Analysis for Financial Management 12th edition Robert C. Higgins - Solutions

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=b. What percentage decline in earnings before interest and taxes could Natural Selection have sustained before failing to cover(1) Principal repayment requirements(2) Common dividend payments?
=11. Given the following information, complete the balance sheet shown below.(All sales are on credit. All calculations assume a 365-day year.Payables period is based on cost of goods sold.)
=12. You will need to use the Standard & Poor's Market Insight website(www.mhhe.com/edumarketinsight) for this problem. Observe the sales-to-net property, plant, and equipment ratio for fiscal 2003 for each of the following companies: AMR Corp., Oracle Corp., Alcan Inc., and Yahoo Inc. (From among
=a. What does the ratio tell you about these companies?
=b. How can you explain the wide differences you observe in the ratio?
=13. An Excel spreadsheet containing Costco Wholesale Corporation's financial statements for 2001–2003 is available for download at www.mhhe.com/higgins8e. (Select Student Edition > Choose a Chapter > Excel Spreadsheets.) Use the spreadsheet to calculate as many of the company's Profitability,
=14. Use Gap, Inc.'s, financial statements available on the Web at www.mhhe.com/higgins8e to answer the questions below. (Select Student Edition > Choose a Chapter > Excel Spreadsheets.) Use the company's Operating Profit as an approximation of its EBIT, and you may assume a 40 percent tax rate for
=b. What percentage decline in earnings before interest and taxes could Gap have sustained in fiscal years 2003 and 2004 before failing to cover(1) Principal repayment requirements,(2) Common dividend payments?
=c. Prepare common-size financial statements for Gap, Inc., for 2002–2004.
=2. Harlin Fencing Company's sales, all on credit, for the past three months were:
=a. Estimate Harlin's cash receipts in October if the company's collection period is 30 days.
=b. Estimate Harlin's cash receipts in October if the company's collection period is 45 days.
=4. Table 3.5 presents a computer spreadsheet for estimating R&E Supplies'external financing required for 2006. The text mentions that with modifications to the equations for equity and net sales, the forecast can easily be extended through 2007. Write the modified equations for equity and net
=5. Using a computer spreadsheet, the information presented below, and the modified equations determined in question 4 above, extend the forecast for R&E Supplies contained in Table 3.5 through 2007. Is R&E's external financing required in 2007 higher or lower than in 2006?
=6. This and the following two problems demonstrate that pro forma forecasts, cash budgets, and cash flow forecasts all yield the same estimated need for external financing—provided you don't make any mistakes. For problems 6, 7, and 8, you may ignore the effect of added borrowing on interest
=7. Continuing problem 6, Pepperton's annual income statement and balance sheet for December 31, 2005 appear below. Additional information about the company's accounting methods and the treasurer's expectations for the first quarter of 2006 appear in the footnotes.
=a. Use this information and the information in problem 6 to construct a pro forma income statement for the first quarter of 2006 and a pro forma balance sheet for March 31, 2006. What is your estimated external financing need for March 31?
=b. Does the March 31, 2006, estimated external financing equal your cash surplus (deficit) for this date from your cash budget in problem 6? Should it?
=c. Do your pro forma forecasts tell you more than your cash budget does about Pepperton's financial prospects?
=d. What do your pro forma income statement and balance sheet tell you about Pepperton's need for external financing on February 28, 2006?
=8. Based on your answer to question 7, construct a first-quarter 2006 cash flow forecast for Pepperton.
=9. Toys-4-Kids manufactures plastic toys. Sales and production are highly seasonal. Below is a quarterly pro forma forecast indicating external financing needs for 2006. Assumptions are in parentheses.
=a. How do you interpret the negative numbers for income taxes in the first two quarters?
=b. Why are cash balances in the first two quarters greater than the minimum required $200,000? How were these numbers determined?
=c. How was “external financing required” appearing at the bottom of the forecast determined?
=d. Do you think Toys-4-Kids will be able to borrow the external financing required as indicated by the forecast?
=10. Continuing with Toys-4-Kids introduced in the preceding problem, the company's production manager has argued for years that it is inefficient to produce on a seasonal basis. She believes the company should switch to level production throughout the year, building up finished goods inventory in
=a. Prepare a revised pro forma forecast assuming level production. In your forecast assume that quarterly accounts payable under level production equal 10 percent of average quarterly sales for the year. To estimate quarterly inventory use the following two formulas.where eoq and boq refer to end
=b. What is the effect of the switch from seasonal to level production on annual profits?
=c. What effect does the switch have on the company's ending inventory? On the company's need for external financing?
=d. Do you think the company will be able to borrow the amount of money required by level production? What obsolescence risks does the company incur by building up inventory in anticipation of future sales? Might this be a concern to lenders?
=11. You will need to use the Standard & Poor's Market Insight website(http://www.mhhe.com/edumarketinsight) for this problem. Market Insight presents a spreadsheet entitled “Forecasted Values.” (Excel Analytics, Valuation Data, Forecasted Values.)
=a. How are these forecasts generated? Are they more than simple extrapolation of past trends?
=b. How useful might these forecasts be for projecting a company's future financing needs?
=12. This problem asks you to construct a simple simulation model. If you do not own simulation software, you can download to your computer a free, full-strength version of Crystal Ball for a one-week trial. Point your browser to www.crystalball.com and select download.
=a. Problem 5 above asked you to extend the forecast for R&E Supplies contained in Table 3.5 through 2007. Using the same spreadsheet, simulate R&E Supplies' external funding requirements in 2007 under the following assumptions.(1) Represent the growth rate in net sales as a triangular distribution
=13. This problem asks you to prepare one- and five-year financial forecasts for Jasmine Apparel Company. An Excel spreadsheet containing the company's 2005 financial statements and management's projections is available for download at www.mhhe.com/higgins8e. (Select Student Edition > Choose a
=14. The financial statements and additional information for Suunto Equipment Corp. appear at www.mhhe.com/higgins8e. (Select Student Edition > Choose a Chapter > Excel Spreadsheets.) The company's fiscal year end is September 30. Suunto's management wants to estimate the company's cash balances
=2. If the stock market in the United States is efficient, how do you explain the fact that some people make very high returns? Would it be more difficult to reconcile very high returns with efficient markets if the same people made extraordinary returns year after year?
=3. A company wants to raise $500 million in a new stock issue. The company's investment banker indicates that a sale of new stock will require 8 percent underpricing and a 7 percent spread. (Hint: the underpricing is 8 percent of the current stock price, and the spread is 7 percent of the issue
=a. Assuming the company's stock price does not change from its current price of $75 per share, how many shares must the company sell and at what price to the public?
=b. How much money will the investment banking syndicates earn on the sale?
=c. Is the 8 percent underpricing a cash flow? Is it a cost? If so, to whom?
=4. Suppose in Figure 5.4 that the stock prices of target firms in acquisitions responded to acquisition announcements over a three-day period rather than almost instantly.
=a. Would you describe such an acquisition market as efficient? Why, or why not?
=b. Can you think of any trading strategy to take advantage of the delayed price response?
=c. If you and many others pursued this trading strategy, what would happen to the price response to acquisition announcements?
=d. Some argue that market inefficiencies contain the seeds of their own destruction. In what ways does your answer to this problem illustrate the logic of this statement, if at all?
=5. The return an investor earns on a bond over a period of time is known as the holding period return, defined as interest income plus or minus the change in the bond's price, all divided by the beginning bond price.
=a. What is the holding period return on a bond with a par value of $1,000 and a coupon rate of 6 percent if its price at the beginning of the year was$1,050 and its price at the end was $940? Assume interest is paid annually.
=b. Can you give two reasons the price of the bond might have decreased over the year?
=6. Companies generally can borrow money using bank debt or by issuing bonds. Why might a firm choose one method over the other?
=7.a. Suppose that Liquid Force's stock price consistently falls by an amount equal to one-half the dividend it pays on the payment date. Ignoring taxes, can you think of an investment strategy to take advantage of this information?
=b. If you and many others pursued this strategy, predict what would happen to Liquid Force's stock price on the dividend payment date.
=c. Suppose that Liquid Force's stock price consistently falls by an amount equal to twice the dividend payment on the payment date. Ignoring taxes, can you think of an investment strategy to take advantage of this information?
=d. If you and many others pursued this strategy, predict what would happen to Liquid Force's stock price on the dividend payment date.e. In an efficient market, ignoring taxes and transaction costs, how do you think stock prices will change on dividend payment dates?
=f. Given that investors receive returns from common stock in the form of dividends and capital appreciation, do you think that increasing dividends will benefit investors in efficient markets and in the absence of taxes?Problems 8 and 9 test your understanding of the chapter appendix.
=8. The common shares of Fortune Brands, Inc. (FO), owner of many brands including Knob Creek bourbons, Wild Horse wines, Titleist golf products, and Swingline staplers, are trading today on the NYSE for $80 a share. You have employee stock options to purchase 1,000 FO shares for $75 per share. The
=a. Using the option pricer website mentioned in the appendix, estimate the value of your FO options.
=b. What is the estimated value of the options if their maturity is five months instead of three years? Why does the value of the options decline as the maturity declines?
=c. What is the estimated value of the options if their maturity is three years but FO's volatility is 55 percent? Why does the value of the options increase as volatility increases?
=9. Some refer to common stock as an option on a company's assets. Do you see any logic to this statement? What is the logic, if any?10. Use the Standard and Poor's Market Insight website, www.mhhe.com/edumarketinsight, for this problem. Assume that as of December 31, 2004, Fortune Brands, Inc.,
=c. Based on the company's March, 2005 price, what rate of return did the investors who bought stock approximately 3 months earlier receive?
=d. Based on the number of common shares outstanding as of December 2004 (consult Excel Analytics, Annual Balance Sheet), what proportion of the company's shares were sold in this offering?
=8. An Excel spreadsheet containing selected financial information for Eight Ball Sporting Goods is available at www.mhhe.com/higgins8e. (Select Student Edition > Choose a Chapter > Excel Spreadsheets.) Using this information, answer the questions appearing in the spreadsheet regarding Eight Ball's
=7. Chapter 3, Problem 13, asks you to construct a five-year financial projection for Jasmine Apparel beginning in 2006. Based on your forecast, or the suggested answer at www.mhhe.com/higgins8e (Select Student Edition > Choose a Chapter > Excel Spreadsheets) calculate Jasmine Apparel's sustainable
=d. As an Oracle shareholder, would you endorse Oracle's investment in cash? As an Oracle senior executive, how would you defend the policy?
=c. In general terms, how does Oracle's huge investment in cash affect its return on equity and its sustainable growth rate?
=b. Calculate the ratio of cash and equivalents to total assets for Boeing and Oracle for fiscal year 2004.
=a. For fiscal year 2004, what is the largest single asset on Boeing Company's balance sheet, on Oracle Corp's. balance sheet?
=6. You will need to use the Standard & Poor's Market Insight website(www.mhhe.com/edumarketinsight) for this problem.
=d. Calculate UFC's sustainable growth rate in 2003 assuming the asset turnover increases to 0.4 and the financial leverage decreases to 1.6 times.
=c. How did UFC cope with its sustainable growth problems?
=b. Does UFC have a growth problem?
=a. Calculate UFC's sustainable growth rate for each year.
=5. Union Fidelity Company (UFC) has the following ratios for the years 1999 through 2003:
=d. Robert Half paid its first dividends in 2004. As an analyst, assess the company's decision to pay dividends.
=c. Considering economic conditions over the period, what was a likely cause of these problems?
=b. Comparing the company's sustainable growth rate with its actual growth rate in sales, what growth problems did the company face over this period?
=a. Calculate Robert Half's sustainable growth rate in each year.
=4. Robert Half International, Inc. (RHI), headquartered in Menlo Park, California, is the world's first and largest provider of temporary and permanent personnel in accounting, finance, and information technology with 330 offices worldwide. The following are selected financial data for the company
=d. In March 1995, PCA announced a $7.5 million stock buy back, about equal in size to earnings that year. From a growth management perspective, was this a wise move?
=b. Comparing the company's sustainable growth rate with its actual growth rate in sales, what growth problems did PCA face over this period?
=a. Calculate PCA's sustainable growth rate in each year.
=3. PCA International, Inc., is one of the largest color portrait photography chains in North America. The company photographs, develops, and sells portrait packages through studios operated in Kmart stores. Following are selected financial data for the company for the period 1991–1995.
=c. How did the company cope with these problems? Do you see any difficulties with the way it addressed its growth problems over this period?If so, what are they?d. What advice would you offer management regarding managing future growth?
=2. Table 3.1 in the last chapter presents R&E Supplies' financial statements for the period 2002 through 2005, and Table 3.5 presents a pro forma financial forecast for 2006. Use the information in these tables to answer the following questions.a. Calculate R&E Supplies' sustainable growth rate in
=1. True or false? Why?a. A company's sustainable growth rate is the highest growth rate in sales it can attain without issuing new stock.b. The stock market is a ready source of new capital when a company is incurring heavy losses.c. Share repurchases usually increase earnings per share.d.
This problem asks you to construct a simple simulation model. If you do not own simulation software, see the options for downloading simulation software under Additional Resources. R&E SUPPLIESFacts and assumptions ($ thousands)ActualForecastForecast201720182019Net sales$20,613Growth rate in
A spreadsheet containing R&E Supplies' 2018 pro forma financial forecast, as shown in Table 3.5, is available for download from McGraw-Hill's Connect or your course instructor (see the Preface for more information). Using the spreadsheet information presented next, and the modified equations
Table 3.5 presents a computer spreadsheet for estimating R&E Supplies' external financing required for 2018. The text mentions that with modifications to the equations for equity and net sales, the forecast can easily be extended through 2019. Write the modified equations for equity and net
Time Value of Money Problemsa. What is the present value of $1,000 to be received in four years?b. What is the present value of $1,000 to be received in eight years? Why does the present value fall as the number of years increases?c. What will be the value in seven years of $12,000 invested
Chapter 3, Problem 15, part f asks you to construct a five-year financial projection for Aquatic Supplies beginning in 2018. Based on your forecast, or the suggested answer available for download from McGraw- Hill’s Connect or your course instructor, calculate Aquatic Supplies’ sustainable and
Based on your answer to question 11, construct a first-quarter 2018 cash flow forecast for Westmark Industrial.Data from Prob. 11Continuing problem 10, Westmark Industrial’s annual income statement and balance sheet for December 31, 2017, are shown next. Additional information about the
Financial statements and additional information for Noble Equipment Corp. are available for download from McGraw-Hill's Connect or your course instructor (see the Preface for more information). The company's fiscal year end is September 30. Noble's management wants to estimate the
Briefly describe PERT/Cost and how it is used.
What is the weighted-average cost of capital for SKYE Corporation given the following information?Equity shares outstanding ...................................... 1 millionStock price per share ....................................................... $30.00Yield to maturity on
A recent income statement for Rainier Printing is shown next.Net sales ......................................... $10,000Cost of sales ................................... 6,500Gross profit .................................... 3,500Operating expense
New ventures commonly set aside 10 to 20 percent of company shares at the valuation date for employee bonuses and stock options. Modify the valuation of ZMW Enterprises in Panel B of Table 9A.1 to include an employee set aside equal to 20 percent of the company in year 5. Specifically, calculate
The following is a four-year forecast for Torino Marine. a. Estimate the fair market value of Torino Marine at the end of 2017.Assume that after 2021, earnings before interest and tax will remain constant at $200 million, depreciation will equal capital expenditures in each year, and working

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Analysis for Financial Management 12th edition Robert C. Higgins - Solutions

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