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Finance
Justin Cement Company has had the following pattern of earnings per share over the last five years: Year........Earnings per
In March, Hertz Pain Relievers bought a massage machine that provided a return of 8 percent. It was financed by debt costing 7 percent. In August Mr. Hertz came up with a heating compound that would
KeySpan Corp. is planning to issue debt that will mature in 2035. In many respects, the issue is similar to the currently outstanding debt of the corporation. a. Using Table 11-3, identify the yield
The end-of-year parties at Golden Beach, Inc., are known for their extravagance. Management provides the best food and entertainment to thank the employees for their hard work. During the planning
Gamma, Inc., has asked your corporation, Beta, Inc., for financial assistance. As a long-time customer of Gamma, your firm has decided to give that assistance. The question you are debating is
Hani Talal, capital budgeting analyst for Bally Gears, Inc., has been asked to evaluate a proposal. The manager of the automotive division believes that replacing the robotics used on the heavy
It is typical for Tara to plan, monitor, and assess her financial position using cash flows over a given period, typically a month. Tara has a savings account, and her bank loans money at 6 percent
Why do employers value having employees with professional certifications?
Is the goal of maximization of shareholder wealth necessarily ethical or unethical? How can Google justify its actions in the short run to its long-run investors?
How do the price/earnings (P/E) ratio and the market/book (M/B) ratio provide a feel for the firm's return and risk?
What is the difference between cross-sectional and time-series ratio analysis? What is benchmarking?
Dammam Industries, Inc., began 2012 with retained earnings of US$25.32 million. During the year it paid four quarterly dividends of US$0.35 per share to 2.75 mil- lion common stockholders. Preferred
Bluestone Metals, Inc., is a metal fabrication firm which manufactures prefabricated metal parts for customers in a variety of industries. The firm's motto is "If you need it, we can make it." The
Basil Company's total current assets, total current liabilities, and inventory for each of the past 4 years follow:a. Calculate the firm's current and quick ratios for each year. Compare the
Blue Nile Paper, Inc., and Timberland Forest, Inc., are rivals in the manufacture of craft papers. Some GMC Enterprises Income Statement for the Year Ended December 31, 2012 financial statement
The financial statements of Zaki Industries for the year ended December 31, 2012, follow.a. Use the preceding financial statements to complete the following table. Assume the industry averages given
Given the following financial statements below, historical ratios, and industry averages, calculate West Island Company's financial ratios for the most recent year. (Assume a 365-day year.) Analyze
Use the following ratio information for Jordan International and the industry averages for Jordan's line of business to:a. Construct the DuPont system of analysis for both Jordan and the industry.b.
Determine the operating cash flow (OCF) for Kitkat, Inc., based on the following data. (All values are in thousands of dollars.) During the year the firm had sales of US$2,500, cost of goods sold
Rami Corp. forecasts sales of US$650,000 for 2013. Assume the firm has fixed costs of US$250,000 and variable costs amounting to 35 percent of sales. Operating expenses are estimated to include fixed
Ghada Enterprises had sales of US$50,000 in March and US$60,000 in April. Forecast sales for May, June, and July are US$70,000, US$80,000, and US$100,000, respectively. The firm has a cash balance of
The following represents financial transactions that Issac & Co. will be undertaking in the next planning period. For each transaction, check the statement or statements that will be affected
Dima, Inc., expects sales of US$100,000 during each of the next 3 months. It will make monthly purchases of US$60,000 during this time. Wages and salaries are US$10,000 per month plus 5 percent of
BIG Industries wishes to prepare a pro forma balance sheet for December 31, 2013. The firm expects 2013 sales to total US$3,000,000. The following information has been gathered.1. A minimum cash
Do you think shareholder activists would have been as upset with Nardelli's severance package had Home Depot's stock performed much better under his leadership?
If Qais and Lyla combine their savings of US$1,260 and US$975, respectively, and deposit this amount into an account that pays 2 percent annual interest, com- pounded monthly, what will the account
Najma just won US$2.5 million in the state lottery. She is given the option of receiving a total of US$1.3 million now or she can elect to be paid US$100,000 at the end of each of the next 25 years.
A retirement home at West Island Estates now costs US$185,000. Inflation is expected to cause this price to increase at 6 percent per year over the 20 years before Shawqi Dalal retires. How large an
While vacationing in Morocco, Mohammad Jassim saw the vacation home of his dreams. It was listed with a sale price of US$200,000. The only catch is that Mohammad is 40 years old and plans to continue
Jinan Hadi borrowed US$15,000 at a 14 percent annual rate of interest to be repaid over 3 years. The loan is amortized into three equal, annual, end-of-year payments. a. Calculate the annual,
Kulood Jabbar has US$5,000 to invest. Because she is only 25 years old, she is not concerned about the length of the investment's life. What she is sensitive to is the rate of return she will earn on
Essa Farook has been shopping for a loan to finance the purchase of a used car. He has found three possibilities that seem attractive and wishes to select the one with the lowest interest rate. The
Amir Salim wishes to determine how long it will take an initial deposit of US$10,000 to double. a. If Amir earns 10 percent annual interest on the deposit, how long will it take for him to double his
Marwa needs to have US$15,000 at the end of 5 years to fulfill her goal of purchasing a small sailboat. She is willing to invest the funds as a single amount today but wonders what sort of investment
Tarq Alexander has an opportunity to purchase any of the investments shown in the following table. The purchase price, the amount of the single cash inflow, and its year of receipt are given for each
Mariam Kmal wishes to select the better of two 10-year annuities, C and D. Annuity C is an ordinary annuity of US$2,500 per year for 10 years. Annuity D is an annuity due of US$2,200 per year for 10
The 391% mentioned is an annual nominal rate [15% × (365/14)]. Should the 2-week rate (15%) be compounded to calculate the effective annual interest rate?
Mahir Mahir wishes to evaluate the risk and return behaviors associated with various combinations of assets V and W under three assumed degrees of correlation: perfect positive, uncorrelated, and
Abdulla Yousif, a Kuwaiti citizen living in Brownsville, Texas, invested in the common stock of Telmex, a Mexican corporation. He purchased 1,000 shares at 20.50 pesos per share. Twelve months
Katherine Hadad is wondering how much risk she must undertake to generate an acceptable return on her portfolio. The risk-free return currently is 5 percent. The return on the average stock (market
Jamil Pasha invested US$100,000 to set up the following portfolio one year ago.a. Calculate the portfolio beta on the basis of the original cost figures. b. Calculate the percentage return of each
Shireen Salim, the financial manager for Barnett Corporation, wishes to evaluate three prospective investments: X, Y, and Z. Currently, the firm earns 12 percent on its investments, which have a risk
Jamal Hamza is considering building an investment portfolio containing two stocks, L and M. Stock L will represent 40 percent of the dollar value of the portfolio, and stock M will account for the
What are some hazards of allowing investors to pursue claims based on their most recent accounts statements?
If you were an investment advisor to the Abu Dhabi sovereign wealth fund, in which instruments, in which countries, would you recommend investing?
What ethical issues may arise because the companies that issue bonds pay the rating agencies to rate their bonds?
Lulwa Hassan wishes to estimate the value of an asset expected to provide cash inflows of US$3,000 per year at the end of years 1 through 4 and US$15,000 at the end of year 5. Her research indicates
Emma BuHamad is attempting to find the nominal rate of interest for each of two securities-A and B-issued by different firms at the same point in time. She has gathered the following data.a. If the
Today the common stock of Gamma Technology closed at US$24.60 per share, down US$0.35 from yesterday. If the company has 4.6 million shares outstanding and annual earnings of US$11.2 million, what
Basha Corporation initiated a new corporate strategy that fixes its annual dividend at US$2.25 per share forever. Currently the risk-free rate is 4.5 percent, and Basha has a beta of 1.8. If the
Adam Corporation's charter authorizes issuance of 2,000,000 shares of common stock. Currently, 1,400,000 shares are outstanding and 100,000 shares are being held as treasury stock. The firm wishes to
Free cash flow valuation Nassif Industries is considering going public but is unsure of a fair offering price for the company. Before hiring an investment banker to assist in making the public
Book and liquidation value The balance sheet for Ghalib Industries is as follows.Additional information with respect to the firm is available:(1) Preferred stock can be liquidated at book value.(2)
Integrative-Risk and valuation Giant Enterprises has a beta of 1.20, the risk-free rate of return is currently 10 percent, and the market return is 14 percent. The company, which plans to pay a
Hilal Steel Company wishes to determine the value of Craft Foundry, a firm that it is considering acquiring for cash. Hilal wishes to use the capital asset pricing model (CAPM) to determine the
ETHICS PROBLEM Madina is trying to value Generic Utility, Inc.'s stock, which is clearly not growing at all. Generic declared and paid a US$5 dividend last year.The required rate of return for
Preferred stock valuation Jalil Design wishes to estimate the value of its outstanding preferred stock. The preferred issue has a US$80 par value and pays an annual dividend of US$6.40 per share.
Common stock value-Constant growth West Island Roofing, Inc., common stock paid a dividend of US$1.20 per share last year. The company expects earnings and dividends to grow at a rate of 5 percent
Common stock value-Constant growth Zina Telephone has paid the dividends shown in the following table over the past 6 years. Year..........................Dividend per
What temptations might managers face if they have provided earnings guidance to investors and later find it difficult to meet the expectations that they helped create?
Elyas Fields, Inc., uses a maximum payback period of 6 years, and currently must choose between two mutually exclusive projects. Project Hydrogen requires an initial outlay of US$25,000; project
Nada Foods is considering acquisition of a new wrapping machine. The initial in- vestment is estimated at US$1.25 million, and the machine will have a 5-year life with no salvage value. Using a 6
Ahmad Corp. is considering investment in the best of two mutually exclusive projects. Project K involves an overhaul of the existing system; it will cost US$45,000 and generate cash inflows of
Badri Designs has prepared the following estimates for a long-term project it is considering. The initial investment is US$18,250, and the project is expected to yield after-tax cash inflows of
Nassim Roofing Materials, Inc., is considering two mutually exclusive projects, each with an initial investment of US$150,000. The company's board of directors has set a maximum 4-year payback
Dana Company is considering two mutually exclusive projects. The firm, which has a 12 percent cost of capital, has estimated its cash flows as shown in the following table.a. Calculate the NPV of
The High-Flying Growth Company (HFGC) has been growing very rapidly in recent years, making its shareholders rich in the process. The average annual rate of return on the stock in the last few years
The Bahrain Petroleum Company (BAPCO) is considering two mutually exclusive projects. Each requires an initial investment of US$100,000. Faisal AlMahroos, president of the company, has a maximum
Salim Innovations, Inc., is negotiating to purchase exclusive rights to manu- facture and market a solar-powered toy car. The car's inventor has offered Salim the choice of either a one-time payment
Hood Industries is considering the replacement of one of its old drill presses. Three alternative replacement presses are under consideration. The relevant cash flows associated with each are shown
Although China has been actively campaigning for foreign investment, how do you think having a communist government affects its foreign investment?
Irbid Corp. has spent US$3.5 billion over the past decade developing a satellite- based telecommunication system. It is currently trying to decide whether to spend an additional US$350 million on
Basra Sciences is planning to purchase a high-powered microscopy machine for US$55,000 and incur an additional US$7,500 in installation expenses. It is replacing similar microscopy equipment that can
Jizan Industries is developing the relevant cash flows associated with the proposed replacement of an existing machine tool with a new, technologically advanced one. Given the following costs related
Salalah Manufacturing is considering the purchase of a new machine to replace one it believes is obsolete. The firm has total current assets of US$920,000 and total current liabilities of US$640,000.
Aleppo Medical, Inc., is considering replacing its existing computer system, which was purchased 2 years ago at a cost of US$325,000. The system can be sold today for US$200,000. It is being
Baghdad Arts, Inc., a leading producer of fine cast silver jewelry, is considering the purchase of new casting equipment that will allow it to expand the product line into award plaques. The proposed
Hilal Industries wishes to select the best of three possible machines, each of which is expected to satisfy the firm's ongoing need for additional aluminumÂextrusion capacity. The three
Babylon Products is considering the purchase of one of three mutually exclusive projects for increasing production efficiency.The firm plans to use a 14 percent cost of capital to evaluate these
Jinan Rizik, the CFO of Asor Products, Inc., has just completed an evaluation of a proposed capital expenditure for equipment that would expand the firm's manufacturing capacity. Using the
Black & White Enterprises is considering invest ing in either of two mutually exclusive projects, X and Y. Project X requires an initial investment of US$30,000; project Y requires US$40,000.
Cairo Paints is in the process of evaluating two mutually exclusive additions to its processing capacity. The firm's financial analysts have developed pessimistic, most likely, and optimistic
Dubai Secretarial Services is considering the purchase of one of two new personal computers, P and Q. The company expects both to provide benefits over a 10year period, and each has a required
Greenhouse Corporation has compiled the following information on a capital expenditure proposal: (1) The projected cash inflows are normally distributed with a mean of US$36,000 and a standard
Casablanca Catering, Inc., is considering two mutually exclusive investments. The company wishes to use a riskadjusted discount rate (RADR) in its analysis. Casablanca's cost of capital
Qatar Energy has been paying dividends steadily for 20 years. During that time, dividends have grown at a compound annual rate of 7 percent. If Qatar Energy's current stock price is US$78 and the
Silver Tool has on its books the amounts and specific (aftertax) costs shown in the following table for each source of capital.a. Calculate the firm's weighted average cost of capital using
After careful analysis, Delta Inc., has determined that its optimal capital structure is composed of the sources and target market value weights shown in the following table.Source of capitalTarget
North Africa Exploration, Inc., a natural gas producer, is trying to decide whether to revise its target capital structure. Currently it targets a 50-50 mix of debt and equity, but it is considering
Drywall Systems, Inc., is in discussions with its investment bankers regarding the issuance of new bonds. The investment banker has informed the firm that different maturities will carry different
Egypt Textiles wishes to measure its cost of common stock equity. The firm's stock is currently selling for US$57.50. The firm expects to pay a US$3.40 dividend at the end of the year (2013). The
Doha Investments has EBIT of US$20,000, interest expense of US$3,000, and preferred dividends of US$4,000. If it pays taxes at a rate of 38 percent, what is Doha's degree of financial leverage (DFL)
Walid and Associates has EBIT of US$67,500. Interest costs are US$22,500, and the firm has 15,000 shares of common stock outstanding. Assume a 40 percent tax rate. a. Use the degree of financial
West Island Glassware has estimated, at various debt ratios, the expected earnings per share and the standard deviation of the earnings per share as shown in the following table. Debt ratio
Middle East Cooling Systems, Inc., has total assets of US$10,000,000, EBIT of US$2,000,000, and preferred dividends of US$200,000 and is taxed at a rate of 40 percent. In an effort to determine the
Nadir Corporation has made the following forecast of sales, with the associated probabilities of occurrence
The board of directors of Mona Publishing, Inc., has commissioned a capital structure study. The company has total assets of US$40,000,000. It has earnings before interest and taxes of US$8,000,000
Bakr BuRashid is considering opening a music store. He wants to estimate the number of CDs he must sell to break even. The CDs will be sold for US$13.98 each, variable operating costs are US$10.48
Dar al-Salam Company publishes Creative Crosswords. Last year the book of puzzles sold for US$10 with variable operating costs per book of US$8 and fixed operating costs of US$40,000. How many books
Southwest Industries sells its finished product for US$9 per unit. Its fixed operating costs are US$20,000, and the variable operating cost per unit is US$5.a. Calculate the firm's earnings before
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