Principles of Managerial Finance 15th Edition

Part 1 Introduction to Managerial Finance Chapters in This Part Chapter 1 The Role of Managerial Finance Chapter 2 The Financial Market Environment Integrative Case 1: Merit Enterprise Corp. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. Chapter 1 The Role of Managerial Finance 2 Chapter 1 The

Solutions to Problems P1-1. Liability comparisons (LG 5; Basic) a. Ms. Harper has unlimited personal liability, so she is liable for the firms $60,000 in unpaid debts. b. Initially, Ms. Harper is liable for $30,000 (50% of total unpaid debts). But if her partner cannot cover half the debt, Ms. Harper

Part 5 Long-Term Investment Decisions Chapters in This Part Chapter 10 Capital Budgeting Techniques Chapter 11 Capital Budgeting Cash Flows Chapter 12 Risk and Refinements in Capital Budgeting Integrative Case 5: Lasting Impressions Company 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. Chapter 10 Capital Budgeting Techniques Instructor Resources

Solutions to Problems P10-1 Payback period (LG 2; Basic) a. $542,000 $75,000 7.23 years. b. The company should accept the project because payback period (7.23 years) is less than the maximum acceptable period (8 years). P10-2 Payback comparisons (LG 2; Intermediate) a. Machine 1: $14,000 $3,000 4.67 years. Machine 2: $21,000

P10-24 All techniquesdecision among mutually exclusive investments (LG 2, 3, 4, 5, 6; Challenge) Project A Project B Project C Project Cost (year 0) 60,000$ 100,000$ 110,000$ Cash inflows (years 1-5) 20,000$ 31,500$ 32,500$ a. Payback* 3 years 3.2 years 3.4 years b. NPV* 10,345$ 10,793$ 4,310$ c. IRR* 19.86% 17.33% 14.59% *Supporting

Chapter 11 Capital Budgeting Cash Flows 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 corporate tax rate relevant to this chapter. In subsequent printing runs, the text was updated to reflect the

Solutions to Problems Note : The MACRS depreciation percentages used in the following problems appear in Chapter 4, Table 4.2. Percentages are rounded to the nearest integer for ease in calculation. For simplification, five-year-lived projects with five years of cash inflows are typically used throughout this chapter. Projects with usable

P11-19 Incremental operating cash flows (LG 5; Intermediate) a. Year Revenu e Expenses (excluding depreciation and interest) Profits before Depreciation and Taxes Depre- ciation Net Profits before Taxes Taxes Net Profits after Tax Operatin g Cash Inflows New Lathe 1 $40,00 0$30,000 $10,000 $2,00 0$8,000 $3,2 00 $4,80 0$6,80 0 2 41,000 30,000 11,000 3,200 7,800 3,12 04,680 7,880 3 42,000 30,000 12,000 1,900 10,100 4,04 06,060 7,960 4 43,000 30,000 13,000 1,200 11,800 4,72 07,080

P11-27 Integrative: Determining relevant cash flows (LG 3, 4, 5, 6; Challenge) a. Initial Investment A B Installed cost of new asset Cost of new asset$ 40,000 $ 54,000 Installation costs 8,000 6,000 T o tal proceeds, sale of new asset 48,000 60,000 After-tax proceeds from sale of old asset P r

P11-31 Ethics problem (LG 2; Intermediate) The person who came up with the idea for a new investment may have a selfish interest in seeing the project approved or may simply be emotionally vested in the project. In either case, this individual may have an incentive to make overly optimistic

Chapter 12 Risk and Refinements in Capital Budgeting Instructor Resources Chapter Overview Chapters 10 and 11 introduced the building blocks of capital budgeting; Chapter 12 expands the discussion to include complications that often arise in real-world project evaluation. The first complication is risk. To this point, all firm projects were assumed equally risky.

P12-7 Personal Finance: Impact of inflation on investments (LG 2; Easy) a. c. Year Investmen t Cash Flows Current NPV (a) Higher Inflation NPV (b) Lower Inflation NPV (c) 0 1 234512,50011,500 9,000 8,50011,020.74 9,520.26 6,995.91 6,203.9910,716.74 9,129.07 6,615.27 5,784.9611,337.87 9,934.13 7,404.32 6,659.9 234512,50011,500 9,000 8,50011,020.74 9,520.26 6,995.91 6,203.9910,716.74 9,129.07 6,615.27 5,784.9611,337.87 9,934.13 7,404.32 6,659.9 2 3 4 5 12,500 11,500 9,000 8,500 11,020.74 9,520.26 6,995.91 6,203.99 10,716.74 9,129.07 6,615.27 5,784.96 11,337.87 9,934.13 7,404.32 6,659.9 (40,000) 12,000 (40,000) 11,267.61 (40,000) 11,111.11 (40,000) 11,428.57 7Total

Case: Evaluating Cherone Equipments Risky Plans for Increasing Its Production Capacity Case studies are available on www.pearson.com/mylab/finance. a. 1. Plan X Cash flows: CF0 (project cost) $2,700,000, CF1 $470,000, CF2 $610,000, CF3 $950,000, CF4 $970,000, and CF5 $1,500,000. Discount rate 12%. Solve for NPV $349,715.18 CF3 $950,000, CF4 $970,000, and CF5 $1,500,000.

Part 6 Long-Term Financial Decisions Chapters in This Part Chapter 13 Leverage and Capital Structure Chapter 14 Payout Policy Integrative Case 6: OGrady Apparel Company Chapter 13 Leverage and Capital Structure Instructor Resources Chapter Overview This chapter introduces students to operating and financial leverage and the associated business and financial risks. As a prelude to operating

P13-13 Personal finance: Financial leverage (LG 2; Challenge) a. Current DFL Initial Values Future Value % Available for making loan payment Less: Loan payments Available after loan payments$2,000$2,30015.0%DFL = 15% 10% 1.50 Available after loan payments$2,000$2,30015.0%DFL = 15% 10% 1.50 Available after loan payments $2,000 $2,300 15.0% DFL = 15% 10% 1.50 $3,000 $1,000 $3,300 $1,000 10.0% 0.0% Proposed DFL Initial Values Future Value %

P13-25 Integrative: Optimal capital structures (LG 3, 4, 6; Challenge) a. 0% debt ratio baseline: Probability (p) p1 = 0.20 p2 = 0.60 P3 =0.20 Sales $200,000 $300,000 $400,000 Less: Variable costs (40% of sales)Less: Fixed costs 100,000 100,000 100,000EBIT $ 20,000 $ 80,000 $140,000Less: Interest 0 0 0 costs (40% of sales)Less:

P13-28 Ethics problem (LG 3; Intermediate) An information asymmetry occurs when one party has more information than other interested parties. Such an asymmetry can occur when managers overleverage or lead a company buyout Existing bondholders and possibly stockholders could be harmed by the financial risk of overleveraging, and existing stockholders

Chapter 14 Payout Policy Instructors Resources Overview Chapter 14 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 possible effects on the value of the firm are included in this chapter. The arguments for the relevancy and

Solutions to Problems P14-1. Dividend payment proceduresLG 1; Basica. Debit Credit Retained earnings (Dr.) $330,000Dividends payable (Cr.) $330,000b. Ex dividend date is Thursday, July 6.c. Cash $170,000 Dividends payable $ 0Retained earnings $2,170,000d. The dividend payment will result in a decrease in total assets equal to the amount of the

Group Exercise Group exercises are available on www.myfinancelab.com.Dividend policy is the subject of this chapter and its group exercise. The shadow and fictitious firms will be closely linked again in this assignment. Specifically, recent dividend policy of the shadow firm will be used to describe the dividend policy of the

Part 7Short-Term Financial DecisionsChapters in This PartChapter 15 Working Capital and Current Assets Management Chapter 16 Current Liabilities Management Integrative Case 7: Casa de Diseo 2019 Pearson Education, Inc. Part 7Short-Term Financial DecisionsChapters in This PartChapter 15 Working Capital and Current Assets Management Chapter 16 Current Liabilities Management Integrative Case

Solutions to Problems P15-1. CCC LG 2; Basic a. OC Average age of inventories Average collection period 80 days 40 days 120 days 80 days 40 days 120 days 80 days 40 days 120 days b. CCC Operating cycle Average payment period 120 days 30 days 90 days 120 days 30 days

P15-10. Relaxation of credit standards LG 4; Challenge Additional profit contribution from sales 1,000 additional units ($40 $31) $9,000 Cost of marginal investment in AR: Average investment, proposed plan 1 1 , 0 0 0 u n i t s $ 3 1 3 6 5 6 0 $56,055 Average investment, present plan 3 6 5 38,219 Average investment,

Chapter 16Current Liabilities ManagementInstructors Resources OverviewThis 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 current liabilities requires choosing appropriate levels of financing and involves tradeoffs between risk and profitability. This chapter also reviews sources

P16-18. Accounts receivable as collateral, cost of borrowingLG 3, 5; Challengea. [$134,000 ($134,000 0.10)] 0.85 $102,510b. ($100,000 0.02) ($100,000 0.115) $2,000 $11,500 $13,500$13,500 I n t e r e s t c o s t 1 3 . 5 % f o r 1 2 m o n t h

Part 8 Special Topics in Managerial Finance Chapters in This Part Chapter 17 Hybrid and Derivative Securities Chapter 18 Mergers, LBOs, Divestitures, and Business Failure Chapter 19 International Managerial Finance Integrative Case 8: Organic Solutions 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. Chapter 17 Hybrid and Derivative

Solutions to Problems P17-1. Lease cash flows LG 2; Basic Firm Year Lease Payment (1) Tax Benefit (2) After-Tax Cash Outflow [(1) (2)] (3) A14 $100,000 $40,000 $60,000 B114 80,000 32,000 48,000 C18 150,000 60,000 90,000 D125 60,000 24,000 36,000 E 110 20,000 8,000 12,000 C18 150,000 60,000 90,000 D125 60,000 24,000 36,000 E 110 20,000 8,000 12,000 C18

P17-16. Evaluation of the implied price of an attached warrant LG 5; Challenge a. Straight bond value Years Payments Discount Rate Straight Bond Value 129 $ 115 13% $887.57 30 1,115 30 1,115 30 1,115 b. Implied price of all warrants (price with warrants straight bond value) Implied price of warrant $1,000 $887.57 Implied price of warrant $112.43

Chapter 18 Mergers, LBOs, Divestitures, and Business Failure Instructors Resources Overview This chapter covers the fundamentals of mergers, leveraged buyouts (LBOs), and divestitures, as well as methods for reorganizing or liquidating a firm in the event of a business failure. The motives for and types of mergers, as well as procedures to analyze and

P18-4. Asset acquisition decisionLG 3; Challengea. Effective cost of press: $60,000 $90,000 $65,000 $85,000CF0 $85,000; CF1 $20,000; F1 10 Set I 14%Solve for NPV $19,322.31b. Zarin should merge with Freiman because the NPV is greater than zero.c. CF0 $120,000, CF1 $26,000, F1 10 Set I 14%Solve for NPV $15,619.01Because the

Chapter 19 International Managerial Finance Instructors Resources Overview In todays global business environment, the financial manager must also be aware of the international aspects of finance. A variety of international finance topics are presented in this chapter, including taxes, accounting practices, risk, the international capital markets, and the effect on capital structure of

Solutions to Problems P19-1. Note to instructors: This problem was dramatically changed in the print run after the Tax Cuts and Jobs Act became effective. The original question, answered below, focused on tax issues that applied before the new tax law was passed. The revised question, also answered below, had

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 types of financial institutionscommercial banks, investment banks, and the shadow-banking system. Financial markets more broadly are then introduced along with the

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 Integrative Case 2: Merit Enterprise Corp. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. Chapter 3 Financial Statements and Ratio

Solutions to Problems P3-1 Financial-statement account identification (LG 1; Basic) a., b. Column 1 for (a) Column 2 for (b) Account Name Statement Type of Account Accounts payable BS CL Accounts receivable BS CA Accruals BS CL Column 1 for (a) Column 2 for (b) Account Name Statement Type of Account Accumulated depreciation BS FA* Administrative

P3-20. The relationship between financial leverage and profitability (LG 4 and LG 5; Challenge) a. (1) (2) Timberland has much more financial leverage and, consequently, greater debt service than does Pelican, which will make Timberlands earnings more volatile and expose its common-stock ownersto greater risk. Pelican, which will make Timberlands earnings more

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 (operating) financial planning and its two key components: cash and profit planning. Cash planning involves preparation of a cash budget, while

Solutions to Problems P4-1 Depreciation (LG 2; Basic) Depreciation Schedule Year Cost (1) Percentages from Table 4.2 (2) Depreciation (3) = [(1) (2)] Asset A Research Equipment 1 $17,000 33% $5,610 2 $17,000 45% $7,6503 $17,000 15% $2,5504 $17,000 7% $1,190Asset BDuplicating Equipment1 $45,000 20% $9,0002 $45,000 32% $14,400 2 $17,000 45% $7,6503 $17,000 15% $2,5504

P4-17 Pro forma income statement: Scenario analysis (LG 5; Challenge) a. Pro Forma Income StatementAllen Products, LPYear Ending December 31, 2020Pessimistic Most Likely OptimisticSales$900,000$1,125,000$1,280,000Less cost of goods sold (45% of sales) 405,000 506,250 576,000Gross profits $495,000 $ 618,750 $ 704,000Less operating expense (25% of sales) 225,000 281,250 320,000Operating profits $270,000

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 and an annuity are explained. Special applications include intra-year compounding, mixed cash-flow streams, mixed cash flows with an embedded

Solutions to Problems P5-1 Using a time line (LG 1; Basic) a, b, and c d. Financial managers rely more on present value than future value because their decisions are typically made before a project starts (i.e., at time zero). P5-2 Future value calculation (LG 2; Basic) To find future value in

P5-31 Value of a single amount versus mixed stream (LG 4; Challenge) If Gina takes $24,000 and leaves it in account earning 7% for five years, she will have $33,661.24 (PV = $24,000, n = 5, and r = 0.07) for her home. The future value of the mixed stream

P5-51 Growth rates (LG 6; Basic) To find average annual growth rate, use the future-value framework and solve for the interest rate that makes stock price grow from the purchase to the sales price over the holding period. Specifically:Amazon: (754/134)1/7 1 = 28.0% Chipotle: (301/88)1/3 1 = 50.7% Netflix: (110/8)1/6

Part 3 Valuation of Securities Chapters in This Part Chapter 6 Interest Rates and Bond Valuation Chapter 7 Stock Valuation Integrative Case 3: Encore International 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. 2019 Pearson Education, Inc. Chapter 6 Interest Rates and Bond Valuation Instructors Resources Chapter Overview This chapter introduces interest-rate and bond-market

Solutions to Problems P6-1 Interest-rate fundamentals: The real rate of return (LG1; Basic) Real rate of return (r*) nominal interest rate (r) expected inflation (i) = 1.5% 0.5% 1.0% More precisely: (1 + r) = (1 + r*) (1 + i) [(1 + r) (1 + i) 1] = r*r* = [(1.015)

P6-16 Bond valuation: Annual interest (LG 5; Basic) Bond Years to Maturity (n) Required Return (r) Coupon (C) Par Value (M) Bond Value A 20 12% 0.11 $1,000 $110 $1,000 $925.31 B 16 8% 0.08 $1,000 $80$1,000 $1,000.00C 8 9% 0.09 $100 $9 $100 $ 111.94 D 13 6% 0.06 $500 $30 $500 $ 420.96E

Solutions to Problems P7-1 Authorized and available shares (LG 2; Basic) a. Maximum shares = Authorized shares Shares outstanding = 2,000,000 1,400,000 = 600,000. b. Total shares needed = $48,000,000 $60 = 800,000 shares, meaning 200,000 additional shares must be authorized to raise needed funds.c. Aspin must seek approval through a

P7-20 Valuation with price/earnings multiples (LG 5; Basic) To estimate stock price given earnings per share (EPS) and the average industry price-earnings multiple (P/E): Firm EPS P/EStock Price A 3.0 6.2 $18.60 B 4.5 10.0 $45.00 C 1.8 12.6 $22.68 D 2.4 8.9 $21.36 E 5.1 15.0 $76.50 C 1.8

Part 4 Risk and the Required Rate of Return Chapters in this Part Chapter 8 Risk and Return Chapter 9 The Cost of Capital Integrative Case 4: Eco Plastics Company Chapter 8 Risk and Return Instructors Resources Chapter Overview This chapter focuses on the fundamentals of risk and returnbeginning with simple definitions of total and expected return,

Solutions to Problems P8-1 Rate of return (LG 1; Basic) Total return on an investment is given by:where: rt = total return on asset Pt = Price of asset at time t-1 Pt = Price of asset at time t Ct = Cash received between t-1 and t a. Investment

P8-13 Personal finance: Portfolio return and standard deviation (LG 3; Challenge) a. Actual portfolio return for each year: rp (wLrL) (wMrM), where w is the portfolio weight of asset L or M, and r is the actual return in a given year on asset L or M.Year Asset L (wLrL)Asset

P8-23 Personal finance: Portfolio betas (LG 5; Intermediate) The beta of a portfolio is simply the weighted average of the betas of the individual securities in theportfolio, with portfolio shares serving as weights. More formally:,where is portfolio beta, is beta of asset j, and = portfolio share of the asset

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 corporate tax rate relevant to this chapter. In subsequent printing runs, the text was updated to reflect the

Solutions to Problems P9-1 Concept of cost of capital (LG 1; Basic) a. Project North is expected to earn an 8% return. If the analyst expects the cost of debt to be 7%, she will recommend accepting the project because the expected return exceeds financing cost. b. Project South is

P9-18 Personal finance problem: Weighted-average cost of capital (LG 6; Intermediate) Johns weighted average cost of student loans is given by: Column 1 2 3 = 2 $ 4 = 1 Rate Balance Weight Weighted Cost Loan 1 Loan 2Loan 39.00%5.00%$12,000$32,00018.75%50.00%1.69%2.50%Total = $64,000 100% Sum (rWACC) = 6.06% Loan 2Loan 39.00%5.00%$12,000$32,00018.75%50.00%1.69%2.50%Total = $64,000 100%

1 Answer: FALSE Diff: 2 Topic: Managing the Firm Learning Obj.: LG 4 Learning Outcome: F-01 AACSB: Analytical Thinking 1 Answer: FALSE Diff: 2 Topic: Managing the Firm Learning Obj.: LG 4 Learning Outcome: F-01 AACSB: Analytical Thinking 1 Answer: FALSE Diff: 2 Topic: Managing the Firm Learning Obj.: LG

16 Answer: A Diff: 1 Topic: Legal Forms of Business Organization Learning Obj.: LG 5 Learning Outcome: F-01 AACSB: Analytical Thinking 16 Answer: A Diff: 1 Topic: Legal Forms of Business Organization Learning Obj.: LG 5 Learning Outcome: F-01 AACSB: Analytical Thinking 16 Answer: A Diff: 1 Topic: Legal Forms

1 Answer: FALSE Diff: 1 Topic: Overview of Capital Budgeting Learning Obj.: LG 1 Learning Outcome: F-08 AACSB: Reflective Thinking 1 Answer: FALSE Diff: 1 Topic: Overview of Capital Budgeting Learning Obj.: LG 1 Learning Outcome: F-08 AACSB: Reflective Thinking 1 Answer: FALSE Diff: 1 Topic: Overview of Capital Budgeting

21 Answer: C Diff: 1 Topic: Net Present Value (NPV) Learning Obj.: LG 3 Learning Outcome: F-07 AACSB: Analytical Thinking 21 Answer: C Diff: 1 Topic: Net Present Value (NPV) Learning Obj.: LG 3 Learning Outcome: F-07 AACSB: Analytical Thinking 21 Answer: C Diff: 1 Topic: Net Present Value (NPV)

1 Answer: Sunk costs are cash outlays that have already been made (past outlays) and cannot be recovered. Sunk costs have no effect on the cash flows relevant to the current decision. As a result, sunk costs should not be included in a project's incremental cash flows. Opportunity costs are

21 Answer: (a) Book Value = $120,000 (1 - 0.20 - 0.32) = $57,600 Recaptured depreciation = $0 Capital loss = $57,600 - $50,000 = $7,600 (b) Tax benefit = $7,600 0.40 = $3,040 Diff: 1 Topic: After-Tax Proceeds From Sale of Old Asset Learning Obj.: LG 4 Learning Outcome:

1 Answer: FALSE Diff: 1 Topic: Behavioral Approaches for Dealing with Risk Learning Obj.: LG 2 Learning Outcome: F-29 AACSB: Analytical Thinking 1 Answer: FALSE Diff: 1 Topic: Behavioral Approaches for Dealing with Risk Learning Obj.: LG 2 Learning Outcome: F-29 AACSB: Analytical Thinking 1 Answer: FALSE Diff: 1 Topic:

15 Answer: C Diff: 1 Topic: Portfolio Effects Learning Obj.: LG 4 Learning Outcome: F-29 AACSB: Analytical Thinking 15 Answer: C Diff: 1 Topic: Portfolio Effects Learning Obj.: LG 4 Learning Outcome: F-29 AACSB: Analytical Thinking 15 Answer: C Diff: 1 Topic: Portfolio Effects Learning Obj.: LG 4 Learning Outcome:

1 Answer: FALSE Diff: 1 Topic: Leverage Learning Obj.: LG 1 Learning Outcome: F-21 AACSB: Analytical Thinking 1 Answer: FALSE Diff: 1 Topic: Leverage Learning Obj.: LG 1 Learning Outcome: F-21 AACSB: Analytical Thinking 1 Answer: FALSE Diff: 1 Topic: Leverage Learning Obj.: LG 1 Learning Outcome: F-21 AACSB: Analytical

21 Answer: C Diff: 1 Topic: Financial Leverage Learning Obj.: LG 2 Learning Outcome: F-21 AACSB: Analytical Thinking 21 Answer: C Diff: 1 Topic: Financial Leverage Learning Obj.: LG 2 Learning Outcome: F-21 AACSB: Analytical Thinking 21 Answer: C Diff: 1 Topic: Financial Leverage Learning Obj.: LG 2 Learning Outcome:

38 Answer: C Diff: 1 Topic: Capital Structure Theory Learning Obj.: LG 3 Learning Outcome: F-21 AACSB: Analytical Thinking 38 Answer: C Diff: 1 Topic: Capital Structure Theory Learning Obj.: LG 3 Learning Outcome: F-21 AACSB: Analytical Thinking 38 Answer: C Diff: 1 Topic: Capital Structure Theory Learning Obj.: LG

1 Answer: TRUE Diff: 1 Topic: The Mechanics of Payout Policy Learning Obj.: LG 1 Learning Outcome: F-22 AACSB: Analytical Thinking 1 Answer: TRUE Diff: 1 Topic: The Mechanics of Payout Policy Learning Obj.: LG 1 Learning Outcome: F-22 AACSB: Analytical Thinking 1 Answer: TRUE Diff: 1 Topic: The Mechanics

19 Answer: B Diff: 1 Topic: Legal Constraints Learning Obj.: LG 3 Learning Outcome: F-22 AACSB: Analytical Thinking 19 Answer: B Diff: 1 Topic: Legal Constraints Learning Obj.: LG 3 Learning Outcome: F-22 AACSB: Analytical Thinking 19 Answer: B Diff: 1 Topic: Legal Constraints Learning Obj.: LG 3 Learning Outcome:

1 Answer: TRUE Diff: 1 Topic: Working Capital Management Learning Obj.: LG 1 Learning Outcome: F-24 AACSB: Reflective Thinking 1 Answer: TRUE Diff: 1 Topic: Working Capital Management Learning Obj.: LG 1 Learning Outcome: F-24 AACSB: Reflective Thinking 1 Answer: TRUE Diff: 1 Topic: Working Capital Management Learning Obj.: LG

21 Answer: B Diff: 1 Topic: Trade-Off between Profitability and Risk Learning Obj.: LG 1 Learning Outcome: F-24 AACSB: Analytical Thinking 21 Answer: B Diff: 1 Topic: Trade-Off between Profitability and Risk Learning Obj.: LG 1 Learning Outcome: F-24 AACSB: Analytical Thinking 21 Answer: B Diff: 1 Topic: Trade-Off between

41 Answer: FALSE Diff: 1 Topic: Common Techniques for Managing Inventory Learning Obj.: LG 3 Learning Outcome: F-24 AACSB: Analytical Thinking 41 Answer: FALSE Diff: 1 Topic: Common Techniques for Managing Inventory Learning Obj.: LG 3 Learning Outcome: F-24 AACSB: Analytical Thinking 41 Answer: FALSE Diff: 1 Topic: Common Techniques

61 Answer: D Diff: 1 Topic: Credit Selection and Standards Learning Obj.: LG 4 Learning Outcome: F-24 AACSB: Analytical Thinking 61 Answer: D Diff: 1 Topic: Credit Selection and Standards Learning Obj.: LG 4 Learning Outcome: F-24 AACSB: Analytical Thinking 61 Answer: D Diff: 1 Topic: Credit Selection and Standards

79 Answer: TRUE Diff: 1 Topic: Investing in Marketable Securities Learning Obj.: LG 6 Learning Outcome: F-24 AACSB: Analytical Thinking 79 Answer: TRUE Diff: 1 Topic: Investing in Marketable Securities Learning Obj.: LG 6 Learning Outcome: F-24 AACSB: Analytical Thinking 79 Answer: TRUE Diff: 1 Topic: Investing in Marketable Securities

1 Answer: FALSE Diff: 1 Topic: Accounts Payable Management Learning Obj.: LG 1 Learning Outcome: F-24 AACSB: Analytical Thinking 1 Answer: FALSE Diff: 1 Topic: Accounts Payable Management Learning Obj.: LG 1 Learning Outcome: F-24 AACSB: Analytical Thinking 1 Answer: FALSE Diff: 1 Topic: Accounts Payable Management Learning Obj.: LG

21 Answer: C Diff: 1 Topic: Bank Loans Learning Obj.: LG 3 Learning Outcome: F-24 AACSB: Analytical Thinking 21 Answer: C Diff: 1 Topic: Bank Loans Learning Obj.: LG 3 Learning Outcome: F-24 AACSB: Analytical Thinking 21 Answer: C Diff: 1 Topic: Bank Loans Learning Obj.: LG 3 Learning Outcome:

33 Answer: TRUE Diff: 1 Topic: Characteristics of Secured Short-Term Loans Learning Obj.: LG 5 Learning Outcome: F-24 AACSB: Analytical Thinking 33 Answer: TRUE Diff: 1 Topic: Characteristics of Secured Short-Term Loans Learning Obj.: LG 5 Learning Outcome: F-24 AACSB: Analytical Thinking 33 Answer: TRUE Diff: 1 Topic: Characteristics of

1 Answer: TRUE Diff: 1 Topic: Overview of Hybrids and Derivatives Learning Obj.: LG 1 Learning Outcome: F-09 AACSB: Analytical Thinking 1 Answer: TRUE Diff: 1 Topic: Overview of Hybrids and Derivatives Learning Obj.: LG 1 Learning Outcome: F-09 AACSB: Analytical Thinking 1 Answer: TRUE Diff: 1 Topic: Overview of

21 Answer: C Diff: 1 Topic: General Features of Convertibles Learning Obj.: LG 3 Learning Outcome: F-20 AACSB: Analytical Thinking 21 Answer: C Diff: 1 Topic: General Features of Convertibles Learning Obj.: LG 3 Learning Outcome: F-20 AACSB: Analytical Thinking 21 Answer: C Diff: 1 Topic: General Features of Convertibles

36 Answer: TRUE Diff: 1 Topic: Key Characteristics Learning Obj.: LG 5 Learning Outcome: F-20 AACSB: Analytical Thinking 36 Answer: TRUE Diff: 1 Topic: Key Characteristics Learning Obj.: LG 5 Learning Outcome: F-20 AACSB: Analytical Thinking 36 Answer: TRUE Diff: 1 Topic: Key Characteristics Learning Obj.: LG 5 Learning Outcome:

1 Answer: TRUE Diff: 1 Topic: Terminology Learning Obj.: LG 1 Learning Outcome: F-27 AACSB: Analytical Thinking 1 Answer: TRUE Diff: 1 Topic: Terminology Learning Obj.: LG 1 Learning Outcome: F-27 AACSB: Analytical Thinking 1 Answer: TRUE Diff: 1 Topic: Terminology Learning Obj.: LG 1 Learning Outcome: F-27 AACSB: Analytical

21 Answer: D Diff: 1 Topic: Leveraged Buyouts Learning Obj.: LG 2 Learning Outcome: F-27 AACSB: Analytical Thinking 21 Answer: D Diff: 1 Topic: Leveraged Buyouts Learning Obj.: LG 2 Learning Outcome: F-27 AACSB: Analytical Thinking 21 Answer: D Diff: 1 Topic: Leveraged Buyouts Learning Obj.: LG 2 Learning Outcome:

37 Answer: TRUE Diff: 1 Topic: Holding Companies Learning Obj.: LG 4 Learning Outcome: F-27 AACSB: Analytical Thinking 37 Answer: TRUE Diff: 1 Topic: Holding Companies Learning Obj.: LG 4 Learning Outcome: F-27 AACSB: Analytical Thinking 37 Answer: TRUE Diff: 1 Topic: Holding Companies Learning Obj.: LG 4 Learning Outcome:

1 Answer: FALSE Diff: 1 Topic: Key Trading Blocs Learning Obj.: LG 1 Learning Outcome: F-30 AACSB: Analytical Thinking 1 Answer: FALSE Diff: 1 Topic: Key Trading Blocs Learning Obj.: LG 1 Learning Outcome: F-30 AACSB: Analytical Thinking 1 Answer: FALSE Diff: 1 Topic: Key Trading Blocs Learning Obj.: LG

16 Answer: A Diff: 1 Topic: Exchange Rate Risks Learning Obj.: LG 3 Learning Outcome: F-30 AACSB: Analytical Thinking 16 Answer: A Diff: 1 Topic: Exchange Rate Risks Learning Obj.: LG 3 Learning Outcome: F-30 AACSB: Analytical Thinking 16 Answer: A Diff: 1 Topic: Exchange Rate Risks Learning Obj.: LG

1 Answer: B Diff: 1 Topic: Financial Institutions Learning Obj.: LG 1 Learning Outcome: F-01 AACSB: Analytical Thinking 1 Answer: B Diff: 1 Topic: Financial Institutions Learning Obj.: LG 1 Learning Outcome: F-01 AACSB: Analytical Thinking 1 Answer: B Diff: 1 Topic: Financial Institutions Learning Obj.: LG 1 Learning Outcome:

14 Answer: FALSE Diff: 1 Topic: Market Efficiency Learning Obj.: LG 3 Learning Outcome: F-01 AACSB: Reflective Thinking 14 Answer: FALSE Diff: 1 Topic: Market Efficiency Learning Obj.: LG 3 Learning Outcome: F-01 AACSB: Reflective Thinking 14 Answer: FALSE Diff: 1 Topic: Market Efficiency Learning Obj.: LG 3 Learning Outcome:

1 Answer: TRUE Diff: 1 Topic: The Stockholders' Report Learning Obj.: LG 1 Learning Outcome: F-01 AACSB: Analytical Thinking 1 Answer: TRUE Diff: 1 Topic: The Stockholders' Report Learning Obj.: LG 1 Learning Outcome: F-01 AACSB: Analytical Thinking 1 Answer: TRUE Diff: 1 Topic: The Stockholders' Report Learning Obj.: LG

21 Answer: TRUE Diff: 1 Topic: Cautions About Using Ratio Analysis Learning Obj.: LG 2 Learning Outcome: F-02 AACSB: Analytical Thinking 21 Answer: TRUE Diff: 1 Topic: Cautions About Using Ratio Analysis Learning Obj.: LG 2 Learning Outcome: F-02 AACSB: Analytical Thinking 21 Answer: TRUE Diff: 1 Topic: Cautions About

41 Answer: A Diff: 2 Topic: Gross Profit Margin Learning Obj.: LG 5 Learning Outcome: F-02 AACSB: Analytical Thinking 41 Answer: A Diff: 2 Topic: Gross Profit Margin Learning Obj.: LG 5 Learning Outcome: F-02 AACSB: Analytical Thinking 41 Answer: A Diff: 2 Topic: Gross Profit Margin Learning Obj.: LG

55 Answer: A Diff: 1 Topic: A Complete Ratio Analysis Learning Obj.: LG 6 Learning Outcome: F-02 AACSB: Analytical Thinking 55 Answer: A Diff: 1 Topic: A Complete Ratio Analysis Learning Obj.: LG 6 Learning Outcome: F-02 AACSB: Analytical Thinking 55 Answer: A Diff: 1 Topic: A Complete Ratio Analysis

1 Answer: TRUE Diff: 1 Topic: Financial Planning Process Learning Obj.: LG 1 Learning Outcome: F-25 AACSB: Analytical Thinking 1 Answer: TRUE Diff: 1 Topic: Financial Planning Process Learning Obj.: LG 1 Learning Outcome: F-25 AACSB: Analytical Thinking 1 Answer: TRUE Diff: 1 Topic: Financial Planning Process Learning Obj.: LG

21 Answer: B Diff: 2 Topic: Developing the Statement of Cash Flows Learning Obj.: LG 3 Learning Outcome: F-02 AACSB: Analytical Thinking 21 Answer: B Diff: 2 Topic: Developing the Statement of Cash Flows Learning Obj.: LG 3 Learning Outcome: F-02 AACSB: Analytical Thinking 21 Answer: B Diff: 2 Topic:

41 Answer: Best Value Supermarkets should arrange for a line of credit for at least $235 during the four month period. Diff: 2 Topic: Preparing The Cash Budget Learning Obj.: LG 4 Learning Outcome: F-25 AACSB: Reflective Thinking 41 Answer: Best Value Supermarkets should arrange for a line of credit

58 Answer: C Diff: 1 Topic: Evaluation of Pro Forma Statements Learning Obj.: LG 6 Learning Outcome: F-25 AACSB: Analytical Thinking 58 Answer: C Diff: 1 Topic: Evaluation of Pro Forma Statements Learning Obj.: LG 6 Learning Outcome: F-25 AACSB: Analytical Thinking 58 Answer: C Diff: 1 Topic: Evaluation of

1 Answer: TRUE Diff: 1 Topic: Basic Time Value Concepts Learning Obj.: LG 1 Learning Outcome: F-03 AACSB: Reflective Thinking 1 Answer: TRUE Diff: 1 Topic: Basic Time Value Concepts Learning Obj.: LG 1 Learning Outcome: F-03 AACSB: Reflective Thinking 1 Answer: TRUE Diff: 1 Topic: Basic Time Value Concepts

21 Answer: The PV of the perpetuity is just $100 / 0.10 = $1,000. The present value of the first 20 payments is found using the annuity formula as follows: PV = (100/0.10)[1 - 1/(1.10)^20] = $851.36 If the entire payment stream is worth $1,000 and the first 20 payments

40 Answer: D Diff: 1 Topic: Present Value of an Annuity Learning Obj.: LG 6 Learning Outcome: F-03 AACSB: Analytical Thinking 40 Answer: D Diff: 1 Topic: Present Value of an Annuity Learning Obj.: LG 6 Learning Outcome: F-03 AACSB: Analytical Thinking 40 Answer: D Diff: 1 Topic: Present Value

1 Answer: TRUE Diff: 1 Topic: Interest Rate Fundamentals Learning Obj.: LG 1 Learning Outcome: F-05 AACSB: Analytical Thinking 1 Answer: TRUE Diff: 1 Topic: Interest Rate Fundamentals Learning Obj.: LG 1 Learning Outcome: F-05 AACSB: Analytical Thinking 1 Answer: TRUE Diff: 1 Topic: Interest Rate Fundamentals Learning Obj.: LG

21 Answer: D Diff: 1 Topic: Legal Aspects of Corporate Bonds Learning Obj.: LG 2 Learning Outcome: F-06 AACSB: Reflective Thinking 21 Answer: D Diff: 1 Topic: Legal Aspects of Corporate Bonds Learning Obj.: LG 2 Learning Outcome: F-06 AACSB: Reflective Thinking 21 Answer: D Diff: 1 Topic: Legal Aspects

39 Answer: B Diff: 1 Topic: Key Inputs Learning Obj.: LG 4 Learning Outcome: F-04 AACSB: Analytical Thinking 39 Answer: B Diff: 1 Topic: Key Inputs Learning Obj.: LG 4 Learning Outcome: F-04 AACSB: Analytical Thinking 39 Answer: B Diff: 1 Topic: Key Inputs Learning Obj.: LG 4 Learning Outcome:

1 Answer: TRUE Diff: 1 Topic: Tax Treatment Learning Obj.: LG 1 Learning Outcome: F-09 AACSB: Analytical Thinking 1 Answer: TRUE Diff: 1 Topic: Tax Treatment Learning Obj.: LG 1 Learning Outcome: F-09 AACSB: Analytical Thinking 1 Answer: TRUE Diff: 1 Topic: Tax Treatment Learning Obj.: LG 1 Learning Outcome:

21 Answer: The amount to be paid to preferred stockholders prior to paying dividends to common stockholders = Cumulative preferred dividends + Current year preferred dividend = $9,000 2 + $9,000 = $27,000 Diff: 1 Topic: Preferred Stock Learning Obj.: LG 2 Learning Outcome: F-09 AACSB: Analytical Thinking 21 Answer:

33 Answer: P = D1 / (r - g) = $2.25 (1 + 0.05) / (0.08 - 0.05) = $78.75 Diff: 1 Topic: Basic Common Stock Valuation Equation Learning Obj.: LG 4 Learning Outcome: F-09 AACSB: Analytical Thinking 33 Answer: P = D1 / (r - g) = $2.25 (1

1 Answer: TRUE Diff: 1 Topic: Risk Preferences Learning Obj.: LG 1 Learning Outcome: F-11 AACSB: Analytical Thinking 1 Answer: TRUE Diff: 1 Topic: Risk Preferences Learning Obj.: LG 1 Learning Outcome: F-11 AACSB: Analytical Thinking 1 Answer: TRUE Diff: 1 Topic: Risk Preferences Learning Obj.: LG 1 Learning Outcome:

21 Answer: A Diff: 2 Topic: Portfolio Return and Standard Deviation Learning Obj.: LG 3 Learning Outcome: F-11 AACSB: Analytical Thinking 21 Answer: A Diff: 2 Topic: Portfolio Return and Standard Deviation Learning Obj.: LG 3 Learning Outcome: F-11 AACSB: Analytical Thinking 21 Answer: A Diff: 2 Topic: Portfolio Return

39 Answer: C Diff: 1 Topic: The Model: CAPM Learning Obj.: LG 5 Learning Outcome: F-11 AACSB: Analytical Thinking 39 Answer: C Diff: 1 Topic: The Model: CAPM Learning Obj.: LG 5 Learning Outcome: F-11 AACSB: Analytical Thinking 39 Answer: C Diff: 1 Topic: The Model: CAPM Learning Obj.: LG

1 Answer: TRUE Diff: 1 Topic: The Basic Concept Learning Obj.: LG 1 Learning Outcome: F-13 AACSB: Analytical Thinking 1 Answer: TRUE Diff: 1 Topic: The Basic Concept Learning Obj.: LG 1 Learning Outcome: F-13 AACSB: Analytical Thinking 1 Answer: TRUE Diff: 1 Topic: The Basic Concept Learning Obj.: LG

20 Answer: D Diff: 1 Topic: Finding the Cost of Common Stock Equity Learning Obj.: LG 5 Learning Outcome: F-14 AACSB: Analytical Thinking 20 Answer: D Diff: 1 Topic: Finding the Cost of Common Stock Equity Learning Obj.: LG 5 Learning Outcome: F-14 AACSB: Analytical Thinking 20 Answer: D Diff: