Corporate Finance: Core Principles and Applications 5th Edition

CHAPTER 1 EAST COAST YACHTS 1. An LLC (limited liability company) is essentially a hybrid form of a partnership (or sole proprietorship) and a corporation. The goal is to operate like a partnership or sole proprietorship, but have limited liability for the owner(s). The advantages to

CHAPTER 2 B - 1 CHAPTER 1 INTRODUCTION TO CORPORATE FINANCE Answers to Concept Questions 1. The three basic forms are sole proprietorships, partnerships, and corporations. Some disadvantages of sole proprietorships and partnerships are: unlimited liability, limited life, difficulty in transferring ownership, and hard to raise capital funds.

CHAPTER 10 C-1 CHAPTER 10 A JOB AT EAST COAST YACHTS 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.

CHAPTER 10 RISK AND RETURN LESSONS FROM MARKET HISTORY Answers to Concept 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.

CHAPTER 10 B - 1 17. Looking at the long-term corporate bond return history in Table 10.2, we see that the mean return was 6.3 percent, with a standard deviation of 8.4 percent. The range of returns you would expect to see 68 percent of the time is the mean

CHAPTER 11 C-1 CHAPTER 11 A JOB AT EAST COAST YACHTS, PART 2 1. There should be little, if any, money allocated to the company stock. The principle of diversification indicates that an individual should hold a diversified portfolio. Investing heavily in company stock does not

CHAPTER 11 RISK AND RETURN: THE CAPITAL ASSET PRICING MODEL (CAPM) Answers to Concept Questions 1. Some of the risk in holding any asset is unique to the asset in question. By investing in a variety of assets, this unique portion of the total risk can

20. a. We have a special case where the portfolio is equally weighted, so we can sum the returns of each asset and divide by the number of assets. The expected return of the portfolio is: E(Rp) = (.12 + .023)/2 E(Rp) = .0715, or 7.15% E(Rp) =

CHAPTER 11 B - 1 32. First, we need to find the standard deviation of the market and the portfolio, which are: M = .04321/2 M = .2078, or 20.78% Z = .34581/2 Z = .5880, or 58.80% M = .04321/2 M = .2078, or 20.78% Z =

CHAPTER 12 C-1 CHAPTER 12 THE COST OF CAPITAL FOR SWAN MOTORS NOTE: The example below shows the results during May 2016. The actual answer to the case will change based on current market conditions. 1. The book value of the companys liabilities and

CHAPTER 12 RISK, COST OF CAPITAL, AND VALUATION Answers to Concepts Review and Critical Thinking Questions 1. No. The cost of capital depends on the risk of the project, not the source of the money. 2. Interest expense is tax-deductible. There is no difference between pretax

CHAPTER 12 B - 1 18. The total cost of the equipment including flotation costs was: Total costs = $24,000,000 + 1,420,000 Total costs = $25,420,000 Using the equation to calculate the total cost including flotation costs, we get: Amount raised(1 fT) = Amount

CHAPTER 13 C-1 CHAPTER 13 YOUR 401k ACCOUNT AT EAST COAST YACHTS 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

CHAPTER 13 B - 1 CHAPTER 13 EFFICIENT CAPITAL MARKETS AND BEHAVIORAL CHALLENGES Answers to Concept Questions 1. To create value, firms should accept financing proposals with positive net present values. Firms can create valuable financing opportunities in three ways: 1) Fool investors. A firm can

CHAPTER 14 C-1 CHAPTER 14 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 will decrease the firms taxable income,

CHAPTER 14 CAPITAL STRUCTURE: BASIC CONCEPTS Answers to Concept Questions 1. Assumptions of the Modigliani-Miller theory in a world without taxes: 1) Individuals can borrow at the same interest rate at which the firm borrows. Since investors can purchase securities on margin, an individuals effective interest rate

9. a. The rate of return earned will be the dividend yield. The company has debt, so it must make an interest payment. The net income for the company is: NI = $70,000 .08($325,000) NI = $44,000 The investor will receive dividends in proportion to

CHAPTER 14 B - 1 22. a. To purchase 5 percent of Knights equity, the investor would need: Knight investment = .05($1,550,000) Knight investment = $77,500 And to purchase 5 percent of Veblen without borrowing would require: Veblen investment = .05($2,650,000) Veblen investment =

CHAPTER 15 C-1 CHAPTER 15 DUGAN CORPORATIONS CAPITAL BUDGETING 1. We assume the $3.7 million is spent at the start of the year so we can ignore time value of money considerations. If we include the time value of money, the numerical solutions will change slightly,

CHAPTER 15 B - 1 CHAPTER 15 CAPITAL STRUCTURE: LIMITS TO THE USE OF DEBT Answers to Concept Questions 1. Direct costs are potential legal and administrative costs. These are the costs associated with the litigation arising from a liquidation or bankruptcy. These costs include lawyers fees, courtroom

C-1 CASE SOLUTIONS CHAPTER 16 ELECTRONIC TIMING, INC. 1. The one-time dividend will not affect the stock price. The value of the company will decline by the amount of the dividend. Ignoring taxes, shareholder wealth will not be affected because the stock price will drop by the amount

CHAPTER 16 DIVIDENDS AND OTHER PAYOUTS Answers to Concept Questions 1. Dividend policy deals with the timing of dividend payments, not the amounts ultimately paid. Dividend policy is irrelevant when the timing of dividend payments doesnt affect the present value of all future dividends. Dividend policy is irrelevant

CHAPTER 16 B - 1 12. If you only want $200 in Year 1, you will buy: Shares to buy at Year 1 = ($1,950 200)/$56.52 Shares to buy at Year 1 = 30.96 shares at Year 1. Your dividend payment in Year 2 will

CHAPTER 17 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

CHAPTER 17 OPTIONS AND CORPORATE FINANCE Answers to Concept 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

20. We can use the Black-Scholes model to value the equity of a firm. Using the asset value of $23,200 as the stock price, and the face value of debt of $22,000 as the exercise price, the value of the firms equity is: d1 = [ln($23,200/$22,000) + (.06

CHAPTER 17 B - 1 26. a. The combined value of equity and debt of the two firms is: Equity = $3,064.54 + 4,365.65 = $7,430.19 Equity = $3,064.54 + 4,365.65 = $7,430.19 Equity = $3,064.54 + 4,365.65 = $7,430.19 Debt = $13,035.46 +

CHAPTER 18 C-1 CHAPTER 18 KEAFER MANUFACTURING WORKING CAPITAL MANAGEMENT 1. The sales each of the next five quarters are projected at: Q1 Q2 Q3 Q4 Sales next year $964,440.00 $997,920.00 $1,075,680.00 $926,640.00 Sales following year $1,041,595.20 The cash flow

CHAPTER 18 SHORT-TERM FINANCE AND PLANNING Answers to Concept Questions 1. These are firms with relatively long inventory periods and/or relatively long receivables periods. Thus, 1. These are firms with relatively long inventory periods and/or relatively long receivables periods. Thus, 1. These are firms with relatively

CHAPTER 18 B - 1 14. The interest rate for the term of the discount is: Interest rate = .01/.99 Interest rate = .0101, or 1.01% And the interest is for: 25 10 = 15 days So, using the EAR equation,

CHAPTER 19 C-1 CHAPTER 19 EAST COAST YACHTS 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

CHAPTER 19 B - 1 CHAPTER 19 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

CHAPTER 2 C-1 CHAPTER 2 CASH FLOWS AT EAST COAST YACHTS The operating cash flow for the company is: OCF = EBIT + Depreciation Current taxes OCF = $87,531,900 + 19,958,400 30,512,400 OCF = $76,877,900 To calculate the cash flow

CHAPTER 2 FINANCIAL STATEMENTS AND CASH FLOW Answers to Concept Questions 1. Liquidity measures how quickly and easily an asset can be converted to cash without significant loss in value. Its desirable for firms to have high liquidity so that they have a large factor of safety in

16. The solution to this question works the income statement backwards. Starting at the bottom: Net income = Dividends + Addition to retained earnings Net income = $5,200 + 8,100 Net income = $13,300 Now, looking at the income statement: EBT (EBT

CHAPTER 20 EAST COAST YACHTS GOES INTERNATIONAL 1. The biggest advantage is the increased sales, while the biggest risk is exchange rate risk. There is also the risk that the company could fail to receive payment. This would result in international litigation, which is more expensive and time consuming.

CHAPTER 20 B-1 CHAPTER 20 INTERNATIONAL CORPORATE FINANCE Answers to Concept Questions 1. a. The dollar is selling at a premium because it is more expensive in the forward market than in the spot market (Fr 1.53 versus Fr 1.50). spot market (Fr 1.53 versus Fr

CHAPTER 21 THE EAST COAST-WEST COAST SAILBOATS 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 West

CHAPTER 21 MERGERS AND ACQUISITIONS Answers to Concepts Review and Critical Thinking Questions 1. In merger accounting, if an acquiring company pays more than the market value for a target company, the amount paid above market value is considered goodwill. If the acquisition does not work as

10. Beginning with the fact that the NPV of a merger is the value of the target minus the cost, we get: NPV = * B V Cost NPV = V + VB Cost NPV = V (Cost VB) NPV = V Merger premium NPV = V +

CHAPTER 3 C-1 CHAPTER 3 RATIOS AND FINANCIAL PLANNING AT EAST COAST YACHTS 1. Preferred stock has features of both debt and equity. Preferred shareholders receive a stated dividend, and, if the corporation is liquidated, preferred shareholders get a stated value. Often, preferred stocks carry credit ratings

CHAPTER 3 B - 1 CHAPTER 3 FINANCIAL STATEMENTS ANALYSIS AND LONG-TERM PLANNING Answers to Concept Questions 1. Time trend analysis gives a picture of changes in the companys financial situation over time. Comparing a firm to itself over time allows the financial manager to evaluate whether

CHAPTER 3 B - 1 13. a. The equation for external funds needed is: EFN = Sales Assets Sales Sales debt sSpontaneou Sales (PM Projected sales) (1 d) where: Assets/Sales = $42,850,000/$31,600,000 = 1.3560 Sales = Current sales Sales growth rate = $31,600,000(.18) = $5,688,000

CHAPTER 3 B - 1 24. The pro forma income statements for all three growth rates will be: RETRO MACHINE INC. Pro Forma Income Statement 15 % Sales Growth 20% Sales Growth 25% Sales Growth Sales $683,790 $713,520 $743,250 Costs 532,105 555,240 578,375

CHAPTER 4 C-1 CHAPTER 4 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. The

CHAPTER 4 DISCOUNTED CASH FLOW VALUATION Answers to Concept Questions 1. Assuming positive cash flows and interest rates, the future value increases and the present value decreases. decreases. decreases. 2. Assuming positive cash flows and interest rates, the present value will fall and the future

14. The time line is: 0 1

35. The time line is: 0 1 15

51. The payment for a loan repaid with equal payments is the annuity payment with the loan value as the PV of the annuity. So, the loan payment will be: PVA = C({1 [1/(1 + r)]t }/r) $57,000 = C{[1 1/(1 + .09)3]/.09} C = $20,147.79

66. First, we will find the APR and EAR for the loan with the refundable fee. Remember, we need to use the actual cash flows of the loan to find the interest rate. With the $2,400 application fee, you will need to borrow $227,400 to have $225,000 after deducting the

80. We are only concerned with the time it takes money to double, so the dollar amounts are irrelevant. So, we can write the future value of a lump sum with continuously compounded interest as: $2 = $1eRt 2 = eRt Rt = ln(2) Rt

CHAPTER 4 B - 1 49. Enter 5 7.4% $17,500 N I/Y PV PMT FV Solve for $70,991.47 2nd BGN 2nd SET

CHAPTER 5 C-1 CHAPTER 5 FINANCING EAST COAST YACHTS EXPANSION PLANS WITH A BOND ISSUE 1. A rule of thumb with bond provisions is to determine who the provisions benefit. If the company benefits, the bond will have a higher coupon rate. If the bondholders benefit, the bond

CHAPTER 5 INTEREST RATES AND BOND VALUATION Answers to Concept Questions 1. No. As interest rates fluctuate, the value of a Treasury security will fluctuate. Long-term Treasury securities have substantial interest rate risk. securities have substantial interest rate risk. securities have substantial interest rate risk.

20. The company should set the coupon rate on its new bonds equal to the required return. The required return can be observed in the market by finding the YTM on outstanding bonds of the company. So, the YTM on the bonds currently sold in the market is:

CHAPTER 5 B - 1 16. Miller Corporation P0 Enter 26 3.1% $41 $1,000 N I/Y PV PMT FV Solve for $1,176.73 P1

CHAPTER 6 C-1 CHAPTER 6 STOCK VALUATION AT RAGAN THERMAL SYSTEMS 1. The total dividends paid by the company were $390,000. Since there are 250,000 shares outstanding, the total earnings for the company were: Total earnings = 250,000($3.65) = $912,500 This means the

CHAPTER 6 STOCK VALUATION Answers to Concept 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

CHAPTER 6 B - 1 23. The dividend yield is the dividend divided by the stock price, so: Dividend yield = Dividend/Stock price .027 = Dividend/$34.18 Dividend = $.92 The Net Chg of the stock shows the stock increased by $.19 on this

CHAPTER 6 C-1 CHAPTER 7 BULLOCK GOLD MINING 1. An example spreadsheet is: CHAPTER 6 C-2 2. Since the NPV of the mine is positive, the company should open the mine. We should note, it may be advantageous to delay the mine

CHAPTER 7 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA Answers to Concept Questions 1. Assuming conventional cash flows, a payback period less than the projects life means that the NPV is positive for a zero discount rate, but nothing more definitive can be said. For discount

13. a. The IRR is the interest rate that makes the NPV of the project equal to zero. So, the IRR for each project is: Deepwater Fishing IRR: 0 = C0 + C1/(1 + IRR) + C2/(1 + IRR)2 + C3/(1 + IRR)3 0 = $835,000

21. a. The NPV of each project is: NPVNP-30 = $940,000 + $345,000/1.12 + $335,000/1.122 + $310,000/1.123 + $295,000/1.124 + $205,000/1.125 NPVNP-30 = $159,547.88 NPVNX-20 = $650,000 + $250,000/1.12 + $250,000/1.122 + $245,000/1.123 + $230,000/1.124 + $175,000/1.125 NPVNX-20 = $192,367.77 The NPV criteria implies accepting the

CHAPTER 7 B - 1 30. The IRR is the interest rate that makes the NPV of the project equal to zero. So, the IRR of the project is: 0 = $50,000 $61,000/(1 + IRR) + $41,000/(1 + IRR)2 Even though it appears there are two

CHAPTER 8, CASE 2 C-1 CHAPTER 8A EXPANSION AT EAST COAST YACHTS The preliminary analysis of the project is a sunk cost and should be ignored. The cash flow to start the project is the $55 million and will occur immediately. The $30 million outlay will

CHAPTER 8 MAKING CAPITAL INVESTMENT DECISIONS Answers to Concept 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,

18. The present value of the company is the present value of the future cash flows generated by the company. Here we have real cash flows, a real interest rate, and a real growth rate. The cash flows are a growing perpetuity, with a negative growth rate. Using the growing

26. Replacement decision analysis is the same as the analysis of two competing projects, in this case, keep the current equipment, or purchase the new equipment. We will consider the purchase of the new machine first. Purchase new machine: The initial cash outlay for the new

31. To find the initial pretax cost savings necessary to buy the new machine, we should use the tax shield approach to find the OCF. We begin by calculating the depreciation each year using the MACRS depreciation schedule. The depreciation each year is: D1 = $580,000(.3333) = $193,314

CHAPTER 8 B - 1 36. To answer this question, we need to compute the NPV of all three alternatives, specifically, continue to rent the building, Project A, or Project B. If all three of the projects have a positive NPV, the project that is more favorable is the one

CHAPTER 9 C-1 CHAPTER 9 BUNYAN LUMBER, LLC The company is faced with the option of when to harvest the lumber. Whatever harvest cycle the company chooses, it will follow that cycle in perpetuity. Since the forest was planted 20 years ago, the options available in

CHAPTER 9 RISK ANALYSIS, REAL OPTIONS, AND CAPITAL BUDGETING Answers to Concept Questions 1. Forecasting risk is the risk that a poor decision is made because of errors in projected cash flows. The danger is greatest with a new product because the cash flows are probably

14. The marketing study and the research and development are both sunk costs and should be ignored. We will calculate the sales and variable costs first. Since we will lose sales of the expensive clubs and gain sales of the cheap clubs, these must be accounted for as erosion. The

CHAPTER 9 B - 1 22. Apply the accounting profit break-even point formula and solve for the sales price, P, that allows the firm to break even when producing 40,000 calculators. In order for the firm to break even, the revenues from the calculator sales must equal the total annual

Answer: E Difficulty: 1 Easy Section: 1.1 What Is Corporate Finance? Topic: Asset classes Bloom's: Level 1 Remember Accessibility: Keyboard Navigation Answer: E Difficulty: 1 Easy Section: 1.1 What Is Corporate Finance? Topic: Asset classes Bloom's: Level 1 Remember Accessibility: Keyboard Navigation Answer: E Difficulty: 1 Easy Section: 1.1 What

stock pays an annual dividend of $1.06 per share. Today, she sold all of her shares for $37.43 per share. What is her total dollar return on this investment? A) $703 B) $838 C) $1,022 D) $1,262 E) $1,050 Answer: B Explanation: Total dollar return = ($37.43 $42.68

Corporate Finance: Core Principles & Apps, 5e (Ross) Chapter 10 Risk and Return: Lessons from Market History 1) Which one of the following values cannot be negative? A) Capital gain B) Total dollar return C) Holding period return D) Dividend yield E) Total return Answer: D Difficulty:

1 Answer: A Difficulty: 1 Easy Section: 11.1 Individual Securities Topic: Standard deviation and variance Bloom's: Level 1 Remember Accessibility: Keyboard Navigation 1 Answer: A Difficulty: 1 Easy Section: 11.1 Individual Securities Topic: Standard deviation and variance Bloom's: Level 1 Remember Accessibility: Keyboard Navigation 1 Answer: A Difficulty: 1 Easy

20 Answer: C Explanation: E(r) = 0.04(0.34) + 0.81(0.13) + 0.15(0.22) = 0.0859 = [0.04(0.34 0.0859)2 + 0.81(0.13 0.0859)2 + 0.15(0.22 0.0859)2]0.5 = 0.1349, or 13.49% Difficulty: 3 Hard Section: 11.2 Expected Return, Variance, and Covariance Topic: Standard deviation and variance Bloom's: Level 4 Analyze AACSB: Analytical Thinking 20 Answer:

Corporate Finance: Core Principles & Apps, 5e (Ross) Chapter 12 Risk, Cost of Capital, and Valuation 1) The discount rate for a project should equal the A) cost of equity of the firm. B) expected return on a financial asset of comparable risk. C) discount rate used

50) An all-equity firm has a beta of 1.27. What will be the equity beta if the firm adopts a debt-to-equity ratio of 0.42? A) 1.829 B) 1.803 C) 1.786 D) 1.774 E) 1.843 Answer: B Explanation: Equity = 1.27[1 + (0.42 / 1)] = 1.803 Difficulty:

Answer: D Difficulty: 1 Easy Section: 13.1 A Description of Efficient Capital Markets Topic: Market efficiency - foundations and types Bloom's: Level 1 Remember Accessibility: Keyboard Navigation Answer: D Difficulty: 1 Easy Section: 13.1 A Description of Efficient Capital Markets Topic: Market efficiency - foundations and types Bloom's: Level 1

19 Answer: E Explanation: Price per share = $672,000 / 50,000 = $13.44 Number of shares repurchased = $33,600 / $13.44 = 2,500 shares EPSNormal = {[$64,500 (0.076 $33,600)](1 0.34)} / (50,000 2,500) = $0.8607 EPSBoom = {[$73,000 (0.076 $33,600)](1 0.34)} / (50,000 2,500) = $0.9788 % in EPS =

1 Answer: A Difficulty: 1 Easy Section: 14.2 Maximizing Firm Value versus Maximizing Stockholder Interests Topic: Capital structure Bloom's: Level 1 Remember Accessibility: Keyboard Navigation 1 Answer: A Difficulty: 1 Easy Section: 14.2 Maximizing Firm Value versus Maximizing Stockholder Interests Topic: Capital structure Bloom's: Level 1 Remember Accessibility: Keyboard Navigation

Corporate Finance: Core Principles & Apps, 5e (Ross) Chapter 15 Capital Structure: Limits to the Use of Debt 1) Which one of these represents an indirect cost of financial distress? A) Court fees paid to a bankruptcy court B) Legal fees paid to bankruptcy attorneys C) Additional accounting

36) The complete termination of a firm as a going business concern is called a A) merger. B) repurchase program. C) liquidation. D) divestiture. E) reorganization. Answer: C Difficulty: 1 Easy Section: 15.8 A Quick Look at the Bankruptcy Process Topic: Financial distress and default risk Bloom's: Level

1 Corporate Finance: Core Principles & Apps, 5e (Ross) Chapter 16 Dividends and Other Payouts 1) How frequently do dividend-paying firms in the United States generally pay regular cash dividends? A) Annually B) Semiannually C) Quarterly D) Monthly E) Biannually Answer: C Difficulty: 1 Easy Section: 16.1

18 Answer: E Difficulty: 2 Medium Section: 16.10 Stock Dividends and Stock Splits Topic: Accounting for dividends and other payouts Bloom's: Level 2 Understand Accessibility: Keyboard Navigation 18 Answer: E Difficulty: 2 Medium Section: 16.10 Stock Dividends and Stock Splits Topic: Accounting for dividends and other payouts Bloom's: Level

18 Answer: E Explanation: Minimum value = 100 $30 = $3,000. Since there is no upper bound on the stock price, the maximum value is unlimited. Difficulty: 3 Hard Section: 17.3 Put Options Topic: Option combinations Bloom's: Level 4 Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation 18 Answer: E Explanation:

1 Answer: D Difficulty: 1 Easy Section: 17.1 Options Topic: Options Bloom's: Level 1 Remember Accessibility: Keyboard Navigation 1 Answer: D Difficulty: 1 Easy Section: 17.1 Options Topic: Options Bloom's: Level 1 Remember Accessibility: Keyboard Navigation 1 Answer: D Difficulty: 1 Easy Section: 17.1 Options Topic: Options Bloom's: Level 1

47) Super Mart has sales of $542,300. The cost of goods sold is equal to 59 percent of sales. The beginning accounts receivable balance is $86,534, and the ending accounts receivable balance is $84,209. How long on average does it take the firm to collect its receivables? A) 57.46

Corporate Finance: Core Principles & Apps, 5e (Ross) Chapter 18 Short-Term Finance and Planning 1) Which one of the following is a source of cash? A) An increase in inventory B) An increase in fixed assets C) A decrease in long-term debt D) The payment of a cash

16 Answer: C Difficulty: 2 Medium Section: 19.11 Issuing Long-Term Debt Topic: Basics of issuing securities Bloom's: Level 2 Understand Accessibility: Keyboard Navigation 16 Answer: C Difficulty: 2 Medium Section: 19.11 Issuing Long-Term Debt Topic: Basics of issuing securities Bloom's: Level 2 Understand Accessibility: Keyboard Navigation 16 Answer: C Difficulty:

1 Answer: B Difficulty: 1 Easy Section: 19.1 Early-Stage Financing and Venture Capital Topic: Venture capital Bloom's: Level 1 Remember Accessibility: Keyboard Navigation 1 Answer: B Difficulty: 1 Easy Section: 19.1 Early-Stage Financing and Venture Capital Topic: Venture capital Bloom's: Level 1 Remember Accessibility: Keyboard Navigation 1 Answer: B Difficulty:

55) The Down Towner has annual costs of goods sold of $42,600, interest expense of $650, selling and administrative expenses of $7,800, dividends paid of $1,200, depreciation of $1,100, and a tax rate of 34 percent. What is the firm's taxable income if it added $2,500 to retained

Corporate Finance: Core Principles & Apps, 5e (Ross) Chapter 2 Financial Statements and Cash Flow 1) A current asset is best defined as A) the market value of all assets currently owned by the firm. B) an asset the firm expects to purchase within the next year.

75) You have compiled the following information on the Shoe Store: 2016 2017 Assets Cash $ 214 $ 187 Accounts receivable 1,306 1,259 Inventory 1,847 2,048 Net fixed

48) You just returned from some extensive traveling. You started your trip with $25,000 in your pocket. You spent 7,800 traveling throughout the European Union, 5,500NKr in Norway, and 9,100 in the United Kingdom. The exchange rates were $1 = .8031, 1NKr = $.1422, and 1 = $1.5649. How

Corporate Finance: Core Principles & Apps, 5e (Ross) Chapter 20 International Corporate Finance 1) Up-Town Markets exchanged their floating-rate payments with Downtown Markets' fixed-rate payments. This exchange is referred to as a A) gilt exchange. B) forward rate. C) cross-rate. D) spot exchange. E) swap. Answer: E

Answer: C Difficulty: 2 Medium Section: 21.1 The Legal Forms of Acquisitions Topic: Mergers, acquisitions, and divestitures Bloom's: Level 2 Understand Accessibility: Keyboard Navigation Answer: C Difficulty: 2 Medium Section: 21.1 The Legal Forms of Acquisitions Topic: Mergers, acquisitions, and divestitures Bloom's: Level 2 Understand Accessibility: Keyboard Navigation Answer: C

32 Answer: D Explanation: Total asset turnover = $3,850 / ($124 + $518 + $1,027 + $2,498) = 0.92 times Difficulty: 3 Hard Section: 3.2 Ratio Analysis Topic: Asset management ratios Bloom's: Level 3 Apply AACSB: Analytical Thinking 32 Answer: D Explanation: Total asset turnover = $3,850 / ($124

21 Answer: D Explanation: EBIT = 4.1 $24,300 = $99,630 Cash coverage ratio = ($99,630 + $126,200) / $24,300 = 9.29 times This can also be calculated as: Cash coverage ratio = 4.1 + ($126,200 / $24,300) = 9.29 times Difficulty: 3 Hard Section: 3.2 Ratio Analysis Topic: Long-term

1 Answer: D Difficulty: 1 Easy Section: 3.1 Financial Statements Analysis Topic: Standardized financial statements Bloom's: Level 1 Remember Accessibility: Keyboard Navigation 1 Answer: D Difficulty: 1 Easy Section: 3.1 Financial Statements Analysis Topic: Standardized financial statements Bloom's: Level 1 Remember Accessibility: Keyboard Navigation 1 Answer: D Difficulty: 1

38 Answer: C Explanation: PV9 = $15,000{[1 (1 / 1.0715)] / .07} = $136,618.71 PV = $136,618.71 / (1.07)4 = $104,225.76 Enter 15 7% $15,000 N I/Y PV PMT FV Solve for $136,618.71 Enter 4 7% $136,618.71 N I/Y PV PMT FV Solve for $104,225.76 Difficulty: 3 Hard Section:

21 Answer: B Explanation: PV = $7,800 + $5,600 / 1.16 + $7,900 / 1.162 + $11,200 / 1.163 = $10,073.94 CF0 $7,800 CO1 $5,600 FO1 1 CO2 $7,900 FO2 1 CO3 $11,200 FO3 1 I = 16% NPV CPT = $10,073.94 Difficulty: 3 Hard Section: 4.2 The Multiperiod

1 Corporate Finance: Core Principles & Apps, 5e (Ross) Chapter 4 Discounted Cash Flow Valuation 1) Which one of these statements related to the time value of money is correct? Assume a positive rate of interest. A) A dollar increases in value the further into the future it

21 Answer: D Explanation: 1.01 $1,000 = C ({1 1 / [1 + (0.0623 / 2)]122} / (0.0623 / 2)) + {$1,000 / [1 + (0.0623 / 2)]122} C = $31.75 Enter 12 2 6.23% / 2 $1,010 $1,000 N I/Y PV PMT FV Solve for $31.75 Coupon rate

1 Corporate Finance: Core Principles & Apps, 5e (Ross) Chapter 5 Interest Rates and Bond Valuation 1) All else constant, a bond will sell at ________ when the yield to maturity is ________ the coupon rate. A) par; less than B) a premium; equal to C) par; higher

32 Answer: A Explanation: Bond value = $1,000 / [1 + (0.08 / 2)]122 = $390.12 Enter 12 2 8% / 2 $1,000 N I/Y PV PMT FV Solve for $390.12 Difficulty: 3 Hard Section: 5.5 Bond Markets Topic: Bond valuation Bloom's: Level 3 Apply AACSB: Analytical Thinking 32

20 Answer: C Explanation: P3 = $2 / 0.17 = $11.76 P0 = $4 / 1.172 + ($4 + 11.76) / 1.173 = $12.77 Difficulty: 3 Hard Section: 6.1 The Present Value of Common Stocks Topic: Nonconstant-growth stock Bloom's: Level 4 Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation 20

1 Corporate Finance: Core Principles & Apps, 5e (Ross) Chapter 6 Stock Valuation 1) Alto stock pays an annual dividend of $1.10 a share and has done so for the past 6 years. No changes in the dividend amount are expected. The relevant market rate of return is

1 Answer: B Difficulty: 1 Easy Section: 7.1 Why Use Net Present Value? Topic: Net present value Bloom's: Level 1 Remember Accessibility: Keyboard Navigation 1 Answer: B Difficulty: 1 Easy Section: 7.1 Why Use Net Present Value? Topic: Net present value Bloom's: Level 1 Remember Accessibility: Keyboard Navigation 1

20 50) Rodriquez's Hot Rods is considering a new project with an initial cost of $54,780 and a discount rate of 14 percent. The project is expected to have cash inflows of $27,000 a year for 3 years. What is the discounted payback period? A) 2.17 years B) 2.11

20 Answer: B Explanation: Book valueYear 4 = $21,650 (1 0.2 0.32 0.192 0.1152) = $3,741.12 Difficulty: 3 Hard Section: 8.2 The Baldwin Company: An Example Topic: Depreciation Bloom's: Level 3 Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation 20 Answer: B Explanation: Book valueYear 4 = $21,650 (1 0.2

1 Answer: D Difficulty: 1 Easy Section: 8.1 Incremental Cash Flows Topic: Cash flows Bloom's: Level 1 Remember Accessibility: Keyboard Navigation 1 Answer: D Difficulty: 1 Easy Section: 8.1 Incremental Cash Flows Topic: Cash flows Bloom's: Level 1 Remember Accessibility: Keyboard Navigation 1 Answer: D Difficulty: 1 Easy Section:

20 Answer: D Explanation: EBITSP = $18 = [($18 $8) 22,300] $127,800 48,000 = $47,200 Difficulty: 3 Hard Section: 9.2 Sensitivity Analysis, Scenario Analysis, and Break-Even Analysis Topic: Sensitivity analysis Bloom's: Level 4 Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation 20 Answer: D Explanation: EBITSP = $18 = [($18 $8)

1 Answer: B Difficulty: 1 Easy Section: 9.1 Decision Trees Topic: Decision trees Bloom's: Level 1 Remember Accessibility: Keyboard Navigation 1 Answer: B Difficulty: 1 Easy Section: 9.1 Decision Trees Topic: Decision trees Bloom's: Level 1 Remember Accessibility: Keyboard Navigation 1 Answer: B Difficulty: 1 Easy Section: 9.1 Decision Trees