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Foundations of Financial Management 15th edition Stanley Block, Geoffrey Hirt, Bartley Danielsen - Solutions
The Sterling Tire Company’s income statement for 2013 is as follows:STERLING TIRE COMPANYIncome StatementFor the Year Ended December 31, 2013Sales (20,000 tires at $60 each) ...........$1,200,000Less: Variable costs (20,000 tires at $30) ...... 600,000Fixed costs ...................
Company manufactures skates. The company’s income statement for 2013 is as follows:HARDING COMPANYIncome StatementFor the Year Ended December 31, 2013Sales (10,500 skates @ $60 each) .........$630,000Less: Variable costs (10,500 skates at $25) ...... 262,500Fixed costs ....................
Healthy Foods Inc. sells 50-pound bags of grapes to the military for $10 a bag. The fixed costs of this operation are $80,000, while the variable costs of grapes are $.10 per pound.a. What is the break-even point in bags?b. Calculate the profit or loss on 12,000 bags and on 25,000 bags.c. What is
United Snack Company sells 50-pound bags of peanuts to university dormitories for $20 a bag. The fixed costs of this operation are $176,250, while the variable costs of peanuts are $.15 per pound.a. What is the break-even point in bags?b. Calculate the profit or loss on 7,000 bags and on 20,000
International Data Systems information on revenue and costs is only relevant up to a sales volume of 105,000 units. After 105,000 units, the market becomes saturated and the price per unit falls from $14.00 to $8.80. Also, there are cost overruns at a production volume of over 105,000 units, and
U.S. Steal has the following income statement data:a. Compute DOL based on the following formula:b. Confirm that your answer to part a is correct by recomputing DOL using Formula 5€“3. There may be a slight difference due to rounding.DOL = Q (P €“ VC) / Q(P €“ VC)
Lenow’s Drug Stores and Hall’s Pharmaceuticals are competitors in the discount drug chain store business. The separate capital structures for Lenow and Hall are presented next.a. Compute earnings per share if earnings before interest and taxes are $20,000, $30,000, and $120,000 (assume a 30
The capital structure for Cain Supplies is presented next. Compute the stock price for Cain if it sells at 19 times earnings per share and EBIT is $50,000. The tax rate is 20 percent.CainDebt @ 9% ......... $100,000Common stock, $10 par ..... 200,000Total ........... $300,000Common shares
Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $132,000.The separate capital structures for Sterling and Royal are shown next:a. Compute earnings per share for both firms. Assume a 25 percent tax rate.b. In part a, you
Firms in Japan often employ both high operating and financial leverage because of the use of modern technology and close borrower–lender relationships. Assume the Mitaka Company has a sales volume of 130,000 units at a price of $30 per unit; variable costs are $10 per unit and fixed costs are
Sinclair Manufacturing and Boswell Brothers Inc. are both involved in the production of brick for the homebuilding industry. Their financial information is as follows:a. If you combine Sinclair€™s capital structure with Boswell€™s operating plan, what is the degree of combined
DeSoto Tools Inc. is planning to expand production. The expansion will cost $300,000, which can be financed either by bonds at an interest rate of 14 percent or by selling 10,000 shares of common stock at $30 per share. The current income statement before expansion is as follows:After the
Dickinson Company has $12 million in assets. Currently half of these assets are financed with long-term debt at 10 percent and half with common stock having a par value of $8. Ms. Smith, vice-president of finance, wishes to analyze two refinancing plans, one with more debt (D) and one with more
Edsel Research Labs has $27 million in assets. Currently, half of these assets are financed with long-term debt at 5 percent and half with common stock having a par value of $10. Ms. Edsel, the vice-president of finance, wishes to analyze two refinancing plans, one with more debt (D) and one with
The Lopez-Portillo Company has $10.6 million in assets, 80 percent financed by debt, and 20 percent financed by common stock. The interest rate on the debt is 9 percent and the par value of the stock is $10 per share. President Lopez-Portillo is considering two financing plans for an expansion to
Mr. Gold is in the widget business. He currently sells 1.5 million widgets a year at $6 each. His variable cost to produce the widgets is $4 per unit, and he has $1,550,000 in fixed costs. His sales-to-assets ratio is six times, and 30 percent of his assets are financed with 10 percent debt, with
Delsing Canning Company is considering an expansion of its facilities. Its current income statement is as follows:Sales ..................$5,500,000Less: Variable expense (50% of sales) ..... 2,750,000Fixed expense............... 1,850,000Earnings before interest and taxes (EBIT) ....
a. Analyze Ryan Boot Company, using ratio analysis. Compute the ratios on the prior page for Ryan and compare them to the industry data that is given. Discuss the weak points, strong points, and what you think should be done to improve the company’s performance.b. In your analysis, calculate the
What issue does agency theory examine? Why is it important in a public corporation rather than in a private corporation?
Why are institutional investors important in today's business world?
Why is profit maximization, by itself, an inappropriate goal? What is meant by the goal of maximization of shareholder wealth?
When does insider trading occur? What government agency is responsible for protecting against the unethical practice of insider trading?
What changes can take place under restructuring? In recent times, what group of investors has often forced restructuring to take place?
What form of partnership allows some of the investors to limit their liability? Explain briefly.
What is the difference between a primary and a secondary market? Discuss.
What are the basic benefits and purposes of developing pro forma statements and a cash budget?
Explain how the collections and purchases schedules are related to the borrowing needs of the corporation.
With inflation, what are the implications of using LIFO and FIFO inventory methods? How do they affect the cost of goods sold?
Rapid corporate growth in sales and profits can cause financing problems. Elaborate on this statement. Discuss.
What conditions would help make a percent-of-sales forecast almost as accurate as pro forma financial statements and cash budgets?
Discuss the advantage and disadvantage of level production schedules in firms with cyclical sales.
Eli Lilly is very excited because sales for his nursery and Plant Company are expected to double from $600,000 to $1,200,000 next year. Eli notes that net assets (Assets — Liabilities) will remain at 50 percent of sales. His firm will enjoy an 8 percent return on total sales. He will start the
Philip Morris expects the sales for his clothing company to be $550,000 next year. Philip notes that net assets (Assets – Liabilities) will remain unchanged. His clothing firm will enjoy a 12 percent return on total sales. He will start the year with $150,000 in the bank. What would Philip's
Galehouse Gas Stations Inc. expects sales to increase from $1,550,000 to $1,750,000 next year. Mr. Galehouse believes that net assets (Assets ( Liabilities) will represent 50 percent of sales. His firm has an 8 percent return on sales and pays 45 percent of profits out as dividends.a. What effect
The Alliance Corp. expects to sell the following number of units of copper cables at the prices indicated, under three different scenarios in the economy. The probability of each outcome is indicated. What is the expected value of the total salesprojection?
Bronco Truck Parts expects to sell the following number of units at the prices indicated under three different scenarios in the economy. The probability of each outcome is indicated. What is the expected value of the total salesprojection?
Cyber Security Systems had sales of 3,500 units at $75 per unit last year. The marketing manager projects a 30 percent increase in unit volume sales this year with a 40 percent price increase. Returned merchandise will represent 8 percent of total sales. What is your net dollar sales projection for
Dodge Ball Bearings had sales of 15,000 units at $45 per unit last year. The marketing manager projects a 30 percent increase in unit volume sales this year with a 20 percent price decrease (due to a price reduction by a competitor). Returned merchandise will represent 8 percent of total sales.
Sales for Ross Pro’s Sports Equipment are expected to be 4,800 units for the coming month. The company likes to maintain 10 percent of unit sales for each month in ending inventory. Beginning inventory is 300 units. How many units should the firm produce for the coming month?
Vitale Hair Spray had sales of 13,000 units in March. A 70 percent increase is expected in April. The company will maintain 30 percent of expected unit sales for April in ending inventory. Beginning inventory for April was 650 units. How many units should the company produce in April?
Delsing Plumbing Company has beginning inventory of 16,500 units, will sell 55,000 units for the month, and desires to reduce ending inventory to 25 percent of beginning inventory. How many units should Delsing produce?
On December 31 of last year, Wolfson Corporation had an inventory of 450 units of its product, which cost $22 per unit to produce. During January, the company produced 850 units at a cost of $25 per unit. Assuming that Wolfson Corporation sold 800 units in January, what was the cost of goods sold?
At the end of January, Higgins Data Systems had an inventory of 650 units, which cost $16 per unit to produce. During February, the company produced 950 units at a cost of $19 per unit. If the firm sold 1,150 units in February, what was its cost of goods sold? (Assume LIFO inventory accounting.)
At the end of January, Mineral Labs had an inventory of 775 units, which cost $12 per unit to produce. During February, the company produced 900 units at a cost of $16 per unit. If the firm sold 1,500 units in February, what was the cost of goods sold?a. Assume LIFO inventory accounting.b. Assume
Convex Mechanical Supplies produces a product with the following costs as of July 1, 2012:Material ............................... $ 6Labor .................................. 4Overhead ............................ 2 $12Beginning inventory at these costs on July 1 was 5,000
The Bradley Corporation produces a product with the following costs as of July 1, 2014:Material .........$4 per unitLabor .......... 4 per unitOverhead ....... 2 per unitBeginning inventory at these costs on July 1 was 3,250 units. From July 1 to December 1, 2014, Bradley produced 12,500 units.
Sprint Shoes Inc. had a beginning inventory of 9,250 units on January 1, 2013. The costs associated with the inventory were:Material .........$15.00 per unitLabor ........... 8.00 per unitOverhead ........ 7.10 per unitDuring 2013, the firm produced 43,000 units with the following costs:Material
J. Lo’s Clothiers has forecast credit sales for the fourth quarter of the year as:September (actual)......................$70,000Fourth QuarterOctober ....................................$60,000November ................................ 55,000December .................................
Simpson Glove Company has made the following sales projections for the next six months. All sales are credit sales.March .........$41,000April......... 50,000May......... 32,000June......... 47,000July......... 58,000August ....... 62,000Sales in January and February were $41,000 and $39,000,
Watt’s Lighting Stores made the following sales projection for the next six months. All sales are credit sales.March .......... $35,000April ............ 41,000May ............ 30,000June ............ 39,000July ........... 47,000August .......... 49,000Sales in January and February were
Ultravision Inc. anticipates sales of $290,000 from January through April. Materials will represent 50 percent of sales, and because of level production, material purchases will be equal for each month during the four months of January, February, March, and April.Materials are paid for one month
Harry€™s Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are
Archer Electronics Company€™s actual sales and purchases for April and May are shown here, along with forecasted sales and purchases for June through September.The company makes 20 percent of its sales for cash and 80 percent on credit. Of the credit sales, 50 percent are collected in the month
The Manning Company has financial statements as shown next, which are representative of the company’s historical average.The firm is expecting a 35 percent increase in sales next year, and management is concerned about the company’s need for external funds. The increase in sales is
Conn Mana's Shops Inc., a national clothing chain, had sales of $350 million last year. The business has a steady net profit margin of 9 percent and a dividend payout ratio of 25 percent. The balance sheet for the end of last year is shown next.The firm’s marketing staff has told the
Mansfield Corporation had 2013 sales of $100 million. The balance sheet items that vary directly with sales and the profit margin are as follows:PercentCash ..............5%Accounts receivable ........15Inventory ............20Net fixed assets .........40Accounts payable ........15Accruals
The difficult part of solving a problem of this nature is to know what to do with the information contained within a story problem. Therefore, this problem will be easier to complete if you rely on Chapter 4 for the format of all required schedules.The Marsh Corporation makes standard-size 2-inch
What are the basic advantages to the corporation of issuing convertible securities? Discuss.
The price of Haltom Corporation 5¼ 2019 convertible bonds is $1,380. For the Williams Corporation, the 6⅛ 2018 convertible bonds are selling at $725.a. Explain what factors might cause their prices to be different from their par value of $1,000.b. What will happen to each bond’s value if
Explain how convertible bonds and warrants are similar and different.
Why are investors willing to pay a premium over the theoretical value (pure bond value or conversion value)?
Why is it said that convertible securities have a floor price?
How can a company force conversion of a convertible bond?
Explain why warrants are issued. (Why are they used in corporate finance?)
What are the reasons that warrants often sell above their intrinsic value?
Suggest two areas where the use of futures contracts is most common. What percent of the value of the underlying security is typical as a down payment in a futures contract?
You buy a stock option with an exercise price of $50. The cost of the option is $4. If the stock ends up at $56, indicate whether you have a profit or loss with a call option? With a put option?
Preston Toy Co. has warrants outstanding that allow the holder to purchase a share of stock for $22 (exercise price). The common stock is currently selling for $28, while the warrant is selling for $9.25 per share.a. What is the intrinsic (minimum) value of this warrant?b. What is the speculative
Quantum Inc. has warrants outstanding that allow the holder to purchase 1.5 shares of stock per warrant at $30 per share (exercise price). Thus, each individual share can be purchased at $30 with the warrant. The common stock is currently selling for $36. The warrant is selling for $12.a. What is
The warrants of Integra Life Sciences allow the holder to buy a share of stock at $11.75 and are selling for $2.85. The stock price is currently $8.50. To what price must the stock go for the warrant purchaser to at least be assured of breaking even?
The warrants of Dragon Pet Co. allow the holder to buy a share of stock at $26.20 and are selling for $14.10. The stock price is currently $23.50. To what price must the stock go for the warrant purchaser to at least be assured of breaking even?
Plunkett Gym Equipment Inc. has a $1,000 par value convertible bond outstanding that can be converted into 25 shares of common stock. The common stock is currently selling for $34.75 a share, and the convertible bond is selling for $960.a. What is the conversion value of the bond?b. What is the
O’Reilly Moving Company has a $1,000 par value convertible bond outstanding that can be converted into 20 shares of common stock. The common stock is currently selling for $43.10 a share, and the convertible bond is selling for $900.00.a. What is the conversion value of the bond?b. What is the
The bonds of Goniff Bank & Trust have a conversion premium of $90. Their conversion price is $20. The common stock price is $16.50. What is the price of the convertible bonds? Discuss.
The bonds of Generic Labs Inc. have a conversion premium of $70. Their conversion price is $25. The common stock price is $22.50. What is the price of the convertible bond?
Sherwood Forest Products has a convertible bond quoted on the NYSE bond market at 90. (Bond quotes represent the percentage of par value. Thus, 70 represents $700, 80 represents $800, and so on.) It matures in 10 years and carries a coupon rate of 5½ percent. The conversion ratio is 25, and the
Reynolds Technology has a convertible bond outstanding, trading in the marketplace at $835. The par value is $1,000, the coupon rate is 9 percent, and the bond matures in 25 years. The conversion ratio is 20, and the company’s common stock is selling for $41 per share. Interest is paid
Pittsburgh Steel Company has a convertible bond outstanding, trading in the marketplace at $960. The par value is $1,000, the coupon rate is 10 percent, and the bond matures in 20 years. The conversion price is $55 and the company’s common stock is selling for $48 per share. Interest is paid
The Olsen Mining Company has been very successful in the last five years. Its $1,000 par value convertible bonds have a conversion ratio of 32. The bonds have a quoted interest rate of 7 percent a year. The firm’s common stock is currently selling for $41.30 per share. The current bond price has
Standard Olive Company of California has a convertible bond outstanding with a coupon rate of 5 percent and a maturity date of 20 years. It is rated Aa, and competitive, nonconvertible bonds of the same risk class carry a 10 percent return. The conversion ratio is 15. Currently the common stock is
Defense Systems Inc. has convertible bonds outstanding that are callable at $1,070. The bonds are convertible into 33 shares of common stock. The stock is currently selling for $39.25 per share.a. If the firm announces it is going to call the bonds at $1,070, what action are bondholders likely to
Vernon Glass Company has $15 million in 10 percent convertible bonds outstanding. The conversion ratio is 40, the stock price is $17, and the bond matures in 10 years. The bonds are currently selling at a conversion premium of $45 over their conversion value.If the price of the common stock rises
Assume you can buy a warrant for $6 that gives you the option to buy one share of common stock at $14 per share. The stock is currently selling at $18 per share.a. What is the intrinsic value of the warrant?b. What is the speculative premium on the warrant?c. If the stock rises to $29 per share and
The Redford Investment Company bought 100 Cinema Corp. warrants one year ago and would like to exercise them today. The warrants were purchased at $24 each, and they expire when trading ends today (assume there is no speculative premium left). Cinema Corp. common stock is selling today for $50 per
The Gifford Investment Company bought 90 Cable Corporation warrants one year ago and would like to exercise them today. The warrants were purchased at $25 each, and they expire when trading ends today. (Assume there is no speculative premium left.) Cable Corporation common stock was selling for $49
Mr. John Hailey has $1,000 to invest in the market. He is considering the purchase of 50 shares of Comet Airlines at $20 per share. His broker suggests that he may wish to consider purchasing warrants instead. The warrants are selling for $10, and each warrant allows him to purchase one share of
Online Network Inc. has a net income of $650,000 in the current fiscal year. There are 100,000 shares of common stock outstanding, along with convertible bonds, which have a total face value of $1.6 million. The $1.6 million is represented by 1,600 different $1,000 bonds. Each $1,000 bond pays 6
Myers Drugs Inc. has 1.20 million shares of stock outstanding. Earnings after taxes are $9 million. Myers also has warrants outstanding that allow the holder to buy 100,000 shares of stock at $15 per share. The stock is currently selling for $50 per share.a. Compute basic earnings per share.b.
Tulsa Drilling Company has $1.3 million in 12 percent convertible bonds outstanding. Each bond has a $1,000 par value. The conversion ratio is 40, the stock price is $36, and the bonds mature in 10 years. The bonds are currently selling at a conversion premium of $60 over the conversion value.a.
Manpower Electric Company has 6 percent convertible bonds outstanding. Each bond has a $1,000 par value. The conversion ratio is 20, the stock price $36, and the bonds mature in 16 years.a. What is the conversion value of the bond?b. Assume after one year that the common stock price falls to
Fondren Exploration Ltd. has 1,000 convertible bonds ($1,000 par value) outstanding, each of which may be converted to 50 shares of stock. The $1 million worth of bonds has 25 years to maturity. The current price of the stock is $26 per share. The firm’s net income in the most recent fiscal year
United Technology Corporation (UTC) has $40 million of convertible bonds outstanding (40,000 bonds at $1,000 par value) with a coupon rate of 11 percent. Interest rates are currently 8 percent for bonds of equal risk. The bonds have 15 years left to maturity. The bonds may be called at a 9 percent
The Denver Corporation has forecast the following sales for the first seven months of the year:Monthly material purchases are set equal to 40 percent of forecasted sales for the next month. Of the total material costs, 50 percent are paid in the month of purchase and 50 percent in the following
Wright Lighting Fixtures forecasts its sales in units for the next four months as follows:March ............................. 4,000April ............................... 10,000May ................................ 8,000June ............................... 6,000Wright maintains an ending
The Volt Battery Company has forecast its sales in units as follows:Volt Battery always keeps an ending inventory equal to 110 percent of the next month’s expected sales. The ending inventory for December (January’s beginning inventory) is 1,460 units, which is consistent with this
Graham Potato Company has projected sales of $6,000 in September, $10,000 in October, $16,000 in November, and $12,000 in December. Of the company’s sales, 20 percent are paid for by cash and 80 percent are sold on credit. Experience shows that 40 percent of accounts receivable are paid in the
Owen’s Electronics has nine operating plants in seven Southwestern states. Sales for last year were $100 million, and the balance sheet at year-end is similar in percentage of sales to that of previous years (and this will continue in the future). All assets (including fixed assets) and
What risks does a foreign affiliate of a multinational firm face in today’s business world?
List the factors that affect the value of a currency in foreign exchange markets.
What is meant by translation exposure in terms of foreign exchange risk?
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