Archives: Solution Manual

Chapter 10 – Plant Assets, Natural Resources, and Intangibles Chapter 10 Plant Assets, Natural Resources, and Intangibles QUESTIONS 1. A plant asset is tangible; it is used in the production or sale of other assets or services; and it has […]

VISUAL #10-1 FORMULAS FOR DEPRECIATION METHODS 1. STRAIGHT LINE 2. UNITS OF PRODUCTION (Depreciable) a) FHC – Estimated salvage Cost per Predicted units of production Unit b) CPU* x units produced Depreciation in period for PERIOD (In last year, depreciate […]

Chapter 10 – Plant Assets, Natural Resources and Intangibles CHAPTER 10 PLANT ASSETS, NATURAL RESOURCES AND INTANGIBLES Related Assignment Materials Student Learning Objectives Questions Quick Studies* Exercises* Problems* Beyond the Numbers Conceptual objectives: C1. Explain the cost principle for 1, […]

Problem 1-12BA (20 minutes) Case 1. Return: No return is generated. Risk: Moderate Risk. By hiding money at home a person risks loss by theft or fire. Also such a strategy might result in a loss of purchasing power in […]

Problem 1-7B (Continued) Part 3 Niko’s Maintenance Co. Income Statement For Month Ended June 30 Revenues Maintenance services revenue..…….. $16,925 Expenses Rent expense………………………………… $6,000 Salaries expense…………………………… 1,600 Advertising expense…………………..…. 1,150 Utilities expense……………………………. 890 Niko’s Maintenance Co. Statement of Owner’s Equity […]

Problem 1-9A (Continued) Part 3 Sony Electric Income Statement For Month Ended December 31 Revenues Electrical fees earned…………………. $7,100 Expenses Rent expense……………….…….………. $1,000 Sony Electric Statement of Owner’s Equity For Month Ended December 31 S. Sony, Capital, December 1…………….…. $ […]

Chapter 01 – Accounting in Business Problem 1-2A (Concluded) Part 5 Company E First, compute the balance of equity as of December 31, 2015: Assets……………………………………………….… $113,000 Liabilities…………………………………..……….. (70 ,000) Equity…………………….…………………………… $ 43 ,000 Next, find the beginning balance of equity […]

Exercise 1-7 (10 minutes) Code Description Principle/Assumption H. 1. A company reports details behind financial statements that would impact users’ decisions. Full disclosure principle C 5. Every business is accounted for separately from its owner or owners. Business entity assumption […]

Appendix C – Activity-Based Costing Problem C-2B (concluded) 4. Mixing & Cooking ($4,500 + $11,250)/1,500 MH $10.50/MH Product testing $112,500/600 batches $187.50/batch Machine calibration $250,000/400 production runs $625/run Extra Fine Family Style Mixing & cooking 500 MH x $10.50………….….. $ […]

Appendix C – Activity-Based Costing 2. Product A Product B Gross profit per unit $ 3.63 $35.36 x units purchased per customer A: 10,000 units/500 customers x 20 units B: 2,000 units/400 customers ________ x 5 units We see that […]

Appendix C – Activity-Based Costing Exercise C-5 (continued) Part 3 Allocation of costs to the general surgery department using ABC GENERAL SURGERY Cost Driver Cost per Driver Unit Allocated Cost Professional salaries…………. 2,500 hours $160 per hr. $400,000 Patient services […]

Calculator Solutions 7. CFo–$26,000 C01 $11,000 F01 1 8. CFo–$26,000 CFo–$26,000 C01 $11,000 C01 $11,000 F01 1F01 1 C02 $14,000 C02 $14,000 F02 1F02 1 C03 $10,000 C03 $10,000 F03 1F03 1 I = 11% I = 25% NPV CPT […]

12. a. The IRR is the interest rate that makes the NPV of the project equal to zero. The equation for the IRR of Project A is: Using a spreadsheet, financial calculator, or trial and error to find the root […]

Chapter 09 – Net Present Value and Other Investment Criteria Chapter 9 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA CHAPTER ORGANIZATION 9.1 Net Present Value The Basic Idea Estimating Net Present Value 9.2 The Payback Rule Defining the Rule Analyzing […]

CHAPTER 9 BULLOCK GOLD MINING 1. An example spreadsheet is: Note, there is no Excel function to directly calculate the payback period. We used “If” statements in our spreadsheet. The IF statement we used is: =IF(-D8>(D9+D10+D11+D12+D13+D14),”Greater than 6 years”,IF(- 2. […]

24. We can use the two-stage dividend growth model for this problem, which is: P0 = [D0(1 + g1)/(R – g1)]{1 – [(1 + g1)/(1 + R)]t}+ [(1 + g1)/(1 + R)]t[D0(1 + g2)/(R – g2)] 25. We can use […]

CHAPTER 8 STOCK VALUATION Answers to Concepts Review and Critical Thinking 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 […]

Chapter 08 – Stock Valuation Chapter 8 STOCK VALUATION CHAPTER WEB SITES Section Web Address 8.3 www.bloomberg.com www.nyse.com www.nasdaq.com finance.yahoo.com www.otcbb.com www.pinksheets.com CHAPTER ORGANIZATION 8.1 Common Stock Valuation Cash Flows Some Special Cases Components of the Required Return Stock Valuation […]

CHAPTER 8 STOCK VALUATION AT RAGAN, INC. 1. The total dividends paid by the company were $90,000. Since there are 100,000 shares outstanding, the total earnings for the company were: This means the payout ratio was: Payout ratio = $90,000 […]

38. To answer this question, we need to find the monthly interest rate, which is the APR divided by 12. We also must be careful to use the real interest rate. The Fisher equation uses the effective annual rate, so, […]

21. The current yield is: Current yield = Annual coupon payment / Price The bond price equation for this bond is: P0 = $1,068 = $32(PVIFAR%,36) + $1,000(PVIFR%,36) Using a spreadsheet, financial calculator, or trial and error we find: R […]

CHAPTER 7 INTEREST RATES AND BOND VALUATION Answers to Concepts Review and Critical Thinking Questions 3. No. If the bid price were higher than the ask price, the implication would be that a dealer was willing to sell a bond […]

Chapter 07 – Interest Rates and Bond Valuation 1. Bond Ratings Lecture Tip: The question sometimes arises as to why a potential issuer would be willing to pay rating agencies tens of thousands of dollars in order to receive a […]

Chapter 07 – Interest Rates and Bond Valuation Chapter 7 INTEREST RATES AND BOND VALUATION CHAPTER WEB SITES Section Web Address 7.1 bonds.yahoo.com personal.fidelity.com money.cnn.com/markets/bondcenter www.bankrate.com investorguide.com 7.2 www.investinginbonds.com www.finra.org/marketdata www.sifma.org www.sec.gov 7.3 www.standardandpoors.com www.moodys.com www.fitchinv.com www.publicdebt.treas.gov www.brillig.com/debt_clock www.ny.frb.org 7.4 […]

44. CFo$1,000,000 C01 $1,450,000 F01 1 C02 $1,900,000 F02 1 I = 7% NPV CPT $23,656,191.50 45. Enter 360 .80($2,700,000) $13,400 N I/Y PV PMT FV Solve for .527% APR = .527%  12 = 6.32% Enter 6.32% 12 NOM […]

77. a. The APR is the interest rate per week times 52 weeks in a year, so: b. In a discount loan, the amount you receive is lowered by the discount, and you repay the full principal. With a discount […]

63. This is the same question as before, with different values. So: The time line is: 0 1 –$9,700 $11,20 0 $11,200 = $9,700(1 + r) r = ($11,200 / $9,700) – 1 = .1546, or 15.46% The effective rate […]

47. The time line is: 0 123456 …20 PV $3,50 0 $3,50 0 $3,50 0 $3,50 0 We want to find the value of the cash flows today, so we will find the PV of the annuity, and then bring […]

23. The time line is: 0 1 ∞ $215,00 0 0 0 0 0 0 0 0 0 Here we need to find the interest rate that equates the perpetuity cash flows with the PV of the cash flows. Using […]

CHAPTER 6 DISCOUNTED CASH FLOW VALUATION Answers to Concepts Review and Critical Thinking Questions 1. The four pieces are the present value (PV), the periodic cash flow (C), the discount rate (r), and the 4. It’s deceptive, but very common. […]

Chapter 5 INTRODUCTION TO VALUATION: THE TIME VALUE OF MONEY CHAPTER WEB SITES Section Web Address 5.1 www.financeprofessor.com www.teachmefinance.com 5.3 www.calculator.org www.moneychimp.com www.about.com/ www.studyfinance.com www.investopedia.com CHAPTER ORGANIZATION 5.1 Future Value and Compounding Investing for a Single Period Investing for More […]

CHAPTER 6 THE MBA DECISION 1. Age is obviously an important factor. The younger an individual is, the more time there is for the 2. Perhaps the most important nonquantifiable factors would be whether or not he is married and […]

16. To answer this question, we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is: FV = PV(1 […]

Chapter 05 – Introduction to Valuation: The Time Value of Money Chapter 5 INTRODUCTION TO VALUATION: THE TIME VALUE OF MONEY CHAPTER WEB SITES Section Web Address 5.1 www.financeprofessor.com www.teachmefinance.com 5.3 www.calculator.org www.moneychimp.com www.about.com/ www.studyfinance.com www.investopedia.com CHAPTER ORGANIZATION 5.1 Future […]

27. The pro forma income statements for all three growth rates will be: FLEURY INC. Pro Forma Income Statement 15 % Sales Growth 20% Sales Growth 25% Sales Growth Sales $1,025,340 $1,069,920 $1,114,500 Costs 797,640 832,320 867,000 Dividends $41,468 $43,396 […]

14. We first must calculate the ROE to calculate the sustainable growth rate. To do this we must realize two other relationships. The total asset turnover is the inverse of the capital intensity ratio, and the equity multiplier is 1 […]

Chapter 04 – Long-Term Financial Planning and Growth CHAPTER 4 LONG-TERM FINANCIAL PLANNING AND GROWTH CHAPTER WEB SITES Section Web Address 4.1 www.reuters.com finance.yahoo.com 4.2 www.jaxworks.com www.planware.org CHAPTER ORGANIZATION 4.1 What Is Financial Planning? Growth as a Financial Management Goal […]

CHAPTER 4 PLANNING FOR GROWTH AT S&S AIR 1. To calculate the internal growth rate, we first need to find the ROA and the retention ratio, so: ROA = NI / TA b = Addition to RE / NI b […]

17. a. Current ratio = Current assets / Current liabilities b. Quick ratio = (Current assets – Inventory) / Current liabilities Quick ratio 2014 = ($90,717 – 51,163) / $62,939 = .63 times Quick ratio 2015 = ($100,617 – 56,295) […]

Chapter 03 – Working with Financial Statements Chapter 3 WORKING WITH FINANCIAL STATEMENTS CHAPTER WEB SITES Section Web Address 3.1 www.financials.com finance.yahoo.com finance.google.com money.msn.com 3.3 www.reuters.com www.onlinewbc.gov www.chalfin.com 3.5 www.naics.com investing.businessweek.com CHAPTER ORGANIZATION 3.1 Cash Flow and Financial Statements: A […]

CHAPTER 3 RATIO ANALYSIS AT S&S AIR 1. The calculations for the ratios listed are: Quick ratio = ($2,262,740 – 1,073,180) / $3,050,355 Quick ratio = .39 times Cash ratio = $456,435 / $3,050,355 Cash ratio = .15 times Total […]

CHAPTER 27 LEASING Answers to Concepts Review and Critical Thinking Questions 1. Some key differences are: (a) Lease payments are fully tax-deductible, but only the interest portion 2. The less profitable one because leasing provides, among other things, a mechanism […]

Chapter 27 – Leasing CHAPTER 27 LEASING CHAPTER WEB SITES Section Web Address Introduction www.monitordaily.com 27.1 www.bloomberg.com www.keystoneleasing.com 27.5 www.lease-vs-buy.com www.cars.com 27.7 www.ilfc.com CHAPTER ORGANIZATION 27.1 Leases and Lease Types Leasing versus Buying Operating Leases Financial Leases 27.2 Accounting and […]

CHAPTER 27 THE DECISION TO LEASE OR BUY AT WARF COMPUTERS 1. The decision to buy or lease is made by looking at the incremental cash flows. The incremental cash Aftertax salvage value = $780,000 – $780,000(.35) Aftertax salvage value […]

Chapter 26 – Mergers and Acquisitions CHAPTER 26 MERGERS AND ACQUISITIONS CHAPTER WEB SITES Section Web Address 26.1 www.marketwatch.com www.firstlist.com www.mergernetwork.com 26.4 www.thedeal.com CHAPTER ORGANIZATION 26.1 The Legal Forms of Acquisitions Merger or Consolidation Acquisition of Stock Acquisition of Assets […]

CHAPTER 26 THE BIRDIE GOLF-HYBRID GOLF 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 dividends […]

19. a. The combined value of equity and debt of the two firms is: Equity = $4,222.99 + 6,726.34 b. For the new firm, the combined market value of assets is $47,400, and the combined face value of debt is […]

Chapter 25 – Option Valuation CHAPTER 25 OPTION VALUATION CHAPTER WEB SITES Section Web Address 25.1 http://www.optionseducation.org/ 25.2 www.numa.com 25.3 www.ivolatility.com www.margrabe.com/optionpricing.html 25.4 finance.yahoo.com CHAPTER ORGANIZATION 25.1 Put-Call Parity Protective Puts An Alternative Strategy The Result Continuous Compounding: A Refresher […]

CHAPTER 25 EXOTIC CUISINE EMPLOYEE STOCK OPTIONS 1. We can use the Black-Scholes equation to value the employee stock options. We need to use the risk- free rate that is the same as the maturity as the options. So, assuming […]

17. a. The value of the call is the maximum of the stock price minus the present value of the exercise price, or zero, so: The option isn’t worth anything. b. The stock price is too low for the option […]