Archives: Solution Manual
978-1260152616 Chapter 13 Solution Manual Part 1
Chapter 13 – Perfect Competition CHAPTER 13 PERFECT COMPETITION Chapter Overview In this chapter, we dug into the wants and constraints that drive firm behavior in competitive markets. Firms will choose to produce a quantity that maximizes their profits. In […]
978-1260152616 Chapter 12 Solution Manual
Chapter 12 – The Costs of Production CHAPTER 12 THE COSTS OF PRODUCTION Chapter Overview In this chapter, we’ve explored the costs that all firms face when they produce goods or services. Understanding the relationship between inputs, outputs, and costs […]
978-1260152616 Chapter 11 Solution Manual Part 2
Chapter 11 – Time and Uncertainty 1. Many individuals prefer to have insurance (health insurance, car insurance, etc.) rather than not, even if the expected value of their wealth is higher without insurance. What does this imply about their willingness […]
978-1260152616 Chapter 11 Solution Manual Part 1
Chapter 11 – Time and Uncertainty CHAPTER 11 TIME AND UNCERTAINTY Chapter Overview Some of life’s most important decisions involve weighing uncertain future costs and benefits against costs and benefits today. In this chapter, we looked at tools that can […]
978-1260152616 Chapter 10 Solution Manual
Chapter 10 – Information CHAPTER 10 INFORMATION Chapter Overview People make decisions based on what they know, but sometimes they don’t have enough information to make good decisions. One of the key assumptions behind perfect markets is that individuals have […]
978-1260152616 Chapter 1 Solution Manual Part 2
Chapter 01 – Economics and Life 18. Describe an economic model you know. What does the model predict about cause and effect? [LO 1.6] Answer: As mentioned in this chapter, the model of demand that you will explore in Chapter […]
978-1260152616 Chapter 1 Solution Manual Part 1
Chapter 01 – Economics and Life CHAPTER 1 ECONOMICS AND LIFE Chapter Overview Economists approach problems differently from many other people. A basic principle of human behavior underlies economics—the idea that people typically make choices to achieve their goals in […]
978-1260152616 Appendix APPENDIX F
Appendix F – Math Essentials: Compounding APPENDIX F MATH ESSENTIALS: COMPOUNDING Learning Objectives LO F.1: Use compounding to calculate the present and future value of money. Appendix Outline Compounding and Future Value (LO F.1) The rule of 70 Problems and […]
978-1260152616 Appendix APPENDIX E
Appendix E – Using Indifference Curves APPENDIX E USING INDIFFERENCE CURVES Learning Objectives LO E.1: Explain how the marginal rate of substation relates to the shape of the indifference curve. LO E.2: Outline the four properties that apply to all […]
978-1260152616 Appendix APPENDIX D
Appendix D – Math Essentials: The Area under a Linear Curve APPENDIX D MATH ESSENTIALS: THE AREA UNDER A LINEAR CURVE Learning Objectives LO D.1: Calculate surplus by finding the area under a linear curve. Appendix Outline The Area under […]
978-1260152616 Appendix APPENDIX C
Appendix C – Math Essentials: Calculating Percentage Change, Slope, and Elasticity APPENDIX C MATH ESSENTIALS: CALCULATING PERCENTAGE CHANGE, SLOPE, AND ELASTICITY Learning Objectives LO C.1: Understand how to calculate percentage changes. LO C.2: Use slope to calculate elasticity. Appendix Outline […]
978-1260152616 Appendix APPENDIX B
Appendix B – Math Essentials: Working with Linear Equations APPENDIX B MATH ESSENTIALS: WORKING WITH LINEAR EQUATIONS Learning Objectives LO B.1: Use linear equations to interpret the equation of a line. LO B.2: Use linear equations to explain shifts and […]
978-1260152616 Appendix APPENDIX A
Appendix A – Math Essentials: Understanding Graphs and Slope APPENDIX A MATH ESSENTIALS: UNDERSTANDING GRAPHS AND SLOPE Learning Objectives LO A.1: Create four quadrants using x- and y-axes and plot points on graph. LO A.2: Use data to calculate slope. […]
978-1259709685 Chapter 9 Solution Manual Part 2
CHAPTER 9 – 23. The required return of a stock consists of two components, the capital gains yield and the dividend yield. In the constant dividend growth model (growing perpetuity equation), the capital gains yield is the same as the […]
978-1259709685 Chapter 9 Solution Manual Part 1
CHAPTER 9 STOCK VALUATION Answers to Concept Questions 1. The value of any investment depends on the present value of its cash flows; i.e., what investors will 3. In general, companies that need the cash will often forgo dividends since […]
978-1259709685 Chapter 9 Lecture Note Part 2
Slide 9.16 Where Does R Come From Slide 9.17 Using the DGM to Find R Rearrange P0 = D1 / (R – g) to find R: R = (D1 / P0 ) + g Dividend yield = D1 / P0 […]
978-1259709685 Chapter 9 Lecture Note Part 1
Chapter 9 Stock Valuation SLIDES CHAPTER WEB SITES Section Web Address 9.6 www.bloomberg.com www.nyse.com www.nasdaq.com finance.yahoo.com CHAPTER ORGANIZATION 9.1 The Present Value of Common Stocks Dividends versus Capital Gains 9.1 Key Concepts and Skills 9.2 Chapter Outline 9.3 The PV […]
978-1259709685 Chapter 9 Case
CHAPTER 9 CASE C-1 CHAPTER 9 STOCK VALUATION AT RAGAN THERMAL SYSTEMS 1. The total dividends paid by the company were $640,000. Since there are 300,000 shares outstanding, the total earnings for the company were: This means the payout ratio […]
978-1259709685 Chapter 8 Solution Manual Part 3
CHAPTER 8 – 16. P0 Enter 50 3.15% $1,000 N I/Y PV PMT FV 17. Miller Corporation P0 Enter 26 3.5% $42.50 $1,000 N I/Y PV PMT FV Solve for $1,126.68 P1 Enter 24 3.5% $42.50 $1,000 N I/Y PV […]
978-1259709685 Chapter 8 Solution Manual Part 2
24. To find the number of years to maturity for the bond, we need to find the price of the bond. Since we already have the coupon rate, we can use the bond price equation, and solve for the number […]
978-1259709685 Chapter 8 Lecture Note Part 2
Slide 8.22 Pure Discount Bonds Example Zero coupon bonds are bonds that are offered at deep discounts because there are no periodic coupon payments. Although no cash interest is paid, firms deduct the implicit interest, while holders report it as […]
978-1259709685 Chapter 8 Lecture Note Part 1
Chapter 8 INTEREST RATES AND BOND VALUATION SLIDES CHAPTER WEB SITES 8.1 Key Concepts and Skills 8.2 Chapter Outline 8.3 Bonds and Bond Valuation 8.4 Bond Valuation 8.5 The Bond-Pricing Equation 8.6 Bond Example 8.7 Bond Example 8.8 Bond Example: […]
978-1259709685 Chapter 8 Case
CHAPTER 8 C-1 CHAPTER 8 FINANCING EAST COAST YACHT’S EXPANSION PLANS WITH A BOND ISSUE 1. A rule of thumb with bond provisions is to determine who the provisions benefit. If the company benefits, the bond will have a higher […]
978-1259709685 Chapter 7 Solution Manual Part 3
CHAPTER 7 – 23. a. The NPV of the project is the sum of the present value of the cash flows generated by the project. The cash flows from this project are an annuity, so the NPV is: b. The […]
978-1259709685 Chapter 7 Solution Manual Part 2
15. The upper and lower bounds for the variables are: Base Case Best Case Worst Case Unit sales (new) 60,000 66,000 54,000 Price (new) $850 $935 $765 Best-case We will calculate the sales and variable costs first. Since we will […]
978-1259709685 Chapter 7 Solution Manual Part 1
CHAPTER 7 RISK ANALYSIS, REAL OPTIONS, AND CAPITAL BUDGETING Answers to Concepts Review and Critical Thinking Questions 1. Forecasting risk is the risk that a poor decision is made because of errors in projected cash flows. 2. With a sensitivity […]
978-1259709685 Chapter 7 Lecture Note
Chapter 7 RISK ANALYSIS, REAL OPTIONS, AND CAPITAL BUDGETING SLIDES CHAPTER ORGANIZATION 7.1 Sensitivity Analysis, Scenario Analysis, and Break-Even Analysis Sensitivity Analysis and Scenario Analysis Break-Even Analysis 7.2 Monte Carlo Simulation Step 1: Specify the Basic Model 7.1 Key Concepts […]
978-1259709685 Chapter 7 Case
CHAPTER 7 C-1 CHAPTER 7 BUNYAN LUMBER, LLC The company is faced with the option of when to harvest the lumber. Whatever harvest cycle the company chooses, it will follow that cycle in perpetuity. Since the forest was planted 20 […]
978-1259709685 Chapter 6 Solution Manual Part 4
CHAPTER 6 – 33. a. Since the two computers have unequal lives, the correct method to analyze the decision is the EAC. We will begin with the EAC of the new computer. Using the depreciation tax shield approach, the OCF […]
978-1259709685 Chapter 6 Solution Manual Part 3
25. Replacement decision analysis is the same as the analysis of two competing projects; in this case, keep the current equipment, or purchase the new equipment. We will consider the purchase of the new machine first. Purchase new machine: The […]
978-1259709685 Chapter 6 Solution Manual Part 2
17. To calculate the nominal cash flows, we increase each item in the income statement by the inflation rate, except for depreciation. Depreciation is a nominal cash flow, so it does not need to be adjusted for inflation in nominal […]
978-1259709685 Chapter 6 Solution Manual Part 1
CHAPTER 6 MAKING CAPITAL INVESTMENT DECISIONS Answers to Concepts Review and Critical Thinking Questions 1. In this context, an opportunity cost refers to the value of an asset or other input that will be used in a 2. a. Yes, […]
978-1259709685 Chapter 6 Lecture Note Part 2
Slide 6.9 – Slide 6.14 The Baldwin Company .A Which Set of Books? Firms are allowed to keep two sets of books: one for tax purposes and one for stockholder reporting. The tax effects represent a cash flow that is […]
978-1259709685 Chapter 6 Lecture Note Part 1
Chapter 6 MAKING CAPITAL INVESTMENT DECISIONS SLIDES CHAPTER ORGANIZATION 6.1 Incremental Cash Flows: The Key to Capital Budgeting Cash Flows—Not Accounting Income Sunk Costs Opportunity Costs Side Effects Allocated Costs 6.1 Key Concepts and Skills 6.2 Chapter Outline 6.3 Incremental […]
978-1259709685 Chapter 6 Case
CHAPTER 6 CASE #1 C-1 CHAPTER 6, Case #1 BETHESDA MINING To analyze this project, we must calculate the incremental cash flows generated by the project. Since net working capital is built up ahead of sales, the initial cash flow […]
978-1259709685 Chapter 5 Solution Manual Part 3
CHAPTER 5 – 25. First, we need to find the future value of the cash flows for the one year in which they are blocked by the government. So, reinvesting each cash inflow for one year, we find: So, the […]
978-1259709685 Chapter 5 Solution Manual Part 2
13. a. The equation for the NPV of the project is: b. The equation for the IRR of the project is: 0 = –$78,000,000 + $110,000,000 / (1 + IRR) – $13,000,000 / (1 + IRR)2 From Descartes’ rule of […]
978-1259709685 Chapter 5 Solution Manual Part 1
CHAPTER 5 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA Answers to Concepts Review and Critical Thinking Questions 1. Assuming conventional cash flows, a payback period less than the project’s life means that the NPV is positive for a zero discount […]
978-1259709685 Chapter 5 Lecture Note Part 2
Slide 5.8 The Discounted Payback Period Lecture Tip: The discounted payback period is the length of time until accumulated discounted cash flows equal or exceed the initial investment. Use of this technique entails all the work of NPV, but its […]
978-1259709685 Chapter 5 Lecture Note Part 1
Chapter 5 NET PRESENT VALUE AND OTHER INVESTMENT RULES SLIDES CHAPTER WEB SITES Section Web Address 5.1 www.missouribusiness.net CHAPTER ORGANIZATION 5.1 Key Concepts and Skills 5.2 Chapter Outline 5.3 Why Use Net Present Value? 5.4 The Net Present Value (NPV) […]
978-1259709685 Chapter 5 Case
CHAPTER 5 BULLOCK GOLD MINING 1. An example spreadsheet is: 2. Since the NPV of the mine is positive, the company should open the mine. We should note, it may be 3. There are many possible variations on the VBA […]
978-1259709685 Chapter 4 Solution Manual Part 6
46. PV@ t = 14: $2,150 / .056 = $38,392.86 47. Enter 12 $23,000 $2,242.50 N I/Y PV PMT FV Solve for 2.502% APR = 2.502% 12 = 30.03% Enter 30.03% 12 NOM EFF C/Y Solve for 34.52% 48. […]
978-1259709685 Chapter 4 Solution Manual Part 5
73. To answer this, we can diagram the perpetuity cash flows, which are: (Note, the subscripts are only to differentiate when the cash flows begin. The cash flows are all the same amount.) ….. C3 C2C2 C1C1C1 Thus, each of […]
978-1259709685 Chapter 4 Solution Manual Part 4
58. To answer this question, we should find the PV of both options, and compare them. Since we are purchasing the car, the lowest PV is the best option. The PV of the leasing option is the PV of the […]
978-1259709685 Chapter 4 Solution Manual Part 3
42. The time line is: 0 3 PV $135,000 The profit the firm earns is just the PV of the sales price minus the cost to produce the asset. We find the PV of the sales price as the PV […]
978-1259709685 Chapter 4 Solution Manual Part 2
19. The time line is: 0 1 … ? – $18,450 $500 $500 $500 $500 $500 $500 $500 $500 $500 Here, we need to find the length of an annuity. We know the interest rate, the PV, and the payments. […]
978-1259709685 Chapter 4 Solution Manual Part 1
CHAPTER 4 DISCOUNTED CASH FLOW VALUATION Answers to Concepts Review and Critical Thinking Questions 1. Assuming positive cash flows and interest rates, the future value increases and the present value decreases. 3. The better deal is the one with equal […]
978-1259709685 Chapter 4 Solution Appendix
CHAPTER 4, APPENDIX NET PRESENT VALUE: FIRST PRINCIPLES OF FINANCE Solutions to Questions and Problems NOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are […]
978-1259709685 Chapter 4 Lecture Note Part 2
Slide 4.17 Calculator Keys Lecture Tip: Texas Instruments offers instructors an “Emulator” software that allows the face of the calculator to be projected onto a computer. This enables instructors to demonstrate key stroke sequences. Slide 4.18 – Slide 4.19 Multiple […]
978-1259709685 Chapter 4 Lecture Note Part 1
Chapter 4 DISCOUNTED CASH FLOW VALUATION SLIDES 4.41 Int ere st- Only Loans 4.1 Key Concepts and Skills 4.2 Chapter Outline 4.3 The One-Period Case 4.4 Future Value 4.5 Present Value 4.6 Present Value 4.7 Net Present Value 4.8 Net […]