Questions and Answers of Foundations of Finance

You are planning to purchase 100 shares of preferred stock and must choose between stock in the Jackson Corporation and stock in the Fields Corporation. Your required rate of return is 9 percent. If
Zust preferred stock is selling for $42.16 per share and pays $1.95 in dividends. What is your expected rate of return if you purchase the security at the market price?
Septian, Inc.’s return on equity is 16 percent, and the management plans to retain 60 percent of earnings for investment purposes. What will be the firm’s growth rate?
The Cammack Corporation wants to achieve a steady 7 percent growth rate. If it can achieve a 12 percent return on equity, what percentage of earnings must Cammack retain for investment purposes?
You are considering an investment in Minnix Petroleum’s preferred stock. The preferred stock pays a dividend of $2.31. Your required return is 12 percent. Value the stock.
What is the value of a preferred stock when the dividend rate is 16 percent on a $100 par value? The appropriate discount rate for a stock of this risk level is 12 percent.
State how investors’ expected rate of return is computed.
The market price is $900 for a 10-year bond ($1,000 par value) that pays 6 percent interest (3 percent semiannually). What is the bond’s expected rate of return?
The Latham Corporation is planning on issuing bonds that pay no interest but can be converted into $1,000 at maturity, 7 years from their purchase. To price these bonds competitively with other bonds
What is a general definition of the intrinsic value of an asset?
a. Compute an appropriate rate of return for Intel common stock, which has a beta of 1.2. The risk-free rate is 2 percent, and the market portfolio (NYSE stocks) has an expected return of 11
The following are the end-of-month prices for both the Standard & Poor’s 500 Index and Nike’s common stock. a. Using the data here, calculate the holding-period returns for each of the
Go to http://cgi.money.cnn.com/tools and then go to the heading Investing and click the link Asset Allocation: Fix Your Mix. Answer the questions and click Calculate. Try different options and see
Suppose you purchased 16 shares of Diamond Company stock for $24.22 per share on May 1, 2016. On September 1 of the same year, you sold 12 shares of the stock for $25.68 per share. Calculate the
Go to www.investopedia.com/university/beginner, where there is an article on “Investing 101: Introduction.” Read the article and explain what it says about risk tolerance.
Go to http://finance.yahoo.com/education. Go to Financial Glossary. Find the terms Expected Return and Expected Value in the glossary. What did you learn from these definitions?
What effect will diversifying your portfolio have on your returns and your level of risk?
How do we measure the beta of a portfolio?
In 2016 Bill Gates was worth about $82 billion. Let’s see what Bill Gates can do with his money in the following problems.a. I’ll take Manhattan? Manhattan’s native tribe sold Manhattan Island
Milhouse, 22, is about to begin his career as a rocket scientist for a NASA contractor. Being a rocket scientist, Milhouse knows that he should begin saving for retirement immediately. Part of his
In September 1963, the first issue of the comic book X-MEN was issued. The original price for that issue was $0.12. By September 2019, 56 years later, the value of the near-mint copy of this comic
Giancarlo Stanton hit 59 home runs in 2017. If his home-run output grew at a rate of 12 percent per year, what would it have been over the following 5 years?
Sales of a new finance book were 15,000 copies this year and were expected to increase by 20 percent per year. What are expected sales during each of the next 3 years? Graph this sales trend and
If you’d like to have $5,000,000 at retirement in 45 years and you expect to earn 10% annually, which is around the average return over the past 50 years, what lump sum would you have to invest
Compare some of the different financial calculators that are available on the Internet.Look at www.dinkytown.net, www.bankrate.com/calculators.aspx, and www.interest.com/calculators. Which financial
We know that if a corporation is to maximize shareholder wealth, the interests of the managers and the shareholders must be aligned. The simplest way to align these interests is to structure
Like it or not, ethical problems seem to crop up all the time in finance. Some of the worst financial scandals are examined at http://projects.exeter.ac.uk/RDavies/arian/scandals/classic.html. Take a
There are a lot of great business majors. Check out the Careers in Business website at www.careers-in-business.com. It covers not only finance but also marketing, accounting, and management. Find out
In problem 3-14, you were asked to prepare a statement of cash flows for Knapp Inc. Knapp’s financial statements are provided again below. Using this information, compute the firm’s free cash
Based on the information for T. P. Jarmon Company for the year ended December 31, 2018:a. How much is the firm’s net working capital and what is the debt ratio?b. Complete a statement of cash flows
Given the information below for Knapp Inc.:a. How much is the firm’s net working capital and what is the debt ratio?b. Complete a common-sized income statement, a common-sized balance sheet, and a
Prepare a statement of cash flows for Abrahams Manufacturing Company for the year ended January 31, 2018. Interpret your results. Abrahams Manufacturing Company Balance Sheet for Jan. 31, 2017 and
Interpret the following information regarding Maness Corporation’s statement of cash flows.Cash flow from operations:Net income
Prepare a balance sheet and income statement for Kronlokken Company from the following scrambled list of items.a. Prepare a common-sized income statement and a common-sized balance sheet. Interpret
If Raines Company earned $280,000 in net income, and paid cash dividends of $40,000, what are Raines’s earnings per share if it has 80,000 shares outstanding?
If the Reid Company earned $500,000 in net income, spent $100,000 in cost of goods sold, had $55,000 of general and administrative expenses, $45,000 in interest expense, $30,000 in depreciation
Go to the Wall Street Journal home page at www.wsj.com. Search for Barnes & Noble (ticker symbol BKS). Find the firm’s earnings announcements. What did you learn about the company from the
Go to stock.walmart.com to find Walmart’s financial reports. Look for key words in the income statement that appear in this chapter, such as sales, gross profits, and net income. What do you
See the annual report for the Dell Corporation by going to www.dell.com. Scroll to the bottom of the page, then click “About Dell,” then “Investors,” and finally the link “Annual
Why are dividends paid to a firm’s owners not a tax-deductible expense?
Why is the examination of only the balance sheet and income statement not adequate in evaluating a firm?
What would you expect the nominal rate of interest to be if the real rate is 4% and the expected inflation rate is 7%?
Identify the primary characteristics of each form of legal business organization.

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