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Finance
You are trying to prepare financial statements for Bartlett Pickle Company, but seem to be missing its balance sheet. You have Bartlett's income statement, which shows sales last year were $420
Suppose you constructed a pro forma balance sheet for a company and the estimate for external financing required was negative. How would you interpret this result?
Toys-4-Kids manufactures plastic toys. Sales and production are highly seasonal. The following list of figures is a quarterly pro forma forecast indicating external financing needs for 2012.
Suppose you constructed a pro forma balance sheet and a cash budget for a company for the same time period and the external financing required from the pro forma forecast exceeded the cash deficit
Table shows the December 31, 2012, pro forma balance sheet and income statements for R&E Supplies, Inc. The pro forma balance sheet shows that R&E Supplies will need external funding from the bank of
An Excel spreadsheet containing R&E Supplies' 2012 pro forma financial forecast as shown in Table 3.5 is available for download at www.mhhe.com/higgins10e. Using this spreadsheet, the information
Pepperton's annual income statement and balance sheet for December 31, 2011, appear next. Additional information about the company's accounting methods and the treasurer's expectations for the first
To what extent do you agree or disagree with the following statement? "An important top-management job is to make certain their company's actual growth rate and sustainable growth rate are as close
Looking at Figure, describe the trend in net equity financing in the U.S. during the last 30 years. What does this say about the use of equity financing in U.S. corporations?
Biosite, Inc. is a developer, manufacturer, and marketer of medical diagnostic products in San Diego, California. If you wanted to test for parasites, drug abuse, or congestive heart failure, you
Harley Davidson, Inc., the iconic motorcycle company, has the following ratios for the years 2000 through 2004:a. Calculate Harley Davidson's annual sustainable growth rate from 2001 through 2004. b.
Table indicates that the average annual rate of return on common stocks over many years has exceeded the return on government bonds in the United States. Why do we observe this pattern? Security
a. Suppose that Liquid Force's stock price consistently falls by an amount equal to one-half the dividend it pays on the payment date. Ignoring taxes, can you think of an investment strategy to take
Some refer to common stock in a company with debt outstanding as an option on a company's assets. Do you see any logic to this statement? What is the logic, if any?
What is more important to investors: the number of a company's shares they own, the price of the company's stock, or the percentage of the company's equity they own? Why?
The return an investor earns on a bond over a period of time is known as the holding period return, defined as interest income plus or minus the change in the bond's price, all divided by the
A company wants to raise $500 million in a new stock issue. Its investment banker indicates that the sale of new stock will require 8 percent under pricing and a 7 percent spread. (Hint: the
You see an article in the newspaper that details the performance of mutual funds over the last five years. Out of 5,600 actively managed mutual funds in the study, 104 outperformed the market in
Looking at Table, why do electric utilities have such a low times interest- earned ratio? Why is the ratio for information technology companies so high?
This is a more difficult but informative problem. James Brodrick & Sons, Inc. is growing rapidly and, if at all possible, would like to finance its growth without selling new equity. Selected
Explain why increasing financial leverage increases the risk borne by shareholders.
One recommendation in the chapter is that companies with promising investment opportunities should strive to maintain a conservative capital structure. Yet many promising small businesses are heavily
As the financial vice president of Progressive Media, you have the following information: Next year's expected net income after tax but before new financing ........ $50 million Sinking-fund payments
Explain how each of the following changes will affect a company's range of earnings chart such as that shown in Figure. Which changes would make increased financial leverage more attractive? Which
What's Wrong with this Picture? In the following discussion, see how many errors you can spot and explain briefly why each is an error. You do not need to correct the error. "Loretta, I think we've
A developer offers lots for sale at $60,000, $10,000 to be paid down and $10,000 to be paid at the end of each of the next five years with "no interest to be charged." In discussing a possible
A wealthy graduate of a local university wants to establish a scholarship to cover the full cost of one student each year in perpetuity at her university. To adequately prepare for the administration
One year ago, Caffe Vita Coffee Roasting Co. purchased three small batch coffee roasters for $3.3 million. Now in 2010, the company finds that new roasters are available that offers significant
Consider the following investment opportunity. Initial cost at time 0 .................................................... $15 million Annual revenues beginning at time 1
W.C. Cycling had $55,000 in cash at year-end 2011 and $25,000 in cash at year-end 2012. The firm invested in property, plant, and equipment totaling $250,000. Cash flow from financing activities
Bailey Corporation's financial statements (dollars and shares are in millions) are provided here.Income Statement for Year Ending December 31,
The Davidson Corporation's balance sheet and income statement are provided here.Davidson Corporation: Income Statement for Year Ending December 31, 2012 (Millions of
Financial information for Powell Panther Corporation is shown here.Powell Panther Corporation: Income Statements for Year Ending December 31(Millions of
Laiho Industries' 2011 and 2012 balance sheets (in thousands of dollars) are
Donna Jamison, a 2007 graduate of the University of Florida with 4 years of banking experience, was recently brought in as assistant to the chairperson of the board of D'Leon Inc., a small food
For 2012, Everyday Electronics reported $22.5 million of sales and $18 million of operating costs (including depreciation). The company has $15 million of investor-supplied operating capital. Its
The Corrigan Corporation's 2011 and 2012 financial statements follow, along with some industry average ratios.a. Assess Corrigan's liquidity position and determine how it compares with peers and how
Shalit Corporation's 2011 sales were $12 million. Its 2006 sales were $6 million. a. At what rate have sales been growing? b. Suppose someone made this statement: "Sales doubled in 5 years. This
It is now December 31, 2011 (t = 0), and a jury just found in favor of a woman who sued the city for injuries sustained in a January 2010 accident. She requested recovery of lost wages plus $100,000
It is now January 1, 2012, and you are considering the purchase of an outstanding bond that was issued on January 1, 2010. It has a 9.5% annual coupon and had a 30-year original maturity. (It matures
Look back at Table 7.5 and examine the Anadarko Petroleum and Clear Channel bonds that mature in 2017.a. If these companies were to sell new $1,000 par value long-term bonds, approximately what
Bartman Industries' and Reynolds Inc.'s stock prices and dividends, along with the Winslow 5000 Index, are shown here for the period 2006-2011. The Winslow 5000 data are adjusted to include
Stocks A and B have the following historical returns:a. Calculate the average rate of return for each stock during the period 2007 through 2011. b. Assume that someone held a portfolio consisting of
Assume that the risk-free rate is 5% and the market risk premium is 6%. What is the required return for the overall stock market? What is the required rate of return on a stock with a beta of 1.2?
Assume that it is now January 1, 2013. Wayne-Martin Electric Inc. (WME) has developed a solar panel capable of generating 200% more electricity than any other solar panel currently on the market. As
The Bouchard Company's EPS was $6.50 in 2012, up from $4.42 in 2007. The company pays out 40% of its earnings as dividends, and its common stock sells for $36.00.a. Calculate the past growth rate in
The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 7.8 million shares outstanding, is now (1/1/13) selling for $65.00 per share. The expected
Assume that the risk-free rate increases but the market risk premium remains constant. What impact would this have on the cost of debt? What impact would it have on the cost of equity?
Refer to Problem 11-1. What is the project's MIRR?Data from problem 11-1Project K costs $52,125, its expected cash inflows are $12,000 per year for 8 years, and its WACC is 12%.
Refer to Problem 11-1. What is the project's discounted payback?Data from problem 11-1Project K costs $52,125, its expected cash inflows are $12,000 per year for 8 years, and its WACC is 12%.
Your division is considering two projects with the following cash flows (in millions):a. What are the projects' NPVs assuming the WACC is 5%? 10%? 15%?b. What are the projects' IRRs at each of these
The Severn Company plans to raise a net amount of $270 million to finance new equipment in early 2013. Two alternatives are being considered: Common stock may be sold to net $60 per share, or bonds
Bowles Sporting Inc. is prepared to report the following 2012 income statement (shown in thousands of
In 2011, Keenan Company paid dividends totaling $3,600,000 on net income of $10.8 million. Note that 2011 was a normal year and that for the past 10 years, earnings have grown at a constant rate of
Rework Problem 16-10 using a spreadsheet model. After completing Parts a through d, respond to the following: If Bowers' customers began to pay late, collections would slow down, thus increasing the
Helen Bowers, owner of Helen's Fashion Designs, is planning to request a line of credit from her bank. She has estimated the following sales forecasts for the firm for parts of 2012 and 2013: May
Morrissey Technologies Inc.'s 2012 financial statements are shown here.Suppose that in 2013, sales increase by 10% over 2012 sales. The firm currently has 100,000 shares outstanding. It expects to
Krogh Lumber's 2012 financial statements are shown here.a. Assume that the company was operating at full capacity in 2012 with regard to all items except fixed assets; fixed assets in 2012 were
Austin Grocers recently reported the following 2012 income statement (in millions of dollars): Sales...................................................................................700 Operating
The Zinn Company plans to issue $20,000,000 of 10-year bonds in June 2012 to help finance a new research and development laboratory. It is now early September, and the current cost of debt to the
Early in September 1983, it took 245 Japanese yen to equal $1. Nearly 28 years later, in August 2011, that exchange rate had fallen to 77 yen to $1. Assume that the price of a Japanese-manufactured
Solitaire Machinery is a Swiss multinational manufacturing company. Currently, Solitaire's financial planners are considering undertaking a 1-year project in the United States. The project's expected
A currency trader observes that in the spot exchange market, 1 U.S. dollar can be exchanged for 3.50 Israeli shekels or for 77 Japanese yen. What is the cross-exchange rate between the yen and the
Table 19.1 lists foreign exchange rates for August 3, 2011. On that day, how many dollars would be required to purchase 1,000 units of each of the following: British pounds, Canadian dollars, EMU
Use the foreign exchange section of a current issue of The Wall Street Journal to look up the six currencies in Problem 19-5.a. What is the current exchange rate for changing dollars into 1,000 units
In the summer of 2012, the Hadaway Company was planning to finance an expansion with a convertible security. They considered a convertible debenture but feared the burden of fixed interest charges if
Why is EPS not a consistently good measure of a firm's performance?
In 2012, Kodak declared bankruptcy. How can you reconcile a bankruptcy declaration with a management pledged to maximize shareholder wealth?
Suppose a U.S. Treasury bill, maturing in 30 days, can be purchased today for $99,500. Assuming that the security is held until maturity, the investor will receive $100,000 (face amount). Determine
The balance sheet and income statement of Eastland Products, Inc., are as follows:Income Statement for Year Ended December 31, 2013 (in Millions of
Do a Google search for "Preparing a Cash Flow Forecast?" Choose a site that provides cash flow forecasting tools and templates. Prepare a 1-page memo to your instructor summarizing what you found and
Prepare a statement of cash flows (using the indirect method) for the Midland Manufacturing Corporation for the year ending December 2013, based on the following comparative balance sheets.*Net
Consider the Industrial Supply Company example (Table 4.4) again. Assume that the company plans to maintain its dividend payments at the same level in 2014 as in 2013. Also assume that all of the
Prepare a cash budget for Atlas Products, Inc., for the first quarter of 2014, based on the following information.The budgeting section of the corporate finance department of Atlas Products has
Prepare a cash budget for Elmwood Manufacturing Company for the first three months of 2014 based on the following information:The company has found that approximately 40 percent of sales are
Baldwin Products Company anticipates reaching a sales level of $6 million in one year. The company expects earnings after taxes during the next year to equal $400,000. During the past several years,
In the Industrial Supply Company example (Table 4.4) it was assumed that the company's fixed assets were being used at nearly full capacity and that net fixed assets would have to increase
Which would you prefer to invest in: a savings account paying 6 percent compounded annually or a savings account paying 6 percent compounded daily? Why?
An investment promises to pay $6,000 at the end of each year for the next five years and $4,000 at the end of each year for years 6 through 10. a. If you require a 12 percent rate of return on an
Suppose today is July 1, 2014, and you deposit $2,000 into an account today. Then you deposit $1,000 into the same account on each July 1, beginning in 2015 and continuing until the last $1,000
Determine the monthly rate of interest that will yield an effective annual rate of interest of 12 percent.
Try using one of the many Internet calculators, such as the one at Salem Five, to calculate your time-value problems.a. Suppose you wanted to borrow $100,000 for 25 years at 8 percent. Using Salem
Determine the present value, discounted at 6 percent per year of $50,000 to be received 5 years from today if the interest rate is compounded a. Semiannually b. Quarterly
Compare the debt outstanding for Delta Airlines and Southwest Airlines. Use the S&P Bond Guide from your library to determine the bond rating of each of these firms. What reasons can you cite for the
Consider again the BCC 8 percent debentures that mature on July 15, 2034 (see problem 6). Determine the yield to call if the bonds are called on July 15, 2020, at $1,016.55.
BCC has bonds that trade frequently, pay a 7.75 percent coupon rate, and mature in 2019. The bonds mature on March 1 in the maturity year. Suppose an investor bought this bond on March 1, 2014, and
Zheng Enterprises, a multinational drug company specializing in Chinese medicines, issued $100 million of 15 percent coupon rate bonds in January 2009. The bonds had an initial maturity of 30 years.
How much would you have to pay for a U.S. government bond ($1,000 maturity value) scheduled to mature in November 2015 and quoted at 147:27 "asked"? The coupon rate on the bond is 9 percent.
Zip Boys has outstanding zero coupon bonds maturing in 2016.a. How would you compute the yield-to-maturity on bonds like these?b. How do bondholders get a return when they buy these bonds?
The bonds of Columbia Gas paid no interest in 1993 because the firm had declared bankruptcy. One issue of these bonds, the 8¼ percent coupon bonds due in 1996, was selling at 109 percent of par
Adams Food Service has issued 73/8 percent bonds that mature on July 15, 2046. The bonds are callable at $1,037.08 on July 15, 2021. Assume that interest is paid and compounded annually. Determine
BCC has issued 8 1/8 percent debentures that will mature on July 15, 2034. Assume that interest is paid and compounded annually. If an investor purchased a $1,000 denomination bond for $1,025 on July
Consider the Leverage Unlimited, Inc., zero coupon bonds of 2020. The bonds were issued in 2002 for $100. Determine the yield-to-maturity (to the nearest of 1 percent) if the bonds are purchased at
In 2004, BCC issued 85/8 percent debentures that will mature on December 1, 2044.a. If an investor purchased one of these bonds ($1,000 denomination) on December 1, 2014, for $1,050, determine the
The American Association of Individual Investors has put together a list of stockpicking techniques that "stand the test of time." HTTP: Given what you learned in the last chapter about valuation,
If inflation expectations increase, what would you expect to happen to the returns required by investors in bonds? What would happen to bond prices?
Bostonmarket.com stock has an estimated beta of 1.5. The stock pays no dividend and is not expected to pay one for the foreseeable future. The current price of the stock is $50. You expect this price
Visit the Bloomberg Web site (www.bloomberg.com) to assess the best performing mutual funds in recent periods. Is the ranking based on the last month somewhat consistent with the ranking of funds on
Visit Yahoo! Finance (finance.yahoo.com) and calculate the debt ratio of an industrial equipment manufacturer, such as Illinois Tool Works, Inc. Then calculate the debt ratio of a service-oriented
The Alexander Company reported the following income statement for 2013:Assume that all depreciation and 75 percent of the firm's selling, general, and administrative expenses are fixed costs and that
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