Archives

Chapter 1 Problem 14 a. Prepare a sources and uses statement for Whistler Corp. for fiscal year 2014. b. Prepare a cash flow statement for Whistler Corp. for fiscal year 2014. Whistler Corporation Financial Statements Balance Sheet: 2013 2014 Current […]

Chapter 1 2. Management is either dumb or thinks its board is. Earning $100 million on a $4 billion equity 4. a. Cash rises $500,000; plant and equipment falls $300,000; equity rises $200,000. b. Net plant and equipment rises $80 […]

Chapter 2 Problem 13 a. Use the spreadsheet to calculate as many of the company’s Profitability, Turnover-Control, and Leverage and Liquidity ratios as you can for these years (see Table 2.5 in text for a list of possible ratios). b. […]

Chapter 2 2. a. Price-to-earnings ratios are highly dependent on future growth expectations. I would thus expect high-growth Google to have the higher ratio than low-growth Union Pacific. b. The financial institution should have the higher debt-to-equity ratio because the […]

Chapter 3 Problem 7 Note: Manual calculation mode is on. You must press F9 key to calculate. Facts and Assumptions Year 2014 2015 2016 Net sales 20,613$ Growth rate in sales 25% 30% Cost of goods sold/net sales 86% 86% […]

Balance Sheet (in $ millions) ASSETS Cash & Equivalents 7.152$ 2% 12.821 14.103 15.513 17.064 18.771 Account Receivable 70.538 13% 83.335 91.668 100.835 110.919 122.011 Inventories 39.033 5% 32.052 35.257 38.783 42.661 46.927 Prepaid Expenses 9.339 no change 9.339 9.339 […]

Chapter 3 2. Historical analysis helps decide for which financial statement items a percent-of-sales forecast 4. a. If the collection period is 60 days, May cash receipts from March sales will equal half of March sales or $200,000. In addition […]

Chapter 4 Problem 10 2009 2010 2011 2012 2013 2014 Sales 477.84 491.62 706.52 792.01 876.52 1,088.46 Net income – 43.27 26.31 38.48 44.84 25.76 Total assets – 477.06 648.42 664.26 697.16 982.63 Equity – 346.32 426.01 465.85 432.91 553.27 […]

Chapter 4 2. Quoting from the chapter, “Good growth occurs when the company invests in activities offering returns in excess of cost, including the cost of capital employed. Good growth benefits 4. a. R&E Supplies, Inc., Sustainable Growth Calculations owners […]

Chapter 5 2. The fact that government bonds earned a higher rate of return than common stocks in one year is not evidence that investors are suddenly willing to settle for lower returns on stocks than bonds. It means that […]

Chapter 6 Problem 14 Dec09 Dec08 Dec07 Dec06 Dec05 Sales 30,052$ 28,374$ 26,858$ 25,477$ 24,455$ Cost of Goods Sold 24,826 24,023 22,480 21,448 20,391 Gross Profit 5,226 4,351 4,378 4,029 4,064 Depreciation 1,425 1,416 1,426 1,391 1,374 Operating Profit 3,801 […]

Chapter 6 2. Operating leverage is the substitution of fixed- for variable-cost methods of production. With operating leverage, sales must increase to cover the higher fixed costs, but once covered, profits One would not expect to find both high operating […]

Chapter 7 Problem 12 a). Complete the spreadsheet below by estimating the project’s annual after tax cash flow. b). What is the investment’s net present value at a discount rate of 10 percent? c). What is the investment‘s internal rate […]

Chapter 7 2. The compound annual growth rate is 14.6 percent. 4. The monthly interest on this loan is 0.417% (5%/12). After the first 12 months with no payments, the balance on the loan will increase to $81,486. To determine […]

Chapter 8 Problem 12 Suggested Answers a). Facts and Assumptions Initial cost ($000 omitted) 28,000$ Unit sales (000 0mitted) 400 Selling price per unit, this year 60$ Variable cost per unit, this year 42$ Life expectancy (years) 8 Salvage value […]

Chapter 8 2. The numerator of Stock A’s beta = 22.9% (0.62 × 37%). The same quantity for Stock B = 32.0% (0.94 × 34%). Because all betas share the same denominator, the stock with the lower 4. If the […]

Chapter 9 Problem 15 Actual 2014 2015 2016 2017 2018 2019 Income statement Net sales 1,996$ 2,267$ 2,508$ 2,827$ 3,138$ 3,571$ Cost of sales 644 742 830 959 1,087 1,241 Gross income 1,352 1,525 1,678 1,868 2,051 2,330 Depreciation 492 […]

Chapter 9 2. The formula for free cash flow is as follows: FCF = EBIT(1 – Tax rate) + Depreciation – Capital expenditures – Working capital investments EBIT = Earnings before taxes + Interest expense = 200 + 50 = […]

Suppose an acquiring firm pays $100 million for a target firm and the target’s assets have a book value of $70 million and an estimated replacement value of $80 million. What amount would be allocated to the acquiring firm’s goodwill […]

In a strong-form efficient market, insider trading is not profitable. Answer: Current liabilities are defined as liabilities with a maturity of less than a year. Answer: TRUE All else equal, a terminal value based on a no-growth perpetuity would be […]

Which one of the following is the financial statement that summarizes changes in the company’s cash balance over a period of time? A. income statement B. balance sheet C. cash flow statement D. shareholders’ equity statement E. market value statement […]

An acquirer should be willing to pay a higher control premium for a poorly managed company than for a well-managed company. Answer: All else equal, increasing the assumed payables period in a financial forecast will decrease external funding required. Answer: […]

The term “financial distress costs” includes which of the following? I. Direct bankruptcy costs II. Indirect bankruptcy costs III. Direct costs related to being financially distressed, but not bankrupt IV. Indirect costs related to being financially distressed, but not bankrupt […]