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Finance
Gibson Company sales for the year 2013 were $3 million. The firm's variable operating cost ratio was 0.50, and fixed costs (that is, overhead and depreciation) were $900,000. Its average (and
Given the following information for Computech, compute the firm's degree of combined leverage (dollars are in thousands except EPS):
The Fisher Apparel Company balance sheet for the year ended 2012 is as follows:a. What is Fisher's investment in current assets? b. Determine Fisher's working capital investment. c. Determine
The Garcia Industries balance sheet and income statement for the year ended 2012 are as follows:*The average inventory over the past two years also equals $12.0
Educational Toys, Inc. (ETI) has highly seasonal sales and financing requirements. The company's balance sheet on December 31, 2012, is as follows:ETI has made the following projections of its asset
Greenwich Industries has forecasted its monthly needs for working capital (net of spontaneous sources, such as accounts payable) for 2013 as follows:Short-term borrowing (that is, a bank line of
Suppose the British short-term interest rate is 13 percent and the corresponding U.S. rate is 8 percent. Suppose at the same time that the discount on forward pounds is 3 percent per year. Do these
In problem 11, assume Frank's Superior Carworks has $1.5 million in debt and 500,000 shares outstanding. Based on your answer to problem 11, how much would Jeff's Powerwash be willing to pay for each
NPR MedTech Corporation is considering acquiring IV Pumps Inc. a relatively small company that manufactures intravenous pumps for use by hospitals. NPR MedTech believes it can grow IV Pump's sales by
Using a search engine, find out how many business bankruptcies occurred in the United States during the last calendar year. Then try to break down these bankruptcies by type (retail, restaurant,
Find a business for sale in each of three major industries of your choice, as listed on the Merger Network Website (www.mergernetwork.com) under "Large U.S. Sellers." Then select the "dream" business
Explain the three types of business decisions that a financial manager faces.
According to Principle 2, how should investors decide where to invest their money?
In very basic terms, describe how profits and cash flow are different.
List the three main forms of business organization, and describe their advantages and disadvantages. If you were to consider starting up a lawn-care business for the summer, what type of business
Who really owns a corporation, and how does that impact the goal of the firm?
What goal do the owners of a for-profit business generally strive for?
Why is maximizing a firm's accounting profits not an appropriate goal for the firm?
In Regardless of Your Major: Defined Benefit vs. Defined Contribution Retirement Plans on page 20, two types of pension plans are discussed. Describe each. Which type is now the dominant type in use?
The distribution of financial assets around the world is described in Finance in a Flat World: Where's the Money Around the World on page 32. What country dominates in terms of the stock market and
What are the two types of private equity funds? What does each do with the money it raises from investors?
Go to Yahoo Finance (finance.yahoo.com), and enter "GOOG" (the ticker symbol for Alphabet, formerly Google) in the "Enter Symbol(s)" box at the top of the page. What is the price at which the stock
Go to the Market Watch website (www.marketwatch.com), and click on "Sections" then on "Personal Finance." This is a great resource for information and help in managing your personal finances. Find an
Go to the Motley Fool website (www.fool.com), and under the tab "Guides," click on "Retirement." Describe the information available here for planning for your retirement.
What are the three principal sets of players that interact in the financial markets?
What is a financial intermediary? List and describe the principal types of financial intermediaries in the U.S. financial markets.
What do investment banks do in the financial markets?
What is a mutual fund, and how does it differ from an exchange-traded fund (ETF)?
What makes preferred stock "preferred"?
Describe the content of the balance sheet and the income statement.
Firm income statements document the revenues earned and the expenses incurred in generating those revenues during the period covered. However, firm expenses are categorized into one of three groups:
From the firm's perspective, how are cash dividends different from interest payments?
When bank loan officers are evaluating the creditworthiness of a potential commercial borrower, they often look to the firm's net working capital balance as an indicator of the firm's overall
Meriwhether Chemicals experienced an increase in its accounts receivable balance for the year just ended. This will be reported as a use of cash in the firm's cash flow statement. How is it that an
Appleby Southern Inc. had an accounts payable balance of $5 million at the end of 2015, and that balance rose to $7 million in 2016. What is the cash flow consequence of this change in accounts
In 2016, RubKing Barbeque Sauce, Inc., purchased a new bottling machine at a cost of $1.5 million. The new machine is expected to last for 10 years, and the firm plans to depreciate it using
The cash flow statement is one of the four basic financial statements. Define the objective in preparing this statement, and discuss some of the types of questions that can be addressed using its
Your Personal Balance Sheet and Income Statement on page 56, we learned that individuals have financial statements just like firms. Prepare your personal balance sheet using the following items:
GMT Transport Company ended the year with record sales of $18 million. The firm's cost of goods sold totaled $10.8 million while its operating expenses (including depreciation) totaled $4 million.
Last year the commercial real estate firm Kelly and Co., Inc., earned taxable income of $19 million. a. Calculate Kelly's federal income taxes. b. Now calculate Kelly's average and marginal tax rates.
Following is a scrambled list of accounts from the income statement and balance sheet of Belmond, Inc.:Inventory ...........................................$ 6,500Common stock
Google, Inc. (GOOG), is one of the most successful internet firms, and it experienced very rapid growth in revenues from 2011 through 2014. The cash flow statements for Google, Inc., spanning the
The cash flow statements for retailing giant Big-Box, Inc., spanning the period 2013-2016 are as follows:Answer the following questions using the information found in these statements: a. Does BigBox
The Mitchell Electric Company had net income of $750,000, cash flow from financing activities of $150,000, a depreciation expense of $50,000, and cash flow from operating activities of $575,000.a.
If GMT Transport Company (from the previous problem) plans to reinvest $1 million of its earnings back in the firm and pay out the remainder in cash dividends to the firm's shareholders, what is the
Hollywood sound company Merry Sountracks, Inc., is a successful sound and editing firm. Last year the firm earned $4 million in taxable income (earnings before taxes). Use the corporate tax rates
Analyzing a firm's financial condition using its financial statements can be likened to performing a physical examination. A physician assesses a patient's health by checking temperature, blood
What are the limitations of industry-average ratios as a source of benchmarks for a firm's financial condition? Discuss briefly.
Your Cash Budget and Personal Savings Ratio on page 102, we defined something called your personal savings ratio. What is this ratio, and how can you use it when thinking about gaining control over
In Finance in a Flat World on page 105, we noted that differences in accounting standards around the world can influence financial ratios. Describe how differences in the way goodwill is treated in
What are common-size financial statements, how are they constructed, and why are they useful to the financial analyst?
List and describe the five basic questions used to discuss financial statement analysis.
What does the term liquidity mean in the context of a firm's financial condition, and what financial ratios can the analyst use to assess liquidity?
What is the DuPont system of financial statement analysis, and how is it applied to the analysis of a company's return on equity?
What can we learn about a firm from its price-earnings ratio and market-to-book ratio?
As the newest hire to the financial analysis group at Patterson Printing Company, you have been asked to perform a basis financial analysis of the company's most recent financial statements. The 2016
Use the common-size financial statements prepared for Study Problem 4-1 to respond to your boss's request that you write up your assessment of the firm's financial condition. Specifically, write up
The balance sheet for Larry's Discount Tire Company shows a book value of stockholders' equity (book value per share * total shares outstanding) of $23,500,000. Furthermore, the firm's income
When a firm enters into a loan agreement with its bank, it is very common for the agreement to have a restriction on the minimum current ratio the firm has to maintain. So it is important that the
The last two years of financial statements for Blunt Industries are as follows:Blunt IndustriesBalance Sheets, December 31, 2015 and 2016Blunt Industries Income Statements for the Years Ended
The S&H Construction Company expects its sales next year to total $15,000,000. In addition, the firm pays taxes at 35 percent and will owe $300,000 in interest expense. Based on last year's
The last two years of financial statements for Pamplin, Inc., are as follows:Pamplin, Inc.Balance Sheets, December 31, 2015 and 2016 ($thousands)Pamplin, Inc. Income Statements for the Years Ended
The T. P. Jarmon Company manufactures and sells a line of exclusive sportswear. The firm's sales were $600,000 for the year just ended, and its total assets exceeded $400,000. The company was started
Apex Fabricating, Inc., manufactures fenders and other after-market body panels for older automobiles. At the close of last year, the firm had $10,381,800 in current assets and $4,152,720 in current
The liabilities and stockholders' equity for Campbell Industries are as follows: Accounts payable .............................................. $ 500,000 Notes payable
In 2016, the Allen Corporation had sales of $65 million, total assets of $42 million, and total liabilities of $20 million. The interest rate on the company's debt is 6 percent, and its tax rate is
What is the time value of money? Give three examples of how the time value of money might take on importance in business decisions.
What is the relationship between the number of times interest is compounded per year on an investment and the future value of that investment? What is the relationship between the number of times
In the Payday Loans feature on page 129, we examined these short-term, high-interest loans. Go to the Responsible Lending Organization website at www.responsiblelending.org/payday-lending/. What are
In early 2016, typical terms on a payday loan involved a $15 charge for a two-week payday loan of $100. Assuming there are 26 fourteen-day periods in a year, what is the effective annual rate on such
How do you calculate the future value of an annuity?
Assume you bought a home and took out a 30-year mortgage on it 10 years ago. How would you determine how much principal on your mortgage you still have to pay off?
How do you calculate the present value of an annuity? A perpetuity? A growing perpetuity?
A perpetuity pays $1,000 at the end of Year 1, and the annual cash flows grow at a rate of 4 percent per year indefinitely. What is the present value if the appropriate discount rate is 8 percent?
A perpetuity pays $50,000 at the end of Year 1 and then grows at a rate of 6 percent per year indefinitely. What is the present value if the rate of interest used to discount the cash flows is 10
Having just inherited a large sum of money, you are trying to determine how much you should save for retirement and how much you can spend now. For retirement, you will deposit today (January 1,
In Regardless of Your Major: Using Statistics on page 194, we note that statisticians analyze data. Moreover, in your statistics class you learned how to describe random outcomes using statistical
What does Figure 7.4 tell us about how the U.S. stock market has performed when compared to all the alternatives included in the figure over the period 1988-2015?
What can you conclude about the relative risk of investing in the United States versus Japan from Figure 7.4?
What is the relationship between the geometric average rate of return and compound interest?
What is the efficient markets hypothesis? Explain this concept in your own words.
Compare and contrast the notions of weak-form, semi-strong-form, and strong-form market efficiency.
What is the "behavioral view" of market efficiency?
Describe the concept of a realized rate of return as if you were explaining it to your grandfather, who has never had a finance class.
How do cash dividends affect the realized rate of return from investing in shares of common stock?
How does the expected rate of return concept differ from that of the realized rate of return?
Describe the concept of an expected rate of return as if you were explaining it to your 10-year-old niece.
Why is the volatility or variance in an investment's rate of return a reasonable indication of the risk of the investment?
Describe the five-step process used to calculate the variance in the rate of return for an investment.
Describe the information contained in Figure 7.2, identifying which securities have performed the best over long periods of time. Some investors with long investment time horizons invest exclusively
What is the equity risk premium, and how is it calculated?
Use the following end-of-year price data to answer the following questions for the Harris and Pinwheel companies.Time ___________ Harris __________ Pinwheel1 ........................$10
Marsh Inc. had the following end-of-year stock prices over the last five years and paid no cash dividends:Time __________________________ __Marsh1 ............................................ $102
In Regardless of Your Major: Risk and Your Personal Investment Plan on page 224, what are the four guidelines suggested for analyzing your personal investment decisions?
Why would we expect the reward-to-risk ratio (slope of the security market line) to be the same across all risky investments? Assume that you are able to earn 5 percent per unit of risk for investing
Presently you own shares of stock in Company A and are considering adding some shares in either Company B or Company C. The standard deviations of all three firms are exactly the same, but the
If the standard deviation of Company A's stock returns is greater than the standard deviation of Company B's stock returns, then the beta of Stock A must be greater than the beta of Stock B. Explain
If a company's beta increased from 1.5 to 4.5, would its expected rate of return triple? Explain why or why not.
What did Depression-era humorist Will Rogers mean when he said, "People tell me about the great return I'm going to get on my investment, but I'm more concerned about the return of my investment"?
Describe the relationship between the expected rate of return for an individual investment and the expected rate of return for a portfolio of several investments.
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