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?
> 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
> Pasqually Mineral Water, Inc., will pay a quarterly dividend per share of $.80 at the end of each of the next 12 quarters. Thereafter, the dividend will grow at a quarterly rate of 1 percent, forever. The appropriate rate of return on the stock is 10 per
> 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
> 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
> Why do so many firms file for legal bankruptcy when private workouts are so much less expensive?
> Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding. Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,500. a. I
> Acquiring firm stockholders seem to benefit little from takeovers. Why is this finding a puzzle? What are some of the reasons offered for it?
> Lealos, Inc., is considering a change in its cash-only sales policy. The new terms of sale would be net one month. Based on the following information, determine if Lealos should proceed or not. Describe the buildup of receivables in this case. The requir
> At least part of Dell’s corporate profits can be traced to its inventory management. Using just-in-time inventory, Dell typically maintains an inventory of three to four days’ sales. Competitors such as Hewlett-Packard and IBM have attempted to match Del
> No More Books Corporation has an agreement with Floyd Bank, whereby the bank handles $3.2 million in collections a day and requires a $350,000 compensating balance. No More Books is contemplating canceling the agreement and dividing its eastern region so
> Why might the revenue and cost figures shown on a standard income statement not represent the actual cash inflows and outflows that occurred during a period?
> The Germinating Flower Co. has earnings of $1.75 per share. The benchmark PE for the company is 18. What stock price would you consider appropriate? What if the benchmark PE were 21?
> Say you own an asset that had a total return last year of 12.5 percent. If the inflation rate last year was 5.3 percent, what was your real return?
> Niko has purchased a brand new machine to produce its High Flight line of shoes. The machine has an economic life of five years. The depreciation schedule for the machine is straight-line with no salvage value. The machine costs $575,000. The sales price
> You are discussing a project analysis with a coworker. The project involves real options, such as expanding the project if successful, or abandoning the project if it fails. Your coworker makes the following statement: “This analysis is ridiculous. We lo
> You are evaluating two different silicon wafer milling machines. The Techron I costs $215,000, has a three-year life, and has pretax operating costs of $35,000 per year. The Techron II costs $270,000, has a five-year life, and has pretax operating costs
> Suppose you are offered $7,000 today but must make the following payments: Year ………………………Cash Flows ($) 0 ……………………………………………….$ 7,000 1 …………………………………………………−3,700 2 ………………………………………………..−2,400 3 ………………………………………………..−1,500 4 ………………………………………………...−1,200 a.
> Projects A and B have the following cash flows: a. If the cash flows from the projects are identical, which of the two projects would have a higher IRR? Why? b. If C1B = 2C1A, C2B = 2C2A, and C3B = 2C3A, then is IRR A = IRR B ? Year Project A Proje
> Compute the future value of $1,900 continuously compounded for a. 7 years at a stated annual interest rate of 12 percent. b. 5 years at a stated annual interest rate of 10 percent. c. 12 years at a stated annual interest rate of 5 percent. d. 10 years at
> The TMCC security is bought and sold on the New York Stock Exchange. If you looked at the price today, do you think the price would exceed the $24,099 original price? Why? If you looked in the year 2019, do you think the price would be higher or lower th
> The Steiben Company has an ROE of 13.1 percent and a payout ratio of 40 percent. a. What is the company’s sustainable growth rate? b. Can the company’s actual growth rate be different from its sustainable growth rate? Why or why not? c. How can the compa
> Who owns a corporation? Describe the process whereby the owners control the firm’s management. What is the main reason that an agency relationship exists in the corporate form of organization? In this context, what kinds of problems can arise?
> Given the information for Anna’s Tennis Shop, Inc., in the previous two problems, suppose you also know that the firm’s net capital spending for 2012 was $945,000 and that the firm reduced its net working capital investment by $87,000. What was the firm’
> Critics have charged that compensation to top managers in the United States is simply too high and should be cut back. For example, focusing on large corporations, Larry Ellison of Oracle has been one of the best compensated CEOs in the United States, ea
> Suppose your company imports computer motherboards from Singapore. The exchange rate is given in Figure 31.1. You have just placed an order for 30,000 motherboards at a cost to you of 141.30 Singapore dollars each. You will pay for the shipment when it a
> Several firms have entered bankruptcy, or threatened to enter bankruptcy, at least in part as a means of reducing labor costs. Whether this move is ethical, or proper, is hotly debated. Is this an ethical use of bankruptcy?
> Cholern Electric Company (CEC) is a public utility that provides electricity to the central Colorado area. Recent events at its Mile-High Nuclear Station have been discouraging. Several shareholders have expressed concern over last year’
> Air Spares is a wholesaler that stocks engine components and test equipment for the commercial aircraft industry. A new customer has placed an order for eight high-bypass turbine engines, which increase fuel economy. The variable cost is $2.4 million per
> The newspaper reported last week that Bennington Enterprises earned $34 million this year. The report also stated that the firm’s return on equity is 16 percent. Bennington retains 80 percent of its earnings. What is the firm’s earnings growth rate? What
> An investment offers a 14 percent total return over the coming year. Alan Wingspan thinks the total real return on this investment will be only 10 percent. What does Alan believe the inflation rate will be over the next year?
> You are considering investing in a company that cultivates abalone for sale to local restaurants. Use the following information: Sales price per abalone…………………………… =$35 Variable costs per abalone……………………. =$6.10 Fixed costs per year………………………. =$375,000
> An option can often have more than one source of value. Consider a logging company. The company can log the timber today or wait another year (or more) to log the timber. What advantages would waiting one year potentially have?
> Take a look back at Figure 31.1 to answer the following questions: a. If you have $100, how many euros can you get? b. How much is one euro worth in dollars? c. If you have 5 million euros, how many dollars do you have? d. Which is worth more, a New Zeal
> Howell Petroleum is considering a new project that complements its existing business. The machine required for the project costs $3.8 million. The marketing department predicts that sales related to the project will be $2.5 million per year for the next
> A major college textbook publisher has an existing finance textbook. The publisher is debating whether to produce an “essentialized” version, meaning a shorter (and lower-priced) book. What are some of the considerations that should come into play? To a
> A project has an initial cost of I, has a required return of R, and pays C annually for N years. a. Find C in terms of I and N such that the project has a payback period just equal to its life. b. Find C in terms of I, N, and R such that this is a profit
