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fundamentals of corporate finance 11th

Questions and Answers of Fundamentals Of Corporate Finance 11th

What are the trade-offs involved in reducing inventory?
Describe “just-in-time” inventory management.
What are the objectives of short-term financial planning?
What is the effect of seasonalities on short-term cash flows?
What are seasonalities and what role do they play in short term financial planning?
What is the matching principle?
If you choose to use only long-term financing, what total amount of borrowing will you need to have on a permanent basis? Forecast your excess cash levels under this scenario.
What is the maximum maturity of commercial paper?
What is the difference between a floating lien and a trust receipt?
What will a short-term financial plan enable a financial manager to do?
What is an exchange rate?
How is an exchange rate used?
How can firms hedge exchange rate risk?
What are merger waves?
You are a shareholder in a C corporation. The corporation earns $2.00 per share before taxes. Once it has paid taxes it will distribute the rest of its earnings to you as a dividend.Assume the
You are a financial manager in a public corporation. One of your engineers says that they can increase the profit margin on your flagship product by using a lower quality vendor. However, the product
How are limit orders and market orders different?
What are the tradeoffs in using a dark pool?
What is the financial cycle?
Consider the following potential events that might have occurred to Global on December30, 2019. For each one, indicate which line items in Global’s balance sheet would be affected and by how much.
What was the change in Global’s book value of equity from 2018 to 2019 according to Table 2.1? Does this imply that the market price of Global’s shares increased in 2019? Explain. Assets Current
What is GAAP and who oversees it?
Use EDGAR (www.sec.gov) to find Qualcomm’s 10K filing for 2018. From the balance sheet, answer the following questions:a. How much did Qualcomm have in cash, cash and equivalents, and marketable
Find the annual 10-K report for Costco Wholesale Corporation (COST) for fiscal year2018 (filed in October 2018). Answer the following questions from its balance sheet:a. How much cash did Costco
Find online the annual 10-K report for Costco Wholesale Corporation (COST) for fiscal year 2018 (filed in October 2018). Answer the following questions from the income statement:a. What were Costco
Suppose a firm’s tax rate is 25%.a. What effect would a $10 million operating expense have on this year’s earnings? What effect would it have on next year’s earnings?b. What effect would a $10
Nokela Industries purchases a $40 million cyclo-converter. The cyclo-converter will be depreciated by $10 million per year over four years, starting this year. Suppose Nokela’s tax rate is 25%.a.
In December 2018, General Electric (GE) had a book value of equity of $52 billion, 8.7 billion shares outstanding, and a market price of $8 per share. GE also had cash of $70 billion, and total debt
In early 2019, the following information was true about Abercrombie and Fitch (ANF) and The Gap (GPS), both clothing retailers. Values (except price per share) are in millions of dollars.a. What is
For 2018, Walmart and Target had the following information (all values are in millions of dollars):a. What is each company’s accounts receivable days?b. What is each company’s inventory
In December 2018, Apple had cash of $86.43 billion, current assets of $140.83 billion, and current liabilities of $108.28 billion. It also had inventories of $4.99 billion.a. What was Apple’s
In fiscal year 2018, Walmart Stores. (WMT) had revenue of $514.41 billion, gross profit of $129.10 billion, and net income of $6.67 billion. Costco Wholesale Corporation (COST) had revenue of $141.58
Suppose that in 2019, Global launched an aggressive marketing campaign that boosted sales by 15%. However, their operating margin fell from 5.57% to 4.50%. Suppose that they had no other income,
Find online the annual 10-K report for Costco Wholesale Corporation (COST) for fiscal year 2018 (filed in October 2018).a. Compute Costco’s net profit margin, total asset turnover, and equity
Repeat the analysis from parts a and b in Problem 35 using Walmart Stores (WMT) instead. Specifically, use Walmart’s 2018 fiscal data, filed in March 2019. Based on the DuPont Identity, what
Find online the annual 10-K report for Costco Wholesale Corporation (COST) for fiscal year 2018 (filed in October 2018).a. Which auditing firm certified the financial statements?b. Which officers of
Examine the values for depreciation in 2022 and net fixed assets in 2021 and 2022. What was Fincorp’s gross investment in plant and equipment during 2022? The table below contains data on Fincorp
a. If a firm’s inventory level of $10,000 represents 30 days’ sales, what is the annual cost of goods sold?b. What is the inventory turnover ratio?
What is the future value of $189,956 at the end of seven years if the interest rate is 11%?
The following table shows income statement and balance sheet data for four U.S. industries in 2020. Calculate the cash cycle for each industry. INCOME STATEMENT AND BALANCE SHEET DATA (Figures in $
Log on to finance.yahoo.com and use the website to update Table 2.3. Search for each firm using its ticker symbol. You can find total market capitalization under the Statistics tab. How have market
Find Microsoft (MSFT) and Ford (F) on finance.yahoo.com, and examine the financial statements of each. Which firm uses more debt finance? Which firm has higher cash as a percentage of total assets?
What is the present value of the following cash-flow stream if the interest rate is 6%? Year 1 23 2 Cash Flow $200 400 300
Now choose two highly profitable technology firms, such as Amazon (AMZN) and Microsoft (MSFT), and two electric utilities, such as American Electric Power (AEP) and Duke Energy (DUK). Which firms
a. In late 2020, the market value of the shares of Citigroup was less than book value per share. How would you interpret this pattern?b. At the same time, Apple’s market value per share was about
A firm has a long-term debt–equity ratio of .4. Shareholders’ equity is $1 million. Current assets are $200,000, and the current ratio is 2. The only current liabilities are notes payable. What
A firm has a debt-to-equity ratio of .5 and a market-to-book ratio of 2. What is the ratio of the book value of debt to the market value of equity?
A rich uncle has promised to pay you $3,160 at the end of each of the next 25 years. If you invest this money at 4.9%, how much will you have at the end of the 25 years?
Hepsibah Sloop put $10,000 under his mattress 20 years ago. Since then, inflation has averaged 1%. What is the real value of his savings?
A Treasury bond pays $1 million at the end of 20 years. What is its present value if the interest rate is 4%?
A project is forecast to produce a safe cash flow of $800,000 a year for 20 years. If the discount rate is 4%, what is the present value of the project?
If you invest $100,000 today, how much will your savings be worth at the end of nine years if the interest rate is 10%?
A factory is forecast to produce the following cash flows: year 1, $6,516; year 2, $7,000; year 3, $11,400; year 4 onward in perpetuity, $12,000. If the cost of capital is 6%, what is the factory’s
In Figure 6.9, we showed how bonds with greater credit risk have promised higher yields to maturity. This yield spread goes up when the economic outlook is particularly uncertain. You can check how
Investment in a Dustinbourne grinder is expected to produce cash flows over the following seven years of $7 million, $8 million, $9 million, $10 million, $9 million, $8 million, and $7 million. What
The two-year discount factor is .92. What is the present value of $1 to be received in year 2? What is the present value of $2,000?
Natasha Petrov has savings of $78,780. If she invests the full amount in a bank at an interest rate of 4%, how much will she have after four years?
You plan to save $1,000 a year in each of years 1 through 5. If the interest rate is 8%, how much will you have saved by the end of year 5?
You invest $1 million for seven years at 5% and then for a further 7 years at 8%. How much will you have at the end of this time?
A deferred annuity makes four equal payments of $129,987 a year starting at the end of year 8. If the interest rate is 12%, what is its present value?
In December 2020 a pound of lemons cost $1.896, while a pound of bananas cost $0.572. Three years earlier the price of lemons was $1.989 a pound and that of bananas was $0.558.a. What was the annual
There are a number of bond price calculators on the Web. Use one to check whether a change in yield has a greater effect on the price of a long-term or a short-term bond.
Review Table 7.2, which lists the market values of several stocks. Update the table. Which stock’s value has changed by the greatest percentage since 2020, when the table was created? Now
If a bond with face value of $1,000 and a coupon rate of 8% is selling at a price of $970, is the bond’s yield to maturity more or less than 8%?
A bond with face value $1,000 has a coupon rate of 8%, maturity 10 years, and yield to maturity of 7%.a. If interest is paid annually, what is the bond’s price?b. If the bond is selling at $970, is
A bond has eight years until maturity, has a coupon rate of 8%, and sells for $1,100.a. What is the yield to maturity if interest is paid once a year?b. What is the yield to maturity if interest is
Sure Tea Co. has issued 9% annual coupon bonds that are now selling at a yield to maturity of 10%. If the bond price is $923.94, what is the remaining maturity of these bonds?
Amazon has never paid a dividend, but in May 2021, the market value of its stock was greater than $1.6 trillion. Does this invalidate the dividend discount model?
A precision lathe costs $10,000 and will cost $20,000 a year to operate and maintain. If the discount rate is 10% and the lathe will last for five years, what is the equivalent annual cost of the
Go to finance.yahoo.com and obtain the financial statements for Ford (F) and Microsoft (MSFT). What were capital expenditures and sales for each firm? What were the ratios of capital expenditure to
a. Project cash flows should take account of interest paid on any borrowing undertaken to finance the project.b. As the company builds up inventories in the early years of the project, project cash
Log on to www.fidelity.com and look at the list of mutual funds that are managed by Fidelity. Some of these funds, such as the Growth Strategies Fund, appear from their names to be high risk. Others,
If the risk-free rate is 6% and the expected rate of return on the market portfolio is 13%, is a security with a beta of 1.25 and an expected rate of return of 16% overpriced or underpriced?
If the expected rate of return on the market portfolio is 13% and T-bills yield 6%, what must be the beta of a stock that investors expect to return 10%?
Estimate the weighted-average cost of capital for Home Depot (HD), Altria (MO), Caterpillar (CAT), and Intel (INTC). You can estimate the expected stock returns for these companies by using the betas
Pick two companies [Caterpillar (CAT) and Union Pacific (UNP) could be good candidates] and compare their sources of funds and financial structures. You can find summary cash-flow statements and
Create the statement of cash flows from the following entries: Net income Dividends Additions to inventory Additions to receivables Depreciation Reduction in payables Net issuance of long-term
Download the annual report of Target (TGT) and Kellogg (K). Which firm relies more on bank lines of credit? Look at their quarterly financial statements. Which firm has greater seasonality in sales?
Calculate (a) The accounts receivable period, (b) Accounts payable period, (c) Inventory period, and (d) Cash cycle for the following firm: Income Statement Data: Sales Cost of goods sold Balance
Compare and contrast the accounts receivable turnover and days’ sales outstanding for Yum! Brands (YUM) and the casino and gaming firm Wynn Resorts (WYNN). Read the business description for
Log on to finance.yahoo.com and find the condensed balance sheets and income statements for Merck (MRK) and Consolidated Edison (ED). Calculate their net working capital and the cash cycle. By how
Log on to the web page of a major bank such as Wells Fargo (www.wellsfargo.com) or Bank of America (www.bankofamerica.com). How do these banks help corporations to manage their cash? For example,
There are plenty of good sites that show current and past spot rates of exchange. Forward rates are less easy to come by, but the Bank of England website gives spot and forward rates for the pound
Suppose that the spot and one-year forward rates on the New Zealand dollar are currently NZD/USD = .700 and NZD/USD = .6800, respectively. If the expectations theory of forward rates is correct,
In 2019, many investors borrowed money in countries such as Germany, where interest rates were low, and invested the money in emerging markets, where rates were higher. This is called a “carry
Suppose the interest rate on one-year loans in the United States is 3% while in Mexico the interest rate is 8%. The spot exchange rate is USD/MXN = 22.29 and the one-year forward rate is USD/MXN =
Sanyo produces audio and video consumer goods and exports a large fraction of its output to the United States under its own name and the Fisher brand name. It prices its products in yen, meaning that
You can find option prices on finance.yahoo.com. Enter the company symbol and then click on Options. Try looking up option prices for Intel (INTC) and Pfizer (PFE). Does the price of calls increase
Every three years, the Bank for International Settlements undertakes a survey of derivatives trading that is available on its website, www.bis.org. Which are the most important types of derivative
State in each case whether you would expect the futures price to rise or fall.a. The price of gold rises (gold futures)b. Interest rates fall (stock market index futures)c. The cost of storing copper
Establishment Industries stock is priced at $50 and is expected to pay a yearend dividend of $6, If the one-year interest rate is 5%, what should be the futures price on a one-year futures contract
During the Covid pandemic, there was a major glut of oil.a. Would you expect the net convenience yield in this case to have been positive or negative?b. What does this imply for the price of oil
Yesterday you sold six-month futures on Standard & Poor’s Index at a price of 4,300. Today the S&P closed at 4,250, and S&P futures closed at 4,350. You get a call from your broker, who

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