Question: Reconsider the problem faced by Templeton Care

> The Caraway Seed Company grows heirloom tomatoes and sells their seeds. Heirloom tomato plants are preferred by many growers for their superior flavor. At the end of the most recent year, the firm had current assets of $50,000, net fixed assets of $250,0

> Last year the commercial real estate firm Kelly and Co., Inc., earned taxable income of $19 million. a. Calculate Kelly’s federal income taxes. b. Now calculate Kelly’s average and marginal tax rates.

> Meyer Inc. has taxable income (earnings before taxes) of $300,000. Calculate Meyer’s federal income tax liability using the tax table in this chapter. What are the firm’s average and marginal tax rates?

> G. R. Edwin Inc. had sales of $6 million during the past year. The cost of goods sold amounted to $3 million. Operating expenses totaled $2.6 million, and interest expense was $30,000. Determine the firm’s tax liability. What are the firm’s average and m

> Sales for J. P. Hulett Inc. during the past year amounted to $4 million. Gross profits totaled $1 million, and operating and depreciation expenses were $500,000 and $350,000, respectively. Dividend income for the year was $12,000, which was paid by a fir

> The Robbins Corporation is an oil wholesaler. The firm’s sales last year were $1 million, with the cost of goods sold equal to $600,000. The firm paid interest of $200,000, and its cash operating expenses were $100,000. Also, the firm received $40,000 in

> Last year Sanderson, Inc., had sales of $3 million. The firm’s cost of goods sold came to $2 million; operating expenses, excluding depreciation of $100,000, were $400,000; and the firm paid $150,000 in interest on its bank loans. Also, the corporation r

> Minelli Enterprises uses large amounts of copper in the manufacture of ceiling fans. The firm has been very concerned about the detrimental impact of rising copper prices on its earnings and has decided to hedge the price risk associated with its next qu

> Currently, a put contract with an exercise price of $5 on a share of Mily be Aerospace’s common stock is selling for (i.e., has a premium of) $1. What does the profit or loss graph look like for this option? In drawing this graph, assume that the option

> Draw a profit or loss graph for a put contract with an exercise price of $45 for which a $5 premium is paid. You may assume that the option is being evaluated on its expiration date. Identify the break-even price of the underlying stock. What is the maxi

> Big Steve’s Swizzle Sticks is considering the purchase of a new plastic-stamping machine. This investment will require an initial outlay of $100,000 and will generate net cash inflows of $18,000 per year for 10 years. a. What is the project’s NPV using a

> Currently, a call contract with an exercise price of $10 on a share of List Aerospace’s common stock is selling for (i.e., has a premium is of) $2. What does the profit or loss graph look like for this option? In drawing this graph, assume that the optio

> Draw a profit or loss graph for a call contract with an exercise price of $50 for which a $5 premium is paid. You may assume that the option is being evaluated on its expiration date. Identify the break-even point, maximum profit, and maximum loss. Now d

> Discuss how the exchange requirements that mandate traders to put up collateral in the form of a margin requirement and to use this account to mark their profits or losses for the day serve to eliminate credit or default risk.

> The Specialty Chemical Company operates a crude oil refinery located in New Iberia, Louisiana. The company refines crude oil and sells the by-products to companies that make plastic bottles and jugs. The firm is currently planning for its refining needs

> Repeat Study Problem 20–1, but this time draw the profit or loss graph from the perspective of the individual who sold (is short on) the forward contract. Data from Problem 20–1: Construct a delivery date profit or loss graph similar to Figure 20.2 for

> The Prince Racket Company manufactures a line of tennis and raquet ball equipment. The firm recently entered into a loan agreement for $20 million that carries a floating rate of interest equal to LIBOR plus 100 basis points (1 percent). The loan has a f

> Marx and Winter, Inc., operates a chain of retail clothing stores throughout the U.S. Midwest. The firm recently entered into a loan agreement for $20 million that carries a floating rate of interest equal to LIBOR plus 50 basis points (1/2 percent). The

> You’ve just been introduced to the Black-Scholes option pricing model and would like to use it to calculate the value of a call option on TriHawk stock. Currently, TriHawk’s common stock is selling for $25.00 per share, and the call option you are consid

> Consider the following call option: • The current price of the stock on which the call option is written is $20.00; • The exercise or strike price of the call option is $18.00; • The maturity of the call option is 90 days or .25 years; • The (annualized)

> Construct a delivery date profit or loss graph similar to Figure 20.2 for a long position in a forward contract with a delivery price of $65. Analyze the profit or loss for values of the underlying asset ranging from $40 to $80.

> Garmen Technologies Inc. operates a small chain of specialty retail stores throughout the U.S. Southwest. The company markets technology-based consumer products both in its stores and over the internet, with sales split roughly equally between the two ch

> On July 1, 2016, the Southwest Forging Corporation arranged for a line of credit with the First National Bank (FNB) of Dallas. The terms of the agreement call for a $100,000 maximum loan with interest set at 1 percent over prime. In addition, the firm ha

> Calculate the annualized cost of the following trade credit terms when payment is made on the net due date (assume a 365-day year): a. 2/15, net 30 b. 3/15, net 30 c. 3/15, net 60 d. 2/10, net 60

> Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan carries a rate of 12 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum deman

> The Caraway Seed Company has for many years cultivated and sold what are known as heritage plants and seeds. For example, it has sought out older varieties of tomato plants that are no longer grown by commercial vegetable farmers because they take too lo

> Network Solutions just introduced a new, fully automated manufacturing plant that produces 2,000 wireless routers per day with a materials cost of $50 per router and no other costs. The average number of days a router is held in inventory before being s

> Classify each of the following sources of new financing as spontaneous, temporary, or permanent, and explain your choice: a. A manufacturing firm enters into a loan agreement with its bank that calls for annual principal and interest payments spread over

> Classify each of the following investments in assets as either permanent or temporary, and explain your choice: a. A seasonal increase in a card shop’s inventory of Valentine cards. b. The acquisition of a new forklift truck that is expected to have a us

> Determine the annualized cost of foregoing the trade credit discount on the following terms (assume a 365-day year): a. 1/10, net 20 b. 2/10, net 30 c. 3/10, net 30 d. 3/10, net 60 e. 3/10, net 90 f. 5/10, net 60

> If a firm buys on trade credit terms of 2/10, net 50 and decides to forego the trade credit discount and pay on the net day, what is the annualized cost of foregoing the discount (assume a 365-day year)?

> You plan to borrow $20,000 from the bank to pay for inventories for a gift shop you have just opened. The bank offers to lend you the money at 10 percent annual interest for the six months the funds will be needed (assume a 365-day year). a. Calculate

> You are considering two independent projects, Project A and Project B. The initial cash outlay associated with Project A is $50,000, and the initial cash outlay associated with Project B is $70,000. The discount rate on both projects is 12 percent. The

> CL Marshall Liquors owns and operates a chain of beer and wine shops throughout the Dallas–Fort Worth metro plex. As a result of the rapidly expanding population of the area, the firm requires a growing amount of funds. Historically, it

> Harrison Electronics, Inc., operates a chain of electrical lighting and fixture distribution centers throughout northern Arizona. The firm is anticipating expansion of its sales in the coming year as a result of recent population growth trends. The firm

> Bates Fabricators, Inc., estimates that it invests $0.25 in assets for each $1 of new sales. However, $0.05 in profits is produced by each $1 of additional sales, of which $0.01 can be reinvested in the firm. If sales rise by $750,000 next year from thei

> The most recent balance sheet for the ADB Distribution Company is shown in the following table. The company is about to embark on an advertising campaign that is expected to raise sales from the current level of $5 million to $7 million by the end of nex

> The current balance sheet Murphy Forklifts, Inc., is as follows: Murphy Forklifts, Inc. Balance Sheet, December 31, 2016 ($ millions) Murphy had sales for the year ended December 31, 2016, of $50 million. The firm follows a policy of paying all net ear

> Which of the following accounts will most likely vary directly with the level of firm sales? Discuss each briefly. Yes No Cash Notes payable Marketable securities Plant and equipment Accounts payable Inventories || | | | |||

> Use the following industry average ratios to construct a pro forma balance sheet for Mendoza Distributors, Inc. Total asset turnover 2 times Average collection period (assume a 365-day year) 9 days Fixed asset turnover 5 times Inventory turnover (ba

> Tulley Appliances, Inc., projects next year’s sales to be $20 million. Current sales are at $15 million, based on current assets of $7 million and fixed assets of $8 million. The firm’s net profit margin is 5 percent after taxes. Tulley forecasts that cu

> Beason Manufacturing forecasts its sales next year to be $6 million and expects to earn 5 percent of that amount after taxes. The firm is currently in the process of projecting its financing needs and has made the following assumptions (projections): • C

> Harrison Printing has projected its sales for the first eight months of 2017 as follows: Harrison collects 20 percent of its sales in the month of the sale, 50 percent in the month following the sale, and the remaining 30 percent two months following t

> You have been assigned the task of evaluating two mutually exclusive projects with the following projected cash flows: If the appropriate discount rate on these projects is 10 percent, which would be chosen and why? Year Project A Cash Flow Project

> The Sharpe Corporation’s projected sales for the first eight months of 2017 are as follows: Of Sharpe’s sales, 10 percent are for cash, another 60 percent are collected in the month following the sale, and 30 percent

> In the spring of 2016, the Caswell Publishing Company established a custom publishing business for its business clients. These clients consisted principally of small- to medium-size companies in Round Rock, Texas. However, the company’s

> Zapatera Enterprises is evaluating its financing requirements for 2017. The firm has been in business for only one year, but its CFO predicts that the firm’s operating expenses, current assets, net fixed assets, and current liabilities

> Marshall Pottery Barn is a privately owned importer of Mexican pottery and garden supplies. The firm plans on paying a $1.50 per share dividend on each of its 5,000 shares of common stock. The firm’s most recent balance sheet just befo

> Chaney’s Fatburner Gyms, Inc., operates a chain of exercise facilities throughout the Midwest. The firm appeals to middle-aged men who suffer from obesity problems and want to improve their health by entering an exercise program. The firm has 8,000,000 s

> Templeton Care Facilities, Inc., is contemplating a stock dividend. The firm’s stock price had risen over the last three years and is trading at $150 per share. The firm’s board of directors feels that the trading range should be around $50 to $100, so t

> The stock price of Perkiman Go Inc. is currently $40 a share. If the firm announces a 10 percent stock dividend, what do you expect the ex-dividend stock price to be? What about a 20 percent stock dividend?

> Kingwood Corporation has a stock price of $120 per share and is contemplating the payment of a large, one-time cash dividend of $40 per share. The underlying motivation for the large payout comes from management’s belief that the firm has more cash than

> Dimmick Skate Boarding Enterprises has declared a $3 dividend for its common stock. On the day before the ex-dividend date, the firm’s shares are trading for $40 a share. What do you expect the price of Dimmick’s shares to be on the day following the ex

> You are considering a project with an initial cash outlay of $80,000 and expected cash flows of $20,000 at the end of each year for six years. The discount rate for this project is 10 percent. a. What are the project’s payback and discounted payback peri

> The Welmar Corporation operates membership warehouses that offer a wide variety of branded and private-label products in no-frills, self-service warehouse facilities. In 2016, the company paid total cash dividends of $265,029,000 and had net income of $1

> After more than 40 years of operation, the Tyler Brick Manufacturing Company has decided it is time to shut down the business. The firm has $125,000 available for distribution as a cash dividend immediately and plans to shut down its business at the end

> (The Caraway Seed Company sells specialty gardening seeds and products primarily to mail-order and internet customers. The firm has $200,000 available for distribution as a cash dividend immediately and plans to shut down its business at the end of one y

> The Barry man Drilling Company from Study Problem 16–10 is reconsidering its plan to repurchase $1 million of its common stock and instead plans to pay a $1 million cash dividend, which amounts to $2 per share of common stock. If dividends are taxed at 1

> The Barry man Drilling Company is planning on repurchasing $1 million worth of the company’s 500,000 shares of stock, which is currently trading at a price of $10 per share. Stan Barry man is the founder of the company and still holds 10,000 shares of co

> Calculate the cash dividend paid per share for each of the firms in the following table using their earnings per share and dividend payout ratio: Company Dividend Payout Ratio Earnings per Share Emerson Electric Co (EMR) 85% $2.23 Intel Corporation

> The income statements for Home Depot, Inc. (HD), spanning the period 2014–2016 (just before the housing crash, so these are representative years) are as follows: a. Calculate the times interest earned ratio for each of the years for w

> Presently, H. Swank, Inc., does not use any financial leverage and has total financing equal to $1 million. It is considering refinancing and issuing $500,000 of debt that pays 5 percent interest and using that money to buy back half the firmâ&#128

> Dharma Supply has earnings before interest and taxes (EBIT) of $500,000, interest expenses of $300,000, and a corporate tax rate of 35 percent. a. What is Dharma Supply’s net income? b. What would Dharma’s net income be if it didn’t have any debt (and, c

> Lowe’s Companies, Inc. (LOW), and its subsidiaries operate as a home improvement retailer in the United States and Canada. As of February 1, 2008, they operated 1,534 stores in 50 states and Canada. The company’s balan

> Plato Energy is an oil-and-gas exploration and development company located in Farmington, New Mexico. The company drills shallow wells in hopes of finding significant oil and gas deposits. The firm is considering two different drilling opportunities that

> Home Depot, Inc. (HD), operates as a home improvement retailer primarily in the United States, Canada, and Mexico. The balance sheet for Home Depot for February 3, 2008, included the following liabilities and owners’ equity: a. What a

> Curley’s Fried Chicken Kitchen operates two southern-cooking restaurants in St. Louis, Missouri, and has the following financial structure: The firm is considering an expansion that would involve raising an additional $2 million. a. W

> Winchell Investment Advisors is evaluating the capital structure of Ojai Foods. Ojai’s balance sheet indicates that the firm has $50 million in total liabilities. Ojai has only $40 million in short- and long-term debt on its balance sheet. However, becau

> The common stock of Moe’s Restaurant is currently selling for $80 per share and has a book value of $60 per share; there are 1 million shares of common stock outstanding. In addition, the firm has 100,000 bonds outstanding that have a par value of $1,00

> Home Depot, Inc. (HD), had 1,244 million shares of common stock outstanding in 2016 whereas Lowe’s Companies, Inc. (LOW), had 929 million shares outstanding. Given the 2016 earnings levels found in Study Problems 15–9 and 15–10 and a 35 percent tax rate

> Three recent graduates of the computer science program at the University of Tennessee are forming a company that will write and distribute new application software for the iPhone. Initially, the corporation will operate in the southern region of Tennesse

> Abe Forrester and three of his friends from college have interested a group of venture capitalists in backing their business idea. The proposed operation would consist of a series of retail outlets to distribute and service a full line of vacuum cleaners

> You have developed the following pro forma income statement for your corporation. It represents the most recent year’s operations, which ended yesterday. Your supervisor in the controller’s office has just handed you

> The income statements for Lowe’s Companies, Inc. (LOW), spanning the period 2014–2016 (just before the housing crash, so these are representative years) are as follows: a. Calculate the times interest earned ratio fo

> Webb Solutions, Inc., has the following financial structure: a. Compute Webb’s debt ratio and interest-bearing debt ratio. b. If the market value of Webb’s equity is $2,000,000 and the value of the firmâ€&

> The Bar-None Manufacturing Company manufactures fence panels used in cattle feedlots throughout the Midwest. Bar-None’s management is considering three investment projects for next year but doesn’t want to make any inv

> The Merriweather Printing Company is trying to decide on the merits of constructing a new publishing facility. The project is expected to provide a series of positive cash flows for each of the next four years. The estimated cash flows associated with th

> Current and projected free cash flows for Radell Global Operations are shown here. Growth is expected to be constant after 2018, and the weighted average cost of capital is 11%. What is the horizon (continuing) value at 2019 if growth from 2018 remains c

> The following balance sheet represents Boles Electronics Corporation’s position at the time it filed for bankruptcy (in thousands of dollars): The mortgage bonds are secured by the plant but not by the equipment. The sub ordinated deb

> The Verbrugge Publishing Company’s 2016 balance sheet and income statement are as follows (in millions of dollars): Verbrugge and its creditors have agreed upon a voluntary reorganization plan. In this plan, each share of the $6 pref

> VolWorld Communications Inc., a large telecommunications company, is evaluating the possible acquisition of Bulldog Cable Company (BCC), a regional cable company. VolWorld’s analysts project the following post-merger data for BCC (in th

> Hastings Corporation estimates that if it acquires Vandell Corporation, synergies will cause Vandell’s free cash flows to be $2.5 million, $2.9 million, $3.4 million, and $3.57 million at Years 1 through 4, respectively, after which the free cash flows w

> Hastings Corporation estimates that if it acquires Vandell Corporation, synergies will cause Vandell’s free cash flows to be $2.5 million, $2.9 million, $3.4 million, and $3.57 million at Years 1 through 4, respectively, after which the free cash flows w

> Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt ; its beta is 1.4 (given its target capital structure).Vandell has $10.82 million in debt

> Schwarzentraub Corporation’s expected free cash flow for the year is $500,000; in the future, free cash flow is expected to grow at a rate of 9%. The company currently has no debt, and its cost of equity is 13%. Its tax rate is 40%. Use the compressed ad

> Companies U and L are identical in every respect except that U is unlevered while L has $10 million of 5% bonds outstanding. Assume that: (1) All of the MM assumptions are met. (2) Both firms are subject to a 40% federal-plus-state corporate tax rate. (3

> Breuer Investment’s convertible bonds have a $1,000 par value and a conversion price of $50 a share. What is the convertible issue’s conversion ratio?

> Consider the data in Problem 19-1. Assume that RC’s tax rate is 40% and that the equipment’s depreciation would be $100 per year. If the company leased the asset on a 2-year lease, the payment would be $110 at the beginning of each year. If RC borrowed a

> Reynolds Construction (RC) needs a piece of equipment that costs $200. RC can either lease the equipment or borrow $200 from a local bank and buy the equipment. If the equipment is leased, the lease would not have to be capitalized. RC’

> Bynum and Crumpton ,as mall jewelry manufacturer, has been successful and has enjoyed a positive growth trend. Now B&C is planning to go public with an issue of common stock, andit faces the problem of setting an appropriate price for the stock. The

> In 1983,the Japanese yen-U.S. dollarexchangeratewas245yenperdollar,andthedollar cost ofa compact Japanese-manufactured car was $8,000.Supposethat now the exchange rate is 80 yen per dollar. Assume there has been no inflation in the yen cost of an automob

> (a) If a firm buys under terms of 3 15, net 45, but actually pays on the 20th day and still takes the discount, what is the nominal cost of its non free trade credit? (b) Does it receive more or less credit than it would if it paid within 15 days?

> Calculate the nominal annual cost of non free trade credit under each of the following terms. Assume that payment is made either on the discount date or on the due date. a. 1 10, net 20 b. 2 10, net 60 c. 3 10, net 45 d. 2 10, net 45 e. 2 10, net 40

> Snider Industries sells on terms of 2 10, net 45. Total sales for the year are $1,500,000. Thirty percent of customers pay on the 10th day and take discounts; the other 70% pay, on average, 50 days after their purchases. a. What is the days sales outstan

> What are the nominal and effective costs of trade credit under the credit terms of 3 15, net 30?

> Williams & Sons last year reported sales of $12 million, cost of goods sold (COGS) of $10 million, and an inventory turnover ratio of 2. The company is now adopting a new inventory system. If the new system is able to reduce the firm’s inventory level an

> Boehm Corporation has had stable earnings growth of 8% a year for the past 10 years and in 2016 Boehm paid dividends of $2.6 million on net income of $9.8 million. However, in 2017 earnings are expected to jump to $12.6 million, and Boehm plans to invest

> An annuity is defined as a series of payments of a fixed amount for a specific number of periods. Thus, $100 a year for 10 years is an annuity, but $100 in Year 1, $200 in Year 2, and$400inYears 3through10 does not constitute an annuity. However the enti

> Garlington Technologies Inc.’s 2016 financial statements are shown below: Suppose that in 2017 sales increase by 10% over 2016 sales and that 2017 dividends will increase to $112,000. Forecast the financial statements using the foreca

> Stevens Textile Corporation’s 2016 financial statements are shown below: a. Suppose 2017 sales are projected to increase by 15 % over 2016 sales. Use the forecasted financial statement method to forecast a balance sheet and income st