Finance Applications and Theory 3rd edition Marcia Cornett, Troy Adair - Solutions

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In Problem 1 in Chapter 15, the Saki motorcycle dealer in Minneapolis–St. Paul orders the Saki Super TXII motorcycle it sells from the manufacturer in Japan. Using the 3-month moving average forecast of demand for January as the monthly forecast for the next year, an annual carrying cost of $375,
In Problem 2 in Chapter 15, Carpet City orders Soft Shag carpet from its own mill. Using the 3-month moving average forecast of demand for month 9 as the monthly forecasts for all of next year, a production rate at the mill of 1,200 yards per day (with the mill operating 260 days per year), an
In Problem 30 in Chapter 15, the supplier receives shipments of partially completed laptops from its manufacturing facility in Southeast Asia, which has maximum production rate of 200 units per day. Using the forecast of annual demand developed in that problem, an annual carrying cost of $115.75
Craftwood Furniture Company is a U.S.–based furniture manufacturer that offshored all of its actual manufacturing operations to China about a decade ago. It set up a distribution center in Hong Kong, from which the company ships its items to the United States on container ships. The company
The Pacific Lumber Company and Mill processes 10,000 logs annually, operating 250 days per year. Immediately upon receiving an order, the logging company’s supplier begins delivery to the lumber mill, at a rate of 60 logs per day. The lumber mill has determined that the ordering cost is $1,600
The Roadking Tire Store sells a brand of tires called the Roadrunner. The annual demand from the store’s customers for Roadrunner tires is 3,700. The cost to order tires from the tire manufacturer is $420 per order. The annual carrying cost is $1.75 per tire. The store allows shortages, and the
The Laurel Creek Lawn Shop sells Fastgro Fertilizer. The annual demand for the fertilizer is 270,000 pounds. The cost to order the fertilizer from the Fastgro Company is $105 per order. The annual carrying cost is $0.25 per pound. The store operates with shortages, and the annual shortage cost is
Videoworld is a discount store that sells color televisions. The annual demand for color television sets is 400. The cost per order from the manufacturer is $650. The carrying cost is $45 per set each year. The store has an inventory policy that allows shortages. The shortage cost per set is
The University Bookstore at Tech stocks the required textbook for Management Science 2405. The demand for this text is 1,200 copies per year. The cost of placing an order is $350, and the annual carrying cost is $2.75 per book. If a student requests the book and it is not in stock, the student will
The A-to-Z Office Supply Company is open from 8:00 A.M. to 6:00 P.M., and it receives 200 calls per day for delivery orders. It costs A-to-Z $20 to send out its trucks to make deliveries. The company estimates that each minute a customer spends waiting for an order costs A-to-Z $0.20 in lost
The Union Street Microbrewery makes 1220 Union beer, which it bottles and sells in its adjoining restaurant and by the case. It costs $1,700 to set up, brew, and bottle a batch of the beer. The annual cost to store the beer in inventory is $1.25 per bottle. The annual demand for the beer is 18,000
Eurotronics is a European manufacturer of electronic components. During the course of a year, it requires container cargo space on ships leaving Hamburg bound for the United States, Mexico, South America, and Canada. Annually, the company needs 160,000 cubic feet of cargo space. The cost of
The Summer Outdoor Furniture Company produces wooden lawn chairs. The annual demand from its store customers is 17,400 chairs per year. The transport and handling costs are $2,600 each time a shipment of chairs is delivered to stores from its warehouse. The annual carrying cost is $3.75 per
The Spruce Creek Vegetable Farm produces organically grown greenhouse tomatoes that are sold to area grocery stores. The annual demand for Spruce Creek’s tomatoes is 270,000 pounds. The farm is able to produce 305,000 pounds annually. The cost to transport the tomatoes from the farm to the stores
The Uptown Kiln is an importer of ceramics from overseas. It has arranged to purchase a particular type of ceramic pottery from a Korean artisan. The artisan makes the pottery in 120-unit batches and will ship only that exact number of units. The transportation and handling cost of a shipment is
The I-75 Carpet Discount Store has an annual demand of 10,000 yards of Super Shag carpet. The annual carrying cost for a yard of this carpet is $0.75, and the ordering cost is $150. The carpet manufacturer normally charges the store $8 per yard for the carpet; however, the manufacturer has offered
The Fifth Quarter Bar buys Old World draft beer by the barrel from a local distributor. The bar has an annual demand of 900 barrels, which it purchases at a price of $205 per barrel. The annual carrying cost is 12% of the price, and the cost per order is $160. The distributor has offered the bar a
The bookstore at State University purchases from a vendor sweatshirts emblazoned with the school name and logo. The vendor sells the sweatshirts to the store for $38 apiece. The cost to the bookstore for placing an order is $120, and the carrying cost is 25% of the average annual inventory value.
Determine the optimal order quantity of sweatshirts and total annual cost in Problem 30 if the carrying cost is a constant $8 per sweatshirt per year.
The office manager for the Gotham Life Insurance Company orders letterhead stationery from an office products firm in boxes of 500 sheets. The company uses 6,500 boxes per year. Annual carrying costs are $3 per box, and ordering costs are $28. The following discount price schedule is provided by
Determine the optimal order quantity and total annual inventory cost for boxes of stationery in Problem 32 if the carrying cost is 20% of the price of a box of stationery.
The 23,000-seat City Coliseum houses the local professional ice hockey, basketball, indoor soccer, and arena football teams, as well as various trade shows, wrestling and boxing matches, tractor pulls, and circuses. Coliseum vending annually sells large quantities of soft drinks and beer in plastic
Community Hospital orders latex sanitary gloves from a hospital supply firm. The hospital expects to use 40,000 pairs of gloves per year. The cost to order and to have the gloves delivered is $180. The annual carrying cost is $0.18 per pair of gloves. The hospital supply firm offers the following
Tracy McCoy is the office administrator for the department of management science at Tech. The faculty uses a lot of printer paper, and although Tracy is constantly reordering, paper frequently runs out. She orders the paper from the university central stores. Several faculty members have determined
Determine the optimal order quantity and total annual inventory cost for cups in Problem 34 if the carrying cost is 5% of the price of a box of cups.
The amount of denim used daily by the Western Jeans Company in its manufacturing process to make jeans is normally distributed, with an average of 3,000 yards of denim and a standard deviation of 600 yards. The lead time required to receive an order of denim from the textile mill is a constant 6
In Problem 38, what level of service would a safety stock of 2,000 yards provide?
The Atlantic Paper Company produces paper from wood pulp ordered from a lumber products firm. The paper company’s daily demand for wood pulp is a constant 8,000 pounds. Lead time is normally distributed, with an average of 7 days and a standard deviation of 1.6 days. Determine the reorder point
The Uptown Bar and Grill serves Rainwater draft beer to its customers. The daily demand for beer is normally distributed, with an average of 18 gallons and a standard deviation of 4 gallons. The lead time required to receive an order of beer from the local distributor is normally distributed, with
In Problem 41, the manager of the Uptown Bar and Grill has negotiated with the beer distributor for the lead time to receive orders to be a constant 3 days. What effect does this have on the reorder point developed in Problem 41 for a 90% service level?
The daily demand for Sunlight paint at the Rainbow Paint Store in East Ridge is normally distributed, with a mean of 26 gallons and a standard deviation of 10 gallons. The lead time for receiving an order of paint from the Sunlight distributor is 9 days. Because this is the only paint store in East
PM Computers assembles personal computers from generic components. It purchases its color monitors from a manufacturer in Taiwan; thus, there is a long and uncertain lead time for receiving orders. Lead time is normally distributed, with a mean of 25 days and a standard deviation of 10 days. Daily
PM Computers in Problem 44 is considering purchasing monitors from an American manufacturer that would guarantee a lead time of 8 days, instead of the Taiwanese company. Determine the new reorder point, given this lead time, and identify the factors that would enter into the decision to change
The Corner Drug Store fills prescriptions for a popular children’s antibiotic, amoxicillin. The daily demand for amoxicillin is normally distributed, with a mean of 200 ounces and a standard deviation of 80 ounces. The vendor for the pharmaceutical firm that supplies the drug calls the drugstore
The Fast Service Food Mart stocks frozen pizzas in a refrigerated display case. The average daily demand for the pizzas is normally distributed, with a mean of 8 pizzas and a standard deviation of 2.5 pizzas. A vendor for a packaged food distributor checks the market’s inventory of frozen foods
The Impanema Restaurant stocks a red Brazilian table wine it purchases from a wine merchant in a nearby city. The daily demand for the wine at the restaurant is normally distributed, with a mean of 18 bottles and a standard deviation of 4 bottles. The wine merchant sends a representative to check
The concession stand at the Blacksburg High School stadium sells slices of pizza during soccer games. Concession stand sales are a primary source of revenue for high school athletic programs, so the athletic director wants to sell as much food as possible. However, any pizza not sold is given away
Burlingham Mills produces denim cloth that it sells to jeans manufacturers. It is negotiating a contract with Troy Clothing Company to provide denim cloth on a weekly basis. Burlingham has established its monthly available production capacity for this contract to be between 0 and 600 yards,
What is the purpose of financial management? Describe the kinds of activities that financial management involves.
What are the three basic forms of business ownership? What are the advantages and disadvantages to each?
Between the three basic forms of business ownership, describe the ability of each form to access capital.
Explain how the founder of a business can eventually lose control of the firm. How can the founder ensure this will not happen?
Explain the shareholder wealth maximization goal of the firm and how it can be measured. Make an argument for why it is a better goal than maximizing profit.
What conflicts of interest can arise between managers and stockholders?
Figure shows firm monitors. In your opinion, which group is in the best position to monitor the firm? Explain. Which group has the potential to be the weakest monitor? Explain.
Every year, the media reports on the vast amounts of money (sometimes hundreds of millions of dollars) that some CEOs earn from the companies they manage. Are these CEOs worth it? Give examples.
Describe the type of people who use the financial markets.
What is the difference in perspective between finance and accounting?
What personal decisions can you think of that will benefit from learning finance?
Name and describe as many corporate stakeholders as you can.
In recent years, governments all over the world have passed laws that increased the penalties for executives’ crimes. Do you think this will deter unethical corporate managers? Explain.
Why is ethical behavior so important in the field of finance?
Does the goal of shareholder wealth maximization conflict with behaving ethically? Explain.
Describe how financial institutions and markets facilitate the expansion of a company’s business?
What is a company€™s responsibility to society? Proponents of the modern view of stakeholder theory argue that companies have a social obligation to operate in ethically, socially, and environmentally responsible ways. This active approach is referred to as corporate social responsibility
List and describe the four major financial statements.
On which of the four major financial statements (balance sheet, income statement, statement of cash flows, or statement of retained earnings) would you find the following items?
How does the choice of accounting method used to record fixed asset depreciation affect management of the balance sheet?
What are the costs and benefits of holding liquid securities on a firm’s balance sheet?
Why can the book value and market value of a firm differ?
From a firm manager’s or investor’s point of view, which is more important―the book value of a firm or the market value of the firm?
How does the payment of interest on debt affect the amount of taxes the firm must pay?
The income statement is prepared using GAAP. How does this affect the reported revenue and expense measures listed on the balance sheet?
Why do financial managers and investors find cash flows to be more important than accounting profit?
What is the difference between cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities?
What is earnings management?
What does the Sarbanes-Oxley Act require of firm managers?
What do we mean by a “progressive” tax structure?
What is the difference between an average tax rate and a marginal tax rate?
Which of the following activities result in an increase (decrease) in a firm’s cash?a. Decrease fixed assetsb. Decrease accounts payablec. Pay dividendsd. Sell common stocke. Decrease accounts receivablef. Increase notes payable
What are free cash flows for a firm? What does it mean when a firm’s free cash flow is negative?
You are evaluating the balance sheet for Goodman’s Bees Corporation.From the balance sheet you find the following balances: cash and marketable securities = $400,000, accounts receivable = $1,200,000, inventory = $2,100,000, accrued wages and taxes = $500,000, accounts payable = $800,000, and
Casello Mowing & Landscaping’s year-end 2015 balance sheet lists current assets of $435,200, fixed assets of $550,800, current liabilities of $416,600, and long-term debt of $314,500. Calculate Casello’s total stockholders’ equity.
The Fitness Studio, Inc.’s 2015 income statement lists the following income and expenses: EBIT = $538,000, interest expense = $63,000 and net income = $435,000. Calculate the 2015 taxes reported on the income statement.
The Fitness Studio, Inc.’s 2015 income statement lists the following income and expenses: EBIT = $773,500, interest expense = $100,000 and taxes = $234,500. The firm has no preferred stock outstanding and 100,000 shares of common stock outstanding. Calculate the 2015 earnings per share.
Consider a firm with an EBIT of $850,000. The firm finances its assets with $2,500,000 debt (costing 7.5 percent) and 400,000 shares of stock selling at $5.00 per share. To reduce firm’s risk associated with this financial leverage, the firm is considering reducing its debt by $1,000,000 by
Consider a firm with an EBIT of $550,000. The firm finances its assets with $1,000,000 debt (costing 5.5 percent) and 200,000 shares of stock selling at $12.00 per share. The firm is considering increasing its debt by $900,000, using the proceeds to buy back 75,000 shares of stock. The firm is in
Oakdale Fashions, Inc., had $245,000 in 2015 taxable income. Using the tax schedule in Table, calculate the company’s 2015 income taxes. What is the average tax rate? What is the marginal tax rate?
Hunt Taxidermy, Inc., is concerned about the taxes paid by the company in 2015. In addition to $42.4 million of taxable income, the firm received $2,975,000 of interest on state-issued bonds and $1,000,000 of dividends on common stock it owns in Oakdale Fashions, Inc. Calculate Hunt Taxidermy’s
Ramakrishnan Inc. reported 2015 net income of $15 million and depreciation of $2,650,000. The top part of Ramakrishnan, Inc.â€™s 2015 and 2014 balance sheets is listed as follows (in millions ofdollars).
In 2015, Usher Sports Shop had cash flows from investing activities of -$4,364,000 and cash flows from financing activities of -$5,880,000. The balance in the firm’s cash account was $1,615,000 at the beginning of 2015 and $1,742,000 at the end of the year. Calculate Usher Sports Shop’s cash
You are considering an investment in Fields and Struthers, Inc., and want to evaluate the firm’s free cash flow. From the income statement, you see that Fields and Struthers earned an EBIT of $62 million, had a tax rate of 30 percent, and its depreciation expense was $5 million. Fields and
Tater and Pepper Corp. reported free cash flows for 2015 of $39.1 million and investment in operating capital of $22.1 million. Tater and Pepper incurred $13.6 million in depreciation expense and paid $28.9 million in taxes on EBIT in 2015. Calculate Tater and Pepper’s 2015 EBIT.
Mr. Husker’s Tuxedos, Corp. began the year 2015 with $256 million in retained earnings. The firm earned net income of $33 million in 2015 and paid dividends of $5 million to its preferred stockholders and $10 million to its common stockholders. What is the year-end 2015 balance in retained
Brenda’s Bar and Grill has total assets of $15 million of which $5 million are current assets. Cash makes up 10 percent of the current assets and accounts receivable makes up another 40 percent of current assets. Brenda’s gross plant and equipment has a book value of $11.5 million and other
Glen’s Tobacco Shop has total assets of $91.8 million. Fifty percent of these assets are financed with debt of which $28.9 million is current liabilities. The firm has no preferred stock but the balance in common stock and paid-in surplus is $20.4 million. Using this information what is the
Muffin’s Masonry, Inc’s balance sheet lists net fixed asset as $14 million. The fixed assets could currently be sold for $19 million. Muffin’s current balance sheet shows current liabilities of $5.5 million and net working capital of $4.5 million. If all the current accounts were liquidated
Ava’s SpinBall Corp. lists fixed assets of $12 million on its balance sheet. The firm’s fixed assets have recently been appraised at $16 million. Ava’s SpinBall Corp.’s balance sheet also lists current assets at $5 million. Current assets were appraised at $6 million. Current
You are considering a stock investment in one of two firms (No Equity, Inc., and No Debt, Inc.), both of which operate in the same industry and have identical operating income of $32.5 million. No Equity, Inc., finances its $65 million in assets with $64 million in debt (on which it pays 10 percent
You are considering a stock investment in one of two firms (AllDebt, Inc., and AllEquity, Inc.), both of which operate in the same industry and have identical operating income of $12.5 million. AllDebt, Inc., finances its $25 million in assets with $24 million in debt (on which it pays 10 percent
You have been given the following information for Corky’s Bedding Corp.:a. Net sales = $11,250,000b. Cost of goods sold = $7,500,000;c. Other operating expenses = $250,000;d. Addition to retained earnings = $1,000,000;e. Dividends paid to preferred and common stockholders = $495,000;f. Interest
You have been given the following information for Moore’s HoneyBee Corp.:a. Net sales = $32,000,000;b. Gross profits = $18,700,000;c. Other operating expenses = $2,500,000;d. Addition to retained earnings = $4,700,000;e. Dividends paid to preferred and common stockholders = $2,900,000;f.
Consider a firm with an EBIT of $1,000,000. The firm finances its assets with $4,500,000 debt (costing 8 percent) and 200,000 shares of stock selling at $16.00 per share. To reduce risk associated with this financial leverage, the firm is considering reducing its debt by $2,500,000 by selling
Consider a firm with an EBIT of $10,500,000. The firm finances its assets with $50,000,000 debt (costing 6.5 percent) and 10,000,000 shares of stock selling at $10.00 per share. The firm is considering increasing its debt by $25,000,000, using the proceeds to buy back shares of stock. The firm is
The Dakota Corporation had a 2015 taxable income of $33,365,000 from operations after all operating costs but before (1) Interest charges of $8,500,000;(2) Dividends received of $750,000; (3) Dividends paid of $5,250,000; and (4) Income taxes. a. Use the tax schedule in Table 2.3 to calculate
Suppose that in addition to $17.85 million of taxable income, Texas Taco, Inc., received $1,105,000 of interest on state-issued bonds and $760,000 of dividends on common stock it owns in ArizonaTaco, Inc.a. Use the tax schedule in Table 2.3 to calculate Texas Taco’s income tax liability.b. What
Use the balance sheet and following income statement to construct a statement of cash flows for Clancyâ€™s Dog BiscuitCorporation.
Use the balance sheet and following income statement to construct a statement of cash flows for Valiumâ€™s Medical SupplyCorporation.
Chris’ Outdoor Furniture, Inc., has net cash flows from operating activities for the last year of $340 million. The income statement shows that net income is $315 million and depreciation expense is $46 million. During the year, the change in inventory on the balance sheet was $38 million,
Dogs 4 U Corporation has net cash flow from financing activities for the last year of $34 million. The company paid $178 million in dividends last year. During the year, the change in notes payable on the balance sheet was $39 million, and change in common and preferred stock was $0. The

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Finance Applications and Theory 3rd edition Marcia Cornett, Troy Adair - Solutions

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