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foundations of financial management 17th

Foundations Of Financial Management 8th Canadian Edition Stanley Block - Solutions

Campbell Electronics Corporation has a wholly owned foreign subsidiary in Jamaica. The subsidiary earns $5 million per year before taxes in Jamaica. The foreign income tax rate is 20 percent. Camp-
You are the vice-president of finance for Exploratory Resources, headquartered in Calgary. In Janu- ary 2009, your firm's American subsidiary obtained a six-month loan of $1 million (U.S.) from a
Weese R. Grains of Canada has sold 5,000 tonnes of wheat to Pete's Apasta Company of Italy at 110 euros per tonne and payable in one year. The current spot rate is 1.3805 (C$/euro) and the 1 year
Fox Silver Products has purchased 20,000 ounces of silver from Royal Minty of Britain at US$6.25, payable in 180 days. The current spot rate is 1.4188 (US$/) and the 180-day forward is 1.4039. The
Saturn Industries sells its products under a licensing agreement to many parts of the globe. Under the terms of an agreement reached with a German company, a payment for Saturn's services is due in
A Canadian investor buys 200 shares of Microsoft for $12,200 ($61 per share). Over the course of a year, Microsoft shares decline by $3.a. If there is a 4 percent gain in the value of the U.S. dollar
A French investor buys 100 shares of Teck for $2,600 ($26 per share). Over the course of a year, Teck goes up by $5.a. If there is a 10 percent gain in the value of the dollar versus the euro, what
In the previous problem, if Canada had somehow managed no inflation since 1974, what should the exchange rate be in 2008, using the purchasing power parity theory?
From the base price level of 100 in 1974, Swiss and Canadian price levels in 2008 stood at 200 and 541, respectively. If the 1974 $/Sf exchange rate was $0.40/Sf, what should the exchange rate be in
Suppose a Thai baht is selling for $0.0366 and a Panamanian balboa is selling for $1.5855. What is the exchange rate (cross rate) of the Thai baht to the Panamanian balboa? That is, how many Thai
Suppose a Mexican n. peso is selling for $0.1744 and a Maltese lira is selling for $3.4674. What is the exchange rate (cross rate) of the Mexican n. peso to the Maltese lira? That is, how many
Suppose an Egyptian pound is selling for $0.3432 and a Jordanian dinar is selling for $2.2396. What is the exchange rate (cross rate) of the Egyptian pound to the Jordanian dinar? That is, how many
The following spot and forward rates for the euro ($/euro) were reported:a. Was the euro selling at a discount or premium in the forward market in July 2004?b. What was the 30-day forward premium (or
Obtain and recalculate the currency exchanges of problem 1 at today’s rates. How do these figures compare to those obtained in that problem? Has the dollar strengthened or weakened against these
Using the foreign exchange rates for October 2008 presente.di n Table 21-1, determine the number of Canadian dollars required to buy the following amounts of foreign currencies:a. 10,000 eurosb.
What are some allegations sometimes made against foreign affiliates of multinational firms and against the multinational firms themselves?
What risks do foreign affiliates of a multinational firm face in today’s business world?
Should multinational firms dictate debt ratio limits and dividend payouts to their fre)affiliates?
Which procedures would you recommend for a multinational company in studying exposure to _ political risk? Which actual strategies can be used to guard against such risk?
In the case of the Pica and Elite merger described in the previous problem, assume a 100 percent premium will be paid, but there is a 20 percent synergistic benefit to total earnings from the merger.
A merger between Pica Corporation and Elite Corporation is under consideration. The financial in- formation for these firms is as follows:a. Ona share-for-share exchange basis, what will the
Winnipeg Athletics Corporation is planning to make an offer for Halifax Sporting Goods Ltd. The shares of Halifax Sporting Goods are currently selling for $40 per share.a. If the tender offer is
Gil Whitaker helped start Marshall Engineering Company in 1992. At the time, he purchased 200,000 shares of stock at one dollar per share. In 2009 he has the opportunity to sell his interest in the
The Alberta Corporation is considering acquiring the Drumheller Corporation. The data for the two companies are as follows:a. The Alberta Corporation is going to give Drumheller a 50 percent premium
Assume the following financial data for the Barker Corporation and Howell Enterprises.a. If all the shares of the Barker Corporation are exchanged for shares of the Howell Enterprises on a
Border Investments Inc. is considering a cash acquisition of Bubba Brewing Co. for $2.2 million. Bubba Brewing will provide the following pattern of cash inflows and synergistic benefits for the next
Assume the Citrus Corporation is considering the acquisition of Orange Juice Inc. The latter has a $500,000 tax loss carry-forward. Projected earnings for the Citrus Corporation are as follows:a. How
The Clark Corporation desires to expand. It is considering a cash purchase of Kent Enterprises for $3 million. Kent has a $700,000 tax loss carry-forward that could be used immediately by the Clark
Compare the use of leverage in a holding company to the concept of operating and financial leverage explained in Chapter 5. Does a holding company have any tax complications related to dividends? 25
How does a merger arbitrageur benefit from a possible merger? What is the danger in being a merger arbitrageur? Explain.
Suggest some ways firms have tried to avoid being takeover targets.
Explain why unusually high premiums have sometimes been paid in the latest merger movement.
Explain how the weak stock market of the late 1970s served as an impetus to the merger wave of the late 1970s and 1980s. Will this happen again?
What is the essential difference between the pooling of interests and the purchase of assets account- ing treatments of a merger? What is the effect of including goodwill?
Explain acquisition through cash purchases or by one company exchanging its shares for another shares. company's
Explain some defensive measures taken to avoid an unfriendly takeover.
I.M. Stern, Inc., (MS) has $30 million of convertible bonds outstanding (30,000 bonds at $1,000 par value) with a coupon rate of 10 percent. Interest rates are currently 8 percent for bonds of equal
Meyers Business Systems has two million shares of stock outstanding. It also has two convertible bond issues outstanding with terms as follows: 1. 9 percent convertible, 2000 2. 10 percent
Using information from the previous problem, assume the average A bond yield was 8 percent in- stead of 10 percent at the time the convertible bonds were issued. All other facts are the same.a. What
Hughes Technology has net income of $450,000 in the current fiscal year. There are 100,000 shares of common stock outstanding along with convertible bonds, which have a total face value of
The Redford Investment Company bought 100 Cinema Corp. warrants one year ago and would like to exercise them today. The warrants were purchased for $24 each, and they expire when trading ends today
Assume you can buy a warrant for $5 that gives you the option to buy one share of common stock at $14 per share. The stock is currently selling at $16 per share.a. What is the intrinsic (minimum)
The warrants of Airbus Transportation Corporation allow the holder to buy a share of stock at $13.25 and are selling for $3.75. The share price is currently $10.65. To what price must the share go
You can buy a warrant for $3.25 that gives you the option to buy one share of common stock at $12.50 per share. The stock is currently selling at $10 per share.a. What is the intrinsic (minimum)
Sleepless Night Company's warrant is priced at a speculative premium of $3 to its intrinsic (mini- mum) value. Each warrant entitles the holder to purchase one share in Sleepless Night Ltd. for a to-
Labrador Fields has warrants outstanding that allow the holder to purchase one common share at $15 per share (option price). The common stock is currently selling for $25. The warrant is selling for
Wilton Cheese Co. has warrants outstanding that allow the holder to purchase 1.5 shares of stock per warrant at $10 per share (option price). The common stock is currently selling for $13, while the
B.C. Fisheries Ltd. has convertible preferred shares outstanding currently trading at $31. The pre- ferreds pay an annual dividend of $2 and have a redeemable feature effective in two years. It is
Manpower Electric Company has 7 percent convertible bonds outstanding. Each bond has a $1,000 par value. The conversion ratio is 25, the stock price is $38, and the bonds mature in 16 years.a. What
Tulsa Drilling Company has $1 million in 11 percent convertible bonds outstanding. Each bond has $1,000 par value. The conversion ratio is 40, the stock price is $32, and the bonds mature in ten
Defence Systems Inc. has convertible bonds outstanding that are callable at $1,070. The bonds are convertible into 33 shares of common stock. The stock is currently selling for $39.25 per share.a. If
Eastern Digital Corp. has a convertible bond outstanding with a coupon rate of 9 percent, a par value of $1,000 and a maturity date of 20 years. It is rated A, and competitive, nonconvertible bonds
Western Pipeline Inc. has been very successful in the last five years. Its $1,000 par value convertible bonds have a conversion ratio of 28. The bonds have a quoted interest rate of 5 percent a year,
Red Deer Meat Packers Inc. has a convertible bond quoted in the bond market at 85. (Bond quotes _ represent percentage of par value. Thus, 70 represents $700, 80 represents $800, and so on.) It
Bombardier, Bank of Montreal, Teck, and Suncor also have listed put options available through the M-X.a. Identify today's date and the current share price for each company.b. Identify the price of
The following companies are listed on the Toronto Stock Exchange (TSX): Bombardier, Bank of Mon- treal, Teck, and Suncor. All four companies also have listed call options through the M-X.a. Identify
You provide light sweet crude oil for several refineries in eastern Canada. This upcoming summer you will require 30,000 barrels and you would like to hedge your risk of price fluctuations through
You manufacture silver jewellery for sale to local retail outlets. This upcoming spring you will re- quire 2,000 ounces of silver and you would like to hedge your risk of price fluctuations through
Dividend Yields and Payouts: Using the Forecasted Values, under Valuation Data, under Excel Analytics for Canadian National Railway Company (CNI), TELUS Corporation (TU), TransAlta Corporation (TAC),
Lyle Communications’ had finally arrived at the point where it had a sufficient excess cash flow of$2.4 million top consider paying a dividend. It had 2 million shares outstanding and was consider-
The Majestic Corporation has the following pattern of net income each year and associated capital expenditure projects for which the firm can earn a higher return than the shareholders could earn if
This problem compares the aftertax income on a $35,000 investment for the following two investors resident in Ontario and two possible investments. Table 2-13 will be helpful. Rudy Hill earns $40,000
The Lomax Corporation has $4 million in earnings after taxes and one million shares outstanding.The stock trades at a P/E of 10. The firm has $3 million in excess cash.a. Compute the current price of
Double Vision Optical Company has had a lot of complaints from customers of late and its stock price is now only $2 per share. It is going to employ a one-for-six reverse stock split to increase the
Health Systems Inc. is considering a 15 percent stock dividend. The capital accounts are as follows:The company’s stock is line for $35 per ee The company had total earnings of $7,500,000 with
Slick Products sells marked playing cards to blackjack dealers. It has not paid a dividend in many years but is currently contemplating some kind of dividend. The capital accounts for the firm
The Wallace Corporation has done very well in the stock market during the last three years. Its stock has risen from $18 per share to $44 per share. Its current statement of net worth isa. What
Omni Telecom is trying to decide whether to increase its cash dividend immediately or use the fund to increase its future growth rate. It will use the dividend valuation model originally presented in
The Vinson Corporation has earnings of $500,000, with 250,000 shares outstanding. Its P/E ratio is 20. The firm is holding $300,000 of funds to invest or pay out in dividends. If the funds are
Rolex Discount Jewellers is trying to determine the maximum amount of cash dividends it can pay ay this year. Assume its balance sheet is as follows:a. From a legal perspective, what is the maximum
Sun Energy Company has the following capital section in its balance sheet. Its stock is currently selling for $5 per share.The firm intends to first declare a 10 percent stock dividend and then pay a
Austin Power Company had the following balance sheet:The firm has a market price of $11 a share.a. Show the effect on the equity account(s) of a two-for-one stock split.b. Show the effect on the
A financial analyst is attempting to assess the future dividend policy of Environmental Systems by examining its life cycle. She anticipates no payout of earnings in the form of cash dividends during
Below are the ee per share and the dividends per share of three companies.a. What are the payout ratios for each company on an annual basis?b. Can you explain some of the reasons for such differences
Goren Bridge Construction Co. has two important donde Ms. ae and the Ace Corporation.Ms. Queen is in a 31 percent combined marginal tax bracket, while the Ace Corporation is in a 36 percent combined
In doing a five-year analysis of future dividends, Newell Labs Inc. is considering the following two plans. The values represent dividends per share.a. How much, in total dividends per share, will be
Peabody Mining Company’s common stock is selling for $50 the day before the stock goes exdividend.The annual dividend yield is 5.6 percent, and dividends are distributed quarterly. Based solely on
The Resolute Bay Shipping News is selling for $65 the day before the stock goes ex-dividend. The annual dividend yield is 5.5 percent, and the dividends are paid quarterly. Based solely on the impact
The shares of Chretien Golf Links Limited sell for $50. The firm has a P/E ratio of 20 and 30 percent of earnings are paid out in dividends. What is the dividend yield?
The shares of Dyer Drilling Co. sell for $60. The firm has a P/E ratio of 15 and 40 percent of earnings are paid out in dividends. What is the dividend yield?
The stock of Raptor BB Ranch is currently selling at $25 per share. The firm pays a dividend of $1.25 per share.a. What is the annual dividend yield?b. Ifthe firm has a payout ratio of 50 percent,
The stock of the Pills Berry Corporation is currently selling at $60 per share. The firm pays a dividend of $1.80 per share.a. What is the annual dividend yield?b. Ifthe firm has a payout rate of 50
Dylan Music Company earned $710 million last year and paid out 25 percent of earnings in dividends.a. By how much did the company’s retained earnings increase?
Neil Diamond Brokers, Inc. reported earnings per share of $4 and paid $0.90 in dividends. What 1s the payout ratio?
Suppose Roget’s Search Engine, from the previous problem, decides to forgo the dividend payments in years 1 and 2 and instead reinvest the funds in additional projects available to the firm.
Roget’s Search Engine Limited plans to pay dividends of $2, $3.50, and then a liquidating dividend of $20.25 over the next three years. If investors expect a 10 percent return on their investment,
Omni Telecom is trying to decide whether to increase its cash dividend or use the funds to increase its future growth rate. It will use the dividend valuation model (Chapter 10) for purposes of a
If a company, in which you hold shares, decided to increase its dividend, would that increase your expected returns from this investment?INTERNET RESOURCES AND QUESTIONS
In early 1989, Inco Ltd. paid a special dividend of US$10 a share. What was the purpose? By peti 2 over $1 billion in total to shareholders, what was management saying to the investment community? ©
Discuss a corporate repurchase announcement on the basis of market efficiency (Chapter 14).
What advantages to the corporation and the shareholder do dividend reinvestment plans offer?
How is a stock split versus a stock dividend treated on the financial statements of a borpontoay
If you buy a stock on the ex-dividend date, will you receive the upcoming quarterly dividend?
How does the marginal principle of retained earnings relate to the returns a shareholder may make in other investments?
Dr. Robert Grossman founded Electro Cardio Systems, Inc. (ECS), in 2000. The principal purpose of the firm was to engage in research and development of heart pump devices. Although the firm did not
Snyder Meat Packing Co., a small firm, has been very profitable over the past five years, and has also exhibited a strong earnings growth trend. Mr. Snyder owns 35 percent of the three million shares
The Crandall Corporation currently has 100,000 shares outstanding that are selling at $50 per share.It needs to raise $900,000. Net income after taxes is $500,000. Its vice-president of finance and
Referring back to the original information in the previous problem, if the yield on the $100,000 of preferred stock is still 7.5 percent and the borrowing cost remains 9.5 percent, but the tax rate
The treasurer of Garcia Mexican Food Restaurants (a corporation) currently has $100,000 invested in preferred stock yielding 7.5 percent. He appreciates the tax advantages of preferred stock and is
Enterprise Storage Company has 400,000 shares of cumulative preferred stock outstanding, which has a stated dividend of $4.75. It is six years in arrears in its dividend payments.a. How much in total

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