Question: There’s a fundamental difference between the

> Snyder Mfg. issued a $1,000 face value 30-year bond 5 years ago with an 8% coupon. The bond is subject to call after 10 years, and the current interest rate is 7%. What call premium will make a bondholder indifferent to the call? (Hint: Equate the for

> What would you pay for an annuity paying $3,000 per year for 12 years if the interest rate is 10%?

> Softek has two potentially big-selling products under development. Alpha, the first new product, seems very likely to catch on and is expected to drive the firm's growth rate to 25% for the next two years. However, software products have short lives, a

> How much will $650 per year deposited at 12% be worth in 8 years?

> Why is planning for a new business harder than planning for an existing operation? In which do you have to make more assumptions? Why? What implicit assumption provides a short cut in one situation?

> What is the FV of $1,250.63 for 3 years at 7%?

> At what interest rate will $1,000 grow into $3,642.50 in 15 years?

> What is the current yield on each of the bonds in the previous problem?

> How much is a guaranteed promise of $15,750 to be received in 12 years’ worth today if interest is 14%?

> If you deposit $207.86 in an account that pays 4% and leave it there for 12 years how much will you have in the account?

> Timberline Inc. has the following current accounts last year. ($000) In addition, the company had sales revenues of $9,453,000 and costs and expenses (including interest and tax) of $7,580,000. Depreciation of $1,462,000 is included in the cost and

> How much will $175 grow into if it is invested at 16% for 30 years?

> Lapps Inc. makes a gift product that sells best during the holiday season. Retailers stock up in the fall so Lapps’ sales are largest in October and November and drop dramatically in December. The firm expects the following revenue patt

> The Centurion Corp. is putting together a financial plan for the company covering the next three years, and needs to forecast its interest expense and the related tax savings. The firm's most significant liability is a fully amortized mortgage loan on it

> Amitron Inc. is considering an engineering project that requires an investment of $250,000 and is expected to generate the following stream of payments (income) in the future. Use the TIMEVAL program to determine if the project is a good idea in a presen

> What was the trigger that started the crisis? If it didn’t happen would the crisis have been averted?

> The Lexington Property Development Company has a $10,000 note receivable from a customer due in three years. How much is the note worth today if the interest rate is a. 9%? b. 12% compounded monthly? c. 8% compounded quarterly? d. 18% compounded month

> What interest rate will make $7,500 per year accumulate to $279,600 in 15 years?

> Tutak Industries issued a $1,000 face value bond a number of years ago that will mature in eight years. Similar bonds are yielding 8%, and the Tutak bond is currently selling for $1,291.31. Compute the coupon rate on this bond. (In practice we generall

> If you invest $8,000 at 12%, how long will it take to triple?

> How much would you have to put in the bank today to have $42,800 in 9 years if the interest rate is 7%?

> Sam Rothstein wants borrow $15,500 to be repaid in quarterly installments over five years at 16% compounded quarterly. How much will his payment be?

> Sweet Tooth Cookies, Inc. has the following ratios What percentage of its assets are financed by equity? (Hint: Substitute into the Extended DuPont Equation.) ROE . = 15% ...... T/A turnover = 1.2 ROS . E 10%

> What are the annual payments on a loan of $350,000 to be repaid over 10 years at 8%?

> How much would you have to save each year to have $65,000 in 10 years if the interest rate is expected to be 7%?

> The Lineberry Golf Cart Co. sold 7,400 carts this year at an average unit price of $3,000. The firm produced the carts at a 42% cost ratio, which is calculated as cost of goods sold (COGS) divided by revenue. At year end 50 days of sales remained uncol

> What is a tranche and how was its risk estimated before the crisis?

> Fleming, Inc. had a dividend payout ratio of 25% this year that resulted in a payout of $80,000 in dividends. Return on sales (ROS) was 8% this year and is expected to increase to 9% next year. If Fleming expects to have $305,100 available from next ye

> The Eagle Feather Fabric Company expects to complete the current year with the following financial results ($000). Forecast next year using a modified percentage of sales method assuming no dividends are paid and no new stock is sold along with the fol

> The Tower family wants to make a home improvement that is expected to cost $60,000. They want to fund as much of the cost as possible with a home equity loan, but can afford payments of only $600 per month. Their bank offers equity loans at 12% compound

> Larime Corp is forecasting 20X2 near the end of 20X1. The estimated year-end financial statements and a worksheet for the forecasts are shown below. Management expects the following next year: • An 8% increase in revenue. â&

> The management of Coker Corp is doing a quick forecast of 20X9 using the modified percentage of sales method in preparation for a more detailed planning exercise later in the month. The estimate is to assume a 10% growth in sales. All other line items

> If Sharon Henderson of the previous problem is also a founder of the company and has retained 8 million shares of its stock, how much of a difference will the auditors’ decision make in her personal wealth outside of the stock option?

> Joe Ferro's uncle is going to give him $250 a month for the next two years starting today. If Joe banks every payment in an account paying 6% compounded monthly, how much will he have at the end of three years?

> Read Business Analysis Case 3. Henderson Industries Inc.’s stock is currently selling at $22.40 per share. Sharon Jacobs, the CEO, has options to buy 250,000 shares at $25.50 per share that expire at the end of this year. Sharon feels that if the tradi

> The Cambridge Cartage Company has partially completed its forecast of next year's financial statements as follows. The firm pays interest at 10% on all borrowings and pays a combined state and federal tax rate of 40%. Complete the forecasted income st

> The Nelson Sheet Metal Company has current assets of $2.5 million and current liabilities of $1.0 million. The firm is in need of additional inventory and has an opportunity to borrow money on a short-term note with which it can buy the needed material.

> List the traditional qualifications for a mortgage loan and describe how each protects the lender.

> Industry A is dominated by ten large firms each with sales of approximately $500 million per year. A proposal to merge two of these firms was approved by the Justice Department as not violating the antitrust laws. Industry B is locally defined and much

> Relate the idea of cost of capital to the opportunity cost concept. Is the cost of capital the opportunity cost of project money?

> Why is it desirable to construct capital budgeting rules so that higher risk projects become less acceptable than lower risk projects?

> Because companies always have inventory and accounts receivable, most banks are happy to make long term loans to support those assets. Either refute or support that statement.

> Why are time value concepts important in ordinary business dealings, especially those involving contracts?

> Depreciation is a noncash charge. Why then is it important in Lease-Buy analysis? (Very short answer.)

> What bank problems does securitization solve?

> In leases with no residuals, lessors calculate the lease payments they must charge as if the lease was a loan. How does the presence of a residual change the calculation?

> Given the importance of dividends to the well-being of equity investors, why do they put up with the fact that dividends are discretionary?

> Explain the ideas of a risk-free rate and the real rate of interest. Are either of them approximated by anything that exists in the real world?

> The following issues are related to the accuracy and reliability of financial plans. Explain the processes/issues related to each. Top-down vs. bottom-up planning Plans as statements of goals vs. plans as predictions of what's going to happen. Planni

> Summarize the effect of operating leverage on EBIT.

> Why is inflation important to lenders? How do they take it into consideration?

> Capital budgeting is based on the idea of identifying incremental cash flows, so overheads aren't generally included. Does this practice create a problem for a firm that over a long period of time takes on a large number of projects that are just barely

> What is the general (in words) relationship between risk and return?

> Interest is said to drive the stock market. But interest is paid on bonds and loans while stocks pay dividends, never interest. It would seem that interest has nothing to do with the stock market. Explain this apparent contradiction.

> The payback technique is criticized for not using discounted cash flows. Under what conditions will this matter most? That is, under what patterns of cash flow will payback and NPV or IRR be likely to give different answers?

> Because of the advances in computer technology, inventory management is a precise science, and there's no excuse for not having the optimal quantity on hand at all times. Is that statement true or false? Explain.

> Inventory management is a shared responsibility between finance and manufacturing just as receivables management involves both sales and finance. Right or wrong? Explain.

> Outline the costs and benefits involved in the trade-off between a tighter versus a looser receivables policy.

> Why does stock-based compensation create a moral hazard for executives?

> Describe insider trading. Why is it illegal?

> You're the cash manager for Huge Inc., which has factories and stores all over the country. Each operation has several bank accounts to receive deposits and pay vendors, so the company's cash is spread all over the country under the control of divisiona

> What argument was made against adopting FASB 13?

> What do we mean when we say businesses spend two kinds of money? Where does each kind come from? How is each used?

> What, in general, is meant by off balance sheet financing?

> Define term and maturity. Is there a difference?

> Factoring may involve interest even though it isn't a loan. How can this come about?

> Describe the concept of the breakeven point in words by using the concept of contribution and fixed costs. (Short answer.)

> Explain the idea of breakeven analysis in a brief paragraph.

> What information are we likely to be interested in that’s contained in a loan amortization schedule?

> You're a new member of the planning staff within the finance department at Bertram Enterprises, a large manufacturer of household goods. The firm does an annual operating plan and a long range plan every year. You've just received a note from the CFO a

> Is the IPO Pop experienced by most new stocks likely to be a reflection of market forces driving shares toward their intrinsic values?

> In a retail store a discount is a price reduction. What's a discount in finance? Are the two ideas related?

> The risk added by financing is small and insignificant relative to the inherent risk in most businesses. Is that statement true or false? Discuss.

> Why are time value concepts crucial in determining what a bond or a share of stock should be worth?

> What is the primary purpose of financial markets?

> What's the difference between a direct and an indirect transfer of money between investors and firms?

> Exchange transactions between two currencies neither of which is the U.S. dollar have to be made by changing one currency into dollars and then changing the dollars into the other currency. This procedure is necessary, because the exchange tables are al

> When you want to buy something from another country, you have to find a seller who's willing to take dollars, but that isn't too hard because the U.S. dollar is widely accepted. Comment on this statement.

> Hostile acquisitions create real animosities between the stockholders of the acquired and acquiring companies. Comment on the truth of this statement.

> The Highland Instrument Company has revenues of about $300 million per year. Its management is interested in expanding into a new type of product manufactured primarily by Lowland Gauge Inc., a firm with sales of about $200 million annually. Both firms

> When an annuity begins several time periods into the future, how do we calculate its present value today? Describe the procedure in a few words.

> What generates the supply of and the demand for foreign exchange? Why do the supply and demand curves have the shape they do? What makes the supply and demand curves and hence the exchange rate move around?

> Kneelson and Botes Inc. (K&B) is a construction company that does road and bridge work for the state highway authority. The state government solicits bids on construction projects from private contractors. The winning contractor is chosen based on

> Segwick Corp manufactures men's shoes that it sells through its own chain of retail stores. The firm is considering adding a line of women's shoes. Management considers the project a new venture because there are substantial differences in marketing an

> Hudson Furniture specializes in office furniture for self-employed individuals who work at home. Hudson’s furniture emphasizes style rather than utility, and has been quite successful. The firm is now considering entering the more competitive industria

> Calculate the NPV at 12% and the IRR for the following projects. Find IRR's to the nearest whole percent. a. An initial outflow of $10,000 followed by three inflows of $4,000. b. An initial outflow of $10,000 followed by inflows of $3,000, $4,000, and

> Resolve the previous problem assuming Voxland uses the 5-year Modified Accelerated Cost Recovery System (MACRS) with no salvage value to depreciate the computer. Continue to assume the machine is sold after five years for $1,000. (Hint: Apply the MACRS

> Should the project being considered in the previous problem be accepted or rejected based on IRR? (Hint: Start by guessing 11% for IRR) Does the IRR method seem to give a more definite result? If so, would your recommendation, after considering all four

> Tomatoes Inc. is planning a project that involves machinery purchases of $100,000. The new equipment will be depreciated over five years, straight line. It will replace old machinery that will be sold for an estimated $36,000 and has a book value of $2

> The Rapscallion Company’s stock is selling for $43.75. Dave Jones has done some research on the firm and its industry, and thinks it will pay dividends of $5 next year and $7 the following year. After those two years Dave thinks its market price will p

> Blackstone Inc manufactures western boots and saddles. The company is considering replacing an outmoded leather-processing machine with a new, more efficient model. The old machine was purchased for $48,000 six years ago and was expected to have an eig

> The Catseye Marble Co. is thinking of replacing a manual production process with a machine. The manual process requires three relatively unskilled workers and a supervisor. Each worker makes $17,500 per year while the supervisor earns $24,500. The new

> Discuss the idea of capitalizing a stream of earnings in perpetuity. Where is this idea useful? Is there a financial asset that makes use of this idea?

> Callaway Associates, Inc. is considering the following mutually exclusive projects. Callaway’s Cost of capital is 12%. a. Calculate each project’s NPV and IRR. b. Which project should be undertaken? Why? Projec

> Bagel Pantry Inc. is considering two mutually exclusive projects with widely differing lives. The company's cost of capital is 12%. The project cash flows are summarized as follows: a. Compare the projects by using Payback. b. Compare the projects by

> Island Airlines, Inc. needs to replace a short haul computer plane on one of its busier routes. Two aircraft that satisfy the general requirements of the route are on the market. One is more expensive than the other but has better fuel efficiency and l

> Calculate the IRR, NPV, and PI for projects with the following cash flows. Do each NPV and PI calculation at costs of capital of 8% and 12%. Calculate IRRs to the nearest whole percent. a. An initial outlay of $5,000 and inflows of $1,050 for seven yea

> The Leventhal Baking Company is thinking of expanding its operations into a new line of pastries. The firm expects to sell $350,000 of the new product in the first year and $500,000 each year thereafter. Direct costs including labor and materials will

> Sam Dozier, a very bright computer scientist, has come up with an idea for a new product. He plans to form a corporation to develop the idea and market the resulting product. He has estimated that it will take him and one employee about a year to devel

> Oxbow Inc. is contemplating a new venture project and has done a detailed five-year cash flow estimate with the following result ($000): The firm’s cost of capital is 12%. a. Use a financial calculator to compute the projectâ&#1