Questions and Answers of Contemporary Financial Management

A firm has been experiencing low profitability in recent years. Perform an analysis of the firm€™s financial position using the DuPont equation. The firm has no lease payments but has a $2
Data for Barry Computer Co. and its industry averages follow. The firm€™s debt is priced at par, so the market value of its debt equals its book value. Since dollars are in thousands,
You are given the following information: Stockholders’ equity as reported on the firm’s balance sheet = $6.5 billion, price ∕ earnings ratio = 9, common shares outstanding =180 million, and
Refer to an online finance source such as Yahoo! Finance or Google Finance to look up the P/E ratios for Alphabet Inc. (the parent company of Google), and Walmart. Which company has the higher P/E
A company has an EPS of $2.40, a book value per share of $21.84, and a market/book ratio of 2.73. What is its P/E ratio?
Edelman Engines has $17 billion in total assets —of which cash and equivalents total $100 million. Its balance sheet shows $1.7 billion in current liabilities—of which the notes payable balance
a.Why are ratios useful? What are the five major categories of ratios?b.Calculate D€™Leon€™s 2019 current and quick ratios based on the projected balance sheet and income
Laiho Industries's 2017 and 2018 balance sheets (in thousands of dollars) are shown.a. Sales for 2018 were $455,150,000, and EBITDA was 15% of sales. Furthermore, depreciation and amortization were
Mary Jarvis is a single individual who is working on filing her tax return for the previous year. She has assembled the following relevant information:● She received $82,000 in salary.● She
Financial information for Powell Panther Corporation is shown here.a. What was net operating working capital for 2017 and 2018? Assume the firm has no excess cash.b. What was the 2018 free cash
The Davidson Corporation€™s balance sheet and income statement are provided here.a. Construct the statement of stockholders€™ equity for December 31, 2018. No common stock was
Arlington Corporation€™s financial statements (dollars and shares are in millions) are provided here.a. What was net operating working capital for 2017 and 2018? Assume that all cash is
Hampton Industries had $39,000 in cash at year-end 2017 and $11,000 in cash at year-end 2018. The firm invested in property, plant, and equipment totaling $210,000. Cash flow from financing
For 2018, Gourmet Kitchen Products reported $22 million of sales and $19 million of operating costs (including depreciation). The company has $15 million of total invested capital. Its after-tax cost
a.What effect did the expansion have on sales, after-tax operating income, net operating working capital (NOWC), and net income?b. What effect did the company€™s expansion have on its
The assets of Dallas & Associates consist entirely of current assets and net plant and equipment, and the firm has no excess cash. The firm has total assets of $2.5 million and net plant and
Refer to the box titled, “The Balance Sheet of an Average American Household”. And answer the following question.a. Based on this evidence, did the financial position of the average household
What would happen to the U.S. standard of living if people lost faith in the safety of the financial institutions? Explain.
Allied Apparel Company received a large order from Websters Department Stores, which operates a chain of approximately 300 popular-priced department stores located primarily in the New
Under what condition or conditions is trade credit not a “cost-free” source of funds to the firm?
Gibson Company sales for the year 2016 were $3 million. The firm’s variable operating cost ratio was 0.50, and fixed costs (that is, overhead and depreciation) were $900,000. Its average (and
The Alexander Company reported the following income statement for 2016:Assume that all depreciation and 75 percent of the firm's selling, general, and administrative expenses are fixed costs and that
Colorado Coal Company has estimated the costs of debt and equity capital (with bankruptcy and agency costs) for various proportions of debt in its capital structure.The company€™s income
In February, Tech Components Inc. (TCI), a manufacturer of specialized electronic components, was negotiating a supply agreement with a major auto manufacturer to supply specialized electronic
Given a risk-free rate (rÌ‚f) of 6 percent and a market risk premium (rÌ‚ m €“ rÌ‚f) of 8.2 percent, calculate the required rate of return on each of the
How does the basic net present value capital budgeting model deal with the phenomenon of increasing risk of project cash flows over time?
The following stock quotations were recently reported in The Wall Street Journal:a. What are the dividend yields on the common stock of AT&T, Boeing, and Johnson & Johnson?b. What possible
Zip Boys has outstanding zero coupon bonds maturing in 2018.a. How would you compute the yield-to-maturity on bonds like these?b. How do bondholders get a return when they buy these bonds?
Refer to the bonds appearing in Figure 6.1.a. What is the coupon rate and year of maturity for the Qualcomm and Time Warner bonds?b. How much would you have had to pay to buy one Bank of America
Consider again the BCC 8⅛ percent debentures that mature on July 15, 2036 (see problem 6). Determine the yield to call if the bonds are called on July 15, 2022, at $1,016.55.
In 2006, BCC issued 8⅝ percent debentures that will mature on December 1, 2046.a. If an investor purchased one of these bonds ($1,000 denomination) on December 1, 2016, for $1,050, determine the
Consider Fulton Manufacturing Company’s 8¾ percent bonds that mature on April 15, 2028. Assume that the interest on these bonds is paid and compounded annually. Determine the value of a $1,000
Explain how to determine the present value of an uneven cash flow stream.
The balance sheet and income statement of Eastland Products, Inc., are as follows:Income Statement for Year Ended December 31, 2016 (in Millions of
Given the following data for Profiteers, Inc., and the corresponding industry averages, perform a trend analysis of the return on investment and the return on stockholders€™ equity. Plot
Williams Oil Company had a return on stockholders’ equity of 18 percent during 2016. Its total asset turnover was 1.0 times, and its equity multiplier was 2.0 times. Calculate the company’s net
Clovis Industries had sales in 2016 of $40 million, 20 percent of which were cash. If Clovis normally carries 45 days of credit sales in accounts receivable, what are its average accounts receivable
Why would you anticipate a lower P/E ratio for a typical natural gas utility than for a computer technology firm, such as Apple?
Determine the percentage change in the value of the following currencies relative to the U.S. dollar between February 25, 2013 and November 18, 2015. (Refer to Table 2.1.) a. Rupeeb. Poundc. Yend.
Valley Stores, a U.S. department store chain, annually negotiates a contract with Alpine Watch Company, located in Switzerland, to purchase a large shipment of watches. On February 25, 2013, Valley
Japanese Motors exports cars and trucks to the U.S. market. On February 25, 2013, its most popular model was selling (wholesale) to U.S. dealers for $20,000. What price must Japanese Motors charge
Using the data contained in Figure 2.3, what 52-week rate of return, excluding dividend yields, would an investor have received by purchasing the following portfolios of stocks? a. The stocks in
Jeff€™s Powerwash Inc. which operates in Texas, is considering acquiring Frank€™s Superior Carworks chain of car washes in Maryland. The expected net cash flows from the
Based on the information given in the case and your analysis, what do you feel is a fair exchange ratio?
What is a tax-free merger?
As of today, the following information is available:Using this information, make three independent forecasts of the 1-year future spot rate for the Israeli shekel. (Use exact, not approximation,
Mammouth Mutual Fund of New York has $5 million to invest in certificates of deposit (CDs) for the next six months (180 days). It can buy either a Philadelphia National Bank (PNB) CD with an annual

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