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Finance
As explained in the appendix, U.S. tax laws have encouraged U.S.-based MNCs to consider moving their parent to another country in order to reduce their taxes. Write a short essay that presents your
A crisis in a foreign country will commonly cause a substantial reduction in cash flows (and valuations) of an MNC's subsidiaries based in that country. Explain why the MNC will not necessarily sell
In 2011, Microsoft acquired Skype (based in Luxembourg) for about $8.5 billion. Write a short essay that describes the general process that Microsoft would have used to determine how much it was
In recent years, some U.S.-based MNCs (such as Apple) have taken advantage of the very low interest rates in the U.S. by borrowing large amount of dollars to finance their operations. Write a short
Spectra Energy Corp. (based in Houston) has substantial operations in Canada, and generates much revenue in Canadian dollars. It borrows funds denominated in Canadian dollars (rather than U.S.
Write a short essay to provide your opinion about whether the traditional payment methods for international trade insulate an MNC's business when there are strained relations between two countries?
Mizner, Inc., is a U.S. based MNC with a subsidiary in Mexico. Its Mexican subsidiary needs a one year loan of 10 million pesos for operating expenses. It can borrow pesos at 11% and can use peso
Seabreeze Co. needs to finance some dollar-denominated expenses for one year. It can borrow euros cheaper than dollars. Interest rate partiy exists. The one-year forward rate of the euro contains a
In recent years, U.S. short-term interest rates have been close to zero. Write a short essay to provide your opinion on whether you (as a manger of an MNC) might be more willing to use
Some U.S.-based MNCs have been maintaining a very large amount of cash in foreign countries, because they would be subject to a corporate income tax on these funds if they were remitted to the
1. If Logan invests the excess cash in U.S. Treasury bills, would this reduce the firm's exposure to exchange rate risk? 2. Logan decided to use the excess cash to pay off the British loan.
Given the factors that affect the value of a foreign currency, describe the type of economic or other conditions in Mexico that could cause the Mexican peso to weaken, and therefore to adversely
Bedrock Company has $70 million in debt and $30 million in equity. The debt matures in 1 year and has a 10% interest rate, so the company is promising to pay back $77 million to its debt holders 1
Explain the following statement: Our tax rates are progressive.
Patterson Brothers recently reported an EBITDA of $7.5 million and net income of $2.1 million. It had $2.0 million of interest expense, and its corporate tax rate was 30%. What was its charge for
In its most recent financial statements, Nessler Inc. reported $75 million of net income and $825 million of retained earnings. The previous retained earnings were $784 million. How much in dividends
Harper Industries has $900 million of common equity on its balance sheet; its stock price is $80 per share; and its market value added (MVA) is $50 million. How many common shares are currently
Over the years, Master son Corporation’s stockholders have provided $34,000,000 of capital when they purchased new issues of stock and allowed management to retain some of the firm’s earnings.
Barton Industries has operating income for the year of $3,500,000 and a 36% tax rate. Its total invested capital is $20,000,000 and its after-tax percentage cost of capital is 8%. What is the
Susan and Stan Britton are a married couple who file a joint income tax return, where the tax rates are based on the tax tables presented in the chapter. Assume that their taxable income this year
Which of the following actions are most likely to directly increase cash as shown on a firm’s balance sheet? Explain and state the assumptions that underlie your answer.a. It issues $4 million of
Electronics World Inc. paid out $22.4 million in total common dividends and reported $144.7 million of retained earnings at year-end. The prior year’s retained earnings were $95.5 million. What was
For 2016, Gourmet Kitchen Products reported $22 million of sales and $19 million of operating costs (including depreciation). The company has $15 million of total invested capital. Its after-tax cost
Donna Jamison, a 2011 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
Baxley Brothers has a DSO of 23 days, and its annual sales are $3,650,000. What is its accounts receivable balance? Assume that it uses a 365-day year.
Edelman Engines has $17 billion in total assets. Its balance sheet shows $1.7 billion in current liabilities, $10.2 billion in long-term debt, and $5.1 billion in common equity. It has 300 million
You are given the following information: Stockholders’ equity as reported on the firm’s balance sheet = $6.5 billion, price/earnings ratio = 9, common shares outstanding = 180 million, and
Assume the following relationships for the Caulder Corp.:Sales/Total assets ....................................... 1.3×Return on assets (ROA) ..............................
Thomson Trucking has $16 billion in assets, and its tax rate is 40%. Its basic earning power (BEP) ratio is 10%, and its return on assets (ROA) is 5%. What is its times-interest-earned (TIE) ratio?
The W.C. Pruett Corp. has $600,000 of interest-bearing debt outstanding, and it pays an annual interest rate of 7%. In addition, it has $600,000 of common stock on its balance sheet. It finances
Pacific Packaging’s ROE last year was only 5%; but its management has developed a new operating plan that calls for a debt-to-capital ratio of 40%,which will result in annual interest charges of
Commonwealth Construction (CC) needs $3 million of assets to get started, and it expects to have a basic earning power ratio of 35%. CC will own no securities, so all of its income will be operating
MPI Incorporated has $6 billion in assets, and its tax rate is 35%. Its basic earning power (BEP) ratio is 11%, and its return on assets (ROA) is 6%. What is MPI’s times-interest-earned (TIE) ratio?
The Stewart Company has $2,392,500 in current assets and $1,076,625 in current liabilities. Its initial inventory level is $526,350, and it will raise funds as additional notes payable and use them
Ingraham Inc. currently has $205,000 in accounts receivable, and its days sales outstanding (DSO) is 71 days. It wants to reduce its DSO to 20 days by pressuring more of its customers to pay their
Ferrell Inc. recently reported net income of $8 million. It has 540,000 shares of common stock, which currently trades at $21 a share. Ferrell continues to expand and anticipates that 1 year from
The Corrigan Corporation€™s 2015 and 2016 financial statements follow, along with some industry average ratios.a. Assess Corrigan€™s liquidity position, and determine how it compares with
What is the present value of a security that will pay $29,000 in 20 years if securities of equal risk pay 5% annually?
Your parents will retire in 19 years. They currently have $350,000 saved, and they think they will need $800,000 at retirement. What annual interest rate must they earn to reach their goal, assuming
If you deposit money today in an account that pays 4% annual interest, how long will it take to double your money?
You have $33,556.25 in a brokerage account, and you plan to deposit an additional $5,000 at the end of every future year until your account totals $220,000. You expect to earn 12% annually on the
What’s the future value of a 5%, 5-year ordinary annuity that pays $800 each year? If this was an annuity due, what would its future value be?
An investment will pay $150 at the end of each of the next 3 years, $250 at the end of Year 4, $300 at the end of Year 5, and $500 at the end of Year 6. If other investments of equal risk earn 11%
You want to buy a car, and a local bank will lend you $40,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 8% with interest paid monthly. What
Find the following values using the equations and then a financial calculator. Compounding/discounting occurs annually.a. An initial $600 compounded for 1 year at 6%b. An initial $600 compounded for
Sawyer Corporation’s 2015 sales were $5 million. Its 2010 sales were $2.5 million.a. At what rate have sales been growing?b. Suppose someone made this statement: “Sales doubled in 5 years. This
Find the interest rates earned on each of the following:a. You borrow $720 and promise to pay back $792 at the end of 1 year.b. You lend $720 and the borrower promises to pay you $792 at the end of 1
How long will it take $300 to double if it earns the following rates? Compounding occurs once a year.a. 6%b. 13%c. 21%d. 100%
Find the future values of these ordinary annuities. Compounding occurs once a year.a. $500 per year for 8 years at 14%b. $250 per year for 4 years at 7%c. $700 per year for 4 years at 0%d. Rework
What is the present value of a $600 perpetuity if the interest rate is 5%? If interest rates doubled to 10%, what would its present value be?
You borrow $230,000; the annual loan payments are $20,430.31 for 30 years. What interest rate are you being charged?
a. Find the present values of the following cash flow streams at a 5% discount rate.b. What are the PVs of the streams at a 0% discount rate?
Your client is 26 years old. She wants to begin saving for retirement, with the first payment to come one year from now. She can save $8,000 per year, and you advise her to invest it in the stock
A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 7%. He has been offered three possible 4-year contracts. Payments are guaranteed, and they would be made at the
Kristina just won the lottery, and she must choose among three award options. She can elect to receive a lump sum today of $62 million, to receive 10 end-of-year payments of $9.5 million, or to
Bank A pays 2% interest compounded annually on deposits, while Bank B pays 1.75% compounded daily.a. Based on the EAR (or EFF%), which bank should you use?b. Could your choice of banks be influenced
As a jewelry store manager, you want to offer credit, with interest on outstanding balances paid monthly. To carry receivables, you must borrow funds from your bank at a nominal 9%, monthly
Consider the following information for Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation
Suppose rRF = 4%, rM = 10%, and bi = 1 4.a. What is ri, the required rate of return on Stock i?b. Now suppose that rRF (1) increases to 5% or (2) decreases to 3%. The slope of the SML remains
Calculate the required rate of return for Mudd Enterprises assuming that investors expect a 3.6% rate of inflation in the future. The real risk-free rate is 1.0%, and the market risk premium is 6.0%.
Beale Manufacturing Company has a beta of 1.1, and Foley Industries has a beta of 0.30. The required return on an index fund that holds the entire stock market is 11%. The risk-free rate of interest
Stock R has a beta of 2.0, Stock S has a beta of 0.45, the required return on an average stock is 10%, and the risk-free rate of return is 5%. By how much does the required return on the riskier
Given the following information, determine the beta coefficient for Stock L that is consistent with equilibrium: r̂ L = 10.5%; rRF = 3.5%; rM = 9.5%.
Suppose you are the money manager of a $4.82 million investment fund. The fund consists of four stocks with the following investments and betas:If the markets required rate of return is
Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio’s beta is 1.25. Now suppose you decided to sell one of the stocks in
Assume that the risk-free rate is 3.5% and the market risk premium is 4%. What is the required return for the overall stock market? What is the required rate of return on a stock with a beta of 0.8?
Assume that the risk-free rate is 5.5% and the required return on the market is 12%. What is the required rate of return on a stock with a beta of 2?
An individual has $20,000 invested in a stock with a beta of 0.6 and another $75,000 invested in a stock with a beta of 2.5. If these are the only two investments in her portfolio, what is her
A stocks returns have the following distribution:Calculate the stocks expected return, standard deviation, and coefficient of variation.
Kempton Enterprises has bonds outstanding with a $1,000 face value and 10 years left until maturity. They have an 11% annual coupon payment, and their current price is $1,185. The bonds may be
Last year Janet purchased a $1,000 face value corporate bond with an 8% annual coupon rate and a 15-year maturity. At the time of the purchase, it had an expected yield to maturity of 10.45%. If
You are considering a 10-year, $1,000 par value bond. Its coupon rate is 8%, and interest is paid semiannually. If you require an “effective” annual interest rate (not a nominal rate) of
Bond X is non callable and has 20 years to maturity, an 8% annual coupon, and a $1,000 par value. Your required return on Bond X is 9%; if you buy it, you plan to hold it for 5 years. You (and the
A stock has a required return of 9%, the risk-free rate is 4.5%, and the market risk premium is 3%.a. What is the stock’s beta?b. If the market risk premium increased to 5%, what would happen to
Lourdes Corporation’s 12% coupon rate, semiannual payment, $1,000 par value bonds, which mature in 25 years, are callable 6 years from today at $1,025. They sell at a price of $1,278.56, and the
A 7% semiannual coupon bond matures in 4 years. The bond has a face value of $1,000 and a current yield of 7.5401%. What are the bond’s price and YTM?
It is now January 1, 2016, and you are considering the purchase of an outstanding bond that was issued on January 1, 2014. It has an 8% annual coupon and had a 30-year original maturity. There is 5
Pelzer Printing Inc. has bonds out standing with 9 years left to maturity. The bonds have a 9% annual coupon rate and were issued 1 year ago at their par value of $1,000. However, due to changes in
Harrimon Industries bonds have 6 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%.a. What is the yield to maturity at a current
Last year Carson Industries issued a 10-year, 13% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,065 and it sells for $1,200.a. What
Seven years ago the Templeton Company issued 20-year bonds with an 11% annual coupon rate at their $1,000 par value. The bonds had a 7.5% call premium,with 5 years of call protection. Today Templeton
An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 8.2%. Bond C pays an 11.5% annual coupon,
An investor has two bonds in his portfolio that have a face value of $1,000 and pay an 11% annual coupon. Bond L matures in 12 years, while Bond S matures in 1 year.a. What will the value of each
A firm’s bonds have a maturity of 8 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 4 years at $1,154, and currently sell at a price of $1,283.09. What are their
Nesmith Corporation’s outstanding bonds have a $1,000 par value, an 8% semiannual coupon, 14 years to maturity, and an 11% YTM. What is the bond’s price?
A bond has a $1,000 par value, 12 years to maturity, and an 8% annual coupon and sells for $980.a. What is its yield to maturity (YTM)?b. Assume that the yield to maturity remains constant for the
Madsen Motors’s bonds have 23 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 9%; and the yield to maturity is 11%. What is the
Can the following equation be used to find the value of a bond with N years to maturity that pays interest once a year? Assume that the bond was issued several years ago.
Suppose 2-year Treasury bonds yield 4.1%, while 1-year bonds yield 3.2%. r* is 1%, and the maturity risk premium is zero.a. Using the expectations theory, what is the yield on a 1-year bond 1 year
The real risk-free rate, r* , is 1.7%. Inflation is expected to average 1.5% a year for the next 4 years, after which time inflation is expected to average 4.8% a year. Assume that there is no
An investor in Treasury securities expects inflation to be 2.1% in Year 1, 2.7% in Year 2, and 3.65% each year thereafter. Assume that the real risk-free rate is 1.95% and that this rate will remain
A company’s 5-year bonds are yielding 7% per year. Treasury bonds with the same maturity are yielding 5.2% per year, and the real risk-free rate (r* ) is 2.75%. The average inflation premium is
Due to a recession, expected inflation this year is only 3.25%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 3.25%.Assume that the expectations
The real risk-free rate is 2.05%. Inflation is expected to be 3.05% this year, 4.75% next year, and 2.3% thereafter. The maturity risk premium is estimated to be 0.05 × (t -1)%, where t = number of
Interest rates on 4-year Treasury securities are currently 6.7%, while 6-year Treasury securities yield 7.25%. If the pure expectations theory is correct, what does the market believe that 2-year
One-year Treasury securities yield 4.85%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 5.2%. If the pure expectations theory is correct, what is the yield today
An analyst is evaluating securities in a developing nation where the inflation rate is very high. As a result, the analyst has been warned not to ignore the cross-product between the real rate and
A Treasury bond that matures in 10 years has a yield of 5.75%. A 10-year corporate bond has a yield of 8.75%. Assume that the liquidity premium on the corporate bond is 0.35%. What is the default
The real risk-free rate is 2.25%. Inflation is expected to be 2.5% this year and 4.25% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury
You read in The Wall Street Journal that 30-day T-bills are currently yielding 5.8%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current
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