Archives: Solution Manual

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 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 […]

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 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 […]

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 […]

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 […]

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 […]

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, […]

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 […]

© 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, […]

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 […]

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 […]

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 […]

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 […]

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 […]

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 […]

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 […]

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) […]

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 […]

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 […]

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 […]

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 […]

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 […]

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% […]

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, […]

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: 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: […]

© 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 […]

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 […]

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 […]

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 […]

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 […]

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 […]

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 […]

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, […]

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 […]

© 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 […]

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 […]

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 […]

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 […]

© 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 […]

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 […]

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: 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 […]

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 […]