Fundamentals of Corporate Finance 11th Edition

Case Solutions Fundamentals of Corporate Finance Ross, Westerfield, and Jordan 11th edition Updated: 01/17/2015 Prepared by Brad Jordan University of Kentucky Joe Smolira Belmont University CHAPTER 1 THE McGEE CAKE COMPANY 1. The advantages to an LLC are: (a) Reduction of personal liability. A sole proprietor has unlimited liability, which can include the potential loss of all personal assets. (b)

Chapter 1 INTRODUCTION TO CORPORATE FINANCE CHAPTER WEB SITES Section Web Address 1.1 www.mhhe.com/rwj www.cfo.com 1.2 http://www.incorporate.com www.llc.com 1.3 www.soxlaw.com 1.4 www.business-ethics.com finance.yahoo.com 1.5 www.sec.gov www.nyse.com www.nasdaq.com SUGGESTED VIDEOS The Role of the Chief Financial Officer Financial Markets CHAPTER ORGANIZATION 1.1 Corporate Finance and the Financial Manager What Is Corporate Finance? The Financial Manager Financial Management Decisions 1.2 Forms of Business Organization Sole Proprietorship Partnership Corporation A Corporation by

Chapter 01 - Introduction to Corporate Finance 1.1. The Agency Problem and Control of the Corporation A. Agency Relationships The relationship between stockholders and management is called the agency relationship. This occurs when one party (principal) hires another (agent) to act on their behalf. The possibility of conflicts of interest between the parties

Solutions Manual Fundamentals of Corporate Finance 11th edition Ross, Westerfield, and Jordan 01-17-2015 Prepared by Brad Jordan University of Kentucky Joe SmoliraBelmont University 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

CHAPTER 10 CONCH REPUBLIC ELECTRONICS, PART 1 This is an in-depth capital budgeting problem. The initial cash outlay at Time 0 is the cost of the new equipment, $40,500,000. The sales each year are a combination of the sales of the new smart phone, the lost sales each year, and the lost revenue. In

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 or input is actually worth today, not, for

15. To evaluate the project with a $150,000 cost savings, we need the OCF to compute the NPV. Using the tax shield approach, the OCF is: OCF = $150,000(1 .35) + .35($85,000) = $127,250NPV = $425,000 + 60,000 + $127,250(PVIFA11%,5) + [($19,500 60,000) / (1.11)5]NPV = $81,268.12 OCF = $150,000(1 .35) +

31. We will begin by calculating the aftertax salvage value of the equipment at the end of the projects life. The aftertax salvage value is the market value of the equipment minus any taxes paid (or refunded), so the aftertax salvage value in four years will be: Taxes on salvage value =

CHAPTER 11 CONCH REPUBLIC ELECTRONICS, PART 2 1. Here we want to examine the sensitivity of NPV to changes in the price of the new smart phone. The calculations for sensitivity to changes in price are similar to the original cash flows. The only difference is that we will change the price of

Chapter 11 - Project Analysis and Evaluation Chapter 11 PROJECT ANALYSIS AND EVALUATION CHAPTER ORGANIZATION 11.1 Evaluating NPV Estimates The Basic Problem Projected versus Actual Cash Flows Forecasting Risk Sources of Value 11.2 Scenario and Other What-If Analyses Getting Started Scenario Analysis Sensitivity Analysis Simulation Analysis 11.3 Break-Even Analysis Fixed and Variable Costs Accounting Break-Even Accounting Break-Even: A Closer Look Uses for the Accounting Break-Even 11.4 Operating Cash

14. We can use the equation for DOL to calculate fixed costs. The fixed costs must be: DOL = 3.42 = 1 + FC / OCF FC = (3.42 1)$64,000 FC = $154,880 FC = (3.42 1)$64,000 FC = $154,880 FC = (3.42 1)$64,000 FC = $154,880 If the output rises to 18,500 units,

22. To calculate the sensitivity of the NPV to changes in the price of the new club, we simply need to change the price of the new club. We will choose $725, but the choice is irrelevant as the sensitivitywill be the same no matter what price we choose. change

CHAPTER 12 A JOB AT S&S AIR 1. The biggest advantage the mutual funds have is instant diversification. The mutual funds have a number of assets in the portfolio. number of assets in the portfolio. number of assets in the portfolio. 2. Both the APR and EAR are infinite. The match is instantaneous,

Chapter 12 - Some Lessons from Capital Market History Chapter 12 SOME LESSONS FROM CAPITAL MARKET HISTORY CHAPTER WEB SITES Section Web Address Introduction www.mhhe.com/rwj 12.1 finance.yahoo.com www.marketwatch.com 12.2 www.globalfinancialdata.com bigcharts.marketwatch.com 12.4 www.robertniles.com www.morningstar.com 12.6 www.investorhome.com CHAPTER ORGANIZATION 12.1 Returns Dollar Returns Percentage Returns 12.2 The Historical Record A First Look A Closer Look 12.3 Average Returns: The First Lesson Calculating Average Returns Average Returns: The Historical

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

CHAPTER 13 THE BETA FOR COLGATE-PALMOLIVE NOTE: The example below shows the results from late 2013. The actual answer to the case will change based on current market conditions 1. The information used for the analysis is presented below. Note that the risk-free rate (3-month T-bill rate) is expressed as an annual rate.

Chapter 13 - Return, Risk, and the Security Market Line Chapter 13 RETURN, RISK, AND THE SECURITY MARKET LINE CHAPTER WEB SITES Section Web Address 13.2 www.thestreet.com 13.5 www.investopedia.com/university 13.6 www.investools.com moneycentral.msn.com finance.yahoo.com money.cnn.com CHAPTER ORGANIZATION 13.1 Expected Returns and Variances Expected Return Calculating the Variance 13.2 Portfolios Portfolio Weights Portfolio Expected Returns Portfolio Variance 13.3 Announcements, Surprises, and Expected Returns Expected and Unexpected Returns Announcements and News 13.4

Chapter 13 - Return, Risk, and the Security Market Line 1. Systematic Risk and Beta A. The Systematic Risk Principle The principle The reward for bearing risk depends only on the systematic risk of the investment. The implication The expected return on an asset depends only on that assets systematic risk. A corollary No matter how

24. We know the total portfolio value and the investment of two stocks in the portfolio, so we can find the weight of these two stocks. The weights of Stock A and Stock B are: wA = $185,000 / $1,000,000 = .185 wB = $320,000 / $1,000,000 = .320 wA =

CHAPTER 14 COST OF CAPITAL FOR SWAN MOTORS NOTE: The example below shows the results during April 2014. The actual answer to the case will change based on current market conditions. 1. The book value of the companys liabilities and equity can be found from a number of sources. When we calculated the WACC,

Chapter 14 - Cost of Capital Chapter 14 COST OF CAPITAL CHAPTER WEB SITES Section Web Address 14.2 www.zacks.com www.bloomberg.com 14.4 www.ibbotson.com www.valuepro.net www.sternstewart.com CHAPTER ORGANIZATION 14.1 The Cost of Capital: Some Preliminaries Required Return versus Cost of Capital Financial Policy and Cost of Capital 14.2 Cost of Equity The Dividend Growth Model Approach The SML Approach 14.3 The Costs of Debt and Preferred Stock The

Chapter 14 - Cost of Capital Video Note: Economic Value Added (EVA) can be used to reinforce the concepts. 1. Divisional and Project Costs of Capital A. The SML and the WACC The WACC is the appropriate discount rate only if the proposed investment is of similar risk as the firms existing assets. Lecture Tip:

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 are likely to be much closer to market values than

22. To find the aftertax cost of debt for the company, we need to find the weighted average of the four debt issues. We will begin by calculating the market value of each debt issue, which is: MV1 = 1.0318($45,000,000) MV1 = $46,431,000 MV2 = 1.1050($40,000,000) MV2 = $44,200,000 MV3 =

CHAPTER 15 S&S AIR GOES PUBLIC 1. The main difference in the costs is the reduced possibility of underpricing in a Dutch auction. As to which is better, we dont actually know. In theory, the Dutch auction should be better since it should eliminate underpricing. However, as Google shows, underpricing can still exist

Chapter 15 - Raising Capital 1. IPOs and Underpricing A. Underpricing: The 1999 - 2000 Experience The number of IPOs and the average return on IPOs during 1999 and 2000 was enormous compared to past periods. 1999 set a record with just under $65 billion raised. 2000 beat this record with just over $65

CHAPTER 15 RAISING CAPITAL Answers to Concepts Review and Critical Thinking Questions 1. A companys 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 greatest access to public debt markets (small companies tend to

CHAPTER 16 STEPHENSON REAL ESTATE RECAPITALIZATION 1. If Stephenson wishes to maximize the overall value of the firm, it should use debt to finance the $95 million purchase. Since interest payments are tax deductible, debt in the firms capital structure willdecrease the firms taxable income, creating a tax shield that will increase

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 firms operating activity and is directly related to the systematic risk of the firms assets. Financial risk is the equity risk that is

10. With no taxes, the value of an unlevered firm is the EBIT divided by the unlevered cost of equity, so: V = EBIT / WACC $20,400,000 = EBIT / .095EBIT = .095($20,400,000) EBIT = $1,938,000 $20,400,000 = EBIT / .095EBIT = .095($20,400,000) EBIT = $1,938,000 $20,400,000 = EBIT / .095 EBIT =

CHAPTER 17 ELECTRONIC TIMING, INC. 1. The value of the company will decline by the amount of the dividend. Ignoring taxes, shareholders wealth will not be affected because the stock price will drop by the amount of the dividend payment. wealth will not be affected because the stock price will drop by the

Chapter 17 - Dividends and Dividend Policy Chapter 17 DIVIDENDS AND DIVIDEND POLICY CHAPTER WEB SITES Section Web Address 17.1 www.reuters.com/finance/EarningsUS 17.2 www.fool.com 17.8 www.stocksplits.net CHAPTER ORGANIZATION 17.1 Cash Dividends and Dividend Payment Cash Dividends Standard Method of Cash Dividend Payment Dividend Payment: A Chronology More about the Ex-Dividend Date 17.2 Does Dividend Policy Matter? An Illustration of the Irrelevance of Dividend

Chapter 17 - Dividends and Dividend Policy 1. Stock Repurchase: An Alternative to Cash Dividends A. Cash Dividends versus Repurchase A firm may choose to buy back outstanding shares instead of paying a cash dividend (or instead of increasing a regular dividend). If we assume no market imperfections, then stockholder wealth is unaffected by

CHAPTER 18 PIEPKORN MANUFACTURING WORKING CAPITAL MANAGEMENT 1. The cash flow each quarter will consist of the sales collection, minus the suppliers paid, expenses, dividends, interest, and capital outlays. The individual cash flows are calculated as follows:Accounts receivable collected from the previous quarter: dividends, interest, and capital outlays. The individual cash flows are

Chapter 18 - Short-Term Finance and Planning Chapter 18 SHORT-TERM FINANCE AND PLANNING CHAPTER WEB SITES Section Web Address 18.1 www.treasury-management.com 18.4 www.toolkit.com 18.5 www.receivablesxchange.com CHAPTER ORGANIZATION 18.1 Tracing Cash and Net Working Capital 18.2 The Operating Cycle and the Cash Cycle Defining the Operating and Cash Cycles The Operating Cycle and the Firms Organizational Chart Calculating the Operating and

Chapter 18 - Short-Term Finance and Planning 18.3 Some Aspects of Short-Term Financial Policy A. The Size of the Firms Investment in Current Assets If cash was collected from sales when the bills had to be paid, then cash balances and net working capital could be zero. The greater the mismatch between

10. a. The November sales must have been the total uncollected sales minus the uncollected sales from December, divided by the collection rate two months after the sale, so: November sales = ($93,000 62,000) / .15 November sales = $206,666.67 November sales = ($93,000 62,000) / .15 November sales = $206,666.67 November sales

CHAPTER 19 CASH MANAGEMENT AT WEBB CORP. 1. The amount the company will have available is the future value of the transfers, which are an annuity. The amount of each transfer is one minus the wire transfer cost, times the number of transfers, which is four since there are four banks, times the

Chapter 19 - Cash and Liquidity Management Chapter 19 CASH AND LIQUIDITY MANAGEMENT CHAPTER WEB SITES Section Web Address 19.2 www.carreker.fiserv.com 19.3 www.gtnews.com 19.5 www.bloomberg.com CHAPTER ORGANIZATION 19.1 Reasons for Holding Cash The Speculative and Precautionary Motives The Transaction Motive Compensating Balances Costs of Holding Cash Cash Management versus Liquidity Management 19.2 Understanding Float Disbursement Float Collection Float and Net Float Float Management Electronic Data Interchange

Chapter 19 - Cash and Liquidity Management 1. Managing Cash Disbursements A. Increasing Disbursement Float Slowing payments by increasing mail delay, processing time, or collection time. May not want to do this from both an ethical standpoint and a valuation standpoint. Slowing payment could cause a company to forgo discounts on its accounts

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 has an opportunity cost. It could be invested (by shareholders) in potentially more profitableways. Question 10 discusses another reason. cash has

CHAPTER 2 CASH FLOWS AND FINANCIAL STATEMENTS AT SUNSET BOARDS Below are the financial statements that you are asked to prepare. 1. The income statement for each year will look like this: Income Statement 2014 2015 Sales $385,724 $470,172 Cost of goods sold 196,619 248,263 Selling and administrative 38,668 50,469 Depreciation 55,506 62,738 EBIT

Chapter 02 - Financial Statements, Taxes, and Cash Flow Chapter 2 FINANCIAL STATEMENTS, TAXES, AND CASH FLOW CHAPTER WEB SITES Section Web Address 2.1 finance.yahoo.com money.cnn.com finance.google.com disney.go.com www.sec.gov www.fasb.org 2.3 www.irs.gov CHAPTER ORGANIZATION 2.1 The Balance Sheet Assets: The Left Side Liabilities and Owners Equity: The Right Side Net Working Capital Liquidity Debt versus Equity Market Value versus Book Value 2.2 The Income Statement GAAP and the Income

CHAPTER 20 CREDIT POLICY AT HOWLETT INDUSTRIES To decide on the optimal credit policy, we need to calculate the NPV of each policy. We will begin with the calculation of the NPV of the current policy. Current Policy First, we need to calculate the average daily sales which are: Average daily sales = $144,000,000

Chapter 20 - Credit and Inventory Management Chapter 20 CREDIT AND INVENTORY MANAGEMENT CHAPTER WEB SITES Section Web Address 20.1 www.treasury.pncbank.com www.treasurystrat.com www.insidearm.com 20.2 www.nacm.org 20.4 www.creditworthy.com 20.5 www.dnb.com 20.7 www.simba.org CHAPTER ORGANIZATION 20.1 Credit and Receivables Components of Credit Policy The Cash Flows from Granting Credit The Investment in Receivables 20.2 Terms of the Sale The Basic Form The Credit Period Cash

Chapter 20 - Credit and Inventory Management 1. Collection Policy A. Monitoring receivables Keeping track of payments to try to spot potential problems (chronic late-payers and possible defaults) to reduce losses. Aging schedule a break-down of receivables accounts by age Lecture Tip: Wilbur Lewellen and Robert Johnson demonstrate that two of the traditional receivables monitoring

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 bankers acceptance is a banks guarantee of the future payment

15. The cash flow from the old policy is: Cash flow from old policy = ($125 96)(1,320) Cash flow from old policy = $38,280 Cash flow from old policy = ($125 96)(1,320) Cash flow from old policy = $38,280 Cash flow from old policy = ($125 96)(1,320) Cash flow from old policy

CHAPTER 21 S&S AIR GOES INTERNATIONAL 1. The biggest advantage is the increased sales, while the biggest risk is exchange rate risk. 2. If the dollar strengthens, the profit will decline. Conversely, if the dollar weakens, the profit will increase. 1. The biggest advantage is the increased sales, while the biggest risk

Chapter 21 - International Corporate Finance Chapter 21 INTERNATIONAL CORPORATE FINANCE CHAPTER WEB SITES Section Web Address 21.1 www.adr.com www.bloomberg.com 21.2 www.swift.com www.xe.com www.exchangerate.com www.ft.com 21.4 www.travlang.com/money www.marketwatch.com 21.7 https://www.cia.gov/library/publications/the- world-factbook/index.html CHAPTER ORGANIZATION 21.1 Terminology 21.2 Foreign Exchange Markets and Exchange Rates Exchange Rates 21.3 Purchasing Power Parity Absolute Purchasing Power Parity Relative Purchasing Power Parity 21.4 Interest Rate Parity, Unbiased Forward Rates, and the International Fisher Effect Covered

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 (SF 1.53 versus SF 1.50). the spot market (SF 1.53 versus SF 1.50). the spot market (SF 1.53 versus

CHAPTER 22 YOUR 401(k) ACCOUNT AT S&S AIR 1. Before the fact, you would expect that mutual funds managers would be able to outperform the market. This is due, in part, to the Darwinian nature of the business. Good performing fund managers are richly rewarded, and poor performing fund managers are fired, often

Chapter 22 - Behavioral Finance: Implications for Financial Management Chapter 22 BEHAVIORAL FINANCE: IMPLICATIONS FOR FINANCIAL MANAGEMENT CHAPTER WEB SITES Section Web Address 22.4 www.behavioralfinance.net 22.5 www.zakon.org/robert/internet/timeline CHAPTER ORGANIZATION 22.1 Introduction to Behavioral Finance 22.2 Biases Overconfidence Overoptimism Confirmation Bias 22.3 Framing Effects Loss Aversion House Money 22.4 Heuristics The Affect Heuristic The Representativeness Heuristic Representativeness and Randomness The Gamblers Fallacy 22.5 Behavioral Finance and Market Efficiency Limits to Arbitrage Bubbles

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 could invest in arisk neutral portfolio by purchasing

Chapter 23 Enterprise Risk Management Chapter 23 Enterprise Risk Management CHAPTER WEB SITES Section Web Address Introduction www.numa.com 23.4 www.cbot.com www.cme.com www.theice.com www.biz.uiowa.edu/iem www.cftc.gov 23.5 www.isda.org 23.6 www.cboe.com www.optionseducation.com www.margrabe.com www.treasurers.org CHAPTER ORGANIZATION 23.1 Insurance 23.2 Managing Financial Risk The Risk Profile Reducing Risk Exposure Hedging Short-Run Exposure Cash Flow Hedging: A Cautionary Note Hedging Long-Term Exposure Conclusion 23.3 Hedging With Forward Contracts Forward Contracts: The Basics The Payoff Profile Hedging with Forwards 23.4

CHAPTER 24 S&S AIRS CONVERTIBLE BOND 1. We can use the PE ratio to calculate the current stock price. Doing so, we get: PE = Price / EPS 12.50 = Price / $1.60Price = $20.00 12.50 = Price / $1.60Price = $20.00 12.50 = Price / $1.60 Price = $20.00 This means the conversion premium of

Chapter 24 - Options and Corporate Finance Chapter 24 OPTIONS AND CORPORATE FINANCE CHAPTER WEB SITES Section Web Address 24.1 www.cboe.com www.cmegroup.com www.euronext.com finance.yahoo.com 24.2 www.financial-guide.ch/ica/derivatives 24.4 www.esopassociation.org www.nceo.org CHAPTER ORGANIZATION 24.1 Options: The Basics Puts and Calls Stock Options Quotations Option Payoffs 24.2 Fundamentals of Option Valuation Value of a Call Option at Expiration The Upper and Lower Bounds on a Call Options Value A Simple

Chapter 24 - Options and Corporate Finance 1. Valuing a Call Option A. A Simple Model: Part II The option may, however, finish out-of-the money. So, adjust your second portfolio as follows: instead of loaning the PV(E), loan the PV(lowest possible S1) at the risk-free rate and buy enough calls to have the

CHAPTER 24 OPTIONS AND CORPORATE FINANCE Answers to Concepts Review and Critical Thinking Questions 1. A call option confers the right, without the obligation, to buy an asset at a given price on or before a given date. A put option confers the right, without the obligation, to sell an asset at a

17. a. The value of the call is the maximum of the stock price minus the present value of the exercise price, or zero, so: C0 = Max[$59 ($65 / 1.05),0] C0 = $0 C0 = Max[$59 ($65 / 1.05),0] C0 = $0 C0 = Max[$59 ($65 / 1.05),0] C0 =

CHAPTER 25 EXOTIC CUISINE EMPLOYEE STOCK OPTIONS 1. We can use the Black-Scholes equation to value the employee stock options. We need to use the risk- free rate that is the same as the maturity as the options. So, assuming expiration in three years, the value of the stock options per share of

Chapter 25 - Option Valuation CHAPTER 25 OPTION VALUATION CHAPTER WEB SITES Section Web Address 25.1 http://www.optionseducation.org/ 25.2 www.numa.com 25.3 www.ivolatility.com www.margrabe.com/optionpricing.html 25.4 finance.yahoo.com CHAPTER ORGANIZATION 25.1 Put-Call Parity Protective Puts An Alternative Strategy The Result Continuous Compounding: A Refresher Course 25.2 The Black-Scholes Option Pricing Model The Call Option Pricing Formula Put Option Valuation A Cautionary Note 25.3 More about Black-Scholes Varying the Stock Price Varying the

19. a. The combined value of equity and debt of the two firms is: Equity = $4,222.99 + 6,726.34 Equity = $10,949.33 Debt = $14,877.01 + 21,573.66 Debt = $36,450.67 Equity = $10,949.33 Debt = $14,877.01 + 21,573.66 Debt = $36,450.67 Equity = $10,949.33 Debt = $14,877.01 + 21,573.66 Debt = $36,450.67 b.

CHAPTER 26 THE BIRDIE GOLF-HYBRID GOLF MERGER 1. As with any other merger analysis, we need to examine the present value of the incremental cash flows. The cash flow today from the acquisition is the acquisition costs plus the dividends paid today, or: Acquisition of Hybrid $250,000,000 Dividends from Hybrid 67,500,000 Total $182,500,000

Chapter 26 - Mergers and Acquisitions CHAPTER 26 MERGERS AND ACQUISITIONS CHAPTER WEB SITES Section Web Address 26.1 www.marketwatch.com www.firstlist.com www.mergernetwork.com 26.4 www.thedeal.com CHAPTER ORGANIZATION 26.1 The Legal Forms of Acquisitions Merger or Consolidation Acquisition of Stock Acquisition of Assets Acquisition Classifications A Note about Takeovers Alternatives to Merger 26.2 Taxes and Acquisitions Determinants of Tax Status Taxable versus Tax-Free Acquisitions 26.3 Accounting for Acquisitions The Purchase Method More about

CHAPTER 27 THE DECISION TO LEASE OR BUY AT WARF COMPUTERS 1. The decision to buy or lease is made by looking at the incremental cash flows. The incremental cash flows from leasing the machine are the security deposit, the lease payments, the tax savings on thelease, the lost depreciation tax shield,

Chapter 27 - Leasing CHAPTER 27 LEASING CHAPTER WEB SITES Section Web Address Introduction www.monitordaily.com 27.1 www.bloomberg.com www.keystoneleasing.com 27.5 www.lease-vs-buy.com www.cars.com 27.7 www.ilfc.com CHAPTER ORGANIZATION 27.1 Leases and Lease Types Leasing versus Buying Operating Leases Financial Leases 27.2 Accounting and Leasing 27.3 Taxes, the IRS, and Leases 27.4 The Cash Flows from Leasing The Incremental Cash Flows A Note about Taxes 27.5 Lease or Buy? A Preliminary

CHAPTER 27 LEASING Answers to Concepts Review and Critical Thinking Questions 1. Some key differences are: (a) Lease payments are fully tax-deductible, but only the interest portion of the loan is. (b) The lessee does not own the asset and cannot depreciate it for tax purposes. (c) Inthe event of a default, the

CHAPTER 3 RATIO ANALYSIS AT S&S AIR 1. The calculations for the ratios listed are: Current ratio = $2,262,740 / $3,050,355 Current ratio = .74 times Current ratio = $2,262,740 / $3,050,355 Current ratio = .74 times Current ratio = $2,262,740 / $3,050,355 Current ratio = .74 times Quick ratio = ($2,262,740 1,073,180) / $3,050,355

Chapter 03 - Working with Financial Statements Chapter 3 WORKING WITH FINANCIAL STATEMENTS CHAPTER WEB SITES Section Web Address 3.1 www.financials.com finance.yahoo.com finance.google.com money.msn.com 3.3 www.reuters.com www.onlinewbc.gov www.chalfin.com 3.5 www.naics.com investing.businessweek.com CHAPTER ORGANIZATION 3.1 Cash Flow and Financial Statements: A Closer Look Sources and Uses of Cash The Statement of Cash Flows 3.2 Standardized Financial Statements Common-Size Statements Common-Base Year Financial Statements: Trend Analysis Combined Common-Size and

17. a. Current ratio = Current assets / Current liabilities Current ratio 2014 = $90,717 / $62,939 = 1.44 times Current ratio 2015 = $100,617 / $66,442 = 1.51 times Current ratio 2014 = $90,717 / $62,939 = 1.44 times Current ratio 2015 = $100,617 / $66,442 = 1.51 times Current ratio

CHAPTER 4 PLANNING FOR GROWTH AT S&S AIR 1. To calculate the internal growth rate, we first need to find the ROA and the retention ratio, so: ROA = NI / TA ROA = $2,029,766 / $19,986,170 ROA = .1016, or 10.16% ROA = $2,029,766 / $19,986,170 ROA = .1016, or 10.16% ROA =

Chapter 04 - Long-Term Financial Planning and Growth CHAPTER 4 LONG-TERM FINANCIAL PLANNING AND GROWTH CHAPTER WEB SITES Section Web Address 4.1 www.reuters.com finance.yahoo.com 4.2 www.jaxworks.com www.planware.org CHAPTER ORGANIZATION 4.1 What Is Financial Planning? Growth as a Financial Management Goal Dimensions of Financial Planning What Can Planning Accomplish? 4.2 Financial Planning Models: A First Look A Financial Planning Model: The Ingredients A Simple Financial

14. We first must calculate the ROE to calculate the sustainable growth rate. To do this we must realize two other relationships. The total asset turnover is the inverse of the capital intensity ratio, and the equity multiplier is 1 + D/E. Using these relationships, we get: ROE = (PM)(TAT)(EM) ROE

27. The pro forma income statements for all three growth rates will be: FLEURY INC. Pro Forma Income Statement 15 % Sales Growth 20% Sales Growth 25% Sales Growth Sales $1,025,340 $1,069,920 $1,114,500 Costs 797,640 832,320 867,000 Other expenses 20,976 21,888 22,800EBIT $206,724 $215,712 $224,700Interest 13,400 13,400 13,400Taxable income $193,324 $202,312 $211,300Taxes (35%) 67,663 70,809 73,955Net income $125,661 $131,503 $137,345 Other

Chapter 05 - Introduction to Valuation: The Time Value of Money Chapter 5 INTRODUCTION TO VALUATION: THE TIME VALUE OF MONEY CHAPTER WEB SITES Section Web Address 5.1 www.financeprofessor.com www.teachmefinance.com 5.3 www.calculator.org www.moneychimp.com www.about.com/ www.studyfinance.com www.investopedia.com CHAPTER ORGANIZATION 5.1 Future Value and Compounding Investing for a Single Period Investing for More Than One Period A Note about Compound Growth 5.2 Present Value and Discounting The Single-Period

16. 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 = PV(1 + r)t Solving for r, we get: r = (FV / PV)1

CHAPTER 6 THE MBA DECISION 1. Age is obviously an important factor. The younger an individual is, the more time there is for the (hopefully) increased salary to offset the cost of the decision to return to school for an MBA. (hopefully) increased salary to offset the cost of the decision to

Chapter 5 INTRODUCTION TO VALUATION: THE TIME VALUE OF MONEY CHAPTER WEB SITES Section Web Address 5.1 www.financeprofessor.com www.teachmefinance.com 5.3 www.calculator.org www.moneychimp.com www.about.com/ www.studyfinance.com www.investopedia.com CHAPTER ORGANIZATION 5.1 Future Value and Compounding Investing for a Single Period Investing for More Than One Period A Note about Compound Growth 5.2 Present Value and Discounting The Single-Period Case Present Values for Multiple Periods 5.3 More about Present and Future

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.2. Assuming positive cash flows, both the present and the

23. The time line is: 0 1 $1,40$1,40$1,40$1,40$1,40$1,40$1,40$1,40$1,400 $1,40$1,40$1,40$1,40$1,40$1,40$1,40$1,40$1,400 $1,40 $1,40 $1,40 $1,40 $1,40 $1,40 $1,40 $1,40 $1,400 $215,00 0 0 0 0 0 0 0 0 0 Here we need to find the interest rate that equates the perpetuity cash flows with the PV of the cash flows. Using the PV of a perpetuity equation: PV = C / r $215,000 = $1,400 / r $215,000 = $1,400 / r $215,000 = $1,400

47. The time line is: 0 123456 20 PV $3,50 0 $3,50 0 $3,50 0 $3,50 0 We want to find the value of the cash flows today, so we will find the PV of the annuity, and then bring the lump sum PV back to today. The annuity has 15 payments, so the PV of the annuity

63. This is the same question as before, with different values. So: Loan repayment amount = $10,000(1.12) = $11,200Amount received = $10,000(1 .03) = $9,700 Loan repayment amount = $10,000(1.12) = $11,200Amount received = $10,000(1 .03) = $9,700 Loan repayment amount = $10,000(1.12) = $11,200 Amount received = $10,000(1 .03) = $9,700 The time

77. a. The APR is the interest rate per week times 52 weeks in a year, so: APR = 52(7.5%) = 390% EAR = (1 + .075)52 1 = 41.9774, or 4,197.74% APR = 52(7.5%) = 390% EAR = (1 + .075)52 1 = 41.9774, or 4,197.74% APR = 52(7.5%) = 390%

44. CFo$1,000,000 C01 $1,450,000 F01 1 C02 $1,900,000 F02 1 C03 $2,350,000 F03 1 C04 $2,800,000 F04 1 C05 $3,250,000 F05 1 C06 $3,700,000 F06 1 C07 $4,150,000 F07 1 C08 $4,600,000 F08 1 C09 $5,050,000 F09 1 C010 $5,500,000 C03 $2,350,000 F03 1 C04 $2,800,000 F04 1 C05 $3,250,000 F05

Chapter 07 - Interest Rates and Bond Valuation Chapter 7 INTEREST RATES AND BOND VALUATION CHAPTER WEB SITES Section Web Address 7.1 bonds.yahoo.com personal.fidelity.com money.cnn.com/markets/bondcenter www.bankrate.com investorguide.com 7.2 www.investinginbonds.com www.finra.org/marketdata www.sifma.org www.sec.gov 7.3 www.standardandpoors.com www.moodys.com www.fitchinv.com www.publicdebt.treas.gov www.brillig.com/debt_clock www.ny.frb.org 7.4 money.cnn.com emma.msrb.org 7.5 cxa.marketwatch.com/finra/MarketData/Default.aspx www.finra.org http://www.stls.frb.org/fred/files 7.7 www.bloomberg.com/markets www.smartmoney.com CHAPTER ORGANIZATION 7.1 Bonds and Bond Valuation Bond Features and Prices Bond Values and Yields Interest Rate Risk Finding the Yield to Maturity: More Trial and Error 7.2

Chapter 07 - Interest Rates and Bond Valuation 1. Bond Ratings Lecture Tip: The question sometimes arises as to why a potential issuer would be willing to pay rating agencies tens of thousands of dollars in order to receive a rating, especially given the possibility that the resulting rating could be less favorable

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, the Treasury security will have lower coupons because of its lower

21. The current yield is: Current yield = Annual coupon payment / Price Current yield = $64 / $1,068 Current yield = .0599, or 5.99% Current yield = $64 / $1,068 Current yield = .0599, or 5.99% Current yield = $64 / $1,068 Current yield = .0599, or 5.99% The bond price equation

38. To answer this question, we need to find the monthly interest rate, which is the APR divided by 12. We also must be careful to use the real interest rate. The Fisher equation uses the effective annual rate, so, the real effective annual interest rates, and the monthly interest rates

CHAPTER 8 STOCK VALUATION AT RAGAN, INC. 1. The total dividends paid by the company were $90,000. Since there are 100,000 shares outstanding, the total earnings for the company were: Total earnings = 100,000($3.15) = $315,000 Total earnings = 100,000($3.15) = $315,000 Total earnings = 100,000($3.15) = $315,000 This means the payout ratio was: Payout ratio

Chapter 08 - Stock Valuation Chapter 8 STOCK VALUATION CHAPTER WEB SITES Section Web Address 8.3 www.bloomberg.com www.nyse.com www.nasdaq.com finance.yahoo.com www.otcbb.com www.pinksheets.com CHAPTER ORGANIZATION 8.1 Common Stock Valuation Cash Flows Some Special Cases Components of the Required Return Stock Valuation Using Multiples 8.2 Some Features of Common and Preferred Stocks Common Stock Features Preferred Stock Features 8.3 The Stock Markets Dealers and Brokers Organization of the NYSE Nasdaq Operations Stock Market Reporting 8.4 Summary

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. actually receive. The cash flows from a share of stock

24. We can use the two-stage dividend growth model for this problem, which is: P0 = [D0(1 + g1)/(R g1)]{1 [(1 + g1)/(1 + R)]t}+ [(1 + g1)/(1 + R)]t[D0(1 + g2)/(R g2)] P0 = [$1.55(1.27)/(.12 .27)][1 (1.27/1.12)8] + [(1.27)/(1.12)]8[$1.55(1.035)/(.12 .035)] P0 = $74.33 P0 = [$1.55(1.27)/(.12 .27)][1 (1.27/1.12)8] +

CHAPTER 9 BULLOCK GOLD MINING 1. An example spreadsheet is: Note, there is no Excel function to directly calculate the payback period. We used If statements in our spreadsheet. The IF statement we used is: =IF(-D8>(D9+D10+D11+D12+D13+D14),"Greater than 6 years",IF(- D>(D9+D10+D11+D12+D13),(5+(-D8-D9-D10-D11-D12-D13)/D14),IF(-D8>(D9+D10+D11+D12),(4+(-D8-D9-D10-D11-D12)/D13),IF(-D8>(D9+D10+D11),(3+(-D8-D9-D10-D11)/D12),IF(-D8>(D9+D10),(2+(-D8-D9-D10)/D11),IF(-D8>D9,(1+(-D8-D9)/D10),IF(-D8<D9,-D8/D9," "))))))) D>(D9+D10+D11+D12+D13),(5+(-D8-D9-D10-D11-D12-D13)/D14),IF(-D8>(D9+D10+D11+D12),(4+(-D8-D9-D10-D11-D12)/D13),IF(-D8>(D9+D10+D11),(3+(-D8-D9-D10-D11)/D12),IF(-D8>(D9+D10),(2+(-D8-D9-D10)/D11),IF(-D8>D9,(1+(-D8-D9)/D10),IF(-D8<D9,-D8/D9," "))))))) D>(D9+D10+D11+D12+D13),(5+(-D8-D9-D10-D11-D12-D13)/D14),IF(- D8>(D9+D10+D11+D12),(4+(-D8-D9-D10-D11-D12)/D13),IF(-D8>(D9+D10+D11),(3+(-D8-D9- D10-D11)/D12),IF(-D8>(D9+D10),(2+(-D8-D9-D10)/D11),IF(-D8>D9,(1+(-D8-D9)/D10),IF(- D8<D9,-D8/D9," "))))))) 2. Since the NPV of the mine is positive, the company should

Chapter 09 - Net Present Value and Other Investment Criteria Chapter 9 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA CHAPTER ORGANIZATION 9.1 Net Present Value The Basic Idea Estimating Net Present Value 9.2 The Payback Rule Defining the Rule Analyzing the Rule Redeeming Qualities of the Rule Summary of the Rule 9.3 The Discounted Payback 9.4 The Average Accounting Return 9.5 The Internal

12. a. The IRR is the interest rate that makes the NPV of the project equal to zero. The equation for the IRR of Project A is: 0 = $43,500 + $21,400/(1+IRR) + $18,500/(1+IRR)2 + $13,800/(1+IRR)3 + $7,600/(1+IRR)4 0 = $43,500 + $21,400/(1+IRR) + $18,500/(1+IRR)2 + $13,800/(1+IRR)3 + $7,600/(1+IRR)4 0 =

Calculator Solutions 7. CFo$26,000 C01 $11,000 F01 1 C02 $14,000 F02 1 C03 $10,000 F03 1 IRR CPT16.69% C02 $14,000 F02 1 C03 $10,000 F03 1 IRR CPT16.69% C02 $14,000 F02 1 C03 $10,000 F03 1 IRR CPT 16.69% 8. CFo$26,000 CFo$26,000 C01 $11,000 C01 $11,000 F01 1F01 1 C02 $14,000 C02 $14,000 F02 1F02 1 C03

What is the amount of the cash flow from investment activity for 2012? A. $18,100 B. $24,800 C. $29,300 D. $32,000 E. $39,400 Answer: D.Cash flow from investment activity = $282,100 - $261,300 + $11,200 = $32,000 D.Cash flow from investment activity = $282,100 - $261,300 + $11,200 = $32,000 D. Cash flow from investment activity = $282,100 -

Which of the following apply to a partnership that consists solely of general partners? I. double taxation of partnership profits II. limited partnership life III. active involvement in the firm by all the partners IV. unlimited personal liability for all partnership debts A. II only B. I and II only C. II and III only D. I, II,

There are two distinct discount rates at which a particular project will have a zero net present value. In this situation, the project is said to: A. have two net present value profiles. B. have operational ambiguity. C. create a mutually exclusive investment decision. D. produce multiple economies of scale. E. have multiple rates of

Kaylor Equipment Rental paid $75 in dividends and $511 in interest expense. The addition to retained earnings is $418 and net new equity is $500. The tax rate is 35 percent. Sales are $15,900 and depreciation is $680. What are the earnings before interest and taxes? A. $589.46 B. $1,269.46 C. $1,331.54 D. $1,951.54 E.

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 Answer: C.Payback = $8,000/$1,190 = 6.72 years C.Payback = $8,000/$1,190 = 6.72 years C. Payback = $8,000/$1,190 = 6.72 years Which of

Under credit terms of 1/5, net 15, customers should: A. always pay on the 15th day. B. take the 5 percent discount and pay immediately. C. take the discount and pay on the day following the day of sale. D. either take the discount or pay on the 15th day. E. both take the discount

You're trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $12 million, which will be depreciated straight-line to zero over its 4-year life. The plant has projected net income of $1,095,000, $902,000, $1,412,000, and $1,724,000 over these 4

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. Answer: B.Refer to section 21.2 B.Refer to section 21.2 B. Refer to section 21.2 What is the future value

The Miller-Orr model: A. recommends selling securities in an amount equal to (U* - C) when the cash balance reaches L. B. requires that marketable securities be sold whenever the cash balance falls below the target level. C. bases the optimal level of cash solely on the opportunity costs of holding cash. D. supports

Which one of the following names matches the country where the bond is issued? A. Empire: United Kingdom B. Western: United States C. Samurai: China D. Bulldog: France E. Rembrandt: Netherlands Answer: E.Refer to section 21.1 E.Refer to section 21.1 E. Refer to section 21.1 Miller Mfg. is analyzing a proposed project. The company expects to sell 8,000 units, plus

The explicit costs, such as legal and administrative expenses, associated with corporate default are classified as _____ costs. A. flotation B. issue C. direct bankruptcy D. indirect bankruptcy E. unlevered Answer: C.Refer to section 16.5 C.Refer to section 16.5 C. Refer to section 16.5 A business firm ceases to exist as a going concern as a result of which one

All else equal, the market value of a stock will tend to decrease by roughly the aftertax value of the dividend on the: A. dividend declaration date. B. ex-dividend date. C. date of record. D. date of payment. E. day after the date of payment. Answer: B.Refer to section 17.1 B.Refer to section 17.1 B. Refer to section 17.1 Assume

Which one of the following is an unintended result of the Sarbanes-Oxley Act? A. more detailed and accurate financial reporting B. increased management awareness of internal controls C. corporations delisting from major exchanges D. increased responsibility for corporate officers E. identification of internal control weaknesses Answer: C.Refer to section 1.3 C.Refer to section 1.3 C. Refer to section 1.3 What

The Motor Plant wants to raise $21.4 million through a rights offering so it can modernize its facilities. The subscription price for the offering is set at $11 a share. Currently, the company has 2.6 million shares of stock outstanding at a market price of $12.50 a share. Each shareholder

Which one of the following is an advantage of the average accounting return method of analysis? A. easy availability of information needed for the computation B. inclusion of time value of money considerations C. the use of a cutoff rate as a benchmark D. the use of pre-tax income in the computation E. use of

The Wire House purchases its inventory one quarter prior to the quarter of sale. The purchase price is 55 percent of the sales price. The accounts payable period is 45 days. The accounts payable balance at the beginning of quarter one is $62,000. What is the amount of the expected

The common stock of Westover Foods is currently priced at $28.80 a share. One year from now, the stock price is expected to be either $25 or $30 a share. The risk-free rate of return is 4.2 percent. What is the current value of one call option on this stock

The bid price is: A. an aftertax price. B. the aftertax contribution margin. C. the highest price you should charge if you want the project. D. the only price you can bid if the project is to be profitable. E. the minimum price you should charge if you want to earn a target return on

Which of the following are benefits derived from short-term financial planning? I. having advance notice of when your firm will require external financing II. being able to determine the extent of time for which a loan is required III. having the ability to time capital expenditures in order to place the least financial

Which one of the following is the electronic system used by the NYSE for directly transmitting orders to specialists? A. OTCDOT B. SuperDOT C. Instinet D. Internet E. Floornet Answer: B.Refer to section 8.3 B.Refer to section 8.3 B. Refer to section 8.3 Which one of the following statements related to corporate dividends is correct? A. Dividends are nontaxable income to

In the spot market, $1 is currently equal to 0.6211. Assume the expected inflation rate in the U.K. is 2.6 percent while it is 4.3 percent in the U.S. What is the expected exchange rate four years from now if relative purchasing power parity exists? A. 0.5799 B. 0.5822 C. 0.6105 D. 0.6623 E. 0.6644

Which one of the following methods determines the amount of the change a proposed project will have on the value of a firm? A. net present value B. discounted payback C. internal rate of return D. profitability index E. payback Answer: A.Refer to section 9.1 A.Refer to section 9.1 A. Refer to section 9.1 You sold one call option contract

What is the operating cash flow for 2011? A. $1,226 B. $1,367 C. $1,644 D. $1,766 E. $1,823 Answer: C.Operating cash flow = ($6,423 - $4,109 - $122) + $122 - $670 = $1,644 C.Operating cash flow = ($6,423 - $4,109 - $122) + $122 - $670 = $1,644 C. Operating cash flow = ($6,423 - $4,109 - $122)

Which one of the following is a use of cash? A. increase in notes payable B. decrease in inventory C. increase in long-term debt D. decrease in accounts receivables E. decrease in common stock Answer: E.Refer to section 3.1 E.Refer to section 3.1 E. Refer to section 3.1 The internal rate of return is: A. the discount rate that makes the

Lucinda owns a convertible bond that matures in six years. The bond has a 9 percent coupon and pays interest annually. The face value of the bond is $1,000 and the conversion price is $22. Similar bonds have a market return of 8.75 percent. The current price of the stock is

The LIBOR is primarily used as the basis for the rate charged on: A. short-term debt in the Lisbon market. B. mortgage loans in the Lisbon market. C. Eurodollar loans in the London market. D. U.S. federal funds. E. interbank loans in the U.S. Answer: C.Refer to section 21.1 C.Refer to section 21.1 C. Refer to section 21.1 If you

Anytime Ted analyzes a proposed project, he always assigns a much higher probability of success to the project than is warranted by the information he has gathered. Ted suffers from which one of the following? A. frame dependence B. overconfidence C. gambler's fallacy D. confirmation bias E. overoptimism Answer: E.Refer to section 22.2 E.Refer to section 22.2 E. Refer

The change in revenue that occurs when one more unit of output is sold is referred to as: A. marginal revenue. B. average revenue. C. total revenue. D. erosion. E. scenario revenue. Answer: A.Refer to section 11.3 A.Refer to section 11.3 A. Refer to section 11.3 The Eliot Co. needs $185,000 a week to pay bills. The standard deviation of

In the Black-Scholes model, the symbol "" is used to represent the standard deviation of the: A. option premium on a call with a specified exercise price. B. rate of return on the underlying asset. C. volatility of the risk-free rate of return. D. rate of return on a risk-free asset. E. option premium on

Which one of the following is the primary difference between a swap contract and a forward contract? A. underlying asset B. number of exchanges C. daily marking to the market D. option versus obligation E. time of payment Answer: B.Refer to section 23.5 B.Refer to section 23.5 B. Refer to section 23.5 Real rates are defined as nominal rates that

The last date on which you can purchase shares of stock and still receive the dividend is the date which is _____ business days prior to the date of record. A. 1 B. 2 C. 3 D. 4 E. 5 Answer: C.Refer to section 17.1 C.Refer to section 17.1 C. Refer to section 17.1 What is an issue of securities that

Currently, Glasgow Importers sells 280 units a month at a price of $729 a unit. The firm believes it can increase its sales by an additional 40 units if it switches to a net 30 credit policy. The monthly interest rate is 0.5 percent and the variable cost per unit is $480.

Which of the following statements are true based on the historical record for 1926-2010? I. Risk and potential reward are inversely related. II. Risk-free securities produce a positive real rate of return each year. III. Returns are more predictable over the short-term than they are over the long-term. IV. Bonds are generally a safer

You just settled an insurance claim. The settlement calls for increasing payments over a 10-year period. The first payment will be paid one year from now in the amount of $10,000. The following payments will increase by 4.5 percent annually. What is the value of this settlement to you today

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 Answer: E.Refer to section 5.2 E.Refer to section 5.2 E. Refer

Farmer Mac owns a large orange grove in Florida. The value of his business is directly related to the price of oranges. Which one of the following is a graphical representation of this price-value relationship? A. exchange line B. net present value profile C. risk profile D. market line E. return grid Answer: C.Refer to section

Long-run exposure to exchange rate risk relates to: A. daily variations in exchange rates. B. variances between spot and future rates. C. unexpected changes in relative economic conditions. D. differences between future spot rates and related forward rates. E. accounting gains and losses created by fluctuating exchange rates. Answer: C.Refer to section 21.6 C.Refer to section 21.6 C. Refer

The price-sales ratio is especially useful when analyzing firms that have which one of the following? A. volatile market prices B. negative earnings C. positive PEG ratios D. a negative Tobin's Q E. increasing sales Answer: B.Refer to section 3.3 B.Refer to section 3.3 B. Refer to section 3.3 Money market securities have which of the following characteristics? I. long maturities II.

Several rumors concerning Value Rite stock are causing the market price of the stock to be quite volatile. Given this situation, you decide to buy both a one-month European $25 put and a one-month European $25 call on this stock. The call price per share is $0.60 and the put