Archives: Solution Manual

P5-51 Growth rates (LG 6; Basic) To find average annual growth rate, use the future-value framework and solve for the P5-52 Personal finance: Rate of return (LG 6, Intermediate) a. Use the future-value framework, and solve for the interest rate […]

P5-31 Value of a single amount versus mixed stream (LG 4; Challenge) If Gina takes $24,000 and leaves it in account earning 7% for five years, she will have $33,661.24 (PV = $24,000, n = 5, and r = 0.07) […]

Solutions to Problems P5-1 Using a time line (LG 1; Basic) a, b, and c d. Financial managers rely more on present value than future value because their decisions are typically made before a project starts (i.e., at time zero). […]

Chapter 5 Time Value of Money Instructor’s Resources Chapter Overview This chapter introduces a key—indeed, perhaps the most important—concept in finance: the time value of money. The present and future value of a sum and an annuity are explained. Special […]

P4-17 Pro forma income statement: Scenario analysis (LG 5; Challenge) a. Pro Forma Income Statement—Allen Products, LP Year Ending December 31, 2020 Pessimistic Most Likely Optimistic Sales $900,000 $1,125,000 $1,280,000 Less cost of goods sold (45% of sales) 405,000 506,250 […]

Solutions to Problems P4-1 Depreciation (LG 2; Basic) Depreciation Schedule Year Cost (1) Percentages from Table 4.2 (2) Depreciation (3) = [(1)  (2)] Asset A Research Equipment 1 $17,000 33% $5,610 3 $45,000 19% $8,550 4 $45,000 12% $5,400 […]

Chapter 4 Cash Flow and Financial Planning Instructor’s Resources Chapter Overview This chapter introduces the financial-planning process, starting with an overview of long-term or strategic planning and moving to a detailed exploration of short-term (operating) financial planning and its two […]

P3-20. The relationship between financial leverage and profitability (LG 4 and LG 5; Challenge) a. (1) (2) Timberland has much more financial leverage and, consequently, greater debt service than does b. (1) (2) (3) (4) Pelican is more profitable than […]

Solutions to Problems P3-1 Financial-statement account identification (LG 1; Basic) a., b. Column 1 for (a) Column 2 for (b) Account Name Statement Type of Account Accounts payable BS CL Accounts receivable BS CA Accruals BS CL Column 1 for […]

Part 2 Financial Tools Chapters in This Part Chapter 3 Financial Statements and Ratio Analysis Chapter 4 Cash Flow and Financial Planning Chapter 5 Time Value of Money Integrative Case 2: Merit Enterprise Corp. © 2019 Pearson Education, Inc. Chapter […]

Chapter 2 The Financial-Market Environment Instructor’s Resources Chapter Overview This chapter provides an overview of the institutional framework for channeling funds from net savers to net borrowers. The discussion begins with three basic types of financial institutions—commercial banks, investment banks, […]

Solutions to Problems  P19-1. Note to instructors: This problem was dramatically changed in the print run after the Tax Cuts and Jobs Act became effective. The original question, answered below, focused on tax issues that applied before the new tax […]

Chapter 19 International Managerial Finance Instructor’s Resources  Overview In today’s global business environment, the financial manager must also be aware of the international aspects of finance. A variety of international finance topics are presented in this chapter, including taxes, accounting […]

N  5, I  12%, PMT  $50,000 P18-4. Asset acquisition decision LG 3; Challenge a. Effective cost of press:  $60,000  $90,000  $65,000  $85,000 CF0  $85,000; CF1  $20,000; F1  10 Set I […]

Chapter 18 Mergers, LBOs, Divestitures, and Business Failure Instructor’s Resources  Overview This chapter covers the fundamentals of mergers, leveraged buyouts (LBOs), and divestitures, as well as methods for reorganizing or liquidating a firm in the event of a business failure. […]

P17-16. Evaluation of the implied price of an attached warrant LG 5; Challenge a. Straight bond value Years Payments Discount Rate Straight Bond Value 1–29 $ 115 13% $887.57 b. Implied price of all warrants (price with warrants − straight […]

Solutions to Problems  P17-1. Lease cash flows LG 2; Basic Firm Year Lease Payment (1) Tax Benefit (2) After-Tax Cash Outflow [(1)  (2)] (3) A1–4 $100,000 $40,000 $60,000 B1–14 80,000 32,000 48,000 P17-2. Loan interest LG 2; Intermediate Loan […]

Part 8 Special Topics in Managerial Finance Chapters in This Part Chapter 17 Hybrid and Derivative Securities Chapter 18 Mergers, LBOs, Divestitures, and Business Failure Chapter 19 International Managerial Finance Integrative Case 8: Organic Solutions © 2019 Pearson Education, Inc. […]

P16-18. Accounts receivable as collateral, cost of borrowing LG 3, 5; Challenge a. [$134,000  ($134,000  0.10)]  0.85  $102,510 b. ($100,000  0.02)  ($100,000  0.115)  $2,000  $11,500  $13,500 $13,500 I n t […]

Chapter 16 Current Liabilities Management Instructor’s Resources  Overview This chapter introduces the fundamentals and describes the interrelationship of net working capital, profitability, and risk in managing the firm’s current liability accounts. The management of current liabilities requires choosing appropriate levels […]

P15-10. Relaxation of credit standards LG 4; Challenge Additional profit contribution from sales  1,000 additional units  ($40  $31) $9,000 Cost of marginal investment in AR: Average investment, proposed plan   1 1 , 0 0 0 u […]

Solutions to Problems  P15-1. CCC LG 2; Basic a. OC Average age of inventories  Average collection period b. CCC Operating cycle  Average payment period 120 days  30 days 90 days c. To calculate the amount of resources […]

Part 7 Short-Term Financial Decisions Chapters in This Part Chapter 15 Working Capital and Current Assets Management Chapter 16 Current Liabilities Management Integrative Case 7: Casa de Diseño © 2019 Pearson Education, Inc. Chapter 15 Working Capital and Current Assets […]

Group Exercise  Group exercises are available on www.myfinancelab.com. Dividend policy is the subject of this chapter and its group exercise. The shadow and fictitious firms will be closely linked again in this assignment. Specifically, recent dividend policy of the shadow […]

Solutions to Problems  P14-1. Dividend payment procedures LG 1; Basic a. Debit Credit Retained earnings (Dr.) $330,000 Dividends payable (Cr.) $330,000 b. Ex dividend date is Thursday, July 6. c. Cash $170,000 Dividends payable $ 0 Retained earnings $2,170,000 d. […]

Chapter 14 Payout Policy Instructor’s Resources  Overview Chapter 14 concentrates on the payout decision from the viewpoint of both the firm and the investors. The types of payout policies, forms of dividends, and their possible effects on the value of […]

P13-28 Ethics problem (LG 3; Intermediate) An information asymmetry occurs when one party has more information than other interested parties. Such an asymmetry can occur when managers overleverage or lead a company buyout Existing bondholders and possibly stockholders could be […]

P13-25 Integrative: Optimal capital structures (LG 3, 4, 6; Challenge) a. 0% debt ratio – baseline: Probability (p) p1 = 0.20 p2 = 0.60 P3 =0.20 Sales $200,000 $300,000 $400,000 Less: Variable 80,000 120,000 160,000 Earnings before taxes $ 20,000 […]

P13-13 Personal finance: Financial leverage (LG 2; Challenge) a. Current DFL Initial Values Future Value % ∆ Available for making loan payment Less: Loan payments $3,000 $1,000 $3,300 $1,000 10.0% 0.0% Proposed DFL Initial Values Future Value % ∆ Available […]

Part 6 Long-Term Financial Decisions Chapters in This Part Chapter 13 Leverage and Capital Structure Chapter 14 Payout Policy Integrative Case 6: O’Grady Apparel Company Chapter 13 Leverage and Capital Structure  Instructor Resources Chapter Overview This chapter introduces students […]

 Case: “Evaluating Cherone Equipment’s Risky Plans for Increasing Its Production Capacity” Case studies are available on www.pearson.com/mylab/finance. a. 1. Plan X Cash flows: CF0 (project cost)  −$2,700,000, CF1  $470,000, CF2  $610,000, Plan Y Cash flows: CF0 […]

P12-7 Personal Finance: Impact of inflation on investments (LG 2; Easy) a.  c. Year Investmen t Cash Flows Current NPV (a) Higher Inflation NPV (b) Lower Inflation NPV (c) 0 1 (40,000) 12,000 (40,000) 11,267.61 (40,000) 11,111.11 (40,000) 11,428.57 […]

Chapter 12 Risk and Refinements in Capital Budgeting Instructor Resources Chapter Overview Chapters 10 and 11 introduced the building blocks of capital budgeting; Chapter 12 expands the discussion to include complications that often arise in real-world project evaluation. The first […]

P11-31 Ethics problem (LG 2; Intermediate) The person who came up with the idea for a new investment may have a selfish interest in seeing the project approved or may simply be emotionally vested in the project. In either case, […]

P11-27 Integrative: Determining relevant cash flows (LG 3, 4, 5, 6; Challenge) a. Initial Investment A B Installed cost of new asset Cost of new asset $ 40,000 $ 54,000  Installation costs 8,000 6,000 T o tal proceeds, sale of […]

P11-19 Incremental operating cash flows (LG 5; Intermediate) a. Year Revenu e Expenses (excluding depreciation and interest) Profits before Depreciation and Taxes Depre- ciation Net Profits before Taxes Taxes Net Profits after Tax Operatin g Cash Inflows New Lathe 1 […]

 Solutions to Problems Note : The MACRS depreciation percentages used in the following problems appear in Chapter 4, Table 4.2. Percentages are rounded to the nearest integer for ease in calculation. For simplification, five-year-lived projects with five years of […]

Chapter 11 Capital Budgeting Cash Flows NOTE TO INSTRUCTORS: Shortly after the first press run for the 15th edition, Congress passed the Tax Cuts and Jobs Act of 2017, which included changes in the corporate tax rate relevant to this […]

P10-24 All techniques—decision among mutually exclusive investments (LG 2, 3, 4, 5, 6; Challenge) Project A Project B Project C Project Cost (year 0) 60,000$ 100,000$ 110,000$ Cash inflows (years 1-5) 20,000$ 31,500$ 32,500$ a. Payback* 3 years 3.2 years […]

 Solutions to Problems P10-1 Payback period (LG 2; Basic) a. $542,000  $75,000  7.23 years. b. The company should accept the project because payback period (7.23 years) is less than the maximum acceptable period (8 years). P10-2 Payback […]

Part 5 Long-Term Investment Decisions Chapters in This Part Chapter 10 Capital Budgeting Techniques Chapter 11 Capital Budgeting Cash Flows Chapter 12 Risk and Refinements in Capital Budgeting Integrative Case 5: Lasting Impressions Company © 2019 Pearson Education, Inc. Chapter […]

Solutions to Problems P1-1. Liability comparisons (LG 5; Basic) a. Ms. Harper has unlimited personal liability, so she is liable for the firm’s $60,000 in unpaid debts. b. Initially, Ms. Harper is liable for $30,000 (50% of total unpaid debts). […]

Part 1 Introduction to Managerial Finance Chapters in This Part Chapter 1 The Role of Managerial Finance Chapter 2 The Financial Market Environment Integrative Case 1: Merit Enterprise Corp. © 2019 Pearson Education, Inc. Chapter 1 The Role of Managerial […]

END-OF-CHAPTER SUPPORT MARKETING DEBATE—Is Mass Marketing Dead? With marketers increasingly adopting more and more refined market segmentation schemes— fueled by the Internet and other customization efforts—some claim mass marketing is dead. Others counter there will always be room for large […]

LEARNING OBJECTIVES In this chapter, we will address the following questions: 1. In what ways can a company divide the consumer market into segments? 2. How should business markets be segmented? 3. How should a company choose the most attractive […]

END-OF-CHAPTER SUPPORT MARKETING DEBATE—Is the World Coming Closer Together? Many social commentators maintain that youth and teens are becoming more and more alike as time goes on. Others, while not disputing that fact, point out that the differences between cultures […]

LEARNING OBJECTIVES In this chapter, we will address the following questions: 1. What factors should a company review before deciding to go abroad? 2. How can companies evaluate and select specific international markets to enter? 3. What are the differences […]

Marketing Excellence: ACCENTURE 1) How does Accenture target to its B-to-B audience so effectively? 2) Evaluate Accenture’s history of branding campaigns. What remains consistent throughout? Suggested Answer: Student opinions will vary, but they should recognize the importance of the initial […]

LEARNING OBJECTIVES In this chapter, we will address the following questions: 1. What is organizational buying? 2. What buying situations do business buyers face? 3. Who participates in the business-to-business buying process? 4. How do business buyers make their decisions? […]

Marketing Excellence: Disney 1) What does Disney do best to connect with its core consumers? 2) What are the risks and benefits of expanding the Disney brand in new ways, such as video games or superheroes? Suggested Answer: Disney is […]