Questions and Answers of Financial Management Theory

The Christie Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash flow cycle. Christie’s sales last year (all on credit) were
Calculate the nominal annual cost of nonfree trade credit under each of the following terms. Assume that payment is made either on the discount date or on the due date.a. 1/15, net 20b. 2/10, net
McDowell Industries sells on terms of 3/10, net 30. Total sales for the year are $912,500. Forty percent of customers pay on the 10th day and take discounts; the other 60% pay, on average, 40 days
A large retailer obtains merchandise under the credit terms of 1/15, net 45, but routinely takes 60 days to pay its bills. (Because the retailer is an important customer, suppliers allow the firm to
The following discussion questions demonstrate how we can evaluate the capital structures for three global automobile companies: Ford (F), BMW (BMW), and Toyota (J:TYMO). As you gather information on
The Rivoli Company has no debt outstanding, and its financial position is given by the following data:The firm is considering selling bonds and simultaneously repurchasing some of its stock. If it
The Rivoli Company has no debt outstanding, and its financial position is given by the following data:The firm is considering selling bonds and simultaneously repurchasing some of its stock. If it
Let’s find out what has happened to Microsoft’s (MSFT) dividend policy since its 2003 announcement to initiate dividends. We can address this issue by relying on the data that are provided to you
Start with the partial model in the file Ch14 P13 Build a Model.xls on the textbook’s Web site. J. Clark Inc. (JCI), a manufacturer and distributor of sports equipment, has grown until it has
Start with the partial model in the file Ch14 P13 Build a Model.xls on the textbook’s Web site. J. Clark Inc. (JCI), a manufacturer and distributor of sports equipment, has grown until it has
Define each of the following terms:a. Optimal distribution policyb. Dividend irrelevance theory; bird-in-the-hand theory; tax effect theoryc. Information content, or signaling, hypothesis; clientele
Define each of the following terms:a. Optimal distribution policyb. Dividend irrelevance theory; bird-in-the-hand theory; tax effect theoryc. Information content, or signaling, hypothesis; clientele
You have been hired as a consultant to Kulpa Fishing Supplies (KFS), a company that is seeking to increase its value. The company’s CEO and founder, Mia Kulpa, has asked you to estimate the value
Start with the partial model in the file Ch13 P11 Build a Model.xls on the textbook’s Web site. The Henley Corporation is a privately held company specializing in lawn care products and services.
Current and projected free cash flows for Radell Global Operations are shown below. Growth is expected to be constant after 2012, and the weighted average cost of capital is 11%. What is the horizon
Current and projected free cash flows for Radell Global Operations are shown below. Growth is expected to be constant after 2012, and the weighted average cost of capital is 11%. What is the horizon
Hatfield Medical Supplies’s stock price had been lagging its industry averages, so its board of directors brought in a new CEO, Adam Lee. Lee asked for the company’s long-run strategic plan; when
Hatfield Medical Supplies’s stock price had been lagging its industry averages, so its board of directors brought in a new CEO, Adam Lee. Lee asked for the company’s long-run strategic plan; when
Clothing retailer Abercrombie & Fitch enjoyed phenomenal success in the late 1990s. Between 1996 and 2000, its sales grew almost fourfold, from $335 million to more than $1.2 billion, and its stock
Clothing retailer Abercrombie & Fitch enjoyed phenomenal success in the late 1990s. Between 1996 and 2000, its sales grew almost fourfold, from $335 million to more than $1.2 billion, and its stock
Start with the partial model in the file Ch12 P11 Build a Model.xls on the textbook’s Web site, which shows Matthews Industries’s most recent balance sheet, income statement, and other data.
Start with the partial model in the file Ch12 P10 Build a Model.xls on the textbook’s Web site, which contains the 2010 financial statements of Zieber Corporation. Forecast Zeiber’s 2011 income
Start with the partial model in the file Ch12 P10 Build a Model.xls on the textbook’s Web site, which contains the 2010 financial statements of Zieber Corporation. Forecast Zeiber’s 2011 income
Refer to Problem 12-1. What would be the additional funds needed if the company’s year-end 2010 assets had been $4 million? Assume that all other numbers, including sales, are the same as in
Refer to Problem 12-1. What would be the additional funds needed if the company’s year-end 2010 assets had been $4 million? Assume that all other numbers, including sales, are the same as in
Start with the partial model in the file Ch11 P18 Build a Model.xls on the textbook’s Web site. Webmasters.com has developed a powerful new server that would be used for corporations’ Internet
Start with the partial model in the file Ch10 P23 Build a Model.xls on the textbook’s Web site. Gardial Fisheries is considering two mutually exclusive investments. The projects’ expected net
Refer to Problem 10-1. What is the project’s IRR?Data From Problem 10-1:A project has an initial cost of $52,125, expected net cash inflows of $12,000 per year for 8 years, and a cost of capital of
Define each of the following terms:a. Capital budgeting; regular payback period; discounted payback periodb. Independent projects; mutually exclusive projectsc. DCF techniques; net present value
In this chapter we described how to estimate a company's WACC, which is the weighted average of its costs of debt, preferred stock, and common equity. Most of the data we need to do this can be found
Start with the partial model in the file Ch09 P18 Build a Model.xls on the textbook's Web site. The stock of Gao Computing sells for $50, and last year's dividend was $2.10. A flotation cost of 10%
Start with the partial model in the file Ch09 P18 Build a Model.xls on the textbook's Web site. The stock of Gao Computing sells for $50, and last year's dividend was $2.10. A flotation cost of 10%
Start with the partial model in the file Ch09 P18 Build a Model.xls on the textbook's Web site. The stock of Gao Computing sells for $50, and last year's dividend was $2.10. A flotation cost of 10%
Start with the partial model in the file Ch09 P18 Build a Model.xls on the textbook's Web site. The stock of Gao Computing sells for $50, and last year's dividend was $2.10. A flotation cost of 10%
A company's 6% coupon rate, semiannual payment, $1,000 par value bond that matures in 30 years sells at a price of $515.16. The company's federal-plus-state tax rateis 40%. What is the firm's
Start with the partial model in the file Ch08 P08 Build a Model.xls on the textbook's Web site. You have been given the following information for a call option on the stock of Puckett Industries: P =
Start with the partial model in the file Ch08 P08 Build a Model.xls on the textbook's Web site. You have been given the following information for a call option on the stock of Puckett Industries: P =
Start with the partial model in the file Ch08 P08 Build a Model.xls on the textbook's Web site. You have been given the following information for a call option on the stock of Puckett Industries: P =
Start with the partial model in the file Ch08 P08 Build a Model.xls on the textbook's Web site. You have been given the following information for a call option on the stock of Puckett Industries: P =
Use the Black-Scholes Model to find the price for a call option with thefollowing inputs: (1) current stock price is $30, (2) strike price is $35, (3) time toexpiration is 4 months, (4) annualized
Sam Strother and Shawna Tibbs are senior vice presidents of Mutual of Seattle. They are co- directors of the company's pension fund management division, with Strother having responsibility for fixed
In this chapter we described the various factors that influence stock prices and the approaches analysts use to estimate a stock's intrinsic value. By comparing these intrinsic value estimates to the
Start with the partial model in the file Ch07 P20 Build a Model.xls on the textbook's Web site. Rework parts a, b, and c of Problem 7-19 using a spreadsheet model. For part b, calculate the price,
Define each of the following terms:a. Proxy; proxy fight; takeover; preemptive right; classified stock; founders' sharesb. Closely held stock; publicly owned stockc. Intrinsic value (Po); market
Assume that you recently graduated with a major in finance and that you just landed a job as a financial planner with Barney Smith Inc., a large financial services corporation. Your first assignment
In the Capital Asset Pricing Model (CAPM) discussion, beta is identified as the correct measure of risk for diversified shareholders. Recall that beta measures the extent to which the returns of a
Start with the partial model in the file Ch06 P14 Build a Model.xls on the textbook's Web site. The file contains hypothetical data for working this problem. Bartman Industries's and Reynolds
The probability distribution of a less risky return is more peaked than that of a riskier return. What shape would the probability distribution have for (a) completelycertain returns and (b)
Start with the partial model in the file Ch05 P24 Build a Model.xls on the textbook'sWeb site. A 20-year, 8% semiannual coupon bond with a par value of $1,000 may becalled in 5 years at a call price
Define each of the following terms:a. Bond; Treasury bond; corporate bond; municipal bond; foreign bondb. Par value; maturity date; coupon payment; coupon interest ratec. Floating-rate bond; zero
Find the present value of the following ordinary annuities.a. $400 per year for 10 years at 10%b. $200 per year for 5 years at 5%c. $400 per year for 5 years at 0%d. Now rework parts a, b, and c
Define each of the following terms:a. PV; I; INT; FVN; PVAN; FVAN; PMT; M; INOMb. Opportunity cost ratec. Annuity; lump-sum payment; cash flow; uneven cash flow streamd. Ordinary (or deferred)
The first part of the case, presented in Chapter 2, discussed the situation of Computron Industries after an expansion program. A large loss occurred in 2010, rather than the expected profit. As a
Use Thomson ONE to analyze Ford Motor Company. Enter Ford's ticker symbol (F) and select GO. By selecting the tab at the top labeled Financials, you can find Ford's key financial statements for the
Start with the partial model in the file Ch03 P15 Build a Model.xls from the textbook's Web site. Joshua & White (J&W) Technologies's financial statements are also shown below. Answer the
Start with the partial model in the file Ch03 P15 Build a Model.xls from the textbook'sWeb site. Joshua & White (J&W) Technologies's financial statements are also shownbelow. Answer the following
Assume you are given the following relationships for the Clayton Corporation:Calculate Clayton's profit margin and debt ratio.
Define each of the following terms:a. Liquidity ratios: current ratio; quick, or acid test, ratiob. Asset management ratios: inventory turnover ratio; days sales outstanding(DSO); fixed assets
Donna Jamison, a graduate of the University of Tennessee with four years of banking experience, was recently brought in as assistant to the chairman of the board of Computron Industries, a
Donna Jamison, a graduate of the University of Tennessee with four years of banking experience, was recently brought in as assistant to the chairman of the board of Computron Industries, a
Over the past decade, Starbucks coffee shops have become an increasingly familiar part of the urban landscape. The Thomson ONE-Business School Edition online database can provide a wealth of
Begin with the partial model in the file Ch02 P15 Build a Model.xls on the textbook's Web site.a. Using the financial statements shown below for Lan & Chen Technologies, calculate net operating
Begin with the partial model in the file Ch02 P14 Build a Model.xls on the text- book's Web site.a. Cumberland Industries's 2010 sales were $455,000,000; operating costs (excluding depreciation) were
The Talley Corporation had a taxable income of $365,000 from operations after all operating costs but before (1) interest charges of $50,000, (2) dividends received of $15,000, (3) dividends paid of
The Talley Corporation had a taxable income of $365,000 from operations after all operating costs but before (1) interest charges of $50,000, (2) dividends received of $15,000, (3) dividends paid of
The Talley Corporation had a taxable income of $365,000 from operations after all operating costs but before (1) interest charges of $50,000, (2) dividends received of $15,000, (3) dividends paid of
Explain the following statement: "Whereas the balance sheet can be thought of as asnapshot of the firm's financial position at a point in time, the income statement reports on operations over a
Define each of the following terms:a. Annual report; balance sheet; income statementb. Common stockholders' equity, or net worth; retained earningsc. Statement of stockholders' equity; statement of
Define each of the following terms:a. Proprietorship; partnership; corporationb. Limited partnership; limited liability partnership; professional corporationc. Stockholder wealth maximizationd. Money
Harmeling Paint Ball (HPB) Corporation needs a new air compressor that costs $80,000. HPB will need it for only 3 years even though the compressor’s economic life is long enough so that the lease
The Verbrugge Publishing Company’s 2019 balance sheet and income statement are as follows (in millions of dollars): Verbrugge and its creditors have agreed upon a voluntary reorganization plan.
Suppose the exchange rate between the U.S. dollar and the Swedish krona was 6 krona = $1 and the exchange rate between the dollar and the British pound was £1 = $2. What was the exchange rate
Suppose that 1 Danish krone could be purchased in the foreign exchange market today for $0.20. If the krone appreciated 10% tomorrow against the dollar, how many krones would a dollar buy tomorrow?
If British pounds sell for $2 (U.S.) per pound, what should dollars sell for in pounds per dollar?
Sue Wilson, the new financial manager of New World Chemicals (NWC), a California producer of specialized chemicals for use in fruit orchards, must prepare a formal financial forecast for 2009.
Morrissey Technologies Inc.’s 2008 financial statements are shown here.Suppose that in 2009, sales increase by 10% over 2008 sales. The firm currently has 100,000 shares outstanding. It expects to
Morrissey Technologies Inc.’s 2008 financial statements are shown here.Suppose that in 2009, sales increase by 10% over 2008 sales. The firm currently has 100,000 shares outstanding. It expects to
Morrissey Technologies Inc.’s 2008 financial statements are shown here.Suppose that in 2009, sales increase by 10% over 2008 sales. The firm currently has 100,000 shares outstanding. It expects to
Assume that you have just been hired as business manager of Campus Deli (CD), which is located adjacent to the campus. Sales were $1,100,000 last year, variable costs were 60% of sales, and fixed
Allied Food Products is considering expanding into the fruit juice business with a new fresh lemon juice product. Assume that you were recently hired as assistant to the director of capital budgeting
Project K costs $52,125, its expected net cash inflows are $12,000 per year for 8 years, and its WACC is 12%. What is the project’s NPV?
Midwest Water Works estimates that its WACC is 10.5%. The company is considering the following capital budgeting projects:Assume that each of these projects is just as risky as the firm’s existing
The Heuser Company’s currently outstanding bonds have a 10% coupon and a 12% yield to maturity. Heuser believes it could issue new bonds at par that would provide a similar yield to maturity. If
Stock C’s beta coefficient is bC = 0.4, while Stock D’s is bD = –0.5. (Stock D’s beta is negative, indicating that its return rises when returns on most other stocks fall. There are very few
You are considering an investment in Keller Corp’s stock, which is expected to pay a dividend of $2.00 a share at the end of the year (D1 = $2.00) and has a beta of 0.9. The risk-free rate is 5.6%,
Martell Mining Company’s ore reserves are being depleted, so its sales are falling. Also, because its pit is getting deeper each year, its costs are rising. As a result, the company’s earnings
Assume that you recently graduated with a major in finance. You just landed a job as a financial planner with Merrill Finch Inc., a large financial services corporation. Your first assignment is to
HR Industries (HRI) has a beta of 1.8, while LR Industries’ (LRI) beta is 0.6. The risk-free rate is 6%, and the required rate of return on an average stock is 13%. The expected rate of inflation
Is it true that the following equation can be used to find the value of a bond with N years to maturity that pays interest once a year? Assume that the bond was issued several years ago
A sinking fund can be set up in one of two ways: a. The corporation makes annual payments to the trustee, who invests the proceeds in securities (frequently government bonds) and uses the
A sinking fund can be set up in one of two ways: a. The corporation makes annual payments to the trustee, who invests the proceeds in securities (frequently government bonds) and uses the
Part I of this case, presented in Chapter 3, discussed the situation of D’Leon Inc., a regional snack foods producer, after an expansion program. D’Leon had increased plant capacity and
What is meant by the following statement: Our tax rates are progressive
The present value of a perpetuity is equal to the payment on the annuity, PMT, divided by the interest rate, I: PV = PMT/I. What is the future value of a perpetuity of PMT dollars per year (Hint: The
To find the present value of an uneven series of cash flows, you must find the PVs of the individual cash flows and then sum them. Annuity procedures can never be of use, even when some of the cash
A father is now planning a savings program to put his daughter through college. She is 13, she plans to enroll at the university in 5 years, and she should graduate in 4 years. Currently, the annual
Little Books Inc. recently reported $3 million of net income. Its EBIT was $6 million, and its tax rate was 40%. What was its interest expense? [Hint: Write out the headings for an income statement
Dunbar Corporation can purchase an asset for $30,000; the asset will be worthless after 14 years. Alternatively, it could lease the asset for 14 years with an annual lease payment of $3,653 paid at
a. Using the financial statements shown here for Lan & Chen Technologies, calculate net operating working capital, total net operating capital, net operating profit after taxes, free cash flow,
Cumberland Industries' most recent balance sheets (in thousands of dollars) are shown, below and in the partial model in the file: a. The company's sales for 2015 were $455,150,000, and EBITDA was

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