Archives: Solution Manual
978-1259573200 Chapter 1 Lecture Note Part 2
Suggested Answers to Case Problems Case 1.1 Chicago Blackhawks Questions 1. What impact would dropping one or more salespeople have on the Chicago Blackhawks Corporate Hospitality sales? You might want to review the section titled “What Do Salespeople Do?” as […]
978-1259573200 Chapter 1 Lecture Note Part 1
CHAPTER 1 SELLING AND SALESPEOPLE Outline of Chapter I. Why Learn About Personal Selling? A. Everyone Sells II. Creating Value: The Role of Salespeople in A Business III. What Do Salespeople Do? A. Client Relationship Manager B. Account Team Manager […]
978-1259289903 Chapter 9 Solution Manual Part 3
CHAPTER 9 B – 1 22. Apply the accounting profit break-even point formula and solve for the sales price, P, that allows the firm to break even when producing 40,000 calculators. In order for the firm to break even, the […]
978-1259289903 Chapter 9 Solution Manual Part 2
14. The marketing study and the research and development are both sunk costs and should be ignored. We will calculate the sales and variable costs first. Since we will lose sales of the expensive clubs and gain sales of the […]
978-1259289903 Chapter 9 Solution Manual Part 1
CHAPTER 9 RISK ANALYSIS, REAL OPTIONS, AND CAPITAL BUDGETING Answers to Concept Questions 1. Forecasting risk is the risk that a poor decision is made because of errors in projected cash flows. The 2. With a sensitivity analysis, one variable […]
978-1259289903 Chapter 9 Case
CHAPTER 9 C-1 CHAPTER 9 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 […]
978-1259289903 Chapter 8 Solution Manual Part 5
CHAPTER 8 B – 1 36. To answer this question, we need to compute the NPV of all three alternatives, specifically, continue to rent the building, Project A, or Project B. If all three of the projects have a positive […]
978-1259289903 Chapter 8 Solution Manual Part 4
31. To find the initial pretax cost savings necessary to buy the new machine, we should use the tax shield approach to find the OCF. We begin by calculating the depreciation each year using the MACRS depreciation schedule. The depreciation […]
978-1259289903 Chapter 8 Solution Manual Part 3
26. 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 […]
978-1259289903 Chapter 8 Solution Manual Part 2
18. The present value of the company is the present value of the future cash flows generated by the company. Here we have real cash flows, a real interest rate, and a real growth rate. The cash flows are a […]
978-1259289903 Chapter 8 Solution Manual Part 1
CHAPTER 8 MAKING CAPITAL INVESTMENT DECISIONS Answers to Concept Questions 1. In this context, an opportunity cost refers to the value of an asset or other input that will be used in a project. The relevant cost is what the […]
978-1259289903 Chapter 8 Case
CHAPTER 8, CASE 2 C-1 CHAPTER 8A EXPANSION AT EAST COAST YACHTS The preliminary analysis of the project is a sunk cost and should be ignored. The cash flow to start the project is the $55 million and will occur […]
978-1259289903 Chapter 7 Solution Manual Part 4
CHAPTER 7 B – 1 30. The IRR is the interest rate that makes the NPV of the project equal to zero. So, the IRR of the project is: 0 = $50,000 – $61,000/(1 + IRR) + $41,000/(1 + IRR)2 […]
978-1259289903 Chapter 7 Solution Manual Part 3
21. a. The NPV of each project is: NPVNP–30 = –$940,000 + $345,000/1.12 + $335,000/1.122 + $310,000/1.123 + $295,000/1.124 + $205,000/1.125 b. The IRR is the interest rate that makes the NPV of the project equal to zero, so the […]
978-1259289903 Chapter 7 Solution Manual Part 2
13. a. The IRR is the interest rate that makes the NPV of the project equal to zero. So, the IRR for each project is: Deepwater Fishing IRR: Using a spreadsheet, financial calculator, or trial and error to find the […]
978-1259289903 Chapter 7 Solution Manual Part 1
CHAPTER 7 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA Answers to Concept 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 rate, but nothing more […]
978-1259289903 Chapter 7 Case
CHAPTER 6 C-1 CHAPTER 7 BULLOCK GOLD MINING 1. An example spreadsheet is: CHAPTER 6 C-2 2. Since the NPV of the mine is positive, the company should open the mine. We should note, it may be later chapter. 3. […]
978-1259289903 Chapter 6 Solution Manual Part 2
CHAPTER 6 B – 1 23. The dividend yield is the dividend divided by the stock price, so: Dividend yield = Dividend/Stock price .027 = Dividend/$34.18 Dividend = $.92 The “Net Chg” of the stock shows the stock increased by […]
978-1259289903 Chapter 6 Solution Manual Part 1
CHAPTER 6 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 2. Investors believe the company will eventually start paying dividends (or be sold […]
978-1259289903 Chapter 6 Case
CHAPTER 6 C-1 CHAPTER 6 STOCK VALUATION AT RAGAN THERMAL SYSTEMS 1. The total dividends paid by the company were $390,000. Since there are 250,000 shares outstanding, the total earnings for the company were: Total earnings = 250,000($3.65) = $912,500 […]
978-1259289903 Chapter 5 Solution Manual Part 3
CHAPTER 5 B – 1 16. Miller Corporation P0 Enter 26 3.1% $41 $1,000 N I/Y PV PMT FV Solve for $1,176.73 P1 Enter 24 3.1% $41 $1,000 N I/Y PV PMT FV Solve for $1,167.55 P3 Enter 20 3.1% […]
978-1259289903 Chapter 5 Solution Manual Part 2
20. The company should set the coupon rate on its new bonds equal to the required return. The required return can be observed in the market by finding the YTM on outstanding bonds of the company. So, the YTM on […]
978-1259289903 Chapter 5 Solution Manual Part 1
CHAPTER 5 INTEREST RATES AND BOND VALUATION Answers to Concept Questions 1. No. As interest rates fluctuate, the value of a Treasury security will fluctuate. Long-term Treasury 2. All else the same, the Treasury security will have lower coupons because […]
978-1259289903 Chapter 5 Case
CHAPTER 5 C-1 CHAPTER 5 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 […]
978-1259289903 Chapter 4 Solution Manual Part 7
CHAPTER 4 B – 1 49. Enter 5 7.4% $17,500 N I/Y PV PMT FV Solve for $70,991.47 2nd BGN 2nd SET Enter 5 7.4% $17,500 N I/Y PV PMT FV Solve for $76,244.84 Enter 5 7.4% $17,500 N I/Y […]
978-1259289903 Chapter 4 Solution Manual Part 6
80. We are only concerned with the time it takes money to double, so the dollar amounts are irrelevant. So, we can write the future value of a lump sum with continuously compounded interest as: $2 = $1eRt 2 = […]
978-1259289903 Chapter 4 Solution Manual Part 5
66. First, we will find the APR and EAR for the loan with the refundable fee. Remember, we need to use the actual cash flows of the loan to find the interest rate. With the $2,400 application fee, you will […]
978-1259289903 Chapter 4 Solution Manual Part 4
51. The payment for a loan repaid with equal payments is the annuity payment with the loan value as the PV of the annuity. So, the loan payment will be: PVA = C({1 – [1/(1 + r)]t }/r) $57,000 = […]
978-1259289903 Chapter 4 Solution Manual Part 3
35. The time line is: 0 1 … 15 PV $5,250 $5,250 $5,250 $5,250 $5,250 $5,250 $5,250 $5,250 $5,250 The relationship between the PVA and the interest rate is: PVA@15% = $5,250{[1 – (1/1.15)15]/.15} = $30,698.69 36. The time line […]
978-1259289903 Chapter 4 Solution Manual Part 2
14. The time line is: 0 1 … ∞ PV $18,000 $18,000 $18,000 $18,000 $18,000 $18,000 $18,000 $18,000 $18,000 This cash flow is a perpetuity. To find the PV of a perpetuity, we use the equation: PV = C/r PV […]
978-1259289903 Chapter 4 Solution Manual Part 1
CHAPTER 4 DISCOUNTED CASH FLOW VALUATION Answers to Concept Questions 1. Assuming positive cash flows and interest rates, the future value increases and the present value 2. Assuming positive cash flows and interest rates, the present value will fall and […]
978-1259289903 Chapter 4 Case
CHAPTER 4 C-1 CHAPTER 4 THE MBA DECISION 1. Age is obviously an important factor. The younger an individual is, the more time there is for the (hopefully) increased salary to offset the cost of the decision to return to […]
978-1259289903 Chapter 3 Solution Manual Part 3
CHAPTER 3 B – 1 24. The pro forma income statements for all three growth rates will be: RETRO MACHINE INC. Pro Forma Income Statement 15 % Sales Growth 20% Sales Growth 25% Sales Growth Sales $683,790 $713,520 $743,250 Costs […]
978-1259289903 Chapter 3 Solution Manual Part 2
CHAPTER 3 B – 1 13. a. The equation for external funds needed is: EFN = Sales Assets × ΔSales – Sales debt sSpontaneou × ΔSales – (PM […]
978-1259289903 Chapter 3 Solution Manual Part 1
CHAPTER 3 B – 1 CHAPTER 3 FINANCIAL STATEMENTS ANALYSIS AND LONG-TERM PLANNING Answers to Concept Questions 1. Time trend analysis gives a picture of changes in the company’s financial situation over time. Comparing a firm to itself over time […]
978-1259289903 Chapter 3 Case
CHAPTER 3 C-1 CHAPTER 3 RATIOS AND FINANCIAL PLANNING AT EAST COAST YACHTS 1. Preferred stock has features of both debt and equity. Preferred shareholders receive a stated dividend, and, if the corporation is liquidated, preferred shareholders get a stated […]
978-1259289903 Chapter 21 Solution Manual Part 2
10. Beginning with the fact that the NPV of a merger is the value of the target minus the cost, we get: NPV = * B V – Cost 11. a. The synergy will be the present value of the […]
978-1259289903 Chapter 21 Solution Manual Part 1
CHAPTER 21 MERGERS AND ACQUISITIONS Answers to Concepts Review and Critical Thinking Questions 1. In merger accounting, if an acquiring company pays more than the market value for a target company, the amount paid above market value is considered goodwill. […]
978-1259289903 Chapter 21 Case
CHAPTER 21 THE EAST COAST-WEST COAST SAILBOATS 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 costs plus the […]
978-1259289903 Chapter 20 Solution Manual
CHAPTER 20 B-1 CHAPTER 20 INTERNATIONAL CORPORATE FINANCE Answers to Concept Questions 1. a. The dollar is selling at a premium because it is more expensive in the forward market than in the b. The franc is expected to depreciate […]
978-1259289903 Chapter 20 Case
CHAPTER 20 EAST COAST YACHTS GOES INTERNATIONAL 1. The biggest advantage is the increased sales, while the biggest risk is exchange rate risk. There is also 2. If the dollar strengthens, the profit will decline. Conversely, if the dollar weakens, […]
978-1259289903 Chapter 2 Solution Manual Part 2
16. The solution to this question works the income statement backwards. Starting at the bottom: Net income = Dividends + Addition to retained earnings Net income = $5,200 + 8,100 Net income = $13,300 Now, looking at the income statement: […]
978-1259289903 Chapter 2 Solution Manual Part 1
CHAPTER 2 FINANCIAL STATEMENTS AND CASH FLOW Answers to Concept Questions 1. Liquidity measures how quickly and easily an asset can be converted to cash without significant loss in value. It’s desirable for firms to have high liquidity so that […]
978-1259289903 Chapter 2 Case
CHAPTER 2 C-1 CHAPTER 2 CASH FLOWS AT EAST COAST YACHTS The operating cash flow for the company is: OCF = EBIT + Depreciation – Current taxes OCF = $87,531,900 + 19,958,400 – 30,512,400 OCF = $76,877,900 To calculate the […]
978-1259289903 Chapter 19 Solution Manual
CHAPTER 19 B – 1 CHAPTER 19 RAISING CAPITAL Answers to Concepts Review and Critical Thinking Questions 1. A company’s internally generated cash flow provides a source of equity financing. For a profitable company, outside equity may never be needed. […]
978-1259289903 Chapter 19 Case
CHAPTER 19 C-1 CHAPTER 19 EAST COAST YACHTS GOES PUBLIC 1. The main difference in the costs is the reduced possibility of underpricing in a Dutch auction. As to which is better, we don’t actually know. In theory, the Dutch […]
978-1259289903 Chapter 18 Solution Manual Part 2
CHAPTER 18 B – 1 14. The interest rate for the term of the discount is: Interest rate = .01/.99 Interest rate = .0101, or 1.01% And the interest is for: 25 – 10 = 15 days So, using the […]
978-1259289903 Chapter 18 Solution Manual Part 1
CHAPTER 18 SHORT-TERM FINANCE AND PLANNING Answers to Concept Questions such firms tend to keep inventory on hand, and they allow customers to purchase on credit and take a relatively long time to pay. 2. These are firms that have […]
978-1259289903 Chapter 18 Case
CHAPTER 18 C-1 CHAPTER 18 KEAFER MANUFACTURING WORKING CAPITAL MANAGEMENT 1. The sales each of the next five quarters are projected at: Q1 Q2 Q3 Q4 Sales next year $964,440.00 $997,920.00 $1,075,680.00 $926,640.00 Sales following year $1,041,595.20 The cash flow […]
978-1259289903 Chapter 17 Solution Manual Part 3
CHAPTER 17 B – 1 26. a. The combined value of equity and debt of the two firms is: Debt = $13,035.46 + 18,834.35 = $31,869.81 b. For the new firm, the combined market value of assets is $39,300, and […]