Archives: Solution Manual

CHAPTER 24 OPTIONS AND CORPORATE FINANCE Answers to Concepts Review and Critical Thinking Questions 1. A call option confers the right, without the obligation, to buy an asset at a given price on or before a given date. A put […]

Chapter 24 – Options and Corporate Finance 1. Valuing a Call Option A. A Simple Model: Part II The option may, however, finish out-of-the money. So, adjust your second portfolio as follows: instead of loaning the PV(E), loan the PV(lowest […]

Chapter 24 – Options and Corporate Finance Chapter 24 OPTIONS AND CORPORATE FINANCE CHAPTER WEB SITES Section Web Address 24.1 www.cboe.com www.cmegroup.com www.euronext.com finance.yahoo.com 24.2 www.financial-guide.ch/ica/derivatives 24.4 www.esopassociation.org www.nceo.org CHAPTER ORGANIZATION 24.1 Options: The Basics Puts and Calls Stock Options […]

CHAPTER 24 S&S AIR’S CONVERTIBLE BOND 1. We can use the PE ratio to calculate the current stock price. Doing so, we get: PE = Price / EPS This means the conversion premium of the bond is: Conversion premium = […]

Chapter 23 – Enterprise Risk Management Chapter 23 Enterprise Risk Management CHAPTER WEB SITES Section Web Address Introduction www.numa.com 23.4 www.cbot.com www.cme.com www.theice.com www.biz.uiowa.edu/iem www.cftc.gov 23.5 www.isda.org 23.6 www.cboe.com www.optionseducation.com www.margrabe.com www.treasurers.org CHAPTER ORGANIZATION 23.1 Insurance 23.2 Managing Financial Risk […]

CHAPTER 22 BEHAVIORAL FINANCE: IMPLICATIONS FOR FINANCIAL MANAGEMENT Answers to Concepts Review and Critical Thinking Questions 1. The least likely limit to arbitrage is firm-specific risk. For example, in the 3Com/Palm case, the 2. Overconfidence is the belief that one’s […]

Chapter 22 – Behavioral Finance: Implications for Financial Management Chapter 22 BEHAVIORAL FINANCE: IMPLICATIONS FOR FINANCIAL MANAGEMENT CHAPTER WEB SITES Section Web Address 22.4 www.behavioralfinance.net 22.5 www.zakon.org/robert/internet/timeline CHAPTER ORGANIZATION 22.1 Introduction to Behavioral Finance 22.2 Biases Overconfidence Overoptimism Confirmation Bias […]

CHAPTER 22 YOUR 401(k) ACCOUNT AT S&S AIR 1. Before the fact, you would expect that mutual funds managers would be able to outperform the market. This is due, in part, to the Darwinian nature of the business. Good performing […]

CHAPTER 21 INTERNATIONAL CORPORATE FINANCE Answers to Concepts Review and Critical Thinking Questions 1. a. The dollar is selling at a premium because it is more expensive in the forward market than in b. The franc is expected to depreciate […]

Chapter 21 – International Corporate Finance Chapter 21 INTERNATIONAL CORPORATE FINANCE CHAPTER WEB SITES Section Web Address 21.1 www.adr.com www.bloomberg.com 21.2 www.swift.com www.xe.com www.exchangerate.com www.ft.com 21.4 www.travlang.com/money www.marketwatch.com 21.7 https://www.cia.gov/library/publications/the- world-factbook/index.html CHAPTER ORGANIZATION 21.1 Terminology 21.2 Foreign Exchange Markets and […]

CHAPTER 21 S&S AIR GOES INTERNATIONAL 3. The company will pay the sales commission out of gross sales, so the after-commission sales in euros is: After-commission sales = €5,300,000(1 – .05) After-commission sales = €5,035,000 At the current exchange rate […]

15. The cash flow from the old policy is: And the cash flow from the new policy will be: Cash flow from new policy = ($127 – 98)(1,350) Cash flow from new policy = $39,150 The incremental cash flow, which […]

CHAPTER 20 CREDIT AND INVENTORY MANAGEMENT Answers to Concepts Review and Critical Thinking Questions 1. a. A sight draft is a commercial draft that is payable immediately. b. A time draft is a commercial draft that does not require immediate […]

Chapter 20 – Credit and Inventory Management 1. Collection Policy A. Monitoring receivables Keeping track of payments to try to spot potential problems (chronic late-payers and possible defaults) to reduce losses. Aging schedule – a break-down of receivables accounts by […]

Chapter 20 – Credit and Inventory Management Chapter 20 CREDIT AND INVENTORY MANAGEMENT CHAPTER WEB SITES Section Web Address 20.1 www.treasury.pncbank.com www.treasurystrat.com www.insidearm.com 20.2 www.nacm.org 20.4 www.creditworthy.com 20.5 www.dnb.com 20.7 www.simba.org CHAPTER ORGANIZATION 20.1 Credit and Receivables Components of Credit […]

CHAPTER 20 CREDIT POLICY AT HOWLETT INDUSTRIES To decide on the optimal credit policy, we need to calculate the NPV of each policy. We will begin with the calculation of the NPV of the current policy. Current Policy First, we […]

Chapter 02 – Financial Statements, Taxes, and Cash Flow Chapter 2 FINANCIAL STATEMENTS, TAXES, AND CASH FLOW CHAPTER WEB SITES Section Web Address 2.1 finance.yahoo.com money.cnn.com finance.google.com disney.go.com www.sec.gov www.fasb.org 2.3 www.irs.gov CHAPTER ORGANIZATION 2.1 The Balance Sheet Assets: The […]

CHAPTER 2 CASH FLOWS AND FINANCIAL STATEMENTS AT SUNSET BOARDS Below are the financial statements that you are asked to prepare. 1. The income statement for each year will look like this: Income Statement 2014 2015 Sales $385,724 $470,172 Cost […]

CHAPTER 19 CASH AND LIQUIDITY MANAGEMENT Answers to Concepts Review and Critical Thinking Questions 1. Yes. Once a firm has more cash than it needs for operations and planned expenditures, the excess 2. If it has too much cash, it […]

Chapter 19 – Cash and Liquidity Management 1. Managing Cash Disbursements A. Increasing Disbursement Float Slowing payments by increasing mail delay, processing time, or collection time. May not want to do this from both an ethical standpoint and a valuation […]

Chapter 19 – Cash and Liquidity Management Chapter 19 CASH AND LIQUIDITY MANAGEMENT CHAPTER WEB SITES Section Web Address 19.2 www.carreker.fiserv.com 19.3 www.gtnews.com 19.5 www.bloomberg.com CHAPTER ORGANIZATION 19.1 Reasons for Holding Cash The Speculative and Precautionary Motives The Transaction Motive […]

CHAPTER 19 CASH MANAGEMENT AT WEBB CORP. 1. The amount the company will have available is the future value of the transfers, which are an annuity. The amount of each transfer is one minus the wire transfer cost, times the […]

10. a. The November sales must have been the total uncollected sales minus the uncollected sales from December, divided by the collection rate two months after the sale, so: b. The December sales are the uncollected sales from December divided […]

Chapter 18 – Short-Term Finance and Planning 18.3 Some Aspects of Short-Term Financial Policy A. The Size of the Firm’s Investment in Current Assets If cash was collected from sales when the bills had to be paid, then cash balances […]

Chapter 18 – Short-Term Finance and Planning Chapter 18 SHORT-TERM FINANCE AND PLANNING CHAPTER WEB SITES Section Web Address 18.1 www.treasury-management.com 18.4 www.toolkit.com 18.5 www.receivablesxchange.com CHAPTER ORGANIZATION 18.1 Tracing Cash and Net Working Capital 18.2 The Operating Cycle and the […]

CHAPTER 18 PIEPKORN MANUFACTURING WORKING CAPITAL MANAGEMENT 1. The cash flow each quarter will consist of the sales collection, minus the suppliers paid, expenses, For the 1st quarter, this is simply 80 percent of the beginning A/R balance. For the […]

Chapter 17 – Dividends and Dividend Policy 1. Stock Repurchase: An Alternative to Cash Dividends A. Cash Dividends versus Repurchase A firm may choose to buy back outstanding shares instead of paying a cash dividend (or instead of increasing a […]

Chapter 17 – Dividends and Dividend Policy Chapter 17 DIVIDENDS AND DIVIDEND POLICY CHAPTER WEB SITES Section Web Address 17.1 www.reuters.com/finance/EarningsUS 17.2 www.fool.com 17.8 www.stocksplits.net CHAPTER ORGANIZATION 17.1 Cash Dividends and Dividend Payment Cash Dividends Standard Method of Cash Dividend […]

CHAPTER 17 ELECTRONIC TIMING, INC. 1. The value of the company will decline by the amount of the dividend. Ignoring taxes, shareholders 2. The value of the company could increase or decrease. If the company is over-levered, paying off debt […]

10. With no taxes, the value of an unlevered firm is the EBIT divided by the unlevered cost of equity, so: V = EBIT / WACC 11. If there are corporate taxes, the value of an unlevered firm is: VU […]

CHAPTER 16 FINANCIAL LEVERAGE AND CAPITAL STRUCTURE POLICY Answers to Concepts Review and Critical Thinking Questions 1. Business risk is the equity risk arising from the nature of the firm’s operating activity and is directly related to the systematic risk […]

CHAPTER 16 STEPHENSON REAL ESTATE RECAPITALIZATION 1. If Stephenson wishes to maximize the overall value of the firm, it should use debt to finance the $95 2. Since Stephenson is an all-equity firm with 9 million shares of common stock […]

CHAPTER 15 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. Debt issues are larger because […]

Chapter 15 – Raising Capital 1. IPOs and Underpricing A. Underpricing: The 1999 – 2000 Experience The number of IPOs and the average return on IPOs during 1999 and 2000 was enormous compared to past periods. 1999 set a record […]

CHAPTER 15 S&S AIR 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 auction should be better […]

22. To find the aftertax cost of debt for the company, we need to find the weighted average of the four debt issues. We will begin by calculating the market value of each debt issue, which is: So, the total […]

CHAPTER 14 COST OF CAPITAL Answers to Concepts Review and Critical Thinking Questions 1. It is the minimum rate of return the firm must earn overall on its existing assets. If it earns more than this, value is created. 5. […]

Chapter 14 – Cost of Capital Video Note: “Economic Value Added (EVA)” can be used to reinforce the concepts. 1. Divisional and Project Costs of Capital A. The SML and the WACC The WACC is the appropriate discount rate only […]

Chapter 14 – Cost of Capital Chapter 14 COST OF CAPITAL CHAPTER WEB SITES Section Web Address 14.2 www.zacks.com www.bloomberg.com 14.4 www.ibbotson.com www.valuepro.net www.sternstewart.com CHAPTER ORGANIZATION 14.1 The Cost of Capital: Some Preliminaries Required Return versus Cost of Capital Financial […]

CHAPTER 14 COST OF CAPITAL FOR SWAN MOTORS NOTE: The example below shows the results during April 2014. The actual answer to the case will change based on current market conditions. 1. The book value of the company’s liabilities and […]

24. We know the total portfolio value and the investment of two stocks in the portfolio, so we can find the weight of these two stocks. The weights of Stock A and Stock B are: Since the portfolio is as […]

Chapter 13 – Return, Risk, and the Security Market Line 1. Systematic Risk and Beta A. The Systematic Risk Principle The principle – The reward for bearing risk depends only on the systematic risk of the investment. The implication – […]

Chapter 13 – Return, Risk, and the Security Market Line Chapter 13 RETURN, RISK, AND THE SECURITY MARKET LINE CHAPTER WEB SITES Section Web Address 13.2 www.thestreet.com 13.5 www.investopedia.com/university 13.6 www.investools.com moneycentral.msn.com finance.yahoo.com money.cnn.com CHAPTER ORGANIZATION 13.1 Expected Returns and […]

CHAPTER 13 THE BETA FOR COLGATE-PALMOLIVE NOTE: The example below shows the results from late 2013. The actual answer to the case will change based on current market conditions 1. The information used for the analysis is presented below. Note […]

CHAPTER 12 SOME LESSONS FROM CAPITAL MARKET HISTORY Answers to Concepts Review and Critical Thinking Questions 1. They all wish they had! Since they didn’t, it must have been the case that the stellar performance was 2. As in the […]

Chapter 12 – Some Lessons from Capital Market History Chapter 12 SOME LESSONS FROM CAPITAL MARKET HISTORY CHAPTER WEB SITES Section Web Address Introduction www.mhhe.com/rwj 12.1 finance.yahoo.com www.marketwatch.com 12.2 www.globalfinancialdata.com bigcharts.marketwatch.com 12.4 www.robertniles.com www.morningstar.com 12.6 www.investorhome.com CHAPTER ORGANIZATION 12.1 Returns […]

CHAPTER 12 A JOB AT S&S AIR 1. The biggest advantage the mutual funds have is instant diversification. The mutual funds have a 2. Both the APR and EAR are infinite. The match is instantaneous, so the number of periods […]

22. To calculate the sensitivity of the NPV to changes in the price of the new club, we simply need to We will calculate the sales and variable costs first. Since we will lose sales of the expensive clubs and […]

14. We can use the equation for DOL to calculate fixed costs. The fixed costs must be: DOL = 3.42 = 1 + FC / OCF If the output rises to 18,500 units, the percentage change in quantity sold is: […]

Chapter 11 – Project Analysis and Evaluation Chapter 11 PROJECT ANALYSIS AND EVALUATION CHAPTER ORGANIZATION 11.1 Evaluating NPV Estimates The Basic Problem Projected versus Actual Cash Flows Forecasting Risk Sources of Value 11.2 Scenario and Other What-If Analyses Getting Started […]