Financial Management Concepts and Applications 1st edition Stephen Foerster - Solutions

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What is meant by transparency in the context of trading stocks on an exchange?
What problems does an institutional investor face when it places a very large buy or sell order for a block of stock through an exchange?
What is a sinking fund. How is it related to time value?
What is the FV of $1,250.63 for 3 years at 7%?
How much will $650 per year deposited at 12% be worth in 8 years?
How much would you have to save each year to have $65,000 in 10 years if the interest rate is expected to be 7%?
What interest rate will make $7,500 per year accumulate to $279,600 in 15 years?
How many years will it take for $850 per year to accumulate to $20,000 if the interest rate is 8%?
What would you pay for an annuity paying $3,000 per year for 12 years if the interest rate is 10%?
What are the annual payments on a loan of $350,000 to be repaid over 10 years at 8%?
How much will $175 grow into if it is invested at 16% for 30 years?
John Cleaver's grandfather died in 2015 and left him a trunk that had been locked in his attic for years. At the bottom of the trunk John found a packet of 50 U.S. Savings Bonds that had never been cashed in. The bonds were purchased for $11.50 each in 1923, and pay 3% interest as long as they're
If you deposit $207.86 in an account that pays 4% and leave it there for 12 years how much will you have in the accounts?
How much is a guaranteed promise of $15,750 to be received in 12 years' worth today if interest is 14%?
How much would you have to put in the bank today to have $42,800 in 9 years if the interest rate is 7%?
At what interest rate will $1,000 grow into $3,642.50 in 15 years?
How long will it take $5,000 invested at 14% to double?
At what interest rate will $750 grow into $3,132.83 in 15 years?
If you invest $8,000 at 12%, how long will it take to triple?
A bond that pays 10% interest compounded annually on a $1,000 face value will mature in 20 years. The interest rate is now 12%. What should the bond's market price be?
A $1,000 par value, 30 year bond is 5 years old. It pays interest once a year at an annually compounded coupon rate of 12%. The market is returning 8% on comparable bonds. What is the bond's market price?
The Rollins Metal Company is engaged in a long-term planning process and is trying to choose among several strategic options, which imply different future growth rates for the company. Management feels that the main benefit of higher growth is that it enhances the firm's current stock price.
Provide the missing information for the following projects using the present value of an annuity function [time value of money (TVM) keys rather than the cash flow (CF) function keys].
A project has the following cash flowsa. What is the project's payback period? b. Calculate the projects NPV at 12%. c. Calculate the project's PI at 12%.
The Griffin Company is launching a maritime project by purchasing a small, previously owned cargo ship for $2M which will be used to ferry iron ore across the Great Lakes The ship will be depreciated over four years straight line. Freight revenue and expenses from the venture are forecast
Calculate the NPV at 12% and the IRR for the following projects. Find IRR's to the nearest whole percent. a. An initial outflow of $10,000 followed by three inflows of $4,000. b. An initial outflow of $10,000 followed by inflows of $3,000, $4,000, and $5,000. c. An initial outflow of $10,000
Vaughn Clothing is considering refurbishing its store at a cost of $1.4 million. Management is concerned about the economy and whether a competitor, Viola Apparel, will open a store in the neighborhood. Vaughn estimates that there is a 60% chance that Viola will open a store nearby next year. The
Vaughn Clothing of the previous problem has a real option possibility. Carlson Flooring has expressed an interest in trading buildings with Vaughn after Vaughn's is refurbished. Carlson has offered to reimburse Vaughn for 70% of its refurbishment costs at the end of the first year if they make the
The Brown Owl Corporation manufactures high quality outdoor equipment for adventurous people who enjoy hiking, hunting, climbing, and trekking under extreme conditions. The firm has been very successful with things like cold weather clothing, boots, mountain climbing equipment, and camping gear.
Vaughn Clothing of the previous problem has a real option possibility. Carlson Flooring has expressed an interest in trading buildings with Vaughn after Vaughn's is refurbished. Carlson has offered to reimburse Vaughn for 70% of its refurbishment costs at the end of the first year if they make the
Referring to the Cranberry Company of the previous problem: a. Calculate the DOL when sales are 20%, 30% and 40% above breakeven. b. Suppose automated equipment is added which increases fixed costs by $20,000 per month. How much will total variable cost have to decrease to keep the breakeven point
Griffin Ross Construction Inc. (GRC) builds upscale homes in several New England cities. The firm is subject to the ups and downs of the construction industry and has a historical beta of 2.1. GRC has traditionally operated with a capital structure of approximately 20% debt and 80% equity. The
Explain how the two methods of cash distribution work, and describe their impact on shareholders. Does everyone always receive cash? If not are some stockholders left out?
How do repurchases help firms manage the signaling effect of dividends.
Describe the ways in which international business has changed over the last 60 years. Include the concepts of an MNC and the different types of foreign investment.
Explain the concepts of sovereign debt and a sovereign debt crisis. Why is such a crisis different for a Eurozone country than for a country with a unique currency.
Hanover Inc. spent £11.5 million building a factory in England several years ago when the British Pound cost $1.5500. The plant operation was set up as a British subsidiary to manufacture Hanover's product for sale and distribution in the U.K. and Europe. Hanover closed its consolidated books for
Explain the difference between real assets and financial assets.
Describe the three key cash-related activities of a firm.
Explain how the cash flow cycle works.
Describe how financial management is related to accounting.
How do sole proprietorships, general partnerships, limited liability companies, S corporations, and C corporations differ?
Suppose three optometrists wished to form a business that was expected to last until the oldest one was about to retire. The three had known each other since college and were close friends who trusted one another. What type of firm might be appropriate?
What is the primary goal of an enterprise?
What are the two key drivers of value?
What information would need to be gathered in order to assess the economy's current position within the business cycle?
Compare the typical profitability of a stage 2 firm versus a stage 3 firm.
Describe Porter's Five Forces that govern the competition within an industry. Compare and contrast the Porter analysis for the utilities industry.
Develop a list of key success factors in the auto manufacturing industry.
Develop a list of factors that would result in a firm having high supply risk and high demand risk.
Describe the four stages of the business cycle.
How a recession is typically measured?
What are the four key components of gross domestic product?
What are the three goals of the Federal Reserve?
Why is low and steady inflation important?
Describe the two hypotheses that explain the shape of the yield curve.
Describe the three shapes of the yield curve that tend to be associated with different business cycle stages.
Explain why equity is not the same as cash.
Smallco has cash from operating activities of $220 million, cash from investing activities of ($93 million), cash from financing activities of ($107 million), and a beginning cash balance of $27 million. What will Smallco's ending cash balance be?
Identify the sources and uses of cash for Home Depot by comparing the 2011 and 2012 balance sheets.
Why do we refer to depreciation and amortization as "noncash items"?
If a firm has goodwill on its balance sheet, what, if anything, does this imply about the firm's previous acquisition activities?
Explain why a company may have deferred income taxes on its balance sheet.
Bigco's balance sheet one year ago indicated retained earnings of $450 million. This year, Bigco's net income was $35 million. It paid its preferred shareholders a dividend of $5 million and paid its common shareholders a regular dividend of $6 million, along with a special one-time dividend of
Jesters-R-Us, Inc. is a publicly traded company that has assets on its balance sheet of $125 million and liabilities of $75 million. The firm also has 4 million common shares that are currently trading for $21 per share. Estimate the firm's market-to-book ratio.
Wholesale Lumber, Ltd. is a firm that distributes lumber to building supply and home improvement retail stores. The firm's cost of sales for the most recent year was $45 million, its beginning inventory was $16 million, and its ending inventory was $18 million. Estimate Wholesale Lumber's purchases
Number One Retail, Inc. has a gross profit of $55 million, operating expenses of $22 million (which includes $6 million in depreciation and amortization), and interest expenses of $8 million. Its corporate tax rate is 35 percent. Calculate the firm's earnings before interest, taxes, depreciation,
Indicate whether each of the following is a source or use of cash:a. An increase in accounts receivableb. A decrease in inventoriesc. An increase in accounts payabled. A decrease in a bank loane. An increase in retained earnings
Star Inc. has year 1 revenues of $80 million, net income of $9 million, assets of $65 million, and equity of $40 million, as well as year 2 revenues of $87 million, net income of $22 million, assets of $70 million, and equity of $50 million. Calculate Star's return on equity (ROE) for each year
Which financial statement presents information related to changes in retained earnings and share repurchase?
Nextime Ltd. has operating profits (EBIT) of $87 million, a tax rate of 35 percent, net working capital of $129 million, and fixed assets of $285 million. Calculate Nextime's return on invested capital, or ROIC. Then describe three methods by which a firm can increase its ROIC.
BE Enterprises has fixed costs of $50 million. Its gross margin percentage is 18 percent. What sales level must it achieve in order to break even?
Fixem Co. has revenue of $125 million, property and equipment of $42 million, and accumulated depreciation and amortization of $6 million. Estimate the fixed asset turnover ratio.
Wally Wholesale has revenue of $487,000, end-of-year receivables of $112,000, account payables of $70,000, and inventory of $91,000. Assume purchases equal cost of sales of $372,000. Estimate Wally Wholesale's age of inventory, age of receivables, and age of payables.
Quick-E Inc.'s current assets consist of cash of $5 million, account receivables of $27 million, inventory of $37 million, and it has current liabilities of $48 million. Calculate Quick-E's current ratio and quick ratio.
Deb Co. has interest-bearing debt of $122 million, non-interest-bearing debt of $33 million, and equity of $76 million. Calculate Deb Co.'s debt-to-assets, debt-to-equity, and long-term-debt-to-capital ratios.
IOU Inc. has EBIT of $58,000, depreciation and amortization of $12,000, interest expenses of $21,000, principal repayments of $17,000, and a tax rate of 35 percent. Calculate IOU Inc.'s interest coverage ratio and debt service coverage ratio.
Using Home Depot's 2010 and 2011 balance sheets in Figure 3.2 and statements of earnings in Figure 3.3 in Chapter 3, set up the ratios presented in Figure 4.4 for Home Depot for 2010 and 2011, indicating the numerator and denominator of each. Confirm the answers presented in Figure 4.4.
Consider the financial statements for Ace Inc. for questions 1 to 8:1. Identify the sources of cash and uses of cash for each year. Create a sources and uses statement.2. Estimate the age of inventory for each year.3. Estimate the age of accounts receivable for each year.4. Estimate the age of
For questions 1 to 7, please use the following projections for Top-A1 Inc.:Total sales of $150,000Cost of goods sold equal to 76 percent of salesTotal expenses equal to 14 percent of salesTax rate of 35 percentBeginning equity of $50,000Beginning inventory of $12,000Age of ending inventory of 60
1. Now, assume Top-A1's sales in the subsequent year increase by 15 percent. If all the other relationships remain the same, what will be the pro forma net earnings in two years?2. Again, assume Top-A1's sales in the subsequent year increase by 15 percent. If all the other relationships remain the
1. What would be the impact on Top-A1's pro forma net earnings if sales were to change to $200,000?2. What would be the impact on Top-A1's pro forma long-term debt if sales were to change to $200,000 and the age of payables were to change to 45 days?
Calculate the present value (PV) of a cash inflow of $500 in one year and a cash inflow of $1,000 in five years, assuming a discount rate of 15 percent.
What is the fair value today of a common share with expected annual dividends of $1.00, $1.05, and $1.10 in each of the next three years and an expected share price of $20 in three years, assuming a required return of 9 percent?
What is the value of a common share with an expected perpetual stream of annual dividends, with the first dividend of $2.00 to be received in one year and with all subsequent dividends growing at a rate of 5 percent, assuming a required rate of return of 12 percent?
Calculate the present value (PV) of an annuity stream of five annual cash flows of $1,200, with the first cash flow received in one year, assuming a discount rate of 10 percent.
What is the present value of a perpetual stream of annual cash flows of $100, with the first cash flow to be received in one year, assuming a discount rate of 8 percent?
What is the present value of a perpetual stream of annual cash flows, with the first cash flow of $100 to be received in one year and with all subsequent cash flows growing at a rate of 3 percent, assuming a discount rate of 8 percent?
Consider two bonds, Bond A and Bond B, both with a coupon rate of 10 percent and a yield to maturity of 10 percent. These are standard bonds with semiannual coupon payments. Bond A matures in 5 years; Bond B matures in 10 years. What is the price of each bond?
Consider the bonds in question 5. Suppose interest rates decline, causing the yield to maturity for each bond to immediately decline to 9 percent. What is the new price of each bond?In questions 5 Consider two bonds, Bond A and Bond B, both with a coupon rate of 10 percent and a yield to maturity
Consider two bonds, Bond C and Bond D, both with a yield to maturity of 10 percent and with 5 years to maturity. These are standard bonds with semiannual coupon payments. Bond C has a coupon rate of 10 percent (with semiannual coupon payments); Bond D does not pay any coupons (i.e., it a
Consider the bonds in question 7. Suppose interest rates decline, causing the yield to maturity for each bond to immediately decline to 9 percent. What is the new price of each bond?
Suppose a preferred share pays perpetual quarterly dividends of $1.00 and has a per annum dividend yield of 8 percent. What is the fair value of this preferred share?
What is the payback period of a project with average annual cash outflows of $8,000, average annual cash inflows of $10,000, and an initial investment of $13,000?
What is the equivalent annual cost of a piece of equipment that requires an initial investment of $50,000, is expected to last seven years, and requires annual maintenance costs of $4,000 if the appropriate discount rate is 9 percent?
What is the net present value of a simple one-period project with an initial investment of $12,000 and an expected net cash flow in one year of $15,000, assuming a discount rate of 8 percent?
What is the internal rate of return for the project in question 2?In Question 2, what is the net present value of a simple one-period project with an initial investment of $12,000 and an expected net cash flow in one year of $15,000, assuming a discount rate of 8 percent?
What is the profitability index for the project? Of a simple one-period project with an initial investment of $12,000 and an expected net cash flow in one year of $15,000, assuming a discount rate of 8 percent?
What is the highest discount rate at which the project would still be acceptable (i.e., a zero NPV)?
What is the net present value of a project with a $40,000 initial investment and expected net cash flows of $15,000, $20,000, and $25,000 in each of the next three years, assuming an appropriate discount rate of 10 percent?

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