Question: The following is selected financial information for

> You are the manager of a specialty retailing firm that is considering two strategies for getting into the Malaysian retail market. Under the first strategy, the firm will make an initial investment of $10 million and can expect to capture about 5% of the

> You have to pick between three mutually exclusive projects with the following cash flows to the firm: The cost of capital is 12%. a. Which project would you pick using the NPV rule? b. Which project would you pick using the IRR rule? c. How would you exp

> You have just run a regression of monthly returns of American Airlines (AMR) against the S&P 500 over the past five years. You have misplaced some of the output and are trying to derive it from what you have. a. You know the R2 of the regression is 0.36,

> You are using the arbitrage pricing model to estimate the expected return on Bethlehem Steel and have derived the following estimates for the factor betas and risk premia: a. Which risk factor is Bethlehem Steel most exposed to? Is there any way, within

> You run a regression of monthly returns of Mapco, an oil- and gas-producing firm, on the S&P 500 Index and come up with the following output for the period 1991–1995. Intercept of the regression = 0.06% X-coefficient of the regression = 0.46 Standard err

> It has been argued by some that convertible bonds (i.e., bonds that are convertible into stock at the option of the bondholders) provide one form of protection against expropriation by stockholders. On what is this argument based?

> Boise Cascade also had debt outstanding of $1.7 billion and a market value of equity of $1.5 billion; the corporate marginal tax rate was 36%. a. Assuming that the current beta of 0.95 for the stock is a reasonable one, estimate the unlevered beta for th

> Businesses with severe capital rationing constraints should use IRR more than NPV. Do you agree? Explain.

> You have been asked to value Office Help, a private firm providing office support services in the New York area. The firm reported pretax operating income of $10 million in its most recent financial year on revenues of $100 million. In the most recent fi

> InTech, a computer software firm that has never paid dividends before, is considering whether it should start doing so. This firm has a cost of equity of 22% and a cost of debt of 10% (the tax rate is 40%). The firm has $100 million in debt outstanding a

> You are trying to decide whether the debt structure that Bethlehem Steel has currently is appropriate, given its assets. You regress the changes in firm value against changes in interest rates and arrive at the following equation Change in Firm Value = 0

> Pfizer, one of the largest pharmaceutical companies in the United States, is considering what its debt capacity is. In March 1995, Pfizer had an outstanding market value of equity of $24.27 billion, debt of $2.8 billion, and an AAA rating. Its beta was 1

> IPOs are difficult to value because firms going public tend to be small, and little information is available about them. Investment bankers have to underprice IPOs because they bear substantial pricing risk. Do you agree with this statement? How would yo

> You are the supervisor of a town where the roads are in need of repair. You have a limited budget and are considering two options: • You can patch up the roads for $100,000, but you will have to repeat this expenditure every year to keep the roads in rea

> Assume that you are advising a Turkish firm on corporate financial questions and that you do not believe that the Turkish stock market is efficient. Would you recommend stock price maximization as the objective? If not, what would you recommend?

> You have a project that does not require an initial in- vestment but has its expenses spread over the life of the project. Can the IRR be estimated for this project? Why or why not?

> U.S. steel companies have generally been considered mature in terms of growth and often take on high leverage to finance their plant and equipment. Steel companies in some emerging markets often have high growth rates and good growth prospects. Would you

> Unicom is a regulated utility serving Northern Illinois. The following table lists the stock prices and dividends on Unicom from 1989 to 1998. a. Estimate the average annual return you would have made on your investment. b. Estimate the standard deviatio

> You are analyzing a valuation done on a stable firm by a well-known analyst. Based on the expected FCFF next year of $30 million, and an expected growth rate of 5%, the analyst has estimated a value of $750 million. How- ever, he has made the mistake of

> GL Corporation, a retail firm, is making a decision on how much it should pay out to its stockholders. It has $100 million in investible funds. The following information is provided about the firm: • It has 100 million shares outstandin

> When firms increase dividends, stock prices tend to increase. One reason given for this price reaction is that dividends operate as a positive signal. What is the increase in dividends signaling to markets? Will markets always believe the signal? Why or

> You have been asked by JJ Corporation, a California- based firm that manufacturers and services digital satellite TV systems, to evaluate its capital structure. They currently have 70 million shares outstanding trading at $10 per share. In addition, the

> You have collected returns on AnaDone , a large diversified manufacturing firm, and the NYSE index for five years: a. Estimate the intercept (alpha) and slope (beta) of the regression. b. If you bought stock in AnaDone today, how much would you expect to

> It is often argued that managers, when asked to maximize stock price, have to choose between being socially responsible and carrying out their fiduciary duty. Do you agree? Can you provide an example where social responsibility and firm value maximizatio

> Battle Mountain is a mining company that mines gold, silver, and copper in mines in South America, Africa, and Australia. The beta for the stock is estimated to be 0.30. Given the volatility in commodity prices, how would you explain the low beta?

> RJR Nabisco also had $10 billion in bonds outstanding at the time of the dividend increase in Problem 10. How would you expect the bonds to react to the announcement? Why?

> You have been asked to value Alcoa and have come up with the following inputs. • The stock has a beta of 0.90, estimated over the last five years. During this period, the firm had an average debt/equity ratio of 20% and an average cash balance of 15%. •

> JLChem Corporation, a chemical manufacturing firm with changing investment opportunities, is considering a major change in dividend policy. It currently has 50 million shares outstanding and pays an annual dividend of $2 per share. The firm current and p

> There is a conflict of interest between stockholders and managers. In theory, stockholders are expected to exercise control over managers through the annual meeting or the board of directors. In practice, why might these disciplinary mechanisms not work?

> The following table lists the stock prices for Microsoft from 1989 to 1998. The company did not pay any dividends during the period. a. Estimate the average annual return you would have made on your investment. b. Estimate the standard deviation and vari

> After Dan’s EFN analysis for East Coast Yachts (see the Mini Case in Chapter 3), Larissa has decided to expand the company’s operations. She has asked Dan to enlist an underwriter to help sell $50 million in new 20-year bonds to finance new construction.

> Stephenson Real Estate Company was founded 25 years ago by the current CEO, Robert Stephenson. The company purchases real estate, including land and buildings, and rents the property to tenants. The company has shown a profit every year for the past 18 y

> You have been at your job with East Coast Yachts for a week now and have decided you need to sign up for the company’s 401(k) plan. Even after your discussion with Sarah Brown, the Bledsoe Financial Services representative, you are stil

> You have recently been hired by Swan Motors, Inc. (SMI), in its relatively new treasury management department. SMI was founded 8 years ago by Joe Swan. Joe found a method to manufacture a cheaper battery with much greater energy density than was previous

> Dawn Browne, an investment broker, has been approached by client Jack Thomas about the risk of his investments. Dawn has recently read several articles concerning the risk factors that can potentially affect asset returns, and she has decided to examine

> You are discussing your 401(k) with Dan Ervin when he mentions that Sarah Brown, a representative from Bledsoe Financial Services, is visiting East Coast Yachts today. You decide that you should meet with Sarah, so Dan sets up an appointment for you late

> You recently graduated from college, and your job search led you to East Coast Yachts. Because you felt the company’s business was seaworthy, you accepted a job offer. The first day on the job, while you are finishing your employment pa

> Larissa has been talking with the company’s directors about the future of East Coast Yachts. To this point, the company has used outside suppliers for various key components of the company’s yachts, including engines.

> a. Tao Co. receives $10,000 cash in advance for 4 months of legal services on October 1, 2015, and records it by debiting Cash and crediting Unearned Revenue both for $10,000. It is now December 31, 2015, and Tao has provided legal services as planned. W

> Determine the missing amount from each of the separate situations a, b, and c below. B Assets Liabilities Equity (a) $ ? (b) (c) $ 20,000 34,000 $ 45,000 ? 100,000 154,000 4 40,000

> a. Barga Company purchases $20,000 of equipment on January 1, 2015. The equipment is expected to last five years and be worth $2,000 at the end of that time. Prepare the entry to record one year’s depreciation expense of $3,600 for the equipment as of De

> a. On July 1, 2015, Lopez Company paid $1,200 for six months of insurance coverage. No adjustments have been made to the Prepaid Insurance account, and it is now December 31, 2015. Prepare the journal entry to reflect expiration of the insurance as of De

> a. Total assets of Charter Company equal $700,000 and its equity is $420,000. What is the amount of its liabilities? b. Total assets of Martin Marine equal $500,000 and its liabilities and equity amounts are equal to each other. What is the amount of its

> Complete the following table with either a yes or no regarding the attributes of a proprietorship, partnership and corporation. Attribute Present Proprietorship Partnership Corporation I. Business taxed.. 2. Business entity.. 3. Logal entity ..

> Selected financial information of Banji Company for the year ended December 31, 2015, follows. Required Prepare the 2015 statement of cash flows for Banji Company. Cash from investing activities $1,600 Net increase in cash 400 Cash from financing act

> Following is selected financial information of Audi Company for the year ended December 31, 2015. Required Prepare the 2015 statement of owner’s equity for Audi Company. A. Audi, Capital, Dec. 31, 2015 $47,000 A. Audi, Withdrawals

> Following is selected financial information for Kojo Company for the year ended December 31, 2015. Required Prepare the 2015 statement of owner’s equity for Kojo Company. K. Kojo, Capital, Dec. 31, 2015. $14,000 K. Kojo, Withdrawa

> Selected financial information for Solar Company for the year ended December 31, 2015, follows. Required Prepare the 2015 income statement for Solar Company. Expenses ..... $40,000 Revenues $68,000 Net income $28,000 .... ... .... ...

> The following is selected financial information for Edison Energy Company for the year ended December 31, 2015: revenues, $55,000; expenses, $40,000; net income, $15,000. Required Prepare the 2015 calendar-year income statement for Edison Energy Company

> During the year, a company recorded prepayments of expenses in asset accounts, and cash receipts of unearned revenues in liability accounts. At the end of its annual accounting period, the company must make three adjusting entries: (1) accrue salaries e

> The following is selected financial information for Armani Company as of December 31, 2015: liabilities, $44,000; equity, $46,000; assets, $90,000. Required Prepare the balance sheet for Armani Company as of December 31, 2015.

> Refer to Samsung’s 2013 balance sheet in Appendix A near the end of the book. Confirm that its total assets equal its total liabilities plus total equity. Samsung’s 2013 Balance Sheet from Appendix A: / Samsun

> Identify the dollar amounts of Google’s 2013 assets, liabilities, and equity as reported in its statements in Appendix A near the end of the book. Google’s 2013 Statements from Appendix A: // Google Inc. CONS

> Refer to the financial statements of Apple in Appendix A near the end of the book. To what level of significance are dollar amounts rounded? What time period does its income statement cover? Financial Statements from Appendix A: Apple Inc. CONSO

> Use the information in Exercise 1-15 (if completed, you can also use your solution to Exercise 1-16) to prepare an October 31 balance sheet for Ernst Consulting. Data from Exercise 1-15 Cash $11,360 Cash withdrawals by owner $ 2,000 .... ... ....

> Use the information in Exercise 1-15 to prepare an October statement of owner’s equity for Ernst Consulting. Data from Exercise 1-15 Cash $11,360 Cash withdrawals by owner $ 2,000 .... ... .... Accounts recelvable 14,000 Consultin

> On October 1, Ebony Ernst organized Ernst Consulting; on October 3, the owner contributed $84,000 in assets to launch the business. On October 31, the company’s records show the following items and amounts. Use this information to prepa

> Swiss Group reports net income of $40,000 for 2015. At the beginning of 2015, Swiss Group had $200,000in assets. By the end of 2015, assets had grown to $300,000. What is Swiss Group’s 2015 return on assets? How would you assess its performance if compet

> Compute Chavez Company’s current ratio using the following information. Long-term notes payable Office supplies. Accounts receivable $18,000 $21,000 .... .. ...... Accounts payable I1,000 2,800 Buildings 45,000 3,560 Prepaid insura

> Heineken N.V., which is a global brewer domiciled in the Netherlands, reports the following balance sheet accounts for the year ended December 31, 2013 (euro in millions). Prepare the balance sheet for this company as of December 31, 2013, following the

> The following selected information is taken from the work sheet for Warton Company as of December 31, 2015. Using this information, determine the amount for B. Warton, Capital, that should be reported on its December 31, 2015, balance sheet. Balance

> Review the balance sheet of Google in Appendix A. Identify the amount for property and equipment. What adjusting entry is necessary (no numbers required) for this account when preparing financial statements? Google Balance Sheet from Appendix A: Go

> BMW Group, one of Europe’s largest manufacturers, reports the following income statement accounts for the year ended December 31, 2013 (euros in millions). Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . €68,821 Cost of sa

> Damita Company reported net income of $48,025 and net sales of $425,000 for the current year. Calculate the company’s profit margin and interpret the result. Assume that its competitors earn an average profit margin of 15%.

> Molly Mocha employs one college student every summer in her coffee shop. The student works the five weekdays and is paid on the following Monday. (For example, a student who works Monday through Friday, June 1 through June 5, is paid for that work on Mon

> The following information is taken from Camara Company’s unadjusted and adjusted trial balances. Given this information, which of the following is likely included among its adjusting entries? a. A $400 debit to Insurance Expense and a

> Hawk Company records prepaid assets and unearned revenues in balance sheet accounts. The following information was used to prepare adjusting entries for the company as of August 31, the end of the company’s fiscal year. a. The company has earned $6,000 i

> In a recent year’s financial statements, Home Depot reported the following results. Compute and interpret Home Depot’s return on assets (assume competitors average an 8.0% return on assets). Sales ………………………………………….………….. $$67,997 million  Net Income

> If a company recorded accrued salaries expense of $500 at the end of its fiscal year, what reversing entry could be made? When would it be made?

> On December 31, 2014, Yates Co. prepared an adjusting entry for $12,000 of earned but unrecorded management fees. On January 16, 2015, Yates received $26,700 cash in management fees, which included the accrued fees earned in 2014. Assuming the company us

> In its first year of operations, Roma Co. earned $45,000 in revenues and received $37,000 cash from these customers. The company incurred expenses of $25,500 but had not paid $5,250 of them at year-end. The company also prepaid $6,750 cash for costs that

> Use the following information from the Adjustments columns of a 10-column work sheet to prepare the necessary adjusting journal entries (a) through (e). A B E K Balance Sheet and Statement of Owner's Equity 1 Unadjusted Income Adjusted Trial Balance

> The following two events occurred for Trey Co. on October 31, 2015, the end of its fiscal year. a. Trey rents a building from its owner for $2,800 per month. By a prearrangement, the company delayed paying October’s rent until November 5. On this date, t

> Calculate the current ratio in each of the following separate cases (round the ratio to two decimals). Identify the company case with the strongest liquidity position. (These cases represent competing companies in the same industry.) Current Assets

> Use the information in the adjusted trial balance reported in Exercise 4-11 to compute the current ratio as of the balance sheet date (round the ratio to two decimals). Interpret the current ratio for the Wilson Trucking Company. (Assume that the industr

> Use the information in the adjusted trial balance reported in Exercise 4-11 to prepare Wilson Trucking Company’s classified balance sheet as of December 31, 2015. Adjusted Trial Balance Report from Exercise 4-11: Account Title Deb

> Use the following adjusted trial balance of Wilson Trucking Company to prepare the (1) income statement and (2) statement of owner’s equity for the year ended December 31, 2015. The K. Wilson, Capital account balance is $175,000 at De

> The adjusted trial balance for Salon Marketing Co. follows. Complete the four right-most columns of the table by first entering information for the four closing entries (keyed 1 through 4) and second by completing the post-closing trial balance. Adj

> Adidas AG reports the following balance sheet accounts for the year ended December 31, 2013 (euros in millions). Prepare the balance sheet for this company as of December 31, 2013, following usual IFRS practices. Tangible and other assets € 304 Inta

> Following are two income statements for Alexis Co. for the year ended December 31. The left column is prepared before any adjusting entries are recorded, and the right column includes the effects of adjusting entries. The company records cash receipts an

> For each of the following separate cases, prepare adjusting entries required of financial statements for the year ended (date of) December 31, 2015. (Assume that prepaid expenses are initially recorded in asset accounts and that fees collected in advance

> Samsung (Samsung.com) is a leading global manufacturer, and it competes to varying degrees with both Apple and Google. Key financial figures for Samsung follow. Required 1. Identify any concerns you have in comparing Samsung’s income

> Prepare adjusting journal entries for the year ended (date of) December 31, 2015, for each of these separate situations. Assume that prepaid expenses are initially recorded in asset accounts. Also assume that fees collected in advance of work are initial

> The following three separate situations require adjusting journal entries to prepare financial statements as of April 30. For each situation, present both the April 30 adjusting entry and the subsequent entry during May to record the payment of the accru

> Determine the missing amounts in each of these four separate situations a through d. a b d Supplies available-prior year-end . $ 400 $1,200 $1,260 Supplies purchased during the current year 2,800 6,500 $3,000 Supplies available-current year-end 650

> Costanza Company experienced the following events and transactions during July. July 1 Received $3,000 cash in advance of performing work for Vivian Solana. 6 Received $7,500 cash in advance of performing work for Iris Haru. 12 Completed the job for Sol

> Ricardo Construction began operations on December 1. In setting up its accounting procedures, the company decided to debit expense accounts when it prepays its expenses and to credit revenue accounts when customers pay for services in advance. Prepare jo

> Use the following information to compute profit margin for each separate company a through e. Net Income Net Sales a. $ 4,361 $ 44,500 b. 97,706 398,800 c. 111,281 257,000 d. $65,646 $1,458,800 e. 80,132 435,500 Which of the five companies is t

> Prepare general journal entries to record the transactions below for Spade Company by using the following accounts: Cash; Accounts Receivable; Office Supplies; Office Equipment; Accounts Payable; K. Spade, Capital; K. Spade, Withdrawals; Fees Earned; and

> Prepare general journal entries for the following transactions of a new company called Pose-for-Pics. Aug. 1 Madison Harris, the owner, invested $6,500 cash and $33,500 of photography equipment in the company. 2 The company paid $2,100 cash for an insu

> Groro Co. bills a client $62,000 for services provided and agrees to accept the following three items in full payment: (1) $10,000 cash, (2) computer equipment worth $80,000, and (3) to assume responsibility for a $28,000 note payable related to the c

> Use the information in Exercise 2-16 (if completed, use the solution to Exercise 2-17) to prepare an August 31 balance sheet for Help Today. Data from Exercise 2-16 Solution from Exercise 2-17: HELP TODAY Statement of Owner’s Equity

> You are to interview a local business owner. (This can be a friend or relative.) Opening lines of communication with members of the business community can provide personal benefits of business networking. If you do not know the owner, you should call ahe

> Assume the following T-accounts reflect Belle Co.’s general ledger and that seven transactions a through g are posted to them. Provide a short description of each transaction. Include the amounts in your descriptions. Cash Automobi

> Examine the following transactions and identify those that create revenues for Valdez Services, a company owned by Brina Valdez. Prepare general journal entries to record those revenue transactions and explain why the other transactions did not create re

> a. Calculate the debt ratio and the return on assets using the year-end information for each of the following six separate companies ($ thousands). b. Of the six companies, which business relies most heavily on creditor financing? c. Of the six compani

> After recording the transactions of Exercise 2-9 in T-accounts and calculating the balance of each account, prepare a trial balance. Use May 31, 2015, as its report date. T-Accounts from Exercise 2-9: Cash  Accounts Payable  (a) 100,750  (b) 1,

> You are told the column totals in a trial balance are not equal. After careful analysis, you discover only one error. Specifically, a correctly journalized credit purchase of an automobile for $18,950 is posted from the journal to the ledger with an $18,

> Posting errors are identified in the following table. In column (1), enter the amount of the difference between the two trial balance columns (debit and credit) due to the error. In column (2), identify the trial balance column (debit or credit) with the

> Compute the missing amount for each of the following separate companies a through d. B D E (b) 0 $ O $ ? (c) (d) O $ (a) 1 2 Equity, December 31, 2014 3 Owner investments during the year 4 Owner withdrawals during the year 5 Net income (loss) for th