Corporate Finance: A Focused Approach 6th Edition

Solution Chapter: 2 Problem: 14 Key Input Data for Cumberland Industries 2016 (Thousands of dollars) Sales Revenue $455,000 Expenses (excluding depreciation) as a percent of sales 85.0% Net fixed assest $67,000 Depr. as a % of net fixed assets 10.0% Tax rate 40.0% Interest expense $8,550 Dividend Payout Ratio 25% Cumberland Industries: Income Statement (Thousands of dollars) 2016 Sales$455,000Operating costs excluding depreciation$386,750 EBITDA$68,250Depreciation (Cumberland has no

Solution 7/16/2015 Chapter: 2 Problem: 15 Lan & Chen Technologies: Income Statements for Year Ending December 31 (Thousands of Dollars) 2016 2015 Sales $945,000 $900,000 Expenses excluding depreciation and amortization 812,700 774,000 EBITDA $132,300 $126,000 Depreciation and amortization 33,100 31,500 EBIT $99,200 $94,500 Interest Expense 10,470 8,600 EBT $88,730

Solution 7/16/2015 Chapter: 3 Problem: 15 Joshua & White Technologies: December 31 Balance Sheets (Thousands of Dollars) Assets 2016 2015 Cash and cash equivalents $21,000 $20,000 Short-term investments 3,759 3,240 Accounts Receivable 52,500 48,000 Inventories 84,000 56,000 Total current assets $161,259 $127,240 Net fixed assets 218,400 200,000Total assets $379,659 $327,240Liabilities and equityAccounts payable $33,600 $32,000 Net fixed assets

Solution 7/16/2015 Chapter: 4 Time Value of Money Problem: 35 Inputs: PV = 1000 I/YR = 10% N = 5 Formula: FV = PV(1+I)^N = 1,610.51$ Wizard (FV): $1,610.51 Experiment by changing the input values to see how quickly the output values change.Years (D10):1,610.51$ 0% 5% 20% 0$1,000.00 $1,000.00 $1,000.00 1$1,000.00

Solution Chapter: 5 Problem: 24 Basic Input Data: Years to maturity: 20 Periods per year: 2 Periods to maturity: 40 Coupon rate: 8% Par value: $1,000 Periodic payment: $40 Current price $1,100 Call price: $1,040 Years till callable: 5 Periods till callable: 10 a. What is the bond's yield to maturity? Peridodic YTM = 3.53% Annualized Nominal YTM = 7.06% Hint: This is a nominal rate, not the effective rate. Nominal rates

Solution 7/16/2015 Chapter: 6 Problem: 15 Data as given in the problem are shown below: Market Index Year Stock Price Dividend Stock Price Dividend Includes Divs. 2016 $25.88 $1.73 $73.13 $4.50 17,495.97 2015 $22.13 $1.59 $78.45 $4.35 13,178.55 2014 $24.75 $1.50 $73.13 $4.13 13,019.97 2013 $16.13 $1.43 $85.88 $3.75 9,651.05 2012 $17.06 $1.35 $90.00 $3.38 8,403.42 2011 $11.44 $1.28

Solution Chapter: 7 Valuation of Stocks and Corporations Problem: 22 Selected data for the Derby Corporation are shown below. Use the data to answer the following questions. INPUTS (In millions) Current 0 1 2 3 Free cash flow -$20.0 $20.0 $80.0 Marketable Securities $40 Notes payable $100 Long-term bonds $300 Preferred stock $50 WACC 9.00%

Solution Reminder: delete the other scenarios in student version! Chapter: 8 Valuation of Stocks and Corporations Problem: 23 Value Drivers in the Free Cash Flow Valuation Model Estimated Data for Traver-Dunlap Corporation Forecast 1 2 3 Annual sales growth rate 20% 6% 6% Operating profitability (NOPAT/Sales) 12% 10% 10% Capital requirement (OpCap/Sales) 80%

1 2 3 4 5 6 7 8 9 10 11 12 1314151617rs11.0% g0,1 30% Short-run g; for Year 1 only. g1,2 15% Short-run g; for Year 2 only. gL5% Long-run g; for Year 3 and all following years. 1314151617rs11.0% g0,1 30% Short-run g; for Year 1 only. g1,2 15% Short-run g; for Year 2 only. gL5% Long-run g; for Year 3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 A B C D E F G H I Solution Chapter: 8 Problem: 8 You have been given the following information on a call option on the stock of Puckett Industries: P = $65 X = $70 t = 0.5 rRF = 5% s = 0.50 a. Using the Black-Scholes Option Pricing Model, what

Solution 7/16/2015 Chapter: 9 Problem: 18 INPUTS USED IN THE MODEL P0$50.00 Net Ppf $30.00 Dpf $3.30 D0$2.10 g 7% B-T rd10% Skye's beta 0.83 Market risk premium, RPM6.0% Risk free rate, rRF 6.5% Target capital structure from debt 45% Target capital structure from preferred stock 5% Target capital structure from common stock 50% Tax rate 35% Flotation cost for common 10% Cost of

Solution Chapter: 10 Problem: 23 Expected Net Cash Flows Time Project A Project B 0($375) ($575) 1($300) $190 2($200) $190 3($100) $190 4$600 $190 5$600 $190 6$926 $190 7($200) $0 @ 12% cost of capital @ 18% cost of capital WACC = 12% WACC = 18% NPV A = $226.96 NPV A =

Solution 8/13/2015 Chapter: 11 Estimating Cash Flows and Analyzing Risk Problem: 18 Input Data (in thousands of dollars) Equipment cost $10,000 Key Results: Net operating working capital/Sales 10% NPV = $3,463 First year sales (in units) 1,000 IRR = 21.1% Sales price per unit $24.00 Payback = 2.90 Variable cost per unit

Page 7 Page 8 Page 9 Page 10 rse case scenarios from the Scenario Manager. Also delete this message in the student version. Page 11 Page 11 Page 11 Scenario Summary Current Values: Base Best Worst Changing Cells: $D$29 1,000 1,000 1,200 800 $D$30 $24.00 $24.00 $28.80 $19.20 $D$31 $17.50 $17.50 $14.00 $21.00 Result Cells: $D$79 $3,463 $3,463 $25,435 ($11,990) $D$80

Solution to Build a Model Problem Chapter: 12 Problem: 10 Key Input Data: Used in the forecast Tax rate 40% Dividend growth rate 8% Rate on notes payable-term debt, rstd 9% Rate on long-term debt, rd11% Rate on line of credit, rLOC 12% Income Statements:(December 31, in thousands of dollars)Sales $455,150 Growth

Solution to Build a Model Problem Chapter: 12 Problem: 11 2016 Net Sales 800.0$ Costs (except depreciation) 576.0$ Depreciation 60.0$ Total operating costs 636.0$ Earning before int. & tax 164.0$ Less interest 32.0$ Earning before taxes 132.0$ Taxes (40%) 52.8$ Net income before pref. div. 79.2$ Preferred div.

Solution Chapter: 14 Problem: 13 Inputs Amount of distribution $500 Tax rate 40% WACC 11.0% Number of shares 1,000 FCF constant growth rate 6.0% Actual Projected Income Statement (Millions of Dollars) 6/30/2016 6/30/2017 Net Sales $20,000.00 $21,200.00 Costs (except depreciation) $16,000.00 $16,960.00 Depreciation $1,300.00 $1,378.00 Earning before int. & tax $2,700.00 $2,862.00

Solution Chapter: 15 Problem: 13 Input Data Risk-free rate 4.5% Market risk premium 5.5% Unlevered beta 0.8 0% 6.0% Tax rate 40.0% 10% 6.1% 20% 7.0% 30% 8.0% 40% 10.0% 50% 12.5% 60% 15.5% 70% 18.0% Fill in formulas in the yellow cells to find the optimum capital structure. Debt/Value Equity/Value Debt/Equity A-T

Solution 7/16/2015 Chapter: 15 Problem: 14 a. Using the Black-Scholes Option Pricing Model, how much is the equity worth? Black-Scholes Option Pricing Model Total Value of Firm 200.00 this is the current value of operations Face Value of Debt 100.00 Risk Free rate 5% Maturity of debt (years) 3.00 Standard Dev. 0.45 this

Solution 7/16/2015 Chapter: 16 Problem: 18 Input Data Collections during month of sale 15% Collections during month after sale 65% Collections during second month after sale 20% Lease payments $5,000 Target cash balance $40,000 General and administrative salaries $15,000 Depreciation charges $7,500 Income tax payments (Sep & Dec) $25,000 Miscellaneous expenses

1 2 3 4 5 6 7 8 9 10111213202122232431323334354142434445465152535455565758You will find Tables 17-1, 17-2, and 17-3 useful for this problem.Note: only blue cells need to be updated with current quotes.Direct Indirect Swiss franc 0.9944 1.0056 British pound 1.4744 0.6782 Euro 1.0497 0.9527 Dollar Euro Pound SFranc Peso Yen CdnDlr Canada 1.2784 1.3419 1.8849 1.2713 0.0825 0.0105 .... Japan

1 2 3 4 5 6 7 8 9 10 11 12 13 141516171819 141516171819 14 15 16 17 18 19 20 21 22 23 24 252627282930 252627282930 25 26 27 28 29 30 31 32 33 34 35 3637383940 3637383940 36 37 38 39 40 41 42 43 44 45 46 47484950 47484950 47 48 49 50 51 52 53 54 55 56 57 58 K 59 60 61 62 63 64 65 66 67 68 69 70 71 72 K 73 74 75 76 77 78 79 808182 808182 80 81 82 83 84 85 86 87 888990919293 888990919293 88 89 90 91 92 93 94 95 96 97 98 99100101102103104 99100101102103104 99 100 101 102 103 104 105 106 107 108 109 110111112113114115 110111112113114115 110 111 112 113 114 115 116 117 118 119 120 121122123124125126 121122123124125126 121 122 123 124 125 126 127 128 129 130 131 132 132 132 K lr) d) 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 161 161 162 163164165166 163164165166 163 164 165 166 167 168 169 170 171 K lr) d) 172 173 174 175 176 177 178 179 180 181182183184185186 181182183184185186 181 182 183 184 185 186 187 188 189 190 191 192193194195196197 192193194195196197 192 193 194 195 196 197 198 199 200 201 202 203204205 203204205 203 204 205 206 207208 207208 207 208 209 210 211 212 213 214 214 214 215 216217218219 lr) 216217218219 lr) 216 217 218 219 lr) 220 221 222 223 224 225226227228229230 225226227228229230 225 226 227 228 229 230 231 K

1 2 3 4 5 6 7 8 9 10 11 121314151617InputsValue of operations (VPre-IPO)$210 million Number of existing shares (nExisting)12 million Target net proceeds $30 million Flotation costs (F) 7% 121314151617InputsValue of operations (VPre-IPO)$210 million Number of existing shares (nExisting)12 million Target net proceeds $30 million Flotation costs (F) 7% 12 13 14 15 16 17 Inputs Value of operations (VPre-IPO)$210 million Number of existing shares (nExisting)12

1 2 3 4 5 6 7 8 9 10 11 12 1314151617Current bond issue dataA call premium of 10 percent would be required to retire the old bonds, and flotation costs on the new issue would amount to $5 million. Schumann's marginal federal-plus-state tax rate is 40 percent. The new bonds would be issued 1 month before the old bonds are

1 2 3 4 5 6 7 8 9 10 11 12 131415161718$20,000 per year paid at the end of each year. The loom falls in the MACRS 5-year class, and Western's marginal federal-plus-state tax rate is 40%.Gardial Automation Inc., maker of the loom, has offered to lease the loom to Westen for $70,000 upon delivery and 131415161718$20,000 per year paid at

1 2 3 4 5 6 7 8 9101112192021222328293031323334394041424344457%4%$1,000.006.00%20Yearstock price at year end(1)Conversion Value(2)Convert? (Yes, no, or already)value of convertible(3)bondholder if converted(4)0 22.00 704.00 $894.06 -$1,000.00 1 23.54 753.28 No $896.64 $60.00 2 25.19 806.01 No $899.41 $60.00 3 26.95 862.43 No $902.37 $60.00 4 28.84 922.80 No $905.53 $60.00 5 30.86 987.40 No $908.92 $60.00 will have

Solution Chapter: 21 Problem: 8 INPUTS (In millions) Projected Year 1 2 3 4 Free cash flow $200.0 $280.0 $320.0 $340.0 Interest expense $100.0 $120.0 $120.0 $140.0 Long-term growth rate 5% Tax rate 40% Unlevered cost of equity 12.00% Current 1 2 3 Free cash flow $200.0 $280.0 $320.0 Horizon unlevered value of operations Current value of

1 2 3 4 5 6 7 8 9 10111219202122233031323334414243444552535455562017 2018 2019 2020 2021Net sales $500 $600 $700 $760 $806 Selling and administrative expense 60 70 80 90 96 Cost of debt before merger 9% Debt ratio (percent financed with debt) after the merger 40% Cost of debt after merger 10% Beta of ACC 1.40 Risk-free rate 7% Step

Ch23 P06 Build a Model Solution.xlsx Build a Model Solution 7/16/2015 Chapter: 23 Problem: 6 Problem Inputs: Size of planned debt offering = $20,000,000 Anticipated rate on debt offering = 10% Maturity of planned debt offering = 20 Number of months until debt offering = 5 Settle price on futures contract (% of

Solution Chapter: 24 Problem: 5 Balance Sheets (Millions of Dollars) Assets Current assets $700 Net fixed assets 1,300 Total assets $2,000 Liabilities and equity Accounts payable $80 Accrued taxes 80 Accrued wages 70 Notes payable 400 Total current liabilities $630 First-mortgage bondsa700 Second-mortgage bondsa300 Accounts payable $80 Accrued taxes 80 Accrued wages 70 Notes payable

Solution 7/16/2015 Chapter: 25 Problem: 7 Here are the expected returns and standard deviations for stocks A, B, and C: Stock risi A7.0% 33.11% B10.0% 53.85% C20.0% 89.44% Here is the correlation matrix: A B C A1.0000 0.1571 0.1891 B0.1571 1.0000 0.1661 C0.1891 0.1661 1.0000 wA = 30% wB = 50% wC = 20% rp

Solution 7/16/2015 Chapter: 26 Problem: 9 a. Find the project's expected cash flows and NPV. WACC= 12% Condition Probability CF CF x Prob. Good 30% $9 $2.70 Medium 40% $4 $1.60 Bad 30% -$1 -$0.30 Expected CF= $4.00 Time line of Expected CF 0 1 2 3 -$10 $4.00 $4.00 $4.00 NPV= -$0.39 Without any real

1 2 3 4 5 6 7 89101117181920Common equityTotal assets $10,000,000 Total liabilities and equitysuppliers are getting upset. Stewart does not take discounts, and it has been paying in 50 days. Assume that the accounts payable are recorded at full cost, not net of discounts. Stew follows: 89101117181920Common equityTotal assets $10,000,000 Total liabilities and equitysuppliers are getting upset.

81 82 83 84 85 868788899091989910010110210911011111211312012112212312411 of 27 868788899091989910010110210911011111211312012112212312411 of 27 86 87 88 89 90 91 98 99 100 101 102 109 110 111 112 113 120 121 122 123 124 11 of 27 929394959697 929394959697 92 93 94 95 96 97 103104105106107108 103104105106107108 103 104 105 106 107 108 114115116117118119 114115116117118119 114 115 116 117 118 119 125126127128129 125126127128129 125 126 127 128 129 P Q R S T U V W X Y 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 P Q R S T U V W X Y 12 of 27 1 2 3 4 5 6 7 8 9 10 11 12 1314151617 1314151617 13 14 15 16 17 18 19 20 21 22 23 2425262728 2425262728 24 25 26 27 28 29 30 31 32 33 34 3536373839 3536373839 35 36 37 38 39 40 41 42 43 4445464713 of 27 4445464713 of 27 44 45 46 47 13 of 27 ZAA AB AC AD AE AF AG AH AI 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 7273747576 7273747576 72 73 74 75 76 77 78 79 80 ZAA AB AC AD AE AF AG AH AI

130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 AJ AK AL AM AN AO AP AQ AR AS 20 of 27 20 of 27 20 of 27 1 2 3 4 5 6 7 8 910111213 910111213 9 10 11 12 13 14 15 16 17 18 19 2021222324 2021222324 20 21 22 23 24 25 26 27 28 29 30 3132333435 3132333435 31 32 33 34 35 36 37 38 39 40 41 424344 424344 42 43 44 45 46 47 AT AU AV AW AX AY AZ BA BB BC 21 of 27 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 7172 7172 71 72 73 74 75 76 77 78 7980Option #1: Take discountNew A/P = 7980Option #1: Take discountNew A/P = 79 80 Option #1: Take discount New A/P = AT AU AV AW AX AY AZ BA

Solution Chapter: 28 Problem: 3 INPUT DATA: Fixed order cost (F) $24 Annual unit sales (S) 338,000 Carrying cost (C) 20% Purchase price (P) $3 Desired safety stock 14,000 Order multiple 100 Weeks for delivery 2 Ordering quantity (part d) 4,000 Important note: Make your formulas refer to the cells in the input

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 14 14 15 16 17 18 19 202122232425Franchise SYear (t)Franchise SFranchise L 0 1 2 3 0($100) ($100) (100) 70 50 20 170 10 Expected Net Cash Flows 202122232425Franchise SYear (t)Franchise SFranchise L 0 1 2 3 0($100) ($100) (100) 70 50 20 170 10 Expected Net Cash Flows 20 21 22 23 24 25 Franchise S Year (t) Franchise S Franchise L 0 1 2

1 2 3 4 5 6 7 8 9 10 11 12 13 14 14 14 15 16 17 18 19 202122232425 202122232425 20 21 22 23 24 25 26 27 28 29 30 31 323334 323334 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 K 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 94 94 95 96 96 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 K 10 1,090 122 123 124 125 126 127 128 129 130 131 132 133134135 133134135 133 134 135 136 137 138 139 140 141 142 143144 143144 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 K 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 207 207 208 209 210 211212213214215216 211212213214215216 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232233 232233 232 233 234 235 K 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 252 252 253 254 255 256 257 258 259 260 261 262 263 264265266 264265266 264 265 266 267 268 269 270 271 272 273 274 275 276 277 278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 K d back at 10 303 304 305 K 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 353 354 355 356 K 357 358 359 360 361 362 363 364 365 366 367 368 369 370 371 371 371 372 373 374 375 376 377 378 379 380 381 382 383 384 385 386 387 388 389 390 391 392 393 394 395 396 397 398 399 400 401 402 403 404 405 406 407 408 409 410 411 412 413 414 415 416 417 418 K

419 420 421 422 423 424 425 426 427 428 429 430 431 432433 432433 432 433 434 435 436437 436437 436 437 438 439 440 441 442 443 444 445 446 447 448 449 450 451 452 453 454 455 456 457 458 459 460 461 462 463 464 465 466 467 468 469 470 471 472 473 474 475 476 477 478 478 478 479 480 481 K 482 483 484 485 486 487 488 489 490 K 1 2 3 4 5 6 7 8 9 10 11 12 13 14151617181920212230313233343536373839404142434445464748495051525354Notice that the NPV function isn't really a net present value. Instead, it is the present value of future cash flows. Thus, you specify only the future cash flows in the NPV function. To find the true NPV, you must add the time zero cash flow to the result of

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Mini Case: 10 - 31 Expressed as an equation, we have: IRR: N0t t t)IRR1(CF = $0 = NPV. Note that the IRR equation is the same as the NPV equation, except that to find the IRR the equation is solved for the particular discount rate, IRR, which forces

Chapter 11 Mini Case Situation Part I: Input Data Equipment cost $200,000 Key Output: NPV = $88,010 Shipping charge $10,000 Installation charge $30,000 Economic Life 4 Salvage Value $25,000 Tax Rate 40% Cost of Capital 10% Units Sold 1,250 Sales Price Per Unit $200 Incremental Cost Per Unit $100 NWC/Sales 12% Inflation

k. Assume that Sidney Johnson is confident of her estimates of all the variables that affect the projects cash 0 units a 1,600 units chance of swer: See (3.) Use the worst-, most likely, and best-case NPVs and probabilities of occurrence to find the

84 2676.4919 219.82866 462561.7233 85 -10.40211 -364.0957 -140440.7626 86 -618.5412 233.0352 -307260.417 87 361.9738 203.851 -78270.11082 88 1626.8792 23.499795 -398079.6619 89 -412.2452 34.719609 -95947.29666 90 -234.3981 -216.0283 -5029.615088 91 303.79883 304.30627 -30490.98433 92 1227.4221 36.261383 -306704.1902 93 2631.0847 177.34174 235014.611 94 797.8256 79.759648 -184392.7201 95 1198.391 -127.908 -685180.6324 96 900.67885 -323.4024 -894241.9511

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2016 Cash $20 Sales Accts. rec. $280 Op. costs (excl. depr.) Inventories $400 Depreciation Total CA $700 EBIT Net fixed assets $500 Interest Total assets $1,200 Pretax earnings Taxes (40%) Accts. pay. & accruals $80 Net income Line of credit $0 Line of credit $0 Line of credit $0 Total CL $80 Dividends Long-term debt

For inputs: 2020 Error Check 5% Ok 90% Ok 10% Ok 1% Ok 14% Ok 20% Ok 25% Ok 4% Ok 40% Ok 8% 10% 2020 $2,620 $26 $367 $524 $655 $105 $2,358 $65 $196 2020 Definitions: $118 NOPAT = EBIT(1-T) $812 NOWC = Cash + accounts receivable + inventories Accounts payable & accruals $1,467 Total operating capital = NOWC + Net fixed

420.0 Carry over from previous year $420.00 200.0 $253 $620.0 $673 $1,200.0 $1,320 Check: TA Total Liab. & Eq. = $0.00 Most Recent Forecast 2016 Input 2017 $2,000.0 110% $2,200.00 1,800.0 90.00% $1,980.00 50.0 10.00% $55.00 $150.0 $165.00 40.0 8.00% Avg bonds $40.00 0.0 8.00% Beginning LOC $0.00 $110.0 $125.00 44.0 40.00% $50.00 $66.0 $75.00 $20.0 110% $22.00

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Situation Net Income $140.00 Target equity ratio 80% Total capital budget $112.50 Number of shares 100 Distribution = Net Income - [(Target equity ratio) * (Total capital budget)] Capital budget$112.50 Capital budget$112.50 Capital budget $112.50 Net income $140 Chapter 14. Mini Case Your new boss at the consulting firm Flick and Associates, which has been retained to

10/28/2015 pare for its public offering, of dividend policy and discuss t to dividend payouts? a. (1.) What is meant by the term distribution policy? How have dividend payouts versus stock repurchases changed over nd David Smithfield to exploit ctional transmitters and ghly-advanced, is

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1 2 3 4 5 6 7 8 9 10 11 12 131415161718Percent Financedwith debt, wdrd 0% 0.0% 20% 8.0% 131415161718Percent Financedwith debt, wdrd 0% 0.0% 20% 8.0% 13 14 15 16 17 18 Percent Financed with debt, wdrd 0% 0.0% 20% 8.0% 19 20 21 22 23 242526272829repurchase stock. Pizza Palace is in the 40% state-plus-federal tax bracket, the risk-free rate is 6 percent, and the market risk premium is 6 percent.a. Provide

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 303132333435Days sales outstanding (365-day basis) 45.63 32.00 Inventory turnover 10.80 20.00 Fixed assets turnover 7.75 13.22 Total assets turnover 2.60 3.00 Profit margin on sales 2.07% 3.50% Return on equity (ROE) 10.45% 21.00% 303132333435Days sales outstanding (365-day basis) 45.63 32.00 Inventory turnover 10.80 20.00 Fixed assets turnover 7.75 13.22 Total

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1 2 3 4 5 6 7 8 9 10 11 121314151617how an international expansion and the additional risk that entails will affect the firm's financial management process. He has asked you, the firms most recently hired financial analyst, to develop a 1-hour tutorial package that explains the basics of multinational financial management. The tutorial will be presented at the next

1 2 3 4 5 6 7 8 9 10 11 121314151617 121314151617 12 13 14 15 16 17 18 19 20 21 22 232425262728 232425262728 23 24 25 26 27 28 29 30 31 32 33 343536373839 343536373839 34 35 36 37 38 39 40 41 42 43 44 45464748 45464748 45 46 47 48 J 49 50 51 52 53 54 555657585960 555657585960 55 56 57 58 59 60 61 62 63 64 65 666768697071 666768697071 66 67 68 69 70 71 72 73 74 75 76 777879808182 777879808182 77 78 79 80 81 82 83 84 85 86 87 888990919293 888990919293 88 89 90 91 92 93 94 95 96 J 97 98 99 100 101 102 103 103 103 104 105 106 107 108 109110111112113114 109110111112113114 109 110 111 112 113 114 115 116 117 118 119 120121122123124125 120121122123124125 120 121 122 123 124 125 126 127 128 129 130 131132133134135136 131132133134135136 131 132 133 134 135 136 137 138 139 140 141 142143144 142143144 142 143 144 J 145 146 147 148 149 150 151 152153154155156157 152153154155156157 152 153 154 155 156 157 158 159 160 161 162 163164165166167168 163164165166167168 163 164 165 166 167 168 169 170 171 172 173 174175176177178179 174175176177178179 174 175 176 177 178 179 180 181 182 183 184 185186187188189190 185186187188189190 185 186 187 188 189 190 191 192 J 193 194 195 196 197 198 199 199 199 200 201 202 203 204 205 206207208209210 206207208209210 206 207 208 209 210 211 212 213 214 215 216217218219220221 216217218219220221 216 217 218 219 220 221 222 223 224 225 226 227 228229230231232 228229230231232 228 229 230 231 232 233 234 235 236 237 238 239240 239240 239 240 J 241 242 243 244 245 246 247 248 249250251252253254 249250251252253254 249 250 251 252 253 254 255 256 257 258 259 260261262263264265 260261262263264265 260 261 262 263 264 265 266 267 268 269 270271272273274275 270271272273274275 270 271 272 273 274 275 276 277 278 279 280281282 280281282 280 281 282 J of issue. 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 J dit. customer. es, and exchange rates.

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Mini Case: 17 - 18 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a

Situation For answers to the individual discussion questions, see the Chapter 18 PowerPoint Show. Setting the Offer Price and Number of New Shares to Be Sold Pre-IPO value of equity = $63 million Target net proceeds = $18.60 million Number of existing shares = 4 million Underwriter spread = 7% Gross required investment

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1 2 3 4 5 6 7 8 9 10 11 12 13 1415161718years, and the best estimate of its residual value at that time is $200,000. However, since real-time display system technology is changing rapidly, the actual residual value is uncertain. 1415161718years, and the best estimate of its residual value at that time is $200,000. However, since real-time display system technology is changing

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1 2 3 4 5 6 7 8 9 10 11 12 13 A B C D E F G H 10/28/2015 Situation Jenny Cochran, a graduate of The University of Tennessee with 4 years of experience as an equities analyst, was recently brought in as assistant to the chairman of the board of Computron Industries, a manufacturer of computer components. During the previous year, Computron had

1 2 3 4 5 6 7 8 9 10 11 12 13 I J K 14 15 16 17 18 19 202122232425 202122232425 20 21 22 23 24 25 26 27 28 29 30 313233343536 313233343536 31 32 33 34 35 36 37 38 39 40 41 424344454647 424344454647 42 43 44 45 46 47 48 49 50 51 52 535455565758 535455565758 53 54 55 56 57 58 59 60 61 62 63 646566676869 646566676869 64 65 66 67 68 69 70 71 72 73 74 75 I J K 76 77 78 79 80 81 82 83 84 858687888990 858687888990 85 86 87 88 89 90 91 92 93 94 95 96979899100101 96979899100101 96 97 98 99 100 101 102 103 104 105 106 107108109110111112 107108109110111112 107 108 109 110 111 112 113 114 115 116 117 118119120121 118119120121 118 119 120 121 122 123 124 125 126 127 128 129130131132133 129130131132133 129 130 131 132 133 I J K 134 135 136 137 138 139140141142143144 e. What is Computrons free cash flow FCF? What are Computrons net uses of its FCF? 139140141142143144 e. What is Computrons free cash flow FCF? What are Computrons net uses of its FCF? 139 140 141 142 143 144 e. What is Computrons free cash flow FCF? What

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Mini Case: 2 - 11 Balance Sheets Assets 2015 2016 Cash $ 9,000 $ 7,282 Short-term investments. 48,600 20,000 Accounts receivable 351,200 632,160 Inventories 715,200 1,287,360 total current assets $ 1,124,000 $ 1,946,802 Gross fixed assets 491,000 1,202,950 Less: accumulated depreciation 146,200 263,160 net fixed assets $ 344,800 $

1 2 3 4 5 6 7 8910111213192021222324303132333435414243444546525354555657Inputs (Note: All values are in millions, except per share data.)Value of operations $500.00 Number of shares outstanding 20 Expected growth rate of FCF 8.00% Value per warrant $5.00 Par (face) value of bond $1,000.00 Number of bonds issued 0.10 a. How does preferred stock differ from both common equity

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Answers and Solutions: 20 - 11 b. $1,000 = 1t cc )r1( )r1(. Using a financial calculator, N =7, PV = -1000, PMT = 80, FV = 1210.42; solving, we find I/YR = rc = 10.20%. Answers and Solutions: 20 - 11 b. $1,000 = 1t cc )r1(

Mini Case: 20 - 18 website, in whole or in part. Use these and previous data to find the intrinsic stock price: Value of operations $1,079.46 + Value of cash received at exercise $67.50 Total intrinsic value of firm $1,146.96 Debt $90.17 Intrinsic value of equity $1,056.79 Number of

1 2 3 4 5 6 7 8 9 10 11 12 13 1415161718in the MM and Miller models? Answer: See Chapter 17 Mini Case Show 1. Assume that Firms U and L are in the same risk class, and that both have EBIT = $500,000. Firm U uses no debt financing, and its cost of equity is rsU = 14%. Firm L

341 342 343 344 345 346 347 348 349 350 351 352 353 354 355 356 357 358 359 360 361 362 363 364 365 366 A B C D E F G H I Total $250.00 $290.00 $5,211.43 Unlevered Value = PV at rsU = $3,960.01 thousand Estimate the value of the tax shield TS. Horizon Value = $733.71 thousand 1 2 3 Interest tax shield $32.00 $38.00 $48.00 Tax shield horizon value $733.71 Total $32.00 $38.00 $781.71 Tax Shield Value = PV at rsU = $584.94 thousand

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Mini Case: 21 - 9 with leverage. Further, the increase in rs is exactly sufficient to keep the WACC constant--the more debt the firm adds to its capital structure, the riskier the equity and thus the higher its cost. Figure 2 plots the firms value against leverage (debt). With

10/28/2015 2016 2017 2018 2019 2020 2021 Net sales 60.00 90.00 112.50 127.50 139.70 Cost of goods sold (60%) 36.00 54.00 67.50 76.50 83.80 Selling/administrative expense 4.50 6.00 7.50 9.00 11.00 Interest expense 5.00 6.50 6.50 7.00 8.16 Total Net Operating Capital 150.00 150.00 157.50 163.50 168.00 173.00 Investment in net operating capital 0.00

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Answer: See Chapter 23 Mini Case Show. d. Describe the eight components of the COSO ERM framework. Answer: See Chapter 23 Mini Case Show. Answer: See Chapter 23 Mini Case Show. g. What are forward contracts? How can they be used to manage foreign exchange risk? Answer: See Chapter 23 Mini Case Show. 5,000,0007%20 years New

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1 2 3 4 5 6 7 8 9 10 11 12 131415161718Kim's immediate concern was whether or not her firm would collect its receivables if Russ Brothers went bankrupt. In pondering the situation, Kim also realized that she knew nothing about the process that firms go through when they encounter severe financial distress. To learn more about bankruptcy, reorganization, and liquidation,

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Ch25 Mini Case.xlsx Mini Case 10/28/2015 Expected return of a portfolio: Standard deviation of a portfolio: Asset A Asset B Expected return, r hat 10% 16% Standard deviation, s20% 40% Correlation = 0.35 Proportion of Portfolio in Security A (Value of wA) Proportion of Portfolio in Security B (Value of 1- wA) rpsp 1.00 0.00 10.00% 20.00% 0.90 0.10

Ch25 Mini Case.xlsx Mini Case Michael C. Ehrhardt Page 8 9/22/2019 Ch25 Mini Case.xlsx Mini Case Michael C. Ehrhardt Page 9 9/22/2019 Ch25 Mini Case.xlsx Mini Case Michael C. Ehrhardt Page 10 9/22/2019 Michael C. Ehrhardt Page 10 9/22/2019 Michael C. Ehrhardt Page 10 9/22/2019 Ch25 Mini Case.xlsx Mini CaseMichael C. Ehrhardt Page 11 9/22/2019 Ch25 Mini Case.xlsx Mini

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Mini Case: 25 - 17 market line may be expressed as follows: CML: .rrrr p MRFM^RFp The CML tells us that the expected rate of return on any efficient portfolio (that is, any portfolio on the CML) is equal to the risk-free rate plus a risk premium, and the

REAL OPTIONS: THE INVESTMENT TIMING OPTION Cost= ($70) WACC= 10% Risk-free rate= 6% Demand Prob. Annual Cash Flow Prob. x (CF) High 0.3 $45 $13.50 Average 0.4 $30 $12.00 Low 0.3 $15 $4.50 Expected CF= $30.00 Procedure 1: DCF Only Year 1 2 3 Expected CF $30.00 $30.00 $30.00 NPV= $4.61 Assume that you have just

10/28/2015 ed California , and dates. ence in San ts is familiar ecutives h flows of $30 ate is 6 chance of high and, with $15 per year. he cost will rs. However, alue to the company. Perform

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1 2 3 4 5 6 7 8 9 10 11 12 13 14151617APR 300 MAY 200 JUN 100 14151617APR 300 MAY 200 JUN 100 14 15 16 17 APR 300 MAY 200 JUN 100 18 19 20 21 222329303132333435363738394041424344454647484950515253545556575859606162636465a. Discuss, in general, what it means for the brothers to set a collections policy. Answer: See Ch. 27 Mini Case Show. AVERAGE DAILY SALES = ADS = 18,000 (100)/365 = 4,931.51$

1 2 3 4 5 6 7 8 9 10 11 12 13 14151617 14151617 14 15 16 17 18 19 20 21 22 23 2425262728 2425262728 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 GM GN GO GP GQ GR GS GT GU GV GW GX GY 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 117 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 GM GN GO GP GQ GR GS GT GU GV GW GX GY 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 GM GN GO GP GQ GR GS GT GU GV GW GX GY 208 209 210 211 212 213 214 215 215 215 216 217 218 219 220221222223224225 220221222223224225 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234235236 234235236 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 267 267 268 269 270 271 272 273 274 275 276 277 GM GN GO GP GQ GR GS GT GU GV GW GX GY 278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 GM GN

278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 GZ HA HB HC HD HE HF HG HH HI HJ HK HL 353 354 355 356 357 358 359 360 361 362 363 364 365 366 367 368 369 370 371 GZ HA HB HC HD HE HF HG HH HI HJ HK HL Loan amoun $10,000 Loan amoun $10,000 Payments 12 Payments 12 Interest rate 12% Interest rate 12% oan amount. Interest charge $1,200 The interest charge is simply the interest rate times

133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 HZ IA IB IC ID IE IF IG IH II IJ IK IL 208 209 210 211 212 213 214 215 216 216 216 217 218 219 220 221 222223224225226 222223224225226 222 223 224 225 226 227 228 229 230 231 232 233 234235236 234235236 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 HZ IA IB IC ID IE IF IG IH II IJ IK IL 278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 HZ IA IB IC ID IE IF IG IH II IJ IK IL 353 354 355 356 357 358 359 360 361 362 363 364 365 366 367 368 369 370 371 HZ IA IB IC ID IE IF IG IH II IJ

278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 M N O P Q R S T U V W X Y 353 354 355 356 357 358 359 360 361 362 363 364 365 366 367 368 369 370 371 M N O P Q R S T U V W X Y Loan amoun Payments Interest rate Interest charge Loan face va Monthly pm Periodic rat APR Effective rat 1 2 3 4 5 6 7 8 8 8 9 10 11 12 13 14 15 16 17 18 1920212223 1920212223 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 33 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 47 47 48 49 50 51 52 53 54 55 56 57 57 57 58 59 60 61 62 63 64 65 ZAA AB AC AD AE AF AG AH AI AJ AK AL 66 67 68 69 70 71 72 72 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 878889 878889 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 117 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 ZAA AB

133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 AM AN AO AP AQ AR AS AT AU AV AW AX AY 208 209 210 211 212 213 214 215 216 216 216 217 218 219 220 221 222223224225226 222223224225226 222 223 224 225 226 227 228 229 230 231 232 233 234235236 234235236 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 AM AN AO AP AQ AR AS AT AU AV AW AX AY 278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 AM AN AO AP AQ AR AS AT AU AV AW AX AY 353 354 355 356 357 358 359 360 361 362 363 364 365 366 367 368 369 370 371 AM AN AO AP AQ AR AS AT AU AV AW AX AY Loan amoun

1 2 3 4 5 6 7 8 9 10 11 12 13 14151617 14151617 14 15 16 17 18 19 20 21 22 23 2425262728 2425262728 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 BM BN BO BP BQ BR BS BT BU BV BW BX BY 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 117 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 BM BN BO BP BQ BR BS BT BU BV BW BX BY 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 BM BN BO BP BQ BR BS BT BU BV BW BX BY 208 209 210 211 212 213 214 215 215 215 216 217 218 219 220221222223224225 220221222223224225 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234235236 234235236 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 267 267 268 269 270 271 272 273 274 275 276 277 BM BN BO BP BQ BR BS BT BU BV BW BX BY 278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 BM BN

278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 BZ CA CB CC CD CE CF CG CH CI CJ CK CL 353 354 355 356 357 358 359 360 361 362 363 364 365 366 367 368 369 370 371 BZ CA CB CC CD CE CF CG CH CI CJ CK CL Loan amoun $10,000 Loan amoun $10,000 Payments 12 Payments 12 Interest rate 12% Interest rate 12% e interest rate times the loan amount. Interest charge $1,200 The interest charge is

133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 CZ DA DB DC DD DE DF DG DH DI DJ DK DL 208 209 210 211 212 213 214 215 216 216 216 217 218 219 220 221 222223224225226 222223224225226 222 223 224 225 226 227 228 229 230 231 232 233 234235236 234235236 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 CZ DA DB DC DD DE DF DG DH DI DJ DK DL 278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 CZ DA DB DC DD DE DF DG DH DI DJ DK DL 353 354 355 356 357 358 359 360 361 362 363 364 365 366 367 368 369 370 371 CZ DA DB DC DD DE DF DG DH DI DJ DK DL Loan amoun

1 2 3 4 5 6 7 8 9 10 11 12 13 14151617 14151617 14 15 16 17 18 19 20 21 22 23 2425262728 2425262728 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 DZ EA EB EC ED EE EF EG EH EI EJ EK EL 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 117 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 DZ EA EB EC ED EE EF EG EH EI EJ EK EL 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 DZ EA EB EC ED EE EF EG EH EI EJ EK EL 208 209 210 211 212 213 214 215 215 215 216 217 218 219 220221222223224225 220221222223224225 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234235236 234235236 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 267 267 268 269 270 271 272 273 274 275 276 277 DZ EA EB EC ED EE EF EG EH EI EJ

278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 EM EN EO EP EQ ER ES ET EU EV EW EX EY 353 354 355 356 357 358 359 360 361 362 363 364 365 366 367 368 369 370 371 EM EN EO EP EQ ER ES ET EU EV EW EX EY Loan amoun $10,000 Loan amoun $10,000 Payments 12 Payments 12 Interest rate 12% Interest rate 12% e times the loan amount. Interest charge $1,200 The interest charge is simply the interest rate

133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 FM FN FO FP FQ FR FS FT FU FV FW FX FY 208 209 210 211 212 213 214 215 216 216 216 217 218 219 220 221 222223224225226 222223224225226 222 223 224 225 226 227 228 229 230 231 232 233 234235236 234235236 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 FM FN FO FP FQ FR FS FT FU FV FW FX FY 278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 FM FN FO FP FQ FR FS FT FU FV FW FX FY 353 354 355 356 357 358 359 360 361 362 363 364 365 366 367 368 369 370 371 FM FN FO FP FQ FR FS FT FU FV FW FX FY Loan amoun

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Mini Case: 27 - 21 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to

Mini Case: 27 - 29 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to

1 2 3 4 5 6 7 89the company's inventory control techniques and to lead a discussion of the subject with the senior executives. Andria plans to use as an example one of Webster's "big ticket" items, a customized computer microchip which the firm uses in 89the company's inventory control techniques and to lead a discussion of

Mini Case: 28- 8 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly

1. Defined benefit plan 2. Defined contribution plan 3. Profit sharing plan 4. Cash balance plan 5. Vesting 6. Portability 7. Fully funded; overfunded; underfunded 8. Actuarial rate of return 9. Employee Retirement Income Security Act (ERISA) 10. Pension Benefit Guarantee Corporation (PBGC) 1. Under a defined benefit plan, the employer agrees to give retirees a specific defined benefit, such

Mini Case: 29 - 8 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 7980 (2.) What can you say about the company's liquidity position? We often think of ratios as being useful (1) to managers to help run the business, (2) to bankers for credit analysis, and (3) to stockholders for stock valuation. Would these different types of analysts have an equal interest

Answers and Solutions: 3 - 1 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 2223242526Ordinary annuity of $100 per year for three years.I%Time period 0 1 2FV at year end100 100 100 2223242526Ordinary annuity of $100 per year for three years.I%Time period 0 1 2FV at year end100 100 100 22 23 24 25 26 Ordinary annuity of $100 per year for three years. I% Time period 0 1 2 FV at year end 100

420 421 422 423 424 425 426 427 428 429 430 431 432 433 434 435 436437 436437 436 437 438 439 440 441 442 443 444445446447448 444445446447448 444 445 446 447 448 449 450 451 452 453 454 455456457458459PV = $273.55 g. What is the present value of the following uneven cash flow stream? The appropriate interest rate is 10%, 455456457458459PV = $273.55 g. What is the present value of the following uneven cash flow stream? The appropriate interest rate is 10%, 455 456 457 458 459 PV = $273.55 g. What is

204 L M N O P Q R S 21 of 30 205 206 207 208 209 210 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234 235 236 237 238 239 240 241 241 241 L M N O P Q R S 22 of 30 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 261 261 262 263 264 265 266 267 268269270271272 268269270271272 268 269 270 271 272 273 274 275 276 277 278 279280281282283 279280281282283 279 280 281 282 283 284 285 286 287 288 289290291292293294 289290291292293294 289 290 291 292 293 294 L M N O P Q R S 23 of 30 295 296 297 298 299 300 301 302 303 304 305 306 307 307 307 308 309 310 311 312 313 314 314 314 315 316317318319 316317318319 316 317 318 319 320 321 322 323 324 325 326327328329330 326327328329330 326 327 328 329 330 331 332 333 334 335 336 337338339340341 337338339340341 337 338 339 340 341 342 343 344 345 346 347348349 347348349 347 348 349 350 351 352 352 352 L M N O P Q R S 24 of 30 353 354 355 356 357 358 359 360 361 362 363364365366367 363364365366367 363 364 365 366 367 368 369 370 371 372 373 374375376377378 374375376377378 374 375 376 377 378 379 380 381 382 383 384 385386387388389 385386387388389 385 386 387 388 389 390 391 392 393 394 395 395 395 396 397 398399400 398399400 398 399 400 401 402 403 404 405 406 407408409410411 407408409410411 407 408 409 410 411 412 413 414 415 416 L M N O P Q R S 25 of 30 25 of 30 25 of 30 417 418 419 L

Answers and Solutions: 4 -1 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible

Answers and Solutions: 4 -11 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. c. 0 10 | | +85,000 -201,229 With a financial calculator, enter N = 10,

Answers and Solutions: 4 -21 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible

Mini Case: 4 -31 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,

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1 2 3 4 5 6 7 8 9 10 11 12131415161718Call Provisions and Sinking Fundsa. What are the key features of a bond? Answer: See Chapter 5 Mini Case Show A call provision that allows the issuer to redeem the bond at a specified time before the maturity date. If int fall, the issuer can refund the bonds and issue

99 100 101 102 103 104 105 106 107 108 109 110111112113114115 or a bond: e: 110111112113114115 or a bond: e: 110 111 112 113 114 115 or a bond: e: 116 117 118 119 120 121122 121122 121 122 123 124125126 124125126 124 125 126 127 128 129 130 131 132133 132133 132 133 134 135136137 is most 135136137 is most 135 136 137 is most 138 139 140 141 142 143144145146147148 143144145146147148 143 144 145 146 147 148 149 150 151 I J K L M N O P d prices unction at right. s for you about hold if rates ontinue to sell 152 153 154 155 156 157 158 159160 159160 159 160 161 162 163 164 165 166167168169 166167168169 166 167 168 169 170 171 172 173 174 175 176 177 178179180181182 178179180181182 178 179 180 181 182 183 184 185 186 187 188 189190191192193 o maturity

51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 666768 666768 66 67 68 69 70 71 72 73 74 75 767778798081 767778798081 76 77 78 79 80 81 82 83 84 85 86 87 88 8990919293 8990919293 89 90 91 92 93 94 95 96 97 98 Q R S T 99 100 101 102 103 104 105106107108109110 105106107108109110 105 106 107 108 109 110 111 112 113 114 115 116 116 116 117 118 118 118 119 120 121 121 121 122 123 124 125 126 127128129130131132 127128129130131132 127 128 129 130 131 132 133 134 135 136 137 138139140141142143 138139140141142143 138 139 140 141 142 143 144 145 146 147 148 149150151 149150151 149 150 151 Q R S T 152 153 154 155 156 157 158 159 160161162163164 160161162163164 160 161 162 163 164 165 166 167 168 169 170 171 172 173174175 173174175 173 174 175 176 177 178 179 180 181182183184185 181182183184185 181 182 183 184 185 186 187 188 189 190 191 192 193194195196197 193194195196197 193 194 195 196 197 198 199 200 201 202 203 204 204 204 Q R S T 205 206 207 208 209 210 211 212 213 214215216217218219 214215216217218219 214 215 216 217 218 219 220 221 222 223 224 225226227228229230 225226227228229230 225 226 227 228 229 230 231 232 233 234 235 236 237238239240241 237238239240241 237 238 239 240 241 242 243 244 245 246 247248249 247248249 247 248 249 250 251 252 252 252 253 254 255 256 Q R S T 257 258 259 260 261 262 263 264 265 266 267 268269270271272 268269270271272 268 269 270 271 272 273 274 275 276 277 278 279 280 281 282 283 283 283 284 285 286 287 288 289 290291292293294 290291292293294 290 291 292 293 294 295 296 297 298 299 300 301302303304305 301302303304305 301 302 303 304 305 306 307 Q R S T 308 309 310 311 312 313 314 315 315 315 316 317 318 319 320 321 322 323324325326 323324325326 323 324 325 326 327 328 329 330 331 332 333 334335336337 334335336337 334 335 336 337 338 339 340 341 342 343 344 345346347348349 345346347348349 345 346 347 348 349 350 351 352 353 354 355356357358359 355356357358359 355 356 357 358 359 Q R S T 360 361 362 363 364 365 366 367 368 369 370371372years.years. 370371372years.years. 370 371 372 years. years. 373 374 375 376 377 378 379380381 379380381 379 380 381 382 383 384 385 386 387 388 389 390391392393394 390391392393394 390 391 392 393 394 395 396 397 398 399 400 401402403404405 401402403404405 401 402 403 404 405 406 407 408 409 Q R S T our yield curve. . Recall, we have said that Treasury securities are subject to mium. Just as we "built" Treasury yields in the table, we can

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Mini Case: 5 - 21 website, in whole or in part. Expressed as an equation, we have: $1,000. = $385.54 + $38.55 + . . . + $90.91 = )r + (1 $1,000 + )r + (1 $100 + . . . + )r + (1 $100 = Vd10

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Web Solutions: 5 - 37 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 2017

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45Most Likely 0.40 6% 45Most Likely 0.40 6% 45 Most Likely 0.40 6% 46 47 481.00 481.00 48 1.00 A B C D E F 10/28/2015 Amount invested $1,000 Amount received in one year $1,060 Dollar return (Profit) $60 Rate of return = Profit/Investment = 6% Worst Case 0.10 % Poor Case 0.20 % Good Case 0.20 16% Best

466 467 468 469 470 471472473474475476477478479480481482483484485486487488489490491492493494495496497498499500501502503504505506507508509510511512513514515q. What does market equilibrium mean? If equilibrium does not exist, how will it be established? Answer: See Ch 06 Mini Case Showr. What is the Efficient Markets Hypothesis (EMH) and what are its three forms? What evidence supports the EMH? What evidence casts doubt on the EMH? Answer: See

140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162163164165166 162163164165166 162 163 164 165 166 167 168 169 170 171 172 173174175176177 173174175176177 173 174 175 176 177 178 179 180 181 182 183 184 184 184 G H I J 185 186 187 188 189 190 191 192 193199200201202203204210211212213214215222223224225226227228229 he Excel function: =CORREL(Blandy_returns,Gourmange_returns) 193199200201202203204210211212213214215222223224225226227228229 he Excel function: =CORREL(Blandy_returns,Gourmange_returns) 193 199 200 201 202 203 204 210 211 212 213 214 215 222 223 224 225 226 227 228 229 he Excel function: =CORREL(Blandy_returns,Gourmange_returns) 194195196197198 194195196197198 194 195 196 197 198 205206207208209 205206207208209 205 206 207 208 209 216217218219220221 216217218219220221 216 217 218 219 220 221 G H I J Use the Excel function: =AVERAGE(Returns) Use the Excel function: =STDEV(Returns) 230 231 232 233 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 278 G H I J APM. 279 280 281 282 283 284 284 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309310311312313 309310311312313 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 325 325 G H I J 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 341 341 342 343 344 345 346 347 348 349 350 351 352 353 354 355 356 357 358 359 360 361 362 363 364 365 366 367 368 369 370 371 372 373 374 G H I J =SLOPE(y_values,x_values) =INTERCEPT(y_values,x_values) =RSQ(y_values,x_values) 375 376 377 378 379380381383384385386387388389390391392393394396397398399400401402403404405406407408409410411412413414415416417418419420SML: Base CaseBase Case Risk-Free RateSML: Higher Market Risk Premium1.00 1.50

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Mini Case: 6 - 21 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly

Mini Case: 6 - 27 or in part. Answer: To evaluate the managers, calculate the required returns on their portfolios using the SML and compare the actual returns to the required returns, as follows: Portfolio Manager JJ CC Portfolio beta = 0.7 1.4 Risk-free rate = 4% 4%

1 2 3 4 5 6 7 8 9 10 11 12 131415161718Features of Common Stocka. Describe briefly the legal rights and privileges of common stockholders.(WACC) is 11%. Answer the following questions.1. Common Stock represents ownership. 2. Ownership implies control. 3. Stockholders elect directors. 4. Directors hire 131415161718Features of Common Stocka. Describe briefly the legal rights and privileges of common stockholders.(WACC) is

506 507 508 509 510 511 512 513 514 515 516 517 518519520521522523(3.) What are the expected dividend yield, the capital gains yield, and the total return during the first year?(1.) What is the firms current stock price?p. Assume that Temp Force is a constant growth company whose last dividend (D0, which was paid yesterday) was $2.00 and whose dividend is expected

379 380 381 382 383 384 385 386 387 388 389 390 391392393394395396 391392393394395396 391 392 393 394 395 396 397 398 399 400 401 402403404405406407 402403404405406407 402 403 404 405 406 407 408 409 410 411 412 413414415416417418 413414415416417418 413 414 415 416 417 418 419 420 421 422 423 424425426427428 424425426427428 424 425 426 427 428 429 430 431 432 433 J 434 435 436 437 438 439 440 441 442 443 444 445446447448449 445446447448449 445 446 447 448 449 450 451 452 453 454 455 456457458459460461 456457458459460461 456 457 458 459 460 461 462 463 464 465 466 467468469470471472 467468469470471472 467 468 469 470 471 472 473 474 475 476 477 478479480481482 478479480481482 478 479 480 481 482 483 484 485 486 487 488 489 489 489 J ions are: 490 491 492 493 494 495 496 497 498 499 500 501 502 503 504 505 J 506 507 508 509 510 511 512 513 513 513 514 515 516 517 518 519520521522523524 519520521522523524 519 520 521 522 523 524 525 526 527 528 529 530531532533534 530531532533534 530 531 532 533 534 535 536 537 538 539 540541542543544545 540541542543544545 540 541 542 543 544 545 546 547 548 549 550 551 552553554555556 552553554555556 552 553 554 555 556 557 558 559 J 560 561 562 563 564 565 566 566 566 567 568 569 570 571 572 573574575576577 573574575576577 573 574 575 576 577 578 579 580 581 582 583 584585586587588589 584585586587588589 584 585 586 587 588 589 590 591 592 593 594 595596597598599600 595596597598599600 595 596 597 598 599 600 601 602 603 604 605 606607608609 606607608609 606 607 608 609 610 611 612 J 613 614 615 616 617 618 619 620 621 621 621 622 623 624 625 626 627628629630631632633 627628629630631632633 627 628 629 630 631 632 633 634 635 636 637 638 639 640641642643644 640641642643644 640 641 642 643 644 645 646 647 648 649 650 651652653654655656 651652653654655656 651 652 653 654 655 656 657 658 659 660 661 662 662 662 J 1 2 3 4 5 6 7 8910111213 8910111213 8 9 10 11 12 13 14 15 16 17 18 192021222324 192021222324 19 20 21 22 23 24 25 26 27 28 29 303132333435Data for charts Column110Mkt. Sec. 1 303132333435Data for charts Column110Mkt. Sec. 1 30 31 32 33 34 35 Data for charts Column1 10 Mkt. Sec. 1 36 37 38 39 40 414243444546 414243444546 41 42 43 44 45 46 47 48 49 50 51 525354555657 525354555657 52 53 54 55 56 57 K L M N Claims on Value Pref. Stk. 1 Debt 3 7 Scenario Summary Current Values: No Change Improve Growth Changing Cells: $A$304 No Change No Change Improve Growth $C$310 10% 10% 11% $D$310 8% 8% 9% $E$310 5%

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or in part. or in part. or in part. Answers and Solutions: 7- 11 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole Answers and Solutions: 7- 11 2017 Cengage Learning.

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10/28/2015 SITUATION LOOKING AT EXERCISE AND MARKET VALUE OF AN OPTION Strike) price = $25 Price of Strike Exercise the stock Price Value $0 $20.00 $0.00 $5 $20.00 $0.00 $10 $20.00 $0.00 $15 $20.00 $0.00 $20 $20.00 $0.00 $25 $20.00 $5.00 $30 $20.00 $10.00 $35 $20.00 $15.00 $40 $20.00 $20.00 $45 $20.00 $25.00 ($5.00)$0.00$5.00$10.00$0

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 192021(5) Jana's target capital structure is 30% long-term debt, 10% preferred stock, and 60% common equity.expected to grow at a constant rate of 5.8% in the foreseeable future. Jana's beta is 1.2, the yield on T-bonds is 5.6%, and the market risk premium is estimated to be 6%. For the

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