Question: Midland Corporation has a net income of $

> Mr. Meyers wishes to know how many shares are necessary to elect 5 directors out of 14 directors up for election in the Austin Power Company. There are 150,000 shares outstanding.

> Katie Homes and Garden Co. has 10,640,000 shares outstanding. The stock is currently selling at $52 per share. If an unfriendly outside group acquired 25 percent of the shares, existing stockholders will be able to buy new shares at 30 percent below the

> Barnes Air Conditioning Inc. has two classes of preferred stock: floating rate preferred stock and straight (normal) preferred stock. Both issues have a par value of $100. The floating-rate preferred stock pays an annual dividend yield of 4 percent, and

> The treasurer of Kelly Bottling Company (a corporation) currently has $150,000 invested in preferred stock yielding 8 percent. He appreciates the tax advantages of preferred stock and is considering buying $150,000 more with borrowed funds. The cost of t

> Enterprise Storage Company has $440,000 shares of cumulative preferred stock outstanding, which has a stated dividend of $7.75. It is six years in arrears in its dividend payments. a. How much in total dollars is the company behind in its payments? b. Th

> The efficient market hypothesis is interpreted in a weak form, a semi strong form, and a strong form. How can we differentiate its various forms?

> What are the four types of out-of-court settlements? Briefly describe each.

> National Health Corporation (NHC) has a cumulative preferred stock issue outstanding, which has a stated annual dividend of $8 per share. The company has been losing money and has not paid preferred dividends for the last five years. There are 350,000 sh

> The Omega Corporation has some excess cash it would like to invest in marketable securities for a long-term hold. Its vice president of finance is considering three investments (Omega Corporation is in a 35 percent tax bracket and the tax rate on divide

> Walker Machine Tools has 5.5 million shares of common stock outstanding. The current market price of Walker common stock is $52 per share rights-on. The company’s net income this year is $17.5 million. A rights offering has been announced in which 550,00

> Mr. and Mrs. Anderson own two shares of Magic Tricks Corporation’s common stock. The market value of the stock is $58. The Andersons also have $46 in cash. They have just received word of a rights offering. One new share of stock can be purchased at $46

> Todd Winningham IV has $4,800 to invest. He has been looking at Gallagher Tennis Clubs Inc. common stock. Gallagher has issued a rights offering to its common stockholders. Six rights plus $48 cash will buy one new share. Gallagher’s stock is selling for

> Computer Graphics has announced a rights offering for its shareholders. Carol Stevens owns 1,400 shares of Computer Graphics stock. Four rights plus $54 cash are needed to buy one of the new shares. The stock is currently selling for $66 rights-on. a. Wh

> Boles Bottling Co. has issued rights to its shareholders. The subscription price is $45 and four rights are needed along with the subscription price to buy one of the new shares. The stock is selling for $55 rights-on. a. What would be the value of one r

> Rust Pipe Co. was established in 1994. Four years later, the company went public. At that time, Robert Rust, the original owner, decided to establish two classes of stock. The first represents Class A founders’ stock and is entitled to nine votes per sha

> Mr. Michaels controls proxies for 40,000 of the 75,000 outstanding shares of Northern Airlines. Mr. Baker heads a dissident group that controls the remaining 35,000 shares. There are seven board members to be elected and cumulative voting rules apply. Mi

> Folic Acid Inc. has $20 million in earnings, pays $2.75 million in interest to bondholders, and $1.80 million in dividends to preferred stockholders. a. What are the common stockholders’ residual claims to earnings? b. What are the common stockholders’ l

> What is the purpose of using simulation analysis?

> The yield to maturity for 10-year bonds is as follows for four different bond rating categories: The bonds of Falter Corporation were rated as Aaa and issued at par a few weeks ago. The bonds have just been downgraded to Aa2. Determine the new price of

> Cox Media Corporation pays an 11 percent coupon rate on debentures that are due in 10 years. The current yield to maturity on bonds of similar risk is 8 percent. The bonds are currently callable at $1,110. The theoretical value of the bonds will be equal

> The Florida Investment Fund buys 58 bonds of the Gator Corporation through a broker. The bonds pay 10 percent annual interest. The yield to maturity (market rate of interest) is 12 percent. The bonds have a 10-year maturity. Using an assumption of semian

> Match the yield to maturity in column 2 with the security provisions (or lack thereof) in column 1. Higher returns tend to go with greater risk.

> An investor must choose between two bonds: Bond A pays $72 annual interest and has a market value of $925. It has 10 years to maturity. Bond B pays $62 annual interest and has a market value of $910. It has two years to maturity. Assume the par value of

> Harold Reese must choose between two bonds: Bond X pays $95 annual interest and has a market value of $900. It has 10 years to maturity. Bond Z pays $95 annual interest and has a market value of $920. It has two years to maturity. a. Compute the current

> The Harris Company is the lessee on a 4-year lease with the following payments at the end of each year: Year 1: $10,000 Year 2: $15,000 Year 3: $20,000 Year 4: $25,000 An appropriate discount rate is 7%, yielding a present value of $48,055. a) If the lea

> Krawczek Company will enter into a lease agreement with Heavy Equipment Co. where Krawczek will make lease payments over the next 5 years. The lease is non cancelable and requires equal annual payments of $20,000 per year beginning on January 1 of the fi

> Preston Corporation has a bond outstanding with an $80 annual interest payment, a market price of $1,250, and a maturity date in 10 years. Assume the par value of the bonds is $1,000. Find the following: a. The coupon rate. b. The current rate. c. The yi

> The Sunbelt Corporation has $40 million of bonds outstanding that were issued at a coupon rate of 12⅞ percent seven years ago. Interest rates have fallen to 12 percent. Mr. Heath, the vice president of finance, does not expect rates to fall any further.

> Explain the effect of the risk-return trade-off on the market value of common stock.

> The Robinson Corporation has $43 million of bonds outstanding that were issued at a coupon rate of 11¾ percent seven years ago. Interest rates have fallen to 10¾ percent. Mr. Brooks, the vice president of finance, does not expect rates to fall any furthe

> The Bowman Corporation has a $18 million bond obligation outstanding, which it is considering refunding. Though the bonds were initially issued at 10 percent, the interest rates on similar issues have declined to 8.5 percent. The bonds were originally is

> A $1,000 par value bond was issued 20 years ago at a 9 percent coupon rate. It currently has five years remaining to maturity. Interest rates on similar debt obligations are now 10 percent. a. Compute the current price of the bond using an assumption of

> A $1,000 par value bond was issued 25 years ago at a 12 percent coupon rate. It currently has 15 years remaining to maturity. Interest rates on similar obligations are now 8 percent. a. What is the current price of the bond? (Look up the answer in Table

> Seventeen years ago, the Archer Corporation borrowed $6,500,000. Since then, cumulative inflation has been 65 percent (a compound rate of approximately 3 percent per year). a. When the firm repays the original $6,500,000 loan this year, what will be the

> Assume a zero-coupon bond that sells for $403 and will mature in 10 years at $1,250. What is the effective yield to maturity? (Compute PVIF and go to Appendix B for the 10-year figure to find the answer, or compute FVIF and go to Appendix A for the 10-ye

> A 17-year, $1,000 par value zero-coupon rate bond is to be issued to yield 7 percent. a. What should be the initial price of the bond? (Take the present value of $1,000 for 17 years at 7 percent, using Appendix B.) b. If immediately upon issue, interest

> A previously issued A2, 15-year industrial bond provides a return three-fourths higher than the prime interest rate of 11 percent. Previously issued A2 public utility bonds provide a yield of three-fourths of a percentage point higher than previously iss

> The Pioneer Petroleum Corporation has a bond outstanding with an $85 annual interest payment, a market price of $800, and a maturity date in five years. Find the following: a. The coupon rate. b. The current rate. c. The yield to maturity.

> Walton and Company is the managing investment banker for a major new underwriting. The price of the stock to the investment banker is $23 per share. Other syndicate members may buy the stock for $24.25. The price to the selected dealers group is $24.80,

> Assume a firm has several hundred possible investments and that it wants to analyze the risk-return trade-off for portfolios of 20 projects. How should it proceed with the evaluation?

> Assume Sybase Software is thinking about three different size offerings for issuance of additional shares. What is the percentage underwriting spread for each size offer?

> Jordan Broadcasting Company is going public at $50 net per share to the company. There also are founding stockholders that are selling part of their shares at the same price. Prior to the offering, the firm had $26 million in earnings divided over 11 mil

> American Health Systems has 6,400,000 shares of stock outstanding and will report earnings of $10 million in the current year. The company is considering the issuance of 1,700,000 additional shares, which can only be issued at $18 per share. a. Assume th

> American Health Systems currently has 6,400,000 shares of stock outstanding and will report earnings of $10 million in the current year. The company is considering the issuance of 1,700,000 additional shares that will net $30 per share to the corporation

> The management of Mitchell Labs decided to go private in 2002 by buying all 2.80 million of its outstanding shares at $24.80 per share. By 2006, management had restructured the company by selling off the petroleum research division for $10.75 million, th

> I. B. Michaels has a chance to participate in a new public offering by Hi-Tech Micro Computers. His broker informs him that demand for the 700,000 shares to be issued is very strong. His broker’s firm is assigned 25,000 shares in the distribution and wil

> Tyson Iron Works is about to go public. It currently has after tax earnings of $4,400,000, and 4,200,000 shares are owned by the present stockholders. The new public issue will represent 500,000 new shares. The new shares will be priced to the public at

> The Hamilton Corporation Company has 4 million shares of stock outstanding and will report earnings of $6,910,000 in the current year. The company is considering the issuance of 1 million additional shares that can only be issued at $30 per share. a. Ass

> The Presley Corporation is about to go public. It currently has aftertax earnings of $7,200,000, and 2,100,000 shares are owned by the present stockholders (the Presley family). The new public issue will represent 800,000 new shares. The new shares will

> If risk is to be analyzed in a qualitative way, place the following investment decisions in order from the lowest risk to the highest risk: a. New equipment b. New market c. Repair of old machinery d. New product in a foreign market e. New product in a r

> The Landers Corporation needs to raise $1.60 million of debt on a 20-year issue. If it places the bonds privately, the interest rate will be 10 percent. Twenty thousand dollars in out-of-pocket costs will be incurred. For a public issue, the interest rat

> The investment banking firm of Einstein & Co. will use a dividend valuation model to appraise the shares of the Modern Physics Corporation. Dividends (D1) at the end of the current year will be $1.64. The growth rate (g) is 8 percent and the discount rat

> Richmond Rent-A-Car is about to go public. The investment banking firm of Tinkers, Evers, and Chance is attempting to price the issue. The car rental industry generally trades at a 20 percent discount below the P/E ratio on the Standard & Poorâ

> Winston Sporting Goods is considering a public offering of common stock. Its investment banker has informed the company that the retail price will be $16.85 per share for 550,000 shares. The company will receive $15.40 per share and will incur $180,000 i

> Trump Card Co. will issue stock at a retail (public) price of $32. The company will receive $29.20 per share. a. What is the spread on the issue in percentage terms? b. If the firm demands receiving a new price only $2.20 below the public price suggested

> Becker Brothers is the managing underwriter for a 1.45-million-share issue by Jay’s Hamburger Heaven. Becker Brothers is “handling” 10 percent of the issue. Its price is $27 per share, and the price to the public is $28.95. Becker also provides the marke

> Kevin’s Bacon Company Inc. has earnings of $9 million with 2,100,000 shares outstanding before a public distribution. Seven hundred thousand shares will be included in the sale, of which 400,000 are new corporate shares, and 300,000 are shares currently

> The Wrigley Corporation needs to raise $44 million. The investment banking firm of Tinkers, Evers, & Chance will handle the transaction. a. If stock is utilized, 2,300,000 shares will be sold to the public at $20.50 per share. The corporation will recei

> Louisiana Timber Company currently has 5 million shares of stock outstanding and will report earnings of $9 million in the current year. The company is considering the issuance of 1 million additional shares that will net $40 per share to the corporation

> Digital Technology wishes to determine its coefficient of variation as a company over time. The firm projects the following data (in millions of dollars): a. Compute the coefficient of variation (V) for each time period. b. Does the risk (V) appear to

> Explain how the concept of risk can be incorporated into the capital budgeting process.

> Five investment alternatives have the following returns and standard deviations of returns: Using the coefficient of variation, rank the five alternatives from lowest risk to highest risk. Returns: Standard Deviation Alternative Expected Value A $

> Five investment alternatives have the following returns and standard deviations of returns: Using the coefficient of variation, rank the five alternatives from lowest risk to highest risk. Returns: Standard Alternative Expected Value Deviation A $

> Possible outcomes for three investment alternatives and their probabilities of occurrence are given next. Rank the three alternatives in terms of risk from lowest to highest (compute the coefficient of variation). Alternative 1 Alternative 2 Altern

> Al Bundy is evaluating a new advertising program that could increase shoe sales. Possible outcomes and probabilities of the outcomes are shown next. Compute the coefficient of variation. Additional Sales Possible Outcome in Units Probability Ineffec

> Shack Homebuilders Limited is evaluating a new promotional campaign that could increase home sales. Possible outcomes and probabilities of the outcomes are shown next. Compute the coefficient of variation. Additional Sales in Units Possible Outcome

> Sampson Corp. is evaluating the introduction of a new product. The possible levels of unit sales and the probabilities of their occurrence are given. a. What is the expected value of unit sales for the new product? b. What is the standard deviation of

> Sheila Goodman recently received her MBA from the Harvard Business School. She has joined the family business, Goodman Software Products Inc., as vice president of finance. She believes in adjusting projects for risk. Her father is somewhat skeptical but

> Ms. Sharp is looking at a number of different types of investments for her portfolio. She identifies eight possible investments. a. Graph the data in a manner similar to Figure 13-11. Use the axes that follow for your data: b. Draw a curved line repr

> Hooper Chemical Company, a major chemical firm that uses such raw materials as carbon and petroleum as part of its production process, is examining a plastics firm to add to its operations. Before the acquisition, the normal expected outcomes for the fir

> Treynor Pie Company is a food company specializing in high-calorie snack foods. It is seeking to diversify its food business and lower its risks. It is examining three companies—a gourmet restaurant chain, a baby food company, and a nut

> When is the coefficient of variation a better measure of risk than the standard deviation?

> The Oklahoma Pipeline Company projects the following pattern of inflows from an investment. The inflows are spread over time to reflect delayed benefits. Each year is independent of the others. The expected value for all three years is $70. a. Compute

> When returns from a project can be assumed to be normally distributed, such as those (represented by a symmetrical, bell-shaped curve), the areas under the curve can be determined from statistical tables based on standard deviations. For example, 68.26 p

> Myers Business Systems is evaluating the introduction of a new product. The possible levels of unit sales and the probabilities of their occurrence are given next: a. What is the expected value of unit sales for the new product? b. What is the standard

> Allison’s Dresswear Manufacturers is preparing a strategy for the fall season. One alternative is to expand its traditional ensemble of wool sweaters. A second option would be to enter the cashmere sweater market with a new line of high

> Mr. Sam Golff desires to invest a portion of his assets in rental property. He has narrowed his choices down to two apartment complexes, Palmer Heights and Crenshaw Village. After conferring with the present owners, Mr. Golff has developed the following

> Highland Mining and Minerals Co. is considering the purchase of two gold mines. Only one investment will be made. The Australian gold mine will cost $1,649,000 and will produce $353,000 per year in years 5 through 15 and $503,000 per year in years 16 thr

> Debby’s Dance Studios is considering the purchase of new sound equipment that will enhance the popularity of its aerobics dancing. The equipment will cost $27,900. Debby is not sure how many members the new equipment will attract, but s

> Fill in the following table from Appendix B. Does a high discount rate have a greater or lesser effect on long-term inflows compared to recent ones? Discount Rate Year 5% 20% 1. 10. 20.

> Dixie Dynamite Company is evaluating two methods of blowing up old buildings for commercial purposes over the next five years. Method one (implosion) is relatively low in risk for this business and will carry a 12 percent discount rate. Method two (explo

> Waste Industries is evaluating a $70,000 project with the following cash flows: The coefficient of variation for the project is .847. Based on the following table of risk-adjusted discount rates, should the project be undertaken? Select the appropriate

> Discuss the concept of risk and how it might be measured.

> Kyle’s Shoe Stores Inc. is considering opening an additional suburban outlet. An after tax expected cash flow of $130 per week is anticipated from two stores that are being evaluated. Both stores have positive net present values. Which

> Mountain Ski Corp. was set up to take large risks and is willing to take the greatest risk possible. Lakeway Train Co. is more typical of the average corporation and is risk-averse. a. Which of the following four projects should Mountain Ski Corp. choose

> Tim Trepid is highly risk-averse, while Mike Macho actually enjoys taking a risk. a. Which one of the four investments should Tim choose? Compute coefficients of variation to help you in your choice. b. Which one of the four investments should Mike cho

> The Short-Line Railroad is considering a $140,000 investment in either of two companies. The cash flows are as follows: a. Using the payback method, what will the decision be? b. Explain why the answer in part a can be misleading. Year Electric Co.

> Assume a $90,000 investment and the following cash flows for two alternatives. a. Calculate the payback for investment A and B. b. If the inflow in the fifth year for Investment A was $25,000,000 instead of $25,000, would your answer change under the p

> Assume a $40,000 investment and the following cash flows for two alternatives. Which of the alternatives would you select under the payback method? Year Investment X Investment Y 1 $6,000 $15,000 2 8,000 20,000 3 9,000 10,000 17,000 20,000

> Assume a $250,000 investment and the following cash flows for two products: Which alternatives would you select under the payback method? Year Product X Product Y 1 $90,000 $50,000 2 90,000 80,000 60,000 60,000 4 20,000 70,000

> Al Quick, the president of a New York Stock Exchange —listed firm, is very short-term oriented and interested in the immediate consequences of his decisions. Assume a project that will provide an increase of $2 million in cash flow because of favorable t

> Assume a firm has earnings before depreciation and taxes of $440,000 and depreciation of $140,000. a. If it is in a 35 percent tax bracket, compute its cash flow. b. If it is in a 20 percent tax bracket, compute its cash flow.

> Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $58,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $24,800. A new piece of equipment will cost $148,000

> How does an asset’s ADR (asset depreciation range) relate to its MACRS category?

> Data Point Engineering is considering the purchase of a new piece of equipment for $240,000. It has an eight-year midpoint of its asset depreciation range (ADR). It will require an additional initial investment of $140,000 in non depreciable working capi

> An asset was purchased three years ago for $120,000. It falls into the five-year category for MACRS depreciation. The firm is in a 25 percent tax bracket. Compute the following: a. Tax loss on the sale and the related tax benefit if the asset is sold now

> The Spartan Technology Company has a proposed contract with the Digital Systems Company of Michigan. The initial investment in land and equipment will be $120,000. Of this amount, $70,000 is subject to five-year MACRS depreciation. The balance is in non

> Assume a firm has earnings before depreciation and taxes of $200,000 and no depreciation. It is in a 25 percent tax bracket. a. Compute its cash flow. b. Assume it has $200,000 in depreciation. Re compute its cash flow. c. How large a cash flow benefit d

> Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset depreciation range (ADR). Carefully refer to Table 12-11 to determine in what depreciation category the asset falls. (Hint: It is not 10 yea

> Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost is $300,000. If the equipment is purchased, the following earnings before depreciation and taxes will be generated for the next six years. The fir