Archives: Solution Manual
978-0077454432 Chapter 5 Part 3
Chapter 05: Operating and Financial Leverage 5-21 5-16. Solution: a. Cain Auto Supplies and Able Auto Parts Cain Able EBIT $10,000 $10,000 Less: Interest 5,000 10,000 EBT 5,000 0 Less: Taxes @ 30% 1,500 0 EAT 3,500 0 Shares 10,000 […]
978-0077454432 Chapter 5 Part 2
Chapter 05: Operating and Financial Leverage c. Q (P VC) DCL Q(P VC) FC I 20,000($60 $30) 20,000($60 $30) $400,000 $50,000 $600,000 $600,000 4x $600,000 $400,000 $50,000 $150,000 − = − − − − = − − − = = […]
978-0077454432 Chapter 4 Part 5
Chapter 04: Financial Forecasting 4-41 COMPREHENSIVE PROBLEM Comprehensive Problem 1. Mansfield Corporation (external funds requirement) (LO4) Mansfield Corporation had 2010 sales of $100 million. The balance sheet items that vary directly with sales and the profit margin are as follows: […]
978-0077454432 Chapter 4 Part 4
Chapter 04: Financial Forecasting 4-31 26. Complete cash budget (LO2) Archer Electronics Company’s actual sales and purchases for April and May are shown here along with forecasted sales and purchases for June through September. Sales Purchases April (actual) …………………………….. $320,000 […]
978-0077454432 Chapter 4 Part 3
Chapter 04: Financial Forecasting 4-21 21. Schedule of cash payments (LO2) The Denver Corporation has forecast the following sales for the first seven months of the year: January……… ……. $10,000 May……… $10,000 February……… ….. 12,000 June……… 16,000 March……… ……… 14,000 […]
978-0077454432 Chapter 4 Part 2
Chapter 04: Financial Forecasting 4-11 Beginning inventory at these costs on July 1 was 3,000 units. From July 1 to December 1, 2011, Bradley produced 12,000 units. These units had a material cost of $3, labor of $5, and overhead […]
978-0077454432 Chapter 4 Part 1
Chapter 04: Financial Forecasting Chapter 4 Financial Forecasting Discussion Questions 4-1. What are the basic benefits and purposes of developing pro forma statements and a cash budget? The pro-forma financial statements and cash budget enable the firm to determine its […]
978-0077454432 Chapter 3 Part 7
Chapter 03: Financial Analysis 3-60 CP 3-1. (Continued) The liquidity ratios also are not encouraging. Both the current and quick one and one to one respectively. The debt to total assets ratio is particularly noticeable in regard to industry comparisons. […]
978-0077454432 Chapter 3 Part 6
Chapter 03: Financial Analysis 3-51 Bonds payable ………………………………. 150,000 Total liabilities ……………………………… $320,000 Stockholders’ equity Preferred stock, $50 per value …………. 100,000 Common stock, $1 par value …………… 80,000 Capital paid in excess of par ……………. 190,000 Retained earnings ………………………….. […]
978-0077454432 Chapter 3 Part 5
Chapter 03: Financial Analysis 3-41 31. Inflation and inventory accounting effect (LO5) The Canton Corporation shows the following income statement. The firm uses FIFO inventory accounting. CANTON CORPORATION Income Statement for 2010 Sales ………………………………………………………… $100,000 (10,000 units at $10) Cost […]
978-0077454432 Chapter 3 Part 4
Chapter 03: Financial Analysis J. Lo Wedding Gowns a. Income before interest and taxes Times interest earned Interest $60,000 5,000 12x = = = 3-24. (Continued) b. Income before fixed charges and taxes Fixed charge coverage Fixed charges $60,000 10,000 […]
978-0077454432 Chapter 3 Part 3
Chapter 03: Financial Analysis 3-17. Solution: Cable Corporation and Multi-Media, Inc. a. Cable Multi- Corporation Media, Inc. Net income $30,000 $100,000 12% 22.2% Stockholders’ equity $250,000 $450,000 = = = Multi-Media Inc. has a much higher return on stockholders’ equity […]
978-0077454432 Chapter 3 Part 2
Chapter 03: Financial Analysis 3-11 Haines Corp. 2009 2010 a. Cost of goods sold $1,500,000 $1,875,000 60.0% 62.5% Sales 2,500,000 3,000,000 == It is decreasing profitability. b. Selling & admin. expense $205,000 $210,000 8.2% 7.0% Sales 2,500,000 3,000,000 == It […]
978-0077454432 Chapter 3 Part 1
Chapter 03: Financial Analysis Chapter 3 Financial Analysis Discussion Questions 3-1. If we divide users of ratios into short-term lenders, long-term lenders, and stockholders, in which ratios would each group be most interested, and for what reasons? Short-term lenders–liquidity ratios […]
978-0077454432 Chapter 21 Part 2
Chapter 21: International Financial Management 21-8 3. Purchasing power theory (LO2) From the base price level of 100 in 1981, Saudi Arabian and U.S. price levels in 2010 stood at 200 and 412, respectively. If the 1981 $/riyal exchange rate […]
978-0077454432 Chapter 21 Part 1
Chapter 21: International Financial Management Chapter 21 International Financial Management Discussion Questions 21-1. What risks does a foreign affiliate of a multinational firm face in today’s business world? In addition to the normal risks that a domestic firm faces (such […]
978-0077454432 Chapter 20 Part 2
Chapter 20 – External Growth through Mergers a. Total earnings Noble $ 1,200,000 + Barnes $ 3,600,000 Combined earnings $ 4,800,000 20-11 Shares outstanding Original Noble Shares 2,400,000 + New Noble shares 600,000 Postmerger shares outstanding 3,000,000 New earnings per […]
978-0077454432 Chapter 20 Part 1
Chapter 20 – External Growth through Mergers Chapter 20 External Growth through Mergers Discussion Questions 20-1. Name three industries in which mergers have been prominent. Computers, telecommunications, public utilities, pharmaceuticals, and energy. 20-2. What is the difference between a merger […]
978-0077454432 Chapter 2 Part 4
Chapter 02: Review of Accounting 2-28 28. Statement of cash flows (LO4) Prepare a statement of cash flows for the Jeter Corporation. Follow the general procedures indicated in Table 2–10. _______________________________________________________________________ JETER CORPORATION Income Statement For the Year Ended December […]
978-0077454432 Chapter 2 Part 3
Chapter 02: Review of Accounting 2-21 Increase in inventory – decreases cash flow (use) Dividend payment – decreases cash flow (use) Increase in accrued expenses – increases cash flow (source) 21. Depreciation and Cash flow (LO5) The Jupiter Corporation has […]
978-0077454432 Chapter 2 Part 2
Chapter 02: Review of Accounting 2-11 2-10. Solution: Precision Systems Sales…………………………………………………….. $800,000 11. Depreciation and earnings (LO1) Stein Books, Inc. sold 1,400 finance textbooks for $195 each to High Tuition University in 2010. These books cost $150 to produce. Stein […]
978-0077454432 Chapter 2 Part 1
Chapter 02: Review of Accounting Chapter 2 Review of Accounting Discussion Questions 2-1. Discuss some financial variables that affect the price-earnings ratio. The price-earnings ratio will be influenced by the earnings and sales growth of the firm, the risk or […]
978-0077454432 Chapter 19 Part 3
Chapter 19: Convertibles, Warrants, and Derivatives 19-20 $600,000 $49,000* 100,000 28,000** + = + $649,400 $5.07 128,000 == *interest savings × (1 – tax rate) 21. Earnings per share with convertibles (LO5) Myers Drugs, Inc., has 2 million shares of […]
978-0077454432 Chapter 19 Part 2
Chapter 19: Convertibles, Warrants, and Derivatives 19-11 19–11. Solution: Pittsburgh Steel Company (Continued) Pure bond value where n = 50, i = 6% PV of annuity = $40 semiannually × 15.762 = $630.48 PV of principal payment = $1,000 × […]
978-0077454432 Chapter 19 Part 1
Chapter 19: Convertibles, Warrants, and Derivatives Chapter 19 Convertibles, Warrants, and Derivatives Discussion Questions 19-1. What are the basic advantages to the corporation of issuing convertible securities? The advantages to the corporation of a convertible security are: a. The interest […]
978-0077454432 Chapter 18 Part 4
Chapter 18: Dividend Policy and Retained Earnings 18-27 b. If the firm simply uses a payout ratio of 40 percent of net income, how much in total cash dividends will be paid? c. If the firm pays a 10 percent […]
978-0077454432 Chapter 18 Part 3
Chapter 18: Dividend Policy and Retained Earnings 18-21 benefits have taken place. 19. Stock dividend and cash dividend (LO4) Health Systems, Inc. is considering a 15 percent stock dividend. The capital accounts are as follows: Common stock (3,000,000 shares at […]
978-0077454432 Chapter 18 Part 2
Chapter 18: Dividend Policy and Retained Earnings 18-11 10. Dividend yield (LO1) The stock of North American Dandruff Company is selling at $80 per share. The firm pays a dividend of $2.50 per share. a. What is the dividend yield? […]
978-0077454432 Chapter 18 Part 1
Chapter 18: Dividend Policy and Retained Earnings Chapter 18 Dividend Policy and Retained Earnings Discussion Questions 18-1. How does the marginal principle of retained earnings relate to the returns that a stockholder may make in other investments? The marginal principle […]
978-0077454432 Chapter 17 Part 3
Chapter 17: Common and Preferred Stock Financing 17-21 Robbins Petroleum Company a. $6.50 per share × 850,000 shares × 4 years = $22,100,000 × 90% = $19,890,000 compensation b. $875.54 21. Preferred stock dividends in arrears and valuing common stock […]
978-0077454432 Chapter 17 Part 2
Chapter 17: Common and Preferred Stock Financing 17-11 the board. 10. Cumulative voting (LO2) In problem 9, if nine directors were to be elected, and Ms. Ramsey and her friends had 60,001 shares and Mr. Clark had 40,001 shares plus […]
978-0077454432 Chapter 17 Part 1
Chapter 17: Common and Preferred Stock Financing Chapter 17 Common and Preferred Stock Financing Discussion Questions 17-1. Why has corporate management become increasingly sensitive to the desires of large institutional investors? Corporate management has become increasingly sensitive to the desires […]
978-0077454432 Chapter 16 Part 5
Chapter 16: Long-Term Debt and Lease Financing 16A–1. Solution: Titanic Boat Co. a. Liquidation value of assets $5,200,000 Liabilities 7,600,000 Difference ($2,400,000) b. Preferred and common stock will not participate in the distribution because the liquidation value of the assets […]
978-0077454432 Chapter 16 Part 4
Chapter 16: Long-Term Debt and Lease Financing c. Original amount $900,000 16-31 -10% 90,000 Net cost $810,000 $810,000 A = $143,363 5.650 = COMPREHENSIVE PROBLEM Comprehensive Problem 1. Broadband, Inc. Bond prices refunding (LO2& 3) Barton Simpson, the chief financial […]
978-0077454432 Chapter 16 Part 3
Chapter 16: Long-Term Debt and Lease Financing Present value of principal payment at maturity PV = FV × PVIF (n = 20*, i = 6%) PV = $1,000 × .312 = $312.00 Appendix B Total present value Present value of […]
978-0077454432 Chapter 16 Part 2
Chapter 16: Long-Term Debt and Lease Financing a. Bond A $92 interest/$875 market price = 10.51% current yield Bond B $82 interest/$900 market price = 9.11% current yield b. Bond A. It has a higher current yield. c. Approximate yield […]
978-0077454432 Chapter 16 Part 1
Chapter 16: Long-Term Debt and Lease Financing 16-1 Chapter 16 Long-Term Debt and Lease Financing Discussion Questions 16-1. Corporate debt has been expanding very dramatically in the last three decades. What has been the impact on interest coverage, particularly since […]
978-0077454432 Chapter 15 Part 4
Chapter 15: Investment Banking: Public and Private Placement 3 million shares (P/E EPS) 3 million (16 $1.25) 3 million $20 $60.0 million Total value to the company $103.5 million 15–22. (Continued) c. Total value to […]
978-0077454432 Chapter 15 Part 3
Chapter 15: Investment Banking: Public and Private Placement 15-21 e. In the long run, it appears that the company is better off because of the additional investment. Earnings per share are 19. Dilution and rates of return (LO3) The Presley […]
978-0077454432 Chapter 15 Part 2
Chapter 15: Investment Banking: Public and Private Placement 15-11 Wrigley Corporation a. Spread = $15.70 – $15.00 = $0.70 % underwriting spread = $.70$15.70 = 4.46% b. Spread = $1,001 – $992 = $9 % underwriting spread = $9/$1,001 = […]
978-0077454432 Chapter 15 Part 1
Chapter 15: Investment Banking: Public and Private Placement Chapter 15 Investment Banking: Public and Private Placement Discussion Questions 15-1. In what way is an investment banker a risk taker? The investment banker is a risk taker (underwriter) in that the […]
978-0077454432 Chapter 14
Chapter 14: Capital Markets 14-1 Chapter 14 Capital Markets Discussion Questions 14-1. In addition to U.S. corporations, what government groups compete for funds in the U.S. capital markets? The federal government, government agencies, and state and local governments all compete […]
978-0077454432 Chapter 13 Part 5
Chapter 13: Risk and Capital Budgeting 13-41 COMPREHENSIVE PROBLEMS Comprehensive Problem 1. Gibson Appliance Co. (portfolio effect of a merger) (LO5) Gibson Appliance Co. is a very stable billion-dollar company with a sales growth of about 7 percent per year […]
978-0077454432 Chapter 13 Part 4
Chapter 13: Risk and Capital Budgeting 13–23. (Continued) Standard deviation—year 10 D D (D D)− 2 (D D)− P 2 (D D)− P 40 80 –40 1,600 .30 480 80 80 0 0 .40 0 120 80 +40 1,600 .30 […]
978-0077454432 Chapter 13 Part 3
Chapter 13: Risk and Capital Budgeting 13-21 b. Recalculate the net present value of the Australian Mine at a 15 percent discount rate. Years Cash Flow n Factor PVIFA @ 15% Present Value 5–15 $300,000 (15 – 4) (5.847 – […]
978-0077454432 Chapter 13 Part 2
Chapter 13: Risk and Capital Budgeting 13-11 8. Coefficient of variation (LO1) Five investment alternatives have the following returns and standard deviations of returns. Alternative Returns: Expected Value Standard Deviation A ………………………………. $ 1,000 $ 590 B ………………………………. 3,000 600 […]
978-0077454432 Chapter 13 Part 1
Chapter 13: Risk and Capital Budgeting Chapter 13 Risk and Capital Budgeting Discussion Questions 13-1. If corporate managers are risk-averse, does this mean they will not take risks? Explain. Risk-averse corporate managers are not unwilling to take risks, but will […]
978-0077454432 Chapter 12 Part 6
Chapter 12: The Capital Budgeting Decision 12-50 d. Net Present Value Cash Flow Present Year (inflows) PVIF at 12% Value 1 $132,200 .893 $118,055 2 126,120 .797 100,518 3 96,672 .712 68,830 33. Replacement decision analysis (LO4) Hercules Exercise Equipment […]
978-0077454432 Chapter 12 Part 5
Chapter 12: The Capital Budgeting Decision 12-41 29. MACRS depreciation and net present value (LO4) Universal Electronics is considering the purchase of manufacturing equipment with a 10–year midpoint in its asset depreciation range (ADR). Carefully refer to Table 12–8 to […]
978-0077454432 Chapter 12 Part 4
Chapter 12: The Capital Budgeting Decision c. Net Present Value Profile 12-23. (Continued) d. Since the projects are not mutually exclusive, they both can be selected if they have a positive net present value. At a 9% cost of capital, […]