Financial Management Theory And Practice 11th Edition Eugene F Brigham, Michael C Ehrhardt - Solutions

Discover comprehensive solutions for "Financial Management Theory and Practice, 11th Edition" by Eugene F. Brigham and Michael C. Ehrhardt. Access the complete answers key and solutions manual online, offering step-by-step answers to intricate questions and answers from the textbook. Utilize the test bank and instructor manual for enhanced understanding and practice. Explore chapter solutions and solved problems with ease, providing you with a thorough grasp of financial management concepts. Enjoy the convenience of a free download of solutions in PDF format, ensuring you have the resources you need to succeed in your studies.

Problem 15, partf. in Chapter 3 asks you to construct a five-year financial projection for Aquatic Supplies beginning in 2009. Based on your forecast, or the suggested answer in C3 Problem 15.xls, answer the questions below. The file is available at www.mhhe.com/higgins9e. (Select Student Edition >
Use the Standard and Poor's Market Insight Web site, www.mhhe .com/edumarketinsight, for this problem.a. For fiscal year 2006, compare several coverage and leverage ratios of The Boeing Company with those of Oracle Corp. (Excel Ana- lytics, Annual Ratio Report). Which company has the higher
Answer the following questions assuming the interest rate is 8 percent.a. What is the present value of $1,000 to be received in four years?b. What is the present value of $1,000 in eight years? Why does the present value fall as the number of years increases?c. How much would you pay for the right
An investment of $1,300 today returns $61,000 in 50 years. What is the internal rate of return on this investment? m. A company is planning to set aside money to repay $150 million in bonds that will be coming due in eight years. How much money would the company need to set aside at the end of each
An individual wants to borrow $120,000 from a bank and repay it in six equal annual end-of-year payments, including interest. If the bank wants to earn a 7 percent rate of return on the loan, what should the payments be? Ignore taxes and default risk.AppendixLO1
Your mother is buying a house for $400,000 and intends to pay $100,000 down, and borrow the remaining $300,000 (including all closing costs). She is evaluating two loan options: borrow $300,000 at 8 percent on a 25-year term loan (i.e., a mortgage, with monthly payments), or borrow the same amount
If National Health Care Corp. reported earnings per share of $5.82 in 1997 and $21.26 in 2008, at what annual rate did earnings per share grow over this period?AppendixLO1
A developer offers lots for sale at $60,000, $10,000 to be paid down and $10,000 to be paid at the end of cach of the next five years with "no interest to be charged." In discussing a possible purchase, you find that you can get the same lot for $48,959 cash. You also find that on a time purchase
Times are tough for Auger Biotech. Having raised $85 million in an initial public offering of its stock early in the year, the company is poised to launch its product. If Auger engages in a promotional cam- paign costing $60 million this year, its annual after-tax cash flow over the next five years
One year ago, Caffe Vita Coffee Roasting Co. (CVCRC) purchased three small-batch coffee roasters for $3.3 million. The company-now finds that new roasters are available that offer significant advantages. The new roasters can be purchased for $4.5 million, have an economic life of 10 years, and have
(Read the chapter appendix before attempting this problem.) A com- pany is considering the following investment opportunities. Investment A B C Initial cost ($ millions) $5.5 $3.0 $2.0 Expected life. 10 yrs 10 yrs 10 yrs NPV @ 15% $340,000 $300,000 $200,000 IRR 20% 30% 40%a. If the company can
In 1987, a Van Gogh painting Sunflowers (not reputed to be one of his best) sold at auction, net of fees, for $36 million. In 1889, 98 years ear- lier, the same painting sold for $125. Calculate the rate of return to the seller on this investment. What does this suggest about the merits of fine art
You are advising a friend who has a decision to make regarding Social Security. He is about to turn 62 years old, and is eligible for early So- cial Security benefits. His early benefits would amount to $667 cach month. However, he knows that if he waits until he is 65, his monthly benefits would
Feeling very generous toward your alma mater because of the fine ed- ucation you received there, you decide to fund a scholarship to help future students with the cost of their education. You want this schol- arship to cover the annual cost of tuition for one student each year, and you want the
You are looking to purchase the latest model of the BMW 750i luxury sedan. The price of the car is $75,000. However, you negotiate a six year loan, with no money down and no monthly payments during the first year. After the first year, you will pay $1,500 per month for the remain- der of the loan,
Your brother, age 40, is the regional manager at an office supply com- pany. He thinks he might want to leave his job to go back to school for an MBA. He expects that his current job, if he were to stay at it, would pay him a real income stream of $75,000 per year until retirement at age 65. If he
Read the information regarding a possible new investment presented at www.mhhe.com/higgins9e. (Select Student Edition > Choose a Chapter Excel Spreadsheets.)a. Complete the spreadsheet to estimate the project's annual after tax cash flows.b. What is the investment's net present value at a discount
The spreadsheet for this problem provides a brief overview of se- lected financial functions in Excel and poses several questions regard- ing mortgage loans requiring monthly payments. The spreadsheet is available at www.mhhe.com/higgins9e. (Select Student Edition > Choose a Chapter > Excel
This problem asks you to evaluate two mutually exclusive investment alternatives with differing life expectancies under various conditions in- cluding capital rationing. Relevant information about the investments and specific questions are available at www.mhhe.com/higgins9e. (Select Student
You work for Mattel and you are negotiating with Warner Brothers for the rights to manufacture and sell Harry Potter lunchboxes (you already sell related action figures). Your marketing department esti- mates that you can sell $500 million worth of lunchboxes per year for three years, starting next
Is each of the following statements true or false? Explain your answers.a. Using the same risk-adjusted discount rate to discount all future cash flows ignores the fact that the more distant cash flows are often more risky than cash flows occurring sooner.b. The cost of capital, or WACC, is not the
Your company's weighted-average cost of capital is 11 percent. Your company is planning to undertake a project with an internal rate of return of 14 percent, but you believe that this project is not a good investment for the firm. What logical arguments would you use to convince your boss to forgo
Looking at Figure 8.1, explain why a company should reject invest- ment opportunities lying below the market line and accept those lying above the line.AppendixLO1
You have the following information about Burgundy Basins, a sink manufacturer. Equity shares outstanding Stock price per share Yield to maturity on debt Book value of interest-bearing debt Coupon interest rate on debt Market value of debt Book value of equity Cost of equity capital Tax rate 20
How will an increase in financial leverage affect a company's cost of equity capital, if at all? How will it affect a company's equity beta? Are these effects consistent with the M&M Irrelevance Proposition from Chapter 6?AppendixLO1
What is the present value of a cash flow stream of $1,000 per year an- nually for 15 years that then grows at 4 percent per year forever when the discount rate is 13 percent?AppendixLO1
You are a commercial real estate broker eager to sell an office build- ing. An investor is interested but demands a 20 percent return on her equity investment. The building's selling price is $25 million, and it promises after-tax cash flows of $3 million annually in perpetuity. Interest-only
(You will need a computer for this problem.) The following informa- tion is available about an investment opportunity. Investment will occur at time 0 and sales will commence at time 1. Initial cost Unit sales Selling price per unit, this year Variable cost per unit, this year Life expectancy
The chapter discusses General Design's option to expand its diamond film project.a. Is the option a call or a put?b. What is the option's strike price?AppendixLO1
(This problem tests your understanding of the chapter appendix.) Dome Appliance, Inc., a private firm that manufactures home appli- ances, has hired you to estimate the company's beta. You have ob- tained the following equity betas for publicly traded firms that also manufacture home appliances.($
Use the Standard & Poor's Market Insight Web site (www.mhhe.com/ edumarketinsight) for this problem. Assume Starbucks Corporation is reviewing the cost of equity and the WACC it uses to evaluate new in- vestments. Management collected the following information as of November 30, 2007: Yield to
Use the Standard & Poor's Market Insight Web site (www.mhhe.com/ edumarketinsight) for this problem. Assume that Starbucks contem- plates selling music online over a Web site, via existing wireless hotspots in its stores. The estimated initial investment in technology and cost of implementation is
The Excel file C8 Problem 13.xls available at www.mhhe.com/ higgins90 (Select Student Edition >Choose a Chapter > Excel Spreadsheets) provides key facts and assumptions concerning Kroger Company, a large supermarket chain, on December 12, 2007. Using this information,a. Estimate Kroger's cost of
The Excel file C8 Problem 14.xls at www.mhhe.com/higgins9e (Select Student Edition > Choose a Chapter > Excel Spreadsheets) gives in- formation regarding Kroger Company and four industry competitors. Using this information,a. Estimate the industry asset beta, weighting each company by its
Newscorp entered into an agreement to purchase all of the outstanding shares of Dow Jones and Company for $60 per share. The number of outstanding shares at the time of the announcement was 82 million. The book value of interest-bearing liabilities on the balance sheet of Dow Jones was $1.46
In the acquisition described above, Newscorp paid $60 per share for the outstanding shares of Dow Jones and Company. Immediately prior to the Newscorp bid, the shares of Dow Jones traded at $33 per share. What value did Newscorp place on the control of Dow Jones and Company?AppendixLO1
Below is a recent income statement for Hegel Publishing. Net sales $8,000 Cost of sales (including depreciation of $800) 4,700 Gross profit 3,300 Selling and admin, expenses (including interest expense of $570) 1,500 Income before tax 1,800 Tax 612 Income after tax $1,188 Calculate Hegel's free
Stolid, Inc. is a no-growth company expected to pay a $12-per-share annual dividend into the distant future. Its cost of equity capital is 15 percent. The new president abhors the no-growth image and pro- poses to halve next year's dividend to $6 per share and use the savings to acquire another
a. What does it mean when a company's free cash flow is negative in one or more years?b. Do negative values of free cash flow in any way alter or invalidate the notion that a company's fair market value equals the present value of its free cash flows discounted at the company's weighted average
Procureps, Inc. (P) is considering two possible acquisitions, neither of which promises any enhancements or synergistic benefits. VI is a poorly performing firm in a declining industry with a price-to-earnings ratio of eight times. V2 is a high-growth technology company with a price-to- earnings
Ametek, Inc. is a billion dollar manufacturer of electronic instruments and motors headquartered in Paoli, Pennsylvania. Use the following information on Ametek and five other similar companies to value Ametek, Inc. on December 31, 2001. Ametek, Inc., 2001 ($ millions) Ametek Net income Number of
Following is a four-year forecast for Torino Marine. Year 2009 2010 2011 2012 Free cash flow ($ millions) $-52 $76 $92 $112a. Estimate the fair market value of Torino Marine at the end of 2008. Assume that after 2012, earnings before interest and tax will remain constant at $200 million,
A venture capital company buys 400,000 shares of a start-up's stock for $5 million. If the company has 1.6 million shares outstanding prior to the purchase, what is the company's pre-money value? What is its post-money value?AppendixLO1
New ventures commonly set aside 10 to 20 percent of company shares at the valuation date for employee bonuses and stock options. Modify the valuation of ZMW Enterprises in Panel B of Table 9A.1 to in- clude an employee set aside equal to 20 percent of the company in year 5. Specifically, calculate
Using the information below, please answer the following questions below about Surelock Homes, a start-up company. In your analysis, assume the valuation date is the end of year 6, projected earnings in year 6 will be $12 million, and an appropriate price-to-earnings ratio for valuing these
The Excel file C9 Problem 13.xls available at www.mhhe.com/ higgins9e (Select Student Edition > Choose a Chapter > Excel Spread- sheets) contains information concerning the potential acquisition of Fractal Antenna Systems, Inc. by Integrated Communications, Ltd. After reviewing this information,
The spreadsheet available at www.mhhe.com/higgins9e (Select Student Edition Choose a Chapter > Excel Spreadsheets) presents information concerning Harley Davidson and five of its peers. Use the given information to estimate the value of Harley Davidson.AppendixLO1
An Excel spreadsheet containing selected financial information for Eight Ball Sporting Goods is available at www.mhhe.com/higgins9e. (Select Student Edition > Choose a Chapter > Excel Spreadsheets.) Using this information, answer the questions appearing in the spread- sheet regarding Eight Ball's
Chapter 3, Problem 15, partf. asks you to construct a five-year finan- cial projection for Aquatic Supplies beginning in 2009. Based on your forecast, or the suggested answer at www.mhhe.com/higgins9e, (Select Student Edition Choose a Chapter > Excel Spreadsheets) calculate Aquatic Supplies's
You will need to use the Standard & Poor's Market Insight Web site (www.mhhe.com/edumarketinsight) for this problem.a. For fiscal year 2006, what is the largest single asset on General Motors Corp's balance sheet, on Microsoft Corp's balance sheet?b. Calculate the ratio of cash and equivalents to
Harley-Davidson, Inc. has the following ratios for the years 2000 through 2004: 2000 2001 2002 2003 2004 Profit margin (%) 11.4 12.3 13.5 15.5 16.7 Retention ratio (%) 91.3 91.9 92.8 92.2 86.6 Asset turnover (X) 1.25 1.14 1.11 1.00 0.97 Assets (end of year, millions) $2,436 $3,118 $3,861 $4,923
Robert Half International, Inc. (RHI), headquartered in Menlo Park California, is the world's first and largest provider of temporary and permanent personnel in accounting, finance, and information tech- nology with 330 offices worldwide. The following are selected finan- cial data for the company
Biosite, Inc. is a developer, manufacturer, and marketer of medical diagnostic products in San Diego, California. If you wanted to test for parasites, drug abuse, or congestive heart failure, you would be wise to contact Biosite. Following are selected financial data for the company for the period
Looking at Figure 4.6, describe the trend in gross public equity issues and IPOs in the U.S. during the last 25 years. How do you explain this trend given what we observe in Figure 4.5? Explain.AppendixLO1
Looking at Figure 4.5, describe the trend in net equity financing in the U.S. during the last 30 years. What does this say about the use of equity financing in U.S. corporations?AppendixLO1
Table 3.1 in the last chapter presents R&E Supplies financial state- ments for the period 200$ through 2008, and Table 3.5 presents a pro forma financial forecast for 2009. Use the information in these tables to answer the following questions.a. Calculate R&E Supplies sustainable growth rate in
Are the following statements true or false? Please explain why.a. A company's sustainable growth rate is the highest growth rate in sales it can attain without issuing new stock.b. The stock market is a ready source of new capital when a company is incurring heavy losses.c. Share repurchases
Why do you suppose financial statements are constructed on an ac- crual basis rather than a cash basis when cash accounting is so much easier to understand?AppendixLO1
a. What does it mean when cash flow from operations on a company's cash flow statement is negative? Is this bad news? Is it dangerous?b. What does it mean when cash flow from investing activities on a company's cash flow statement is negative? Is this bad news? Is it dangerous?c. What does it mean
True or false:a. It is impossible for a firm to have a negative book value of equity without the firm going into bankruptcy.b. You can construct a sources and uses statement for 2007 if you have a company's balance sheets for 2006 and 2007.c. The "goodwill" account on the balance sheet is an
Explain briefly how each of the following transactions would affect a company's balance sheet. (Remember, assets must equal liabilities plus owners' equity before and after the transaction.)a. Purchase of a new $80 million building, financed 40 percent with cash and 60 percent with a bank loan.b.
Global Travel Inc. is in negotiations to acquire Vacations Unlim- ited Corporation. Global Travel will pay $6 million for Vacations Unlimited, and plans to finance this purchase with 55 percent in new stock, 35 percent in new debt, and 10 percent with existing cash balances. The book value of
Table 3.1 in Chapter 3 presents financial statements over the period 2005-2008 for R&E Supplies, Inc.a. Construct a sources and uses statement for the company over this period (one statement for all three years).b. What insights, if any, does the sources and uses statement give you about the
You are responsible for labor relations in your company. During heated labor negotiations, the General Secretary of your largest union exclaims, "Look, this company has $15 billion in assets, $7.5 billion in equity, and made a profit last year of $300 million-due largely, I might add, to the effort
Please ignore taxes for this problem. During 2007, Becky Construction earned net income of $400,000. The firm increased its accounts receiv able during the year by $250,000. The book value of its assets declined by the year's depreciation charge, which was $180,000, and the market value of its
Jonathan currently is a brewmaster for HopsScotch Brewery. He really enjoys his job, but is intrigued by the prospect of quitting his job and starting his own brewery. He currently makes $53,000 at HopsScotch Brewery. Jonathan anticipates that his new brewery, Barley Brews, will have annual
Selected information about Sam 'n' Ella's Chicken Delight, a chain of hot new restaurants, follows. ($ in millions) 2007 2008 Net sales $296 $304 Cost of goods sold 168 223 Depreciation 51 61 Net income 32 45 Finished goods inventory 34 29 Accounts receivable 47 87 Accounts payable 39 44 Net fixed
Below are summary cash flow statements for three roughly equal-size companies ($ millions) A B C Net cash flows from operating activities $(300) $1300) $300 Net cash used in investing activities (900) (30) (90) Net cash from financing activities 1,200 210 (240) Cash balance at beginning of year 150
Epic Record's equity has a market value of $5 million with 500,000 shares outstanding. The book value of its equity is $1,750,000.a. What is Epic's stock price per share? What is its book value per share?b. If the company repurchases 20 percent of its shares in the stock market, how will this
Use Standard & Poor's Market Insight Web site (www.mhhe.com/ edumarketinsight) for this problem. Qwest Communications Inc. re- ported a $757 million loss in 2005.a. Does this necessarily mean the company's operating activities con- sumed cash in 2005? Explain.b. Looking at the company's 2005 Annual
Use Standard & Poor's Market Insight Web site (www.mhhe.com/ edumarketinsight) for this problem.a. What was the ratio of the market value of equity to the book value of equity for Amazon.com, Inc. at year-end 2006? (From the "Excel Analytics" tools on the left of the screen, consult "Valuation
An Excel spreadsheet containing the Whistler Corporation's finan- cial statements is available for download at www.mhhe.com/higgins9e. (Select Student Edition > Choose a Chapter > Excel Spreadsheets.) Use the statements to create a sources and uses statement and a cash flow statement for the
True or false?a. A company's return on equity will always equal or exceed its return on assets.b. A company's assets-to-equity ratio always equals one plus its liabil- ities to equity ratio.c. A company's collection period should always be less than its payables period.d. A company's current ratio
a. Which company would you expect to have the higher debt-to- equity ratio, a financial institution or a high-technology company? Why?b. Which company would you expect to have a higher profit margin, an appliance manufacturer or a grocer? Why?c. Which company would you expect to have a higher
The Board of Directors for Broadstar Entertainment Inc. has been pressuring the CEO to increase ROE for shareholders. During an in- terview on CNBC, he announces his plan for improving the financial performance of the firm. His plan is to raise prices on all of the com- pany's products by 10
Your firm is considering the acquisition of a very promising technol- ogy company. One executive argues against the move, pointing out that because the technology company is presently losing money, the acquisition will cause your firm's return on equity to fall.a. Is the executive correct in
Financial data for Industrial Inc follows: ($ in thousands) Year 1 $160,835 $141,829 Year 2 $274,219 $209,628 -$257,981 Cash flow from operations -$ 35,831 -$ 12,538 Sales Cost of goods sold Net income --$91,432 Balance Sheet Cash Marketable securities $236,307 $209,670 $164,952 $ 22,638 Accounts
Top management measures your division's performance by calculat- ing the division's return on investment (ROI), defined as division- operating income per period divided by division assets. Your division has done quite well lately; its ROI is 30 percent. You believe the divi- sion should invest in a
Answer the questions below based on the following information. Taxes are 35 percent and all dollars are in millions. Sesame Inc. Rogers Corp Earnings before interest and taxes $280 $294 Debt (at 10% interest) $140 $840 Equity $560 $210a. Calculate each company's ROE, ROA, and ROIC.b. Why is
Table 3.1 in Chapter 3 presents financial statements over the period 2005 through 2008 for R&E Supplies, Inc.a. Use these statements to calculate as many of the ratios in Table 2.2 as you can.b. What insights do these ratios provide about R&E's financial per- formance? What problems, if any, does
You are trying to put together the financial statements of Mont- gomery Shoe Company, but seem to be missing its balance sheet. However, you have Montgomery Shoe's income statement, which shows sales last year of $180 million with a gross profit margin of 40 percent. You also know that credit sales
In 2004, Natural Selection, a nationwide computer dating service, had $250 million of assets and $100 million of liabilities. Earnings be- fore interest and taxes were $60 million, interest expense was $14 mil- lion, the tax rate was 40 percent, principal repayment requirements were $12 million,
Given the following information, complete the balance sheet shown below. Collection period Days sales in cash Current ratio Inventory turnover Liabilities to assets Payables period 71 days 34 days 2.6 5 times 75% 36 days (All sales are on credit. All calculations assume a 365-day year. Payables
You will need to use the Standard & Poor's Market Insight website (www.mhhe.com/edumarketinsight) for this problem. Observe the sales- to-net property, plant, and equipment ratio for fiscal 2006 for each of the following companies: AMR Corp, Oracle Corp, Alcan Inc, and Yahoo Inc. (From among the
An Excel spreadsheet containing Maui Land & Pineapple Company's financial statements for 2004-2006 is available for download at www.mhhe.com/higgins9e. (Select Student Edition > Choose a Chap- ter > Excel Spreadsheets.) Use the spreadsheet to calculate as many of the company's Profitability,
Use Limited Brands, Inc.'s financial statements available on the Web at www.mhhe.com/higgins9e to answer the questions below. (Select Student Edition > Choose a Chapter > Excel Spreadsheets.) Use the company's Operating Profit as an approximation of its EBIT, and you may assume a 40 percent tax
The U. S. dollar. The primary reason for using the dollar was that it provided a relatively stable benchmark, and it was accepted universally for transaction purposes.
Under the fixed exchange rate system, the fluctuations were limited to $+1 \%$ and $-1 \%$. Under the floating exchange rate system, there are no agreed-upon limits.
A dollar will buy more Swiss francs.
There will be an excess supply of dollars in the foreign exchange markets, and thus, will tend to drive down the value of the dollar. Foreign investments in the United States will increase.
Taking into account differential labor costs abroad, transportation, tax advantages, and so forth, U. S. corporations can maximize long-run profits. There are also nonprofit behavioral and strategic considerations, such as maximizing market share and enhancing the prestige of corporate officers.
The foreign project's cash flows have to be converted to U. S. dollars, since the shareholders of the U. S. corporation (assuming they are mainly U. S. residents) are interested in dollar returns. This subjects them to exchange rate risk, and therefore requires an additional risk premium. There is
A Eurodollar is a dollar deposit in a foreign bank, normally a European bank. The foreign bank need not be owned by foreigners--it only has to be located in a foreign country. For example, a Citibank subsidiary in Paris accepts Eurodollar deposits. The Frenchman's deposit at Chase Manhattan Bank in
No, interest rate parity implies that an investment in the U. S. with the same risk as a similar investment in a foreign country should have the same return. Interest rate parity is expressed as:\[
Purchasing power parity assumes there are neither transaction costs nor regulations which limit the ability to buy and sell goods across different countries. In many cases, these assumptions are incorrect, which explains why PPP is often violated. An additional complication, when empirically
a. Our suppliers switch from delivering by train to air freight.b. We change from producing just in time to meet seasonal sales to steady, year-round production.c. Competition in the markets in which we sell increases.d. The rate of general inflation increases.e. Interest rates rise; other things
When money is tight, interest rates are generally high. This means that near-cash assets have high returns; hence, it is expensive to hold idle cash balances. Firms tend to economize on their cash balance holdings during tight-money periods.
a. Better synchronization of cash inflows and outflows would allow the firm to keep its transactions balance at a minimum, and would therefore lower the target cash balance.b. Improved sales forecasts would tend to lower the target cash balance.c. A reduction in the portfolio of U.S. Treasury bills
Ideally, the employee will choose the plan that provides the incremental cash flows (both costs and benefits) that maximize the employee's expected utility of consumption. However, there are many economic variables involved which have profound effects on the expected value of the plans. These
From an employer's standpoint, the defined benefit plan's major advantage is promotion of low employee turnover. The economic consequences of job-changing are not desirable under a defined benefit plan, since benefits are frozen at the time of separation, instead of adjusted for inflation over

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Financial Management Theory And Practice 11th Edition Eugene F Brigham, Michael C Ehrhardt - Solutions

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