Corporate Finance With Connect Access Card 10th Edition Stephen Ross ,Randolph Westerfield ,Jeffrey Jaffe - Solutions

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Depreciation Explain what is meant by depreciation. Why is depreciation important to an accountant?
The DuPont Identity Both ROA and ROE measure profitability. What does each of them measure, and which one is more useful for comparing two companies? Why?
Building a Statement of Financial Position According to AEB Systems plc financial statements, the firm had current assets of £6.642 billion, non-current assets of £16.521 billion, current liabilities of £11.283 billion, and non-current liabilities of £6.589 billion. What is the value of the
Building an Income Statement The UK insurance firm, Wheeler & Fox, had revenue of £38,440 million, total expenses of £37,133 million, tax of £487 million and zero depreciation. What is the net income for the firm? Wheeler & Fox paid out £238 million in cash dividends. What is the addition to
Earnings per Share Nordicbank has a price–earnings ratio of 6.35. If the firm’s share price is SKr71.70, what is its earnings per share?
Market Values and Book Values Your company has just sealed a deal to sell a tract of land with accompanying warehouse for €3.2 million. This is significantly lower than the €7 million your firm paid when the plot was purchased at the height of the property boom. International Accounting
Calculating Taxes The Dutch firm, Herrera NV has €273,000 in taxable income. Using Table 3.4, what is the company’s average tax rate? What is its marginal tax rate?
Calculating NCF A firm has net revenues of £6,065 million (including net non-cash expenses). Net non-cash expenses (including depreciation) were £2,380 million. Cash outflows from investing activities(including capital expenditures) were £3,270 million. The firm paid a total cash dividend of
Calculating Net Capital Spending Morena’s Driving School’s 2019 statement of financial position showed non-current assets of £4.2 million. One year later, the 2020 statement of financial position showed non-current assets of £4.7 million. The company’s 2020 income statement showed a
Building a Statement of Financial Position The following table presents the long-term debt and shareholders’ equity of Tumbler SA one year ago:(€m)Long-term debt 60 Ordinary shares 25 Accumulated retained earnings 89 During the past year, Tumbler issued 20 million shares at a total price of
Calculating the Du Pont Identity Find the annual income statements and statement of financial positions for two firms in the same industry from your own country. Calculate the Du Pont identity for each company for the most recent three years. Comment on the changes in each component of the Du Pont
Return on Equity Firm A and Firm B have debt–total asset ratios of 70 per cent and 30 per cent, and returns on total assets of 20 per cent and 30 per cent, respectively. Which firm has a greater return on equity?
Ratios and Foreign Companies Midnight Bank made a profit of £3.47 billion on revenues of £18.197 billion. What is the company’s profit margin? Does the fact that these figures are quoted in pounds sterling make any difference to a French investor. Why? In euros, revenues were €20.38 billion.
Cash Ratio TJC plc has revenues of £1,027 million and total costs (excluding interest) of £817 million. Net interest expense was £29 million and depreciation was £12 million. What is the firm’s cash coverage ratio?
Days’ Sales in Receivables A company has net income of €173,000, a profit margin of 8.6 per cent and a trade receivables balance of €143,200. Assuming 75 per cent of sales are on credit, what is the company’s days’ sales in receivables?
Ratios and Fixed Assets Le Verd SA has a ratio of long-term debt to total assets of 0.70 and a current ratio of 1.20. Current liabilities are £850, revenues are £4,310, profit margin is 9.5 per cent and ROE is 21.5 per cent. What is the amount of the firm’s non-current assets?
Calculating the Cash Coverage Ratio Titan SpA’s net income for the most recent year was €4,850. The tax rate was 33 per cent. The firm paid €2,108 in total interest expense and deducted €1,687 in depreciation expense. What was Titan’s cash coverage ratio for the year?
Cost of Goods Sold Guthrie plc has current liabilities of £340,000, a quick ratio of 1.8, inventory turnover of 4.2 and a current ratio of 3.3. What is the cost of goods sold for the company?
Financial Ratios Calculate all relevant financial ratios for Sement AG.Summarized Statement of Income Revenue 77,327 Cost of goods sold 56,284 Operating income 21,043 Less:Depreciation 2,130 Other expenses 16,039 Income from continuing operations before income taxes 2,874 Summarized Statement of
Financial Statement Analysis What are the weaknesses in the Sement examples for interpreting its financial well-being? Explain.Summarized Statement of Income Revenue 77,327 Cost of goods sold 56,284 Operating income 21,043 Less:Depreciation 2,130 Other expenses 16,039 Income from continuing
Earnings per share What is the earnings per share for each year between 2017 and 2020 for Montgomery Organizations plc? What is your interpretation of these figures? Is EPS a reliable measure of performance?Fixed Assets (£ millions) 2020 2019 2018 2017 Tangible assets 164 167 180 188 Land and
Tax Rate What is the effective tax rate for Montgomery Organizations plc for each year?Fixed Assets (£ millions) 2020 2019 2018 2017 Tangible assets 164 167 180 188 Land and buildings 71 70 68 66 Freehold land 71 70 Fixtures and fittings 78 81 93 103 Plant and vehicles 15 15 19 19 Plant 15 15
Net Working Capital What is the net working capital of Montgomery Organizations plc in each year?What is the cause of the figures? Is this a healthy situation for the firm? Explain.Fixed Assets (£ millions) 2020 2019 2018 2017 Tangible assets 164 167 180 188 Land and buildings 71 70 68 66 Freehold
Liquidity How would you rate the liquidity position of Montgomery Organizations plc between 2017 and 2020? Provide a brief report on the company’s liquidity over time.Fixed Assets (£ millions) 2020 2019 2018 2017 Tangible assets 164 167 180 188 Land and buildings 71 70 68 66 Freehold land 71 70
Long-term Solvency How would you rate the long-term solvency position of Montgomery Organizations plc between 2017 and 2020? Provide a brief report on the company’s long-term solvency over time.Fixed Assets (£ millions) 2020 2019 2018 2017 Tangible assets 164 167 180 188 Land and buildings 71 70
Operations How efficient have Montgomery Organizations plc’s operations been during 2020? Provide a brief report on the company’s asset efficiency over time.Fixed Assets (£ millions) 2020 2019 2018 2017 Tangible assets 164 167 180 188 Land and buildings 71 70 68 66 Freehold land 71 70 Fixtures
Profitability What is the profitability of Montgomery Organizations plc like over the period 2017 and 2018? Provide a brief report on the company’s profitability over time. Do profitability ratios give a good insight into company performance?Fixed Assets (£ millions) 2020 2019 2018 2017 Tangible
Market Valuation Provide an overview of the company’s relative market valuation over the period 2017–2020. What can be inferred from the company’s relative market valuation?Fixed Assets (£ millions) 2020 2019 2018 2017 Tangible assets 164 167 180 188 Land and buildings 71 70 68 66 Freehold
Du Pont Identity Undertake a full Du Pont identity analysis for the year 2020 to provide insights into the drivers of its return on equity.Fixed Assets (£ millions) 2020 2019 2018 2017 Tangible assets 164 167 180 188 Land and buildings 71 70 68 66 Freehold land 71 70 Fixtures and fittings 78 81 93
Du Pont Identity Discuss the advantages and disadvantages of ratio analysis.Fixed Assets (£ millions) 2020 2019 2018 2017 Tangible assets 164 167 180 188 Land and buildings 71 70 68 66 Freehold land 71 70 Fixtures and fittings 78 81 93 103 Plant and vehicles 15 15 19 19 Plant 15 15 Intangible
Using the information above, carry out a full financial statement analysis using a variety of financial ratios.(60 marks)You are tasked with analysing the last two years of accounts of a global mining firm. A simplified statement of financial position and statement of profit and loss are provided
How do you think the company has been performing over the past five years? Has there been an improvement or deterioration in the firm’s fortunes? What is driving the changing performance? Write a report, outlining your analysis and findings. (40 marks)You are tasked with analysing the last two
Friday Quantum Solutions (FQS) develops and sells quantum technology solutions for the measurement of underwater sea-life diversity. It has only one product and, last year, FQS sold 10,000 units. This year, FQS reported sales of 16,000 units but net profit was lower than expected. You have been
Choose a listed company from your own country. Download the financial accounts from its website and carry out a full financial statement analysis. You should calculate financial ratios for not only the most recent year but past years as well. Write a brief report on your interpretation and the
Given that this chapter is concerned with interpreting financial statements, all international accounting standards are relevant. However, the most important ones are IAS 1 Presentation of Financial Statements, IAS 7 Statement of Cash Flows, IAS 27 Consolidated and Separate Financial Statements,
The Corporate Firm Differentiate between sole proprietorships, partnerships and corporations. What are the advantages and weaknesses of each?
Agency Problems Suppose you own shares in a company. The current share price is £2.50. Another company has just announced that it wants to buy your company and will pay £3.50 per share to acquire all the outstanding equity. Your company’s management immediately begins fighting off this hostile
The Governance Structure of Corporations Why do partnerships require formal agreements among the main shareholders when sole ownerships do not? Why are corporation articles and memoranda of understanding so complex compared to partnership agreements?
Corporate Governance Principles Review the G20/OECD principles of corporate governance. Which principle relates to the ability of corporate executives to trade in the shares of their own company?
Corporate Governance in Action Give an overview of the UN Sustainable Development Goals and explain their importance to corporate finance.REGULAR
Private vs Public Companies What are the main similarities and differences between private and public limited companies? Why are all firms not publicly listed?
Macro Governance Why do you think corporate behaviour in bank-based financial systems would be different from market-based financial systems? How do you think other differences in the macro environment can affect corporate objectives?
Corporate Governance Explain why you would (or would not) pay more for the shares of a wellgoverned company compared to a poorly governed one.
Corporate Governance Many regulators insist on public companies having board subcommittees such as the remuneration committee, audit committee and risk management committee. Why could this responsibility not simply be left to the board of directors? Explain.
Corporate Governance across the World Give an overview of the basic underlying models of corporate governance that exist around the world today. How do these different systems influence share ownership?To what extent are these models converging? Explain.
Corporate Governance around the World In the Middle East, many companies have a Sharia Supervisory Board to which the board of directors reports. Evaluate the merits of such a governance structure and argue whether this approach to governance could be extended to other areas where the supervisory
Partnerships What are the differences between a general partnership and a limited partnership? Why do firms choose to be partnerships instead of limited liability corporations?
Organizations Is it possible for a firm to move from being a limited corporation to a partnership? Explain when this may happen.
Corporate Governance Principles Discuss the UK Corporate Governance Code. In what ways is it different to the G20/OECD Corporate Governance Principles?
Corporate Governance Principles Is it possible to improve one governance principle in a firm but weaken another at the same time? Use an illustration to explain your answer.
Corporate Governance Policy How do differences in the macro environment affect corporate governance?
Principles of Good Governance Discuss the G20/OECD Principles of Good Governance in detail, commenting on the major principles contained in it. In your opinion, what is the most important (if any)principle? Use practical examples to illustrate your answer.
Regulatory Governance You have been appointed as a consultant for a very poor country in Africa, with no corporate governance regulations, and have been asked to formulate an appropriate corporate governance framework for the country’s fledgling banking sector. Propose and justify five governance
Audit Committees The audit committee of a firm is an integral part of its corporate governance. Explain what an audit committee is, why it is important, its main responsibilities, and how you can evaluate the audit process within a company. Your answer should refer to real-life examples where the
Agency Relationships Who owns a corporation? How do owners control the firm’s management. What is an agency relationship and what is the main reason an agency relationship exists?
Government Ownership After the 2008 financial crisis, some governments took control of banks through buying their shares. What impact does this have on the lending culture of banks? Is this consistent with shareholder maximization?
Managerial Objectives Why would we expect managers of a corporation to pursue the objectives of shareholders? What about bondholders?CHALLENGE
Codes of Corporate Governance Choose a developed and an emerging market economy, and identify any differences and similarities between your chosen countries.
Board of Directors You have been hired as a consultant to evaluate the performance of a board of directors. What things would you look for? Why would shareholders want to hire a consultant to do such a job, when the share price is supposed to give an accurate reflection of corporate performance?
Managerial Ownership How do agency costs in a firm change as managers build up their shareholdings?What does it mean when we say that managers are entrenched? Provide some examples of real-life cases where managers have acted in a selfish fashion even when they are shareholders in the firm.
Executive Compensation Critics have charged that compensation to top managers in the banking sector is simply too high and should be cut back. Look at the financial accounts of some banks in your region and determine the total pay of their chief executive officers. Are such amounts excessive?
Managerial Objectives In 2012, the Argentinian government nationalized YPF, which is a subsidiary of Repsol, the Spanish oil giant. YPF was integral to the operations of Repsol. The firm was set up 10 years earlier and had received more than €20 billion of capital investment from Repsol. The
How can the board maintain control of the firm while having only 20 per cent of the shares? (20 marks)As the financial manager of an unlisted manufacturing company based in Amsterdam, you have been tasked with preparing your firm for potential listing on Euronext. The company is closely held with
Should the company’s board structure change? If so, what should be done and why? (20 marks)As the financial manager of an unlisted manufacturing company based in Amsterdam, you have been tasked with preparing your firm for potential listing on Euronext. The company is closely held with only five
What processes should be put in place to ensure that all shareholders have some say in the company’s strategy? How should the company deal with foreign shareholders? (20 marks)As the financial manager of an unlisted manufacturing company based in Amsterdam, you have been tasked with preparing
How should the company decide upon director remuneration? Are there any structures that should be put in place to ensure that the directors are fairly compensated for the work that they have done? (20 marks)As the financial manager of an unlisted manufacturing company based in Amsterdam, you have
There is a proposal that the company should instead possibly list in London or Shanghai and move its headquarters to the listing location. Are there any institutional differences that the directors should be aware of before making their decision? Explain. (20 marks)As the financial manager of an
Write a consultancy report that evaluates the current structure and quality of corporate governance in an organization (listed/unlisted/for-profit/non-profit) of your choice.You are required to include the following in your report:a The corporate governance code that exists in the country in which
Venture capital is a common source of financing in start-up and privately held firms.Venture capital is particularly important in financing high-tech enterprises. Venture capital financing was at its peak during the Internet bubble around the turn of the century.
A seasoned equity offering (SEO) refers to a new issue when the company’s securities have already been publicly traded. On average, the stock price of the issuing company falls upon the announcement of an SEO.
The underwriter bears risk with a firm commitment because it buys the entire issue.Conversely, the investment banker avoids this risk under a best-efforts offering because it does not purchase the shares. Firm commitment underwriting is far more prevalent for large issues than is best-efforts
Rights offerings are cheaper than general cash offers and eliminate the problem of underpricing. Yet most new equity issues in the U.S. are underwritten general cash offers.
While dilution in stock price hurts stockholders, dilution of proportionate interest, book value per share, and EPS—by themselves—do not.
Shelf registration is a new method of issuing new debt and equity. The direct costs of shelf issues seem to be substantially lower than those of traditional issues.
Underpricing in Debt Offerings Why is underpricing not a great concern with bond offerings?Use the following information to answer the next three questions. Zipcar, the car sharing company, went public in April 2011. Assisted by the investment bank Goldman, Sachs & Co., Zipcar sold 9.68 million
IPO Pricing The Zipcar IPO was underpriced by about 56 percent. Should Zipcar be upset at Goldman over the underpricing?
IPO Pricing In the previous question, how would it affect your thinking to know that the company was incorporated about 10 years earlier, had only $186 million in revenues in 2010, and had never earned a profit? Additionally, the viability of the company’s business model was still unproven.
IPO Pricing In the previous two questions, how would it affect your thinking to know that in addition to the 9.68 million shares offered in the IPO, Zipcar had an additional 30 million shares outstanding? Of those 30 million shares, 14.1 million shares were owned by four venture capital firms, and
Competitive and Negotiated Offers What are the comparative advantages of a competitive offer and a negotiated offer, respectively?
Seasoned Equity Offers What are the possible reasons why the stock price typically drops on the announcement of a seasoned new equity issue?
Raising Capital Megabucks Industries is planning to raise fresh equity capital by selling a large new issue of common stock. Megabucks, a publicly traded corporation, is trying to choose between an underwritten cash offer and a rights offering (not underwritten) to current shareholders.
Shelf Registration Explain why shelf registration has been used by many firms instead of syndication.
IPOs Every IPO is unique, but what are the basic empirical regularities in IPOs?
Rights Offerings Again, Inc., is proposing a rights offering. Presently, there are 550,000 shares outstanding at $87 each. There will be 85,000 new shares offered at$81 each.a. What is the new market value of the company?b. How many rights are associated with one of the new shares?c. What is the
Rights Offering The Clifford Corporation has announced a rights offer to raise$28 million for a new journal, the Journal of Financial Excess. This journal will review potential articles after the author pays a nonrefundable reviewing fee of$5,000 per page. The stock currently sells for $27 per
IPO Underpricing The Woods Co. and the Garcia Co. have both announced IPOs at $40 per share. One of these is undervalued by $9, and the other is overvalued by$4, but you have no way of knowing which is which. You plan on buying 1,000 shares of each issue. If an issue is underpriced, it will be
Calculating Flotation Costs The St. Anger Corporation needs to raise $45 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 is $31 per share and the company’s underwriters charge a
Calculating Flotation Costs The Green Hills Co. has just gone public. Under a firm commitment agreement, Green Hills received $26.04 for each of the 7 million shares sold. The initial offering price was $28 per share, and the stock rose to $32.30 per share in the first few minutes of trading. Green
Price Dilution Raggio, Inc., has 135,000 shares of stock outstanding. Each share is worth $75, so the company’s market value of equity is $10,125,000. Suppose the firm issues 30,000 new shares at the following prices: $75, $70, and $65. What will the effect be of each of these alternative
Stock Offerings The Newton Company has 50,000 shares of stock that each sell for $40. Suppose the company issues 9,000 shares of new stock at the following prices: $40, $20, and $10. What is the effect of each of the alternative offering prices on the existing price per share?
Dilution The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information for the company is shown here:INTERMEDIATE(Questions 10–18)Stock price $75 Number of shares 65,000 Total assets $9,400,000 Total liabilities $4,100,000 Net income
Dilution In the previous problem, what would the ROE on the investment have to be if we wanted the price after the offering to be $75 per share? (Assume the PE ratio remains constant.) What is the NPV of this investment? Does any dilution take place?
Rights A company’s stock currently sells for $68 per share. Last week the firm issued rights to raise new equity. To purchase a new share, a stockholder must remit$11 and three rights.a. What is the ex-rights stock price?b. What is the price of one right?c. When will the price drop occur? Why
Rights Hoobastink Mfg. is considering a rights offer. The company has determined that the ex-rights price will be $61. The current price is $68 per share, and there are 10 million shares outstanding. The rights offer would raise a total of $60 million.What is the subscription price?
Value of a Right Show that the value of a right can be written as:Value of a right 5 P RO 2 P X 5 ( P RO 2 P S )/( N 1 1)where P RO , P S , and P X stand for the “rights-on” price, the subscription price, and the ex-rights price, respectively, and N is the number of rights needed to buy one new
Selling Rights Wuttke Corp. wants to raise $5,375,000 via a rights offering. The company currently has 950,000 shares of common stock outstanding that sell for$55 per share. Its underwriter has set a subscription price of $30 per share and will charge Wuttke a 6 percent spread. If you currently own
Valuing a Right Mitsi Inventory Systems, Inc., has announced a rights offer.The company has announced that it will take four rights to buy a new share in the offering at a subscription price of $30. At the close of business the day before the ex-rights day, the company’s stock sells for $60 per
At the end of the discussion Dan asks Robin about the Dutch auction IPO process.What are the differences in the expenses to East Coast Yachts if it uses a Dutch auction IPO versus a traditional IPO? Should the company go public with a Dutch auction or use a traditional underwritten offering?Larissa
During the discussion of the potential IPO and East Coast Yachts’ future, Dan states that he feels the company should raise $75 million. However, Larissa points out that if the company needs more cash soon, a secondary offering close to the IPO would be potentially problematic. Instead, she
After deliberation, Larissa and Dan have decided that the company should use a firm commitment offering with Crowe & Mallard as the lead underwriter. The IPO will be for $85 million. Ignoring underpricing, how much will the IPO cost the company as a percentage of the funds received?Larissa Warren

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Corporate Finance With Connect Access Card 10th Edition Stephen Ross ,Randolph Westerfield ,Jeffrey Jaffe - Solutions

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