Questions and Answers of Essentials Corporate Finance

Consider the following abbreviated financial statements for Cabo Wabo, Inc.:? a. What is owners? equity for 2018 and 2019?? b. What is the change in net working capital for 2019?? c. In 2019, the
Prescott Football Manufacturing had the following operating results for 2019: sales = $29,874; cost of goods sold = $21,632; depreciation expense = $3,470; interest expense = $514; dividends paid =
In Problem 18, suppose Belyk Paving Co. paid out $370,000 in cash dividends. Is this possible? If net capital spending was zero, no new investments were made in net working capital, and no new stock
What is the future value of $1,150 in 16 years assuming an interest rate of 7.9 percent compounded semiannually?The time line is:
Tremonti, Inc., is obligated to pay its creditors $7,900 during the year. a. What is the value of the shareholders’ equity if assets equal $9,100? b. What if assets equal $6,900?
Prepare a balance sheet for Alaskan Peach Corp. as of December 31, 2019, based on the following information: cash = $207,000; patents and copyrights = $871,000; accounts payable = $293,000;
Critics have charged that compensation to top management in the United States is too high and should be cut back. For example, focusing on large corporations, in 2017, First Data CEO Frank Bisignano
The December 31, 2018, balance sheet of Justin’s Golf Shop, Inc., showed current assets of $1,490 and current liabilities of $1,210. The December 31, 2019, balance sheet showed current assets of
In February 2017, Toshiba announced that it was writing off $6.3 billion due to its acquisition of nuclear power plant construction firm CB&I Stone & Webster only a year before. We would
The December 31, 2018, balance sheet of Whelan, Inc., showed long-term debt of $1,350,000, and the December 31, 2019, balance sheet showed long-term debt of $1,470,000. The 2019 income statement
The December 31, 2018, balance sheet of Whelan, Inc., showed $120,000 in the common stock account and $2,289,000 in the additional paid-in surplus account. The December 31, 2019, balance sheet
Given the information for Whelan, Inc., in Problems 10 and 11, suppose you also know that the firm’s net capital spending for 2019 was $745,000 and that the firm reduced its net working capital
Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $6 million. The machinery can be sold to the Romulans today for $4.6 million. Klingon’s current balance sheet shows net
Weiland Co. shows the following information on its 2019 income statement: sales = $178,000; costs = $103,600; other expenses = $5,100; depreciation expense = $12,100; interest expense = $8,900; taxes
Given the following information for Ted’s Dread Co., calculate the depreciation expense: sales = $68,500; costs = $51,700; addition to retained earnings = $4,500; dividends paid = $2,420; interest
Rottweiler Obedience School’s December 31, 2018, balance sheet showed net fixed assets of $1,945,000, and the December 31, 2019, balance sheet showed net fixed assets of $2,137,000. The
Benson, Inc., has sales of $38,530, costs of $12,750, depreciation expense of $2,550, and interest expense of $1,850. If the tax rate is 21 percent, what is the operating cash flow, or OCF?
In Problem 5, what is the average tax rate? What is the marginal tax rate? Duela Dent is single and had $189,000 in taxable income. Using the rates from Table 2.3 in the chapter, calculate her
Duela Dent is single and had $189,000 in taxable income. Using the rates from Table 2.3 in the chapter, calculate her income taxes.? Taxable Income Tax Rate 9,525 10% 9,525– 38,700 12 38,700-
Suppose the firm in Problem 2 paid out $68,000 in cash dividends. What is the addition to retained earnings? Problem 2Sidewinder, Inc., has sales of $634,000, costs of $328,000, depreciation
Sidewinder, Inc., has sales of $634,000, costs of $328,000, depreciation expense of $73,000, interest expense of $38,000, and a tax rate of 21 percent. What is the net income for this firm?
Sunset Boards is a small company that manufactures and sells surfboards in Malibu. Tad Marks, the founder of the company, is in charge of the design and sale of the surfboards, but his background is
Grey Wolf, Inc., has current assets of $2,090, net fixed assets of $9,830, current liabilities of $1,710, and long-term debt of $4,520. What is the value of the shareholders’ equity account for
In early 2013, Doc and Lyn McGee formed the McGee Cake Company. The company produced a full line of cakes, and its specialties included chess cake,* lemon pound cake, and double-iced,
Walkrun Inc. is unlevered and has a value of $400 billion. An otherwise identical but levered firm finances 25% of its capital structure with debt at an 8% interest rate. No growth is expected.
Lee raised $300 million in new debt and used this to buy back stock. Lee had no short-term investments before or after the recap. After the recap, wd = 1/3. The firm had 30 million shares before the
Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them
Cruz Corporation has $100 billion of debt outstanding. An otherwise identical firm has no debt and has a market value of $500 billion. Under the Miller model, what is Cruz’s value if the
Quillpen Company is unlevered and has a value of $40 billion. An otherwise identical but levered firm finances 25% of its capital structure with debt. Under the MM zero-tax model, what is the value
Counts Accounting’s beta is 1.2 and its tax rate is 25%. If it is financed with 21% debt, what is its unlevered beta?
Boehm Corporation has had stable earnings growth of 8% a year for the past 10 years, and in 2019 Boehm paid dividends of $4 million on net income of $10 million. However, net income is expected to
Use the following income statement of Elliott Game Theory Consulting to determine its net operating profit after taxes (NOPAT). Use 25% as the tax rate.Elliott Game Theory Consulting Income Statement
Garlington Technologies Inc.?s 2019 financial statements are shown here. Suppose that in 2020 sales increase to $4.4 million and that 2020 dividends will increase to $200,000. Forecast the financial
Stevens Textile Corporation?s 2019 financial statements are shown here. Stevens grew rapidly in 2019 and financed the growth with notes payable and long-term bonds. Stevens expects sales to grow by
The Booth Company?s sales are forecasted to double from $1,000 in 2019 to $2,000 in 2020. Here is the December 31, 2019, balance sheet: Booth?s fixed assets were used to only 50% of capacity during
At year-end 2019, Wallace Landscaping’s total assets were $2.17 million, and its accounts payable were $560,000. Sales, which in 2019 were $3.5 million, are expected to increase by 35% in 2020.
Maggie’s Muffins Bakery generated $5 million in sales during 2019, and its year-end total assets were $2.5 million. Also, at year-end 2019, current liabilities were $1 million, consisting of
Smiley Corporation’s current sales and partial balance sheet are shown here. Sales are expected to grow by 10% next year. Assuming no change in operations from this year to next year, what are the
Berman & Jaccor Corporation’s current sales and partial balance sheet are shown here. Sales are expected to grow by 10% next year. Assuming no change in operations from this year to next year,
Broussard Skateboard’s sales are expected to increase by 15% from $8 million in 2019 to $9.2 million in 2020. Its assets totaled $5 million at the end of 2019.Broussard is already at full capacity,
The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of $170,000. The project will produce 1,000 cases of mineral water
Although the Chen Company’s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so
Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $12 million, of which 75% has been depreciated. The federal-plus-state tax rate is 25%. What is the
The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service:Projected sales
Suppose a company will issue new 20-year debt with a par value of $1,000 and a coupon rate of 9%, paid annually. The issue price will be $1,000. The tax rate is 25%. If the flotation cost is 2% of
LL Incorporated’s currently outstanding 11% coupon bonds have a yield to maturity of 8.4%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its
Brook Corporation’s free cash flow for the current year (FCF0) was $3.00 million. Its investors require a 13% rate of return on (WACC 5 13%). What is the estimated value of operations if
Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of this year (i.e., D1 5 $1.50). The dividend is expected to grow at a constant rate of 6% a year. The required rate of
Blunderbluss Manufacturing’s balance sheets report $200 million in total debt, $70 million in short-term investments, and $50 million in preferred stock. Blunderbluss has 10 million shares of
JenBritt Incorporated had a free cash flow (FCF) of $80 million in 2019. The firm projects FCF of $200 million in 2020 and $500 million in 2021. FCF is expected to grow at a constant rate of 4% in
Current and projected free cash flows for Radell Global Operations are shown here. Growth is expected to be constant after 2021, and the weighted average cost of capital is 11%. What is the horizon
Ogier Incorporated currently has $800 million in sales, which are projected to grow by 10% in Year 1 and by 5% in Year 2. Its operating profitability ratio (OP) is 10%, and its capital requirement
An analyst gathered daily stock returns for Feburary 1 through March 31, calculated the Fama-French factors for each day in the sample (SMBt and HMLt), and estimated the Fama-French regression model
The Jimenez Corporation?s forecasted 2020 financial statements follow, along with some industry average ratios. Calculate Jimenez?s 2020 forecasted ratios, compare them with the industry average
Data for Lozano Chip Company and its industry averages follow. a. Calculate the indicated ratios for Lozano. b. Construct the extended DuPont equation for both Lozano and the industry. c. Outline
The Bookbinder Company had $500,000 cumulative operating losses prior to the beginning of last year. It had $100,000 in pre-tax earnings last year before using the past operating losses and has
Rhodes Corporation?s financial statements are shown after part f. Suppose the federalplus- state tax corporate tax is 25%. Answer the following questions. a. What is the net operating profit after
Athenian Venues Inc. just reported the following selected portion of its financial statements for the end of 2020. Your assistant has already calculated the 2020 end-of year net operating working
Using the following balance sheets of Mimi’s Gymnastics Inc., what is the net operating working capital (NOWC) for 2020?Mimi’s Gymnastics Inc.: Balance Sheets as of December 31(Millions of
The Berndt Corporation expects to have sales of $12 million. Costs other than depreciation are expected to be 75% of sales, and depreciation is expected to be $1.5 million. All sales revenues will be
The Moore Corporation has operating income (EBIT) of $750,000. Its depreciation expense is $200,000. Moore is 100% equity financed. The federal tax rate is 21% (ignore any possible state corporate
The Shrieves Corporation has $10,000 that it plans to invest in marketable securities. It is choosing among AT&T bonds (which yield 6.6%), AT&T preferred stock (with a dividend yield of
The Wendt Corporation reported $50 million of taxable income. Its federal tax rate was 21% (ignore any possible state corporate taxes).a. What is the company’s federal income tax bill for the
Carter Swimming Pools has $16 million in net operating profit after taxes (NOPAT) in the current year. Carter has $12 million in total net operating assets in the current year and had $10 million in
Jenn Translation (JT) Inc. reported $10 million in operating current assets, $15 million in net fixed assets, and $3 million in operating current liabilities. How much total net operating capital
Zucker Inc. recently reported $4 million in earnings before interest and taxes (EBIT). Its federal-plus-state tax rate is 25%. What is the free cash flow?
Nicholas Health Systems recently reported an EBITDA of $25.0 million and net income of $15.8 million. It had $2.0 million of interest expense, and its federal tax rate was 21% (ignore any possible
Holly’s Art Galleries recently reported $7.9 million of net income. Its EBIT was $13 million, and its federal tax rate was 21% (ignore any possible state corporate taxes). What was its interest
Corporate bonds issued by Johnson Corporation currently yield 8.0%. Municipal bonds of equal risk currently yield 5.5%. At what personal tax rate would an investor be indifferent between these two
An investor recently purchased a corporate bond that yields 7.68%. The investor is in the 25% federal-plus-state tax bracket. What is the bond’s after-tax yield to the investor?
The following information is available from Bromfield Co.’s accounting records for the year ended December 31, 2019 (amounts in millions):Cash dividends declared and paid . . . . . . . . . . . . .
One of the more famous examples of a violation of absolute purchasing power parity is the Big Mac index calculated by The Economist. This index calculates the dollar price of a McDonald’s Big Mac
Go to the Financial Times site at www.ft.com, and find the current exchange rate between the U.S. dollar and the euro. Next, find the U.S. dollar LIBOR and the Euro LIBOR interest rates. What must
Go to reuters.com and enter the ticker symbol AMGN for Amgen, a biotechnology company. Find the long-term debt-to-equity and total debt-to-equity ratios. How does Amgen compare to the industry,
You have decided to invest in an equally weighted portfolio consisting of American Express, Procter & Gamble, Home Depot, and Du Pont and need to find the beta of your portfolio. Go to
You want to find the expected return for Honeywell using the CAPM. First, you need the market risk premium. Use the average large-company stock return in Table 10.3 to estimate the market risk
You have a project that has an initial cash outflow of −$20,000 and cash inflows of $6,000, $5,000, $4,000, and $3,000, respectively, for the next four years. Go to www.datadynamica.com and follow
How does a stock trade take place? Go to www.nyse.com to find out. Describe the process of a trade on the NYSE.
You are interested in buying stock in Coca-Cola (KO). You believe that the dividends will grow at 15 percent for the next four years and level off at 6 percent thereafter. Using the most recent
What is the most expensive publicly traded stock in the United States? Go to finance.yahoo.com and enter BRKA (for Berkshire Hathaway Class A). What is the current price per share? What is the
According to the June 2009 Value Line Investment Survey, the dividend growth rate for ExxonMobil (XOM) is 7 percent. Find the current stock price quote and dividend information at finance.yahoo.com.
You can find information regarding the most current bond yields at money.cnn.com. Go there and graph the yield curve for U.S. Treasury bonds. What is the general shape of the yield curve? What does
Bankrate.com, located at www.bankrate.com, has a financial calculator that will prepare an amortization table based on your inputs. First, find the APR quoted on the Web site for a 30-year fixed rate
Find the retirement calculator at www.moneychimp.com to answer the following question: Suppose you have $1,500,000 when you retire and want to withdraw an equal amount each year for the next 30
The St. Louis Federal Reserve Board has files listing historical interest rates on their Web site www.stlouisfed.org. Find the link for “FRED®” (Federal Reserve Economic Data). You will find
Why is underpricing not a great concern with bond offerings?Use the following information to answer the next three questions. Eyetech Pharmaceuticals, Inc., a company that develops treatments for eye
The Verbatim Co. has just gone public. Under a firm commitment agreement, Verbatim received $20.15 for each of the 6.5 million shares sold. The initial offering price was $22 per share, and the stock
The Hootenanny Corporation needs to raise $51 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. If
The Bostitch Co. has just gone public. Under a firm commitment agreement, Bostitch received $32 for each of the 4.1 million shares sold. The initial offering price was $34.40 per share, and the stock
The IBBS Co. needs to raise $65 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. If the offer price
The Sun Co. and the Moon Co. have both announced IPOs at $40 per share. One of these is undervalued by $9, and the other is overvalued by $4.25, but you have no way of knowing which is which. You
Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of .6. It’s considering building a new $65 million manufacturing
Laverne Industries stock has a beta of 1.25. The company just paid a dividend of $0.75, and the dividends are expected to grow at 5 percent. The expected return of the market is 11.5 percent, and
Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the table below. If the corporate tax rate is 34 percent, what is the aftertax cost
Gnomes R Us is considering a new project. The company has a debt-equity ratio of .80. The company’s cost of equity is 14.5 percent, and the aftertax cost of debt is 7.8 percent. The firm feels
DeVille Industrial Machines issued 135,000 zero coupon bonds four years ago. The bonds originally had 30 years to maturity with a 6.5 percent yield to maturity. Interest rates have recently
An all-equity firm is considering the following projects:The T-bill rate is 5 percent, and the expected return on the market is 12 percent.a. Which projects have a higher expected return than the
Organic Produce Corporation has 7.5 million shares of common stock outstanding, 500,000 shares of 7 percent preferred stock outstanding, and 175,000 of 8.2 percent semiannual bonds outstanding, par
Blue Bull, Inc., has a target debt-equity ratio of .70. Its WACC is 8.4 percent, and the tax rate is 35 percent.a. If the company’s cost of equity is 11 percent, what is its pretax cost of
Regions, Inc., has 6 million shares of common stock outstanding. The current share price is $61, and the book value per share is $4. Regions also has two bond issues outstanding. The first bond

Showing 1000 - 1100 of 1419