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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. Chapter 1 The Role of Managerial […]

Solutions to Problems P1-1. Liability comparisons (LG 5; Basic) a. Ms. Harper has unlimited personal liability, so she is liable for the firm’s $60,000 in unpaid debts. b. Initially, Ms. Harper is liable for $30,000 (50% of total unpaid debts). […]

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. Chapter […]

 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 […]

P10-24 All techniques—decision 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 […]

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 […]

 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 […]

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 […]

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 […]

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, […]

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 […]

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 (40,000) 12,000 (40,000) 11,267.61 (40,000) 11,111.11 (40,000) 11,428.57 […]

 Case: “Evaluating Cherone Equipment’s 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, Plan Y Cash flows: CF0 […]

Part 6 Long-Term Financial Decisions Chapters in This Part Chapter 13 Leverage and Capital Structure Chapter 14 Payout Policy Integrative Case 6: O’Grady Apparel Company Chapter 13 Leverage and Capital Structure  Instructor Resources Chapter Overview This chapter introduces students […]

P13-13 Personal finance: Financial leverage (LG 2; Challenge) a. Current DFL Initial Values Future Value % ∆ Available for making loan payment Less: Loan payments $3,000 $1,000 $3,300 $1,000 10.0% 0.0% Proposed DFL Initial Values Future Value % ∆ Available […]

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 80,000 120,000 160,000 Earnings before taxes $ 20,000 […]

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 […]

Chapter 14 Payout Policy Instructor’s 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 […]

Solutions to Problems  P14-1. Dividend payment procedures LG 1; Basic a. Debit Credit Retained earnings (Dr.) $330,000 Dividends payable (Cr.) $330,000 b. Ex dividend date is Thursday, July 6. c. Cash $170,000 Dividends payable $ 0 Retained earnings $2,170,000 d. […]

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 […]

Part 7 Short-Term Financial Decisions Chapters in This Part Chapter 15 Working Capital and Current Assets Management Chapter 16 Current Liabilities Management Integrative Case 7: Casa de Diseño © 2019 Pearson Education, Inc. Chapter 15 Working Capital and Current Assets […]

Solutions to Problems  P15-1. CCC LG 2; Basic a. OC Average age of inventories  Average collection period b. CCC Operating cycle  Average payment period 120 days  30 days 90 days c. To calculate the amount of resources […]

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 […]

Chapter 16 Current Liabilities Management Instructor’s Resources  Overview This chapter introduces the fundamentals and describes the interrelationship of net working capital, profitability, and risk in managing the firm’s current liability accounts. The management of current liabilities requires choosing appropriate levels […]

P16-18. Accounts receivable as collateral, cost of borrowing LG 3, 5; Challenge a. [$134,000  ($134,000  0.10)]  0.85  $102,510 b. ($100,000  0.02)  ($100,000  0.115)  $2,000  $11,500  $13,500 $13,500 I n t […]

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. […]

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) A1–4 $100,000 $40,000 $60,000 B1–14 80,000 32,000 48,000 P17-2. Loan interest LG 2; Intermediate Loan […]

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 1–29 $ 115 13% $887.57 b. Implied price of all warrants (price with warrants − straight […]

Chapter 18 Mergers, LBOs, Divestitures, and Business Failure Instructor’s 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. […]

N  5, I  12%, PMT  $50,000 P18-4. Asset acquisition decision LG 3; Challenge a. Effective cost of press:  $60,000  $90,000  $65,000  $85,000 CF0  $85,000; CF1  $20,000; F1  10 Set I […]

Chapter 19 International Managerial Finance Instructor’s Resources  Overview In today’s 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 […]

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 […]

Chapter 2 The Financial-Market Environment Instructor’s 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 institutions—commercial banks, investment banks, […]

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. Chapter […]

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 […]

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 b. (1) (2) (3) (4) Pelican is more profitable than […]

Chapter 4 Cash Flow and Financial Planning Instructor’s 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 […]

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 3 $45,000 19% $8,550 4 $45,000 12% $5,400 […]

P4-17 Pro forma income statement: Scenario analysis (LG 5; Challenge) a. Pro Forma Income Statement—Allen Products, LP Year Ending December 31, 2020 Pessimistic Most Likely Optimistic Sales $900,000 $1,125,000 $1,280,000 Less cost of goods sold (45% of sales) 405,000 506,250 […]

Chapter 5 Time Value of Money Instructor’s Resources Chapter Overview This chapter introduces a key—indeed, perhaps the most important—concept in finance: the time value of money. The present and future value of a sum and an annuity are explained. Special […]

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). […]

P5-31 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) […]

P5-51 Growth rates (LG 6; Basic) To find average annual growth rate, use the future-value framework and solve for the P5-52 Personal finance: Rate of return (LG 6, Intermediate) a. Use the future-value framework, and solve for the interest rate […]

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. Chapter 6 Interest Rates and Bond Valuation Instructor’s Resources Chapter […]

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: P6-2 Equilibrium rate of interest (LG 1; […]

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 $70 P6-17 Bond value and changing required […]

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. P7-2 Preferred dividends (LG 2; Intermediate) a. Annual dividend in dollars = Price of […]

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/EStock Price A 3.0  6.2 $18.60 B 4.5  10.0 $45.00 P7-21 […]

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 Instructor’s Resources Chapter Overview This […]

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 […]

P8-13 Personal finance: Portfolio return and standard deviation (LG 3; Challenge) a. Actual portfolio return for each year: rp  (wLrL)  (wMrM), where w is the portfolio weight of asset L or M, and r is the actual return […]

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 the portfolio, with portfolio shares serving as weights. More formally: , where is portfolio […]

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 […]

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 […]

P9-18 Personal finance problem: Weighted-average cost of capital (LG 6; Intermediate) John’s weighted average cost of student loans is given by: Column →1 2 3 = 2 $ 4 = 1  Rate Balance Weight Weighted Cost Loan 1 6.00% […]

Copyright © 2019 Pearson Education, Inc. Principles of Managerial Finance, 15e (Zutter) Chapter 1 The Role of Managerial Finance 1.1 Finance and the firm. 1) A firm is a business organization that sells goods and services. Answer: TRUE Diff: 1 […]

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 management Answer: […]

Copyright © 2019 Pearson Education, Inc. Principles of Managerial Finance, 15e (Zutter) Chapter 10 Capital Budgeting Techniques 10.1 Overview of capital budgeting 1) Capital budgeting techniques are used to evaluate a firm’s fixed asset investments which provide the basis for […]

Copyright © 2019 Pearson Education, Inc. 12) For a project that has an initial cash outflow followed by cash inflows, the profitability index (PI) is equal to the present value of cash inflows divided by the cost of capital. Answer: […]

Copyright © 2019 Pearson Education, Inc. Principles of Managerial Finance, 15e (Zutter) Chapter 11 Capital Budgeting Cash Flows 11.1 Project cash flows 1) Accounting figures and cash flows are not necessarily the same due to the presence of certain non–cash […]

Copyright © 2019 Pearson Education, Inc. 24) An asset was purchased three years ago for $100,000 and can be sold for $40,000 today. The asset has been depreciated using the MACRS 5-year recovery period and the firm pays 40 percent […]

Copyright © 2019 Pearson Education, Inc. Principles of Managerial Finance, 15e (Zutter) Chapter 12 Risk and Refinements in Capital Budgeting 12.1 Introduction to risk in capital budgeting 1) Different projects have different levels of risk. As a result, the acceptance […]

Copyright © 2019 Pearson Education, Inc. 25) Using the risk-adjusted discount rate method of project evaluation, the better investment for Tangshan Mining is ________. (See Table 12.3) A) Project M because it has a higher NPV B) Project N because […]

Copyright © 2019 Pearson Education, Inc. Principles of Managerial Finance, 15e (Zutter) Chapter 13 Leverage and Capital Structure 13.1 Leverage 1) Generally, increases in leverage result in increased return and risk. Answer: TRUE Diff: 1 Topic: Leverage Learning Obj.: LG […]

Copyright © 2019 Pearson Education, Inc. 91) Financial leverage measures the effect of fixed financial costs on the relationship between ________. A) sales and EBIT B) sales and EPS C) EBIT and EPS D) EBIT and preference dividend Answer: C […]

Copyright © 2019 Pearson Education, Inc. 47) ________ is the risk that is reflected in fluctuations of the firm’s cash flows before considering any debt financing. A) Systematic risk B) Business risk C) Financial risk D) Diversifiable risk Answer: B […]

Copyright © 2019 Pearson Education, Inc. Principles of Managerial Finance, 15e (Zutter) Chapter 14 Payout Policy 14.1 The basics of payout policy 1) Payout policy refers to the decisions that firms make about whether to distribute cash to shareholders, how […]

Copyright © 2019 Pearson Education, Inc. 10) In establishing a dividend policy, a firm should retain funds for investment in projects yielding higher returns than the owners could obtain from external investments of equal risk. Answer: TRUE Diff: 1 Topic: […]

Copyright © 2019 Pearson Education, Inc. Principles of Managerial Finance, 15e (Zutter) Chapter 15 Working Capital and Current Assets Management 15.1 Net working capital fundamentals 1) Short-term financial management is concerned with management of a firm’s current assets and current […]

Copyright © 2019 Pearson Education, Inc. 52) Certain financing plans are termed conservative when ________. A) short-term financing is used frequently B) working capital is relatively high C) current assets are relatively low D) risk is increased Answer: B Diff: […]

Copyright © 2019 Pearson Education, Inc. 3) The reorder point is the point at which a firm receives orders. Answer: FALSE Diff: 1 Topic: Common Techniques for Managing Inventory Learning Obj.: LG 3 Learning Outcome: F-24 AACSB: Analytical Thinking 4) […]

Copyright © 2019 Pearson Education, Inc. 35) An applicant’s capacity to repay its requested credit can be found by ________. A) analyzing financial statements B) checking bank account balances C) analyzing tax payment history D) checking the covenants Answer: A […]

Copyright © 2019 Pearson Education, Inc. 14) Playing the float involves the strategic use of mailing points and bank accounts to lengthen mail float and clearing float, respectively. Answer: FALSE Diff: 1 Topic: Slowing Down Payments Learning Obj.: LG 6 […]

Copyright © 2019 Pearson Education, Inc. Principles of Managerial Finance, 15e (Zutter) Chapter 16 Current Liabilities Management 16.1 Spontaneous liabilities 1) Spontaneous unsecured financing has a specific interest cost associated with it that can be at a fixed or floating […]

Copyright © 2019 Pearson Education, Inc. 43) The prime rate of interest fluctuates with ________. A) the changing supply-and-demand relationship for long-term funds B) the changing supply-and-demand relationship for short-term funds C) the liquidity requirement in a money market D) […]

Copyright © 2019 Pearson Education, Inc. 16.3 Secured sources of short-term loans 1) A floating inventory lien is a lender’s claim on the borrower’s general inventory as collateral for a secured loan. Answer: TRUE Diff: 1 Topic: Use of Inventory […]

Copyright © 2019 Pearson Education, Inc. Principles of Managerial Finance, 15e (Zutter) Chapter 17 Hybrid and Derivative Securities 17.1 Overview of hybrids and derivatives 1) Derivatives are used by corporations as a useful tool for managing certain aspects of a […]

Copyright © 2019 Pearson Education, Inc. 26) Which of the following is true of conversion feature of a bond? A) It adds a degree of speculation to a bond issue, although the issue still maintains its value as a bond. […]

Copyright © 2019 Pearson Education, Inc. 3) The exercise price or option price of a warrant is normally set below the market price of the firm’s stock at the time of issuance. Answer: FALSE Diff: 1 Topic: Key Characteristics Learning […]

Copyright © 2019 Pearson Education, Inc. Principles of Managerial Finance, 15e (Zutter) Chapter 18 Mergers, LBOs, Divestitures, and Business Failure 18.1 Merger fundamentals 1) A merger occurs when two or more firms are combined to form a completely new corporation. […]

Copyright © 2019 Pearson Education, Inc. 21) A ________ is a method of structuring a financial merger, whereas a ________ involves the sale of the firm’s assets. A) leveraged buyout; bankruptcy B) congeneric buyout; divestiture C) horizontal merger; leveraged divestiture […]

Copyright © 2019 Pearson Education, Inc. 34) A white knight is a takeover defense in which a firm issues securities that give their holders certain rights that become effective when a takeover is attempted and that make the target firm […]

Copyright © 2019 Pearson Education, Inc. Principles of Managerial Finance, 15e (Zutter) Chapter 19 International Managerial Finance 19.1 The multinational company and its environment 1) NAFTA is a treaty establishing free trade and open markets among Europe and the United […]

Copyright © 2019 Pearson Education, Inc. 18) Which of the following is considered to be a major or hard currency? A) the Algerian dinar B) the Barbadian dollar C) the Mexican peso D) the Japanese yen Answer: D Diff: 1 […]

Copyright © 2019 Pearson Education, Inc. Principles of Managerial Finance, 15e (Zutter) Chapter 2 The Financial Market Environment 2.1 Financial institutions 1) A financial institution is an intermediary that channels the savings of individuals, businesses, and governments into loans or […]

Copyright © 2019 Pearson Education, Inc. 44) In a securities market, the bid price is typically higher than the ask price. Answer: FALSE Diff: 1 Topic: Financial Markets Learning Obj.: LG 3 Learning Outcome: F-01 AACSB: Reflective Thinking 45) A […]

Copyright © 2019 Pearson Education, Inc. Principles of Managerial Finance, 15e (Zutter) Chapter 3 Financial Statements and Ratio Analysis 3.1 The stockholder’s report 1) The Financial Accounting Standards Board (FASB) is the federal regulatory body that governs the sale and […]

Copyright © 2019 Pearson Education, Inc. 6) Benchmarking is a type of cross-sectional analysis in which a firm’s ratios are compared to a key competitor firm within the same industry, primarily to identify areas for improvement. Answer: TRUE Diff: 1 […]

Copyright © 2019 Pearson Education, Inc. 4) The ________ is a popular approach for evaluating profitability in relation to sales by expressing each item on the income statement as a percent of sales. A) retained earnings statement B) common-size balance […]

Copyright © 2019 Pearson Education, Inc. Balance Sheet Dana Dairy Products December 31, 2019 15) The current ratio for Dana Dairy Products in 2019 was ________. (See Table 3.2) A) 1.58 B) 0.63 C) 1.10 D) 0.91 Answer: D Diff: […]

Copyright © 2019 Pearson Education, Inc. Principles of Managerial Finance, 15e (Zutter) 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 the anticipated financial impact of those […]

Copyright © 2019 Pearson Education, Inc. Table 4.1 True Sandpaper Co. Balance Sheets For the Years Ended 2018 and 2019 56) The largest single source of funds for the firm in 2019 is ________. (See Table 4.1) A) an increase […]

Copyright © 2019 Pearson Education, Inc. 34) Which of the following represents a way of coping with uncertainty in a cash budget? A) careful estimation of cash budgets outputs B) developing a pro forma income statement to forecast sales and […]

Copyright © 2019 Pearson Education, Inc. 5) A firm has prepared the coming year’s pro forma balance sheet resulting in a plug figure in a preliminary statement—called the external financing required—of $230,000. The firm should prepare to ________. A) repurchase […]

Copyright © 2019 Pearson Education, Inc. Principles of Managerial Finance, 15e (Zutter) Chapter 5 Time Value of Money 5.1 The role of time value in finance 1) The main idea behind the time value of money is that a dollar […]

Copyright © 2019 Pearson Education, Inc. 41) How much money would you have to deposit today to create an income stream that pays $10,000 one year from today and continues to make annual payments forever, with payments after the first […]

Copyright © 2019 Pearson Education, Inc. 13) Janice would like to send her parents on a cruise for their 25th wedding anniversary. She has priced the cruise at $15,000, and she has 5 years to accumulate this money. How much […]

Copyright © 2019 Pearson Education, Inc. Principles of Managerial Finance, 15e (Zutter) Chapter 6 Interest Rates and Bond Valuation 6.1 Interest rates and required returns 1) An interest rate or a required rate of return represents the cost of money. […]

Copyright © 2019 Pearson Education, Inc. 20) The purpose of the debt covenant that requires maintaining a minimum level of net working capital is to ________. A) protect the lender by controlling the risk and marketability of the borrower’s security […]

Copyright © 2019 Pearson Education, Inc. 4) In the valuation process, the higher the risk, the greater is the required return. Answer: TRUE Diff: 1 Topic: Key Inputs Learning Obj.: LG 4 Learning Outcome: F-11 AACSB: Analytical Thinking 5) The […]

Copyright © 2019 Pearson Education, Inc. Principles of Managerial Finance, 15e (Zutter) Chapter 7 Stock Valuation 7.1 Differences between debt and equity 1) Unlike creditors, equityholders are owners of the firm. Answer: TRUE Diff: 1 Topic: Voice in Management Learning […]

Copyright © 2019 Pearson Education, Inc. 75) Which of the following is typically a feature of preferred stocks? A) They are settled prior to common stocks during liquidation. B) They are mostly noncumulative in nature. C) They are paid dividends […]

Copyright © 2019 Pearson Education, Inc. 42) Ria’s Doll Company has an outstanding preferred issue of stock with a par value of $100 and an annual dividend of 10 percent (of par). Similar risk preferred stocks are yielding an 11.5 […]

Copyright © 2019 Pearson Education, Inc. Principles of Managerial Finance, 15e (Zutter) Chapter 8 Risk and Return 8.1 Risk and return fundamentals 1) Investment A guarantees its holder $100 return. Investment B earns $0 or $200 with equal chances (i.e., […]

Copyright © 2019 Pearson Education, Inc. 10) An efficient portfolio is one that ________. A) guarantees a predetermined rate of return B) maximizes return for a given level of risk C) consists of a single asset, which gives maximum return […]

Copyright © 2019 Pearson Education, Inc. 40) Nico owns 100 shares of Stock X which has a price of $12 per share and 200 shares of Stock Y which has a price of $3 per share. What is the proportion […]

Copyright © 2019 Pearson Education, Inc. Principles of Managerial Finance, 15e (Zutter) Chapter 9 The Cost of Capital 9.1 Overview of the cost of capital 1) Holding risk constant, the implementation of projects with a rate of return above the […]

Copyright © 2019 Pearson Education, Inc. 23) A corporation that uses both debt and equity in its capital structure has concluded that the risk premium it must pay on its common stock is too high. To decrease this, the firm […]