Rework Problem 2 assuming Bank A has reserve requirements that are 15 percent of deposits. a. Prepare a simple balance sheet of assets and liabilities for the bank immediately after the deposit is received. b. Assume Bank A makes a loan in the amount that can be “safely lent.” Show what the bank’s balance sheet of assets and liabilities would look like immediately after the loan. c. Now assume that a check in the amount of the “derivative deposit” created in (b) was written and sent to another bank. Show what Bank A’s (the lending bank’s) balance sheet of assets and liabilities would look like after the check is written. Data from Problem 2: Assume that Bank A receives a primary deposit of $100,000 and that it must keep reserves of 10 percent against deposits. a. Prepare a simple balance sheet of assets and liabilities for the bank immediately after the deposit is received. b. Assume Bank A makes a loan in the amount that can be “safely lent.” Show what the bank’s balance sheet of assets and liabilities would look like immediately after the loan. c. Assume that a check in the amount of the “derivative deposit” created in Part b was written and sent to another bank. Show what Bank A’s (the lending bank’s) balance sheet of assets and liabilities would look like after the check is written.
> The balance sheets for the Genatron Manufacturing Corporation for the years 2016 and 2017 are listed in the text. a. Calculate the weighted average cost of capital based on book value weights. Assume an after-tax cost of new debt of 8.63 percent and a co
> The Nutrex Corporation wants to calculate its weighted average cost of capital. Its target capital structure weights are 40 percent long-term debt and 60 percent common equity. The before-tax cost of debt is estimated to be 10 percent and the company is
> 1. Examples of automatic stabilizer programs that act on a continuing basis to stabilize disposable income and economic activity include which one of the following? a. Unemployment insurance program b. Welfare payments c. Pay-as-you-go progressive inc
> The income statements for Genatron Manufacturing for 2016 and 2017 are listed in the text. Assuming one-half of the general and administrative expenses are fixed costs, estimate Genatron’s degree of operating leverage, degree of financial leverage, and d
> A firm has sales of $10 million, variable costs of $4 million, fixed expenses of $1.5 million, interest costs of $2 million and has a 30 percent average tax rate. a. Compute its DOL, DFL, and DCL. b. What will be the expected level of EBIT and net income
> Redo Problem 4, assuming that the less leveraged capital structure will result in a borrowing cost of 10% and a common stock price of $40. Data from Problem 4: Faulkner’s Fine Fries, Inc. (FFF) is thinking about reducing its debt burd
> Faulkner’s Fine Fries, Inc. (FFF) is thinking about reducing its debt burden. Given the information below and an expected EBIT of $50 million (plus or minus 10 percent) next year, should FFF change their capital structure? CURRENT
> Stern’s Stews, Inc., is considering a new capital structure. Its current and proposed capital structure follows: Stern’s Stews’ president expects next year’s EBIT to be $20 million
> Champion Telecommunications is restructuring. Currently Champion has no debt outstanding. After it restructures, debt will be $5 million. The rate offered to bondholders is 10 percent. Champion currently has 700,000 shares outstanding at a market price o
> Big 10+1 Corp. intends to raise $5 million by one of two financing plans: Plan A: Sell 1,250,000 shares at $4 per share net to the firm. Plan B: Issue $5 million in ten year debentures with a 9 percent coupon rate. The firm expects an EBIT level of $800,
> Company A1 intends to raise $3 million by either of two financing plans: Plan A: Sell 100,000 shares of stock at $30 net to firm Plan B: Issue $3 million in long term bonds with a 10 percent coupon The firm expects an EBIT of $1 million. Currently A1 has
> URA, Incorporated, has operating income of $5 million, total assets of $45 million, outstanding debt of $20 million, and annual interest expense of $3 million. a. What is URA’s indifference level of EBIT? b. Given its current situation, might URA benefit
> Here's a recent income statement from TC1 Telecommunications Services, Inc. (numbers are in millions) a. Compute TC1's degree of financial, operating, and combined leverage if one-half of the costs of good sold are variable costs and one-half are fixed c
> 1. Which of the following is not a way a government raises funds to pay for its activities? a. Levies taxes b. Borrows c. Prints money for its own use d. Issues common stock 2. Which of the following is a responsibility of the U.S. Treasury? a. Co
> Using the income statements from the Mount Lewis Copy Centers for 2016 and 2017 in Problem 17, find the percentage change in sales, EBIT, and net income. Use them to compute the degree of operating leverage, financial leverage, and combined leverage. Da
> Income statements for Mount Lewis Copy Centers for 2016 and 2017 appear below (in the text). a. Compute and interpret the degree of operating leverage, degree of financial leverage, and degree of combined leverage in 2016. Assume the components of the co
> The following information is from the financial statements of Bagel’s Biscuits (in text) a. Find Bagel’s internal growth rate. b. Compute Bagel’s sustainable growth rate.
> Below are items from recent financial statements from Moss and Mole Manufacturing (listed in text). a. Find M&MM's internal growth rate. b. Find their sustainable growth rate.
> Using the same notation used in the previous problem, now assume that the firm will raise some funds externally in order to keep the firm's debt-to-equity (D/E) ratio constant. a. What will this year's net income equal? b. How much will be added to stoc
> Derive equation 18-8 for the internal growth rate. Let S = last year's sales revenue; A = last year's total assets; D = last year's total liabilities; E = last year's stockholder's equity; NI/S =the firm's (presumably constant) profit margin, the ratio o
> Through library or internet resources, find information regarding the sources of long-term financing for AT&T. What are the current market prices for their outstanding bonds and stock? Estimate their current market value weights. Estimate the cost of eac
> Using various internet resources and information contained in this text to estimate the cost of debt, cost of retained earnings, the cost of new equity, and the weighted average cost of capital for the following firms: Walgreens, Microsoft, and ExxonMobi
> The Basic Biotech Corporation wants to determine its weighted average cost of capital. Its target capital structure weights are 50 percent long-term debt and 50 percent common equity. The before-tax cost of debt is estimated to be 10 percent and the comp
> AQ&Q has EBIT of $2 million, total assets of $10 million, stockholders’ equity of $4 million, and pretax interest expense of 10 percent. a. What is AQ&Q’s indifference level of EBIT? b. Given its current situation, might it benefit from increasing or dec
> 1. Which of the following groups is not a policy maker actively involved in achieving the nation’s economic policy objectives? a. Federal Reserve System b. The President c. Supreme Court d. Congress 2. Policy makers engage in which of the following
> Compute operating cash flows for the following: a. A project that is expected to have sales of $10,000, expenses of $5,000, depreciation of $200, an investment of $50 in net working capital and a 20 percent tax rate. b. A project has the simplified proje
> A project is estimated to generate sales revenue of $10 million with expenses of $9 million. No change in net working capital is expected. Marginal profits will be taxed at a 35% rate. If the project's operating cash flow is $1 million, what is the proje
> AA Auto Parts Company has a corporate tax rate of 34 percent and depreciation of $19,180. Compute its depreciation tax shield.
> The Sanders Electric Company is evaluating two projects for possible inclusion in the firm’s capital budget. Project M will require a $37,000 investment while project O’s investment will be $46,000. After-tax cash infl
> For the following projects, compute NPV, IRR, MIRR, profitability index, and payback. If these projects are mutually exclusive, which one(s) should be done? If they are independent, which one(s) should be undertaken? а. b. с. d. Year o - 1,000 -1,50
> Find the IRR and MIRR of a project if it has estimated cash flows of $5,500 annually for seven years if its year zero investment is $25,000.
> Find the IRR of a project that returns $17,000 three years from now if it costs $12,000.
> The BioTek Corporation has a basic cost of capital of 15 percent and is considering investing in either or both of the following projects. Project HiTek will require an investment of $453,000, while Project LoTek’s investment will be $2
> Find the NPV and PI of an annuity that pays $500 per year for eight years and costs $2,500. Assume a discount rate of 6 percent.
> Assume the financial manager of the Sanders Electric Company in Problem 6 believes that Project M is comparable in risk to the firm’s other assets. In contrast, there is greater uncertainty concerning Project O’s after-tax cash inflows. Sanders Electric
> 1. Which of the following are national policy objectives in the United States? a. Economic growth b. High employment c. Price stability d. All of choices are correct. 2. Which of the following is not considered to be a U.S. policy objective or goal
> Project R requires an investment of $45,000 and is expected to produce after-tax cash inflows of $15,000 per year for five years. The cost of capital is 10 percent. a. Determine the payback period, the net present value, and the profitability index for P
> Sensitivity analysis involves changing one variable at a time in a capital budgeting situation and seeing how NPV changes. Perform sensitivity analysis on the each of the following variables from problem 17 to determine its effect on NPV. a) Sales can be
> The ice cream shop described in the text has been a smash success. Customers from the next college town are pleading with you to open one closer to them. Based on your operating experience and knowledge of local real estate, you believe that opening a ne
> Suppose the Quick Towing Company purchases a new tow truck. The old truck had a book value of $1,000 and was sold for $1,420. If Quick Towing is in the 34 percent marginal tax bracket, what is the tax liability on the sale of the truck? What is the after
> The No-Shoplift Security Company is interested in bidding on a contract to provide a new security system for a large department store chain. The new security system would be phased into 10 stores per year for five years. No-Shoplift can purchase the hard
> Casey's Baseball Bats is planning to begin exporting their product to the Asian market. They estimate up-front expenses of $1 million this year (year 0) and $3 million next year (year 1). Operating cash flows in years 2, 3, and 4 will be (in dollars) $10
> Bart and Morticia, owners of the prestigious Gomez-Addams Office Towers, are concerned about high heating and cooling costs and client complaints of temperature variation within the building. They commissioned an engineering study by Frasco-Prew Associat
> Preston Industries' current sales volume is $100 million a year. Preston is examining the advantages of EDI (electronic data interchange). The technology will allow Preston to electronically communicate with suppliers and customers, send and receive purc
> Lisowski Laptops is examining the possibility of manufacturing and selling a notebook computer that is compatible with both PCs and MacIntosh systems and that can receive television signals. Its estimated selling price is $2,500. Variable costs (supplies
> Hammond's Fish Market just purchased a $30,000 fork lift truck. It has a five-year useful life. The firm’s tax rate is 25 percent. a. If the fork lift is straight-line depreciated, what is the firm’s tax savings from depreciation? b. What will be its boo
> 1. Which is generally true in countries where central banks are relatively independent from their governments? a. Higher inflation rates and lower economic growth rates b. Higher inflation rates and higher economic growth rates c. Lower inflation rate
> Given the information below, compute annualized returns Asset Purchase Price Current Price Income Received Time Period $ 20 S 26 $ 2 75 weeks 3 тonths A B 15 18 0.40 150 3.50 130 2 years 8 months D 3.00 0.20
> Given the information in the text, compute annualized returns. Asset Income Price Change Initial Price Time Period $29 15 months B 10 40 11 months C 50 70 30 7 years D 3 -8 20 24 months
> Assume that Bank A receives a primary deposit of $100,000 and that it must keep reserves of 10 percent against deposits. a. Prepare a simple balance sheet of assets and liabilities for the bank immediately after the deposit is received. b. Assume Bank A
> Assume that Banc One receives a primary deposit of $1 million. The bank must keep reserves of 20 percent against its deposits. Prepare a simple balance sheet of assets and liabilities for Banc One immediately after the deposit is received.
> ABBIX has a complex financial system with the following relationships. The ratio of required reserves to total deposits is 15 percent, and the ratio of non checkable deposits to checkable deposits is 40 percent. In addition, currency held by the nonbank
> The COMPLEX financial system has these relationships: the ratio of reserves to total deposits is 12 percent and the ratio of non checkable deposits to checkable deposits is 40 percent. In addition, currency held by the nonbank public amounts to 15 percen
> Rework Problem 8, assuming that the cash held by the public drops to $500,000 with an equal amount becoming excess reserves and the required reserves ratio drops to 12 percent. Data from Problem 8: The BASIC financial system has a required reserves rat
> The BASIC financial system has a required reserves ratio of 15 percent, initial excess reserves are $5 million, cash held by the public is $1 million and is expected to stay at that level, and there are no other leakages or adjustments in the system. a.
> Rework Problem 6 assuming the reserve ratio is 14 percent. Data from Problem 6: Assume a financial system has a monetary base of $25 million. The required reserves ratio is 10 percent and there are no leakages in the system. a. What is the size of the
> 1. Which of the following is considered to be the most important services function provided by the Reserve Banks? a. Payments mechanism for transferring money b. Net settlement facilities c. Safekeeping and transfer of securities d. Fiscal agent for
> Assume a financial system has a monetary base of $25 million. The required reserves ratio is 10 percent and there are no leakages in the system. a. What is the size of the money multiplier? b. What will be the system’s money supply?
> The SIMPLEX financial system is characterized by a required reserves ratio of 11 percent; initial excess reserves are $1 million; and there are no currency or other leakages. a. What would be the maximum amount of checkable deposits after deposit expans
> Assume that there are two banks, A and Z, in the banking system. Bank A receives a primary deposit of $600,000 and it must keep reserves of 12 percent against deposits. Bank A makes a loan in the amount that can be safely lent. a. Show what Bank A’s bala
> Financial markets may be categorized as: (1) debt securities markets, (2) equity securities markets, (3) derivative securities markets, and (4) foreign exchange markets. Indicate in which of these markets the following securities trade:
> The U.S. financial system is comprised of: (1) policy makers, (2) a monetary system, (3) financial institutions, and (4) financial markets. Indicate which of these components is associated with each of the following “roles”:
> Match the following dates with the associated events: 2000 2008-09 2001 2007-08 2006
> Assume that your partner and you are in the consumer lending business. A customer, talking with your partner, is discussing the possibility of obtaining a $10,000 loan for three months. The potential borrower seems distressed and says he needs the loan b
> Go to the Federal Reserve Web site, http://www.federalreserve.gov. Go to “Economic Research and Data,” and access “Recent Statistical Releases” and then “Consumer Credit.” Determine current interest rates charged by auto finance companies on new automobi
> Go to the Federal Reserve Web site, http://www.federalreserve.gov. Click on the Consumer Information tab, and research consumer credit in the various hyperlinks. Find average interest rates charged by commercial banks on new automobile loans, personal lo
> Assume you are employed as an investment advisor. You are working with a retired individual who depends on her income from her investments to meet her day-to-day expenditures. She would like to find a way of increasing the current income from her investm
> 1. On-site examination of commercial banks is shared by the Fed and which of the following? a. Office of the Comptroller of the Currency b. Federal Deposit Insurance Corporation c. State regulatory agencies d. All of the choices are correct. 2. Alt
> Assume a condition in which the economy is strong, with relatively high employment. For one reason or another, the money supply is increasing at a high rate, with little evidence of money creation slowing down. Assuming the money supply continues to incr
> As one of several advisors to the secretary of the U.S. Treasury, you have been asked to submit a memo in connection with the average maturity of the securities of the federal government. The basic premise is that the average maturity is far too short. A
> As an advisor to the United States Treasury you have been asked to comment on a proposal for easing the burden of interest on the national debt. This proposal calls for the elimination of federal taxes on interest received from Treasury debt obligations.
> As an economist for a major bank you are asked to explain the present substantial increase in the price level, notwithstanding the fact that neither the money supply nor the velocity of money has increased. How can this occur?
> Go to the Federal Reserve Web site at http://www.federalreserve.gov, and find interest rates on U.S. Treasury securities and on corporate bonds with different bond ratings. a. Prepare a yield curve or term structure of interest rates. b. Identify existin
> Assume you are an elected member of Congress. A lobbying group has agreed to provide financial support for your reelection campaign next year. In return for the group’s support, you have been asked to champion their self-interests in the form of a spendi
> Go to the U.S. Department of Commerce, Bureau of Economic Analysis website at http://www.bea.gov, click on the National table, and determine the following: a. The current personal savings rate in the United States. b. The amount of current corporate savi
> Assume you are the international vice president of a small U.S.-based manufacturing corporation. You are trying to expand your business in several developing countries. You are also aware that some business practices are considered to be “acceptable” in
> For the entire year, the nation’s balance of trade with other nations has been in a substantial deficit position, yet, as always, the overall balance of payments will be in “balance.” Describe the various factors that accomplish this overall balance, in
> Assume, as the loan officer of a commercial bank, one of your customers has asked for a “commercial letter of credit” to enable his firm to import a supply of well-known French wines. This customer has a long record of commercial success yet has large ou
> 1. Which of the following is not a basic policy instrument of the Fed? a. Changing reserve requirements b. Changing the discount rate c. Conducting open-market operations d. Implementing monetary easing programs 2. Excess reserves occur in which of
> You manage the cash for a large multinational industrial enterprise. As a result of credit sales on 90-day payment terms you have a large claim against a customer in Madrid. You have heard rumors of the possible devaluation of the Spanish peseta. What ac
> As a speculator in the financial markets, you notice that for the last few minutes Swiss Francs are being quoted in New York at a price of $0.5849 and in Frankfurt at $0.5851. a. Assuming that you have access to international trading facilities, what act
> As an importer of merchandise, you depend upon the sale of the merchandise for funds to make payment. Although customary terms of sale are 90 days for this type of merchandise, you are not well known to foreign suppliers because of your recent entry into
> As an exporter of relatively expensive electronic equipment, you have a substantial investment in the merchandise that you ship. Your foreign importers are typically small- or medium-size firms without a long history of operations. Although your terms of
> Explain the concept of “balance” as it relates to a nation’s balance of payments.
> You are the owner of a business that has offices and production facilities in several foreign countries. Your product is sold in all of these countries, and you maintain bank accounts in the cities in which you have offices. At present you have short-ter
> The prime rate, and other interest rates, offered by banks often change in the same direction as a change in the Fed’s target for the federal funds rate. As an employee of a Federal Reserve District Bank you have been told that your District Bank will be
> You have recently retired and are intent on extensive travel to many of the exotic lands you have only read about. You will not only be receiving a pension check and Social Security check but also dividends and interest from several corporations. You are
> An economic contraction (recession) is now well under way and the Fed plans to use all facilities at its command to halt the decline. Describe the measures that it may take.
> The Fed Board of Governors has decided to ease monetary conditions to counter early signs of an economic downturn. Because price inflation had been a burden in recent years, the Board is anxious to avoid any action that the public might interpret as a re
> 1. Approximately what percentage of commercial banks in the United States are members of the Fed? a. 10 percent b. 33 percent c. 67 percent d. 90 percent 2. What is the number of Federal Reserve Banks in the U.S. Federal Reserve System is? a. One
> 1. Which was a major development that closely preceded the 2007-08 “financial crisis”? a. The bursting of a housing bubble b. A credit or liquidity crunch c. The Great Recession d. A peak in the unemployment rate 2. When did the “Great Recession” o
> As the executive of a bank or thrift institution you are faced with an intense seasonal demand for loans. Assuming that your loanable funds are inadequate to take care of the demand, how might your Reserve Bank help you with this problem?
> You are a resident of Seattle, Washington, and maintain a checking account with a bank in that city. You have just written a check on that bank to pay your tuition. Describe the process by which the banking system enables your college to collect the fund
> We are faced with ethics decisions involving money almost every day. For example, we all probably have seen money in the form of coin or currency lying on the ground or floor somewhere. We also may have at some time discovered a lost wallet. Should it ma
> Find several recent issues of Bloomberg Business week. Identify articles relating to developments in the U.S. monetary system. Search for possible developments occurring in foreign monetary systems.
> Go to the Website of the Federal Reserve Bank of St. Louis at http://www.stlouisfed.org. Go to “Research and Data” and click on “FRED Economic Data” to access the Federal Reserve Economic Database (FRED). Compare the present size of M1 and M2 money stock
> Match the following money market securities with the level of secondary market activity.
> Match the following money market securities with their issuers.
> Go to the Small Business Administration (SBA) Web site, www.sba.gov , and search for information on starting a new business. Identify and prepare a written summary of the startup basics described on the SBA site.
> Obtain several recent issues of the Wall Street Journal or Bloomberg Business week. Identify, read, and be prepared to discuss at least one article relating specifically to recent changes in the financial environment.
