Foundations of Financial Management 14th Edition

Chapter 01: The Goals and Functions of Financial Management 1-1 Chapter 1 The Goals and Functions of Financial Management Discussion Questions 1-1. How did the recession of 20072009 compare with other recessions since the Great Depression in terms of length? It was the longest 1-2.

Chapter 10: Valuation and Rates of Return 10-1 10-1 10-1 Chapter 10 Valuation and Rates of Return Discussion Questions 10-1. How is valuation of any financial asset related to future cash flows? The valuation of a financial asset is equal to the present value of

Chapter 10: Valuation and Rates of Return 10-11 7. Bond maturity effect (LO3) For problem 6 graph the relationship in a manner similar to the bottom half of Figure 10-2. Also explain why the pattern of price change takes place. 10-7. Solution: Hartford Telephone Company (Continued) As the

Chapter 10: Valuation and Rates of Return 10-21 10-21 10-21 Tyler Food Corporation Approximate Yield to Maturity is represented by Y' Principal payment Price of the bond Annual interest payment Number of years to maturity Y'= 0.6 (Price of the bond) 0.4 (Principal payment) $1,000 1,080 $125 20

Chapter 10: Valuation and Rates of Return 10-31 1 e 0 D Kg P =+ e $3.80 K 4% 7.6% 4% 11.6% $50.00 = + = + = 33. Common stock required rate of return (LO5) A firm pays a $1.50 dividend at the end of year one (D1), has a stock price of $60 (P0), and

Chapter 10: Valuation and Rates of Return 10-38 Heinz 14 Kellogg 22 Kraft 17 80 80 16 Average P/E 5= Stock Price = P/E EPS 10-38 Heinz 14 Kellogg 22 Kraft 17 80 80 16 Average P/E 5= Stock Price = P/E EPS 10-38 Heinz 14 Kellogg

Chapter 11: Cost of Capital 11-1 11-1 11-1 Chapter 11 Cost of Capital Discussion Questions 11-1. Why do we use the overall cost of capital for investment decisions even when only one source of capital will be used (e.g., debt)? Though an investment financed by low-cost debt might

Chapter 11: Cost of Capital 11-11 Russell Container Corporation (Continued) a. Kd = Yield (1 T) = 11.40% (1 .35) = 11.40% (.65) = 7.41% = 11.40% (1 .35) = 11.40% (.65) = 7.41% = 11.40% (1 .35) = 11.40% (.65) = 7.41%

Chapter 11: Cost of Capital 11-21 b. Plan D is higher than Plan C because all components in the capital structure increased sharply after the firm hit the b. Plan D is higher than Plan C because all components in the capital structure increased sharply after the firm hit the

Chapter 11: Cost of Capital 11-31 11-28. (Continued) c. Cost (aftertax) Weights Weighted Cost Debt (Kd) ................... Preferred stock (Kp) .. New common stock (Kn) ........................... Marginal cost of capital (Kmc) ......................... 5.60% 9.00 13.20 45% 15 40

Chapter 11: Cost of Capital 11-38 CP 11-1. (Continued) g. Percent 15% 13.5%

Chapter 12: The Capital Budgeting Decision 12-1 Chapter 12 The Capital Budgeting Decision Discussion Questions 12-1. What are the important administrative considerations in the capital budgeting process? Important administrative considerations relate to: the search for and discovery of investment opportunities, the collection of data, the evaluation of

Chapter 12: The Capital Budgeting Decision 12-11 12. Internal rate of return (LO4) Kings Department Store is contemplating the purchase of a new machine at a cost of $13,869. The machine will provide $3,000 per year in cash flow for six years. Kings has a cost of capital of 12

Chapter 12: The Capital Budgeting Decision 12-21 3 25,000 .751 18,775 4 10,000 .683 6,830 5 5,000 .621 3,105 Present value of inflows $58,865 Present value of outflows 45,000 Net present value $13,865 4 10,000 .683 6,830 5 5,000 .621 3,105 Present value of inflows $58,865 Present value of

Chapter 12: The Capital Budgeting Decision 12-31 Of course, that project must still have a positive net present value. Based on the visual evidence, we see: 12-31 Of course, that project must still have a positive net present value. Based on the visual evidence, we see: 12-31 Of course, that

Chapter 12: The Capital Budgeting Decision 12-41 29. MACRS depreciation and net present value (LO4) Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset depreciation range (ADR). Carefully refer to Table 128 to determine in what depreciation category the asset falls. (Hint: It

Chapter 12: The Capital Budgeting Decision 12-50 d. Net Present Value Cash Flow Present Year (inflows) PVIF at 12% Value 1 $132,200 .893 $118,055 2 126,120 .797 100,518 3 96,672 .712 68,830 4 81,090 .636 51,573 5 70,590 .567 40,025 6 89,828 .507 45,543 Present value of inflows $424,544

Chapter 13: Risk and Capital Budgeting 13-1 13-1 13-1 Chapter 13 Risk and Capital Budgeting Discussion Questions 13-1. If corporate managers are risk-averse, does this mean they will not take risks? Explain. Risk-averse corporate managers are not unwilling to take risks, but will require a higher return from

Chapter 13: Risk and Capital Budgeting 13-11 8. Coefficient of variation (LO1) Five investment alternatives have the following returns and standard deviations of returns. Alternative Returns: Expected Value Standard Deviation A ..................................... $ 1,000 $ 590 B ..................................... 3,000 600 C ..................................... 3,000 750 D ..................................... 5,000 2,300

Chapter 13: Risk and Capital Budgeting 13-21 b. Recalculate the net present value of the Australian Mine at a 15 percent discount rate. Years Cash Flow n Factor PVIFA @ 15% Present Value 515 $300,000 (15 4) (5.847 2.855) $ 897,600 1625 $500,000 (25 15) (6.464 5.847) $

Chapter 13: Risk and Capital Budgeting 13-31 960 $30.98== b. Risk over time DollarsExpectedCash flow ($80)$801 yr. 5 yr. 10 yr.Time c. Year (1) PVIF (2) PVIF (3) PVIF 6% 12% Difference 1 .943 .893 .050 5 .747 .567 .180 10 .558 .322 .236 13-31 960 $30.98== b. Risk over

Chapter 13: Risk and Capital Budgeting 13-41 COMPREHENSIVE PROBLEMS Comprehensive Problem 1. Gibson Appliance Co. (portfolio effect of a merger) (LO5) Gibson Appliance Co. is a very stable billion-dollar company with a sales growth of about 7 percent per year in good or bad economic conditions. Because of this stability

Chapter 14: Capital Markets 14-1 Chapter 14 Capital Markets Discussion Questions 14-1. In addition to U.S. corporations, what government groups compete for funds in the U.S. capital markets? The federal government, government agencies, and state and local governments all compete for funds. 14-2. What foreign

Chapter 15: Investment Banking: Public and Private Placement 15-1 15-1 15-1 Chapter 15 Investment Banking: Public and Private Placement Discussion Questions 15-1. In what way is an investment banker a risk taker? The investment banker is a risk taker (underwriter) in that the investment banking house

Chapter 15: Investment Banking: Public and Private Placement 15-11 Wrigley Corporation a. Spread = $15.70 $15.00 = $0.70 % underwriting spread = $.70$15.70 = 4.46% b. Spread = $1,001 $992 = $9 % underwriting spread = $9/$1,001 = .899% c. The stock alternative has the larger percentage spread.

Chapter 15: Investment Banking: Public and Private Placement 15-21 e. In the long run, it appears that the company is better off because of the additional investment. Earnings per share are $.27 higher and the stock price also increased. If the firm had used debt financing or a

Chapter 15: Investment Banking: Public and Private Placement 15-27 Cost to go private 58.5 million Profit from restructuring $ 45.0 million Profit from restructuring $45.0 million 76.92% Cost to go private $58.5 million== COMPREHENSIVE PROBLEM Bailey Corporation (impact of new public offering) (LO4) The Bailey Corporation, a manufacturer of

Chapter 16: Long-Term Debt and Lease Financing 16-1 Chapter 16 Long-Term Debt and Lease Financing Discussion Questions 16-1. Corporate debt has been expanding very dramatically in the last three decades. What has been the impact on interest coverage, particularly since 1977? In 1977, the average U.S. manufacturing corporation had

Chapter 16: Long-Term Debt and Lease Financing 16-11 $940== 16-11 $940== 16-11 $940 == a. Bond A $92 interest/$875 market price = 10.51% current yield $92 interest/$875 market price = 10.51% current yield $92 interest/$875 market price = 10.51% current yield Bond B $82 interest/$900 market price = 9.11% current yield $82

Chapter 16: Long-Term Debt and Lease Financing 16-21 Current value 713.45 Dollar loss $ 286.55 Dollar loss $286.55 28.66% Investment $1,000.00 = 16-16. (Continued) c. Maturity value $1,000.00 Purchase price 713.45 Dollar gain $ 286.55 Dollar gain $286.55 40.16% Investment $713.45 = d. The percentage gain is larger than the

Chapter 16: Long-Term Debt and Lease Financing 16-31 -10% 90,000 Net cost $810,000 $810,000A = $143,3635.650 = COMPREHENSIVE PROBLEM Comprehensive Problem 1. Broadband, Inc. Bond prices refunding (LO2& 3) Barton Simpson, the chief financial officer of Broadband, Inc., could hardly believe the change in interest rates that had taken place

Chapter 16: Long-Term Debt and Lease Financing 16-37 16-37 16-37 16A-1. Solution: Titanic Boat Co. a. Liquidation value of assets $5,200,000 Liabilities 7,600,000 Difference ($2,400,000) b. Preferred and common stock will not participate in the distribution because the liquidation value of the assets

Chapter 17: Common and Preferred Stock Financing 17-1 17-1 17-1 Chapter 17 Common and Preferred Stock Financing Discussion Questions 17-1. Why has corporate management become increasingly sensitive to the desires of large institutional investors? Corporate management has become increasingly sensitive to the desires of large institutional investors because they

Chapter 17: Common and Preferred Stock Financing 17-11 He can only elect 5 directors. No, Ms. Ramsey will control He can only elect 5 directors. No, Ms. Ramsey will control He can only elect 5 directors. No, Ms. Ramsey will control the board. 10. Cumulative voting (LO2) In problem

Chapter 17: Common and Preferred Stock Financing 17-21 Robbins Petroleum Company a. $6.50 per share 850,000 shares 4 years = $22,100,000 90% = $19,890,000 compensation b. $875.54 c. Compensation $19,890,000 Bond value $875.54 Number of bonds to provide compensation 22,717 c. Compensation $19,890,000 Bond value $875.54 Number of

Chapter 18: Dividend Policy and Retained Earnings 18-1 18-1 18-1 Chapter 18 Dividend Policy and Retained Earnings Discussion Questions 18-1. How does the marginal principle of retained earnings relate to the returns that a stockholder may make in other investments? The marginal principle of retained earnings suggests that the

Chapter 18: Dividend Policy and Retained Earnings 18-11 10. Dividend yield (LO1) The stock of North American Dandruff Company is selling at $80 per share. The firm pays a dividend of $2.50 per share. a. What is the dividend yield? b. If the firm has a payout rate of 50

Chapter 18: Dividend Policy and Retained Earnings 18-21 e. Generally speaking, nothing of real value has taken place. Only to the limited extent that total cash dividends might have increased or information been provided could small e. Generally speaking, nothing of real value has taken place. Only to the

Chapter 18: Dividend Policy and Retained Earnings 18-27 b. If the firm simply uses a payout ratio of 40 percent of net income, how much in total cash dividends will be paid? c. If the firm pays a 10 percent stock dividend in years 2 through 5, and also

Chapter 19: Convertibles, Warrants, and Derivatives 19-1 19-1 19-1 Chapter 19 Convertibles, Warrants, and Derivatives Discussion Questions 19-1. What are the basic advantages to the corporation of issuing convertible securities? The advantages to the corporation of a convertible security are: a. The interest rate is lower than on

Chapter 19: Convertibles, Warrants, and Derivatives 19-11 Steel Company bonds have the same coupon rate of 8 percent as described in Problem 10 and that 25 years remain to maturity. Use semiannual analysis. Steel Company bonds have the same coupon rate of 8 percent as described in Problem 10 and

Chapter 19: Convertibles, Warrants, and Derivatives 19-20 $600,000 $49,000* 100,000 28,000** + = + $649,400 $5.07 128,000 == *interest savings (1 tax rate) = $70,000 (1 .30) = $70,000 (.70) = $49,000 in reduced aftertax interest exp. **= 28,000 in additional shares from conversion 1,400 convertible bonds 20 conversion ratio

Chapter 02: Review of Accounting 2-1 2-1 2-1 Chapter 2 Review of Accounting Discussion Questions 2-1. Discuss some financial variables that affect the price-earnings ratio. The price-earnings ratio will be influenced by the earnings and sales growth of the firm, the risk or volatility in performance, the debt-equity

Chapter 02: Review of Accounting 2-11 2-10. Solution: Precision Systems Sales.............................................................. $800,000 Cost of goods sold ........................................ 500,000 Gross Profit .............................................. 300,000 Selling and administrative expense ............... 60,000 Depreciation (plug figure) ............................. 140,000 Operating profit ........................................ $100,000 Cost of goods sold ........................................ 500,000 Gross Profit .............................................. 300,000 Selling and

Chapter 02: Review of Accounting 2-21 Decrease in accounts payable decreases cash flow (use) Decrease in prepaid expense increases cash flow (source) Decrease in accounts payable decreases cash flow (use) Decrease in prepaid expense increases cash flow (source) Decrease in accounts payable decreases cash flow (use) Decrease in prepaid expense

Chapter 02: Review of Accounting 2-28 28. Statement of cash flows (LO4) Prepare a statement of cash flows for the Jeter Corporation. Follow the general procedures indicated in Table 210. _______________________________________________________________________ JETER CORPORATION Income Statement For the Year Ended December 31, 2010 Sales ...................................................................................... $ 3,300,000 Cost of

Chapter 20 - External Growth through Mergers 20-1 20-1 20-1 Chapter 20 External Growth through Mergers Discussion Questions 20-1. Name three industries in which mergers have been prominent. Computers, telecommunications, public utilities, pharmaceuticals, and energy. 20-2. What is the difference between a merger

Chapter 20 - External Growth through Mergers 20-11 Shares outstanding Original Noble Shares 2,400,000 + New Noble shares 600,000 Postmerger shares outstanding 3,000,000 New earnings per share for Barnes Enterprises $4,800,000 $1.60 3,000,000== 20-6. (Continued) b. Earnings per share of Barnes Enterprises increased because it has a higher P/E

Chapter 21: International Financial Management 21-1 21-1 21-1 Chapter 21 International Financial Management Discussion Questions 21-1. What risks does a foreign affiliate of a multinational firm face in todays business world? In addition to the normal risks that a domestic firm faces (such as the risk associated with

Chapter 21: International Financial Management 21-8 3. Purchasing power theory (LO2) From the base price level of 100 in 1981, Saudi Arabian and U.S. price levels in 2010 stood at 200 and 412, respectively. If the 1981 $/riyal exchange rate was $0.26/riyal, what should the exchange rate be in

Chapter 03: Financial Analysis 3-1 3-1 3-1 Chapter 3 Financial Analysis Discussion Questions 3-1. If we divide users of ratios into short-term lenders, long-term lenders, and stockholders, in which ratios would each group be most interested, and for what reasons? Short-term lendersliquidity ratios because their concern is with

Chapter 03: Financial Analysis 3-11 Haines Corp. 2009 2010 a. Cost of goods sold $1,500,000 $1,875,000 60.0% 62.5% Sales 2,500,000 3,000,000 == It is decreasing profitability. b. Selling & admin. expense $205,000 $210,000 8.2% 7.0% Sales 2,500,000 3,000,000 == It is increasing profitability. c. Interest expense $40,000 $45,000

Chapter 03: Financial Analysis 3-21 higher return on stockholders equity than Cable Corporation (22.2% versus 12%). The reason is certainly not to be found on return on the sales dollar where Cable Corporation has a higher return than Multi-Media, Inc. (10% vs. 5%). 3-21 higher return on stockholders equity than

Chapter 03: Financial Analysis 3-31 3-31 3-31 J. Lo Wedding Gowns a. Income before interest and taxes Times interest earned Interest $60,000 5,000 12x = = = 3-24. (Continued) b. Income before fixed charges and taxes Fixed charge coverage Fixed charges $60,000 10,000 $5,000 10,000 $70,000 $15,000 4.67x = + = + = = c. Net Income Sales Return on assets (Investment) Sales Total assets $33,000

Chapter 03: Financial Analysis 3-41 31. Inflation and inventory accounting effect (LO5) The Canton Corporation shows the following income statement. The firm uses FIFO inventory accounting. CANTON CORPORATION Income Statement for 2010 Sales .................................................................. $100,000 (10,000 units at $10) Cost of goods sold ............................................. 50,000 (10,000 units at $5)

Chapter 03: Financial Analysis 3-51 Bonds payable ..................................... 150,000 Total liabilities .................................... $320,000 Stockholders equity Preferred stock, $50 per value ............. 100,000 Common stock, $1 par value ............... 80,000 Capital paid in excess of par ................ 190,000 Retained earnings ................................ 210,000 Total stockholders equity ................ 580,000 Total liabilities and

Chapter 03: Financial Analysis 3-60 CP 3-1. (Continued) The liquidity ratios also are not encouraging. Both the current and quick ratios are falling against a stable industry norm of approximately two to ratios are falling against a stable industry norm of approximately two to ratios are falling against a stable

Chapter 04: Financial Forecasting 4-1 4-1 4-1 Chapter 4 Financial Forecasting Discussion Questions 4-1. What are the basic benefits and purposes of developing pro forma statements and a cash budget? The pro-forma financial statements and cash budget enable the firm to determine its future level of asset needs

Chapter 04: Financial Forecasting 4-11 Beginning inventory at these costs on July 1 was 3,000 units. From July 1 to December 1, 2011, Bradley produced 12,000 units. These units had a material cost of $3, labor of $5, and overhead of $3 per unit. Bradley uses FIFO inventory accounting. Assuming

Chapter 04: Financial Forecasting 4-21 21. Schedule of cash payments (LO2) The Denver Corporation has forecast the following sales for the first seven months of the year: January ....... $10,000 May $10,000 February ..... 12,000 June 16,000 March ......... 14,000 July.. 18,000 April ........... 20,000 Monthly material purchases

Chapter 04: Financial Forecasting 4-31 26. Complete cash budget (LO2) Archer Electronics Company's actual sales and purchases for April and May are shown here along with forecasted sales and purchases for June through September. Sales Purchases April (actual) ................................... $320,000 $130,000 May (actual) .................................... 300,000 120,000 June (forecast) .................................

Chapter 04: Financial Forecasting 4-41 COMPREHENSIVE PROBLEM Comprehensive Problem 1. Mansfield Corporation (external funds requirement) (LO4) Mansfield Corporation had 2010 sales of $100 million. The balance sheet items that vary directly with sales and the profit margin are as follows: Percent Cash .............................................................. 5% Accounts receivable ................................................. 15 Inventory

Chapter 05: Operating and Financial Leverage 5-11 5-11 5-11 c. Q (P VC) DCL Q(P VC) FC I 20,000($60 $30) 20,000($60 $30) $400,000 $50,000 $600,000 $600,000 4x $600,000 $400,000 $50,000 $150,000 = = = = = d. $400,000 $400,000 BE 13,333 units $60 $30 $30 = = = 11. Degree of leverage (LO2 & 5) The

Chapter 05: Operating and Financial Leverage 5-21 5-16. Solution: a. Cain Auto Supplies and Able Auto Parts Cain Able EBIT $10,000 $10,000 Less: Interest 5,000 10,000 EBT 5,000 0 Less: Taxes @ 30% 1,500 0 EAT 3,500 0 Shares 10,000 5,000 EPS $.35 0 EBIT $15,000

Chapter 05: Operating and Financial Leverage 5-31 5-21. (Continued) d. The debt financing plan provides a greater earnings per share level, but provides more risk because of the increased use of debt and higher DFL and DCL. The crucial point is expectations for future sales. If sales are expected to

Chapter 05: Operating and Financial Leverage 5-41 5-26. (Continued) c. Silverman Plan (based on Mrs. Golds Assumption) Sales ($1,400,000 units at $4.50) $6,300,000 Fixed costs ($1,500,000 1.15) 1,725,000 Variable costs (1,400,000 units $3) 4,200,000 Operating income (EBIT) $ 375,000 Interest 45,000 EBT $ 330,000 Taxes @ 40% 132,000

Chapter 05: Operating and Financial Leverage 5-48 e. What would be the required new funds if the company brings its ratios into line with the industry average during 2011? Specifically examine receivables turnover, inventory turnover, and the profit margin. Use the new values to recompute the factors in RNF

Chapter 06: Working Capital and the Financing Decision 6-11 b. If Short-term Rates Change 1st year $200,000 .10 = $20,000 2nd year $200,000 .15 = $30,000 3rd year $200,000 .18 = $36,000 Total = $86,000 $86,000 $72,000 = $14,000 extra interest costs borrowing short-term one year at a

Chapter 06: Working Capital and the Financing Decision 6-21 b. If long-term financing at 12 percent had been utilized throughout the six months, would the total-dollar interest payments be larger or smaller? Compute the interest owed over the six months and compare your answer to that in part a.

Chapter 06: Working Capital and the Financing Decision 6-28 22. Level production and related financing effects (LO3) Esquire Products, Inc., expects the following monthly sales: January ............. $24,000 May ............ $4,000 September ......... $25,000 February ........... 15,000 June ............ 2,000 October ............. 30,000 March ............... 8,000 July ............ 18,000

Chapter 07: Current Asset Management 7-11 d. No. The aging schedule provides additional insight that 65 percent of the accounts receivable are over 30 days old. e. It goes beyond showing how many days of credit sales accounts receivables represent, to indicate the distribution of d. No. The

Chapter 07: Current Asset Management 7-21 Then compute return on incremental investment. $11,022 18.37% $60,000 = Yes, extend credit. 18.37% is greater than 10%. 21. Credit policy and return on investment (LO4) Global Services is considering a promotional campaign that will increase annual credit sales

Chapter 08: Sources of Short-Term Financing 8-11 8-11 8-11 13. Compensating balances (LO2) Computer Graphics Company needs $250,000 in funds for a project. a. With a compensating balance requirement of 20 percent, how much will the firm need to borrow? b. Given your answer to

Chapter 08: Sources of Short-Term Financing 8-20 8-20 8-20 8-24. (Continued) e. $6,850 360 Effective interest rate = $375,000 $75,000 60 $6,850 6 2.28% 6 $300,000 16.8% = = = No, do not borrow with a compensating balance of 20 percent since the effective rate is greater than

Chapter 09: Time Value of Money 9-1 9-1 9-1 Chapter 9 Time Value of Money Discussion Questions 9-1. How is the future value (Appendix A) related to the present value of a single sum (Appendix B)? The future value represents the expected worth of a

Chapter 09: Time Value of Money 9-11 Appendix B PV = FV PVIF Discount rate = 11% $ 3.00 .901 = $ 2.70 3.30 .812 = 2.68 3.60 .731 = 2.63 50.00 .731 = 36.55 $44.56 $ 3.00 .901 = $ 2.70 3.30 .812 = 2.68

Chapter 09: Time Value of Money 9-21 IFA PV FV PV (10%,3periods) $48,680 .751 $36.559 = = = Finally, find the total present value of all future payments. Present value of first three payments $16,177 Present value of the deferred annuity 36,559 Finally, find the total present value of

Chapter 09: Time Value of Money 9-28 9-28 9-28 9-45. (Continued) Subtract this value from $200,000 to determine how much you need to accumulate on the next 14 payments. $200,000 88,203 $111,797 Determine the revised semi-annual payment necessary to accumulate this sum after 14 periods

Chapter 01 - The Goals and Functions of Financial Management 1-1 Bloom's: Remember Difficulty: Basic Learning Objective: 01-01 The field of finance integrates concepts from economics; accounting; and a number of other areas. 1-1 Bloom's: Remember Difficulty: Basic Learning Objective: 01-01 The field of finance integrates concepts from economics; accounting;

Chapter 01 - The Goals and Functions of Financial Management 1-17 Bloom's: Remember Difficulty: Basic Learning Objective: 01-02 A firm can have many different forms of organization. 1-17 Bloom's: Remember Difficulty: Basic Learning Objective: 01-02 A firm can have many different forms of organization. 1-17 Bloom's: Remember Difficulty: Basic Learning

Chapter 10 - Valuation and Rates of Return 10-1 Bloom's: Understand Difficulty: Basic Learning Objective: 10-01 The valuation of a financial asset is based on the present value of future cash flows. 10-1 Bloom's: Understand Difficulty: Basic Learning Objective: 10-01 The valuation of a financial asset is based on the

Chapter 10 - Valuation and Rates of Return 10-21 Bloom's: Understand Difficulty: Intermediate Learning Objective: 10-01 The valuation of a financial asset is based on the present value of future cash flows. 10-21 Bloom's: Understand Difficulty: Intermediate Learning Objective: 10-01 The valuation of a financial asset is based on the

Chapter 10 - Valuation and Rates of Return 10-32 AACSB: Analytic Bloom's: Analyze Difficulty: Challenge Learning Objective: 10-03 Bond valuation is based on the process of determining the present value of interest payments plus the present value of the principal payment at maturity. 10-32 AACSB: Analytic Bloom's: Analyze Difficulty: Challenge

Chapter 11 - Cost of Capital 11-1 Bloom's: Understand Difficulty: Intermediate Learning Objective: 11-01 The cost of capital represents the weighted 11-1 Bloom's: Understand Difficulty: Intermediate Learning Objective: 11-01 The cost of capital represents the weighted 11-1 Bloom's: Understand Difficulty: Intermediate Learning Objective: 11-01 The cost of capital represents the

Chapter 11 - Cost of Capital 11-20 AACSB: Analytic Bloom's: Apply Difficulty: Challenge Learning Objective: 11-03 The cost of capital is based on the valuation techniques from the previous chapter and is applied to bonds; preferred stock; and common stock. 11-20 AACSB: Analytic Bloom's: Apply Difficulty: Challenge Learning Objective: 11-03

Chapter 12 - The Capital Budgeting Decision 12-1 Bloom's: Understand Difficulty: Intermediate Learning Objective: 12-01 A capital budgeting decision represents a long-term investment decision. 12-1 Bloom's: Understand Difficulty: Intermediate Learning Objective: 12-01 A capital budgeting decision represents a long-term investment decision. 12-1 Bloom's: Understand Difficulty: Intermediate Learning Objective: 12-01 A

Chapter 12 - The Capital Budgeting Decision 12-21 Bloom's: Understand Difficulty: Intermediate Learning Objective: 12-04 The net present value and internal rate of return are generally the preferred methods of capital budgeting analysis. 12-21 Bloom's: Understand Difficulty: Intermediate Learning Objective: 12-04 The net present value and internal rate of return

Chapter 12 - The Capital Budgeting Decision 12-35 AACSB: Analytic Bloom's: Apply Difficulty: Challenge Learning Objective: 12-04 The net present value and internal rate of return are generally the preferred methods of capital budgeting analysis. 12-35 AACSB: Analytic Bloom's: Apply Difficulty: Challenge Learning Objective: 12-04 The net present value and

Chapter 13 - Risk and Capital Budgeting 13-1 Bloom's: Understand Difficulty: Basic Learning Objective: 13-02 Most investors are risk-averse; which means they dislike uncertainty. 13-1 Bloom's: Understand Difficulty: Basic Learning Objective: 13-02 Most investors are risk-averse; which means they dislike uncertainty. 13-1 Bloom's: Understand Difficulty: Basic Learning Objective: 13-02 Most

Chapter 13 - Risk and Capital Budgeting 13-19 AACSB: Analytic Bloom's: Apply Difficulty: Intermediate Learning Objective: 13-01 The concept of risk is based on uncertainty about future outcomes. It requires the computation of quantitative measures as well as qualitative considerations. 13-19 AACSB: Analytic Bloom's: Apply Difficulty: Intermediate Learning Objective: 13-01

Chapter 14 - Capital Markets 14-1 Bloom's: Remember Difficulty: Intermediate Learning Objective: 14-02 The primary participants raising funds in domestic capital markets are the U.S. Treasury; other agencies of the federal; state; and local governments; and corporations. 14-1 Bloom's: Remember Difficulty: Intermediate Learning Objective: 14-02 The primary participants raising funds

Chapter 14 - Capital Markets 14-17 Bloom's: Remember Difficulty: Intermediate Learning Objective: 14-02 The primary participants raising funds in domestic capital markets are the U.S. Treasury; other agencies of the federal; state; and local governments; and corporations. 14-17 Bloom's: Remember Difficulty: Intermediate Learning Objective: 14-02 The primary participants raising funds

Chapter 15 - Investment Banking: Public and Private Placement 15-1 Bloom's: Remember Difficulty: Basic Learning Objective: 15-01 Investment bankers are intermediaries between corporations in need of funds and the investing public. They also provide important advice. 15-1 Bloom's: Remember Difficulty: Basic Learning Objective: 15-01 Investment bankers are intermediaries between corporations

Chapter 15 - Investment Banking: Public and Private Placement 15-21 AACSB: Analytic Bloom's: Apply Difficulty: Intermediate Learning Objective: 15-02 Investment bankers; rather than corporations; normally take the risk of successfully distributing corporate securities and for this there are costs involved. 15-21 AACSB: Analytic Bloom's: Apply Difficulty: Intermediate Learning Objective: 15-02

Chapter 16 - Long-Term Debt and Lease Financing 16-1 Bloom's: Remember Difficulty: Basic Learning Objective: 16-01 Analyzing long-term debt requires consideration of the collateral pledged; method of repayment; and other key factors. 16-1 Bloom's: Remember Difficulty: Basic Learning Objective: 16-01 Analyzing long-term debt requires consideration of the collateral pledged; method

Chapter 16 - Long-Term Debt and Lease Financing 16-21 AACSB: Analytic Bloom's: Apply Difficulty: Intermediate Learning Objective: 16-03 An important corporate decision is whether to call in and reissue debt (refund the obligation) when interest rates decline. 16-21 AACSB: Analytic Bloom's: Apply Difficulty: Intermediate Learning Objective: 16-03 An important corporate

Chapter 16 - Long-Term Debt and Lease Financing 16-34 Bloom's: Remember Difficulty: Basic Learning Objective: 16-04 Long-term lease obligations have many characteristics similar to debt and are recognized as a form of indirect debt by the accounting profession. 16-34 Bloom's: Remember Difficulty: Basic Learning Objective: 16-04 Long-term lease obligations have

Chapter 17 - Common and Preferred Stock Financing 17-1 Bloom's: Remember Difficulty: Intermediate Learning Objective: 17-01 Common stockholders are the owners of the corporation and therefore have a claim to undistributed income; the right to elect the board of directors; and other privileges. 17-1 Bloom's: Remember Difficulty: Intermediate Learning Objective:

Chapter 17 - Common and Preferred Stock Financing 17-18 Bloom's: Understand Difficulty: Intermediate Learning Objective: 17-03 A rights offering gives current stockholders a first option to purchase new shares. 17-18 Bloom's: Understand Difficulty: Intermediate Learning Objective: 17-03 A rights offering gives current stockholders a first option to purchase new shares.

Chapter 18 - Dividend Policy and Retained Earnings 18-1 Bloom's: Remember Difficulty: Basic Learning Objective: 18-01 The board of directors and corporate management must decide what to do with the firm's annual earnings: pay them out in dividends or retain them for reinvestment in future projects. The board of directors

Chapter 18 - Dividend Policy and Retained Earnings 18-19 Bloom's: Remember Difficulty: Basic Learning Objective: 18-02 Dividends may have a positive or negative information content for shareholders. Dividend policy can also provide information about where the firm is on its life cycle curve. 18-19 Bloom's: Remember Difficulty: Basic Learning Objective:

Chapter 19 - Convertibles, Warrants, and Derivatives 19-1 Bloom's: Remember Difficulty: Basic Learning Objective: 19-02 Because these securities can be converted to common stock; they may move with the value of common stock. 19-1 Bloom's: Remember Difficulty: Basic Learning Objective: 19-02 Because these securities can be converted to common stock;

Chapter 19 - Convertibles, Warrants, and Derivatives 19-20 Bloom's: Remember Difficulty: Intermediate Learning Objective: 19-01 Convertible securities can be converted to common stock at the option of the owner. 19-20 Bloom's: Remember Difficulty: Intermediate Learning Objective: 19-01 Convertible securities can be converted to common stock at the option of the

Chapter 02 - Review of Accounting 2-1 Bloom's: Understand Difficulty: Basic Learning Objective: 02-01 The income statement measures profitability. 2-1 Bloom's: Understand Difficulty: Basic Learning Objective: 02-01 The income statement measures profitability. 2-1 Bloom's: Understand Difficulty: Basic Learning Objective: 02-01 The income statement measures profitability. 1. The income statement

Chapter 02 - Review of Accounting 2-21 Bloom's: Remember Difficulty: Intermediate Learning Objective: 02-01 The income statement measures profitability. 2-21 Bloom's: Remember Difficulty: Intermediate Learning Objective: 02-01 The income statement measures profitability. 2-21 Bloom's: Remember Difficulty: Intermediate Learning Objective: 02-01 The income statement measures profitability. 72. A firm has

Chapter 02 - Review of Accounting 2-36 Bloom's: Understand Difficulty: Challenge Learning Objective: 02-01 The income statement measures profitability. 2-36 Bloom's: Understand Difficulty: Challenge Learning Objective: 02-01 The income statement measures profitability. 2-36 Bloom's: Understand Difficulty: Challenge Learning Objective: 02-01 The income statement measures profitability. 116. Hoover Inc. has

Chapter 20 - External Growth through Mergers 20-1 Bloom's: Remember Difficulty: Intermediate Learning Objective: 20-01 Firms engage in mergers for financial motives and to increase operating efficiency. Tax benefits and other factors must also be considered. 20-1 Bloom's: Remember Difficulty: Intermediate Learning Objective: 20-01 Firms engage in mergers for financial

Chapter 20 - External Growth through Mergers 20-15 Bloom's: Understand Difficulty: Intermediate Learning Objective: 20-01 Firms engage in mergers for financial motives and to increase operating efficiency. Tax benefits and other factors must also be considered. 20-15 Bloom's: Understand Difficulty: Intermediate Learning Objective: 20-01 Firms engage in mergers for financial

Chapter 21 - International Financial Management 21-1 Bloom's: Remember Difficulty: Intermediate Learning Objective: 21-01 The multinational corporation is one that crosses international borders to gain expanded markets. 21-1 Bloom's: Remember Difficulty: Intermediate Learning Objective: 21-01 The multinational corporation is one that crosses international borders to gain expanded markets. 21-1 Bloom's:

Chapter 21 - International Financial Management 21-20 A. 0.643% premium B. .013% premium C. .013% discount D. 0.643% discount 21-20 A. 0.643% premium B. .013% premium C. .013% discount D. 0.643% discount 21-20 A. 0.643% premium B. .013% premium C. .013% discount D. 0.643% discount 69. The belief that shifts

Chapter 03 - Financial Analysis 3-1 Difficulty: Basic Learning Objective: 03-01 Ratio analysis provides a meaningful comparison of a company to its industry. 3-1 Difficulty: Basic Learning Objective: 03-01 Ratio analysis provides a meaningful comparison of a company to its industry. 3-1 Difficulty: Basic Learning Objective: 03-01 Ratio analysis provides

Chapter 03 - Financial Analysis 3-21 AACSB: Analytic Bloom's: Apply Difficulty: Intermediate Learning Objective: 03-02 Ratios can be used to measure profitability; asset utilization; liquidity; and debt utilization. 3-21 AACSB: Analytic Bloom's: Apply Difficulty: Intermediate Learning Objective: 03-02 Ratios can be used to measure profitability; asset utilization; liquidity; and debt

Chapter 03 - Financial Analysis 3-41 Chapter 03 - Financial Analysis 3-42 AACSB: Analytic Bloom's: Apply Difficulty: Intermediate Learning Objective: 03-03 The Du Pont system of analysis identifies thetrue sources of return on assets and return to 3-42 AACSB: Analytic Bloom's: Apply Difficulty: Intermediate Learning Objective: 03-03 The

Chapter 04 - Financial Forecasting 4-1 Bloom's: Remember Difficulty: Basic Learning Objective: 04-02 The three financial statements for forecasting are the pro forma income statement; the cash budget; and the pro forma balance sheet. 4-1 Bloom's: Remember Difficulty: Basic Learning Objective: 04-02 The three financial statements for forecasting are the

Chapter 04 - Financial Forecasting 4-20 AACSB: Analytic Bloom's: Apply Difficulty: Intermediate Learning Objective: 04-02 The three financial statements for forecasting are the pro forma income statement; the cash budget; and the pro forma balance sheet. 4-20 AACSB: Analytic Bloom's: Apply Difficulty: Intermediate Learning Objective: 04-02 The three financial statements

Chapter 05 - Operating and Financial Leverage 5-1 Bloom's: Understand Difficulty: Intermediate Learning Objective: 05-04 Financial leverage shows how much debt the firm employs in its capital structure. 5-1 Bloom's: Understand Difficulty: Intermediate Learning Objective: 05-04 Financial leverage shows how much debt the firm employs in its capital structure. 5-1

Chapter 05 - Operating and Financial Leverage 5-20 AACSB: Analytic Bloom's: Apply Difficulty: Challenge Learning Objective: 05-02 Break-even analysis allows the firm to determine the magnitude of operations necessary to avoid loss. 5-20 AACSB: Analytic Bloom's: Apply Difficulty: Challenge Learning Objective: 05-02 Break-even analysis allows the firm to determine the

Chapter 06 - Working Capital and the Financing Decision 6-1 Bloom's: Understand Difficulty: Basic Learning Objective: 06-01 Working capital management involves financing and controlling the current assets of the firm. 6-1 Bloom's: Understand Difficulty: Basic Learning Objective: 06-01 Working capital management involves financing and controlling the current assets of the

Chapter 06 - Working Capital and the Financing Decision 6-21 Bloom's: Understand Difficulty: Basic Learning Objective: 06-03 The financing of an asset should be tied to how long the asset is likely to be on the balance sheet. 6-21 Bloom's: Understand Difficulty: Basic Learning Objective: 06-03 The financing of an

Chapter 06 - Working Capital and the Financing Decision 6-32 AACSB: Analytic Bloom's: Analyze Difficulty: Intermediate Learning Objective: 06-05 Risk; as well as profitability; determines the financing plan for current assets. 6-32 AACSB: Analytic Bloom's: Analyze Difficulty: Intermediate Learning Objective: 06-05 Risk; as well as profitability; determines the financing plan

Chapter 07 - Current Asset Management 7-1 Bloom's: Understand Difficulty: Basic Learning Objective: 07-02 Cash management involves control over the receipt and payment of cash so as to minimize nonearning cash balances. 7-1 Bloom's: Understand Difficulty: Basic Learning Objective: 07-02 Cash management involves control over the receipt and payment of

Chapter 07 - Current Asset Management 7-21 Bloom's: Remember Difficulty: Intermediate Learning Objective: 07-02 Cash management involves control over the receipt and payment of cash so as to minimize nonearning cash balances. 7-21 Bloom's: Remember Difficulty: Intermediate Learning Objective: 07-02 Cash management involves control over the receipt and payment of

Chapter 07 - Current Asset Management 7-35 AACSB: Analytic Bloom's: Apply Difficulty: Challenge Learning Objective: 07-04 Accounts receivable management requires credit policy decisions aimed at maximizing profitability. 7-35 AACSB: Analytic Bloom's: Apply Difficulty: Challenge Learning Objective: 07-04 Accounts receivable management requires credit policy decisions aimed at maximizing profitability. 7-35 AACSB:

Chapter 08 - Sources of Short-Term Financing 8-1 Bloom's: Understand Difficulty: Basic Learning Objective: 08-01 Trade credit from suppliers is normally the most available form of short-term financing. 8-1 Bloom's: Understand Difficulty: Basic Learning Objective: 08-01 Trade credit from suppliers is normally the most available form of short-term financing. 8-1

Chapter 08 - Sources of Short-Term Financing 8-21 AACSB: Analytic Bloom's: Apply Difficulty: Challenge Learning Objective: 08-02 Bank loans are usually short term in nature and should be paid off from funds from the normal operations of the firm. 8-21 AACSB: Analytic Bloom's: Apply Difficulty: Challenge Learning Objective: 08-02 Bank

Chapter 08 - Sources of Short-Term Financing 8-34 Bloom's: Understand Difficulty: Intermediate Learning Objective: 08-03 Commercial paper represents a short-term; unsecured promissory note issued by the firm. 8-34 Bloom's: Understand Difficulty: Intermediate Learning Objective: 08-03 Commercial paper represents a short-term; unsecured promissory note issued by the firm. 8-34 Bloom's: Understand

Chapter 09 - The Time Value of Money 9-1 1. An amount of money to be received in the future is worth less today than the stated amount. TRUE TRUE TRUE Bloom's: Understand Difficulty: Basic Learning Objective: 09-01 Money has a time value associated with it and therefore

Chapter 09 - The Time Value of Money 9-21 Bloom's: Understand Difficulty: Challenge Learning Objective: 09-03 The present value is based on the current value of funds to be received. 9-21 Bloom's: Understand Difficulty: Challenge Learning Objective: 09-03 The present value is based on the current value of funds to

Chapter 09 - The Time Value of Money 9-32 AACSB: Analytic Bloom's: Apply Difficulty: Intermediate Learning Objective: 09-05 Compounding or discounting may take place on a less than annual basis such as semiannually or monthly. 9-32 AACSB: Analytic Bloom's: Apply Difficulty: Intermediate Learning Objective: 09-05 Compounding or discounting may take