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Fundamentals of Financial Management Concise 9th Edition Eugene F. Brigham - Solutions
Assume that yields on U.S. Treasury securities were as followsTerm Rate6 months.....................4.69%1 year.............................5.492 years...........................5.663
The real risk-free rate is 2.5% and inflation is expected to be 2.75% for the next 2 years. A 2-year Treasury security yields 5.55%. What is the maturity risk premium for the 2-year security?
A father is now planning a savings program to put his daughter through college. She is 13, plans to enroll at the university in 5 years, and should graduate 4 years later. Currently, the annual cost (for everything—food, clothing, tuition, books, transportation, and so forth) is $12,000, but
Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $50,000 has today. (The real value of his retirement income will decline
Simon recently received a credit card with an 18% nominal interest rate. With the card, he purchased an Apple iPhone 6 for $372.71. The minimum payment on the card is only $10 per month.a. If Simon makes the minimum monthly payment and makes no other charges, how many months will it be before he
a. You plan to make five deposits of $1,000 each, one every 6 months, with the first payment being made in 6 months. You will then make no more deposits. If the bank pays 6% nominal interest, compounded semiannually, how much will be in your account after 3 years?b. One year from today you must
You want to buy a house that costs $140,000. You have $14,000 for a down payment, but your credit is such that mortgage companies will not lend you the required $126,000. However, the realtor persuades the seller t take a $126,000 mortgage (called a seller take-back mortgage) at a rate of 5%,
a. Set up an amortization schedule for a $19,000 loan to be repaid in equal installments at the end of each of the next 3 years. The interest rate is 8% compounded annually.b. What percentage of the payment represents interest and what percentage represents principal for each of the 3 years? Why do
What are the various forms of business organization? What are the advantages and disadvantages of each?
Byron Books Inc. recently reported $13 million of net income. Its EBIT was $20.8 million, and its tax rate was 35%. What was its interest expense?
Hampton Industries had $39,000 in cash at year-end 2015 and $11,000 in cash at year-end 2016. The firm invested in property, plant, and equipment totaling $210,000. Cash flow from financing activities totaled $120,000.a. What was the cash flow from operating activities?b. If accruals increased by
You have just been hired as a financial analyst for Barrington Industries. Unfortunately, company headquarters (where all of the firm’s records are kept) has been destroyed by fire. So, your first job will be to recreate the firm’s cash flow statement for the year just ended. The firm had
Arlington Corporation€™s financial statements (dollars and shares are in millions) are provided here.a. What was net operating working capital for 2015 and 2016?b. What was Arlington€™s 2016 free cash flow?c. Construct Arlington€™s 2016 statement of stockholders€™ equity.d. What
Edmonds Industries is forecasting the following income statement:Sales ....................................................................................................$10,000,000Operating costs excluding depreciation & amortization ..................5,500,000EBITDA
Laiho Industries€™s 2015 and 2016 balance sheets (in thousands of dollars) are shown.a. Sales for 2016 were $455,150,000, and EBITDA was 15% of sales. Furthermore, depreciation and amortization were 11% of net fixed assets, interest was $8,575,000, the corporate tax rate was 40%, and Laiho pays
Kaye’s Kitchenware has a market/book ratio equal to 1. Its stock price is $12 per share and it has 4.8 million shares outstanding. The firm’s total capital is $110 million and it finances with only debt and common equity. What is its debt-to-capital ratio?
Henderson’s Hardware has an ROA of 11%, a 6% profit margin, and an ROE of 23%. What is its total assets turnover? What is its equity multiplier?
A company has an EPS of $2.40, a book value per share of $21.84, and a market/book ratio of 2.7 × . What is its P/E ratio?
A firm has a profit margin of 3% and an equity multiplier of 1.9. Its sales are $150 million, and it has total assets of $60 million. What is its ROE?
Baker Industries’s net income is $24,000, its interest expense is $5,000, and its tax rate is 40%. Its notes payable equals $27,000, long-term debt equals $75,000, and common equity equals $250,000. The firm finances with only debt and common equity, so it has no preferred stock. What are the
Precious Metal Mining has $17 million in sales, its ROE is 17%, and its total assets turnover is 3.2 ×. Common equity on the firm’s balance sheet is 50% of its total assets. What is its net income?
Broward Manufacturing recently reported the following information:Net income.....................................$615,000ROA..........................................................10%Interest expense............................$202,950Accounts payable and accruals...$950,000Broward’s tax rate
Starting next year, you will need $5,000 annually for 4 years to complete your education. (One year from today you will withdraw the first $5,000.) Your uncle deposits an amount today in a bank paying 6% annual interest, which will provide the needed $5,000 payments.a. How large must the deposit
Six years from today you need $10,000. You plan to deposit $1,500 annually, with the first payment to bemade a year from today, in an account that pays a 5% effective annual rate. Your last deposit, which will occur at the end of Year 6, will be for less than $1,500 if less is needed to reach
You want to buy a house within 3 years, and you are currently saving for the down payment. You plan to save $9,000 at the end of the first year, and you anticipate that your annual savings will increase by 5% annually thereafter. Your expected annual return is 8%. How much will you have for a down
It is now December 31, 2015 (t = 0) , and a jury just found in favor of a woman who sued the city for injuries sustained in a January 2014 accident. She requested recovery of lost wages plus $300,000 for pain and suffering plus $60,000 for legal expenses. Her doctor testified that she has been
HR Industries (HRI) has a beta of 1.6; LR Industries’s (LRI) beta is 0.8. The risk-free rate is 6%, and the required rate of return on an average stock is 13%. The expected rate of inflation built into rRF falls by 1.5 percentage points; the real riskfree rate remains constant; the required
You have been managing a $5 million portfolio that has a beta of 1.15 and a required rate of return of 11.475%. The current risk-free rate is 4%. Assume that you receive another $500,000. If you invest the money in a stock with a beta of 0.85, what will be the required return on your $5.5 million
A mutual fund manager has a $20 million portfolio with a beta of 1.7. The risk-free rate is 4.5%, and the market risk premium is 7%. The manager expects to receive an additional $5 million, which she plans to invest in a number of stocks. After investing the additional funds, she wants the fund’s
Data for Barry Computer Co. and its industry averages follow.a. Calculate the indicated ratios for Barry.b. Construct the DuPont equation for both Barry and the industry.c. Outline Barry€™s strengths and weaknesses as revealed by your analysis.d. Suppose Barry had doubled its sales as
A firm has been experiencing low profitability in recent years. Perform an analysis of the firm€™s financial position using the DuPont equation. The firm has no lease payments but has a $2 million sinking fund payment on its debt. The most recent industry average ratios and the
Find the following values. Compounding/discounting occurs annually.a. An initial $200 compounded for 10 years at 4%b. An initial $200 compounded for 10 years at 8%c. The present value of $200 due in 10 years at 4%d. The present value of $1,870 due in 10 years at 8% and at 4%e. Define present value
Find the present values of these ordinary annuities. Discounting occurs once a year.a. $600 per year for 12 years at 8%b. $300 per year for 6 years at 4%c. $500 per year for 6 years at 0%d. Rework parts a, b, and c assuming they are annuities due.
Your firms sells for cash only, but it is thinking of offering credit, allowing customers 90 days to pay. Customers understand the time value of money, so they would all wait and pay on the 90th day. To carry these receivables, you would have to borrow funds from your bank at a nominal 9%,daily
Allison and Leslie, who are twins, just received $10,000 each for their 25th birthday. They both have aspirations to become millionaires. Each plans to make a $5,000 annual contribution to her “early retirement fund” on her birthday, beginning a year from today.Allison opened an account with
Assume that you recently graduated with a major in finance. You just landed a job as a financial planner with Merrill Finch Inc., a large financial services corporation. Your first assignment is to invest $100,000 for a client. Because the funds are to be invested in a business at the end of 1
Is the following equation correct for finding the value of a constant growth stock? Explain.
Weston Corporation just paid a dividend of $1.00 a share (i.e.,D0 = $1 00). The dividend is expected to grow 12% a year for the next 3 years and then at 5% a year thereafter. What is the expected dividend per share for each of the next 5 years?
Tresnan Brothers is expected to pay a $1.80 per share dividend at the end of the year (i.e., D1 = $1 80). The dividend is expected to grow at a constant rate of 4% a year. The required rate of return on the stock, rs, is 10%. What is the stock’s current value per share?
Holtzman Clothiers’s stock currently sells for $38.00 a share. It just paid a dividend of $2.00 a share (i.e., D0 = $2 00). The dividend is expected to grow at a constant rate of 5% a year. What stock price is expected 1 year from now? What is the required rate of return?
Holt Enterprises recently paid a dividend, D0, of $2.75. It expects to have nonconstant growth of 18% for 2 years followed by a constant rate of 6% thereafter. The firm’s required return is 12%.a. How far away is the horizon date?b. What is the firm’s horizon, or continuing, value?c. What is
Scampini Technologies is expected to generate $25 million in free cash flow next year, and FCF is expected to grow at a constant rate of 4% per year indefinitely. Scampini has no debt or preferred stock, and its WACC is 10%. If Scampini has 40 million shares of stock outstanding, what is the
Farley Inc. has perpetual preferred stock outstanding that sells for $30 a share and pays a dividend of $2.75 at the end of each year. What is the required rate of return?
What will be the nominal rate of return on a perpetual preferred stock with a $100 par value, a stated dividend of 10% of par, and a current market price of a. $61b. $90c. $100d. $138?
Earley Corporation issued perpetual preferred stock with an 8% annual dividend. The stock currently yields 7%, and its par value is $100.a. What is the stock’s value?b. Suppose interest rates rise and pull the preferred stock’s yield up to 9%. What is its new market value?
Avondale Aeronautics has perpetual preferred stock outstanding with a par value of $100. The stock pays a quarterly dividend of $1.00 and its current price is $45.a. What is its nominal annual rate of return?b. What is its effective annual rate of return?
Maxwell Mining Company’s ore reserves are being depleted, so its sales are falling. Also, because its pit is getting deeper each year, its costs are rising. As a result, the company’s earnings and dividends are declining at the constant rate of 6% per year. If D0 = $3 and rs = 10%, what is the
A stock is expected to pay a dividend of $2.75 at the end of the year (i.e., D1 = 2 75), and it should continue to grow at a constant rate of 5% a year. If its required return is 15%, what is the stock’s expected price 4 years from today?
Investors require an 8% rate of return on Mather Company’s stock (i.e., rs = 8%).a. What is its value if the previous dividend was D0 = $1.25 and investors expect dividends to grow at a constant annual rate of (1) –2%, (2) 0%, (3) 3%, or (4) 5%?b. Using data from part a, what would the Gordon
You are considering an investment in Just us Corporation’s stock, which is expected to pay a dividend of $2.25 a share at the end of the year D1 = $2 25 and has a beta of 0.9. The risk-free rate is 4.9%, and the market risk premium is 5%. Just us currently sells for $46.00 a share, and its
Computech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Computech to begin paying dividends, beginning with a dividend of $0.50 coming 3 years from today. The dividend should grow rapidly—at a rate
Dantzler Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows (FCFs) during the next 3 years, after which FCF is expected to grow at a constant 5% rate. Dantzler€™s WACC is 11%.a. What is Dantzler€™s horizon, or continuing,
Carnes Cosmetics Co.’s stock price is $30, and it recently paid a $1.00 dividend. This dividend is expected to grow by 30% for the next 3 years, then grow forever at a constant rate, g; and rs = 9%. At what constant rate is the stock expected to grow after Year 3?
Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly’s stock.
Assume that today is December 31, 2016, and that the following information applies to Abner Airlines:• After-tax operating income [EBIT(1 – T)] for 2017 is expected to be $400 million.• The depreciation expense for 2017 is expected to be $140 million.• The capital expenditures for 2017 are
Assume that it is now January 1, 2017. 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 a result, WME is expected to experience a 15% annual growth rate for the next 5 years. Other firms
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