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fundamentals corporate finance

Questions and Answers of Fundamentals Corporate Finance

Malahat Inc. has 7.5 percent coupon bonds on the market that have 10 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 8.75 percent, what is the current bond price?
The most recent financial statements for Marpole Inc. are shown here (assuming no income taxes):Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next
For how many days could Earl Grey Golf Corp. continue to operate if its cash inflows were suddenly suspended? EARL GREY GOLF CORP. 2011 and 2012 Statement of Financial Position Liabilities and
Construct the Du Pont identity for Earl Grey Golf Corp. EARL GREY GOLF CORP. 2011 and 2012 Statement of Financial Position Liabilities and Owners' Equity Assets 2011 2011 2012 2012 Current
Wolseley PLC has a net loss of £13,482 on sales of £138,793 (both in thousands of pounds). Does the fact that these figures are quoted in a foreign currency make any difference? Why? What was the
Montcalm Corp. has current liabilities of $365,000, a quick ratio of 0.85, inventory turnover of 5.8, and a current ratio of 1.4. What is the cost of goods sold for the company?
Brunkild Inc.’s net income for the most recent year was $13,168. The tax rate was 34 percent. The firm paid $3,605 in total interest expense and deducted $2,382 in depreciation expense. What was
The Fortier Company has a long-term debt ratio of 0.45 and a current ratio of 1.25. Current liabilities are $875, sales are $5,780, profit margin is 9.5 percent, and ROE is 18.5 percent. What is the
Gunton Corp. has net income of $218,000, a profit margin of 8.70 percent, and an accounts receivable balance of $132,850. Assuming 70 percent of sales are on credit, what are the Gunton’s days’
Ethelbert Inc. has sales of $5,276, total assets of $3,105, and a debt–equity ratio of 1.40. If its return on equity is 15 percent, what is its net income?
Based on the statement of financial position given for Birtle, calculate the following financial ratios for each year:a. Current ratiob. Quick ratioc. Cash ratiod. NWC to total assets ratioe.
For each account on Birtle Corporation’s statement of financial position, show the change in the account during 2012 and note whether this change was a source or use of cash. Do your numbers add up
Prepare the 2012 combined common-size, common-base-year statement of financial position for Birtle.Birtle Corporation reports the following statement of financial position information for 2011 and
Prepare the 2012 common-base-year statement of financial position for Birtle.Birtle Corporation reports the following statement of financial position information for 2011 and 2012. Use this
Prepare the 2011 and 2012 common-size statement of financial position for Birtle.Birtle Corporation reports the following statement of financial position information for 2011 and 2012. Use this
Bowsman Fried Chicken Company has a debt–equity ratio of 0.65. Return on assets is 8.5 percent, and total equity is $540,000. What is the equity multiplier? Net income? Return on equity?Birtle
For the year just ended, Winkler Frozen Yogurt showed an increase in its net fixed assets account of $835. The company took $148 in depreciation expense for the year. How much did Winkler spend on
For 2012, Hartney Inc. had a cost of goods sold of $28,834. At the end of the year, the account payable balance was $6,105. How long on average did it take the company to pay off its suppliers during
Glenboro Fire Prevention Corp. has a profit margin of 6.80 percent, total asset turnover of 1.95, and ROE of 18.27 percent. What is this firm’s debt–equity ratio?
If Garson Rooters Inc. has an equity multiplier of 2.80, total asset turnover of 1.15, and a profit margin of 5.5 percent, what is its ROE?
Manitou Corp. had additions to retained earnings for the year just ended of $430,000. The firm paid out $175,000 in cash dividends, and it has ending total equity of $5.3 million. If Bellanue
Plumas Inc. has a total debt ratio of 0.63. What is its debt–equity ratio? What is its equity multiplier?
This problem illustrates a deceptive way of quoting interest rates called add-on interest. Imagine that you see an advertisement for Crazy Judy’s Stereo City that reads something like this:
This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $25,000 for one year. The interest rate is 15
You are buying a new Porsche Boxter, priced at $65,200. You will pay $4,700 now and the rest monthly, in a four-year loan. All rates are APRs. The automobile dealership is offering a sales promotion
After deciding to buy a new Mercedes-Benz C Class sedan, you can either lease the car or purchase it on a three-year loan. The car you wish to buy costs $32,000. The dealer has a special leasing
Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $20,000 per month for 25 years, with the first
You have just purchased a new warehouse. To finance the purchase, you’ve arranged for a 30-year mortgage loan for 80 percent of the $2,900,000 purchase price. The monthly payment on this loan will
Maddy Christiansen received $2,900 today July 1, 2012 from her annuity. Ms. Christiansen has been receiving similar payments on the first of each month for several years from an annuity that will
You have an investment that will pay you 1.07 percent per month. How much will you have per dollar invested in one year? In two years?
You are planning to make monthly deposits of $300 into a retirement account that pays 10 percent interest compounded monthly. If your first deposit will be made one month from now, how large will
Gledhow Life Insurance Co. is selling a perpetuity contract that pays $1,800 monthly. The contract currently sells for $95,000. What is the monthly return on this investment vehicle? What is the APR?
Big Show’s Pawn Shop charges an interest rate of 30 percent per month on loans to its customers. Like all lenders, Big Show must report an APR to consumers. What rate should the shop report? What
Dunfermline Credit Corp. wants to earn an effective annual return on its consumer loans of 16 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required
Royal Grandora Bank charges 14.2 percent compounded monthly on its business loans. First United Bank charges 14.5 percent compounded semiannually. As a potential borrower, which bank would you go to
Find the EAR in each of the following cases: Stated Rate (APR) Number of Times Compounded Quarterly Monthly Effective Rate (EAR) 8% 16 12 15 Daily Infinite
The Sutherland Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $25,000 per year forever. If the required return on this investment is 7.2 percent, how
A six-year lease requires payment of $1,059.00 at the beginning of every three months. If money is worth 5 percent compounded monthly, what is the cash value of the lease?
Your company will generate $73,000 in annual revenue each year for the next eight years from a new information database. If the appropriate interest rate is 8.5 percent, what is the present value of
Investment X offers to pay you $6,000 per year for nine years, whereas Investment Y offers to pay you $8,000 per year for six years. Which of these cash flow streams has the higher present value if
Suppose two athletes sign 10-year contracts for $90 million. In one case, we’re told that the $90 million will be paid in 10 equal installments. In the other case, we’re told that the $90 million
On February 2, 2013, an investor held some Province of Ontario stripped coupons in a selfadministered RRSP at ScotiaMcLeod, an investment dealer. Each coupon represented a promise to pay $100 at the
Although appealing to more refined tastes, art as a collectible has not always performed so profitably. During 2003, Sothebys sold the Edgar Degas bronze sculpture Petit Danseuse de Quartorze Ans at
The first comic book featuring Superman was sold in 1938. In 2005, the estimated price for this comic book in good condition was about $485,000. This represented a return of 25.90 percent per year.
In 1970, the prize money of the Canadian Open Tennis tournament was $15,000. In 2012, the prize money was $2,648,700. What was the percentage increase in the prize money over this period? If the
You have just received notification that you have won the $1 million first prize in Lamarche lottery. However, the prize will be awarded on your 100th birthday (assuming you’re around to collect),
You’re trying to save to buy a new $170,000 BMW 3 series sedan. You have $40,000 today that can be invested at your bank. The bank pays 5.3 percent annual interest on its accounts. How long will it
In 2013, the automobile industry announced the average vehicle selling price was $34,958. Five years earlier, the average price was $27,641. What was the annual percentage increase in vehicle selling
What was the annual percentage increase in vehicle selling price?
Assume the total cost of a university education will be $290,000 when your child enters university in 18 years. You currently have $55,000 to invest. What annual rate of interest must you earn on
Solve for the unknown number of years in each of the following: Years Interest Rate Future Value $1,284 4,341 Present Value $560 9% 810 10 18,400 17 364,518 173,439 15 21,500
Solve for the unknown interest rate in each of the following: Present Value Interest Rate Future Value Years 2 $240 $297 1,080 185,382 360 10 15 39,000 38,261 531,618 30
For each of the following, compute the present value: Future Value Years Interest Rate Present Value $15,451 51,557 886,073 550,164 7% 13 23 14 18
For each of the following, compute the future value: Present Value Future Value Interest Rate Years $2,250 11 10% 8,752 76,355 183,796 14 17
Suppose that when the Province of Ontario offered the bond for $76.04, the Province of Alberta had offered an essentially identical security. Do you think it would have a higher or lower price? Why?
Would you be willing to pay $500 today in exchange for $10,000 in 30 years? What would be the key considerations in answering yes or no? Would your answer depend on who is making the promise to
Why would an investor be willing to pay $76.04 today in exchange for a promise to receive $100 in the future? The Question refer to a stripped coupon issued by the Province of Ontario.
A proposed cost-saving device has an installed cost of $99,200. It is in Class 43 (30 percent rate) for CCA purposes. It will actually function for five years, at which time it will have no value.a.
The Stayner Company experienced an operating loss of $4,100,000 in 2009. Taxable income figures for recent years are given below. Show how the firm can maximize its tax refunds. 2007 $140 2009 2012
A resident of Alberta has taxable income from employment of $170,000. This individual is considering three investments of equal risk and wishes to determine the after-tax income for each:a. $57,000
Kanata Construction specializes in large projects in Edmonton and Saskatoon. In 2011, Kanata invested $1.5 million in new excavating equipment, which qualifies for a CCA rate of 50 percent. At the
Havelock Industries bought new manufacturing equipment (Class 8) with a CCA rate of 20 percent for $4,125,000 in 2011 and then paid $75,000 for installation it capitalized in Class 8. The firm also
Our new computer system cost us $100,000. We will outgrow it in five years. When we sell it, we will probably get only 20 percent of the purchase price. CCA on the computer will be calculated at a 30
A piece of newly purchased industrial equipment costs $1,000,000. It is Class 8 property with a CCA rate of 20 percent. Calculate the annual depreciation allowances and end-of-year book values (UCC)
Scugog Manufacturing Ltd. just invested in some new processing machinery to take advantage of more favourable CCA rates in a new federal budget. The machinery qualifies for 25 percent CCA rate and
Assuming that Ms. Milner’s cash flows in Problem 27 came from equal investments of $75,000 each, find her after-tax rate of return on each investment.
Linda Milner, an Alberta investor, receives $40,000 in dividends from Okotoks Forest Products shares, $20,000 in interest from a deposit in a chartered bank, and a $20,000 capital gain from Cremona
Draw up an statement of comprehensive income and statement of financial position for Clarington Inc. for 2011 and 2012. 2011 2012 Sales $7,233 $8,085 Depreciation Cost of goods sold 1,038 1,085 2,487
The Bancroft Company is currently structured as an income trust. It is considering restructuring the company to become a corporation, but is unsure if this would benefit shareholders. Company
Consider the following abbreviated financial statements for Barrie Enterprises:a. What is owner’s equity for 2011 and 2012?b. What is the change in net working capital for 2012?c. In 2012, Barrie
Nanticoke Industries had the following operating results for 2012: sales $22,800; cost of goodssold = $16,050; depreciation expense = $4,050; interest expense = $1,830; dividends paid = $1,300. At
In Problem 19, suppose Thorold Umbrella Corp. paid out $25,000 in cash dividends. Is this possible? If spending on net fixed assets and net working capital was zero, and if no new stock was issued
During 2012, Thorold Umbrella Corp. had sales of $730,000 Cost of goods sold, administrative and selling expenses, and depreciation expenses were $580,000, $105,000, and $135,000, respectively. In
Pelham Inc. is obligated to pay its creditors $7,300 during the year.a. What is the market value of the shareholder’s equity if assets have a market value of $8,400?b. What if assets equal $6,700?
Prepare a 2012 statement of financial position for Listowel Corp. based on the following information: cash = $195,000; patents and copyrights = $780,000; accounts payable = $405,000; accounts
Teeswater Corp. shows the following information on its 2012 statement of comprehensive income: sales = $196,000; costs = $104,000; other expenses = $6,800; depreciation expense = $9,100; interest
Given the information for Roger’s Tennis Shop Inc. in Problem 11 and 12, suppose you also know the firm’s net capital spending for 2011 was $940,000, and that the firm reduced its net working
The 2011 statement of financial position of Roger’s Tennis Shop Inc. showed $740,000 in the common stock account and $5.2 million in the additional retained earnings account. The 2012 statement of
The 2011 statement of financial position of Roger’s Tennis Shop Inc. showed long-term debt of $2.6 million, and the 2012 statement of financial position showed long term debt of $2.9 million. The
The 2011 statement of financial position of Owosso Inc. showed current assets of $2,100 and current liabilities of $1,380. The 2012 statement of financial position showed current assets of $2,250 and
Yale Driving School’s 2011 statement of financial position showed net fixed assets of $3.4 million, and the 2012 statement of financial position showed net fixed assets of $4.2 million. The
The Grimsby Co. in Alberta had $236,000 in 2012 taxable income. Using the rates from Table 2.7 in the chapter, calculate the company’s 2012 income taxes. Federal (%) Alberta (%) Combined (%) 25 14
Below are the financial statements that you are asked to prepare.The income statement for each year will look like this:1. How would you describe Nepean Boards’ cash flows for 2012? Write a brief
What is the value of a call option or a put option if the stock price is zero? What if the stock price is extremely high (relative to the strike price)?
If a Dell Studio laptop sells for $999 in Austin, Texas, and £689 in London, what is the implied exchange rate between the U.S. dollar and the euro?
Nova Scotia Bank offers quotes on the Canadian dollar as shown below. What is the bid-ask spread based on these quotes?BidAskC$ 1.3081/$C$ 1.3087/$
Triumph Autos has contracted with an Indian software firm for design software. The payment of 22,779,750 rupees (Rs) is due in 30 days. What is the cost in dollars if the 30-day forward rate is Rs
Crane, Inc., sold equipment to an Irish firm and will receive €1,319,405 in 30 days. If the company entered a forward contract to sell at the 30-day forward rate of $1.0812/€, what is the dollar
Brilliant Equipment purchased machinery from a Japanese firm and must make a payment of ¥313.25 million in 45 days. The bank quotes a forward rate of ¥103.01/$ to buy the required yen. What is the
Given the following direct quotes, calculate the equivalent indirect quotes.a. $0.0844/Mexican pesob. £0.8513/€c. Rs 54.64/C$
Explain the relation between each pair of currencies.Spot Rate Forward Ratea. $1.655/£
Suppose a BMW 528i is priced at $68,750 in New York and €50,267 in Berlin. In which place is the car more expensive if the spot rate is $1.1077/€?
Convert the following indirect quotes to the appropriate American quotes.a. £0.6917/$b. ¥104.28/$c. SF 1.0769/$
Explain the difference between American and European business executives’ views on wealth maximization.
The market value of Whole Foods stock is currently $53.73 per share, and the annual risk-free rate is 3 percent. A three-month call option on the stock with a strike price of $55 sells for $2.15.
Munson Communications Company management has just reported earnings for the year ended June 30, 2017. Below are the firm’s income statement and balance sheet. The company had a 55 percent dividend
The financial statements for the year ended June 30, 2017, are given below for Morgan Construction Company. The firm’s sales are projected to grow at a rate of 25 percent next year, and all
Maryland Micro Brewers generated revenues of $12,125,800 with a 72 percent capital intensity ratio during the year ended September 30, 2017. Its net income was $873,058. With the introduction of a
Ellicott Textile Mills management has reported the following financial information for the year ended September 30, 2017. The company generated a net income of $915,366 on a net profit margin of 6.4
At the end of 2016 the value of the S&P 500 Index divided by the estimated 2016 earnings for S&P 500 firms (the S&P 500 P/E multiple) was 25.54. Assume that the long-term Treasury bond

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