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essentials managerial finance

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

=+a. If the acquisition is not made, calculate Pen and Paper’s tax liability and earnings after taxes each year over the next 10 years.
=+P18–1 Tax effects of acquisition Pen and Paper Ltd. is considering the acquisition of Paper Mill Company, a firm that has reported large operating tax losses over the past few years. After some analysis, Pen and Paper Ltd. found that the total pretax profits of the acquisition would not change
=+b. If a stockholder holds $5,000 worth of All-Stores common stock equity and this amount gives this stockholder voting control, what percentage of the total assets controlled does this stockholder’s equity investment represent?
=+a. What percentage of the total assets controlled by All-Stores does its common stock equity represent?
=+LG 4 E18–5 All-Stores Inc. is a holding company that has voting control over both General Stores and Star Stores. All-Stores owns General Stores and Star Stores common stock valued at $15,000 and $12,000, respectively. General’s balance sheet lists$130,000 of total assets, and Star has total
=+LG 3 E18–4 SoftBank Group’s stock is currently trading at a price of ¥9,249 per share. The company is considering the acquisition of Vodafone Japan, whose stock is currently trading at¥2,200 per share. The transaction would require SoftBank to swap its shares for those of Vodafone Japan,
=+c. If Santander has 800,000 shares outstanding before the acquisition and earnings for the merged company are estimated to be €65,000,000, what is the EPS for the merged company?
=+b. If Popular has 200,000 shares outstanding, how many new shares must Santander issue to consummate the transaction?
=+a. If Santander accepts Popular Español’s terms, what is the ratio of exchange?
=+LG 3 E18–3 Banco Santander S.A. is considering the acquisition of Banco Popular Español, S.A., in a stock swap transaction. Currently, Banco Santander’s stock is selling for €5 per share. Although shares of Banco Popular Español are currently trading at €4 per share, the firm’s asking
=+E18–2 Water Worx is evaluating a proposal to acquire Plumbing Enterprises for $3 million.Water Worx is aware that some of Plumbing Enterprises’ redundant assets can be sold for $940,000 immediately after the acquisition. Plumbing Enterprises has a cash balance of $850,000 at the time of the
=+E18–1 Gas Natural Fenosa, a Spanish natural gas and electrical energy utilities company, is analyzing a possible merger with Energias de Portugal, a global energy company.Gas Natural has a tax loss carryforward of €1,000,000, which it could apply to Energias’ expected earnings before taxes
=+c. Compare your findings in parts a andb, and explain why the merger looks attractive when viewed over the long run.
=+b. Calculate the next 5 years’ (2017–2021) earnings per share (EPS) for Lake if it acquires Butler at a ratio of exchange of 1.1.
=+a. Calculate earnings per share (EPS) for Lake Industries for each of the next 5 years (2017–2021), assuming there is no merger.
=+LG 3 ST18–2 Expected EPS: Merger decision At the end of 2016, Lake Industries had 80,000 shares of common stock outstanding and had earnings available for common shareholders of $160,000. Butler Company, at the end of 2016, had 10,000 shares of common stock outstanding and had earned $20,000
=+b. If the firm’s financial leverage would actually remain unchanged as a result of the proposed acquisition, would this alter your recommendation in part a? Support your answer with numerical data.
=+a. Determine whether the proposed cash acquisition is desirable. Explain your answer.
=+ST18–1 Cash acquisition decision Luxe Foods is contemplating acquisition of Valley Canning Company for a cash price of $180,000. Luxe currently has high financial leverage and therefore has a cost of capital of 14%. As a result of acquiring Valley Canning, which is financed entirely with
=+(g) unsecured deposits of customers; (h) certain eligible wages; (i) unpaid employee benefit plan contributions; (j) unpaid interim expenses incurred between the time of filing and formal action by the court; and (k) claims of farmers or fishermen in a grain-storage or fish-storage facility.
=+(e) claims of unsecured, or general, creditors; (f) taxes legally due;
=+18–16 Indicate in which order the following claims would be settled when distributing the proceeds from liquidating a bankrupt firm: (a) claims of preferred stockholders; (b) claims of secured creditors; (c) expenses of administering the bankruptcy; (d) claims of common stockholders;
=+Describe the procedures (including the role of the trustee) involved in liquidating the bankrupt firm.
=+Under which conditions is a firm liquidated in bankruptcy?
=+18–15 What is the concern of Chapter 7 of the Bankruptcy Reform Act of 1978?
=+ How is the debtor in possession (DIP) involved in (1) the valuation of the firm, (2) the recapitalization of the firm, and (3) the exchange of obligations using the priority rule?
=+18–14 What is the concern of Chapter 11 of the Bankruptcy Reform Act of 1978?
=+18–13 Define an extension and a composition, and explain how they might be combined to form a voluntary settlement plan to sustain the firm. How is a voluntary settlement resulting in liquidation handled?
=+18–12 What are the three types of business failure? What is the difference between insolvency and bankruptcy? What are the major causes of business failure?
=+18–11 Discuss the differences in merger practices between U.S. companies and companies in other countries. What changes are occurring in international merger activity, particularly in Western Europe and Japan
=+18–10 What key advantages and disadvantages are associated with holding companies? What is pyramiding, and what are its consequences?
=+18–9 Briefly describe each of the following takeover defenses against a hostile merger: (a) white knight, (b) poison pill, (c) greenmail, (d) leveraged recapitalization, (e) golden parachutes, and (f) shark repellent
=+18–8 What role do investment bankers often play in the merger negotiation process? What is a tender offer? When and how is it used?
=+18–6 Describe the procedures typically used by an acquirer to value a target company, whether it is being acquired for its assets or as a going concern.
=+18–5 What is an operating unit? What is a divestiture? What are four common methods used by firms to divest themselves of operating units?What is breakup value?
=+18–4 What is a leveraged buyout (LBO)? What are the three key attributes of an attractive candidate for acquisition via an LBO?
=+18–3 Briefly describe each of the following types of mergers: (a) horizontal,(b) vertical, (c) congeneric, and (d) conglomerate.
=+f. Review for Teresa Leal the key sources of short-term financing, other than accounts payable, that she may consider for financing Casa de Diseño’s resource investment need calculated in partb. Be sure to mention both unsecured and secured sources.
=+e. On the basis of your analysis in parts a throughd, what recommendations would you offer Teresa Leal?
=+(5) Use your findings in parts (2) through (4) to assess whether offering the early payment discount can be justified financially. Explain why or why not.
=+(4) If the firm’s bad-debts expenses decline from 2% to 1.5% of sales, what annual savings will result, assuming that sales remain constant?
=+(3) If the firm’s variable cost of the $40,000,000 in sales is 80%, determine the reduction in the average investment in accounts receivable and the annual savings that will result from this reduced investment, assuming that sales remain constant.
=+(2) If the firm’s sales (all on credit) are $40,000,000 and 45% of the customers are expected to take the discount, by how much will the firm’s annual revenues be reduced as a result of the discount?
=+d. (1) If, in addition to achieving industry standards for payables and inventory, the firm can reduce the average collection period by offering credit terms of 3/10 net 60, what additional savings in resource investment costs will result from the shortened cash conversion cycle, assuming the
=+c. In terms of resource investment requirements, what is the cost of Casa de Diseño’s operational inefficiency?
=+b. If Leal can optimize Casa de Diseño’s operations according to industry standards, what will Casa de Diseño’s operating cycle (OC), cash conversion cycle (CCC), and resource investment need to be under these more efficient conditions?
=+a. Assuming a constant rate for purchases, production, and sales throughout the year, what are Casa de Diseño’s existing operating cycle (OC), cash conversion cycle (CCC), and resource investment requirement?
=+i. Which loan would you choose, and why?
=+h. Assume that the loan is rolled over each 60 days throughout the year under the same conditions and terms. Calculate the effective annual rate of interest.
=+g. Calculate the 60-day rate of interest.
=+f. Calculate the total dollar interest cost.
=+e. Assuming that the prime rate immediately jumps to 7.5% and after 30 days it drops to 7.25%, calculate the interest rate for the first 30 days and the second 30 days of the loan.
=+d. Calculate the initial interest rate.
=+c. Assume that the loan is rolled over each 60 days throughout the year under identical conditions and terms. Calculate the effective annual rate of interest on the fixed-rate, 60-day First American note.
=+b. Calculate the 60-day rate on the loan.
=+a. Calculate the total dollar interest cost on the loan. Assume a 365-day year.
=+Your company is considering manufacturing protective cases for a popular new smartphone. Management decides to borrow $200,000 from each of two banks, First American and First Citizen. On the day that you visit both banks, the quoted prime interest rate is 7%. Each loan is similar in that each
=+c. If the firm had made a purchase of €1,000,000 for which it had been given terms of 2/10 net 60, would it increase the firm’s profitability to give up the discount and not borrow as recommended in part b? Explain your answer.
=+b. Which bank do you recommend to get the loan from and why?
=+a. Calculate the euro cost of each of the proposed plans for obtaining an initial loan amount of €1,000,000.
=+(3) Raiffeisen Bank will lend €1,000,000 against a warehouse receipt on the finished goods inventory and charge 8% annual interest on the outstanding loan balance.Because the loan will be liquidated as inventory is sold, the average loan balance is expected to be €700,000.
=+(2) Erste Bank will lend €1,000,000 against a floating lien on the book value of inventory for the 2-month period at an annual interest rate of 7%.
=+(1) Deutsche Bank can make a €1,000,000 trust receipt loan against the finished goods inventory. The annual interest rate on the loan is 6% on the outstanding loan balance plus a 0.25% administration fee levied against the initial loan. Because it will be liquidated as inventory is sold, the
=+LG 1 LG 6 P16–20 Inventory financing Heidelberg Cement faces a liquidity crisis: It needs a loan of€1,000,000 for 2 months. Having no source of additional unsecured borrowing, the firm must find a secured short-term lender. The firms’ accounts receivable are quite low, but its inventory is
=+LG 5 P16–19 Factoring Heidelberg Cement factors the accounts of Titan Cement. All five factored accounts are shown in the following table, with the amount factored, the date due, and the status on November 30. Indicate the amounts that Heidelberg Cement should have remitted to Titan as of
=+b. What is Scientific Software’s effective annual rate of interest if it borrows$100,000 for 12 months? For 6 months? For 3 months? (Note: Assume a 365-day year and a prime rate that remains at 8.5% during the life of the loan.)
=+a. The bank will adjust the accounts by 10% for returns and allowances. It then will lend up to 85% of the adjusted acceptable collateral. What is the maximum amount that the bank will lend to Scientific Software?
=+LG 3 LG 5 P16–18 Accounts receivable as collateral, cost of borrowing Maximum Bank has analyzed the accounts receivable of Scientific Software, Inc. The bank has chosen eight accounts totaling $134,000 that it will accept as collateral. The bank’s terms include a lending rate set at prime
=+c. How much will Clothing Unlimited be able to borrow if the bank is willing to advance 80% against the firm’s acceptable collateral?
=+b. To encourage more business, the bank reduces its collateral by 10%. Calculate the amount of accounts receivable now available as collateral.
=+a. What is the amount of collateral that meets the bank’s policy?
=+LG 5 P16–17 Accounts receivable as collateral Clothing Unlimited decided to apply for a $100,000 loan from its local bank. Clothing Unlimited will provide accounts receivable as collateral. The bank’s policy states that accounts normally paid within 30 days of the end of the credit period
=+b. In addition to the conditions in parta, the bank recognizes that 8% of credit sales will be lost to returns and allowances. Also the bank will lend only 85% of the acceptable collateral (after adjusting for returns and allowances). What level of funds would be made available through this
=+a. If the bank accepts all accounts that can be collected in 40 days or less as long as the customer has a history of paying within 40 days, which accounts will be acceptable? What is the total amount of accounts receivable collateral? (Note:Accounts receivable that have an average age greater
=+LG 5 P16–16 Accounts receivable as collateral Lifestyle International, a wholesales company in India, is looking to get a loan using its accounts receivable as collateral. The firm’s credit extension is net-30-day credit. The amounts that are owed Lifestyle by its main clients, the average
=+b. Suppose a brokerage fee of $8,427 was paid from the initial proceeds. Calculate the effective annual rate the firm will pay for financing with commercial paper.
=+a. Calculate the effective annual rate the firm will pay for financing with commercial paper.
=+LG 4 P16–15 Cost of commercial paper Bejeweled Enterprises has received initial proceeds of$984,000 from issuing 120-day commercial paper with a face value of $1 million.The commercial paper is rolled over every 120 days throughout the year. (Note: Use a 365-day year.)
=+c. If the firm does expect to borrow an average of half the amount available, which arrangement would you recommend for the borrower? Explain why.
=+b. What is the effective annual rate under the revolving credit agreement? (Hint:Compute the ratio of the dollars that the firm will pay in interest and commitment fees to the dollars that the firm will effectively have use of.)
=+a. What is the effective annual rate under the line of credit?
=+LG 3 P16–14 Integrative: Comparison of loan terms Cumberland Furniture wishes to establish a prearranged borrowing agreement with a local commercial bank. The bank’s terms for a line of credit are 3.30% over the prime rate, and each year the borrowing must be reduced to zero for a 30-day
=+b. What can Automotive Accessories do to reduce the interest rates on these loans?
=+a. What is the effective annual rate of interest on each loan?
=+LG 3 P16–13 Compensating balance versus discount loan Automotive Accessories needs to borrow $135,000 for 6 months for renovations. It is considering two financing options: Bank Helping Hand offers an 8% annual rate subject to a 10% compensating balance. Bank Friendly Financer offers the funds
=+d. What is the change in the effective annual rate when the deposit balances increase?
=+c. Calculate the effective annual rate on the firm’s borrowing if the firm normally maintains a deposit balance of $145,000 at the bank.
=+b. Calculate the effective annual rate on the firm’s borrowing if the firm normally maintains a deposit balance of $45,000 at the bank.
=+a. Calculate the effective annual rate on the firm’s borrowing if the firm normally maintains no deposit balances at the bank.
=+LG 3 P16–12 Compensating balances and effective annual rates Charlton Enterprises negotiated a line of credit at the bank that requires it to pay 12.5% interest on its borrowing. The firm is required to maintain a compensating balance equal to 10% of the amount borrowed. The firm borrowed
=+LG 3 P16–11 Effective annual rate Assume Credins Bank made a €10 million, 1-year discount loan at 7% interest, requiring a compensating balance equal to 10% of the face value of the loan. Determine the effective annual rate associated with this loan. (Note: Assume that the firm currently
=+c. Which loan should Lindsey choose? Explain your answer.
=+b. Calculate her total interest cost over 180 days for a variable-rate loan.
=+a. Calculate Lindsey’s total interest cost over 180 days for a fixed-rate loan.
=+LG 3 P16–10 Unsecured sources of short-term loans Lindsey Shaw requires a short-term loan of$55,000 to buy a new house. She will also use a portion of the money for renovations to the house. A bank is willing to lend it for a 180-day period. Her bank manager discusses two loan proposals with
=+c. Based on the effective annual rate for each loan, which bank loan should The Floral Boutique choose?Personal Finance Problem
=+b. Compare the 120-day and 90-day rates on the loans by finding the effective annual rate for each loan. Assume each loan is rolled over throughout the year under the same terms and circumstances.
=+a. Based on the amount of interest to be paid, which bank loan should The Floral Boutique choose?
=+LG 3 P16–9 Cost of bank loan The Floral Boutique approached two banks to obtain a $10,000 bank loan. Bank A will give a 120-day loan at an annual interest rate of 12% and Bank B will give a 90-day loan at 15%. (Note: Assume a 365-day year.)
=+LG 2 P16–8 Spontaneous sources of funds, accruals After consultation with its employees, Sunshine Company decides to switch the employee pay period to biweekly instead of weekly. Sunshine’s weekly payroll is $925,000. The annual cost of funds is 12%.Will it be beneficial for Sunshine Company

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