Question: Pasqually Mineral Water, Inc., will pay a

> Rite Bite Enterprises sells toothpicks. Gross revenues last year were $7.5 million, and total costs were $3.4 million. Rite Bite has 1 million shares of common stock outstanding. Gross revenues and costs are expected to grow at 5 percent per year. Rite B

> The Morgan Corporation has two different bonds currently outstanding. Bond M has a face value of $30,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $800 every six months over the subsequent eight years, and fin

> Consider the following project for Hand Clapper, Inc. The company is considering a four-year project to manufacture clap-command garage door openers. This project requires an initial investment of $8 million that will be depreciated straight-line to zero

> Aguilera Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit Sales 1 ……………………….……….. 83,000 2 ………….…………………….. 92,000 3 …………….………………… 104,000 4 ……..…..…………………….. 98,000 5 ……..….……………………… 84,000

> McKeekin Corp. has a project with the following cash flows: Year …………………Cash Flow 0 ……………………………….$20,000 1 ………………………………..−26,000 2 …………………………………..13,000 What is the IRR of the project? What is happening here?

> Define the following: S = Previous year’s sales A = Total assets E = Total equity g = Projected growth in sales PM = Profit margin b = Retention (plowback) ratio Assuming that all debt is constant, show that EFN can be written as: EFN = – PM(S)b + [A – P

> The Stambaugh Corporation currently has earnings per share of $9.40. The company has no growth and pays out all earnings as dividends. It has a new project that will require an investment of $1.95 per share in one year. The project is only a two-year pro

> Investment X offers to pay you $4,500 per year for nine years, whereas Investment Y offers to pay you $7,000 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 is

> 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 5.6 perc

> Why do you think most long-term financial planning begins with sales forecasts? Put differently, why are future sales the key input?

> Consider a project to supply Detroit with 35,000 tons of machine screws annually for automobile production. You will need an initial $2,900,000 investment in threading equipment to get the project started; the project will last for five years. The accou

> Dickinson Brothers, Inc., is considering investing in a machine to produce computer keyboards. The price of the machine will be $975,000, and its economic life is five years. The machine will be fully depreciated by the straight-line method. The machine

> Darin Clay, the CFO of MakeMoney.com, has to decide between the following two projects: The expected rate of return for either of the two projects is 12 percent. What is the range of initial investment ( Io ) for which Project Billion is more financial

> A prestigious investment bank designed a new security that pays a quarterly dividend of $4.50 in perpetuity. The first dividend occurs one quarter from today. What is the price of the security if the stated annual interest rate is 6.5 percent, compounded

> Refer to the corporate marginal tax rate information in Table 2.3. a. Why do you think the marginal tax rate jumps up from 34 percent to 39 percent at a taxable income of $100,001, and then falls back to a 34 percent marginal rate at a taxable income of

> Consider Pacific Energy Company and U.S. Blue chips, Inc., both of which reported earnings of $950,000. Without new projects, both firms will continue to generate earnings of $950,000 in perpetuity. Assume that all earnings are paid as dividends and that

> Bond P is a premium bond with a 9 percent coupon. Bond D is a 5 percent coupon bond 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 Bond P? For Bond D

> Consider a project to supply Detroit with 35,000 tons of machine screws annually for automobile production. You will need an initial $2,900,000 investment in threading equipment to get the project started; the project will last for five years. The accoun

> Prince Albert Canning PLC had a net loss of £37,543 on sales of £345,182. 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 $559,725. What was the net

> Office Automation, Inc., must choose between two copiers, the XX40 or the RH45. The XX40 costs $900 and will last for three years. The copier will require a real aftertax cost of $120 per year after all relevant expenses. The RH45 costs $1,400 and will l

> Consider two streams of cash flows, A and B. Stream A’s first cash flow is $8,900 and is received three years from today. Future cash flows in Stream A grow by 4 percent in perpetuity. Stream B’s first cash flow is – $10,000, is received two years from t

> Suppose you were the financial manager of a not-for- profit business (a not-for-profit hospital, perhaps). What kinds of goals do you think would be appropriate?

> Bulla Recording, Inc., wishes to maintain a growth rate of 12 percent per year and a debt–equity ratio of .40. Profit margin is 5.3 percent, and the ratio of total assets to sales is constant at .75. Is this growth rate possible? To answer, determine wha

> 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

> Four years ago, Bling Diamond, Inc., paid a dividend of $1.35 per share. Bling paid a dividend of $1.77 per share yesterday. Dividends will grow over the next five years at the same rate they grew over the last four years. Thereafter, dividends will grow

> Suppose your company needs to raise $45 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 6 percent, and you’re evaluating two issue alternatives: A semiannual coupon bond with a 6 percent

> You are the financial analyst for a tennis racket manufacturer. The company is considering using a graphite like material in its tennis rackets. The company has estimated the information in the following table about the market for a racket with the new m

> Pilot Plus Pens is deciding when to replace its old machine. The machine’s current salvage value is $2.2 million. Its current book value is $1.4 million. If not sold, the old machine will require maintenance costs of $845,000 at the end of the year for t

> Butler International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year ………………..Cash Flow 0…………………..……….−$950,000 1……………..………..……….285,000 2………………….….…………345,000 3…………………..……………415,000 4…………………..……………255,0

> The Grandmother Calendar Company clearly had a cash flow problem. In the context of the cash flow analysis we developed, what was the impact of customers not paying until orders were shipped?

> You’re trying to choose between two different investments, both of which have up-front costs of $65,000. Investment G returns $125,000 in six years. Investment H returns $185,000 in 10 years. Which of these investments has the higher return?

> You are researching Time Manufacturing and have found the following accounting statement of cash flows for the most recent year. You also know that the company paid $98 million in current taxes and had an interest expense of $48 million. Use the accounti

> Juggernaut Satellite Corporation earned $18 million for the fiscal year ending yesterday. The firm also paid out 30 percent of its earnings as dividends yesterday. The firm will continue to pay out 30 percent of its earnings as annual, end-of-year divide

> Use the information in Figure 31.1 to answer the following questions: a. Which would you rather have, $100 or £100? Why? b. Which would you rather have, 100 Swiss francs (SF) or £100? Why? c. What is the cross-rate for Swiss fra

> Tesla Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 25-year zero coupon bonds to raise the money. The required return on the bonds will be 7 percent. a. What will these bonds sell for at issuance? b. Using t

> Applied Nanotech is thinking about introducing a new surface cleaning machine. The marketing department has come up with the estimate that Applied Nanotech can sell 15 units per year at $305,000 net cash flow per unit for the next five years. The enginee

> You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago for $1 million in anticipation of using it as a toxic

> The Utah Mining Corporation is set to open a gold mine near Provo, Utah. According to the treasurer, Monty Goldstein, “This is a golden opportunity.” The mine will cost $2,400,000 to open and will have an economic life of 11 years. It will generate a cas

> Suppose an investment offers to quadruple your money in 12 months (don’t believe it). What rate of return per quarter are you being offered?

> You are planning to save for retirement over the next 30 years. To do this, you will invest $800 a month in a stock account and $350 a month in a bond account. The return of the stock account is expected to be 11 percent, and the bond account will pay 6

> Ritter Corporation’s accountants prepared the following financial statements for year-end 2012: a. Explain the change in cash during 2012. b. Determine the change in net working capital in 2012. c. Determine the cash flow generated by t

> Briley, Inc., is expected to pay equal dividends at the end of each of the next two years. Thereafter, the dividend will grow at a constant annual rate of 4 percent, forever. The current stock price is $45. What is next year’s dividend payment if the req

> You’ve just found a 10 percent coupon bond on the market that sells for par value. What is the maturity on this bond?

> Allied Products, Inc., is considering a new product launch. The firm expects to have an annual operating cash flow of $10.5 million for the next 10 years. Allied Products uses a discount rate of 13 percent for new product launches. The initial investment

> With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps

> When the Master Printing Company filed for bankruptcy, it filed under Chapter 11 of the U.S. bankruptcy code. Key information is shown here: As a trustee, what reorganization plan would you accept? Assets Claims $19,000 Mortgage bonds Senior debent

> 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 $290,000 for the firm during the first year, and the c

> First Simple Bank pays 5 percent simple interest on its investment accounts. If First Complex Bank pays interest on its accounts compounded annually, what rate should the bank set if it wants to match First Simple Bank over an investment horizon of 10 ye

> In the previous problem, assume that the probability of default is 15 percent. Should the orders be filled now? Assume the number of repeat customers is affected by the defaults. In other words, 30 percent of the customers who do not default are expected

> Suppose the following bond quote for IOU Corporation appears in the financial page of today’s newspaper. Assume the bond has a face value of $1,000 and the current date is April 15, 2012. What is the yield to maturity of the bond? What

> You observe that the inflation rate in the United States is 1.8 percent per year and that T-bills currently yield 2.3 percent annually. What do you estimate the inflation rate to be in: a. Australia if short-term Australian government securities yield 4

> Hickock Mining is evaluating when to open a gold mine. The mine has 48,000 ounces of gold left that can be mined, and mining operations will produce 6,000 ounces per year. The required return on the gold mine is 12 percent, and it will cost $34 million t

> 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