Principles of Marketing 17th Edition

ISBN 13

978-0073382395

ISBN 10

1292220171

Authors

Dr. Philip T. Kotler

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149 documents found.

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978-0073382395 Chapter 1 Concepts Review And Critical Thinking Questions

CHAPTER 1 INTRODUCTION TO CORPORATE FINANCE Answers to Concepts Review and Critical Thinking Questions 1. Capital budgeting (deciding whether to expand a manufacturing plant), capital structure (deciding whether to issue new equity and use the proceeds to retire outstanding debt), and working capital management (modifying the

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978-0073382395 Chapter 10 Concepts Review And Critical Thinking Questions

CHAPTER 10 MAKING CAPITAL INVESTMENT DECISIONS Answers to Concepts Review and Critical Thinking Questions 1. In this context, an opportunity cost refers to the value of an asset or other input that will be used in a project. The relevant cost is what the asset

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978-0073382395 Chapter 10 Questions And Problems 1-15

B-178 SOLUTIONS from the sale of new books. Thus, it is important to examine whether the new book would displace sales of used books (good from the publisher’s perspective) or new books (not good). The concern arises any time there is an active market for used product. 8.

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978-0073382395 Chapter 10 Questions And Problems 16-29

CHAPTER 10 B-185 16. To calculate the EAC of the project, we first need the NPV of the project. Notice that we include the NWC expenditure at the beginning of the project, and recover the NWC at the end of the project. The NPV of the

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978-0073382395 Chapter 10 Questions And Problems 30-36

B-192 SOLUTIONS 30. Surprise! You should definitely upgrade the truck. Here’s why. At 10 mpg, the truck burns 12,000 / 10 = 1,200 Challenge 31. We will begin by calculating the aftertax salvage value of the equipment at the end of the project’s life. The

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978-0073382395 Chapter 11 Concepts Review And Critical Thinking Questions

CHAPTER 11 PROJECT ANALYSIS AND EVALUATION Answers to Concepts Review and Critical Thinking Questions 1. Forecasting risk is the risk that a poor decision is made because of errors in projected cash flows. The danger is greatest with a new product because the cash flows

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978-0073382395 Chapter 11 Questions And Problems 1-18

B-202 SOLUTIONS Solutions to Questions and Problems NOTE: All end of chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final

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978-0073382395 Chapter 11 Questions And Problems 19-22

CHAPTER 11 B-211 19. a. The base-case, best-case, and worst-case values are shown below. Remember that in the best-case, sales and price increase, while costs decrease. In the worst-case, sales and price decrease, and costs increase.

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978-0073382395 Chapter 11 Questions And Problems 23-30

CHAPTER 11 B-217 Using the bottom up OCF calculation, we get: OCF = NI + Depreciation = $4,005,000 + 3,200,000 OCF = $7,205,000 The NPV at this quantity is: NPV = –$22,400,000 –

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978-0073382395 Chapter 12 Concepts Review And Critical Thinking Questions

CHAPTER 12 SOME LESSONS FROM CAPITAL MARKET HISTORY Answers to Concepts Review and Critical Thinking Questions 1. They all wish they had! Since they didn’t, it must have been the case that the stellar performance was not foreseeable, at least not by most. 2.

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978-0073382395 Chapter 12 Questions And Problems 1-12

CHAPTER 12 B-225 b. Under (2), if the market is not semi-strong form efficient, then this information could be used to buy the stock “cheap” before the rest of the market discovers the financial statement anomaly. Since (2) is stronger than (1), both imply that

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978-0073382395 Chapter 12 Questions And Problems 13-24

B-230 SOLUTIONS Intermediate 13. To find the real return, we first need to find the nominal return, which means we need the current price of the bond. Going back to the chapter on pricing bonds, we find the current price is: P 1 = $80(PVIFA7%,6)

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978-0073382395 Chapter 13 Concepts Review And Critical Thinking Questions

CHAPTER 13 RISK, RETURN, AND THE SECURITY MARKET LINE Answers to Concepts Review and Critical Thinking Questions 1. Some of the risk in holding any asset is unique to the asset in question. By investing in a variety of assets, this unique portion of the total

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978-0073382395 Chapter 13 Questions And Problems 1-17

CHAPTER 13 B-237 9. Such layoffs generally occur in the context of corporate restructurings. To the extent that the market views a restructuring as value-creating, stock prices will rise. So, it’s not layoffs per se that are being cheered on. Nonetheless, Wall Street does encourage corporations

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978-0073382395 Chapter 13 Questions And Problems 18-28

B-242 SOLUTIONS b. We need to find the portfolio weights that result in a portfolio with a  of 0.95. We know the  of the risk-free asset is zero. We also know the weight of the risk-free asset is one minus the weight of the stock

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978-0073382395 Chapter 14 Concepts Review And Critical Thinking Questions

CHAPTER 14 COST OF CAPITAL Answers to Concepts Review and Critical Thinking Questions 1. It is the minimum rate of return the firm must earn overall on its existing assets. If it earns more than this, value is created. 2. Book values for debt

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978-0073382395 Chapter 14 Questions And Problems 1-20

B-252 SOLUTIONS 8. a. This only considers the dividend yield component of the required return on equity. b. This is the current yield only, not the promised yield to maturity. In addition, it is based on the book value of the liability, and it ignores taxes.

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978-0073382395 Chapter 14 Questions And Problems 21-26

CHAPTER 14 B-259 b. The weighted average floatation cost is the weighted average of the floatation costs for debt and equity, so: c. The total cost of the equipment including floatation costs is: Amount raised(1 –

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978-0073382395 Chapter 15 Concepts Review And Critical Thinking Questions

CHAPTER 15 RAISING CAPITAL Answers to Concepts Review and Critical Thinking Questions 1. A company’s internally generated cash flow provides a source of equity financing. For a profitable company, outside equity may never be needed. Debt issues are larger because large companies have the 2.

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978-0073382395 Chapter 15 Questions And Problems

B-268 SOLUTIONS Solutions to Questions and Problems NOTE: All end of chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final

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978-0073382395 Chapter 16 Concepts Review And Critical Thinking Questions

CHAPTER 16 FINANCIAL LEVERAGE AND CAPITAL STRUCTURE POLICY Answers to Concepts Review and Critical Thinking Questions 1. Business risk is the equity risk arising from the nature of the firm’s operating activity, and is directly related to the systematic risk of the firm’s assets. Financial

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978-0073382395 Chapter 16 Questions And Problems 1-10

CHAPTER 16 B-277 9. One side is that Continental was going to go bankrupt because its costs made it uncompetitive. The bankruptcy filing enabled Continental to restructure and keep flying. The other side is that Continental abused the bankruptcy code. Rather than renegotiate labor agreements,

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978-0073382395 Chapter 16 Questions And Problems 11-22

B-286 SOLUTIONS 11. If there are corporate taxes, the value of an unlevered firm is: V U = EBIT(1 – tC)/RU Using this relationship, we can find EBIT as: 12. a. With the information provided, we can use the equation

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978-0073382395 Chapter 17 Concepts Review And Critical Thinking Questions

CHAPTER 17 DIVIDENDS AND DIVIDEND POLICY Answers to Concepts Review and Critical Thinking Questions 1. Dividend policy deals with the timing of dividend payments, not the amounts ultimately paid. Dividend 2. A stock repurchase reduces equity while leaving debt unchanged. The debt ratio rises.

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978-0073382395 Chapter 17 Questions And Problems

CHAPTER 17 B-293 Solutions to Questions and Problems NOTE: All end of chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred.

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978-0073382395 Chapter 18 Concepts Review And Critical Thinking Questions

CHAPTER 18 SHORT-TERM FINANCE AND PLANNING Answers to Concepts Review and Critical Thinking Questions 1. These are firms with relatively long inventory periods and/or relatively long receivables periods. Thus, 2. These are firms that have a relatively long time between the time purchased inventory

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978-0073382395 Chapter 18 Questions And Problems 1-12

B-304 SOLUTIONS 10. BlueSky will need less financing because it is essentially borrowing more from its suppliers. Among other things, BlueSky will likely need less short-term borrowing from other sources, so it will save on interest expense. Solutions to Questions and Problems NOTE: All end of

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978-0073382395 Chapter 18 Questions And Problems 13-17

B-310 SOLUTIONS 11. The sales collections each month will be: Sales collections = .35(current month sales) + .60(previous month sales) Given this collection, the cash budget will be: April May June Beginning cash balance $140,000 $101,600

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978-0073382395 Chapter 19 Appendix

B-326 SOLUTIONS APPENDIX 19A 1. a. Decrease. This will lower the trading costs, which will cause a decrease in the target cash balance. b. Decrease. This will increase the holding cost, which will cause a decrease in the target cash c.

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978-0073382395 Chapter 19 Concepts Review And Critical Thinking Questions

CHAPTER 19 CASH AND LIQUIDITY MANAGEMENT Answers to Concepts Review and Critical Thinking Questions 1. Yes. Once a firm has more cash than it needs for operations and planned expenditures, the excess cash 2. If it has too much cash it can simply

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978-0073382395 Chapter 19 Questions And Problems

CHAPTER 19 B-319 e. The primary disadvantages of RANs is that some possess non-trivial levels of default risk, and also, corporations are somewhat restricted in the type and amount of these tax-exempts that they can hold in their portfolios. f. The primary

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978-0073382395 Chapter 2 Concepts Review And Critical Thinking Questions

CHAPTER 2 FINANCIAL STATEMENTS, TAXES AND CASH FLOW Answers to Concepts Review and Critical Thinking Questions 1. Liquidity measures how quickly and easily an asset can be converted to cash without significant loss in value. It’s desirable for firms to have high liquidity so that

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978-0073382395 Chapter 2 Questions And Problems

CHAPTER 2 B-5 9. If a company raises more money from selling stock than it pays in dividends in a particular period, its cash flow to stockholders will be negative. If a company borrows more than it pays in interest, its cash flow to creditors

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978-0073382395 Chapter 20 Appendix

B-340 SOLUTIONS APPENDIX 20A 1. The cash flow from the old policy is the quantity sold times the price, so: Cash flow from old policy = 40,000($510) Cash flow from old policy = $20,400,000 2. a. The

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978-0073382395 Chapter 20 Concepts Review And Critical Thinking Questions

CHAPTER 20 CREDIT AND INVENTORY MANAGEMENT Answers to Concepts Review and Critical Thinking Questions 1. a. A sight draft is a commercial draft that is payable immediately. b. A time draft is a commercial draft that does not require immediate payment. c. A

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978-0073382395 Chapter 20 Questions And Problems

CHAPTER 20 B-331 e. A: Rugs are fairly standardized and they are transportable, while carpets are custom fit and are not particularly transportable. 7. The three main categories of inventory are: raw material (initial inputs to the firm’s production process), work-in-progress (partially

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978-0073382395 Chapter 21 Concepts Review And Critical Thinking Questions

CHAPTER 21 INTERNATIONAL CORPORATE FINANCE Answers to Concepts Review and Critical Thinking Questions 1. a. The dollar is selling at a premium because it is more expensive in the forward market than in the spot market (SFr 1.53 versus SFr 1.50).

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978-0073382395 Chapter 21 Questions And Problems

CHAPTER 21 B-345 c. True. The market would only be correct on average, while you would be correct all the time. 9. a. American exporters: their situation in general improves because a sale of the exported goods for a fixed number of euros

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978-0073382395 Chapter 22 Concepts Review And Critical Thinking Questions

CHAPTER 22 BEHAVIORAL FINANCE: IMPLICATIONS FOR FINANCIAL MANAGEMENT Answers to Concepts Review and Critical Thinking Questions 1. The least likely limit to arbitrage is firm-specific risk. For example, in the 3Com/Palm case, the stocks are perfect substitutes after accounting for the exchange ratio. An investor

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978-0073382395 Chapter 23 Concepts Review And Critical Thinking Questions

CHAPTER 23 RISK MANAGEMENT: AN INTRODUCTION TO FINANCIAL ENGINEERING Answers to Concepts Review and Critical Thinking Questions 1. Since the firm is selling futures, it wants to be able to deliver the lumber; therefore, it is a supplier. Since a decline in lumber prices would

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978-0073382395 Chapter 23 Questions And Problems

B-358 SOLUTIONS 14. Sysco must have felt that the combination of fixed plus swap would result in an overall better rate. In other words, variable rate available via a swap may have been more attractive than the rate available from issuing a floating-rate bond. Solutions

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978-0073382395 Chapter 3 Questions And Problems 1- 15

CHAPTER 3 B-17 d. For an on-line service provider such as AOL, using a per call basis for costs would allow for e. For a hospital such as Holy Cross, revenues and costs expressed on a per bed basis would be useful.

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978-0073382395 Chapter 3 Questions And Problems 16-27

CHAPTER 3 B-21 The common-base year answers for Question 14 are found by dividing each category value for 2009 by the same category value for 2008. For example, the cash common-base year number is found by: $10,157 / $8,436 = 1.2040

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978-0073382395 Chapter 3 Questions And Problems 28-30

CHAPTER 3 B-27 28. SMOLIRA GOLF CORP. Statement of Cash Flows For 2009 Cash, beginning of the year $ 21,860

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978-0073382395 Chapter 4 Concepts Review And Critical Thinking Questions

CHAPTER 4 LONG-TERM FINANCIAL PLANNING AND GROWTH Answers to Concepts Review and Critical Thinking Questions 1. The reason is that, ultimately, sales are the driving force behind a business. A firm’s assets, employees, and, in fact, just about every aspect of its operations and financing

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978-0073382395 Chapter 4 Questions And Problems 1-10

B-30 SOLUTIONS 7. Apparently not! In hindsight, the firm may have underestimated costs and also underestimated the extra demand from the lower price. 8. Financing possibly could have been arranged if the company had taken quick enough action. Sometimes it becomes apparent that help is

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978-0073382395 Chapter 4 Questions And Problems 10-20

CHAPTER 4 B-35 10. Below is the balance sheet with the percentage of sales for each account on the balance sheet. Notes payable, total current liabilities, long-term debt, and all equity accounts do not vary directly with sales.

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978-0073382395 Chapter 4 Questions And Problems 21-31

CHAPTER 4 B-39 Now we can use the DuPont identity to find the equity multiplier as: ROE = PM(TAT)(EM) .1473 = (.062)(1 / .60)EM EM = (.1473)(.60) / .062 EM

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978-0073382395 Chapter 4 Questions And Problems 32-33

B-54 SOLUTIONS This is a negative dividend payout ratio of 66 percent, which is impossible. The growth rate is not consistent with the other constraints. The lowest possible payout rate is 0, which corresponds to retention ratio of 1, or total earnings retention. The

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978-0073382395 Chapter 5 Calculator Solutions

CHAPTER 5 B-63 20. To answer this question, we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is: FV =

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978-0073382395 Chapter 5 Concepts Review And Critical Thinking Questions

CHAPTER 5 INTRODUCTION TO VALUATION: THE TIME VALUE OF MONEY Answers to Concepts Review and Critical Thinking Questions 1. The four parts are the present value (PV), the future value (FV), the discount rate (r), and the life of the investment (t). 2. Compounding

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978-0073382395 Chapter 5 Questions And Problems 1-10

B-58 SOLUTIONS Solutions to Questions and Problems NOTE: All end of chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final

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978-0073382395 Chapter 5 Questions And Problems 11-20

CHAPTER 5 B-61 11. To find the PV of a lump sum, we use: 12. To find the FV of a lump sum, we use: FV = PV(1 + r)t FV = $50(1.045)105 = $5,083.71 13.

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978-0073382395 Chapter 6 Concepts Review And Critical Thinking Questions

CHAPTER 6 DISCOUNTED CASH FLOW VALUATION Answers to Concepts Review and Critical Thinking Questions 1. The four pieces are the present value (PV), the periodic cash flow (C), the discount rate (r), and the number of payments, or the life of the annuity, t.

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978-0073382395 Chapter 6 Questions And Problems 1-10

CHAPTER 6 B-69 10. In general, viatical settlements are ethical. In the case of a viatical settlement, it is simply an exchange of cash today for payment in the future, although the payment depends on the death of the seller. The purchaser of the life

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978-0073382395 Chapter 6 Questions And Problems 21-31

B-74 SOLUTIONS 18. For this problem, we simply need to find the PV of a lump sum using the equation: PV = FV / (1 + r)t It is important to note that compounding occurs daily. To account for this, we will

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978-0073382395 Chapter 6 Questions And Problems 32-41

CHAPTER 6 B-77 Setting the two equal, we get: (.07)(10) = (1 + r)10 – 1 r = 1.71/10 – 1 = .0545 or 5.45% 30. Here we need to convert an EAR

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978-0073382395 Chapter 6 Questions And Problems 42-52

CHAPTER 6 B-81 42. The amount of principal paid on the loan is the PV of the monthly payments you make. So, the present value of the $1,150 monthly payments is: The monthly payments of $1,150 will amount to a principal

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978-0073382395 Chapter 6 Questions And Problems 53-66

B-84 SOLUTIONS So the APR is: APR = 12(2.361%) = 28.33% And the EAR is: EAR = (1.02361)12 – 1 = .3231 or 32.31% 52. The cash flows in this problem are semiannual,

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978-0073382395 Chapter 7 Calculator Solutions

B-134 SOLUTIONS Now we need to find the monthly interest rate in retirement. We can use the same procedure that we used to find the monthly interest rates for the stock and bond accounts, so: (1 + R) = (1 + r)(1 + h)

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978-0073382395 Chapter 7 Concepts Review And Critical Thinking Questions

CHAPTER 7 INTEREST RATES AND BOND VALUATION Answers to Concepts Review and Critical Thinking Questions 1. No. As interest rates fluctuate, the value of a Treasury security will fluctuate. Long-term Treasury securities have substantial interest rate risk. 2. All else the same,

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978-0073382395 Chapter 7 Questions And Problems 1-13

CHAPTER 7 B-119 10. The term structure is based on pure discount bonds. The yield curve is based on coupon-bearing issues. 11. Bond ratings have a subjective factor to them. Split ratings reflect a difference of opinion among credit agencies. 12.

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978-0073382395 Chapter 7 Questions And Problems 14-24

CHAPTER 7 B-123 14. This is a premium bond because it sells for more than 100% of face value. The current yield is: Intermediate 15. Here we are finding the YTM of semiannual coupon bonds for various maturity

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978-0073382395 Chapter 7 Questions And Problems 25-35

CHAPTER 7 B-127 23. The bond has 14 years to maturity, so the bond price equation is: Using a spreadsheet, financial calculator, or trial and error we find: R = 3.116% This is the semiannual interest

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978-0073382395 Chapter 8 Concepts Review And Critical Thinking Questions

CHAPTER 8 STOCK VALUATION Answers to Concepts Review and Critical Thinking Questions 1. The value of any investment depends on the present value of its cash flows; i.e., what investors will actually receive. The cash flows from a share of stock are the dividends.

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978-0073382395 Chapter 8 Questions And Problems 1-10

B-142 SOLUTIONS 11. Presumably, the current stock value reflects the risk, timing and magnitude of all future cash flows, both short-term and long-term. If this is correct, then the statement is false. 12. If this assumption is violated, the two-stage dividend growth model is

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978-0073382395 Chapter 8 Questions And Problems 11-22

B-144 SOLUTIONS 9. We can use the constant dividend growth model, which is: So the price of each company’s stock today is: Red stock price = $2.35 / (.08 – .05) = $78.33 Yellow stock price

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978-0073382395 Chapter 8 Questions And Problems 23-28

B-148 SOLUTIONS 21. We can use the two-stage dividend growth model for this problem, which is: P 0 = [D0(1 + g1)/(R – g1)]{1 – [(1 + g1)/(1 + R)]T}+ [(1 + g1)/(1 + R)]T[D0(1 + g2)/(R – g2)] 22. We are asked to find

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978-0073382395 Chapter 9 Calculator Solutions

CHAPTER 9 B-171 While this may look like a MIRR calculation, it is not an MIRR, rather it is a standard IRR calculation. Since the cash inflows are blocked by the government, they are not available to the company for a period of one year.

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978-0073382395 Chapter 9 Concepts Review And Critical Thinking Questions

CHAPTER 9 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA Answers to Concepts Review and Critical Thinking Questions 1. A payback period less than the project’s life means that the NPV is positive for a zero discount rate, but nothing more definitive can be said. For

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978-0073382395 Chapter 9 Questions And Problems 1-15

CHAPTER 9 B-157 Solutions to Questions and Problems NOTE: All end of chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred.

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978-0073382395 Chapter 9 Questions And Problems 16-28

CHAPTER 9 B-163 b. The equation for the IRR of the project is: 0 = –$45,000,000 + $78,000,000/(1+IRR) – $14,000,000/(1+IRR)2 From Descartes rule of signs, we know there are potentially two IRRs since the

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FC 14930

An analysis of the change in a project's NPV when a single variable is changed is called _____ analysis. A. forecasting B. scenario C. sensitivity D. simulation E. break-even The final decision on which one of two mutually exclusive projects to accept ultimately depends upon which one of the following? A. initial cost of each project B. timing of the

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FC 16430

What is the profitability index for an investment with the following cash flows given a 14.5 percent required return? A. 0.94 B. 0.98 C. 1.02 D. 1.06 E. 1.11 Which one of the following terms is used to describe a loan that calls for periodic interest payments and a lump sum principal payment? A. amortized loan B. modified

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FC 17878

The difference between the price that a dealer is willing to pay and the price at which he or she will sell is called the: A. equilibrium. B. premium. C. discount. D. call price. Parkway Express needs $318,000 a week to pay bills. The standard deviation of the weekly disbursements is $31,000. The firm has established

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FC 30564

Which of the following are inversely related to variable costs per unit? I. contribution margin per unit II. number of units sold III. operating cash flow per unit IV. net profit per unit A.I and II only B.III and IV only C.II, III, and IV only D.I, III, and IV only E.I, II, III, and IV Sleep Tight is acquiring

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FC 35754

A firm is currently operating at full capacity. Net working capital, costs, and all assets vary directly with sales. The firm does not wish to obtain any additional equity financing. The dividend payout ratio is constant at 40 percent. If the firm has a positive external financing need, that need

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FC 39012

A firm has annual sales of $320,000, a price-earnings ratio of 24, and a profit margin of 4.2 percent. There are 14,000 shares of stock outstanding. What is the price-sales ratio? A. 0.97 B. 1.01 C. 1.08 D. 1.15 E. 1.22 Which type of business organization has all the respective rights and privileges of a legal

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FC 42755

Which of the following statements are correct concerning warrants? I. Warrants are similar to put options. II. Warrants are similar to call options. III. When a warrant is exercised, the issuer is not involved in the transaction. IV. When a warrant is exercised, the issuer must issue new shares of stock. A. I only B. II

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FC 44489

Steve just computed the present value of a $10,000 bonus he will receive in the future. The interest rate he used in this process is referred to as which one of the following? A. current yield B. effective rate C. compound rate D. simple rate E. discount rate Callable bonds generally: A. grant the bondholder the option

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FC 52968

Jenningston Mills has a market value equal to its book value. Currently, the firm has excess cash of $1,200, other assets of $5,800, and equity valued at $3,750. The firm has 250 shares of stock outstanding and net income of $420. What will the new earnings per share be if the firm

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FC 53023

A lockbox system: A. entails the use of a bank which is centrally located to collect payments on a nationwide basis. B. is designed to deposit a customer's check into the firm's bank account prior to recording the receipt of that check to a customer's account. C. is used to reduce the disbursement

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FC 54474

The incremental cash flows of a merger can relate to changes in which of the following? I. revenue II. capital requirements III. operating costs IV. income taxes A. I and II only B. II, III, and IV only C. I, III, and IV only D. I, II, and III only E. I, II, III, and IV What is the value

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FC 57046

Which one of the following will generally have the highest priority when assets are distributed in a bankruptcy proceeding? A. consumer claim B. dividend payment to preferred shareholder C. company contribution to the employees' retirement account D. payment to an unsecured creditor E. payment of employee wages You have 100 British pounds. A friend of yours

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FC 65232

The most recent financial statements for Moose Tours, Inc. follow. Sales for 2009 are projected to grow by 16 percent. Interest expense will remain constant; the tax rate and dividend payout rate will also remain constant. Costs, other expenses, current assets, and accounts payable increase spontaneously will sales. If the

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FC 67751

Which one of the following terms is applied to the financial planning method which uses the projected sales level as the basis for determining changes in balance sheet and income statement account values? A. percentage of sales method B. sales dilution method C. sales reconciliation method D. common-size method E. trend method Hollister & Hollister is

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FC 73147

An investment project provides cash flows of $1,190 per year for 10 years. If the initial cost is $8,000, what is the payback period? A. 3.36 years B. 5.28 years C. 6.72 years D. 8.13 years E. never To convince investors to accept greater volatility, you must: A. decrease the risk premium. B. increase the risk premium. C. decrease

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FC 73872

A financial lease: A. is generally called a capital lease by accountants. B. requires the lessor to maintain the asset. C. is a partially amortized lease. D. is often called a single net lease. The accounting manager of Gateway Inns has noted that every time the inn's average occupancy rate increases by 2 percent, the

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FC 80659

The items included in an indenture that limit certain actions of the issuer in order to protect bondholder's interests are referred to as the: A. trustee relationships. B. bylaws. C. legal bounds. D. "plain vanilla" conditions. E. protective covenants. Which of the following shareholders tend to favor a high dividend policy? I. retired individuals II. endowment funds III. corporate

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FC 84237

Suppose the current spot rate for the Norwegian kroner is $1 = NKr6.7119. The expected inflation rate in Norway is 4 percent and in the U.S. 3 percent. A risk-free asset in the U.S. is yielding 4.5 percent. What approximate real rate of return should you expect on a risk-free

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FC 96460

Which one of the following refers to the ability of shareholders to undo a firm's dividend policy and create an alternative dividend policy by reinvesting dividends or selling shares of stock? A. perfect foresight model B. personalization C. recapitalization D. offsetting leverage E. homemade dividend policy Public offerings of debt and equity must be registered with

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FE 13497

Which one of the following risks would a floating-rate bond tend to have less of as compared to a fixed-rate coupon bond? A. real rate risk B. interest rate risk C. default risk D. liquidity risk E. taxability risk Which one of the following statements is correct given the following two sets of project cash flows? A. The

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FE 40401

Which of the following are examples of diversifiable risk? I. earthquake damages an entire town II. federal government imposes a $100 fee on all business entities III. employment taxes increase nationally IV. toymakers are required to improve their safety standards A. I and III only B. II and IV only C. II and III only D. I and

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FE 42339

The Miller-Orr model assumes that: A. the cash balance is depleted at regular intervals. B. all cash flows are known with certainty. C. the average change in the daily cash flows is positive. D. management will set both the lower and the upper desired levels of cash. E. the cash balance fluctuates in a random

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FE 52974

Which type of analysis identifies the variable, or variables, that are most critical to the success of a particular project? A. leverage B. risk C. break-even D. sensitivity E. cash flow Assume the current spot rate is C$1.2103 and the one-year forward rate is C$1.1952. The nominal risk-free rate in Canada is 3 percent while it

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FE 53929

The common stock of Manchester & Moore is expected to earn 13 percent in a recession, 6 percent in a normal economy, and lose 4 percent in a booming economy. The probability of a boom is 5 percent while the probability of a recession is 45 percent. What is the expected

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FE 64564

Crystal Glass recently paid $3.60 as an annual dividend. Future dividends are projected at $3.80, $4.10, and $4.25 over the next 3 years, respectively. Beginning 4 years from now, the dividend is expected to increase by 3.25 percent annually. What is one share of this stock worth to you if you

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FE 70231

Which of the following are associated with a restrictive short-term financial policy? I. little, if any, investment in marketable securities II. liberal credit terms for customers III. low cash balances IV. increasing inventory levels A. I and III only B. II and IV only C. I and IV only D. III and IV only E. I, II, and III

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FE 72852

Which one of the following is most indicative of a totally efficient stock market? A. extraordinary returns earned on a routine basis B. positive net present values on stock investments over the long-term C. zero net present values for all stock investments D. arbitrage opportunities which develop on a routine basis E. realizing negative returns

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FE 74961

Precise Machining is considering a rights offer. The company has determined that the ex-rights price would be $46. The current price is $53 per share, and there are 7 million shares outstanding. The rights offer would raise a total of $70 million. What is the subscription price? A. $26.48 B. $27.06 C. $27.50 D.

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FE 85644

Which one of the following best describes the primary advantage of being a limited partner instead of a general partner? A. tax-free income B. active participation in the firm's activities C. no potential financial loss D. greater control over the business affairs of the partnership E. maximum loss limited to the capital invested You own a

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FE 90439

The length of time a firm must wait to recoup the money it has invested in a project is called the: A. internal return period. B. payback period. C. profitability period. D. discounted cash period. E. valuation period. Princeton Enterprises is a diversified company. In addition to its primary business operations, the firm is also the

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FE 90650

The Mining Co. has 20,000 shares of stock outstanding. The current market value of the firm is $328,000. The company has retained earnings of $27,000, capital in excess of par value of $160,000, and a common stock account value of $20,000. The company is planning a 2-for-5 reverse stock split. What

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FE 90938

Which one of the following has the greatest tendency to increase the percentage of debt included in the optimal capital structure of a firm? A. exceptionally high depreciation expenses B. very low marginal tax rate C. substantial tax shields from other sources D. low probabilities of financial distress E. minimal taxable income Which of the following

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FE 92165

The standard deviation of a portfolio: A. is a weighted average of the standard deviations of the individual securities held in the portfolio. B. can never be less than the standard deviation of the most risky security in the portfolio. C. must be equal to or greater than the lowest standard deviation of

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Fin 17401

The delta of a call option on a firm's assets is 0.767. This means that a $50,000 project will increase the value of equity by: A. $21,760. B. $25,336. C. $38,350. D. $54,627. E. $65,189. You observe that the inflation rate in the United States is 3.5 percent per year and that T-bills currently yield 3.8

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FIN 22999

A bond with 10 detachable warrants has just been offered for sale at $1,000. The bond matures in 15 years and has an annual coupon of $80. Each warrant gives the owner the right to purchase two shares of stock in the company at $14 per share. Ordinary bonds (with no

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FIN 26040

Which one of the following statements is correct? A. The credit period begins when the discount period ends. B. The discount period is the length of time granted to a customer to pay for a purchase. C. The credit period begins on the invoice date. D. With terms of 2/10, net 30, the net

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FIN 27573

What is the effective annual rate if a bank charges you 9.50 percent compounded quarterly? A. 9.62 percent B. 9.68 percent C. 9.72 percent D. 9.84 percent E. 9.91 percent How many dollars of sales are being generated from every dollar of net fixed assets? (Use 2009 values.) A. $0.88 B. $1.87 C. $2.33 D. $2.59 E. $3.09 D. Fixed asset turnover for

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FIN 29323

Today, you are retiring. You have a total of $411,016 in your retirement savings and have the funds invested such that you expect to earn an average of 7.10 percent, compounded monthly, on this money throughout your retirement years. You want to withdraw $2,500 at the beginning of every month,

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Fin 29863

Fama's Llamas has a weighted average cost of capital of 10.5 percent. The company's cost of equity is 15.5 percent, and its pretax cost of debt is 8.5 percent. The tax rate is 34 percent. What is the company's target debt-equity ratio? A. 0.89 B. 0.92 C. 0.98 D. 1.01 E. 1.02 You are considering a

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FIN 29879

Recently, you discovered a putable income bond that is convertible. If you purchase this bond, you will have the right to do which of the following? I. force the issuer to repurchase the bond prior to maturity II. choose when you wish to receive interest payments III. convert the bond into a TIPS IV. convert

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FIN 30922

According to the Statement of Cash Flows, an increase in interest expense will _____ the cash flow from _____ activities. A. decrease; operating B. decrease; financing C. increase; operating D. increase; financing E. increase; investment Sessler Manufacturers made two announcements concerning its common stock today. First, the company announced that the next annual dividend will be

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FIN 33224

Jill is the CFO of Summertime Adventures which is a seasonal firm specializing in products related to water sports. The firm purchases inventory one month before it is sold and pays for its purchases 60 days after the invoice date. Sales are highest during July and August. Currently, Jill is

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Fin 33334

You invested $1,650 in an account that pays 5 percent simple interest. How much more could you have earned over a 20-year period if the interest had compounded annually? A. $849.22 B. $930.11 C. $982.19 D. $1,021.15 E. $1,077.94 The sources and uses of cash over a stated period of time are reflected on the: A. income

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Fin 34294

Which one of the following statements is correct? A. Firms should accept low risk projects prior to funding high risk projects. B. Making subjective adjustments to a firm's WACC when determining project discount rates unfairly punishes low-risk divisions within a firm. C. A project that is unacceptable today might be acceptable tomorrow given a

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FIN 41960

We are examining a new project. We expect to sell 9,000 units per year at $45 net cash flow apiece for the next 20 years. In other words, the annual operating cash flow is projected to be $45 × 9,000 = $405,000. The relevant discount rate is 14 percent, and

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Fin 46107

Which one of the following capital intensity ratios indicates the largest need for fixed assets per dollar of sales? A. 0.70 B. 0.86 C. 1.00 D. 1.06 E. 1.15 Sales can often increase without increasing which one of the following? A. accounts receivable B. cost of goods sold C. accounts payable D. fixed assets E. inventory D. Refer to section 4.3 Which one of

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FIN 48807

Which one of the following best states the primary goal of financial management? A. maximize current dividends per share B. maximize the current value per share C. increase cash flow and avoid financial distress D. minimize operational costs while maximizing firm efficiency E. maintain steady growth while increasing current profits A project has an initial cost

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Fin 50074

Colors and More is considering replacing the equipment it uses to produce crayons. The equipment would cost $1.37 million, have a 12-year life, and lower manufacturing costs by an estimated $304,000 a year. The equipment will be depreciated using straight-line depreciation to a book value of zero. The required rate of return

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FIN 51418

Zylo, Inc. preferred stock pays a $7.50 annual dividend. What is the maximum price you are willing to pay for one share of this stock today if your required return is 9.75 percent? A. $32.26 B. $35.48 C. $72.68 D. $76.92 E. $79.81 A project has an initial cost of $6,500. The cash inflows are $900,

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Fin 56094

Incorporating flotation costs into the analysis of a project will: A. cause the project to be improperly evaluated. B. increase the net present value of the project. C. increase the project's rate of return. D. increase the initial cash outflow of the project. E. have no effect on the present value of the project. Which one

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FIN 58309

Morrison Industrial Tool can either lease or buy some equipment. The lease payments would be $12,400 a year. The purchase price is $34,900. The equipment has a 3-year life after which it is expected to have a resale value of $5,500. The firm uses straight- line depreciation over the asset's life,

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FIN 64670

Soup Galore is a partnership that was formed three years ago for the purpose of creating, producing, and distributing healthy soups in a dried form. The firm has been extremely successful thus far and has decided to incorporate and offer shares of stock to the general public. What is this type

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FIN 74726

Texas Foods has a 6 percent bond issue outstanding that pays $30 in interest every March and September. The bonds are investment grade and sell at par. The bonds are callable at a price equal to the present value of all future interest and principal payments discounted at a rate equal

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FIN 76737

An ordinary annuity is best defined by which one of the following? A. increasing payments paid for a definitive period of time B. increasing payments paid forever C. equal payments paid at regular intervals over a stated time period D. equal payments paid at regular intervals of time on an ongoing basis E. unequal payments

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Fin 77258

Precise Machinery is analyzing a proposed project. The company expects to sell 2,100 units, give or take 5 percent. The expected variable cost per unit is $260 and the expected fixed costs are $589,000. Cost estimates are considered accurate within a plus or minus 4 percent range. The depreciation expense

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Fin 77943

Which one of the following statements correctly applies to U.S. industrial firms based on the period of 1984 -2004? A. Earnings growth rates tend to lag dividend growth rates. B. Dividends tend to fluctuate significantly from quarter to quarter. C. The percentage of these firms paying dividends in 2004 was higher than in

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FIN 78901

The optimal investment in current assets for an operating firm occurs at the point where: A. both shortage costs and carrying costs equal zero. B. shortage costs are equal to zero. C. carrying costs are equal to zero. D. carrying costs exceed shortage costs. E. the total costs of holding current assets is minimized. Mutually exclusive

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Fin 85124

The common stock of United Industries has a beta of 1.34 and an expected return of 14.29 percent. The risk-free rate of return is 3.7 percent. What is the expected market risk premium? A. 7.02 percent B. 7.90 percent C. 10.63 percent D. 11.22 percent E. 11.60 percent Josie's Craft Shack has a beginning cash balance

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Fin 85949

An 8 percent corporate bond that pays interest semi-annually was issued last year. Which two of the following most likely apply to this bond today if the current yield-to- maturity is 7 percent? I. a structure as an interest-only loan II. a current yield that equals the coupon rate III. a yield-to-maturity equal to

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FIN 87679

Pearl, Inc. has offered $860 million cash for all of the common stock in Jam Corporation. Based on recent market information, Jam is worth $710 million as an independent operation. For the merger to make economic sense for Pearl, what would the minimum estimated value of the synergistic benefits from

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Fin 90282

Which of the following are advantages of the corporate form of business ownership? I. limited liability for firm debt II. double taxation III. ability to raise capital IV. unlimited firm life A. I and II only B. III and IV only C. I, III, and IV only D. II, III, and IV only E. I, II, III, and IV Handy

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Fin 91174

Which one of the following categories of securities had the lowest average risk premium for the period 1926-2007? A. long-term government bonds B. small company stocks C. large company stocks D. long-term corporate bonds E. U.S. Treasury bills An account into which a firm transfers funds, usually from a master account, in an amount sufficient to

Fundamentals of Corporate Finance Standard Edition 9th Edition

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FIN 94538

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time? A. income statement B. balance sheet C. statement of cash flows D. tax reconciliation statement E. market value report Kelso Electric is debating between a leveraged and an unleveraged capital structure. The all equity capital

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Fin 96881

Which one of the following statements is true? A. Market crashes tend to be accompanied by low market volume. B. The Asian market crash was followed by a quick recovery. C. The market crash of 1929 and the crash of 1987 are very similar in both the percentage decline in market value and

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Finance 14883

You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a very common practice with expensive, high-tech equipment). The scanner costs $2 million and it would be depreciated straight-line to zero over 4 years. Because of radiation contamination, it will actually be completely valueless

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Finance 20680

Rackin Pinion Corporation's assets are currently worth $1,260. In one year, they will be worth either $1,200 of $1,610. The risk-free interest rate is 5 percent. Suppose Rackin Pinion has an outstanding debt issue with a face value of $1,200. What is the current value of the firm's debt? A. $60.00 B.

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Finance 26841

The tendency for a decision maker to search for confirmation that a recent decision he or she made was a good decision represents which one of the following characteristics? A. overconfidence B. overoptimism C. affect heuristic D. confirmation bias E. representativeness heuristic Mountaintop Inns, a Kentucky company, has determined that a majority of its customers are

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Finance 27562

A project will produce an operating cash flow of $14,600 a year for 8 years. The initial fixed asset investment in the project will be $48,900. The net aftertax salvage value is estimated at $11,000 and will be received during the last year of the project's life. What is the

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Finance 29423

Which of the following should help reduce the total collection time for a firm? I. opening a post office box so mail can be received earlier in the morning II. assigning additional staff in the morning to process incoming payments III. providing a discount for customers who pay electronically IV. establishing preauthorized payments from

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Finance 46800

Scenario analysis is best suited to accomplishing which one of the following when analyzing a project? A. determining how fixed costs affect NPV B. estimating the residual value of fixed assets C. identifying the potential range of reasonable outcomes D. determining the minimal level of sales required to break-even on an accounting basis E. determining

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Finance 58586

Which one of the following variables is the exponent in the present value formula? A. present value B. future value C. interest rate D. time E. There is no exponent in the present value formula. According to the Statement of Cash Flows, a decrease in accounts receivable will _____ the cash flow from _____ activities. A. decrease;

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Finance 70354

Bond S is a 4 percent coupon bond. Bond T is a 10 percent coupon bond. Both bonds have 11 years to maturity, make semiannual payments, and have a yield-to-maturity of 7 percent. If interest rates suddenly rise by 2 percent, what will the percentage change in the price of Bond

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Finance 70779

The return earned in an average year over a multi-year period is called the _____ average return. A. arithmetic B. standard C. variant D. geometric E. real Combined Communications is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 15 percent a year for the next 4

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Finance 75612

The Wildcat Oil Company is trying to decide whether to lease or buy a new computer- assisted drilling system for its oil exploration business. Management has decided that it must use the system to stay competitive; it will provide $1.2 million in annual pretax cost savings. The system costs $6.7 million

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Finance 80013

A trader has just agreed to exchange $2 million U.S. dollars for $1.55 million Euros six months from today. This exchange is an example of a: A. spot trade. B. forward trade. C. currency swap. D. floating swap. E. triangle arbitrage. Steve has invested in twelve different stocks that have a combined value today of $121,300.

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Finance 84370

A payoff profile: A. determines the price of an option contract. B. determines whether a forward or a futures contract is needed. C. applies only to contract sellers. D. determines the price of a collar. E. illustrates potential gains and losses. One year ago, Deltona Motor Parts deposited $16,500 in an investment account for the purpose

Fundamentals of Corporate Finance Standard Edition 9th Edition

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Finance 91590

Denver Shoppes will pay an annual dividend of $1.46 a share next year with future dividends increasing by 4.2 percent annually. What is the market rate of return if the stock is currently selling for $38.90 a share? A. 6.55 percent B. 7.13 percent C. 7.46 percent D. 7.95 percent E. 8.29 percent The weighted average

Fundamentals of Corporate Finance Standard Edition 9th Edition

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