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Chapter 08: Financial Options and Applications in Corporate Finance Copyright Cengage Learning. Powered by Cognero. Page 1 1. An option is a contract that gives its holder the right to buy or sell an asset at a predetermined price within […]

Chapter 01: An Overview of Financial Management and the Financial Environment Copyright Cengage Learning. Powered by Cognero. Page 1 1. The form of organization for a business is not an important issue, as this decision has very little effect on […]

© 2020 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. partnership. A professional corporation (PC), known in some states as a professional association (PA), […]

Chapter 10: The Basics of Capital Budgeting: Evaluating Cash Flows Copyright Cengage Learning. Powered by Cognero. Page 1 1. A firm should never accept a project if its acceptance would lead to an increase in the firm’s cost of capital […]

Chapter 10: The Basics of Capital Budgeting: Evaluating Cash Flows Copyright Cengage Learning. Powered by Cognero. Page 21 Which of the following statements is CORRECT? a. More of Project B’s cash flows occur in the later years. b. We must […]

Chapter 10: The Basics of Capital Budgeting: Evaluating Cash Flows Copyright Cengage Learning. Powered by Cognero. Page 41 any value to be lost because the project with the higher IRR will also have the higher NPV, i.e., no conflict will […]

Chapter 10: The Basics of Capital Budgeting: Evaluating Cash Flows Copyright Cengage Learning. Powered by Cognero. Page 52 DATE CREATED: 8/9/2018 11:03 AM DATE MODIFIED: 8/9/2018 11:03 AM 89. One advantage of the payback method for evaluating potential investments is […]

Answers and Solutions: 10 – 21 10-18 Cash flow time line for Machine 190-3: 0 1 2 3 | | | | -190,000 87,000 87,000 87,000 Using a financial calculator, input the following data: CF0 = -190000; CF1-3 = 87000; […]

© 2020 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ANSWERS TO END-OF-CHAPTER QUESTIONS 10-1 a. Capital budgeting is the whole process of analyzing […]

Mini Case: 12 – 35 4. From the figure below, it appears that the crossover rate is between 8% and 9%. The precise value is approximately 8.7%. One can calculate the crossover rate by (1) going back to the data […]

Build a Model Solution Chapter: 10 Problem: 23 Expected Net Cash Flows Time Project A Project B 0($375) ($575) 1($300) $190 @ 12% cost of capital @ 18% cost of capital WACC = 12% WACC = 18% NPV A = […]

1 2 3 4 5 6 7 8 9 10 20 21 22 23 24 25 26 27 28 29 30 170 10 250 60 Franchise L 320 80 Year 0 1 2 3 CF -100 10 60 80 31 […]

Chapter 11: Cash Flow Estimation and Risk Analysis Copyright Cengage Learning. Powered by Cognero. Page 21 e. If an asset is sold for less than its book value at the end of a project’s life, it will generate a loss […]

Chapter 11: Cash Flow Estimation and Risk Analysis Copyright Cengage Learning. Powered by Cognero. Page 35 DATE MODIFIED: 1/27/2019 8:44 PM 60. Sylvester Media is analyzing an average-risk project, and the following data have been developed. Unit sales will be […]

Mini Case: 11 – 32 c. Calculate the annual sales revenues and costs (other than depreciation). Why is it important to include inflation when estimating cash flows? Answer: With an inflation rate of 3%, the annual revenues and costs are: […]

Solution 11/26/2018 Problem: 18 Input Data (in thousands of dollars) Scenario name Base Case Note: the items in red will be used in a scenario analysis. Probability of scenario 50% Equipment cost $10,000 Net operating working capital/Sales 10% Key Results: […]

11/21/2018 Chapter 11 Mini Case Situation Part I: Input Data Scenario: Base Case Equipment cost $200,000 Key Outputs: NPV = $62,593 Shipping charge $10,000 IRR = 20.1% Installation charge $30,000 MIRR = 16.0% Annual Depreciation Expense Depreciable Basis = Equipment […]

Answers and Solutions: 11 – 1 Chapter 11 Cash Flow Estimation and Risk Analysis ANSWERS TO END-OF-CHAPTER QUESTIONS 11-1 a. Project cash flow, which is the relevant cash flow for project analysis, represents the actual flow of cash, which includes […]

© 2020 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. E[NPV] = Sum of NPV x Prob. = sum in 5th column of preceding […]

Chapter 12: Corporate Valuation and Financial Planning Copyright Cengage Learning. Powered by Cognero. Page 13 d. A forecasting approach in which the forecasted percentage of sales for each balance sheet account is held constant. e. Funds that are obtained automatically […]

Answers and Solutions: 12 – 1 Chapter 12 Corporate Valuation and Financial Planning ANSWERS TO END-OF-CHAPTER QUESTIONS 12-1 a. The operating plan provides detailed implementation guidance designed to accomplish corporate objectives. It details who is responsible for what particular function, […]

Build a Model Problem 11/26/18 Chapter: 12 Problem: 11 2019 Net Sales 800.0$ Costs (except depreciation) 576.0$ Depreciation 60.0$ Assets 2019 Liabilities and Equity 2019 Cash 8.0$ Accounts Payable 16.0$ Short-term investments 20.0 Notes payable 40.0 Accounts receivable 80.0 Accruals […]

Build a Model Problem 11/26/18 Chapter: 12 Problem: 10 Income Statements: (December 31, in thousands of dollars) Sales $455,150 Growth 6.0% $482,459 $482,459 Expenses (excluding depr. & amort.) $386,878 85.0% % of sales 85.0% $410,090 $410,090 Depreciation and Amortization $14,565 […]

11/21/18 2019 2019 Cash $90 Sales $9,000.9 Accts. rec. 1,260 Op. costs (excl. depr.) 8,100.9 Inventories 1,440 Depreciation 360.0 Total CA $2,790 EBIT $540.0 Inventories/Sales 16% 15% Asset/Equity 2.15 1.59 Fixed assets/Sales 40% 32% Debt/TA 28.2% 16.9% (Acc. pay. & […]

Mini Case: 12 – 15 Hatfield Medical Supply: Income Statement and Additional Information (Millions of Dollars), December 31 Hatfield Industry Hatfield Industry (Op. costs)/Sales 90% 88% Profit margin (M) 3.30% 5.60% Depr./FA 10% 12% Return on assets (ROA) 4.6% 9.5% […]

Chapter 13: Corporate Governance Copyright Cengage Learning. Powered by Cognero. Page 1 1. Two important issues in corporate governance are (1) the rules that cover the board’s ability to fire the CEO and (2) the rules that cover the CEO‘s […]

Chapter 13: Corporate Governance Copyright Cengage Learning. Powered by Cognero. Page 13 DATE CREATED: 8/9/2018 11:03 AM DATE MODIFIED: 11/16/2018 9:24 AM 28. Which one of the following statements is TRUE? a. A manager avoiding a positive NPV but risky […]

d. Managerial entrenchment occurs when a company has such a weak board of directors and has such strong anti-takeover provisions in its corporate charter that senior managers feel there is very little chance that they will be removed. Non-pecuniary benefits […]

Chapter 14: Distributions to Shareholders: Dividends and Repurchases Copyright Cengage Learning. Powered by Cognero. Page 1 1. Which of the following statements is correct? a. One advantage of dividend reinvestment plans is that they enable investors to postpone paying taxes […]

Chapter 14: Distributions to Shareholders: Dividends and Repurchases Copyright Cengage Learning. Powered by Cognero. Page 16 STATE STANDARDS: United States – AK – DISC: Dividend policy LOCAL STANDARDS: United States – OH – Default City – TBA TOPICS: Residual model–find […]

11/21/2018 Situation What would happen to the payout ratio and DPS if net income were forecasted to decrease to $90 million? Net Income $90.00 Capital budget $112.50 Net income $90 Required equity (Equity ratio X Capital budget) $90 Distributions paid […]

Solution 11/26/2018 Chapter: 14 Problem: 13 Also, for total net op cap for first year, make into fixed values Inputs Amount of distribution $500 Actual Projected Income Statement (Millions of Dollars) 6/30/2019 6/30/2020 Net Sales $19,490 $20,658 Costs (except depreciation) […]

Mini Case: 14 – 13 a. 2. The terms “irrelevance,” “bird–in-the-hand,” and “tax effect” have been used to describe three major theories regarding the way dividend payouts affect a firm’s value. Explain what these terms mean, and briefly describe each […]

Answers and Solutions: 14 – 1 Chapter 14 Distributions to Shareholders: Dividends and Repurchases ANSWERS TO END-OF-CHAPTER QUESTIONS 14-1 a. The optimal distribution policy is one that strikes a balance between dividend yield and capital gains so that the firm’s […]

Chapter 15: Capital Structure Decisions Copyright Cengage Learning. Powered by Cognero. Page 1 1. Different borrowers have different risks of bankruptcy, and bankruptcy is costly to lenders. Therefore, lenders charge higher rates to borrowers judged to be more at risk […]

Chapter 15: Web 15B Bond Refunding Copyright Cengage Learning. Powered by Cognero. Page 1 1. Suppose a company issued 30-year bonds 4 years ago, when the yield curve was inverted. Since then long-term rates (10 years or longer) have remained […]

Chapter 15: Capital Structure Decisions Copyright Cengage Learning. Powered by Cognero. Page 21 KEYWORDS: Bloom’s: Analysis OTHER: TYPE: Multiple Choice: Conceptual DATE CREATED: 8/9/2018 11:04 AM DATE MODIFIED: 8/9/2018 11:04 AM 45. Which of the following statements is CORRECT? a. […]

Chapter 15: Capital Structure Decisions Copyright Cengage Learning. Powered by Cognero. Page 36 FCF = NOPAT because g = 0 = $97,500.00 V = FCF/WACC because g = 0 = $97,500(0.1235) = $789,473.68 ≈ $789,474 POINTS: 1 DIFFICULTY: Difficulty: Moderate […]

Solution 11/26/2018 Chapter: 15 Problem: 16 Input Data Risk-free rate 4.5% Market risk premium 5.5% Unlevered beta 1.1 0% 6.0% Tax rate 25.0% 5% 6.1% Fill in formulas in the yellow cells to find the optimum capital structure. Debt/Value Equity/Value […]

Solution 11/26/2018 Chapter: 15 Problem: 17 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 b. How much is the […]

Answers and Solutions: 15 – 1 Chapter 15 Capital Structure Decisions ANSWERS TO END-OF-CHAPTER QUESTIONS 15-1 a. Capital structure is the manner in which a firm’s assets are financed; that is, the right– hand side of the balance sheet. Capital […]

1 2 3 4 5 6 7 8 14 15 16 17 18 19 20 21 22 23 32 33 34 35 36 37 38 39 b. (1) What is business risk? What factors influence a firm’s business risk? Answer: […]

Mini Case: 15 – 17 g. What does the empirical evidence say about capital structure theory? What are the implications for managers? Answer: Tax benefits are important. At the optimal capital structure, $1 debt adds about $0.10 to $0.20 to […]

1 2 3 4 5 6 7 8 9 10 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Maturity 22 Flotation costs 5,000,000$ Time between issuing new bonds and calling old bonds […]

Answers and Solutions: 16 – 1 Chapter 16 Supply Chains and Working Capital Management ANSWERS TO END-OF-CHAPTER QUESTIONS 16-1 a. Working capital is a firm’s investment in short-term assets—cash, marketable securities, inventory, and accounts receivable. Net working capital is current […]

24 25 26 27 lower raw materials inventories might lead to production slowdowns and higher costs, and lower finished goods inventories might lead to stock-outs and loss of sales. So, before inventories are changed, it will be necessary to study […]

Solution 11/26/2018 Chapter: 16 Problem: 18 Input Data Collections during month of sale 15% Collections during month after sale 65% a. Prepare a monthly cash budget for the last six months of the year. Rusty Spears, CEO of Rusty’s Renovations, […]

© 2020 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3. Quick ratio = $400,000/$1,500,000 = 0.27. The quick ratio indicates that current assets, […]

Chapter 17: Multinational Financial Management Copyright Cengage Learning. Powered by Cognero. Page 1 1. Multinational financial management requires that financial analysts consider the effects of changing currency values. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Easy QUESTION TYPE: […]

Chapter 17: Multinational Financial Management Copyright Cengage Learning. Powered by Cognero. Page 13 POINTS: 1 DIFFICULTY: Moderate QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: FMTP.EHRH.20.17.13 – LO: 17-13 NATIONAL STANDARDS: United States – BUSPROG: Reflective Thinking STATE […]

Answers and Solutions: 17 – 1 Chapter 17 Multinational Financial Management ANSWERS TO END-OF-CHAPTER QUESTIONS 17-1 a. A multinational corporation is one that operates in two or more countries. b. The exchange rate specifies the number of units of a […]

1 2 3 4 5 6 7 8 9 10 11 12 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 […]

Mini Case: 17 – 14 c. Consider the following illustrative exchange rates. U. S. Dollars required to buy one unit of foreign currency Euro 1.2500 Swedish krona 0.1481 One Unit of Foreign Currency Required to Buy One U.S. Dollar Euro […]

1 2 3 4 5 6 7 8 17 18 19 20 21 22 23 24 36 37 38 39 EUR/USD = 1.2500 units of a foreign currency that can be purchased by 1 unit of the home currency. 43 […]

Chapter 18: Public and Private Financing: Initial Offerings, Seasoned Offerings, and Investment Banks Copyright Cengage Learning. Powered by Cognero. Page 1 1. Going public establishes a market value for the firm’s stock, and it also ensures that a liquid market […]

b. A public offering is an offer of new common stock to the general public; in other words, an offer in which the existing shareholders are not given any preemptive right to purchase the new shares. A private placement is […]

1 2 3 4 5 6 7 21 22 Stock price before IPO = PPre-IPO = $17.50 32 33 34 35 Total value after the IPO = VPost-IPO = $240 million Percentage of total post-IPO value required by new shareholders […]

11/23/2018 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 Total underwriting spread = $1.400 million […]

Chapter 19: Lease Financing Copyright Cengage Learning. Powered by Cognero. Page 1 1. Many leases written today combine the features of operating and financial leases. Such leases are often called “combination leases.” a. True b. False ANSWER: True POINTS: 1 […]

3 4 5 6 7 8 9 10 11 12 13 14 15 The loom has an invoice price of $250,000, including delivery and installation charges. The funds needed could be borrowed from the bank through a 4-year amortized loan […]

cancellation clause. A financial lease does not provide for maintenance service, is not cancelable, and is fully amortized; that is, the lease covers the entire expected life of the equipment. In a sale and leaseback arrangement, the firm owning the […]

1 2 3 4 5 6 7 8 9 10 11 17 18 19 20 21 22 would be willing to write a 4-year guideline lease on the equipment, including maintenance, for payments of $260,000 at the beginning of each […]

Chapter 02: Financial Statements, Cash Flow, and Taxes Copyright Cengage Learning. Powered by Cognero. Page 1 1. The annual report contains four basic financial statements: the income statement, balance sheet, statement of cash flows, and statement of stockholders’ equity. a. […]

Chapter 02: Financial Statements, Cash Flow, and Taxes Copyright Cengage Learning. Powered by Cognero. Page 21 TOPICS: Depreciation, amortization, and net cash flow from operations KEYWORDS: Bloom’s: Analysis OTHER: TYPE: Multiple Choice: Conceptual DATE CREATED: 10/31/2018 8:22 AM DATE MODIFIED: […]

Mini Case: 2 – 12 MINI CASE 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, […]

Build a Model Solution 11/26/2018 Chapter: 2 Key Input Data for Britton String Corp. 2020 (Millions of dollars) Sales Revenue $880 Expenses (excluding depreciation) as a percent of sales 85.0% Net fixed assets $300 Depr. as a % of net […]

39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 Computron’s Income Statement (Millions of Dollars) 2018 2019 Net sales 5,500$ 6,000$ Cost of goods sold (Excluding depr. & amort.) 4,300 4,800 Depreciation and […]

© 2020 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 2 Financial Statements, Cash Flows, and Taxes ANSWERS TO END-OF-CHAPTER QUESTIONS 2-1 a. […]

Build a Model Solution 11/26/2018 Lan & Chen Technologies: Income Statements for Year Ending December 31 (Millions of Dollars) 2020 2019 Depreciation and amortization 33,100 31,500 EBIT $99,200 $94,500 Interest Expense 10,400 8,900 EBT $88,800 $85,600 Taxes (25%) 22,200 21,400 […]

Chapter 20: Hybrid Financing: Preferred Stock, Warrants, and Convertibles Copyright Cengage Learning. Powered by Cognero. Page 1 1. The “preferred” feature of preferred stock means that it normally will provide a higher expected return than will common stock. a. True […]

Chapter 20 Hybrid Financing: Preferred Stock, Warrants, and Convertibles ANSWERS TO END-OF-CHAPTER QUESTIONS 20-1 a. Preferred stock is a hybrid security, having characteristics of both debt and equity. It is similar to equity in that it (1) is called “stock” […]

Answers and Solutions: 20 – 14 SOLUTION TO SPREADSHEET PROBLEM 20-8 The detailed solution for the spreadsheet problem, Ch20 P08 Build a Model Solution.xlsx, is available on the textbook’s web site. © 2020 Cengage Learning. All Rights Reserved. May not […]

1 2 3 4 5 6 7 8 9 24 25 26 27 28 Expected growth rate of FCF 8.00% Current stock price $20.00 Cost of equity, rs13.40% Interest rate on straight debt, rd10.00% Tax rate 25.00% 37 38 39 […]

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 […]

Chapter 21: Dynamic Capital Structures and Corporate Valuation Copyright Cengage Learning. Powered by Cognero. Page 1 1. The present value of the free cash flows discounted at the unlevered cost of equity is the value of the firm’s operations if […]

Chapter 21: Dynamic Capital Structures and Corporate Valuation Copyright Cengage Learning. Powered by Cognero. Page 12 23. Angelou Corporation has debt worth $150,000, with a yield of 8%, and equity worth $350,000. It is growing at a 5% rate, and […]

Answers and Solutions: 21 – 1 Chapter 21 Dynamic Capital Structures and Corporate Valuation ANSWERS TO END-OF-CHAPTER QUESTIONS 21-1 a. An interest tax shield is the amount of cash flow that is sheltered from taxation due to the tax deductibility […]

Mini Case: 21 – 12 VU = sU r )T1(EBIT − = $560,000(0.75) 0.14 = $3,000,000 versus $4,000,000. This represents a 25% decline in value, and it is logical, because the 25% tax rate takes away 25% of the after-tax […]

20 21 22 23 Modigliani and Miller with NoTaxes b(1): Find V, S, rsL, and WACC for Firms U and L. 35 36 37 38 39 40 41 42 43 44 45 EBIT $560,000 $560,000 Debt $0 $1,000,000 rdna 8.0% […]

Build-a-Model Solution 11/26/2018 Chapter: 21 Problem: 10 INPUTS (In millions) Projected Current 1 2 3 4 Free cash flow $200.0 $280.0 $320.0 $340.0 Horizon unlevered value of operations $5,100.00 Current value of unlevered operations $4,086.77 Current 1 2 3 4 […]

Chapter 22: Mergers and Corporate Control Copyright Cengage Learning. Powered by Cognero. Page 1 1. In a merger with true synergies, the post-merger value exceeds the sum of the separate companies’ pre-merger values. a. True b. False ANSWER: True POINTS: […]

29 30 31 32 33 34 35 36 37 Debt ratio (percent financed with debt) before the merger 30% Cost of debt before merger 9% Debt ratio (percent financed with debt) after the merger 40% Cost of debt after merger […]

Mini Case: 22- 13 MINI CASE Hager’s Home Repair Company, a regional hardware chain, which specializes in “do–it– yourself” materials and equipment rentals, is considering an acquisition of Lyon Lighting (LL). Doug Zona, Hager’s treasurer and your boss, has been […]

Answers and Solutions: 22 – 1 Chapter 22 Mergers and Corporate Control ANSWERS TO END-OF-CHAPTER QUESTIONS 22-1 a. Synergy occurs when the whole is greater than the sum of its parts. When applied to mergers, a synergistic merger occurs when […]

11/23/2018 Projections 2019 2020 2021 2022 2023 2024 Net sales $150 $170 $186 $200 $212 Cost of goods sold $116 $128 $135 $148 $160 aDebt is added on the first day of the year, so the 2019 debt is LL’s […]

Chapter 23: Enterprise Risk Management Copyright Cengage Learning. Powered by Cognero. Page 1 1. One objective of risk management can be to reduce the volatility of a firm’s cash flows. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Easy […]

board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the […]

11/23/2018 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? […]

FM16 Ch23 P06 Build a Model Solution Build a Model Build-a-Model Solution 11/26/2018 Chapter: 23 Problem: 6 Problem Inputs: Size of planned debt offering = $20,000,000 Value of each T-bond futures contract = 94,781.25$ Number of contracts needed for hedge […]

Chapter 24: Bankruptcy, Reorganization, and Liquidation Copyright Cengage Learning. Powered by Cognero. Page 1 1. A central question that must be addressed in bankruptcy proceedings is whether the firm’s inability to meet scheduled interest payments results from a temporary cash […]

1 2 3 4 5 6 7 8 9 10 11 12 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 b. What key issues must managers face in the financial distress process? […]

Build-a-Model Solution 11/26/2018 Chapter: 24 Problem: 5 Balance Sheets (Millions of Dollars) Total current liabilities $630 First-mortgage bondsa700 Second-mortgage bondsa300 Debentures 500 Subordinated debenturesb200 Common stock 100 Retained Earnings (430) Total claims $2,000 Assets Liabilities and equity Accounts payable $80 […]

b. Assignment is an informal procedure for liquidating debts which transfers title to a debtor’s assets to a third person, known as an assignee or trustee. Assignment normally yields creditors a larger amount than they would receive in a formal […]

Chapter 25: Portfolio Theory and Asset Pricing Models Copyright Cengage Learning. Powered by Cognero. Page 1 True / False 1. The slope of the SML is determined by the value of beta. a. True b. False ANSWER: False POINTS: 1 […]

Chapter 25: Portfolio Theory and Asset Pricing Models Copyright Cengage Learning. Powered by Cognero. Page 13 28. Assume that the market is in equilibrium and that stock betas can be estimated with historical data. The returns on the market, the […]

Mini Case: 25 – 12 0% 5% 10% 15% 0% 10% 20% 30% 40% Expected return Risk, sigmap 0% 5% 10% 15% 0% 20% 40% Expected return Risk, p 20% pAB = +0.35: Attainable Set of Risk/Return Combinations 20% AB […]

Build-a-Model Solution 11/26/2018 Chapter: 25 Problem: 7 Here are the expected returns and standard deviations for stocks A, B, and C: Stock risi A7.0% 33.11% wA = 30% wB = 50% wC = 20% rp = 11.10% Hint: for the […]

Answers and Solutions: 25 – 1 Chapter 25 Portfolio Theory and Asset Pricing Models ANSWERS TO END-OF-CHAPTER QUESTIONS 25-1 a. A portfolio is made up of a group of individual assets held in combination. An asset that would be relatively […]

FM16 Ch25 Mini Case Mini Case 11/23/2018 Expected return 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 […]

Chapter 26: Real Options Copyright Cengage Learning. Powered by Cognero. Page 1 True / False 1. Real options exist when managers have the opportunity, after a project has been implemented, to make operating changes in response to changed conditions that […]

Build a Model Solution 11/26/2018 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 Without any real options, reject the project. It has a […]

© 2020 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 26 Real Options ANSWERS TO END-OF-CHAPTER QUESTIONS 26-1 a. Real options occur when […]

Mini Case: 26 – 15 MINI CASE Assume that you have just been hired as a financial analyst by Tropical Sweets Inc., a mid- sized California company that specializes in creating exotic candies from tropical fruits such as mangoes, papayas, […]

11/23/2018 REAL OPTIONS: THE INVESTMENT TIMING OPTION Chapter 26. Real Options a. What are some types of real options? Answer: See Chapter 26 Mini Case Show b. What are the five steps for analyzing a real option? Answer: See Chapter […]

Chapter 27: Providing and Obtaining Credit Copyright Cengage Learning. Powered by Cognero. Page 1 True / False 1. The credit period is the amount of time it takes to do a credit search on a potential customer. a. True b. […]

Chapter 27: Providing and Obtaining Credit Copyright Cengage Learning. Powered by Cognero. Page 12 KEYWORDS: Bloom’s: Analysis OTHER: TYPE: Multiple Choice: Problem DATE CREATED: 8/9/2018 11:06 AM DATE MODIFIED: 11/16/2018 10:13 AM 24. Which one of the following aspects of […]

1 2 3 4 5 6 7 8 9 10 11 12 17 18 19 20 21 22 23 24 25 26 27 28 Compared to a 30-day credit period, this isn’t too bad since one would expect some customers […]

1 2 3 4 5 6 7 8 9 10 11 12 13 36 37 38 39 40 41 42 Term of discount (days) 10 Interest rate on bank loan 16% Payment due (days) 30 Required compensating balance 15% Accounting […]

Chapter 28: Advanced Issues in Cash Management and Inventory Control Copyright Cengage Learning. Powered by Cognero. Page 1 1. The cash balances of most firms consist of transactions, compensating, precautionary, and speculative balances. We can produce a total desired cash […]

Weekly usage = 6,500 Days between orders = 5.54 Orders in transit = 2.53 Goods in transit = 13,144 Optimal reorder point = 13,856 usage) – Goods in transit. Build-a-Model Solution 11/26/18 Chapter: 28 Problem: 3 INPUT DATA: Fixed order […]

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 23 24 25 26 27 28 29 30 31 · All values are known with certainty and constant over time. […]

Chapter 29: Pension Plan Management Copyright Cengage Learning. Powered by Cognero. Page 1 1. Under a defined contribution plan, employees agree to contribute some percentage of their salaries, up to 20 percent, to the firm’s pension fund. a. True b. […]

11/23/2018 1. Defined benefit plan 2. Defined contribution plan Chapter 29. Mini Case for Pension Plan Management a. How important are retirement plans to the U. S. financial markets? See PowerPoint Show. b. Define the following pension fund terms: See […]

Chapter 03: Analysis of Financial Statements Copyright Cengage Learning. Powered by Cognero. Page 1 1. Ratio analysis involves analyzing financial statements in order to appraise a firm’s financial position and strength. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: […]

Chapter 03: Analysis of Financial Statements Copyright Cengage Learning. Powered by Cognero. Page 21 b. False ANSWER: True POINTS: 1 DIFFICULTY: Difficulty: Easy QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: FMTP.EHRH.20.03.05 – LO: 3-5 NATIONAL STANDARDS: United […]

Chapter 03: Analysis of Financial Statements Copyright Cengage Learning. Powered by Cognero. Page 41 DATE CREATED: 10/31/2018 8:24 AM DATE MODIFIED: 10/31/2018 8:24 AM 71. Refer to the data for Pettijohn Inc. What is the firm’s ROE? a. 8.54% b. […]

Answers and Solutions: 3 – 1 Chapter 3 Analysis of Financial Statements ANSWERS TO END-OF-CHAPTER QUESTIONS 3-1 a. A liquidity ratio is a ratio that shows the relationship of a firm’s cash and other current assets to its current liabilities. […]

Build a Model Solution 11/26/2018 Chapter: 3 Problem: 15 Joshua & White Technologies: December 31 Balance Sheets (Thousands of Dollars) Assets 2019 2018 Liabilities and equity Accounts payable $33,600 $32,000 Accruals 12,600 12,000 Notes payable 19,929 6,480 Total current liabilities […]

© 2020 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Income Statements 2018 2019 2020E Net sales $5,500 $6,000 $6,600 Cost of goods sold […]

1 2 3 4 5 6 7 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 Liabilities and equity Accounts payable 300$ 400$ 330$ Notes payable […]

Chapter 30: Financial Management in Not-for-Profit Businesses Copyright Cengage Learning. Powered by Cognero. Page 1 1. The primary goal of investor-owned firms is shareholder wealth maximization, while the primary goal of not-for-profit firms is typically stated in terms of some […]

Chapter 04: Time Value of Money Copyright Cengage Learning. Powered by Cognero. Page 1 1. Starting to invest early for retirement increases the benefits of compound interest. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Easy QUESTION TYPE: True […]

Chapter 04: Time Value of Money Copyright Cengage Learning. Powered by Cognero. Page 21 POINTS: 1 DIFFICULTY: Moderate QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: FMTP.EHRH.20.04.15 – LO: 4-15 NATIONAL STANDARDS: United States – BUSPROG: Analytic STATE STANDARDS: […]

Chapter 04: Time Value of Money Copyright Cengage Learning. Powered by Cognero. Page 41 d. $19,601 e. $20,633 ANSWER: e RATIONALE: N 5 I/YR 4.5% PMT $4,700 FV $0.00 PV $20,633 POINTS: 1 DIFFICULTY: Easy QUESTION TYPE: Multiple Choice HAS […]

Chapter 04: Time Value of Money Copyright Cengage Learning. Powered by Cognero. Page 61 NOTES: Students may be able to correctly determine the answer to this question without [many] calculations. Please see the “Answers & Solutions” section to see calculation […]

Chapter 04: Time Value of Money Copyright Cengage Learning. Powered by Cognero. Page 77 TOPICS: Finding N KEYWORDS: Bloom’s: Apply OTHER: TYPE: Multiple Choice: Problem DATE CREATED: 10/31/2018 8:26 AM DATE MODIFIED: 11/14/2018 12:18 PM 145. Your investment account pays […]

Build a Model Solution 11/26/2018 Chapter: 4 Time Value of Money Problem: 35 To get the dialog box, click on fx, then Financial, then FV, then OK. Inputs: PV = 1000 I/YR = 10% N = 5 Years (D10): 1,610.51$ […]

1 2 3 4 5 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 I% Time period 0 1 2 FV at year end 100 Ordinary […]

Answers and Solutions: 4 -1 Chapter 4 Time Value of Money ANSWERS TO END-OF-CHAPTER QUESTIONS 4-1 a. PV (present value) is the value today of a future payment, or stream of payments, discounted at the appropriate rate of interest. PV […]

Mini Case: 4 – 32 h. 4. What is the effective annual rate (EAR or EFF%)? What is the EFF% for a nominal rate of 12%, compounded semiannually? Compounded quarterly? Compounded monthly? Compounded daily? Answer: The effective annual rate is […]

Answers and Solutions: 4 -21 4-34 Information given: The nominal time line is shown below, with a different payment each period and a FV of a nominal $1 millon: 0 1 2 3 4 5 24 25 | | | […]

Chapter 05: Bonds, Bond Valuation, and Interest Rates Copyright Cengage Learning. Powered by Cognero. Page 1 1. If a firm raises capital by selling new bonds, it is called the “issuing firm,” and the coupon rate is generally set equal […]

Chapter 05: Bonds, Bond Valuation, and Interest Rates Copyright Cengage Learning. Powered by Cognero. Page 21 DATE MODIFIED: 11/16/2018 8:56 AM 42. A Treasury bond has an 8% annual coupon and a 7.5% yield to maturity. Which of the following […]

Chapter 05: Bonds, Bond Valuation, and Interest Rates Copyright Cengage Learning. Powered by Cognero. Page 36 NATIONAL STANDARDS: United States – BUSPROG: Analytic STATE STANDARDS: United States – AK – DISC: Stocks and Bonds LOCAL STANDARDS: United States – OH […]

Answers and Solutions: 5 – 1 Chapter 5 Bond Valuation ANSWERS TO END-OF-CHAPTER QUESTIONS 5-1 a. A bond is a promissory note issued by a business or a governmental unit. Treasury bonds, sometimes referred to as government bonds, are issued […]

1 2 3 4 5 6 7 8 9 10 11 12 13 14 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 Coupon rate: 10% Annual Pmt: $100 Par value = FV: […]

Mini Case: 5 – 21 d. How is the value of a bond determined? What is the value of a 10-year, $1,000 par value bond with a 10 percent annual coupon if its required rate of return is 10 percent? […]

Mini Case: 5 – 32 l. What is a bond spread and how is it related to the default risk premium? How are bond ratings related to default risk? What factors affect a company’s bond rating? Answer: A “bond spread” […]

Build a Model Solution 11/26/2018 Chapter: 5 Problem: 24 Basic Input Data: Years to maturity: 20 Periods per year: 2 a. What is the bond’s yield to maturity? Peridodic YTM = 3.53% Annualized Nominal YTM = 7.06% Hint: This is […]

Chapter 06: Risk and Return Copyright Cengage Learning. Powered by Cognero. Page 1 1. The tighter the probability distribution of its expected future returns, the greater the risk of a given investment as measured by its standard deviation. a. True […]

Chapter 06: Risk and Return Copyright Cengage Learning. Powered by Cognero. Page 21 55. Which of the following statements is CORRECT? a. If you found a stock with a zero historical beta and held it as the only stock in […]

Chapter 06: Risk and Return Copyright Cengage Learning. Powered by Cognero. Page 41 c. If the risk-free rate increases while the market risk premium remains constant, then the required return on an average stock will increase. d. If the market […]

Chapter 06: Risk and Return Copyright Cengage Learning. Powered by Cognero. Page 57 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: FMTP.EHRH.20.06.06 – LO: 6-6 NATIONAL STANDARDS: United States – BUSPROG: Analytic STATE STANDARDS: United States – AK – […]

Mini Case: 6 – 17 e. Your client has decided that the risk of the bond portfolio is acceptable and wishes to leave it as it is. Now your client has asked you to use historical returns to estimate the […]

1 2 3 4 5 6 7 8 9 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 Worst […]

Build a Model Solution 11/26/2018 Chapter: 6 Problem: 15 Data as given in the problem are shown below: Market Index Year Stock Price Dividend Stock Price Dividend Includes Divs. 2019 $25.88 $1.73 $73.13 $4.50 17,495.97 2014 $11.44 $1.28 $83.63 $3.00 […]

Answers and Solutions: 6 – 1 Chapter 6 Risk and Return ANSWERS TO END-OF-CHAPTER QUESTIONS 6-1 a. Stand-alone risk is only a part of total risk and pertains to the risk an investor takes by holding only one asset. Risk […]

Chapter 07: Corporate Valuation and Stock Valuation Copyright Cengage Learning. Powered by Cognero. Page 1 1. A proxy is a document giving one party the authority to act for another party, including the power to vote shares of common stock. […]

Chapter 07: Corporate Valuation and Stock Valuation Copyright Cengage Learning. Powered by Cognero. Page 21 DATE CREATED: 8/9/2018 11:02 AM DATE MODIFIED: 8/9/2018 11:02 AM 38. Free cash flows should be discounted at the firm’s weighted average cost of capital […]

Chapter 07: Corporate Valuation and Stock Valuation Copyright Cengage Learning. Powered by Cognero. Page 37 c. 4.57% d. 4.81% e. 5.05% ANSWER: d RATIONALE: D1 $1.25 g 4.7% P0 $26.00 Dividend yield = D1/P0 = 4.81% POINTS: 1 DIFFICULTY: Difficulty: […]

1 2 3 4 5 6 7 9 10 11 12 13 to businesses with temporary heavy workloads. Your employer is also considering the purchase of Biggerstaff & McDonald (B&M), a privately held company owned by two friends, each with […]

© 2020 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Corporate Valuation and Stock Valuation ANSWERS TO END-OF-CHAPTER QUESTIONS 7-1 a. A […]

Build a Model Solution 11/26/2018 Chapter: 7 Valuation of Stocks and Corporations Problem: 26 Value Drivers in the Free Cash Flow Valuation Model Net operating profit after taxes $141.12 $124.66 $132.14 Total net operating capital $970 $940.80 $997.25 $1,057.08 FCF […]

Mini Case: 7 – 19 Vop =   =+ 1t t t )WACC1( FCF Nonoperating assets are marketable securities and ownership of non-controlling interest in another company. The value of nonoperating assets usually is very close to figure that […]

1 2 3 4 5 6 7 8 9 10 34 35 36 37 38 $65.406 +$3.738 1.11 P1=$62.29 P1 = 11 12 27 28 29 30 31 32 33 39 40 41 42 43 44 45 46 47 48 […]

Build a Model Solution 11/26/2018 Chapter: 7 Valuation of Stocks and Corporations Problem: 25 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 4 […]

© 2020 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Answers and Solutions: 8 – 1 the time to expiration causes an increase in […]

1 2 3 4 5 6 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Hint: use the NORMSDIST function. (d1)=0.038 N(d1) = 0.515108 (d2)= -0.316 N(d2) = 0.376125 Using the formula for option value […]

11/21/2018 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 $25 Chapter 8. Mini Case for Financial Options and Applications in […]

Chapter 09: The Cost of Capital Copyright Cengage Learning. Powered by Cognero. Page 1 1. “Capital” is sometimes defined as funds supplied to a firm by investors. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Difficulty: Easy QUESTION TYPE: […]

Chapter 09: The Cost of Capital Copyright Cengage Learning. Powered by Cognero. Page 21 TOPICS: Cost of common: Dividend growth model, discounted cash flow, DCF KEYWORDS: Bloom’s: Analysis OTHER: TYPE: Multiple Choice: Problem DATE CREATED: 8/9/2018 11:03 AM DATE MODIFIED: […]

Chapter 09: The Cost of Capital Copyright Cengage Learning. Powered by Cognero. Page 35 STATE STANDARDS: United States – AK – DISC: Capital budgeting and cost – DISC: Capital budgeting and cost of capital LOCAL STANDARDS: United States – OH […]

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 21 22 23 24 25 26 27 28 29 30 31 32 (2.) Should the component costs be figured on a before-tax or an after-tax […]

Build a Model Solution 11/26/2018 Chapter: 9 Problem: 18 INPUTS USED IN THE MODEL P0$50.00 D0$3.13 g7% Flotation cost for common 10% Ppf $32.61 Dpf $3.30 Flotation cost for preferred 8% Beta 1.2 Market risk premium, RPM6.0% Risk free rate, […]

b. The cost of preferred stock, rps, is the cost to the firm of issuing new preferred stock. For perpetual preferred, it is the preferred dividend, Dps, divided by the net issuing price, Pn. Note that no tax adjustments are […]

Chapter 16: Supply Chains and Working Capital Management Copyright Cengage Learning. Powered by Cognero. Page 1 1. Which of the following will cause an increase in net working capital, other things held constant? a. A cash dividend is declared and […]

Chapter 16: Supply Chains and Working Capital Management Copyright Cengage Learning. Powered by Cognero. Page 21 b. 28 days c. 31 days d. 35 days e. 38 days ANSWER: d RATIONALE: Annual sales $45,000 Annual cost of goods sold (COGS) […]

Chapter 16: Supply Chains and Working Capital Management Copyright Cengage Learning. Powered by Cognero. Page 41 NATIONAL STANDARDS: United States – BUSPROG: Analytic STATE STANDARDS: United States – AK – DISC: Working capital management LOCAL STANDARDS: United States – OH […]

Chapter 16: Supply Chains and Working Capital Management Copyright Cengage Learning. Powered by Cognero. Page 53 a. $1,092 b. $1,150 c. $1,210 d. $1,271 e. $1,334 ANSWER: c RATIONALE: Monthly sales $5,000 Monthly purchase % 50% Other payments: 25% Sales […]