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essentials corporate finance
Essentials of Corporate Finance 10th edition Stephen Ross, Randolph Westerfield, Bradford Jordan - Solutions
For each of the following annuities, calculate the future value. Annual Payment Years Interest Rate $2,100 10 8% 6,500 40 1,100 30 5,000 10
For each of the following annuities, calculate the annuity payment. Years Future Value Interest Rate 21,800 1,500,000 8 5% 40 25 520,000 13 98,700
For each of the following annuities, calculate the present value. Years Annuity Payment Interest Rate $ 1,560 5% 10 1,280 20,000 18 53,200 28 14
For each of the following annuities, calculate the annual cash flow. Years Present Value Interest Rate $ 15,000 11% 21,400 145,300 15 325,000
An investment offers $6,125 per year for 15 years, with the first payment occurring one year from now. If the required return is 8 percent, what is the value of the investment? What would the value be if the payments occurred for 40 years? For 75 years? Forever?
Wells, Inc., has identified an investment project with the following cash flows. If the discount rate is 8 percent, what is the future value of these cash flows in Year 4? What is the future value at an interest rate of 11 percent? At 24 percent?Year .....................Cash Flow1
Investment X offers to pay you $3,100 per year for 9 years, whereas Investment Y offers to pay you $4,800 per year for 5 years. Which of these cash flow streams has the higher present value if the discount rate is 6 percent? If the discount rate is 22 percent?
Fox Co. has identified an investment project with the following cash flows. If the discount rate is 10 percent, what is the present value of these cash flows? What is the present value at 18 percent? At 24 percent?Year ..............Cash Flow1 ........................$ 5702
You have $20,000 you want to invest for the next 40 years. You are offered an investment plan that will pay you 6 percent per year for the next 20 years and 10 percent per year for the last 20 years. How much will you have at the end of the 40 years? Does it matter if the investment plan pays you
You have decided that you want to be a millionaire when you retire in 45 years. If you can earn an annual return of 11.4 percent, how much do you have to invest today? What if you can earn 5.7 percent?
You need $85,000 in 10 years. If you can earn .78 percent per month, how much will you have to deposit today?
You can earn .31 percent per month at your bank. If you deposit $1,800, how long must you wait until your account has grown to $3,100?
You have $5,800 to deposit. Regency Bank offers 12 percent per year compounded monthly (1 percent per month), while King Bank offers 12 percent but will only compound annually. How much will your investment be worth in 20 years at each bank?
You expect to receive $30,000 at graduation in two years. You plan on investing it at 7 percent until you have $125,000. How long will you wait from now? (Better than the situation in Question 9, but still no Ferrari.)
You are scheduled to receive $10,000 in two years. When you receive it, you will invest it for six more years at 7.5 percent per year. How much will you have in eight years?
You have just made your first $5,000 contribution to your individual retirement account. Assuming you earn an annual rate of return of 10.2 percent and make no additional contributions, what will your account be worth when you retire in 45 years? What if you wait 10 years before contributing? (Does
Suppose you are still committed to owning a $175,000 Ferrari (see Question 9). If you believe your mutual fund can achieve an annual return of 11.2 percent, and you want to buy the car in 10 years on the day you turn 30, how much must you invest today?
Refer back to the Series EE savings bonds we discussed at the very beginning of the chaptera. Assuming you purchased a $50 face value bond, what rate of return would you earn if you held the bond for 20 years until it doubled in value?b. If you purchased a $50 face value bond in early
In 2018, an Action Comics No. 1, featuring the first appearance of Superman, was sold at auction for $573,600. The comic book was originally sold in 1938 for $.10. What was the annual increase in the value of this comic book?
In 1895, the first U.S. Open Golf Championship was held. The winner’s prize money was $150. In 2018, the winner’s check was $2,160,000. What was the annual percentage increase in the winner’s check over this period? If the winner’s prize increases at the same rate, what will it be in 2048?
Your coin collection contains fifty 1952 silver dollars. If your grandparents purchased them for their face value when they were new, how much will your collection be worth when you retire in 2063, assuming they appreciate at an annual rate of 4.8 percent?
You have just received notification that you have won the $1 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you’re around to collect), 80 years from now. What is the present value of your windfall if the appropriate discount rate
Imprudential, Inc., has an unfunded pension liability of $645 million that must be paid in 25 years. To assess the value of the firm’s stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 5.5 percent, what is the present value of this
The TMCC security is bought and sold on the New York Stock Exchange. If you looked at the price today, do you think the price would exceed the $24,099 original price? Why? If you looked in 2022, do you think the price would be higher or lower than today’s price? Why?
You’re trying to save to buy a new $175,000 Ferrari. You have $35,000 today that can be invested at your bank. The bank pays 2.9 percent annual interest on its accounts. How long will it be before you have enough to buy the car?
In 2018, one of the first copper pennies struck at the Philadelphia mint in 1793 was sold for $300,000. What was the rate of return on this investment?
Assume the total cost of a college education will be $235,000 when your child enters college in 18 years. You presently have $53,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child’s college education?
Solve for the unknown number of years in each of the following: Years Future Value Present Value Interest Rate $ 195 2,105 2$ 8% 873 3,500 11 47,800 326,500 38,650 15 213,380
Solve for the unknown interest rate in each of the following: Years Present Value Interest Rate Future Value $ 1,381 2$ 715 905 12 1,718 15,000 26 141,832 312,815 70,300 15
For each of the following, compute the present value: Years Present Value Interest Rate Future Value $ 19,415 15 7% 11 47,382 13 10 312,176 629,381 25 13
For each of the following, compute the future value: Present Value Years Interest Rate Future Value $ 2,960 13% 7,846 16 85,381 19 221,614 26 5
First City Bank pays 7 percent simple interest on its savings account balances, whereas Second City Bank pays 7 percent interest compounded annually. If you made a deposit of $7,900 in each bank, how much more money would you earn from your Second City Bank account at the end of 10 years?
Hershey Co. reported the following income statement and balance sheet (in millions) for 2017. Construct the expanded DuPont identity similar to Figure 3.1. What is the company?s return on equity?Income StatementSales ..........................$7,515.426CoGS
Best Buy reported the following numbers (in millions) for the years ending January 28, 2017, and February 3, 2018. What are the internal and sustainable growth rates? What are the internal and sustainable growth rates using ROE ? b and ROA ? b and the end-of-period equity (assets)? What are the
High Flyer, Inc., wishes to maintain a growth rate of 12 percent per year and a debt-equity ratio of .25. The profit margin is 5 percent, and total asset turnover is constant at 1.20. Is this growth rate possible? To answer, determine what the dividend payout ratio must be. How do you interpret
You’ve collected the following information about Gandalf, Inc.:Sales = $295,000Net income = $18,400Dividends = $9,100Total debt = $68,000Total equity = $94,000What is the sustainable growth rate for the company? If it does grow at this rate, how much new borrowing will take
Based on the following information, calculate the sustainable growth rate for Groot, Inc.:Profit margin =7.1%Total asset turnover =1.90Total debt ratio =.45Payout ratio =20%What is the ROA here?
A firm wishes to maintain an internal growth rate of 5.3 percent and a dividend payout ratio of 40 percent. The current profit margin is 6.8 percent and the firm uses no external financing sources. What must total asset turnover be?
Abercrombie & Fitch and American Eagle Outfitters (AEO) reported the following numbers (in millions except for the share price) for fiscal year 2018. Calculate the earnings per share, market-to-book ratio, and price-earnings ratio for each company. Abercrombie AEO $ 302.79 Net income 7.09
Jasmine Manufacturing wishes to maintain a sustainable growth rate of 7 percent a year, a debt-equity ratio of .65, and a dividend payout ratio of 25 percent. The ratio of total assets to sales is constant at 1.25. What profit margin must the firm achieve?
After calculating the ratios for Smolira Golf, you have uncovered the following industry ratios for 2019: How is Smolira Golf performing based on these ratios? Some recent financial statements for Smolira Golf, Inc., follow. Lower Quartile Median Upper Quartile Current ratio 2.6 1.3 5.3 2.1 2.7
Smolira Golf has 10,000 shares of common stock outstanding, and the market price for a share of stock at the end of 2019 was $73. What is the price-earnings ratio? What is the price-sales ratio? What are the dividends per share? What is the market-to-book ratio at the end of 2019? Some recent
Construct the DuPont identity for Smolira Golf. Some recent financial statements for Smolira Golf, Inc., follow. SMOLIRA GOLF, INC. Balance Sheets as of December 31, 2018 and 2019 2018 2019 2018 2019 Assets Liabilities and Owners' Equity Current assets Current liabilities $ 3,754 $ 5,298 $ 3,986
Find the following financial ratios for Smolira Golf (use year-end figures rather than average values where appropriate): Short-term solvency ratios a.?Current ratio ________________ b.?Quick ratio ________________ c.?Cash ratio Asset utilization ratios ??????????? ________________ d.?Total asset
Prince Albert Canning PLC had a net loss of £32,415 on sales of £515,380. What was the company’s profit margin? Does the fact that these figures are quoted in a foreign currency make any difference? Why? In dollars, sales were $689,785. What was the net loss in dollars?
A fire has destroyed a large percentage of the financial records of the Inferno Company. You have the task of piecing together information in order to release a financial report. You have found the return on equity to be 11.6 percent. Sales were $1.79 million, the total debt ratio was .43, and
For the most recent year, Camargo, Inc., had sales of $534,000, cost of goods sold of $241,680, depreciation expense of $60,400, and additions to retained earnings of $72,800. The firm currently has 20,000 shares of common stock outstanding, and the previous year’s dividends per share were
Delectable Parsnip, Inc.’s, net income for the most recent year was $8,417. The tax rate was 21 percent. The firm paid $4,632 in total interest expense and deducted $5,105 in depreciation expense. What was the company’s cash coverage ratio for the year?
The Moraine Company has net income of $158,230. There are currently 28.45 days’ sales in receivables. Total assets are $804,320, total receivables are $155,218, and the debt-equity ratio is .25. What is the company’s profit margin? Its total asset turnover? Its ROE?
In response to complaints about high prices, a grocery chain runs the following advertising campaign: “If you pay your child $2 to go buy $50 worth of groceries, then your child makes twice as much on the trip as we do.” You’ve collected the following information from the grocery chain’s
The Plainfield Company has a long-term debt ratio (i.e., the ratio of long-term debt to long-term debt plus equity) of .35 and a current ratio of 1.25. Current liabilities are $2,510, sales are $12,840, profit margin is 8 percent, and ROE is 12.8 percent. What is the amount of the firm’s net
Y3K, Inc., has sales of $12,840, total assets of $4,730, and a debt-equity ratio of .25. If its return on equity is 14 percent, what is its net income?
The market value of the equity of Skipper, Inc., is $745,000. The balance sheet shows $46,000 in cash and $235,000 in debt, while the income statement has EBIT of $96,700 and a total of $144,000 in depreciation and amortization. What is the enterprise value-EBITDA multiple for this company?
PXG Co. has total assets of $8.42 million and a total asset turnover of 1.5 times. If the return on assets is 8.3 percent, what is its profit margin?
Wilson, Inc., has a current stock price of $64. For the past year, the company had net income of $9.1 million, total equity of $24.7 million, sales of $49.6 million, and 4.9 million shares of stock outstanding. What are earnings per share (EPS)? Price-earnings ratio? Price-sales ratio? Book value
Barrett, Inc., has a total debt ratio of .65, total debt of $353,000, and net income of $20,750. What is the company’s return on equity?
Kaleb’s Karate Supply had a profit margin of 6.7 percent, sales of $14.2 million, and total assets of $6.75 million. What was total asset turnover? If management set a goal of increasing total asset turnover to 2.75 times, what would the new sales figure need to be, assuming no increase in
For Minnie?s Manufacturing in Problem 20, what is the sustainable growth rate? Problem 20 The most recent financial statements for Minnie?s Manufacturing Co. are shown here: Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 40 percent dividend
The most recent financial statements for Minnie?s Manufacturing Co. are shown here: Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 40 percent dividend payout ratio. No external financing is possible. What is the internal growth rate? Income
Borland, Inc., has a profit margin of 5.6 percent on sales of $13.6 million. If the firm has debt of $6.4 million and total assets of $9.8 million, what is the firm’s ROA?
The Taylor Company has an ROA of 7.6 percent, a profit margin of 5.2 percent, and an ROE of 14 percent. What is the company’s total asset turnover? What is the equity multiplier?
Suppose that the Bethesda Mining Company had sales of $2,751,332 and net income of $86,432 for the year ending December 31, 2019. Calculate the DuPont identity. Bethesda Mining Company reports the following balance sheet information for 2018 and 2019. BETHESDA MINING COMPANY Balance Sheets as of
Based on the balance sheets given for Bethesda Mining, calculate the following financial ratios for each year:a. Current ratiob. Quick ratioc. Cash ratiod. Debt-equity ratio and equity multipliere.Total debt ratio Bethesda Mining Company reports the following balance sheet information for 2018 and
Prepare the 2018 and 2019 common-size balance sheets for Bethesda Mining. Bethesda Mining Company reports the following balance sheet information for 2018 and 2019. BETHESDA MINING COMPANY Balance Sheets as of December 31, 2018 and 2019 2018 2019 2018 2019 Liabilities and Owners' Equity Assets
Assuming the following ratios are constant, what is the sustainable growth rate?Total asset turnover =2.95Profit margin =5.9%Equity multiplier =1.31Payout ratio =40%
Based on the following information, calculate the sustainable growth rate for Northern Lights Co.:Profit margin = 6.7%Capital intensity ratio = .45Debt–equity ratio = .35Net income = $135,000Dividends = $65,000
If the Crash Davis Driving School has an ROE of 14.6 percent and a payout ratio of 20 percent, what is its sustainable growth rate?
If Levine, Inc., has an ROA of 7.8 percent and a payout ratio of 25 percent, what is its internal growth rate?
Pickler Company has a debt-equity ratio of .65. Return on assets is 7.2 percent, and total equity is $815,000. What is the equity multiplier? Return on equity? Net income?
For the past year, Hawkeye, Inc., had a cost of goods sold of $95,318. At the end of the year, the accounts payable balance was $22,816. How long, on average, did it take the company to pay off its suppliers during the year? What might a large value for this ratio imply?
Specialized ratios are sometimes used in specific industries. For example, the so-called book-to-bill ratio is closely watched for semiconductor manufacturers. A ratio of .93 indicates that for every $100 worth of chips shipped over some period, only $93 worth of new orders were received. In the
Croc Gator Removal has a profit margin of 6.4 percent, total asset turnover of 1.73, and ROE of 14.3 percent. What is this firm’s debt-equity ratio?
If jPhone, Inc., has an equity multiplier of 1.67, total asset turnover of 1.45, and a profit margin of 5.9 percent, what is its ROE?
Dove, Inc., had additions to retained earnings for the year just ended of $486,000. The firm paid out $175,000 in cash dividends, and it has ending total equity of $6.825 million. If the company currently has 335,000 shares of common stock outstanding, what are earnings per share? Dividends per
A7X Corporation has ending inventory of $625,817, and cost of goods sold for the year just ended was $9,758,345. What is the inventory turnover? The days’ sales in inventory? How long, on average, did a unit of inventory sit on the shelf before it was sold?
Trout Lumber Yard has a current accounts receivable balance of $527,164. Credit sales for the year just ended were $6,787,626. What is the receivables turnover? The days’ sales in receivables? How long did it take, on average, for credit customers to pay off their accounts during the past year?
Wims, Inc., has sales of $15.2 million, total assets of $9.8 million, and total debt of $3.7 million. If the profit margin is 6 percent, what is net income? What is ROA? What is ROE?
SDJ, Inc., has net working capital of $2,135, current liabilities of $5,320, and inventory of $2,470. What is the current ratio? What is the quick ratio?
Graffiti Advertising, Inc., reported the following financial statements for the last two years. Construct the cash flow identity for the company. Explain what each number means.? 2019 Income Štatement $750,727 Sales 430,821 Cost of goods sold Selling and administrative Depreciation 165,676
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 company purchased $7,876 in new fixed assets. How much in fixed assets did the company sell? What is
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 = $825. At the beginning of the year, net fixed assets were $19,872, current assets were $3,557, and
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 was issued during the year, what do you know about the firm’s long-term debt account? Problem
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; accounts receivable = $265,000; tangible net fixed assets = $5,270,000; inventory = $579,000; notes
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 made about $102 million and Live Nation CEO Michael Rapino made about $71 million. Are such amounts
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 $1,675 and current liabilities of $1,290. What was the company’s 2019 change in net working
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 argue that Toshiba’s stockholders probably didn’t suffer as a result of the reported loss.
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 showed an interest expense of $97,500. What was the firm’s cash flow to creditors during 2019?
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 showed $137,000 and $2,568,000 in the same two accounts, respectively. If the company paid out $149,500
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 investment by $94,300. What was the firm’s 2019 operating cash flow, or OCF? Problems 10 and
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 fixed assets of $3.15 million, current liabilities of $830,000, and net working capital of $210,000.
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 = $12,705; dividends = $10,143. In addition, you’re told that the firm issued $2,900 in new
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 expense = $2,130; tax rate = 21 percent.
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 company’s 2019 income statement showed a depreciation expense of $335,000. What was the company’s net
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 income taxes. Taxable Income Tax Rate 0- 9,525 10% 9,525- 38,700- 38,700 82,500 12 22 82,500-
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- 82,500 22 82,500- 157,500 24 157,500- 200,000 32 200,000- 500,000 35 500,000+ 37
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 expense of $73,000, interest expense of $38,000, and a tax rate of 21 percent. What is the net income
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?
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