Questions and Answers of Principles Corporate Finance

All other things being equal, the payment of an internally financed cash dividend is most likely to result in:A. a lower current ratio.B. a higher current ratio.C. the same current ratio.
The calendar dates in Column 1 are potentially significant dates in a typical dividend chronology.Column 2 lists descriptions of these potentially significant dates (in random order).Match the
Mary Young intends to take a position in Megasoft Industries once Megasoft begins paying dividends. A dividend of C$$4$ is payable by Megasoft on 2 December. The ex-dividend date for the dividend
Aiken Instruments (AIK) has recently declared a regular quarterly dividend of $$0.50$, payable on 12 November, with an ex-dividend date of 28 October. Which date below would be the holder-of-record
A company has 1 million shares outstanding and earnings are ₤2 million. The company decides to use ₤10 million in idle cash to repurchase shares in the open market. The company’s shares are
Devon Ltd. common shares sell at $$40$ a share and their estimated price-to-earnings ratio (P/E) is 32. If Devon borrows funds to repurchase shares at its after-tax cost of debt of 5%, its EPS is
A company can borrow funds at an after-tax cost of 4.5%. The company’s stock price is $$40$ per share, earnings per share is $$2.00$, and the company has 15 million shares outstanding. If the
Crozet Corporation plans to borrow just enough money to repurchase 100,000 shares.The following information relates to the share repurchase:Crozet’s earnings per share after the buyback will be
A company with 20 million shares outstanding decides to repurchase 2 million shares at the prevailing market price of €30 per share. At the time of the buyback, the company reports total assets of
An analyst gathered the following information about a company:If the company repurchases 1 million shares at the prevailing market price, the resulting book value per share will be closest to:A.
If a company’s objective is to support its stock price in the event of a market downturn, it would be advised to authorize:A. a Dutch auction tender offer effective in 30 days.B. a tender offer
A company has positive free cash flow and is considering whether to use the entire amount of that free cash flow to pay a special cash dividend or to repurchase shares at the prevailing market price.
Assume that a company is based in a country that has no taxes on dividends or capital gains. The company is considering either paying a special dividend or repurchasing its own shares. Shareholders
Match the phrases in Column A with the corresponding dividend theory in Column B.Note that you may use the answers in Column B more than once. Column A 1. Bird in the hand 2. Homemade dividends 3.
Which of the following assumptions is not required for Miller and Modigliani’s (MM) dividend theory?A. There are no taxes.B. Investors sort themselves into dividend clienteles.C. Shareholders have
The clientele effect implies that:A. investors prefer high dividend paying shares.B. investors have varying preferences regarding dividends.C. low tax bracket investors are indifferent to dividends.
Sophie Chan owns 100,000 shares of PAT Company. PAT is selling for €40 per share, so her investment is worth €4,000,000. Chan reinvests the gross amount of all dividends received to purchase
Which of the following is most likely to signal negative information concerning a company?A. Share repurchase.B. Decrease in the quarterly dividend rate.C. A two-for-one stock split.
WL Corporation is located in a jurisdiction that has a 40% corporate tax rate on pretax income and a 30% personal tax rate on dividends. WL distributes all its after-tax income to shareholders. What
Which of the following factors would not tend to be associated with a company having a low dividend payout ratio?A. Low growth prospects.B. High tax rates on dividends.C. High flotation costs on new
The dividend policy of Berkshire Gardens Inc. can be represented by a gradual adjustment to a target dividend payout ratio. Last year Berkshire had earnings per share of $$3.00$ and paid a dividend
The Apex Corp. has a target debt/equity ratio of 40/60. Its capital budget for next year is estimated to be $$40$ million. Estimated net income is $$30$ million. If Apex follows a residual
Beta Corporation is a manufacturer of inflatable furniture. Which of the following scenarios best reflects a stable dividend policy for Beta?A. Maintaining a constant dividend payout ratio of
Investors may prefer companies that repurchase their shares instead of paying a cash dividend when:A. capital gains are taxed at lower rates than dividends.B. capital gains are taxed at the same rate
In investors’ minds, Wilson’s share buyback could be a signal that the company:A. is decreasing its financial leverage.B. views its shares as undervalued in the marketplace.C. has more investment
Assume that Wilson Paper funds its capital spending out of its estimated full year earnings. If Wilson uses a residual dividend policy, determine Wilson’s implied dividend payout ratio:A. 36%.B.
The most likely tax environment in which Wilson Paper’s shareholders would prefer that Wilson repurchase its shares (share buybacks) instead of paying dividends is one in which:A. the tax rate on
Suppose a company has a current ratio of 2.5 times and a quick ratio of 1.5 times. If the company’s current liabilities are h100 million, the amount of inventory is closest to:A. h50 million.B.
Given the following financial statement data, calculate the operating cycle for this company.The operating cycle for this company is closest to:A. 42.0 days.B. 47.9 days.C. 78.5 days. In millions
Given the following financial statement data, calculate the net operating cycle for this company.The net operating cycle of this company is closest to:A. 3.8 days.B. 24.3 days.C. 51.7 days. In
The bond equivalent yield for a 182-day U.S. Treasury bill that has a price of $$9$,725 per $$10$,000 face value is closest to:A. 5.44%.B. 5.53%.C. 5.67%.
William Jones is evaluating three possible means of borrowing $1 million for one month: 1. Drawing down on a line of credit at 7.2% with a 1/2 percent commitment fee on the full amount with no
Which company had the highest number of days of receivables for the year 20X1?A. Company A.B. Company B.C. Company C.Mary Gonzales is evaluating companies in the office supply industry and has
Which company has the lowest accounts receivable turnover in the year 20X2?A. Company A.B. Company B.C. Company D.Mary Gonzales is evaluating companies in the office supply industry and has compiled
The industry average receivables collection period:A. increased from 20X1 to 20X2.B. decreased from 20X1 to 20X2.C. did not change from 20X1 to 20X2.Mary Gonzales is evaluating companies in the
Which company reduced the average time it took to collect on accounts receivable from 20X1 to 20X2?A. Company B.B. Company C.C. Company D.Mary Gonzales is evaluating companies in the office supply
Gonzales determined that Company A had an operating cycle of 100 days in 20X2, whereas Company D had an operating cycle of 145 days for the same fiscal year. This means that:A. Company D’s
What is the difference between a firm’s gross profit and its net income?
Consider the following potential events that might have taken place at Global Conglomerate on December 30, 2022. For each one, indicate which line items in Global’s balance sheet would be affected
What was the change in Global Conglomerate’s book value of equity from 2021 to 2022 according to Table 2.1? Does this imply that the market price of Global’s shares increased in 2022? Explain.
Use EDGAR to find Qualcomm’s 10-K filing for 2021. From the balance sheet, answer the following questions:a. How much did Qualcomm have in cash, cash equivalents, and marketable securities
Find online the annual 10-K report for Costco Wholesale Corporation (COST) for fiscal year 2021 (filed in October 2021). Answer the following questions from their balance sheet:a. How much cash did
In early 2018, Ford Motor ( F ) had a book value of equity of $34.9 billion, 4.0 billion shares outstanding, and a market price of $12.50 per share. Ford also had cash of $38.9 billion, and total
In early 2018, Adidas (ADS) had a book equity of $$1,397$ million, a price per share of $$24.68,$ and 69.52 million shares outstanding. At the same time, Nike (NKE) had a book equity of
See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.a. What is Mydeco’s market capitalization at the end of each year?b. What is Mydeco’s market-to-book ratio at
Suppose that in 2023, Global launches an aggressive marketing campaign that boosts sales by 15%.However, their operating margin falls from 5.57% to 4.50%. Suppose that they have no other income,
Find online the annual 10-K report for Costco Wholesale Corporation (COST) for fiscal year 2021 (filed in October 2021). Answer the following questions from their income statement:a. What were
See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.a. By what percentage did Mydeco’s revenues grow each year from 2020–2023?b. By what percentage did net income
See Table 2.5 showing financial statement data and stock price data for Mydeco Corp. Suppose Mydeco repurchases 2 million shares each year from 2020 to 2023. What would its earnings per share be in
See Table 2.5 showing financial statement data and stock price data for Mydeco Corp. Suppose Mydeco had purchased additional equipment for $$12$ million at the end of 2020, and this equipment was
See Table 2.5 showing financial statement data and stock price data for Mydeco Corp. Suppose Mydeco’s costs and expenses had been the same fraction of revenues in 2020–2023 as they were in 2019.
Seagate Corporation has 6.78 billion shares outstanding and a share price of $$17.61.$ Seagate is considering developing a new networking product in house at a cost of $$496$
Find online the annual 10-K report for Costco Wholesale Corporation (COST) for fiscal year 2021 (filed in October 2021). Answer the following questions from their cash flow statement:a. How much cash
See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.a. From 2019 to 2023, what was the total cash flow from operations that Mydeco generated?b. What fraction of the
See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.a. In what year was Mydeco’s net income the lowest?b. In what year did Mydeco need to reduce its cash reserves?c.
See Table 2.5 showing financial statement data and stock price data for Mydeco Corp. Use the data from the balance sheet and cash flow statement in 2019 to determine the following:a. How much cash
Suppose your firm receives a $$5.9$ million order on the last day of the year. You fill the order with $$1.9$ million worth of inventory. The customer picks up the entire order the same day and
Nokela Industries purchases a $$43.52$ million cyclo-converter. The cyclo-converter will be depreciated by $$10.88$ million per year over four years, starting this year. Suppose Nokela’s tax
See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.a. What were Mydeco’s retained earnings each year?b. Using the data from 2019, what was Mydeco’s total
Find online the annual 10-K report for Costco Wholesale Corporation (COST) for fiscal year 2021 (filed in October 2021). Answer the following questions from the notes to their financial statements:a.
See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.a. What were Mydeco’s gross margins each year?b. Comparing Mydeco’s gross margin, EBIT margin, and net profit
At the end of 2021, Walmart Inc. (WMT) reported annual revenues of $$572.8$ billion, gross profit of $$143.8$ billion, and net income of $$13.7$ billion. Costco Wholesale Corporation (COST)
At the end of 2017, Apple had cash and short-term investments of $$41.62$ billion, accounts receivable of $$36.19$ billion, current assets of $$89.66$ billion, and current liabilities of
See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.a. How did Mydeco’s accounts receivable days change over this period?b. How did Mydeco’s inventory days change
See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.a. Compare Mydeco’s accounts payable days in 2019 and 2023.b. Did this change in accounts payable days improve or
See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.a. By how much did Mydeco increase its debt from 2019 to 2023?b. What was Mydeco’s EBITDA/Interest coverage ratio
See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.a. How did Mydeco’s book debt-equity ratio change from 2019 to 2023?b. How did Mydeco’s market debt-equity
See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.a. Compute Mydeco’s PE ratio each year from 2019 to 2023. In which year was it the highest?b. What was Mydeco’s
In early 2018, United Airlines (UAL) had a market capitalization of $$25.14$ billion, debt of $$12.73$ billion, and cash of $$5.59$ billion. United also had annual revenues of $$38.72$
See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.a. Compute Mydeco’s ROE each year from 2019 to 2023.b. Compute Mydeco’s ROA each year from 2019 to 2023.c.
See Table 2.5 showing financial statement data and stock price data for Mydeco Corp. Was Mydeco able to improve its ROIC in 2023 relative to what it was in 2019? TABLE 2.5 2019-2023 Financial
For fiscal year 2017, Aeon Group had a net profit margin of 2.05%, asset turnover of 3.48, and a book equity multiplier of 3.15.a. Use this data to compute Aeon’s ROE using the DuPont Identity.b.
For fiscal year 2018, Tesco had total revenues of $$485.65$ billion, net income of $$16.36$ billion, total assets of $$203.49$ billion, and total shareholder’s equity of $$81.39$ billion.a.
Find online the annual 10-K report for Costco Wholesale Corporation (COST) for fiscal year 2021 (filed in October 2021).a. Which auditing firm certified these financial statements?b. Which officers
Motor Company is considering offering a $$1,600$ rebate on its minivan, lowering the vehicle’s price from $$29,000$ to $$27,400.$ The marketing group estimates that this rebate will increase
You are an international shrimp trader. A food producer in the Czech Republic offers to pay you 2.9 million Czech koruna today in exchange for a year’s supply of frozen shrimp. Your Thai supplier
You have an investment opportunity in Japan. It requires an investment of $$0.98$ million today and will produce a cash flow of ¥107 million in one year with no risk. Suppose the risk-free
Your firm has a risk-free investment opportunity where it can invest $163,000 today and receive$179,000 in one year. For what level of interest rates is this project attractive? (Round the interest
You run a construction firm. You have just won a contract to construct a government office building. It will take one year to construct it, requiring an investment of $$9.77$ million today
Suppose a security with a risk-free cash flow of $$147$ in one year trades for $$135$ today. If there are no arbitrage opportunities, what is the current risk-free interest rate?
You have just taken out a five-year loan from a bank to buy an engagement ring. The ring costs$$7000.$ You plan to put down $$1000$ and borrow $$6000.$ You will need to make annual payments of
What is the present value of $13,000 receiveda. Fourteen years from today when the interest rate is 10% per year?b. Twenty-eight years from today when the interest rate is 20% per year?c. Seven years
Your brother has offered to give you either $$75,000$ today or $$150,000$ in 9 years. If the interest rate is 8% per year, which option is preferable?
Consider the following alternatives:i. $$150$ received in one year ii. $$220$ received in five years iii. $$330$ received in ten yearsa. Rank the alternatives from most valuable to least
Suppose you invest $1000 in an account paying 6% interest per year.a. What is the balance in the account after 3 years? How much of this balance corresponds to“interest on interest”?b. What is
Your daughter is currently 11 years old. You anticipate that she will be going to college in seven years. You would like to have $108,000 in a savings account to fund her education at that time.If
You have a loan outstanding. It requires making six annual payments at the end of the next six years of $9000 each. Your bank has offered to restructure the loan so that instead of making the six
You have been offered a unique investment opportunity. If you invest $$15,000$ today, you will receive $$750$ one year from now, $$2250$ two years from now, and $$15,000$ ten years from
Marian Plunket owns her own business and is considering an investment. If she undertakes the investment, it will pay $$8000$ at the end of each of the next three years. The opportunity requires an
What is the present value of $9000 paid at the end of each of the next 88 years if the interest rate is 10% per year?
You are head of the Schwartz Family Endowment for the Arts. You have decided to fund an arts school in the San Francisco Bay area in perpetuity. Every four years, you will give the school$600,000.
Suppose you earn 9% per year on your retirement savings.a. How much will you have saved for retirement?b. How much will you have saved if you wait until age 32 to start saving (again, with your first
Your grandmother has been putting $3000 into a savings account on every birthday since your first (that is, when you turned 1). The account pays an interest rate of 3%. How much money will be in the
You are thinking of building a new machine that will save you $2000 in the first year. The machine will then begin to wear out so that the savings decline at a rate of 4% per year forever. What is
You are thinking about buying a piece of art that costs $20,000. The art dealer is proposing the following deal: He will lend you the money, and you will repay the loan by making the same payment
During retirement, you plan to withdraw funds from the account at the end of each year (so your first withdrawal is at age 66). What constant amount will you be able to withdraw each year if you want
You estimate that to live comfortably in retirement, you will need $100,000 per year starting at the end of the first year of retirement and ending on your 100th birthday. You will contribute the
What important changes have occurred in the structure of stock markets in the last two decades?
What is the limit order book?
Why are people who post limit orders termed “providers” of liquidity?

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