978-0073382395 Chapter 3 Questions and Problems 28-30

Type

Solution Manual

Book Title

Fundamentals of Corporate Finance Standard Edition 9th Edition

ISBN 13

978-0073382395

April 3, 2019

CHAPTER 3 B-27

28. SMOLIRA GOLF CORP.

Statement of Cash Flows

For 2009

Cash, beginning of the year $ 21,860

Operating activities

Net income $ 36,475

Plus:

Depreciation $ 26,850

Increase in accounts payable 3,530

Increase in other current liabilities 1,742

Less:

Increase in accounts receivable $ (2,534)

Increase in inventory (1,566)

Net cash from operating activities $ 64,497

Investment activities

Fixed asset acquisition $(53,307)

29. Earnings per share = Net income / Shares

P/E ratio = Shares price / Earnings per share

Dividends per share = Dividends / Shares

Book value per share = Total equity / Shares

B-28 SOLUTIONS

Market-to-book ratio = Share price / Book value per share

PEG ratio = P/E ratio / Growth rate

30. First, we will find the market value of the company’s equity, which is:

Market value of equity = Shares × Share price

The total book value of the company’s debt is:

Total debt = Current liabilities + Long-term debt

Now we can calculate Tobin’s Q, which is:

Tobin’s Q = (Market value of equity + Book value of debt) / Book value of assets

Using the book value of debt implicitly assumes that the book value of debt is equal to the market

value of debt. This will be discussed in more detail in later chapters, but this assumption is generally

true. Using the book value of assets assumes that the assets can be replaced at the current value on

the balance sheet. There are several reasons this assumption could be flawed. First, inflation during

the life of the assets can cause the book value of the assets to understate the market value of the

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