………………………………………………………………………….. $375Decrease in accounts payable ………………………………………………………………….

> Jack Corp. has a profit margin of 6.4 percent, total asset turnover of 1.77, and ROE of 15.84 percent. What is this firm’s debt-equity ratio?

> If Roten Rooters, Inc., has an equity multiplier of 1.27, total asset turnover of 2.10, and a profit margin of 6.1 percent, what is its ROE?

> Queen, Inc., has a total debt ratio of .46. What is its debt-equity ratio? What is its equity multiplier?

> The Wildcat Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling system for its oil exploration business. Management has decided that it must use the system to stay competitive; it will provide $2.3 million in annual p

> The King Corporation has ending inventory of $386,735, and cost of goods sold for the year just ended was $4,981,315. What is the inventory turnover? The days’ sales in inventory? How long on average did a unit of inventory sit on the shelf before it was

> A check-cashing store is in the business of making personal loans to walk-up customers. The store makes only one-week loans at 6.8 percent interest per week. a. What APR must the store report to its customers? What EAR are customers actually paying? b. N

> You have 45 years left until retirement and want to retire with $4 million. Your salary is paid annually, and you will receive $50,000 at the end of the current year. Your salary will increase at 3 percent per year, and you can earn an annual return of 9

> Twist Corp. has a current accounts receivable balance of $537,810. Credit sales for the year just ended were $5,473,640. What is the receivables turnover? The days’ sales in receivables? How long did it take on average for credit customers to pay off the

> Workman Software has 6.4 percent coupon bonds on the market with 18 years to maturity. The bonds make semiannual payments and currently sell for 94.31 percent of par. What is the current yield on the bonds? The YTM? The effective annual yield?

> What is the value of an investment that pays $25,000 every other year forever, if the first payment occurs one year from today and the discount rate is 7 percent compounded daily? What is the value today if the first payment occurs four years from today?

> Your financial planner offers you two different investment plans. Plan X is an annual perpetuity of $35,000 per year. Plan Y is an annuity for 15 years and an annual payment of $47,000. Both plans will make their first payment one year from today. At wha

> A financial planning service offers a college savings program. The plan calls for you to make six annual payments of $15,000 each, with the first payment occurring today, your child’s 12th birthday. Beginning on your child’s 18th birthday, the plan will

> You have just arranged for a $2,350,000 mortgage to finance the purchase of a large tract of land. The mortgage has an APR of 5.2 percent, and it calls for monthly payments over the next 30 years. However, the loan has an eight-year balloon payment, mean

> An insurance company is offering a new policy to its customers. Typically, the policy is bought by a parent or grandparent for a child at the child’s birth. The purchaser (say, the parent) makes the following six payments to the insurance company:First b

> Your Christmas ski vacation was great, but it unfortunately ran a bit over budget. All is not lost: You just received an offer in the mail to transfer your $15,000 balance from your current credit card, which charges an annual rate of 17.5 percent, to a

> Rework Problem 1 assuming that the scanner will be depreciated as three-year property under MACRS (see Chapter 10 for the depreciation allowances).Problem 1:Assume that the tax rate is 21 percent. You can borrow at 8 percent before taxes. Should you leas

> You have successfully started and operated a company for the past 10 years. You have decided that it is time to sell your company and spend time on the beaches of Hawaii. A potential buyer is interested in your company, but he does not have the necessary

> This problem illustrates a deceptive way of quoting interest rates called add-on interest. Imagine that you see an advertisement for Crazy Judy’s Stereo City that reads something like this: “$1,000 Instant Credit! 17.3% Simple Interest! Three Years to Pa

> Two banks in the area offer 30-year, $275,000 mortgages at 5.1 percent and charge a $4,300 loan application fee. However, the application fee charged by Insecurity Bank and Trust is refundable if the loan application is denied, whereas that charged by I.

> Bond J has a coupon rate of 3 percent. Bond K has a coupon rate of 9 percent. Both bonds have 14 years to maturity, make semiannual payments, and have a YTM of 6 percent. If interest rates suddenly rise by 2 ercent, what is the percentage price change of

> In the previous problem, suppose that you believe that you will only live in the house for eight years before selling the house and buying another house. This means that in eight years, you will pay off the remaining balance of the original mortgage. Wha

> You are buying a house and will borrow $225,000 on a 30-year fixed rate mortgage with monthly payments to finance the purchase. Your loan officer has offered you a mortgage with an APR of 4.3 percent. Alternatively, she tells you that you can “buy down”

> The interest rate on a one-year loan is quoted as 12 percent plus 3 points (see the previous problem). What is the EAR? Is your answer affected by the loan amount?

> Joey Moss, a recent finance graduate, has just begun his job with the investment firm of Covili and Wyatt. Paul Covili, one of the firm’s founders, has been talking to Joey about the firm’s investment portfolio. As with any investment, Paul is concerned

> Shelley Couts, the owner of Conch Republic Electronics, has received the capital budgeting analysis from Jay McCanless for the new smartphone the company is considering. Shelley is pleased with the results, but she still has concerns about the new smartp

> Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelley Couts, who inherited the company. When it was founded over 70 years ago, the company originally repaired radios and other hou

> Seth Bullock, the owner of Bullock Gold Mining, is evaluating a new gold mine in South Dakota. Dan Dority, the company’s geologist, has just finished his analysis of the mine site. He has estimated that the mine would be productive for eight years, after

> Ragan, Inc., was founded nine years ago by brother and sister Carrington and Genevieve Ragan. The company manufactures and installs commercial heating, ventilation, and cooling (HVAC) units. Ragan, Inc., has experienced rapid growth because of a propriet

> Ben Bates graduated from college six years ago with a finance undergraduate degree. Although he is satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to achieve this goal. After examini

> Investment X offers to pay you $4,200 per year for eight years, whereas Investment Y offers to pay you $6,100 per year for five years. Which of these cash flow streams has the higher present value if the discount rate is 5 percent? If the discount rate i

> After Chris completed the ratio analysis for S&S Air (see Chapter 3), Mark and Todd approached him about planning for next year’s sales. The company had historically used little planning for investment needs. As a result, the compan

> Chris Guthrie was recently hired by S&S Air, Inc., to assist the company with its financial planning and to evaluate the company’s performance. Chris graduated from college five years ago with a finance degree. He has been employed

> The All Day Company is currently holding $690,000 in cash. It projects that over the next year its cash outflows will exceed cash inflows by $140,000 per month. How much of the current cash holdings should be retained, and how much should be used to incr

> You are looking at a one-year loan of $10,000. The interest rate is quoted as 9.8 percent plus 2 points. A point on a loan is 1 percent (one percentage point) of the loan amount. Quotes similar to this one are common with home mortgages. The interest rat

> Debit and Credit Bookkeepers needs a total of $21,000 in cash during the year for transactions and other purposes. Whenever cash runs low, it sells $1,500 in securities and transfers in the cash. The interest rate is 4 percent per year, and selling secur

> White Whale Corporation has an average daily cash balance of $1,700. Total cash needed for the year is $64,000. The interest rate is 5 percent, and replenishing the cash costs $8 each time. What are the opportunity cost of holding cash, the trading cost,

> Given the following information, calculate the target cash balance using the BAT model:Annual interest rate ………………………………………………………………………. 4.5%Fixed order cost ………………………………………………………………………………. $25Total cash needed ………………………………………………………………………. $10,200How do

> Rise Against Corporation has determined that its target cash balance if it uses the BAT model is $5,100. The total cash needed for the year is $31,000, and the order cost is $10. What interest rate must Rise Against be using?

> The variance of the daily cash flows for the Pele Bicycle Shop is $890,000. The opportunity cost to the firm of holding cash is 4.1 percent per year. What should the target cash level and the upper limit be if the tolerable lower limit has been establish

> Based on the Miller-Orr model, describe what will happen to the lower limit, the upper limit, and the spread (the distance between the two) if the variation in net cash flow grows. Give an intuitive explanation for why this happens. What happens if the v

> Both Bond Sam and Bond Dave have 7.3 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has three years to maturity, whereas Bond Dave has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the perce

> Slap Shot Corporation has a fixed cost of $40 associated with buying and selling marketable securities. The interest rate is currently .013 percent per day, and the firm has estimated that the standard deviation of its daily net cash flows is $80. Manage

> All Night, Inc., uses a Miller-Orr cash management approach with a lower limit of $43,000, an upper limit of $125,000, and a target balance of $80,000. Explain what each of these points represents; then explain how the system will work

> Suppose a corporation currently sells Q units per month for a cash-only price of P. Under a new credit policy that allows one month’s credit, the quantity sold will be Q′ and the price per unit will be P′. Defaults will be π percent of credit sales. The

> Consider the following information about two alternative credit strategies:The higher cost per unit reflects the expense associated with credit orders, and the higher price per unit reflects the existence of a cash discount. The credit period will be 90

> You are serving on a jury. A plaintiff is suing the city for injuries sustained after a freak street sweeper accident. In the trial, doctors testified that it will be five years before the plaintiff is able to return to work. The jury has already decided

> Silicon Wafers, Inc. (SWI), is debating whether or not to extend credit to a particular customer. SWI’s products, primarily used in the manufacture of semiconductors, currently sell for $975 per unit. The variable cost is $540 per unit. The order under c

> The Johnson Company sells 2,400 pairs of running shoes per month at a cash price of $99 per pair. The firm is considering a new policy that involves 30 days’ credit and an increase in price to $100 per pair on credit sales. The cash price will remain at

> You expect to receive $10,000 at graduation in two years. You plan on investing it at 9 percent until you have $60,000. How long will you wait from now?

> You are scheduled to receive $20,000 in two years. When you receive it, you will invest it for six more years at 6.8 percent per year. How much will you have in eight years?

> You have just made your first $5,500 contribution to your retirement account. Assuming you earn a return of 10 percent per year and make no additional contributions, what will your account be worth when you retire in 45 years? What if you wait 10 years b

> Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of 7.4 percent, has a YTM of 6.8 percent, and has 13 years to maturity. Bond Y is a discount bond making semiannual payments. This bond pays a coupon rate of 6.8 percent, ha

> Suppose you are still committed to owning a $245,000 Ferrari (see Problem 9). If you believe your mutual fund can achieve an annual rate of return of 11.2 percent and you want to buy the car in 9 years (on the day you turn 30), how much must you invest t