Archives: Solution Manual

SOLUTIONS TO EXERCISES EXERCISE 6-1 (5–10 minutes) (a) (b) Rate of Interest Number of Periods 1. a. 9% 9 b. 2% 20 c. 5% 30 2. a. 9% 25 b. 4% 30 c. 3% 28 EXERCISE 6-2 (5–10 minutes) (a) […]

6-1 CHAPTER 6 Accounting and the Time Value of Money ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics Questions Brief Exercises Exercises Problems 1. Present value concepts. 1, 2, 3, 4, 5, 9, 17 15, 17 c. Unknown number of periods. 4, […]

5-73 ACCOUNTING, ANALYSIS, AND PRINCIPLES (Continued) Analysis The classified balance sheet provides subtotals for current assets and Principles The primary objection that the bank is likely to raise about this supple– mental information is the subjectivity (which reduces faithful representation) […]

5-61 CA 5-5 (Continued) Because of the significant impact on the financial statements of the depreciation method(s) used, the following disclosures should be made. CA 5-6 Date President Kappeler, CEO Kappeler Corporation 125 Wall Street Middleton, Kansas 67458 Dear Mr. […]

5-41 SOLUTIONS TO PROBLEMS PROBLEM 5-1 COMPANY NAME Balance Sheet December 31, 20XX Assets Prepaid rent …………………………………………….. XXX Total current assets ……………………………. $XXX Long-term investments Bond sinking fund ……………………………………. XXX Cash surrender value of life insurance ………. XXX Land for […]

5-21 EXERCISE 5-4 (Continued) Liabilities and Shareholders’ Equity Current liabilities Salaries and wages payable ……………………….. $XXX Notes payable, short-term ………………………….. XXX Additional paid-in capital: Paid in capital in excess of par—common stock ………………………….. XXX Total paid-in capital …………………………. XXX Retained […]

5-1 CHAPTER 5 Balance Sheet and Statement of Cash Flows ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics Questions Brief Exercises Exercises Problems Concepts for Analysis 1. Disclosure principles, uses of the balance sheet, financial flexibility. 1, 2, 3, 4, 5, 6, […]

4-60 COMPARATIVE ANALYSIS CASE (a) Both companies are using the multiple-step format in presenting income statement information. Companies use the multiple-step in– come statement to recognize additional relationships related to revenues and expenses. Both companies distinguish between operating and (b) […]

4-41 PROBLEM 4-2 THOMPSON CORPORATION Income Statement For the Year Ended December 31, 2012 Revenues Net sales ($1,100,000 – $14,500 – $17,500) ….. $1,068,000 Gain on sale of land ………………………………….. 30,000 Rent revenue ……………………………………………. 18,000 Total revenues …………………………………. 1,116,000 Income […]

4-21 EXERCISE 4-3 (20–25 minutes) DUNBAR INC. Income Statement For Year Ended December 31, 2012 Revenues Net sales ($1,125,000(b) – $17,000) …………………… $1,108,000 Expenses Earnings per share (d) …………………………………………….. $3.22* *Rounded Determination of amounts (a) Administrative expenses = 18% of […]

4-1 CHAPTER 4 Income Statement and Related Information ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics Questions Brief Exercises Exercises Problems Concepts for Analysis 1. Income measurement concepts. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 18, 28, 31, 32, […]

3-73 COMPARATIVE ANALYSIS CASE (Continued) PepsiCo has substantially more property, plant, and equipment than does Coca-Cola. PepsiCo is engaged in three different types of businesses: soft drinks, snack-food, and juices. As a result, it has more tangible fixed assets. While […]

3-61 *PROBLEM 3-10 (a), (b), (c) Cash Accounts Receivable Allow. for Doubtful Accts. Bal. 18,500 Bal. 32,000 Bal. 700 Adj. 1,400 2,100 Inventory Equipment Accum. Depr.—Equipment Bal. 80,000 Bal. 84,000 Bal. 35,000 Adj. 12,000 47,000 Prepaid Insurance Notes Payable Interest […]

PROBLEM 3-3 1. Dec. 31 Salaries and Wages Expense ………………………….. 2,120 Salaries and Wages Payable ………………………….. 2,120 (5 X $700 X 2/5) = $1,400 (3 X $600 X 2/5) = 720 Total accrued salaries $2,120 2. 31 Unearned Rent Revenue […]

3-21 EXERCISE 3-11 (20–25 Minutes) (a) CAVAMANLIS CO. Income Statement For the Year Ended December 31, 2012 Revenues Service revenue ………………………………………. $12,590 (b) CAVAMANLIS CO. Statement of Retained Earnings For the Year Ended December 31, 2012 Retained earnings, January 1 […]

3-1 CHAPTER 3 The Accounting Information System ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics Questions Brief Exercises Exercises Problems 1. Transaction identification. 1, 2, 3, 5, 6, 7, 8 1, 2 1, 2, 3, 4, 17 1 6. Closing. 12 11 […]

COMPARATIVE ANALYSIS CASE (Continued) Because PepsiCo uses LIFO for part of its inventory, if material, it would be necessary to adjust as best as possible to FIFO. An additional problem is that both use the average cost for some of […]

EXERCISE 2-9 (Continued) (d) At the present time, accountants do not recognize price-level adjust- ments in the accounts. Hence, it is misleading to deviate from the historical cost principle because conjecture or opinion can take place. It should also be […]

CHAPTER 2 Conceptual Framework for Financial Reporting ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics Questions Brief Exercises Exercises Concepts for Analysis 1. Conceptual framework– general. 1, 7 1, 2 2. Objectives of financial reporting. 2 1, 2 3 6. Basic principles: […]

CA 1-12 (a) AICPA. American Institute of Certified Public Accountants. The national organization of practicing certified public accountants. (b) CAP. Committee on Accounting Procedure. A committee of practicing CPAs which issued 51 Accounting Research Bulletins between 1939 and 1959 and […]

1-1 CHAPTER 1 Financial Accounting and Accounting Standards ASSIGNMENT CLASSIFICATION TABLE Topics Questions Cases 1. Subject matter of accounting. 1 4 2. Environment of accounting. 2, 3, 29 6, 7 3. Role of principles, objectives, standards, and accounting theory. 4, […]

Chapter 31 Input Area: Sales per month 8,000,000€ Commission 5% Current exhange rate ($/€)1.34$ Production costs 80% 3) Exhange rate ($/€)1.25$ Production costs 8,576,000$ Profit at new exchange rate 924,000$ Breakeven exchange rate ($/€)1.1284$ Output Area: 3) At revised exchange […]

2. The exchange rate will increase, as it will take progressively more pesos to purchase a dollar. This is the relative PPP relationship. in the future to buy one dollar than it does today. b. The inflation rate in Australia […]

Total sales = €8,000,000($1.34/€) Total sales = $10,720,000 And the production costs are: Production costs = $10,720,000(.80) Production costs = $8,576,000 So, the profit at the current exchange rate is: Profit = $10,184,000 – 8,576,000 Profit = $1,608,000 If the […]

2. Financial distress frequently can serve as a firm’s “early warning” sign for trouble. Thus, it can be beneficial since it may bring about new organizational forms and new operating strategies. bankruptcy takes place. After the private agreement, the firm […]

Chapter 29 Input Area: Cash paid 282,000,000$ 2019 2020 2021 2022 2023 Expected return on market 13% Company acquirer WACC 11% Cost of debt for each company 8% Current beta for Hybrid equity 1.30 Price agreed by Hybrid shareholders 63.25$ […]

CHAPTER 28 – 1 unsystematic risk benefits bondholders by making default less likely. However, if a merger is done purely to diversify (i.e., no operating synergy), then the NPV of the merger is zero. If the NPV is zero, and […]

CHAPTER 29 THE BIRDIE GOLF-HYBRID GOLF MERGER 1. As with any other merger analysis, we need to examine the present value of the incremental cash flows. The cash flow today from the acquisition is the acquisition cost plus the dividends […]

Input Area: Sales Default rate Administrative costs Receivables period Current policy $ 113,000,000 2.10% 1.60% 38 Option 1 $ 129,000,000 2.60% 2.40% 41 Option 2 $ 127,000,000 2.20% 1.90% 51 Option 3 $ 130,000,000 2.50% 2.10% 49 Daily interest rate […]

CHAPTER 27 APPENDIX – 1 2. Trade credit is usually granted on open account. The invoice is the credit instrument. No-credit costs: lost sales The sum of these are the carrying costs. 2. Capacity: determines if a customer is able […]

Average daily administrative costs = .016($113,000,000/365) Average daily administrative costs = $4,953.42 We also need the appropriate interest rate for the collection period. With a .01597 percent daily interest rate, the periodic rate for the 38 day collection period is: […]

Chapter 27 Input Area: Number of lockboxes 4 Daily payments 185,000$ Investment account rate 0.068% Wire transfer cost 0.20% Sweep time 14 Money market yield 0.075% ACH transfer cost 200$ Output: Cash Management at Richmond Corp. 1. FVA $10,385,104.15 2. […]

back stock. It can also reduce debt. If it has insufficient cash, then it must either borrow, sell stock, or improve profitability. 3. Probably not. Creditors would probably want substantially more. management is broader and concerns the optimal level of […]

Value of ACH = [4($185,000 – 200)(FVIFA.075%,14)]/1.00075 Value of ACH = $10,391,608.36 The company should go ahead with the plan since the future value is higher. ACH transfer cost, we find: [4($185,000 – $X)(FVIFA.075%,14)]/1.00075 = $10,385,104.15 X = $315.67 CHAPTER […]

22 23 24 25 26 27 28 29 30 31 Last years’ sales 1,102,000$ 1,141,000$ 1,125,000$ 1,063,000$ Growth rate in sales 21.00% Output Area: Sales next year 1,333,420.00$ 1,380,610.00$ 1,361,250.00$ 1,286,230.00$ Sales following year 1,613,438.20$ 38 39 40 41 42 […]

CHAPTER 25 – 1 and the time that inventory is sold and payment received. Thus, these are firms that have relatively short payables periods and/or relatively long receivable cycles. were sold for cash. c. Use: The cash balance declined by […]

CHAPTER 26 KEAFER MANUFACTURING WORKING CAPITAL MANAGEMENT 1. The cash flow each quarter will consist of the sales collection, minus the suppliers paid, expenses, dividends, interest, and capital outlays. The cash flows for each quarter will be: Cash Flow Q1 […]

Chapter 25 Input area: 5) Mortgage value 546,804.59$ 4) Mortgage value 467,639.54$ Mortgage value 500,000$ Years 25 Interest rate 5.50% 4) Interest rate 6.20% 5) Interest rate 4.60% Output area: Williamson Mortgage, Inc. 1) Mortgage payment 3,070.44$

CHAPTER 24 – 1 of pork bellies. While a rise in pork belly prices is bad for the consumer, this risk is offset by the gain on the call options; if pork belly prices actually decline, the consumer enjoys lower […]

between today and the date the mortgage is sold, the fair value of the mortgage will decrease, and Max will only be willing to purchase the mortgage for a price less than $500,000. If this is the case, she will […]

Stock price 30.63$ Intrinsic bond value 703.11$ Floor value 703.11$ Conversion ratio 22.22 Conversion premium 46.94% Option value 296.89$ Chapter 24 Input area: Industry PE 17.50 Company EPS 1.75$ Conversion price (stock) 45.00$ Maturity (years) 20 Output area: S&S Air’s […]

bound on the price of the warrant is zero. b. If the stock price is above the exercise price of the warrant, the warrant must be worth at least the difference between these two prices. If warrants were selling for […]

Conversion ratio = $1,000/$45 = 22.22 So, each bond can be converted to 22.22 shares of stock. premium of the bond is: Conversion premium = ($45 – 30.63)/$30.63 Conversion premium = .4694 or 46.94% interest in the company. This equity […]

Input Area: Current stock price 27.15$ Exercise price 40$ Expiration (years) 3 Risk-free rate 3.80% Standard deviation 60.00% Output Area: Chapter 23 Exotic Cuisine Employee Stock Options d10.2564 d2(0.7828) N(d1)0.6012 N(d2)0.2169 Call 8.58$

2. Most businesses have the option to abandon under bad conditions and the option to expand under good conditions. the option to burn either increases. However, if the prices of coal and oil are highly correlated, the value of the […]

CHAPTER 23 EXOTIC CUISINES’ EMPLOYEE STOCK OPTIONS 1. We can use the Black-Scholes equation to value the employee stock options. We need to use the risk- free rate that is the same maturity as the options. So, assuming expiration in […]

Input Area: Current stock price 53$ Exercise price 65$ Expiration (months) 6 Risk-free rate 4% Standard deviation 63.22% Output Area: d1(0.1883) Chapter 22 Clissold Industries Options d2(0.6353) N(d1)0.4253 N(d2)0.2626 Call 5.81$ Microsoft Excel 14.0 Answer Report Worksheet: [Corporate Finance 11th […]

Call Option If the stock price rises to $73: Payoff = $13 If the stock price falls to $49: Payoff = $0 Delta Shares If the stock price rises to $73: Payoff = (.54)($73) = $39.54 c. Since the cost […]

CHAPTER 22 OPTIONS AND CORPORATE FINANCE Answers to Concept Questions 1. A call option confers the right, without the obligation, to buy an asset at a given price on or before a given date. A put option confers the right, […]

CHAPTER 22 CLISSOLD INDUSTRIES OPTIONS 1. Since the Black-Scholes model uses the standard deviation of the underlying asset, and there is only 2. To find the implied volatility for an option, you can set up a spreadsheet to calculate the […]