Analysis For Financial Management 9th Edition Robert C Higgins - Solutions

=i. A couple wishes to save $250,000 over the next 18 years for their child's college education. What uniform annual amount must they deposit at the end of each year to accomplish their objective?
=h. What will be the value in 20 years of $500 invested at the end of each year for the next 20 years?
=g. How long will it take for a $2,000 investment to double in value?
=f. What will be the value in 7 years of $12,000 invested today?
=e. How much would you pay for a share of preferred stock paying a$5-per-share annual dividend forever?
=d. How much would you pay for a 10-year bond with a par value of$1,000 and a 7 percent coupon rate? Assume interest is paid annually.
=c. How much would you pay for the right to receive $5,000 at the end of year 1, $4,000 at the end of year 2, and $8,000 at the end of year 10?
=b. What is the present value of $1,000 in 8 years? Why does the present value fall as the number of years increases?
=a. What is the present value of $1,000 to be received in 4 years?
=1. Answer the following questions assuming the interest rate is 10 percent.
=b. Given the nature of these companies' operations and assets, which company would you expect to exhibit higher leverage, and why?
=a. For fiscal year 2004, compare several coverage and leverage ratios of The Boeing Company with those of Oracle Corp. (Excel Analytics, Annual Ratio Report). Which company has the higher financial leverage?
=14. Use the Standard and Poor's Market Insight website, www.mhhe.com/edumarketinsight, for this problem.
=d. Based on this rating, would a significant increase in financial leverage be a prudent strategy for Jasmine Apparel?
=c. Consulting Table 6.5 in the text, what bond rating would Jasmine Apparel have in 2005 if the rating were based solely on the firm's interest coverage ratio?
=b. Calculate the percentage EBIT can fall before interest coverage dips below 1.0 for each year in the forecast.
=a. Calculate the company's annual times-interest-earned ratio over the forecast period.
=13. Problem 13, partf. in Chapter 3 asks you to construct a five-year financial projection for Jasmine Apparel beginning in 2006. Based on your forecast, or the suggested answer in C3_Problem_13.xls, answer the questions below. The file is available at www.mhhe.com/higgins8e.(Select Student
=12. This problem asks you to evaluate a major increase in financial leverage on the part of Avon Products Inc. The company's financial statements for 2001–2003 and specific questions are available for download at www.mhhe.com/higgins8e. (Select Student Edition > Choose a Chapter> Excel
=d. Calculate next year's times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Aether sells 2 million new shares at $20 a share instead of raising new debt.
=c. Calculate next year's earnings per share assuming Aether raises the $40 million of new debt.
=b. Calculate Aether's times-burden-covered ratio for the next year assuming annual sinking-fund payments on the new debt will equal $8 million.
=11. As the financial vice president for Aether Media, you have the following information:a. Calculate Aether's times-interest-earned ratio for next year assuming the firm raises $40 million of new debt at an interest rate of 7 percent.
=b. Can you think of any reasons a share repurchase might be preferable to a special dividend?
=a. If management estimates that a stock repurchase announcement will increase stock price by 5 percent, how many shares should they be prepared to repurchase?
=10. The equity of Enterprise Holds Inc. has a market value of $3 million. It currently has 300,000 shares outstanding, and a book value of equity of$1,095,000. An unexpected cash windfall has prompted management to consider either a special dividend of $6.00 per share or a stock repurchase for
=e. Why might management be inclined to follow this pecking order?
=d. What does the pecking-order theory say about how management will rank these options?
=c. Suppose earnings fall below forecast every year. What options does the company have for continuing to fund its investments?
=b. Assume the company wants a stable payout ratio over time and plans to use its marketable securities portfolio as a buffer to absorb year-to-year variations in earnings and investments. Set the annual payout ratio equal to the five-year sum of total dividends paid in question a divided by total
=a. According to this forecast, what dividends will the company be able to distribute annually without raising new equity? What will the annual dividend payout ratio be?
=9. This is a more difficult but informative problem. James Brodrick & Sons, Inc., is growing rapidly and, if at all possible, would like to finance its growth without selling new equity. Selected information from the company's five-year financial forecast follows.
=e. At what price should FARO expect its existing shares to sell immediately after the announcement?
=d. What percentage of the value of FARO's existing equity prior to the announcement is this expected gain or loss?
=c. What percentage of the amount of money FARO intends to raise is this expected gain or loss?
=b. How large a gain or loss in aggregate dollar terms do market signaling studies suggest existing FARO shareholders will experience on the announcement date?
=a. What do market signaling studies suggest will happen to FARO's stock price on the announcement date? Why?
=8. FARO Technologies, whose products include portable 3-D measurement equipment, has 400 million shares outstanding trading at $5 a share. The company announces its intention to raise $200 million by selling new shares.
=7. Explain how each of the following changes will affect Harbridge Electronix's range of earnings chart, Figure 6.2. Which changes would make debt financing more attractive, which less attractive?a. An increase in the interest rate on debt.b. An increase in Harbridge's stock price.c. Increased
=e. Based on your analysis, is Playtex heavily or modestly indebted? Should the company acquire more debt, or shed existing debt? Why?
=d. Playtex is a family of well-known retail brands. It is number 1 or 2 in each of its three main businesses: tampons, suntan lotion, and infant care. In general terms, how costly do you think financial trouble would be to Playtex if it began to appear the company might default on its debt? Why?
=c. How volatile has Playtex's operating income been over the period 1996–2001?
=b. How much could EBIT have fallen in 2001 before Playtex would have been unable to make its interest payments out of operating income?
=a. What were Playtex's debt-to-assets and times-interest-earned ratios in 2000 and 2001?
=6. You can access Playtex Products Inc.'s SEC filings, including 10-Ks(annual reports) at www.edgarscan.pwcglobal.com.
=5. The chapter discusses potential conflicts of interest between shareholders and bondholders. Some argue that bondholders can protect themselves against stockholder expropriation by writing bond covenants. Covenants are provisions in the loan contract requiring or prohibiting firm actions, such
=b. Why do you suppose that many promising small businesses apparently do not follow this recommendation?
=a. Why should companies with promising investment opportunities strive to maintain conservative capital structures?
=3. One recommendation in the chapter is that companies with promising investment opportunities should strive to maintain a conservative capital structure. Yet many promising small businesses are heavily indebted.
=1. Headquartered in Germany, SAP Ag is a leader in the enterprise application software business. General Motors is the world's largest car manufacturer. Which company do you think would bear heavier costs in the event of financial difficulties? Why? What does this imply for their respective
=1.a. Is a company better or worse off when the market value of its liabilities falls $10 million? Why?
=b. If you owned a company, would you prefer the market value of its assets to rise $10 million or the market value of its liabilities to fall$10 million? Why?
=2. What does it mean when cash flow from operations on a company's cash flow statement is negative? Is this bad news? Is it dangerous?
=4. Explain briefly how each of the following transactions would affect a company's balance sheet. (Remember, assets must equal liabilities plus owners' equity before and after the transaction.)a. Purchase of a new $40 million building, financed 25 percent with cash and 75 percent with a bank
=5. The book value of Nott's Nursery's total assets is $400,000. Suppose Golden Gardens Inc. acquires Nott's Nursery's assets for $1 million and finances the purchase by selling $600,000 in new stock,$300,000 in new debt, and reducing cash by $100,000. Describe how the acquisition affects Golden
=6. Table 3.1 in Chapter 3 presents financial statements over the period 2002–2005 for R&E Supplies, Inc.a. Construct a sources and uses statement for the company over this period (one statement for all three years).
=b. What insights, if any, does the sources and uses statement give you about the financial position of R&E Supplies?
=8. You manage a real estate investment company. One year ago the company purchased 10 parcels of land distributed throughout the community for $1 million each. A recent appraisal of the properties indicates that five of the parcels are now worth $800,000 each, while the other five are worth $1.6
=e. After returning from a property management seminar, an employee recommends the company adopt an end-of-year policy of always selling properties that have risen in value since purchase, and always retaining properties that have fallen in value. The employee explains that with this policy the
=9. Please ignore taxes for this problem. During 2004, Beckey Construction earned net income of $250,000. The firm neither bought nor sold any capital assets. The book value of its assets declined by the year's depreciation charge, which was $200,000. The firm's operating cash flow for the year was
=10. Martha currently performs for a ballet company that pays her a salary of $30,000 a year. She is considering quitting this job and opening her own dance company. She estimates the annual revenues from the company will be $95,000 and that total annual expenses for operating the company, ignoring
=11. Selected information about Sam ‘n' Ella's Chicken Delight, a chain of hot new restaurants, follows.
=a. During 2006 how much cash did Sam ‘n' Ella's collect from sales?
=b. During 2006 what was the cost of goods produced by the company?c. Assuming the company neither sold nor salvaged any assets during
=the year, what were the company's capital expenditures during 2006?
=12. Below are summary cash flow statements for three roughly equalsize companies
=a. Calculate each company's cash balance at the end of the year.
=b. Explain what might cause company C's net cash from financing activities to be negative.
=c. Looking at companies A and B, which company would you prefer to own? Why?d. Is company C's cash flow statement cause for any concern on the part of C's management or shareholders? Why or why not?
=13. Epic Record's equity has a market value of $5 million with 500,000 shares outstanding. The book value of its equity is $1,750,000.
=a. What is Epic's stock price per share? What is its book value per share?
=b. If the company repurchases 20 percent of its shares in the stock market, how will this affect the book value of equity if all else remains the same?
=c. If there are no taxes or transaction costs, and investors do not change their perceptions of the firm, what should the market value of the firm be after the repurchase?
=14. Use Standard & Poor's Market Insight website(www.mhhe.com/edumarketinsight) for this problem. Yahoo Inc.reported a $92.8 million loss in 2001.
=a. Does this necessarily mean the company's operating activities consumed cash in 2001? Explain.
=b. Looking at the company's 2001 Annual Statement of Cash Flows, did operating activities consume cash or generate cash? How much?
=c. What was Yahoo's single largest operating source of cash in 2001?Explain how this could be a source of cash.
=15. Use Standard & Poor's Market Insight website (www.mhhe.com/edumarketinsight) for this problem.
=a. What was the ratio of the market value of equity to the book value of equity for eBay, Inc. at year-end 2003? (From the “Excel Analytics”tools on the left of the screen, consult “Valuation Data, Profitability.”)
=b. What growth rate in sales did eBay achieve in 2002 and 2003?(From the Excel Analytics tools, consult Annual Income Statements and select the % Change tab on the spreadsheet.)
=c. Might eBay's high market-to-book ratio be due to its growth rate?Explain.
=16. An Excel spreadsheet containing the Whistler Corporation's financial statements is available for download at www.mhhe.com/higgins8e. (Select Student Edition > Choose a Chapter > Excel Spreadsheets.) Use the statements to create a sources and uses statement and a cash flow statement for the
=1. Following are selected ratios for Houston Exploration Corp. (an oil and gas exploration company) and Dean Foods Co. (a dairy products firm) for the year 2000. Which set of ratios belongs to Houston.Why do you think so?
=2.a. Which company would you expect to have the higher debt-toequity ratio, a financial institution or a high-technology company?Why?
=b. Which company would you expect to have a higher profit margin, an appliance manufacturer or a wholesale grocer? Why?
=c. Which company would you expect to have a higher price-toearnings ratio, Mantis Tractors or Glue-gull Internet Inc.? Why?
=d. Which company would you expect to have a higher current ratio, a jewelry store or a retail bookstore? Why?
=3. True or false?a. A company's return on equity will always equal or exceed its return on assets.b. A company's assets-to-equity ratio always equals one plus its liabilities-to-equity ratio.c. A company's collection period should always be less than its payables period.d. A company's current
=4. Your firm is considering the acquisition of a very promising Internet company. One executive argues against the move, pointing out that because the Internet company is presently losing money, the acquisition will cause your firm's return on equity to fall.a. Is the executive correct in
=5. Financial data for HomeDepot.com Inc. follows: ($ in thousands)
=a. Calculate the current and quick ratio at the end of each year. How has the company's short-term liquidity changed over this period?b. Assuming a 365-day year for all calculations, compute the following:(1) The collection period each year based on sales.(2) The inventory turnover, and the
=c. What is your interpretation of the company's performance?
=7. Answer the questions below based on the following information.Taxes are 35 percent and all dollars are in millions.
=a. Calculate each company's ROE, ROA, and ROIC.
=b. Why is company Z's ROE so much higher than X's? Does this mean Z is a better company? Why or why not?
=c. Why is company X's ROA higher than Z's? What does this tell you about the two companies?
=d. How do the two companies' ROICs compare? What does this suggest about the two companies?
=8. Table 3.1 in Chapter 3 presents financial statements over the period 2002 through 2005 for R&E Supplies, Inc.a. Use these statements to calculate as many of the ratios in Table 2.2 as you can.b. What insights do these ratios provide about R&E's financial performance? What problems, if any, does
=9. Terravision Inc.'s sales last year totaled $75 million, and 80 percent of its sales are on credit. Terravision's collection period is 60 days.What was Terravision's year-end accounts receivable balance?
=10. In 2004, Natural Selection, a nationwide computer dating service, had $200 million of assets and $80 million of liabilities. Earnings before interest and taxes were $50 million, interest expense was $12 million, the tax rate was 40 percent, principal repayment requirements were $10 million,

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Analysis For Financial Management 9th Edition Robert C Higgins - Solutions

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