Financial Management Theory & Practice 12th Edition Eugene BrighamMichael Ehrhardt - Solutions

Assume that you recently graduated and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm's clients is Michelle DellaTorre, a professional tennis player who has just come to the United States from Chile. DellaTorre is a highly ranked
a. Find the present values of the following cash flow streams. The appropriate interest rate is 8%. (It is fairly easy to work this problem dealing with the individual cash flows. However, if you have a financial calculator, read the section of the manual that describes how to enter cash flows such
Hanebury Corporation’s current sales were $12 million. Sales were $6 million 5 years earlier.a. To the nearest percentage point, at what rate have sales been growing?b. Suppose someone calculated the sales growth for Hanebury Corporation in part a as follows: “Sales doubled in 5 years. This
You have just obtained financial information for the past 2 years for Bridgewater Equine Corporation. Answer the following questions.a. What is the net operating profit after taxes (NOPAT) for 2007?b. What are the amounts of net operating working capital for both years?c. What are the amounts of
Last year Cole Furnaces had $5,000,000 in operating income (EBIT). The company had a net depreciation expense of $1,000,000 and an interest expense of $1,000,000; its corporate tax rate was 40%. The company has $14,000,000 in operating current assets and $4,000,000 in operating current liabilities;
The first part of the case, presented in Chapter 3, discussed the situation that Computron Industries was in after an expansion program. Thus far, sales have not been up to the forecasted level, costs have been higher than were projected, and a large loss occurred in 2007, rather than the expected
The Bookbinder Company has made $150,000 before taxes during each of the last 15 years, and it expects to make $150,000 a year before taxes in the future. However, in 2007 the firm incurred a loss of $650,000. The firm will claim a tax credit at the time it files its 2007 income tax return, and it
Argent Corporation had earnings per share of $4 last year, and it paid a $2 dividend. Total retained earnings increased by $12 million during the year, while book value per share at year-end was $40. Argent has no preferred stock, and no new common stock was issued during the year. If Argent’s
The following data apply to Jacobus and Associates (millions of dollars):Jacobus has no preferred stock—only common equity, current liabilities, and longterm debt.a. Find Jacobus’s (1) accounts receivable (A/R), (2) current liabilities, (3) current assets, (4) total assets, (5) ROA, (6) common
Complete the balance sheet and sales information in the table that follows for Hoffmeister Industries using the following financial data: Debt ratio: 50% Quick ratio: 0.80x Total assets turnover: 1.5x Days sales outstanding: 36.5 daysª Gross profit margin on sales: (Sales - Cost of goods
Data for Morton Chip Company and its industry averages follow.a. Calculate the indicated ratios for Morton.b. Construct the extended Du Pont equation for both Morton and the industry.c. Outline Morton’s strengths and weaknesses as revealed by your analysis.d. Suppose Morton had doubled its sales
The Pennington Corporation issued a new series of bonds on January 1, 1984. The bonds were sold at par ($1,000), had a 12% coupon, and matured in 30 years, on December 31, 2013. Coupon payments are made semiannually (on June 30 and December 31).a. What was the YTM on January 1, 1984?b. What was the
The Jimenez Corporation’s forecasted 2008 financial statements follow, along with some industry average ratios. a. Calculate Jimenez’s 2008 forecasted ratios, compare them with the industry average data, and comment briefly on Jimenez’s projected strengths and weaknesses.b. What do you think
Stocks A and B have the following historical returns:a. Calculate the average rate of return for each stock during the 5-year period.Assume that someone held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would have been the realized rate of return on the portfolio in each year?
You are planning to invest $200,000. Two securities, A and B, are available, and you can invest in either of them or in a portfolio with some of each. You estimate that the following probability distributions of returns are applicable for A and B: P A 0.1 0.2 0.4 0.2 0.1 Security
Security A has an expected rate of return of 6%, a standard deviation of returns of 30%, a correlation coefficient with the market of –0.25, and a beta coefficient of –0.5. Security B has an expected return of 11%, a standard deviation of returns of 10%, a correlation with the market of 0.75,
Ewald Company’s current stock price is $36, and its last dividend was $2.40. In view of Ewald’s strong financial position and its consequent low risk, its required rate of return is only 12%. If dividends are expected to grow at a constant rate, g, in the future, and if rs is expected to remain
Use the following income statements and balance sheets to calculate Garnet Inc.’s free cash flow for 2008. Garnet Inc. Income Statement Net sales Costs (except depreciation) Depreciation Total operating costs Earnings before interest and taxes (EBIT) Less interest Earnings before taxes Taxes
The Rogers Company is currently in this situation: (1) EBIT = $4.7 million; (2) tax rate, T = 40%; (3) value of debt, D = $2 million; (4) rd = 10%; (5) rs = 15%; (6) shares of stock outstanding, n0 = 600,000; and stock price, P0 = $30. The firm's market is stable, and it expects no growth, so
Lighter Industrial Corporation (LIC) is considering a large-scale recapitalization. Currently, LIC is financed with 25% debt and 75% equity. LIC is considering increasing its level of debt until it is financed with 60% debt and 40% equity. The beta on its common stock at the current level of debt
Components Manufacturing Corporation (CMC) has an all-common-equity capital structure. It has 200,000 shares of $2 par value common stock outstanding.When CMC's founder, who was also its research director and most successful inventor, retired unexpectedly to the South Pacific in late 2007, CMC was
Northern Pacific Heating and Cooling Inc. has a 6-month backlog of orders for its patented solar heating system. To meet this demand, management plans to expand production capacity by 40% with a $10 million investment in plant and machinery. The firm wants to maintain a 40% debt-to-total-assets
In 2007 the Keenan Company paid dividends totaling $3,600,000 on net income of $10.8 million. 2007 was a normal year, and for the past 10 years, earnings have grown at a constant rate of 10%. However, in 2008, earnings are expected to jump to $14.4 million, and the firm expects to have profitable
House Mountain Breweries (HMB) is planning an IPO. Its underwriters have said the stock will sell at $20 per share. The direct costs (legal fees, printing, etc.) will be $800,000. The underwriters will charge a 7% spread.a. How many shares must HMB sell to net $30 million?b. If the stock price
Vanderheiden Press Inc. and the Herrenhouse Publishing Company had the following balance sheets as of December 31, 2007 (thousands of dollars):Earnings before interest and taxes for both firms are $30 million, and the effective federal-plus-state tax rate is 40%.a. What is the return on equity for
The Randolph Teweles Company (RTC) has decided to acquire a new truck. One alternative is to lease the truck on a 4-year guideline contract for a lease payment of $10,000 per year, with payments to be made at the beginning of each year. The lease would include maintenance. Alternatively, RTC could
Connor Company recently issued two types of bonds. The first issue consisted of 10-year straight debt with a 6% annual coupon. The second issue consisted of 10-year bonds with a 4.5% annual coupon and attached warrants. Both issues sold at their$1,000 par values. What is the implied value of the
It is now March, and the current cost of debt for Wansley Construction is 12%. Wansley plans to issue $5 million in 20-year bonds (with coupons paid semiannually) in September, but is afraid that rates will climb even higher before then. The following data are available:Futures Prices: Treasury
The Calgary Company is attempting to establish a current assets policy. Fixed assets are $600,000, and the firm plans to maintain a 50% debt-to-assets ratio. Calgary has no operating current liabilities. The interest rate is 10% on all debt. Three alternative current asset policies are under
The Verbrugge Publishing Company’s 2007 balance sheet and income statement are as follows (in millions of dollars).Verbrugge and its creditors have agreed upon a voluntary reorganization plan. In this plan, each share of the $6 preferred will be exchanged for one share of $2.40 preferred with a
At the time it defaulted on its interest payments and filed for bankruptcy, Medford Fabricators Inc. had the following balance sheet (in millions of dollars). The court, after trying unsuccessfully to reorganize the firm, decided that the only recourse was liquidation under Chapter 7. Sale of the
Green Mountain Breweries is considering an acquisition of Ritta Markets. Ritta currently has a cost of equity of 10%; 25% of its financing is in the form of 6% debt, the rest in common equity. Its federal-plus-state tax rate is 40%. After the acquisition, Green Mountain expects Ritta to have the
Suppose the exchange rate between U.S. dollars and EMU euros is €0.98 = $1.00, and the exchange rate between the U.S. dollar and the Canadian dollar is $1.00 = C$1.50. What is the cross rate of euros to Canadian dollars?
Garlington Technologies Inc.’s 2007 financial statements are shown below.Garlington Technologies Inc.: Income Statement for December 31, 2007Suppose that in 2008 sales increase by 10% over 2007 sales and that 2008 dividends will increase to $112,000. Construct the pro forma financial statements
Watkins Inc. has never paid a dividend, and when it might begin paying dividends is unknown. Its current free cash flow is $100,000, and this FCF is expected to grow at a constant 7% rate. The weighted average cost of capital is WACC = 11%. Watkins currently holds $325,000 of nonoperating

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