Archives: Solution Manual
978-1259277160 Chapter 13 Solution Manual Part 2
13-8. Solution: Coefficient of Variation (V) = Standard deviation/Expected value Ranking from Lowest to Highest 9. Coefficient of variation and time (LO13-1) Digital Technology wishes to determine its coefficient of variation as a company over time. The firm projects the […]
978-1259277160 Chapter 13 Solution Manual Part 1
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. 13-2. Discuss the concept of risk and how it might be measured. Risk may be defined in […]
978-1259277160 Chapter 13 Lecture Note
Risk and Capital Budgeting Author’s Overview Though risk is discussed throughout the text, Chapter 13 provides the most explicit portrayal of its impact on the decision-making process of the firm. The actual measurement of risk through the computation of the […]
978-1259277160 Chapter 12 Solution Manual Part 7
Chapter 12: The Capital Budgeting Decision 12-33. Solution: Hercules Exercise Equipment Co. a. Percentage Depreciation Depreciation Annual Year Base (Table 12-9) Depreciation f. Depreciation schedule on the new equipment Percentage Depreciation Depreciation Annual Copyright © 2017 McGraw-Hill Education. All rights […]
978-1259277160 Chapter 12 Solution Manual Part 6
Chapter 12: The Capital Budgeting Decision 12-29. (Continued) Next, determine the net present value. Cash Flow Present Year (Inflows) PVIF at 12% Value New asset should be purchased. Calculator Solution: Using a financial calculator, Press the following keys: 2nd, CF, […]
978-1259277160 Chapter 12 Solution Manual Part 5
Chapter 12: The Capital Budgeting Decision 12-25. Solution: Telstar Communications Corporation First, determine annual depreciation. Percentage Depreciation Depreciation Annual Year Base (Table 12-9) Depreciation Then, determine the annual cash flow. Earnings before depreciation and taxes (EBDT) will be the same […]
978-1259277160 Chapter 12 Solution Manual Part 4
12-20. Solution: Turner Video a. Reinvestment assumption of NPV No. of Year Inflows Rate Periods Value b. Reinvestment assumption of IRR No. of Year Inflows Rate Periods Value 1 $15,000 11% 4 1.518 $ 22,770 2 17,000 11% 3 1.368 […]
978-1259277160 Chapter 12 Solution Manual Part 3
12-16. Solution: Skyline Corporation Present Value of Inflows Find the present value of a deferred annuity Discount from beginning of the third period (end of second period to present): FV = $192,100, n = 2, i = 12% PV = […]
978-1259277160 Chapter 12 Solution Manual Part 2
12-10. Solution: X-treme Vitamin Company a. Payback Method b. Net Present Value Method Project A Year Cash Flow PVIFA Present Value 1 $12,000 .909 $10,908 2 $ 8,000 .826 $ 6,608 3 $ 6,000 .751 $ 4,506 Present value of […]
978-1259277160 Chapter 12 Solution Manual Part 1
Chapter 12 The Capital Budgeting Decision Discussion Questions 12-1. What are the important administrative considerations in the capital budgeting process? Important administrative considerations relate to the search for and discovery of 12-2. Why does capital budgeting rely on analysis of […]
978-1259277160 Chapter 12 Lecture Note
The Capital Budgeting Decision Author’s Overview While early comments on administrative procedures and accounting considerations are helpful, the major thrust of Chapter 12 is on the various methods for ranking investment proposals. The basic selection methods are established, mutually exclusive […]
978-1259277160 Chapter 11 Solution Manual Part 4
11-28. Solution: Nolan Corporation a. Cost (aftertax) Weights Weighted Cost Retained earnings b. % of retained earnings within the capital structure $18 million $90 million .20 X= = = 11-28. (Continued) c. Cost (aftertax) Weights Weighted Cost Debt (Kd)……………….. Preferred […]
978-1259277160 Chapter 11 Solution Manual Part 3
11-21. Solution: Sauer Milk Inc. a. Cost Weighted (aftertax) Weights Cost Plan A 9.00% Plan B Debt 4.5% 40% 1.80% Preferred stock 8.5 15 1.28 Common equity 13.0 45 5.85 8.93% Plan C Debt 5.0% 45% 2.25 Preferred stock 18.7 […]
978-1259277160 Chapter 11 Solution Manual Part 2
11-11. Solution: Terrier Company a. Kd = Yield (1 – T) b. Kd(new) = Yield (1 – T) = 9% (1 – .25) = 9% (.75) = 6.75% c. It has gone up. The before-tax yield is lower, but the […]
978-1259277160 Chapter 11 Lecture Note
Cost of Capital Author’s Overview Chapter 11 on “Cost of Capital” naturally follows Chapter 10 on “Valuation and Rates of Return.” The instructor should emphasize at the outset that the investors’ required rate of return translates into the cost of […]
978-1259277160 Chapter 10 Solution Manual Part 5
Chapter 10: Valuation and Rates of Return 10-35. Solution: Beasley Ball Bearings b. Dividends PV(15%) PV of Dividends D1$4.080 .870 $ 3.550 D24.162 .756 3.146 D34.245 .658 2.793 D44.330 .572 2.477 $11.966 c. 5 4 5 4.330 (1.02) $4.417 e […]
978-1259277160 Chapter 10 Solution Manual Part 4
10-24. Solution: North Pole Cruise Lines a. Original price $6.00 $100 .06 p p p D PK = = = b. Current value $6.00 $42.86 .14 = c. The price of preferred stock will increase as yields decline. Since preferred […]
978-1259277160 Chapter 10 Solution Manual Part 3
10-14. Solution: Katie Pairy Fruits Inc. Calculator Solution: N I/Y PV PMT FV Answer: $1,224.08 Bond price N I/Y PV PMT FV 20 12 CPT PV −224.08 30 0 Answer: $224.08 + 1,000 = 1,224.08 Bond price a. Present Value […]
978-1259277160 Chapter 10 Solution Manual Part 2
10-5. Solution: Essex Biochemical Calculator Solution: (a) 30 years to maturity N I/Y PV PMT FV Answer: $883.41 Bond price (b) 20 years to maturity N I/Y PV PMT FV 20 17 CPT PV −887.44 150.0 1,000 Answer: $887.44 Bond […]
978-1259277160 Chapter 10 Solution Manual Part 1
Chapter 10 Valuation and Rates of Return Discussion Questions 10-1. How is valuation of any financial asset related to future cash flows? The valuation of a financial asset is equal to the present value of future cash flows. 10-2. Why […]
978-1259277160 Chapter 10 Lecture Note
Valuation and Rates of Return Author’s Overview The student can clearly see that the material covered in the previous chapter on time value of money is now being applied. The recurring theme throughout the chapter is that valuation is based […]
978-1259277160 Chapter 9 Solution Manual Part 8
9-46. Solution: PV of college costs five years from today (Part 1) 4 1 1(1 ) 1 1(1.10) $17,000 .10 $17,000 (3.170) $53,887.71 n A A A A i PV A i PV PV PV –+ = ´ – = […]
978-1259277160 Chapter 9 Solution Manual Part 7
9-42. Solution: Part 1 5 (1 ) $10,000 (1.10) $16,105.10 n FV PV i FV FV = ´ + = ´ = Part 2 12 12 1 1(1 ) 1 1(1.11) .11 $16,105.10 1 1(1.11) .11 $16,105.10 6.492 $2,480.62 n […]
978-1259277160 Chapter 9 Solution Manual Part 6
9-38. Solution: Payment #1 1 1 (1 ) 1 $2,000 (1.09) $1,834.86 n PV FV i PV PV æ ö = ´ ç ÷ + è ø = ´ = Payment #2 2 1 (1 ) 1 $3,500 (1.09) $2,945.88 […]
978-1259277160 Chapter 9 Solution Manual Part 5
9-30. Solution: .a 10 1 (1 ) 1 $28,974 (1.08) $13, 420.57 n PV FV i PV PV = ´ + = ´ = .b 10 (1 ) 1 $28,974 (1.08) 1 .08 $2,000.06 A n FV A i i […]
978-1259277160 Chapter 9 Solution Manual Part 4
9-24. Solution: .a 10 1 1(1 ) 1 1(1.10) $35,000 .10 $215,059.85 n A A A i PV A i PV PV –+ = ´ – = ´ = .b Present Value of the Annuity 10 1 1(1 ) 1 […]
978-1259277160 Chapter 9 Solution Manual Part 3
9-16. Solution: 20 1 1(1 ) 1 1(1.10) $19,500 .10 $166,014.49 n A A A i PV A i PV PV –+ = ´ – = ´ = Carrie Tune should not accept $160,000 for the future rights because they […]
978-1259277160 Chapter 9 Solution Manual Part 2
9-8. Solution: a. 12 1 (1 ) 1 $105,000 (1.08) $41,696.94 n PV FV i PV PV = ´ + = ´ = b. 9 1 (1 ) 1 $105,000 (1.08) $52,526.14 n PV FV i PV PV = ´ […]
978-1259277160 Chapter 9 Solution Manual Part 1
Chapter 9 Time Value of Money Discussion Questions 9-1. How is the future value (Appendix A) related to the present value of a single sum (Appendix B)? FV = PV (1 + i)n future value luePresent va 1 […]
978-1259277160 Chapter 9 Lecture Note
Time Value of Money Author’s Overview This is one of the most important chapters in the book as far as student comprehension is concerned. The instructor should first determine how much prior knowledge of time value of money the students […]
978-1259277160 Chapter 8 Solution Manual Part 3
Chapter 08: Sources of Short-Term Financing 8-24. Solution: Neveready Flashlights, Inc. a. $10,400 360 Effective rate of interest = $340,000 55 3.06% 6.55 20.04% ´ = ´ = b. ( ) 3% 360 Cost of lost discount = 97% 72 […]
978-1259277160 Chapter 8 Solution Manual Part 2
8-12. Solution: Maxim Air Filters Inc. Effective rate of interest with 20% compensating balance = Interest rate 10% 10% 12.5% 1 C 1 .2 .8 or Interest Days of the year […]
978-1259277160 Chapter 8 Solution Manual Part 1
Chapter 8 Sources of Short-Term Financing Discussion Questions 8-1. Under what circumstances would it be advisable to borrow money to take a cash discount? It is advisable to borrow in order to take a cash discount when the cost of […]
978-1259277160 Chapter 8 Lecture Note
Sources of Short-Term Financing Author’s Overview The instructor has the opportunity to cover the various sources of short-term financing with an eye toward the borrower’s size and the relative cost of doing business. Since banking is such a rapidly changing […]
978-1259277160 Chapter 7 Solution Manual Part 3
Chapter 07: Current Asset Management 7-20. Solution: Slow Roll Drum Co. a. Added sales………………………………………………….. $180,000 Accounts uncollectible (12% of new sales)………… 21,600 First compute the accounts receivable balance. Accounts receivable = average collection × average daily period sales $180,000 120 […]
978-1259277160 Chapter 7 Solution Manual Part 2
7-12. Solution: Nowlin Pipe and Steel Company a. 2SO 2 72,000 $6 EOQ C $2.40 $864,000 360,000 600 units $2.40 ´ ´ = = = = = b. 72,000 units/600 units = 120 orders c. EOQ/2 = 600/2 = 300 […]
978-1259277160 Chapter 7 Solution Manual Part 1
Chapter 7 Current Asset Management Discussion Questions 7-1. In the management of cash and marketable securities, why should the primary concern be for safety and liquidity rather than maximization of profit? Cash and marketable securities are generally used to meet […]
978-1259277160 Chapter 7 Lecture Note
Current Asset Management Author’s Overview The instructor should stress the profitability-liquidity trade-offs to be found in the current asset accounts. The student should think of the less liquid current assets as representing a competitive investment for capital. The four different […]
978-1259277160 Chapter 6 Solution Manual Part 3
Chapter 06: Working Capital and the Financing Decision 6-21. Solution: Bombs Away Video Games Corporation a. Production and inventory schedule in units Beginning Inventory + Production1– Sales2= Ending Inventory Jan. 25,000 +12,600 – 20,000 =17,600 Feb. 17,600 +12,600 – 18,600 […]
978-1259277160 Chapter 6 Solution Manual Part 2
6-11. Solution: Atlas Sporting Goods Inc. a. Most aggressive 6-11. (Continued) c. Moderate approach Low liquidity $840,000 × 15% = $126,000 Long-term financing 840,000 × 11% = –92,400 Anticipated return $ 33,600 OR High liquidity $840,000 × 12% = $ […]
978-1259277160 Chapter 6 Solution Manual Part 1
Chapter 6 Working Capital and the Financing Decision Discussion Questions 6-1. Explain how rapidly expanding sales can drain the cash resources of a firm. Rapidly expanding sales will require a buildup in assets to support the growth. In particular, more […]
978-1259277160 Chapter 6 Lecture Note
Working Capital and the Financing Decision Author’s Overview The chapter introduces the student to the topic of working capital management. The emphasis is on the build-up of current assets and how they can best be financed. Examples of McGraw-Hill, Target, […]
978-1259277160 Chapter 5 Solution Manual Part 5
Chapter 05: Operating and Financial Leverage COMPREHENSIVE PROBLEM Comprehensive Problem 1. Ryan Boot Company (review of Chapters 2 through 5) (multiple LO’s from Chapters 2 through 5) RYAN BOOT COMPANY Balance Sheet December 31, 20X1 Assets Liabilities and Stockholders’ Equity […]
978-1259277160 Chapter 5 Solution Manual Part 4
5-24. Solution: Edsel Research Labs Income Statement a. Return on assets = 5% EBIT = $1,350,000 Current Plan D Plan E EBIT $1,350,000 $1,350,000 $1,350,000 1$13,500,000 debt @ 5% = $675,000 2$675,000 interest + ($6,750,000 new debt @ 11%) = […]
978-1259277160 Chapter 5 Solution Manual Part 3
5-17. Solution: Cain Supplies Cain EBIT $50,000 Less: Interest 9,000 18. Leverage and stockholder wealth (LO4) Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $132,000. The separate […]
978-1259277160 Chapter 5 Solution Manual Part 2
11. Degree of leverage (LO2 and 5) The Harding Company manufactures skates. The company’s income statement for 20X1 is as follows: HARDING COMPANY Income Statement For the Year Ended December 31, 20X1 Sales (10,500 skates @ $60 each)…………………………… $630,000 Less: […]
978-1259277160 Chapter 5 Solution Manual Part 1
Chapter 5 Operating and Financial Leverage Discussion Questions 5-1. Discuss the various uses for break-even analysis. Such analysis allows the firm to determine at what level of operations it 5-2. What factors would cause a difference in the use of […]
978-1259277160 Chapter 5 Lecture Note
Operating and Financial Leverage Author’s Overview Though the student has probably covered break-even analysis in other courses, the material in Chapter 5 offers an opportunity to more fully explore the financial effects of all forms of leverage on the firm. […]
978-1259277160 Chapter 4 Solution Manual Part 5
COMPREHENSIVE PROBLEM Comprehensive Problem 1. Mansfield Corporation (external funds requirement) (LO4) Mansfield Corporation had 20X1 sales of $100 million. The balance sheet items that vary directly with sales and the profit margin are as follows: Percent Cash………………………………………………………… 5% Accounts receivable……………………………………………15 […]
978-1259277160 Chapter 4 Solution Manual Part 4
Chapter 04: Financial Forecasting 4-26. Solution: Archer Electronics Cash Receipts Schedule April May June July Aug. Sept. 4-26. (Continued) Archer Electronics Cash Payments Schedule April May June July Aug. Sept. Purchases $155,000 $145,000 $145,000 $205,000 $225,000 $220,000 Payments (month after […]