Principles of Managerial Finance, Brief 8th Edition

2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. Part 1 Introduction to Managerial Finance Chapters in This Part Chapter 1 The Role of Managerial Finance Chapter 2 The Financial Market Environment

2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. Part 5 Long-Term Investment Decisions Chapters in This Part Chapter 10 Capital Budgeting Techniques Chapter 11 Capital Budgeting Cash Flows and Risk Refinements 2019 Pearson Education, Inc. 2019 Pearson Education, Inc.

212 Zutter/Smart Principles of Managerial Finance Brief, Eighth Edition 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. b. To find the number of years $10,000 would have to be received to make the project acceptable by the IRR decision rule, use the NPER

2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. Chapter 11 Capital Budgeting Cash Flows and Risk Refinements NOTE TO INSTRUCTORS: Shortly after the first press run for the 15th edition, Congress passed the Tax Cuts and Jobs Act of 2017, which included changes

240 Zutter/Smart Principles of Managerial Finance Brief, Eighth Edition 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. b. and c. (40% tax rate) Year = (1) (2) (3) (4) (5) (6) Old Machine Revenue - Operating Expenses 14,000$ 16,000$ 20,000$ 18,000$ 14,000$ -$ Less: Depreciation

2019 Pearson Education, Inc. Part 6 Long-Term Financial Decisions Chapters in This Part Chapter 12 Leverage and Capital Structure Chapter 13 Payout Policy 2019 Pearson Education, Inc. Chapter 12 Leverage and Capital Structure Instructor Resources Chapter Overview This chapter introduces students to operating and financial

Chapter 12 Leverage and Capital Structure 271 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. P12-18 Personal finance: Capital structures (LG 3; Intermediate) a. Monthly mortgage payment Monthly gross income = $1,100 $4,500 = 24.44% Kirstens ratio is less than the bank maximum

2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. Chapter 13 Payout Policy Instructors Resources Overview Chapter 13 concentrates on the payout decision from the viewpoint of both the firm and the investors. The types of payout policies, forms of dividends, and their

2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. Part 7 Short-Term Financial Decisions Chapters in This Part Chapter 14 Working Capital and Current Assets Management Chapter 15 Current Liabilities Management 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019

2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. Chapter 15 Current Liabilities Management Instructors Resources Overview This chapter introduces the fundamentals and describes the interrelationship of net working capital, profitability, and risk in managing the firms current liability accounts. The management of

2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. Chapter 2 The Financial-Market Environment Instructors Resources Chapter Overview This chapter provides an overview of the institutional framework for channeling funds from net savers to net borrowers. The discussion begins with three basic

2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. Part 2 Financial Tools Chapters in This Part Chapter 3 Financial Statements and Ratio Analysis Chapter 4 Cash Flow and Financial Planning Chapter 5 Time Value of Money

42 Zutter/Smart Principles of Managerial Finance Brief, Eighth Edition 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. P3-12. Personal finance: Liquidity ratio (LG 3; Basic) a. Liquidity ratio = Total liquid assets / Total current debts = ($3,200 + $1,000 + $800) /

2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. Chapter 4 Cash Flow and Financial Planning Instructors Resources Chapter Overview This chapter introduces the financial-planning process, starting with an overview of long-term or strategic planning and moving to a detailed exploration of short-term

Chapter 4 Cash Flow and Financial Planning 67 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. P4-13. Cash flow concepts (LG 4; Basic) Note to instructor: There are a variety of possible answers to this problem, depending on student assumptions. The question is

2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. Chapter 5 Time Value of Money Instructors Resources Chapter Overview This chapter introduces a keyindeed, perhaps the most importantconcept in finance: the time value of money. The present and future value of a sum

Chapter 5 Time Value of Money 93 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. Case A PV3 = ($12,000 0.07) [1 (1 + 0.07)-3] (1 + 0.07) = $33,696.22 B PV15 = ($55,000 0.12) {1 (1 + 0.12)-15] (1 + 0.12) =

2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. Part 3 Valuation of Securities Chapters in This Part Chapter 6 Interest Rates and Bond Valuation Chapter 7 Stock Valuation

118 Zutter/Smart Principles of Managerial Finance Brief, Eighth Edition 2019 Pearson Education, Inc. Publishing as Prentice Hall 2019 Pearson Education, Inc. Publishing as Prentice Hall 2019 Pearson Education, Inc. Publishing as Prentice Hall b. and c. Five years ago, the yield curve was slightly upward sloping, suggesting

2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. Chapter 7 Stock Valuation Instructors Resources Chapter Overview This chapter focuses on equitydistinctions between equity and debt, different forms of equity, and approaches to valuing equity instruments. The basic model for valuing equity is

2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. Part 4 Risk and the Required Rate of Return Chapters in this Part Chapter 8 Risk and Return Chapter 9 The Cost of Capital 2019 Pearson Education, Inc. 2019 Pearson Education,

Chapter 8 Risk and Return 161 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. Based on standard deviation, Asset G appears to have the greatest risk. c. Coefficient of variation (CV) is given by r, where so is the standard deviation of

2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. Chapter 9 The Cost of Capital NOTE TO INSTRUCTORS: Shortly after the first press run for the 15th edition, Congress passed the Tax Cuts and Jobs Act of 2017, which included changes in the

1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart) Chapter 1 The Role of Managerial Finance 1.1 Finance and the firm. 1) A firm is a business organization that sells goods

18 Copyright 2019 Pearson Education, Inc. 18 Copyright 2019 Pearson Education, Inc. 18 Copyright 2019 Pearson Education, Inc. 26) The ________ has a role that focuses on budgeting, accounting, and tracking the performance of a single business unit. A) controller B) treasurer C) chief financial officer D) director of risk

1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart) Chapter 10 Capital Budgeting Techniques 10.1 Overview of capital budgeting 1) Capital budgeting techniques are used to evaluate a firm's fixed asset

21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 32) Which of the following is a disadvantage of payback period approach? A) It does not examine the size of the initial outlay. B) It does not use net profits as a

32 Copyright 2019 Pearson Education, Inc. 32 Copyright 2019 Pearson Education, Inc. 32 Copyright 2019 Pearson Education, Inc. 11) The ________ is the discount rate that equates the present value of the cash inflows with the initial investment. A) payback period B) net present value C) cost of capital D)

1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart) Chapter 11 Capital Budgeting Cash Flows and Risk Refinements 11.1 Project cash flows 1) Accounting figures and cash flows are not necessarily

21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 22) Compute the initial purchase price for an asset with book value of $34,800 and total accumulated depreciation of $85,200. Answer: Initial purchase price = Book value + Accumulated depreciation = $34,800

41 Copyright 2019 Pearson Education, Inc. 41 Copyright 2019 Pearson Education, Inc. 41 Copyright 2019 Pearson Education, Inc. 9) The risk-adjusted discount rate can be computed as the risk free rate plus the product of a project's beta and the credit risk premium. Answer: FALSE Diff: 1 Topic: Determining Risk-Adjusted

1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart) Chapter 12 Leverage and Capital Structure 12.1 Leverage 1) Generally, increases in leverage result in increased return and risk. Answer: TRUE Diff:

21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 81) With the existence of fixed operating costs, an increase in sales will result in ________ increase in EBIT. A) a proportional B) an equal C) a less than proportional D) a

41 Copyright 2019 Pearson Education, Inc. 41 Copyright 2019 Pearson Education, Inc. 41 Copyright 2019 Pearson Education, Inc. 41) The inexpensive nature of long-term debt in a firm's capital structure is partly because ________. A) the equity holders are the true owners of the firm B) equity capital has a

1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart) Chapter 13 Payout Policy 13.1 The basics of payout policy 1) Payout policy refers to the decisions that firms make about whether

21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 12) Firms are usually prohibited by state law from distributing ________. A) retained earnings as dividends B) paid-in capital in excess of par as dividends C) dividends in a year the firm

1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart) Chapter 14 Working Capital and Current Assets Management 14.1 Net working capital fundamentals 1) Short-term financial management is concerned with management of

21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 46) A firm has an operating cycle of 170 days, an average payment period of 50 days, and an average age of inventory of 145 days. The firm's average collection period is

41 Copyright 2019 Pearson Education, Inc. Copyright 2019 Pearson Education, Inc. Copyright 2019 Pearson Education, Inc. Table 14.3 42 Copyright 2019 Pearson Education, Inc. 42 Copyright 2019 Pearson Education, Inc. 42 Copyright 2019 Pearson Education, Inc. 100) Ace's Business Forms has compiled several factors relative to

61 Copyright 2019 Pearson Education, Inc. 61 Copyright 2019 Pearson Education, Inc. 61 Copyright 2019 Pearson Education, Inc. 8) The objective for managing accounts receivable is to avoid credit sales as much as possible. Answer: FALSE Diff: 1 Topic: Credit Selection and Standards Learning Obj.: LG 4 Learning Outcome: F-24

81 Copyright 2019 Pearson Education, Inc. 81 Copyright 2019 Pearson Education, Inc. 81 Copyright 2019 Pearson Education, Inc. Table 14.6 A breakdown of Teffan, Inc.'s outstanding accounts receivable dated June 30, 2019 on the basis of the month in which the credit sale was initially made follows. The firm

94 Copyright 2019 Pearson Education, Inc. 94 Copyright 2019 Pearson Education, Inc. 94 Copyright 2019 Pearson Education, Inc. 36) A firm has arranged for a lockbox system to reduce collection time of accounts receivable. Currently the firm has an average collection period of 43 days, an average age of inventory

1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart) Chapter 15 Current Liabilities Management 15.1 Spontaneous liabilities 1) Spontaneous unsecured financing has a specific interest cost associated with it that can

21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 36) Short-term, self-liquidating loans are intended to ________. A) provide one-time loan to the borrower who needs funds for a specific purpose B) cover seasonal peaks in financing caused by inventory and

36 Copyright 2019 Pearson Education, Inc. 36 Copyright 2019 Pearson Education, Inc. 36 Copyright 2019 Pearson Education, Inc. 83) Bessey Aviation has just sold an issue of 30-day commercial paper with a face value of $5,000,000. The firm has just received $4,958,000. What is the effective annual interest rate on

1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart) Chapter 2 The Financial Market Environment 2.1 Financial institutions 1) A financial institution is an intermediary that channels the savings of individuals,

16 Copyright 2019 Pearson Education, Inc. 16 Copyright 2019 Pearson Education, Inc. 16 Copyright 2019 Pearson Education, Inc. 47) One piece of evidence suggesting that the stock market is efficient is that most individual investors cannot earn returns that beat the overall market average return, but professional investors such as

1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart) Chapter 3 Financial Statements and Ratio Analysis 3.1 The stockholder's report 1) The Financial Accounting Standards Board (FASB) is the federal regulatory

21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 66) Ag Silver Mining, Inc. has $500,000 of earnings before interest and taxes at the year end. Interest expenses for the year were $10,000. The firm expects to distribute $100,000 in dividends.

41 Copyright 2019 Pearson Education, Inc. 41 Copyright 2019 Pearson Education, Inc. 41 Copyright 2019 Pearson Education, Inc. 10) The ________ ratio indicates whether a firm will be able to meet interest obligations due on outstanding debt. A) debt-to-equity B) interest turnover C) total assets turnover D) times interest earned

58 Copyright 2019 Pearson Education, Inc. Copyright 2019 Pearson Education, Inc. Copyright 2019 Pearson Education, Inc. 13) The financial leverage multiplier is the ratio of ________. A) current assets to common stockholders' equity B) total assets to common stockholders' equity C) total assets to total debt D) current assets to

1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart) Chapter 4 Long- and Short-Term Financial Planning 4.1 The financial planning process 1) Strategic financial plans are planned long-term financial actions and

21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 55) Cash flows that result from debt and equity financing transactions, including incurrence and repayment of debt, cash inflows from the sale of stock, and cash outflows to pay cash dividends or

41 Copyright 2019 Pearson Education, Inc. 41 Copyright 2019 Pearson Education, Inc. 41 Copyright 2019 Pearson Education, Inc. 26) Cash disbursements include ________. A) amortization expense B) rent payments C) depreciation expense D) depletion Answer: B Diff: 1 Topic: Preparing The Cash Budget Learning Obj.: LG 4 Learning Outcome: F-25

61 Copyright 2019 Pearson Education, Inc. 61 Copyright 2019 Pearson Education, Inc. 61 Copyright 2019 Pearson Education, Inc. 2) In a period of rising sales utilizing past cost and expense ratios (percent-of-sales method), when preparing pro forma financial statements and planning financing, will tend to ________. A) understate retained earnings

1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart) Chapter 5 Time Value of Money 5.1 The role of time value in finance 1) The main idea behind the time value

21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 37) You have been given a choice between two retirement policies as described below. Policy A: You will receive equal annual payments of $10,000 beginning 35 years from now for 10 years.

41 Copyright 2019 Pearson Education, Inc. 41 Copyright 2019 Pearson Education, Inc. 41 Copyright 2019 Pearson Education, Inc. 23) Assume you have a choice between two deposit accounts. Account X has an annual percentage rate of 12.25 percent but with interest compounded monthly. Account Y has an annual percentage rate

52 Copyright 2019 Pearson Education, Inc. 52 Copyright 2019 Pearson Education, Inc. 52 Copyright 2019 Pearson Education, Inc. 35) Aunt Tilly borrows $3,500 from the bank at 12 percent annually compounded interest to be repaid in four equal annual installments. The interest paid in the first year is ________. A)

1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart) Chapter 6 Interest Rates and Bond Valuation 6.1 Interest rates and required returns 1) An interest rate or a required rate of

21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 6) Restrictive covenants, coupled with standard debt provisions, help the lender to monitor the borrower's activities to ensure efficient use of funds. Answer: TRUE Diff: 1 Topic: Legal Aspects of Corporate Bonds

41 Copyright 2019 Pearson Education, Inc. 41 Copyright 2019 Pearson Education, Inc. 41 Copyright 2019 Pearson Education, Inc. 80) ________ are secured by stock and/or bonds that are owned by the issuer. A) Mortgage bonds B) Equipment trust certificates C) Collateral trust bonds D) Subordinated debentures Answer: C Diff: 1

54 Copyright 2019 Pearson Education, Inc. 54 Copyright 2019 Pearson Education, Inc. 54 Copyright 2019 Pearson Education, Inc. 21) Zheng Corporation plans to issue new bonds to finance its expansion plans. In its efforts to price the issue, Zheng Corporation has identified a company of similar risk with an outstanding

1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart) Chapter 7 Stock Valuation 7.1 Differences between debt and equity 1) Unlike creditors, equityholders are owners of the firm. Answer: TRUE Diff:

21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 67) The risk cost of preferred stock is ________. A) lower than the cost of long-term debt. B) higher than the cost of common stock. C) higher than the cost of long-term

36 Copyright 2019 Pearson Education, Inc. 36 Copyright 2019 Pearson Education, Inc. 36 Copyright 2019 Pearson Education, Inc. 40) In response to the stock market's reaction to its dividend policy, the Nico's Toy Company has decided to increase its dividend payment at a rate of 4 percent per year. The

1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart) Chapter 8 Risk and Return 8.1 Risk and return fundamentals 1) Investment A guarantees its holder $100 return. Investment B earns $0

21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 2) New investments must be considered in light of their impact on the risk and return of the portfolio of assets because the risk of any single proposed asset investment is not

41 Copyright 2019 Pearson Education, Inc. 41 Copyright 2019 Pearson Education, Inc. 41 Copyright 2019 Pearson Education, Inc. 31) An increase in nondiversifiable risk would ________. A) cause an increase in the beta and would lower the required return B) have no effect on the beta and would, therefore, cause

53 Copyright 2019 Pearson Education, Inc. 53 Copyright 2019 Pearson Education, Inc. 53 Copyright 2019 Pearson Education, Inc. 71) In the capital asset pricing model, the general risk preferences of investors in the marketplace are reflected by ________. A) the risk-free rate B) the level of the security market line

1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. 1 Copyright 2019 Pearson Education, Inc. Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart) Chapter 9 The Cost of Capital 9.1 Overview of the cost of capital 1) Holding risk constant, the implementation of projects with

21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 21 Copyright 2019 Pearson Education, Inc. 18) The cost of retained earnings will always equal the cost of preferred stock. Answer: FALSE Diff: 1 Topic: Cost of Retained Earnings Learning Obj.: LG 5 Learning Outcome: F-14 AACSB: Analytical

32 Copyright 2019 Pearson Education, Inc. 32 Copyright 2019 Pearson Education, Inc. 32 Copyright 2019 Pearson Education, Inc. Table 9.1 A firm has determined its optimal capital structure which is composed of the following sources and target market value proportions. Debt: The firm can sell a