Principles Of Managerial Finance 15th Global Edition Chad J. Zutter, Scott Smart - Solutions

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=+e. If GTI were actually a foreign-based company, what impact would that have on the foregoing analysis? Describe the added regulations, costs, benefits, and risks that are likely to be associated with such an international merger.
=+d. What other merger proposals could OS make to GTI’s owners?
=+(3) If the earnings attributed to GTI’s assets grow at a much slower rate than those attributed to OS’s premerger assets, what effect might this growth have on the EPS of the merged firm over the long run?
=+(2) What effect will this swap of stock have on the EPS of the original shareholders of (i) Organic Solutions and (ii) Green Thumbs Inc.? Explain why.
=+c. (1) What is the ratio of exchange in a stock swap acquisition if OS pays $30 per share for GTI? Explain why.
=+b. If OS planned to sell bonds to finance 80% of the cash acquisition price found in parta, how might issuance of each of the following bonds affect the firm?Describe the characteristics and pros and cons of each bond:(1) Straight bonds.(2) Convertible bonds.(3) Bonds with stock purchase warrants
=+a. What is the maximum price Organic Solutions should offer GTI for a cash acquisition? (Note: Assume that the relevant time horizon for analysis is 30 years.)
=+c. Provide your assessment of the company’s degree of economic exposure. In other words, is it high or low based on your findings in part b?
=+b. Determine the net cash flow as measured in U.S. dollars. It will represent the value of the economic exposure.
=+a. Determine the net cash flows for both the Mexican peso and the British pound.
=+As the financial manager for a large multinational corporation (MNC), you have been asked to assess the firm’s economic exposure. The two major currencies, other than the U.S. dollar, that affect the company are the Mexican peso (MP) and the British pound (£). You have been given the
=+LG 1 P19–6 ETHICS PROBLEM Maximizing shareholder wealth is your company’s primary financial objective. Many firms do whatever it takes to maximize shareholder wealth, including paying bribes when doing business in other countries. How might you explain your firm’s position, on not engaging
=+Determine the effective interest rates for all three currencies in both the Euromarket and the domestic market, and then indicate where the funds should be invested and raised. (Note: Assume that because of local regulations, a subsidiary is not permitted to use the domestic market of any other
=+LG 5 P19–5 Euromarket investment and fund rising Suppose that Audi AG has two main subsidiaries, one in India (local currency is Indian rupee, INR) and one in Indonesia(local currency is Indonesian rupiah, IDR). Forecasts of business operations indicate the following short-term financing
=+b. Briefly explain how the following four basic categories of mutual funds differ:(1) Global fund.(2) International fund.(3) Emerging-market fund.(4) Country-specific fund.
=+a. Go to http://finance.yahoo.com. Click on “Market Data” and then “Mutual Funds” to find more information regarding mutual funds.
=+LG 4 P19–4 International investment diversification The economies of the world tend to rise and fall in cycles that offset each other. International stocks can be used to diversify an investment portfolio and counter these movements. Therefore, many individual investors prefer to invest in a
=+b. Joe decided to exchange the amount for incidental expenses and other miscellaneous expenditures from euros to rand. Determine the amount of rand that he will need. Ignore exchange charges.Personal Finance Problem
=+a. What will this trip cost in euros?
=+for incidental expenses and an additional €1,500 to cover other miscellaneous expenditures. The local currency is the Rand (R), and the exchange rate is 14.89 (R/€) or 0.0672 (€/R).
=+P19–3 Exchange rates Joe Smallwood is planning his trip to Kruger National Park in South Africa this summer and, in doing so, is preparing his travel budget. The trip will cost€595 and includes transportation, accommodation, a guide, and tours. International airfare are excluded, so a return
=+a. Foreign taxes can be applied as a credit against Meridiani’s Italian tax liability.b. No tax credits are allowed.
=+P19–1 Tax credits Meridiani, a Milan-based furniture and interior design company, has just opened a subsidiary in Albania. The subsidiary earns €1,000,000 before local taxes, with all the after-tax income available to the parent company in the form of dividends. The applicable taxes consist
=+LG 5 E19–5 British Petroleum needs to borrow a specific amount of money for the next 2 months and can use two foreign lending facilities. It can borrow at a nominal annual interest rate of 0.5% in euros, or it can borrow at 3% in Norwegian krone (kr). If the pound is expected to depreciate by
=+LG 3 LG 5 E19–4 Carry Trade Inc. borrows yen when the yen is trading at ¥110/US$. If the nominal annual interest rate of the loan is 3% and at the end of the year the yen trades at¥120/US$, what is the effective annual interest rate of the loan?
=+LG 5 E19–3 If BASF Corp. borrows Swedish krona (kr) at a nominal interest rate of 4% and during the year the krona appreciates by 15%, what will the effective annual interest rate be for the loan?
=+LG 3 E19–2 Assume that the Swedish krona (kr) currently trades at 6.39 kr to the U.S. dollar.During the year, U.S. inflation is expected to average 2.4%, while inflation in Sweden is expected to average 0.6%. Calculate the current value of one krona in terms of U.S. dollars. Calculate the
=+(a) if foreign taxes can be applied against the Austrian tax liability and (b) if they cannot.
=+E19–1 Raiffeisen Bank International AG is an Austrian banking group whose Albanian subsidiary has a pretax income of €4,000,000; all after-tax income is available in the form of dividends to the parent company. The local tax rate is 15% and the Austrian tax rate is 25%. Compare the net funds
=+b. Do you think that over the last year inflation was higher in the United States or in Japan?
=+a. Which currency appreciated and which currency depreciated over the course of the year?
=+ST19–1 Currency movements Today the exchange rate between U.S. dollars and Japanese yen is 97.91(¥/$). A year ago the rate was 98.91(¥/$).
=+19–16 What are some of the major reasons for the rapid expansion in international mergers and joint ventures of firms?
=+19–15 Outline the changes to be undertaken in intra-MNC accounts if a subsidiary’s currency is expected to depreciate in value relative to the currency of the parent MNC.
=+19–14 Discuss the steps to be followed in adjusting a subsidiary’s accounts relative to third parties when that subsidiary’s local currency is expected to appreciate in value in relation to the currency of the parent MNC.
=+19–13 What is the Eurocurrency market? What are the main factors determining foreign exchange rates in that market? Differentiate between the nominal interest rate and the effective interest rate in this market.
=+19–12 What are the long-run advantages of having more local debt and less MNC-based equity in the capital structure of a foreign subsidiary?
=+19–11 Describe the difference between foreign bonds and Eurobonds. Explain how each is sold, and discuss the determinant(s) of their interest rates.
=+19–10 Briefly discuss some of the international factors that cause the capital structures of MNCs to differ from those of purely domestic firms.
=+19–8 Discuss macro and micro political risk. What is the emerging third path to political risk? Describe some techniques for dealing with political risk.
=+19–7 Explain how differing inflation rates between two countries affect their exchange rate over the long term.
=+19–6 Define spot exchange rate and forward exchange rate. Define and compare accounting exposures and economic exposures to exchange rate fluctuations.
=+19–5 Under FASB No. 52, what are the translation rules for financial statement accounts? How does the temporal method differ from these rules?
=+19–4 Discuss the major reasons for the growth of the Euromarket. What is an offshore center? Name the major participants in the Euromarket.
=+19–3 From the point of view of a U.S.-based MNC, what are the key benefits of the Tax Cuts and Job Act of 2017?
=+19–2 What is a joint venture? Why is it often essential to use this arrangement? What effect do joint-venture laws and restrictions have on the operation of foreign-based subsidiaries?
=+What is the WTO?
=+What is GATT?
=+19–1 What are the important international trading blocs? What is the European Union, and what is its single unit of currency?
=+14–1 What two ways can firms distribute cash to shareholders?
=+14–2 Why do rapidly growing firms generally pay no dividends?
=+14–3 The dividend payout ratio equals dividends paid divided by earnings.
=+How would you expect this ratio to behave during a recession? What about during an economic boom?
=+14–4 Who are holders of record? When does a stock sell ex dividend?
=+14–6 What benefit is available to participants in a dividend reinvestment plan? How might the firm benefit from such a plan?
=+14–8 Contrast the basic arguments about dividend policy advanced by Miller and Modigliani and by Gordon and Lintner
=+14–9 What five factors do firms consider in establishing dividend policy?Briefly describe each of them.
=+14–11 Why do firms issue stock dividends? Comment on the following statement: “I have a stock that promises to pay a 20% stock dividend every year, and therefore it guarantees that I will break even in 5 years.”
=+14–12 Compare a stock split with a stock dividend.
=+ST14–1 Stock repurchase The Off-Shore Steel Company has earnings available for common stockholders of $2 million and has 500,000 shares of common stock outstanding at$60 per share. The firm is currently contemplating the payment of $2 per share in cash dividends.
=+a. Calculate the firm’s current earnings per share (EPS) and price/earnings (P/E) ratio.
=+b. If the firm can repurchase stock at $62 per share, how many shares can be purchased in lieu of making the proposed cash dividend payment?
=+c. How much will the EPS be after the proposed repurchase? Why?
=+d. If the stock sells at the old P/E ratio, what will the market price be after repurchase?
=+e. Compare and contrast the earnings per share before and after the proposed repurchase.
=+f. Compare and contrast the stockholders’ position under the dividend and repurchase alternatives.
=+LG 2 E14–2 Staff Excellence Enterprises identified two independent projects to enhance staff training programs. The investments would require financing of $750,000 and$980,800, respectively. Retained earnings are $1.3 million, and the firm has a capital structure with 40% debt and 60% equity.
=+LG 3 E14–3 Legal & General, an insurance company, has the following stockholders’ equity account:Common stock (5,871,000 shares at £1 par) £5,871,000 Paid-in capital in excess of par £4,000,000 Retained earnings £550,000 Total stockholders’ equity £10,421,000 Assuming that laws and
=+LG 4 E14–4 The board of Kopi Industries is considering a new dividend policy that would set dividends at 60% of earnings. The recent past has witnessed earnings per share(EPS) and dividends paid per share as shown in the following table.Year EPS Dividend/share 2016 $1.75 $0.95 2017 1.95 1.20
=+Based on Kopi’s historical dividend payout ratio, discuss whether a constant payout ratio of 60% would benefit shareholders.
=+LG 5 E14–5 Legal & General, with the equity account as described in E14-3, announces its plans to issue an additional 58,710 shares of common stock as part of its stock dividend plan. The current market price of Legal & General is £2.69 per share. Show how the proposed dividend would affect
=+P14–1 Dividend payment procedures At the quarterly dividend meeting, Perfect Frame Manufacturing declared a $2.00 per share dividend for the holders on record on Monday, March 10. The outstanding common stock is 250,000 shares. The dividend payment date was set as Monday, March 31. Prior to the
=+a. When is the ex dividend date?b. Calculate the amount of dividend payable on March 31.
=+c. What values would the key accounts have after the March 31 payment date?d. All other things being equal, what will happen to the stock price on the ex dividend date?
=+e. What is the net effect of declaring and paying dividends on the total assets of Perfect Frame Manufacturing?Personal Finance Problem
=+LG 1 P14–2 Dividend payment Sandra Gray owns 800 shares of Steel & Fittings Corporation.At the annual dividend meeting, a cash dividend of $1.05 was declared to be paid on September 30 to all the holders of record as at September 9
=+a. What is the amount of the dividend Sandra would receive on September 30?
=+b. If Sandra increased her stockholding to 900 shares on September 10, what is the amount of the dividend she would receive on September 30?
=+c. What effect does declaring this dividend have on stock prices on September 7?
=+d. If Sandra sold 200 shares for a total of $1,000 on September 15, what is the amount of the dividend she would receive on September 30?
=+LG 2 P14–3 Residual dividend policy A new intern is trying to understand the dividend policy of your firm. Having studied dividend policies at university, the intern wonders why the firm chose its current dividend policy. The intern also wants to know how to estimate the dividend amount that
=+a. Describe the purpose of a residual dividend policy.b. Calculate the expected amount of the dividend, if any, for each of the three capital budget amounts.
=+c. Explain why there are differences in the amounts of the dividend for the three capital budget amounts.
=+LG 3 P14–4 Dividend constraints Plastic Enterprises’ stockholders’ equity account is as follows:Common stock (280,000 shares at $3.50 par) $980,000 Paid-in capital in excess of par $900,000 Retained earnings $1,200,000 Total stockholders’ equity $3,080,000 The earnings available for the
=+a. Calculate the maximum dividend per share that the firm can pay if the legal capital includes all paid-in capital.b. Calculate the maximum dividend per share that the firm can pay if the legal capital includes only the value of the common stock.
=+c. If Plastic Enterprises has $25,000 in cash, what is the largest per-share dividend it can pay without borrowing, assuming legal capital includes all paid-in capital?
=+d. What is the purpose of capital impairment restrictions when developing a dividend policy?
=+LG 3 P14–5 Dividend constraints A firm has $800,000 in paid-in capital, retained earnings of$40,000 (including the current year’s earnings), and 25,000 shares of common stock outstanding. In the current year, it has $29,000 of earnings available for the common stockholders.
=+a. What is the most the firm can pay in cash dividends to each common stockholder? (Assume that legal capital includes all paid-in capital.)
=+b. What effect would a cash dividend of $0.80 per share have on the firm’s balance sheet entries?
=+c. If the firm cannot raise any new funds from external sources, what do you consider the key constraint with respect to the magnitude of the firm’s dividend payments? Why?
=+LG 4 P14–6 Low-regular-and-extra dividend policy Cromwall Laboratories has a target payout ratio of 60%. However, the board realizes that adhering strictly to the payout ratio will cause the dividend payout to fluctuate. Therefore, the board has declared a regular dividend of $0.75 per share
=+a. Calculate the payout ratio for each year on the basis of the regular dividend payment and the EPS given.
=+b. For each year, what is the difference between the regular $0.75 dividend and a 60% payout?
=+c. Cromwall Laboratories decides to pay an extra dividend of $0.50 in years when the difference between the regular $0.75 dividend and the 60% payout is at least$0.70. Indicate the dividend payments and “extra” dividend payments, if any, for each year.
=+d. The company estimates future earnings per share will remain above $3.20 per share for most years. If the board wants to increase the regular dividend from$0.75 to $1.25, what factors should it consider before implementing the new regular dividend?
=+LG 4 P14–7 Alternative dividend policies Over the past 10 years, a firm has had the earnings per share shown in the following table.Year Earnings per share Year Earnings per share 2019 $4.00 2014 $2.40 2018 3.80 2013 1.20 2017 3.20 2012 1.80 2016 2.80 2011 -0.50 2015 3.20 2010 0.25
=+a. If the firm’s dividend policy were based on a constant payout ratio of 40% for all years with positive earnings and 0% otherwise, what would be the annual dividend for each year?
=+b. If the firm had a dividend payout of $1.00 per share, increasing by $0.10 per share whenever the dividend payout fell below 50% for 2 consecutive years, what annual dividend would the firm pay each year?
=+c. If the firm’s policy were to pay $0.50 per share each period except when earnings per share exceed $3.00, when an extra dividend equal to 80% of earnings beyond$3.00 would be paid, what annual dividend would the firm pay each year?

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