Entrepreneurial Finance 6th edition Philip J. Adelman; Alan M. Marks - Solutions

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Write your own analysis program to calculate a common size income statement and the ratios introduced in this chapter. To keep the exercise reasonably simple, just provide for one year of ratios and one common size statement.Construct an input area in your spreadsheet in the form of an income
Comment on the value of the formula (EFR) approach to estimating funding requirements. Could it create more problems than it solves?
You're the CFO of the Ramkin Company, which makes and sells electronic equipment. The firm was originally an independent business, but was acquired by the larger BigTech Inc. ten years ago, and is now operated as a division. BigTech has an elaborate planning system requiring all divisions to
Livetree Ltd. is developing a detailed financial plan for next year, and expects to have the following fixed asset accounts by the end of this year ($000)Gross.............$45,789Accumulated Depreciation.. (26,328)Net Fixed Assets........ $19,461The capital plan already completed calls for
The management of Coker Corp is doing a quick forecast of 20X9 using the modified percentage of sales method in preparation for a more detailed planning exercise later in the month. The estimate is to assume a 10% growth in sales. All other line items are to be assumed to grow at the same rate
List the traditional qualifications for a mortgage loan and describe how each protects the lender.
What bank problems does securitization solve?
What is a tranche and how was its risk estimated before the crisis.
What factors are likely to push the reset payment up in a NegAm loan?
Why would a rational borrower take out a NegAm loan?
Why did credit default swaps make the crisis worse?
What was the trigger that started the crisis? If it didn’t happen would the crisis have been averted?
Explain the nature of the potential lending losses associated with each of the following: default risk, liquidity risk, maturity risk.
Refer to the Microsoft stock quotation on page 194. Demonstrate that the price earnings (P/E) ratio is consistent with other information in the listing.
Sam Lawson is a vice president at a large communications firm. His compensation includes a salary of $400,000, a bonus of $200,000 and a stock option package that allows him to purchase 30,000 shares of the company’s stock at $45 per share. He can exercise the option anytime within a three year
If Sharon Henderson of the previous problem is also a founder of the company and has retained 8 million shares of its stock, how much of a difference will the auditors’ decision make in her personal wealth outside of the stock option?
What information are we likely to be interested in that’s contained in a loan amortization schedule?
In a retail store a discount is a price reduction. What's a discount in finance? Are the two ideas related?
Blanchard Inc. would like to borrow $12 million for 20 years through a bond issue but has been having difficulty finding lenders willing to advance that much. The firm’s investment banker has advised the CFO that potential bond buyers are not worried about Blanchard’s ability to make the
Annuities are attractive investment vehicles for retirement savings as many people prefer an income stream in retirement to a lump sum in the bank. It’s easy to trade one for the another by purchasing an annuity for its discounted value from a bank or an insurance company.Lisa Montgomery just
Sam Rothstein wants borrow $15,500 to be repaid in quarterly installments over five years at 16% compounded quarterly. How much will his payment be?
Harry Clements would like to buy a new car. He can afford payments of $650 a month. The bank makes four-year car loans at 12% compounded monthly. How much can Harry borrow toward a new car?
What are the monthly payments on the loan? Construct an amortization table for the first six months of the loan.
How soon would the loan be paid off if the borrower made a single additional payment of $33,000 to reduce principal at the end of the fifth year?
Harrison Conway is choosing between a fix rate and an adjustable rate mortgage (ARM) for $300,000. Both are 30 year mortgages with monthly payments and compounding. The fixed rate is offered at 8% while the initial rate on the ARM is 6%. Harrison is concerned that inflation may be a problem within
Roper Metals Inc. is in negotiations to acquire the Hanson Sheet Metal Company. Hanson’s after tax earnings have averaged $19 million per year for the last four years without much variation around that average figure. So far discussions have been about the business fit of the two firms and
Local banks are all offering 6% compounded monthly on five year Certificates of Deposit. Hanover Bank has offered continuous compounding at the same rate on new CDs hoping to attract additional customers. Sharon Shaker has just received a $50,000 royalty check for a romance novel she wrote last
Use amount and annuity techniques to calculate the present value of the following pattern of annual cash flows at an annual interest rate of 12%. Round to the nearest dollar.
Home mortgage rates are determined by market forces and individual borrowers can't do much about them. The time it takes to pay off a mortgage loan, however, varies a great deal with the size of the monthly payment, which is under the borrower's control.You're a junior loan officer for a large
Jake Cornwall just bought a $1,000 par value, 8% coupon rate, 30 year bond of the Pristine Corp. Interest rates had risen somewhat between the time the coupon rate was set and the bond was issued, so Jake got it at a discount paying only $950. The bond is convertible into 50 shares of stock at a
Harvester Inc. has net income of $75,000,000 and 15,000,000 shares of common stock outstanding. Several years ago it issued 10,000, 8% coupon, 30 year convertible debentures at a par value of $1,000. The conversion price was set at $25 the price of the stock at the time was about $18. The company
Use BONDVAL to find the YTM of the following $1,000 par value bonds.
What argument was made against adopting FASB?
Is the IPO Pop experienced by most new stocks likely to be a reflection of market forces driving shares toward their intrinsic values?
How is the IPO price of a stock determined? Is that price likely to be the stock’s intrinsic value?
General Machine Works Inc. (GMW) has been losing money for some time but has managed to maintain an annual dividend of $1.. The company’s strategy is to restructure by getting smaller while working on labor and product line problems at the same time. Once that’s done management feels the firm
Mitech Corp’s stock has been growing at approximately 8% for several years and is now $30. Based on past growth rate performance, what would you expect the stock’s price to be in five years?
Threads Inc. manufactures stylish clothing for teenagers. The firm has a beta of 1.4 and earned a return on equity of 20% last year. However, a new financial crisis has just hit the stock market and Wall Street experts think the return on an average stock will be cut in half this year. The market
The stocks in the problem 11 have the following betas.Stock....BetaA......... 1.1B......... 0.6C......... 1.0D......... 1.6E......... 0.8Calculate Laurel’s portfolio beta for last year and for this year. Assume that the changes I investment (value) come from changing stock prices rather than
Relate the idea of cost of capital to the opportunity cost concept. Is the cost of capital the opportunity cost of project money?
The payback technique is criticized for not using discounted cash flows. Under what conditions will this matter most? That is, under what patterns of cash flow will payback and NPV or IRR be likely to give different answers?
Callaway Associates, Inc. is considering the following mutually exclusive projects. Callaway€™s Cost of capital is 12%.a. Calculate each project€™s NPV and IRR.b. Which project should be undertaken? Why?
Calculate IRRs for the projects in the previous problem.In previous problem
Find the MIRR and the IRR for the following capital budgeting project and comment on the difference between the two. The cost of capital is 12%.
Oxbow Inc. is contemplating a new venture project and has done a detailed five year cash flow estimate with the following result ($000):The firm€™s cost of capital is 12%.a. Use a financial calculator to compute the project€™s NPV and IRR, and make the appropriate recommendation to
One of the problems of using simulation to incorporate risk into capital budgeting is related to the idea that the probability distributions of successive cash flows usually are not independent. If the first period's cash flow is at the high end of its range, for example, flows in subsequent
Rationalize the appropriateness of using the cost of capital to analyze normally risky projects and higher rates for those with more risk.
Evaluate the conceptual merits of applying CAPM theory to the problem of determining risk adjusted interest rates for capital budgeting purposes. Form your own opinion based on your study of CAPM (Chapter 9) and the knowledge you're now developing of capital budgeting. The issue is concisely
Northwest Entertainment Inc. operates a multiplex cinema that has nine small theaters in one building. Business has been good lately and management is considering a project that will add five screens at an estimated cost of $3 million. The success of the expansion depends on whether local demand
The investor's return and the company's cost are opposite sides of the same coin—almost, but not quite. Explain.
Fuller, Inc. issued $100, 8% preferred stock five years ago. The shares are currently selling for $84.50. Assuming Fuller has to pay floatation costs of 10%, what is Fuller’s cost of preferred stock?
Klints Inc. paid an annual dividend of $1.45 last year. The firm’s stock sells for $29.50 per share, and the company is expected to grow at about 4% per year into the foreseeable future. Estimate Klints’ cost of retained earnings.
The Long-life Insurance Company of the preceding problem has several bonds outstanding that are currently selling to yield 9%. What does this imply about the cost of the firm's equity?
Explain the difference between a fixed and a variable cost. How do these concepts change as the time horizon lengthens? In other words, are the same things fixed over a 5-year planning period that are fixed in a typical 1-year period? What about a 10-year period? What's the relevant period when
The Spitfire Model Airplane Company has the following modified income statement ($000) at 100,000 units of production.Revenue............. $10,000Variable Cost ........... 6,500Fixed Cost ............ 2,200EBIT .............. $ 1,300Interest (@ 10%) ............. 500EBT .............. $ 800Tax (@
Because companies always have inventory and accounts receivable, most banks are happy to make long term loans to support those assets. Either refute or support that statement.
Outline the costs and benefits involved in the trade-off between a tighter versus a looser receivables policy.
How does a firm's operating cycle differ from its cash conversion cycle? Explain fully.
Speculate on the nature of the relationship between the credit and collections department and the sales department at Wachusett Window in the last two questions.
What is the effective interest rate on a $750,000 loan at 8% for 120 days if a 20% minimum compensating balance is required?
The Cranston Company would like to acquire the Lamont Company, but overtures made to management have been emphatically rebuffed. Five investors who were involved in the company's founding and continue to be active in its management own 45% of Lamont's stock. Charlie Hardnose, Cranston's Director of
Describe the difference between a floating and a fixed exchange rate system.
You're the CFO of the Overseas Sprocket Company, which imports a great deal of product from Europe and the Far East and is continually faced with exchange rate exposure on unfilled contracts. Harry Byrite, the head of purchasing, has a plan to avoid exchange rate losses. He suggests that the firm
You're the CFO of the Kraknee Roller Skate Company, which sells roller skates worldwide and also builds and operates roller rinks. Some time ago Archie Speedo, the head of international marketing proposed selling skates in Russia. Everyone thought he was crazy, but the idea turned out to be very
An American importer owes vendors the following sums a. 140,560 Canadian dollars b. 392,000 Australian dollars c. 1,362,000 Mexican pesos d. 680,540 British (U.K.) pounds e. 14,673 Euros State each debt in U.S. dollars.
Go to a currency exchange site on the internet and look up today's exchange rates for the currencies in problem 1. Resolve the problems using today's rates. Analyze how the rates have changed since August 16, 2012. In the problem An American importer owes vendors the following sums a. 140,560
What is a supply table? How do you obtain a supply curve from a supply table?
Explain the concept of a surplus of money versus a shortage of money.
What is risk? What is the difference between systematic and unsystematic risk?
What is a market? a) Name five types of markets in which you participate: b) What markets trade economic resources?
Compare marginal revenue, marginal cost, and marginal revenue product.
Distinguish between economic and financial capital
Discuss the value of the entrepreneur. What distinguishes the entrepreneur from the labor resource? Why are entrepreneurs unique?
Compare progressive, regressive, and proportional taxes. Give at least one example of each type of tax.
Carry Yoki’s Lounge consists of the following. Carry, the owner believed that people would come to hear a band play on Friday, Saturday, and Sunday evening. During the remainder of the week, she believed her customers would watch sporting events on several television sets located throughout the
Sam Club earned $50,000 and paid taxes of $10,000. Samantha Heart earned $60,000 and paid taxes of $12,000. If these taxes were paid to the same government agency, is the tax on income progressive, regressive, or proportional? Why did you reach this conclusion?
A friend came into your office and said that his bank was out to kill small businesses. You asked him what he meant by this remark, and he said that he read an article that said his bank had just loaned $10 million to a major automobile manufacturer at a rate of 3 percent, which is less than prime.
1. What effect did changes in government regulations have on the way Macy’s had to conduct its business? 2. What effect did the economy and current interest rates have on the ability of Macy’s to sell their business?
What is planning? Compare strategic planning with functional planning.
What are the pitfalls of franchising?
List and describe the components of a SWOT analysis.
List the major components of a business plan. What components are of primarily concerned to you, and why?
What is the significance of a business succession plan?
What role does the buy-sell agreement occupy in a business succession plan?
Discuss the federal government’s contracting programs
Develop a list of at least 10 products that exist today that did not exist 10 years ago.
List and briefly explain three forms of business ownership.
How does a limited partnership differ from a general partnership?
What advantages does a corporation have over a sole proprietorship? What are the disadvantages of a corporation?
Carol Jones wanted her business to increase sales by 50 percent over the next five years. To do this, she must hire three more people. She wanted to determine how to evaluate these people, so she lists their job specifications and develops job descriptions. She also listed where these employees
Jerry is a personnel manager for a large retail department store. He just received a memo stating that the company will build three new stores in Phoenix over the next five years, with one store opening in 24 months, one opening in 36 months, and one opening in 60 months. The memo that Jerry
Sam Jones, Mary Adams, and Larry Brown have been talking about starting their own business for several years. Sam is an electronic repairman, Mary is a partner in a large law firm, and Larry is an excellent sales person. Sam and Larry will work in the business on an equal basis. It will cost
Barry McGuire wants to purchase a dry-cleaning establishment. Barry has heard of the SWOT analysis and wants to use this methodology to determine whether he should purchase the business. He found the following information: The dry cleaner is located in a busy shopping center and currently does all
Joe Latte has completed a business plan and determined that it will take $120,000 to open the coffee and gelato shop. He has $30,000 of his own money and will have to obtain $90,000 in loans or grants. How should Joe go about getting financing? What is the probability that he can obtain a grant to
1. What were the management functions that Art used in his grandfather’s store and at S.E. Nichols? How were these functions carried out by the business? 2. Based on the duties that Art performed in his grandfather’s store and at S.E. Nichols, should Art be paid minimum wage? If your answer is
What is the difference between a current asset and a fixed asset?
Compare owner’s equity in a sole proprietorship, partner’s equity in a partnership, and stockholder’s equity in a corporation.
Compare variable and fixed expenses.
Describe the basic format of an income statement, listing all its sections.
What is the primary difference between the income statement of a sole proprietorship or partnership and the income statement of a corporation?

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Entrepreneurial Finance 6th edition Philip J. Adelman; Alan M. Marks - Solutions

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