Archives: Solution Manual
978-1259687969 Chapter 2 Solution Manual Part 3
2-16. Solution: Elite Trailer Parks a. Operating profit (EBIT)………………….….….….….…. $200,000 Interest expense……………………….….….….….…… 10,000 Earnings before taxes (EBT)………………………….…. $190,000 Taxes…………………………………………………….…… 61,250 Earnings after taxes (EAT)…………………………….…. $128,750 17. Earnings per share and retained earnings (LO1 and 3) Quantum Technology had $669,000 of […]
978-1259687969 Chapter 2 Solution Manual Part 2
2-9. Solution: Virginia Slim Wear Income Statement Sales…………………………………………….….…….$1,360,000 Cost of goods sold………………………………….. 700,000 Gross profit………………………………………… 660,000 10. Income statement (LO1) Precision Systems had sales of $820,000, cost of goods of $510,000, selling and administrative expense of $60,000, and operating profit […]
978-1259687969 Chapter 19 Solution Manual Part 3
21. Earnings per share with convertibles (LO19-5) Myers Drugs Inc. has 1.20 million shares of stock outstanding. Earnings after taxes are $9 million. Myers also has warrants outstanding that allow the holder to buy 100,000 shares of stock at $15 […]
978-1259687969 Chapter 19 Solution Manual Part 2
19-10. Solution: Reynolds Technology b. Pure bond value $763.57 N I/Y PV PMT FV 50 6 CPT PV –763.57 45 1,000 11. Pure bond value and change in interest rates (LO19-3) Pittsburgh Steel Company has a convertible bond outstanding, trading […]
978-1259687969 Chapter 19 Solution Manual Part 1
Chapter 19: Convertibles, Warrants, and Derivatives Chapter 19 Convertibles, Warrants, and Derivatives Discussion Questions 19-1. What are the basic advantages to the corporation of issuing convertible securities? The advantages to the corporation of a convertible security are: 19-2. Why are […]
978-1259687969 Chapter 18 Solution Manual Part 3
19. Stock dividend and cash dividend (LO18-4) Health Systems Inc. is considering a 15 percent stock dividend. The capital accounts are as follows: Common stock (6,000,000 shares at $10 par)……. $60,000,000 Capital in excess of par*………………….……….……. 35,000,000 Retained earnings………………………………….………. 75,000,000 […]
978-1259687969 Chapter 18 Solution Manual Part 2
Chapter 18: Dividend Policy and Retained Earnings 10. Dividend yield (LO18-1) The stock of Pills Berry Company is currently selling at $60 per share. The firm pays a dividend of $1.80 per share. a. What is the annual dividend yield? […]
978-1259687969 Chapter 18 Solution Manual Part 1
Chapter 18: Dividend Policy and Retained Earnings Chapter 18 Dividend Policy and Retained Earnings Discussion Questions 18-1. How does the marginal principle of retained earnings relate to the returns that a stockholder may make in other investments? 18-2. Discuss the […]
978-1259687969 Chapter 17 Solution Manual Part 3
Chapter 17: Common and Preferred Stock Financing 17-18. Solution: National Health Corp. a. $8 per share × 350,000 shares × 5 years = $14,000,000 dividends in arrears b. $14,000,000 original dividends in arrears + ($8 × 350,000) next year’s preferred […]
978-1259687969 Chapter 17 Solution Manual Part 2
Chapter 17: Common and Preferred Stock Financing 17-9. Solution: Midland Petroleum a. Number of directors that can be elected (34,001 1) (12 1) 442,000 4 103,000 103,000 – ´ + = = = Mr. Clark can be assured of electing […]
978-1259687969 Chapter 16 Solution Manual Part 5
CP16-1. (Continued) 3. Cost savings in lower interest rates 9% (interest on old bonds) × $30,000,000 = $2,700,000 6% (interest on new bonds) × $30,000,000 1,800,000 Savings per year $ 900,000 4. Underwriting cost on old issue Original amount (3% […]
978-1259687969 Chapter 16 Solution Manual Part 4
16-19. Solution: The Sunbelt Corporation First compute the discount rate Outflows 1. Payment on call provision $40,000,000 × 7.5% = $3,000,000 $3,000,000 (1 – .36) = $1,920,000 2. Underwriting cost on new issue Actual expenditure 1.8% × $40,000,000 = $720,000 […]
978-1259687969 Chapter 16 Solution Manual Part 3
Chapter 16: Long-Term Debt and Lease Financing 16-16. Solution: Mr. Robinson – Mrs. Pinson a. Present value of interest payments PVA = A × PVIFA (n = 10*, i = 5.00%) Appendix D Present value of principal payment at maturity […]
978-1259687969 Chapter 16 Solution Manual Part 2
Chapter 16: Long-Term Debt and Lease Financing 16-6. Solution: Florida Investment Company a. Present value of interest payments PVA = A × PVIFA (n = 20, i = 6%) Appendix D Present value of principal payment at maturity PV = […]
978-1259687969 Chapter 15 Solution Manual Part 3
Chapter 15: Investment Banking: Public and Private Placement 15-18. (Continued) c. EPS = $19,000,000/4,000,000 = $4.75 P/E Ratio = Price/EPS = $48/$4.75 = 10.11x d. Net income = $19,000,000 + 13% ($21,120,000) = $19,000,000 + $2,745,600 = $21,745,600 EPS after […]
978-1259687969 Chapter 15 Solution Manual Part 2
Chapter 15: Investment Banking: Public and Private Placement 15-11. Solution: Kevin’s Bacon Company Inc. b. Earnings per share after the stock issue Total Earnings Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written […]
978-1259687969 Chapter 15 Solution Manual Part 1
Chapter 15: Investment Banking: Public and Private Placement Chapter 15 Investment Banking: Public and Private Placement Discussion Questions 15-1. In what way is an investment banker a risk taker? The investment banker is a risk taker (underwriter) in that the […]
978-1259687969 Chapter 13 Solution Manual Part 5
25. Certainty equivalent approach (LO13-1) Sheila Goodman recently received her MBA from the Harvard Business School. She has joined the family business, Goodman Software Products Inc., as vice president of finance. She believes in adjusting projects for risk. Her father […]
978-1259687969 Chapter 13 Solution Manual Part 4
13-20. (Continued) e. Less than $19,200 or greater than $26,400 Area $19,200 $24,000 $4,800 1 .3413 .5000 .3413 = .1587 $4,800 $4,800 $26,400 $24,000 $2,400 .3085 .5 .1915 .5000 .1915 = $4,800 $4,800 .4672 – – = =- – –= […]
978-1259687969 Chapter 13 Solution Manual Part 3
Chapter 13: Risk and Capital Budgeting 13-15. Solution: Discount Rate Years 5% 20% 1 .952 .833 The impact of a high discount rate is much greater on long-term value. For example, after the first year, the high rate discount value […]
978-1259687969 Chapter 13 Solution Manual Part 2
13-7. Solution: Coefficient of variation (V) = Standard deviation/Mean return Ranking from lowest to highest A $1,200/$5,000 = .24 E (.09) B $600/$4,000 = .15 B (.15) 8. Coefficient of variation (LO13-1) Five investment alternatives have the following returns and […]
978-1259687969 Chapter 12 Solution Manual Part 7
12-33. (Continued) h. Incremental depreciation and tax shield benefits (1) (2) (3) (4) (5) (6) Year Depreciation on new Equipment Depreciation on old Equipment Incremental Depreciation Tax Rate Tax Shield Benefits 1 $29,600 $11,136 $18,464 .35 $ 6,462 2 47,360 […]
978-1259687969 Chapter 12 Solution Manual Part 6
12-29. (Continued) Next, determine the net present value. Cash Flow Present Year (Inflows) PVIF at 12% Value 1 $29,064 .893 $ 25,954 2 33,960 .797 27,066 3 30,600 .712 21,787 4 17,400 .636 11,066 5 15,672 .567 8,886 Calculator Solution: […]
978-1259687969 Chapter 12 Solution Manual Part 5
Chapter 12: The Capital Budgeting Decision 12-24. Solution: Davis Chili Company a. NPV @ 0% discount rate b. Year Cash Flow PVIF at 10% Present Value 1 $16,000 .909 $ 14,544 2 15,000 .826 12,390 3 12,000 .751 9,012 Present […]
978-1259687969 Chapter 12 Solution Manual Part 4
Chapter 12: The Capital Budgeting Decision 12-20. Solution: Turner Video a. Reinvestment assumption of NPV No. of Year Inflows Rate Periods Value 1 $15,000 12% 4 1.574 $23,610 2 17,000 12% 3 1.405 23,885 3 21,000 12% 2 1.254 26,334 […]
978-1259687969 Chapter 12 Solution Manual Part 3
12-17. Solution: Hudson Corporation a. Net Present Value Year Cash Flow × 8% PVIF Present Value 1 $13,000 .926 $ 12,038 2 13,000 .857 11,141 b. Internal Rate of Return We will average the inflows to arrive at an assumed […]
978-1259687969 Chapter 12 Solution Manual Part 2
Chapter 12: The Capital Budgeting Decision 12-10. Solution: X-treme Vitamin Company a. Payback Method Payback for Project A 10,000 .83 years 12,000 = b. Net Present Value Method Project A Year Cash Flow PVIFA Present Value 1 $12,000 .909 $10,908 […]
978-1259687969 Chapter 12 Solution Manual Part 1
Chapter 12 The Capital Budgeting Decision Discussion Questions 12-1. What are the important administrative considerations in the capital budgeting process? 12-2. Why does capital budgeting rely on analysis of cash flows rather than on net income? Cash flow rather than […]
978-1259687969 Chapter 11 Solution Manual Part 5
CP 11-1. Solution: Medical Research Corporation a. Kd = Yield (1 – T) = 11% (1 – .30) = 11% (.70) = 7.70% Cost (aftertax) Weights Weighted Cost Debt (Kd)……………………….. 7.70% 40% 3.08% Common equity (Ke) (retained earnings)……….. 14.60 60 […]
978-1259687969 Chapter 11 Solution Manual Part 4
28. Marginal cost of capital (LO11-5) The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current capital structure calls for 50 percent debt, 30 percent preferred stock, and 20 percent common equity. Initially, common […]
978-1259687969 Chapter 11 Solution Manual Part 3
21. Weighted average cost of capital (LO11-1) Sauer Milk Inc. wants to determine the minimum cost of capital point for the firm. Assume it is considering the following financial plans: Cost (aftertax) Weights Plan A Debt…………………………………. 4.0% 30% Preferred stock……………….…. […]
978-1259687969 Chapter 10 Solution Manual Part 5
Chapter 10: Valuation and Rates of Return 10-35. Solution: Beasley Ball Bearings a. D1$4.000 (1.02) = $4.08 D2$4.080 (1.02) = 4.162 b. Dividends PV(15%) PV of Dividends D1$4.080 .870 $ 3.550 D24.162 .756 3.146 D34.245 .658 2.793 D44.330 .572 2.477 […]
978-1259687969 Chapter 10 Solution Manual Part 4
Chapter 10: Valuation and Rates of Return 10-24. Solution: North Pole Cruise Lines a. Original price $6.00 $100 .06 p p p D PK = = = b. Current value $6.00 $42.86 .14 = c. The price of preferred stock […]
978-1259687969 Chapter 10 Solution Manual Part 3
Chapter 10: Valuation and Rates of Return 10-14. Solution: Katie Pairy Fruits Inc. Calculator Solution: N I/Y PV PMT FV N I/Y PV PMT FV 20 12 CPT PV −224.08 30 0 Answer: $224.08 + 1,000 = 1,224.08 Bond price […]
978-1259687969 Chapter 10 Solution Manual Part 2
Chapter 10: Valuation and Rates of Return 10-5. Solution: Essex Biochemical Calculator Solution: (a) 30 years to maturity N I/Y PV PMT FV (b) 20 years to maturity N I/Y PV PMT FV 20 17 CPT PV −887.44 150.0 1,000 […]
978-1259687969 Chapter 10 Solution Manual Part 1
Chapter 10: Valuation and Rates of Return Chapter 10 Valuation and Rates of Return Discussion Questions 10-1. How is valuation of any financial asset related to future cash flows? 10-2. Why might investors demand a lower rate of return for […]
978-1259687969 Case 35
KFC and the Colonel Case 35 General Business Considerations Purpose: This case is different from the prior 34 and may only appeal to certain instructors. It is a real- world documentation of the process that Colonel Harland Sanders went through […]
978-1259687969 Case 34
National Brands vs. A-1 Holdings Case 34 Merger Analysis Purpose: This case features a surprise attack tender offer. The acquisition candidate decides to counter with a Pac Man defense in which they make an offer for the potential acquiring company. […]
978-1259687969 Case 33
Security Software, Inc. Case 33 Convertibles Purpose: The case allows the student to view the hybrid nature of convertible securities. While it would be very difficult for the firm to issue either equity or bonds in a post-recession bear market, […]
978-1259687969 Case 31
Acme Alarm Systems Case 31 Merger Terms and Stock Price Purpose: The case is structured so that the student can analyze the effect of a merger on earnings per share and stock price. In doing the analysis, the student will […]
978-1259687969 Case 30
Hamilton Products Case 30 Convertibles Purpose: The case encourages the student to more fully appreciate the financial characteristics of convertible bonds. It also allows the student to see that the pure bond value is not necessarily stable, but may change […]
978-1259687969 Case 29
Orbit Chemical Company Case 29 Dividend Policy Purpose: This case has a completely different emphasis from the prior dividend case, Montgomery Corporation. The Orbit Chemical Company case stresses the critical emphasis of the statement of cash flows in determining whether […]
978-1259687969 Case 27
Alpha Biogenetics Case 27 Poison Pill Purpose: The case gives the student exposure to the poison pill and the entire issue of antitakeover amendments. Through running the numbers in the case, the student is able to view how poison pills […]
978-1259687969 Case 26
Midsouth Exploration Company Case 26 Preferred Stock Purpose: The case allows the student to examine many of the attributes of preferred stock. Particularly important is the cumulative feature when the company is in arrears, as well as a potential solution […]
978-1259687969 Case 25
Warner Motor Oil Company Case 25 Bond Refunding Purpose: The case gives the student a clear insight into the refunding process. The importance of the call privilege is emphasized. Clearly, a refunding would not be feasible if the old issue […]
978-1259687969 Case 24
Leland Industries Case 24 Debt Financing Purpose: The case gives the student a chance to understand the many factors influencing bonds. Initially the student concentrates on the variables affecting a bond rating and actually makes a basic bond rating decision. […]
978-1259687969 Case 23
Glazer Drug Co. Case 23 Initial Public Offering Purpose: The case deals with computing the cost of going public, the dilutive effects of an IPO, and the return that must be earned on the net proceeds in order to avoid […]
978-1259687969 Case 22
Robert Boyle & Associates, Inc. Case 22 Going Public and Investment Banking Purpose: The pros and cons of going public are considered in this case. Although the firm is a fictitious company, it is compared to a number of actual […]
978-1259687969 Case 21
Inca, Inc. Case 21 Capital Budgeting with Risk Purpose: The student goes through the statistical procedure of determining risk for investments. Though one investment alternative provides the higher net present value, is also has a much higher coefficient of variation […]
978-1259687969 Case 20
Global Resources Case 20 Risk-Adjusted Discount Rates Purpose: The case covers the process of adjusting the discount rate to account for the risk in a project. It clearly demonstrates that the risk-adjusted discount rate approach can affect (and change) the […]