Archives: Solution Manual
978-1305632295 Chapter 15 Solution Manual Part 1
Chapter 15 Capital Structure Decisions ANSWERS TO END-OF-CHAPTER QUESTIONS 15-1 a. Capital structure is the manner in which a firm’s assets are financed; that is, the right-hand side of the balance sheet. Capital structure is normally expressed as the percentage […]
978-1305632295 Chapter 14 Solution Manual Part 2
Answers and Solutions: 14 – 1 © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. a. 3. What do the three theories indicate […]
978-1305632295 Chapter 14 Solution Manual Part 1
Chapter 14 Distributions to Shareholders: Dividends and Repurchases ANSWERS TO END-OF-CHAPTER QUESTIONS 14-1 a. The optimal distribution policy is one that strikes a balance between dividend yield and capital gains so that the firm’s stock price is maximized. b. The […]
978-1305632295 Chapter 13 Solution Manual
Chapter 13 Corporate Governance ANSWERS TO END-OF-CHAPTER QUESTIONS 13-1 a. An agency relationship arises whenever one or more individuals, the principals, hire b. Agency costs include all costs borne by shareholders to encourage managers to maximize a firm’s stock price […]
978-1305632295 Chapter 12 Solution Manual Part 3
e. Use the following assumptions to answer the questions below: (1) Operating ratios remain unchanged. (2) Sales will grow by 10%, 8%, 5%, and 5% for the next four years. (3) The target weighted average cost of capital (WACC) is […]
978-1305632295 Chapter 12 Solution Manual Part 2
12-9 Garlington Technologies Inc. Pro Forma Income Statement December 31, 2017 Forecast Pro Forma 2016 Basis 2017 Sales $3,600,000 1.10 Sales16 $3,960,000 Operating costs 3,279,720 0.911 Sales17 3,607,692 EBIT $ 320,280 $ 352,308 Garlington Technologies Inc. Pro Forma […]
978-1305632295 Chapter 12 Solution Manual Part 1
Chapter 12 Corporate Valuation and Financial Planning ANSWERS TO END-OF-CHAPTER QUESTIONS 12-1 a. The operating plan provides detailed implementation guidance designed to b. Spontaneous liabilities are the first source of expansion capital as these accounts increase automatically through normal business […]
978-1305632295 Chapter 11 Solution Manual Part 4
b. Disregard the assumptions in part a. What is Shrieves’ depreciable basis? What are the annual depreciation expenses? Answer: The asset’s depreciable basis includes shipping and installation costs. Thus, the asset’s (Dollars in Thousands) Year Rate Basis = Depreciation 1 […]
978-1305632295 Chapter 11 Solution Manual Part 3
11-14 a. Cost of new machine ($775,000) b. Recovery Depreciable Depreciation Depreciation Change in 1 2 3 4 5 Old depreciation 90,000 90,000 90,000 90,000 90,000 Old tax shield 31,500 31,500 31,500 31,500 31,500 Basis 775,000 MACRS depreciation rate 20.00% […]
978-1305632295 Chapter 11 Solution Manual Part 2
11-8 a. Sales = 1,000($138) $138,000 Not considering inflation, NPV is -$4,800. This value is calculated as -$150,000 + = -$4,800. 15.0 780,21$ Considering inflation, the real cost of capital is calculated as follows: (1 + rr)(1 + i) = […]
978-1305632295 Chapter 11 Solution Manual Part 1
Chapter 11 Cash Flow Estimation and Risk Analysis ANSWERS TO END-OF-CHAPTER QUESTIONS 11-1 a. Project cash flow, which is the relevant cash flow for project analysis, represents the actual flow of cash, which includes investments in capital and working capital, […]
978-1305632295 Chapter 10 Solution Manual Part 5
j. As a separate project (Project P), you are considering sponsoring a pavilion at the upcoming World’s Fair. The pavilion would cost $800,000, and it is expected to result in $5 million of incremental cash inflows during its 1 year […]
978-1305632295 Chapter 10 Solution Manual Part 4
c. 3. Would the NPVs change if the cost of capital changed? Answer: The NPV of a project is dependent on the cost of capital used. Thus, if the cost of d. 1. Define the term internal rate of return […]
978-1305632295 Chapter 10 Solution Manual Part 3
10-19 a. The project’s expected cash flows are as follows (in millions of dollars): Time Net Cash Flow We can construct the following NPV profile: Discount Rate NPV 0% ($1,700,000) 9 (29,156) 10 120,661 50 2,955,556 100 3,200,000 200 2,055,556 […]
978-1305632295 Chapter 10 Solution Manual Part 2
10-12 a. Purchase price $ 900,000 CF0 = -1065000; CF1-5 = 350000; I/YR = 14; NPV = ? NPV = $136,578; IRR = 19.22%. b. Ignoring environmental concerns, the project should be undertaken because its NPV is positive and its […]
978-1305632295 Chapter 10 Solution Manual Part 1
Chapter 10 The Basics of Capital Budgeting: Evaluating Cash Flows ANSWERS TO END-OF-CHAPTER QUESTIONS 10-1 a. Capital budgeting is the whole process of analyzing projects and deciding whether they should be included in the capital budget. This process is of […]
978-1305632295 Chapter 9 Solution Manual Part 2
MINI CASE During the last few years, Jana Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at […]
978-1305632295 Chapter 9 Solution Manual Part 1
Chapter 9 The Cost of Capital ANSWERS TO END-OF-CHAPTER QUESTIONS 9-1 a. The weighted average cost of capital, WACC, is the weighted average of the after-tax component costs of capital—-debt, preferred stock, and common equity. Each weighting factor is the […]
978-1305632295 Chapter 8 Solution Manual Part 2
d. 2. Suppose you write 1 call option and buy Ns shares of stock. How many shares must you buy to create a portfolio with a riskless payoff (which is called a hedge portfolio)? What is the payoff of the […]
978-1305632295 Chapter 8 Solution Manual Part 1
Chapter 8 Financial Options and Applications in Corporate Finance ANSWERS TO END-OF-CHAPTER QUESTIONS 8-1 a. An option is a contract which gives its holder the right to buy or sell an asset at some b. A simple measure of an […]
978-1305632295 Chapter 7 Solution Manual Part 3
d. 1. Suppose the free cash flow at Time 1 is expected to grow at a constant rate of gL forever. If gL < WACC, what is a formula for the present value of expected free cash flows when discounted […]
978-1305632295 Chapter 7 Solution Manual Part 2
08.012.0 000,108$ b. 0 1 2 3 N | | | | | 7-18 a. HV3 = 07.013.0 )07.1( 40$ = $713.33. b. 0 1 2 3 4 N | | | | | […]
978-1305632295 Chapter 7 Solution Manual Part 1
Chapter 7 Corporate Valuation and Stock Valuation ANSWERS TO END-OF-CHAPTER QUESTIONS 7-1 a. A proxy is a document giving one person the authority to act for another, typically the power to vote shares of common stock. If earnings are poor […]
978-1305632295 Chapter 6 Solution Manual Part 4
n. 1. Suppose the risk-free rate goes up to 7%. What effect would higher interest rates have on the SML and on the returns required on high-risk and low-risk securities? Answer: The SML is shifted higher, but the slope is […]
978-1305632295 Chapter 6 Solution Manual Part 3
e. Your client has decided that the risk of the bond portfolio is acceptable and wishes to leave it as it is. Now your client has asked you to use historical returns to estimate the standard deviation of Blandy’s stock […]
978-1305632295 Chapter 6 Solution Manual Part 2
6-10 Portfolio beta = $4,000,000 $400,000 (1.50) + $4,000,000 $600,000 (-0.50) + $4,000,000 $1,000,000 (1.25) + $4,000,000 $2,000,000 (0.75) Alternative solution: First compute the return for each stock using the CAPM equation [rRF + (rM – rRF)b], and then compute […]
978-1305632295 Chapter 6 Solution Manual Part 1
Chapter 6 Risk and Return ANSWERS TO END-OF-CHAPTER QUESTIONS 6-1 a. Stand-alone risk is only a part of total risk and pertains to the risk an investor takes by holding only one asset. Risk is the chance that some unfavorable […]
978-1305632295 Chapter 5 Solution Manual Part 4
j. Define the real risk-free rate (r*). What security can be used as an estimate of r*? What is the nominal risk-free rate (rRF)? What securities can be used as estimates of rRF? Answer: The real risk-free rate, r*, is […]
978-1305632295 Chapter 5 Solution Manual Part 3
e. 1. What would be the value of the bond described in part d if, just after it had been issued, the expected inflation rate rose by 3 percentage points, causing investors to require a 13 percent return? Would we […]
978-1305632295 Chapter 5 Solution Manual Part 2
5-17 t Price of Bond C Price of Bond Z 0 $1,012.79 $ 693.04 1 1,010.02 759.57 5-18 r = r* + IP + MRP + DRP + LP. r* = 0.02. IP = [0.03 + 0.04 + (5)(0.035)]/7 = […]
978-1305632295 Chapter 5 Solution Manual Part 1
Chapter 5 Bonds, Bond Valuation, and Interest Rates ANSWERS TO END-OF-CHAPTER QUESTIONS 5-1 a. A bond is a promissory note issued by a business or a governmental unit. Treasury bonds, sometimes referred to as government bonds, are issued by the […]
978-1305632295 Chapter 4 Solution Manual Part 4
h. 1. Define (a) the stated, or quoted, or nominal rate, (iNom), and (b) the periodic rate (iPer). ANSWER: The quoted, or nominal, rate is merely the quoted percentage rate of return. The h. 2. Will the future value be […]
978-1305632295 Chapter 4 Solution Manual Part 3
SOLUTION TO SPREADSHEET PROBLEM 4-35 The detailed solution for the spreadsheet problem, Ch04 P35 Build a Model Solution.xlsx, is available on the textbook’s Web site. Answers and Solutions: 4 -1 © 2017 Cengage Learning. All Rights Reserved. May not be […]
978-1305632295 Chapter 4 Solution Manual Part 2
4-14 a. Cash Stream A Cash Stream B 0 1 2 3 4 5 0 1 2 3 4 5 | | | | | | | | | | | | PV = ? 100 400 400 400 300 […]
978-1305632295 Chapter 4 Solution Manual Part 1
Chapter 4 Time Value of Money ANSWERS TO END-OF-CHAPTER QUESTIONS 4-1 a. PV (present value) is the value today of a future payment, or stream of payments, discounted at the appropriate rate of interest. PV is also the beginning amount […]
978-1305632295 Chapter 3 Solution Manual Part 3
f. Calculate the 2017 price/earnings ratio, price/cash flow ratios, and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company? Price/Earnings17 = Price Per Share/Earnings Per Share = $12.17/$1.0143 = […]
978-1305632295 Chapter 3 Solution Manual Part 2
SOLUTION TO SPREADSHEET PROBLEM 3-15 The detailed solution for the problem is available is in the file Ch03 P15 Build a Model Solution.xlsx and is available at the textbook’s web site. Answers and Solutions: 3 – 1 © 2017 Cengage […]
978-1305632295 Chapter 3 Solution Manual Part 1
Chapter 3 Analysis of Financial Statements ANSWERS TO END-OF-CHAPTER QUESTIONS 3-1 a. A liquidity ratio is a ratio that shows the relationship of a firm’s cash and other current assets to its current liabilities. The current ratio is found by […]
978-1305632295 Chapter 2 Solution Manual Part 2
MINI CASE Jenny Cochran, a graduate of The University of Tennessee with 4 years of experience as an equities analyst, was recently brought in as assistant to the chairman of the board of Computron Industries, a manufacturer of computer components. […]
978-1305632295 Chapter 1 Solution Manual Part 2
MINI CASE Assume that you recently graduated and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle Dellatorre, a professional tennis player who has […]
978-1305500891 Chapter 17 Solution Manual
END-OF-CHAPTER GUIDE *Review Questions and Answers *Critical Discussion Questions and Answers *Global Action *Closing Case REVIEW QUESTIONS AND ANSWERS 1. How do you define global sustainability? 2. How do the concerns of a primary stakeholder differ from those of a […]
978-1305500891 Chapter 17 Lecture Note
CHAPTER 17 MANAGING CORPORATE SOCIAL RESPONSIBILITY GLOBALLY LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. articulate what is a stakeholder view of the firm. 2. apply the institution-based and resource-based views to analyze corporate social responsibility […]
978-1305500891 Chapter 16 Solution Manual
END-OF-CHAPTER GUIDE *Review Questions and Answers *Critical Discussion Questions and Answers *Global Action *Closing Case REVIEW QUESTIONS AND ANSWERS 1. What are the two primary means of financing? How do they differ? The two primary means involve equity and debt. […]
978-1305500891 Chapter 16 Lecture Note
CHAPTER 16 FINANCING AND GOVERNING THE CORPORATION GLOBALLY LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. outline the two means of financing decisions, equity and debt. 2. differentiate various ownership patterns around the world. 3. articulate […]
978-1305500891 Chapter 15 Solution Manual
END-OF-CHAPTER GUIDE *Review Questions and Answers *Critical Discussion Questions and Answers *Global Action *Closing Case REVIEW QUESTIONS AND ANSWERS 1. Name and describe three staffing approaches. Ethnocentric approach is an emphasis on the norms and practices of the parent company […]
978-1305500891 Chapter 15 Lecture Note
CHAPTER 15 MANAGING HUMAN RESOURCES GLOBALLY LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. explain staffing decisions with a focus on expatriates. 2. identify training and development needs for expatriates and host-country nationals. 3. discuss compensation […]
978-1305500891 Chapter 14 Solution Manual
END-OF-CHAPTER GUIDE *Review Questions and Answers *Critical Discussion Questions and Answers *Global Action *Closing Case REVIEW QUESTIONS AND ANSWERS 1. ON CULTURE: What cultural issue could be involved in product decisions in terms of localization versus standardization? Many examples could […]
978-1305500891 Chapter 14 Lecture Note
CHAPTER 14 COMPETING ON MARKETING AND SUPPLY CHAIN MANAGEMENT LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. articulate three of the four Ps in marketing (product, price, and promotion) in a global context. 2. explain how […]
978-1305500891 Chapter 13 Solution Manual
END-OF-CHAPTER GUIDE *Review Questions and Answers *Critical Discussion Questions and Answers *Global Action *Closing Case REVIEW QUESTIONS AND ANSWERS 1. The pressure to reduce costs is common to both domestic and international competition, but what additional kind of pressure is […]
978-1305500891 Chapter 13 Lecture Note
CHAPTER 13 STRATEGIZING, STRUCTURING, AND LEARNING AROUND THE WORLD LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. describe the relationship between multinational strategy and structure. 2. explain how institutions and resources affect strategy, structure, and learning. […]