Questions and Answers of Foundations of Finance

Amaze Online Pvt. Ltd. owns and operates a chain of consultancy firms throughout the Dallas-Fort Worth metroplex. The rapidly expanding population of the area has resulted in the firm requiring a
A popular theory for managing risk to the firm that arises out of its management of working capital (that is, current assets and current liabilities) involves following the principles of
Historical data for the firm's sales, accounts receivable, inventories, and accounts payable for the Crimson Mfg. Company follow:a. Calculate Crimson's days of sales outstanding, days of payables
Dynamic Industries Ltd. has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 7.5 percent per annum with interest paid in advance
Bouygues Construction S.A., headquartered in Paris, France, needs to borrow €178,000 to help finance the cost of a new €200,000 hydraulic crane used in the firm’s commercial construction
Omega Sales and Distribution Co. needs $600,000 for the 6-month period ending September 30, 2019. The firm has explored three possible sources of credit.a. A loan from a microfinance organization
Rex London, an E-commerce service in London, England, plans to borrow £55,000 from the bank to pay for inventories for its online gift shop. The bank offers to lend the money at a 12 percent annual
On February 3, 2019, Genting Power Ltd., a service company headquartered in Kuala Lumpur, Malaysia, plans a commercial paper issue of RM28 million. The firm has never used commercial paper before but
Metro AG, a global diversified retail and wholesale/cash and carry company based in Düsseldorf, Germany, is evaluating the effective cost of the following trade credit terms given by one of its
Only July 1, 2019, Sriwijaya Metal Works arranged for a line of credit with Bank Mandiri of Jakarta, Indonesia. The terms of the agreement call for a Rp200,000 (Indonesian rupiah) maximum loan with
IWT International Warehousing and Transport needs €400,000 to finance an anticipated expansion in receivables due to increased sales. IWT’s credit terms are net 60, and its average monthly credit
Integrated Logistics Solutions, based in Malaysia, is considering factoring its receivables. The firm has credit sales of RM470,000 per month and has an average receivables balance of RM870,000 with
Discuss the internationalization of business.
Explain how to read foreign exchange rate quotes and why they matter.
Discuss the concept of interest rate parity.
Explain the purchasing-power parity theory and the law of one price.
A U.S. firm needs to pay 10,000 Australian dollars to a firm in Australia, how much is this in U.S. dollars? COUNTRY-CURRENCY CONTRACT $/FOREIGN CURRENCY Australia-dollar Spot 0.71023 30-day 0.71050
An American business pays $15,000, $30,000, and $70,000 to suppliers in Australia, Japan, and Mexico, respectively. How much, in local currencies, do the suppliers receive? COUNTRY-CURRENCY CONTRACT
Compute the indirect quotes for the spot and forward Australian dollar, Japanese yen, and Mexican peso contracts. COUNTRY-CURRENCY CONTRACT $/FOREIGN CURRENCY Australia-dollar Spot 0.71023 30-day
You own $15,000. The dollar spot rate in Tokyo is 117.6464. The yen rate in New York is given in the preceding table. Are arbitrage profits possible? Set up an arbitrage scheme with your capital.
Compute the Australian dollar/yen and the yen/Mexican peso spot rates from the data in the preceding table. COUNTRY-CURRENCY CONTRACT $/FOREIGN CURRENCY Australia-dollar Spot 0.71023 30-day 0.71050
If one euro buys 9.22 Swedish kronor, how many euros can you purchase for 50 Swedish kronor?
Suppose the exchange rate between U.S. dollars and Japanese yen is $$1$ USD = ¥110 JPY, and the exchange rate between the U.S. dollar and the British pound is $$1$ USD = £0.7657 GBP. What is
This morning, you noticed the following information in your financial newspaper:1 British pound = 145.84 yen (JPY)1 U.S. dollar = 111.69 yen 1 U.S. dollar = 0.89 euros Given this information, how
Let’s assume a Burger King Super Whopper costs 3.24 yuan in China but costs $4.10 in the United States. If purchasing-power parity (PPP) holds, how many Chinese yuan are required to purchase 1 U.S.
An American business needs to pay(a) 15,000 Australian dollars,(b) 2.5 million yen, and(c) 70,000 Mexican pesos to businesses abroad which have supplied the firm with raw materials. What are the
As CFO of Barracuda Diving and Marine Services, you are asked to investigate the possibility of implementing a system to expedite cash receipts from clients.Barracuda receives check remittances
Valentino S.p.A., is a vertically integrated, international manufacturer and retailer of women’s clothing, headquartered in Milan, Italy. Currently, the firm has no coordinated cash management
Jimmy Chong Ltd. currently pays its employees on a weekly basis. The weekly wage bill is £600,000. This means that on average the firm has accrued wages payable of (£600,000 + £0)/2 =
Royal BAM Group, a Dutch construction-services business with headquarters in Bunnik, Netherlands, is suffering a prolonged decline in new construction in its sales area. To improve its cash position,
Two years ago, Decathlon Group’s corporate treasurer purchased for the firm a 30-year bond at its par value of $1,000. The coupon rate on this security is 9 percent. Interest payments are made to
The corporate treasurer of Howards Fireworks is considering the purchase of a BB+ rated bond that carries a coupon of 12 percent. The BB+ rated security is taxable, and the firm is in the 21 percent
The Petaling Bottling Company will generate $14 million in credit sales next year.Collection of these credit sales will occur evenly over this period.The firm’s employees work 270 days a year.
Assuming a 360-day year, calculate how much the average investment in inventory would be for Temasek Holdings, a company based in Singapore, given the following information in each case.a. The firm
Determine the effective annualized cost of forgoing the trade credit discount on the following terms:a. 1/10, net 20b. 2/10, net 30c. 3/10, net 30d. 3/10, net 45e. 3/10, net 60f. 5/30, net 90
The following ratios were supplied by six Indonesian firms seeking a bank loan. Given this information and credit-scoring model developed by Altman (equation [17-2] ), which loans have a high
Popular Bookstores is trying to determine the optimal order quantity for a popular novel just printed in paperback. The store feels that the book will sell at four times its hardback figures. It
Krugstan Products Ltd. is involved in the production of automobile parts and has the following inventory, carrying, and storage costs:A. Orders must be placed in round lots of 150 units.B. Annual
Star Supermarket Ltd. is evaluating its financial requirements for the year 2019. The company’s CFO expects that the relationship between firm sales and its operating expenses, current assets, its
Jackie’s pâtisserie shop is located in downtown Montréal, Gers in France. Jackie sells her pastries both to retail customers that visit her bakery and also distributes her famous line of choux
Maldives Commercial Enterprises projects its sales next year to be Rf5 million (in Maldivian rufiyaa) and expects to earn 6 percent of that amount after taxes. The firm is currently in the process of
Next year’s sales for Beta Corporation are expected to be $$5$ million. Current sales are $$3.5$ million, based on current assets of $$2.4$ million and fixed assets of $$2.5$ million. The
Use the following industryaverage ratios to construct a pro forma balance sheet for Ceylon Tea Limited. Total asset turnover 1.6 times Average collection period (assume a 365- day year) 18 days Fixed
The balance sheet of the Boyd Trucking Company (BTC) shows that BTC had sales for the year ended December 31, 2018, of $25 million. The firm follows a policy of paying all net earnings out to its
The most recent balance sheet for Meraki Coffee S.A., based in Male, Maldives, is shown in the corresponding table. The company is about to embark on an advertising campaign, which is expected to
Garr Tool Co. estimates its investment to be $$0.25$ in assets for each dollar of new sales. However, $$0.04$ in profits will be produced by each dollar of additional sales, of which $$0.01$
In November of each year, the CFO of Knowles Electronics Sdn. Bhd. begins the financial forecasting process to determine the firm’s projected needs for new financing during the coming year. Knowles
Limagrain Seed Company has grown rapidly over the last decade and is trying to forecast the firm’s inventory requirements for the next 5 years. Historical sales and inventories for the last 10
HealthScion Instruments produces a complete line of medical instruments used by plastic surgeons and has experienced rapid growth over the past 5 years. In an effort to make more accurate predictions
The projected sales of Sharp Corporation for the first 8 months of 2019 are shown in the table below.Of Sharp’s sales, 12 percent is for cash, another 58 percent is collected in the month following
Lewis Printing has projected its sales for the first 8 months of 2019 as shown in the table below.Lewis collects 20 percent of its sales in the month of the sale, 50 percent in the month following
What should be a key consideration while selecting a short-term credit?
Explain how the financial manager might use industry norms in the design of the company’s financing mix.
You have developed the following income statement for Sing-Tel Corporation. It represents the most recent year’s operations, which ended yesterday.Your supervisor in the controller’s office has
Footwear, Inc. manufactures a complete line of men’s and women’s formal shoes for independent merchants. The average selling price of its finished product is $$85$ per pair. The variable cost
International Distribution Company Pvt. Ltd. manufactures an assortment of high-performance engines for small boats. The average selling price for various units is $$575$.The associated variable
Christian Dior S.A. is a successful family business with its famous fashion and perfume brands. It’s latest effort in growing the business involves opening a series of international outlets to
A group of retired engineering professors from Singapore Polytechnic has decided to form a small manufacturing firm that will produce a full line of automation equipment. The investors have proposed
Financial data for three corporations are displayed here. MEASURE FIRM FIRM FIRM INDUSTRY A B C NORM Debt ratio 21% 24% 39% 21% Times interest 7.5 10.2 7.0 9.1 times earned times times times
Imagine that you were hired recently as a financial analyst for Bailey Bikes, LLC which is a boutique manufacturer of carbon fiber race bikes based out of North County, San Diego. Your firm
What is the residual dividend theory?
Why do most banks in Europe impose strict legal restrictions on the amount of dividend payments during the amortization of loans? Is this restriction appropriate in the case of small firms?
Firms in Europe and Asia often have concentrated ownership by a few major shareholders. What impact does this have on the payment of dividends?
Céline S.A. has just completed its annual planning and budgeting process and needs to raise €14 million to finance its capital expenditures for the coming year. The firm earned €5 million last
San Miguel Corporation follows a policy of paying out cash dividends equal to the residual amount that remains after funding 45 percent of its planned capital expenditures. The firm tries to maintain
The board of directors of Comsa Farms Berhad, a company that is engaged in the production and sale of agricultural products, based in Tawau, Malaysia, has decided to pay cash dividends totaling RM5.6
Final earnings estimates for Tsingtao Brewery Co. Ltd., China’s second largest brewery, have been prepared for the CFO of the company and are shown in the following table. The firm has 9,700,000
Ascott Prints is in negotiation with two of its largest customers to increase the firm’s sales dramatically. The increase will require that Ascott expand its production facilities at a cost of €3
In July 2015, the CFO of Rémy Cointreau decided to distribute a stock dividend to its shareholders and set the overall dividend at €1.53 per share. Specifically, it was decided that the issue
The debt and equity section of the TTL Group balance sheet is shown here (in million euros). The current market price of the common shares is €200. Reconstruct the financial statement assuming
Kookaburra Construction Limited is planning to pay dividends of $$665,000.$ There are 340,000 shares outstanding, and earnings per share is $$6.$ The stock should sell for $$55$ after the
Danielle Care International, based in Australia, provides in-home medical assistance to the elderly. The firm has earned a net income of A$$7$ million that it plans to use to repurchase shares of
I own 8 percent of the Standlee Corporation’s 30,000 shares of common stock, which most recently traded for a price of $98 per share.The company has since declared its plans to engage in a 2-for-1
I’m on the board of directors of the B. Phillips Corporation, and the company has announced its plan to pay dividends of $$550,000$.Presently, there are 275,000 shares outstanding, and the
Lavash Hotel is located in Sevan, Armenia, and is one of the toprated hotels in the town that also happens to be a popular tourist destination. Discuss the impact of seasonal variations in the
Holland at Home is considering introducing a variation of its current breakfast cereal, Zonnatura Regular Muesli Rich. The new cereal will be similar to the old with the exception that it will
TSMC Corporation is considering selling one of its old wafer fabrication machines. The machine, purchased for $$3,000,000$ 5 years ago, had an expected life of 10 years and an expected salvage
Decathlon Stores is expanding operations with the introduction of a new distribution center. Not only will sales increase but investment in inventory will decline due to increased efficiencies in
Assume that Fiskars Finland plans to invest in a new project that will annually generate revenues of $$2.3$ million. Cash expenses including both fixed and variable costs will be $$950,000,$ and
At present, Global Skateboards Limited is considering expanding its product line to include solar powered skateboards; however, it is questionable how well they will be received by skateboarders.
You are the product manager of Lexcon Fitness and are considering the production of new elliptical trainers. You feel you can sell 5,500 of these per year for 6 years (after which time this project
Mandalay Industries is considering a new project with a 4-year life with the following cost and revenue data. This project will require an investment of $$145,000$ in new equipment. This new
Hyundai Motor Company is considering the purchase of a new chassis fabrication machine for $$1,400,000$. The purchase of this machine will result in an increase in earnings before interest and
Kuehne & Nagel International AG is considering the purchase of a new packing machine for $$345,000$.The purchase of this machine will result in an increase in earnings before interest and taxes of
The Home Corporation, a firm in the 21 percent marginal tax bracket with a 13 percent required rate of return or cost of capital, is considering a new project. This project involves the introduction
Typhoon Hato brought unprecedented destruction to Macau in 2017. Notably, the burgeoning casino gambling industry in Macau was severely affected overnight. Sociedade de Turismo e Diversões de Macau
You have come up with a great idea for a Sawasdee Thai restaurant. After doing a financial analysis of this venture, you estimate that the initial outlay will be $$5$ million. You estimate that
Go-Power Batteries has developed a high-voltage nickel–metal hydride battery that can be used to power a hybrid automobile. It can sell the technology immediately to Toyota for $$10$ million, or
Osteria Francescana Restaurant has come up with a new fine dining concept restaurant but it is not quite sure how the public will react to it.Osteria Francescana feels that there is a 55 percent
The Temasek Corporation is considering two mutually exclusive projects. Both required an initial outlay of $$12,000$ and will operate for 5 years. Project A will produce expected cash flows of
The G. Wolfe Corporation is examining two capital-budgeting projects with 5- year lives. The first, project A, is a replacement project; the second, project B, is a project unrelated to current
Determine the IRR on the following projects:a. An initial outlay of $$12,000$ resulting in a single free cash flow of $$17,231$ after 7 yearsb. An initial outlay of $$12,000$ resulting in a
Determine the IRR on the following projects:a. An initial outlay of $$12,000$ resulting in a free cash flow of $$2,041$ at the end of each year for the next 11 yearsb. An initial outlay of
Determine the IRR to the nearest percent on the following projects:a. An initial outlay of $$12,000$ resulting in a free cash flow of $$2,100$ at the end of year 1, $$5,210$ at the end of year
Fujimoto Photography is considering a major expansion of its product line and has estimated the following free cash flows associated with such an expansion. The initial outlay would be
You are considering investing in a gas pipeline project. The initial cash outlay is $$8,000,000,$ and the pipeline is expected to generate free cash flows of $$1,500,000$ at the end of each year
You are considering two independent projects in Birmingham and Manchester, respectively. The initial cash outlay associated with the Birmingham project is $$550,000,$ and the initial cash outlay
You are considering three independent projects in Nice, Naples, and Nantes, respectively.Given the following free cash flow information, calculate the payback period for each.If you require a 3-year
Bangladesh Jute Company is considering building a new factory to produce jute gunny sacks for the rice packaging market. This project would require an initial cash outlay of $$6$ million and would
Given the following free cash flows, determine the IRR for the three independent commercial real estate investments in Bali, Indonesia. INVESTMENT INVESTMENT INVESTMENT A B C Initial -$55,000

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