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fundamentals of corporate finance

Questions and Answers of Fundamentals Of Corporate Finance

For the year just ended, Wallin Frozen Yogurt shows an increase in its net fixed assets account of $490. The company took $160 in depreciation expense for the year. How much did Wallin spend on new
Just Dew It Corporation reports the following balance sheet information for 2001 and 2002.Prepare the 2002 common–base year balance sheet for Just Dew It. Assets Current assets Cash Accounts
Just Dew It Corporation reports the following balance sheet information for 2001 and 2002.Prepare the 2002 combined common-size, common–base year balance sheet for Just Dew It. Assets Current
Just Dew It Corporation reports the following balance sheet information for 2001 and 2002.For each account on this company’s balance sheet, show the change in the account during 2002 and note
Just Dew It Corporation reports the following balance sheet information for 2001 and 2002.Based on the balance sheets given for Just Dew It, calculate the following financial ratios for each year:a.
Y3K, Inc., has sales of $2,300, total assets of $1,020, and a debt-equity ratio of 1.00. If its return on equity is 18 percent, what is its net income?
As you may (or may not) know, many companies incorporate in Delaware for a variety of reasons. Visit Bizfilings at www.bizfilings.com to find out why. Which state has the highest fee for
The organizational structure chart in the text is a simplified version. Go to www.conference-board.org, follow the “Organization Charts” link, and then the “Click here to see a sample chart”
Critics have charged that compensation to top management in the United States is simply too high and should be cut back. For example, focusing on large corporations, Millard Drexler of clothing
If accounts payable on the balance sheet decreases by $10,000 from the beginning of the year to the end of the year, is this a source or a use of cash? Explain your answer.
In response to complaints about high prices, a grocery chain runs the following advertising campaign: “If you pay your child 50 cents to go buy $25 worth of groceries, then your child makes twice
The Alcala Company has a long-term debt ratio of 0.65 and a current ratio of 1.30. Current liabilities are $900, sales are $4,680, profit margin is 9.5 percent, and ROE is 22.4 percent. What is the
The Raggio Company has net income of $52,300. There are currently 21.50 days’ sales in receivables. Total assets are $430,000, total receivables are $59,300, and the debt-equity ratio is 1.30. What
Tommy Badfinger Inc.’s net income for the most recent year was $8,175. The tax rate was 34 percent. The firm paid $2,380 in total interest expense and deducted $1,560 in depreciation expense. What
For the most recent year, ICU Windows, Inc., had sales of $380,000, cost of goods sold of $110,000, depreciation expense of $32,000, and additions to retained earnings of $41,620. The firm currently
Prince Albert Canning PLC had a 2002 net loss of £10,418 on sales of £140,682 (both in thousands of pounds). What was the company’s profit margin? Does the fact that these figures are quoted in a
Some recent financial statements for Smolira Golf Corp. follow.Find the following financial ratios for Smolira Golf Corp. (use year-end figures rather than average values where appropriate):
Some recent financial statements for Smolira Golf Corp. follow.For how many days could Smolira Golf Corp. continue to operate if its cash inflows were suddenly suspended? Assets Current
Some recent financial statements for Smolira Golf Corp. follow.Prepare the 2002 statement of cash flows for Smolira Golf Corp. Assets Current assets Cash Accounts receivable Inventory Total Fixed
Some recent financial statements for Smolira Golf Corp. follow.Smolira Golf Corp. has 1,250 shares of common stock outstanding, and the market price for a share of stock at the end of 2002 was $63.
Find the income statements and balance sheets for Huffy Corporation (HUF), the bicycle manufacturer. Assuming sales grow by 10 percent, what is the EFN for Huffy next year? Assume non-operating
Consider the following simplified financial statements for the Lafferty Ranch Corporation (assuming no income taxes):Lafferty Ranch has predicted a sales increase of 10 percent. It has predicted that
Go to quote.yahoo.com and enter the ticker symbol “IP” for International Paper. When you get the quote, follow the “Research” link. What is the projected sales growth for International Paper
In the previous question, assume Lafferty Ranch pays out half of net income in the form of a cash dividend. Costs and assets vary with sales, but debt and equity do not. Prepare the pro forma
Locate the most recent annual financial statements for Du Pont at www.dupont.com under the “Investor Center” link. Locate the annual report. Using the growth in sales for the most recent year as
The most recent financial statements for Bradley’s Bagels, Inc., are shown here (assuming no income taxes):Assets and costs are proportional to sales. Debt and equity are not. No dividends are
You can find the home page for Caterpillar, Inc., at www.caterpillar.com. Go to the web page, select “Cat Stock,” and find the most recent annual report. Using the information from the financial
The most recent financial statements for 2 Doors Down, Inc., are shown here:Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. 2 Doors Down maintains
The most recent financial statements for Schism, Inc., are shown here:Assets and costs are proportional to sales. Debt and equity are not. Adividend of $1,445.40 was paid, and Schism wishes to
The most recent financial statements for Barely Heroes Co. are shown here:Assets and costs are proportional to sales. Debt and equity are not. Barely Heroes maintains a constant 20 percent dividend
For the company in the previous problem, what is the sustainable growth rate?Data from Problem 6 The most recent financial statements for Barely Heroes Co. are shown here:Assets and costs are
If Highfield Hobby Shop has a 12 percent ROA and a 25 percent payout ratio, what is its internal growth rate?
If the Hlinka Corp. has an 18 percent ROE and a 30 percent payout ratio, what is its sustainable growth rate?
Based on the following information, calculate the sustainable growth rate for Kovalev’s Kickboxing:Profit margin = 9.2%Capital intensity ratio = .60Debt-equity ratio = .50Net income =
Assuming the following ratios are constant, what is the sustainable growth rate?Total asset turnover = 1.60Profit margin = 7.5%Equity multiplier = 1.95Payout ratio = 40%
Straka Mfg., Inc., is currently operating at only 75 percent of fixed asset capacity. Current sales are $425,000. How fast can sales grow before any new fixed assets are needed?
For the company in the previous problem, suppose fixed assets are $310,000 and sales are projected to grow to $620,000. How much in new fixed assets are required to support this growth in sales?
Lang Co. wishes to maintain a growth rate of 8 percent a year, a debt-equity ratio of .45, and a dividend payout ratio of 60 percent. The ratio of total assets to sales is constant at 1.60. What
A firm wishes to maintain a growth rate of 11.5 percent and a dividend payout ratio of 50 percent. The ratio of total assets to sales is constant at .8, and profit margin is 9 percent. If the firm
A firm wishes to maintain a growth rate of 9 percent and a dividend payout ratio of 40 percent. The current profit margin is 12 percent and the firm uses no external financing sources. What must
Based on the following information, calculate the sustainable growth rate for Corbet, Inc.:Profit margin = 9.0%Total asset turnover=1.60Total debt ratio = .60Payout ratio = 55%What is the ROA here?
You’ve collected the following information about Hedberg’s Cranberry Farm, Inc.:Sales = $110,000Net income = $15,000Dividends = $4,800Total debt = $65,000Total equity= $32,000What is the
Which was the biggest culprit here: too many orders, too little cash, or too little production capacity?A small business called The Grandmother Calendar Company began selling personalized photo
The Grandmother Calendar Company clearly had a cash flow problem. What was the impact of customers not paying until orders were shipped?A small business called The Grandmother Calendar Company began
Broslofski Co. maintains a positive retention ratio and keeps its debt-equity ratio constant every year. When sales grow by 20 percent, the firm has a negative projected EFN. What does this tell you
Chris Guthrie was recently hired by S&S Air, Inc., to assist the company with its financial planning and to evaluate the company's performance. Chris graduated from college five years ago with a
The extensible Business Reporting Language (XBRL) is likely the future of financial reporting. XBRL is a computer language that "tags" each item and specifies what that item is. XBRL reporting has
What is Tobin's Q for Smolira Golf? What assumptions are youmaking about the book value of debt and the market value of debt? What about thebook value of assets and the market value of assets? Are
Construct the DuPont identity for Smolira Golf Corp.Some recent financial statements for Smolira Golf Corp. follow.
Find the following financial ratios for Smolira Golf Corp. (use year-end figures rather than average values where appropriate):Short-term solvency ratios:a. Current ratio
Based on the balance sheets given for Just Dew It, calculate the following financial ratios for each year:a. Current ratio.b. Quick ratio.c. Cash ratio.d. NWC to total assets ratio.e. Debt-equity
For each account on this company's balance sheet, show the change in the account during 2015 and note whether this change was a source or use of cash. Do your numbers add up and make sense? Explain
Using Excel to find the marginal tax rate can be accomplished using the VLOOKUP function. However, calculating the total tax bill is a little more difficult. Below we have shown a copy of the IRS tax
For 2015, calculate the cash flow from assets, cash flow to creditors, and cash flow to stockholders.Use the following information for Taco Swell, Inc., (assume the tax rate is 34 percent):
Draw up an income statement and balance sheet for this company for 2014 and 2015.Use the following information for Taco Swell, Inc., (assume the tax rate is 34 percent):
Refer to the corporate marginal tax rate information in Table 2.3.a. Why do you think the marginal tax rate jumps up from 34 percent to 39 percent at a taxable income of $100,001, and then falls back
On the balance sheet, the net fixed assets (NFA) account is equal to the gross fixed assets (FA) account (which records the acquisition cost of fixed assets) minus the accumulated depreciation (AD)
Given the information for Sugarpova's Tennis Shop, Inc., in Problems 10 and 11, suppose you also know that the firm's net capital spending for 2015 was $1,250,000 and that the firm reduced its net
In Problem 5, what is the average tax rate? What is the marginal tax rate?Data From Problem 5:The Dyrdek Co. had $267,000 in 2014 taxable income. Using the rates from Table 2.3 in the chapter,
Suppose the firm in Problem 2 paid out $95,000 in cash dividends. What is the addition to retained earnings?Data From Problem 2:Billy's Exterminators, Inc., has sales of $817,000, costs of $343,000,
In early 2008, Doc and Lyn McGee formed the McGee Cake Company. The company produced a full line of cakes, and its specialties included chess cake*, lemon pound cake, and double-iced,
Critics have charged that compensation to top managers in the United States is simply too high and should be cut back. For example, focusing on large corporations, Robert Kotick, CEO of Activision
Corporate ownership varies around the world. Historically individuals have owned the majority of shares in public corporations in the United States. In Germany and Japan, however, banks, other large
Who owns a corporation? Describe the process whereby the owners control the firm's management. What is the main reason that an agency relationship exists in the corporate form of organization? In
Automobiles are often leased, and several terms are unique to auto leases. Suppose you are considering leasing a car. The price you and the dealer agree on for the car is $49,500. This is the base
An asset costs $745,000 and will be depreciated in a straight-line manner over its three-year life. It will have no salvage value. The lessor can borrow at 6 percent and the lessee can borrow at 9
Many lessors require a security deposit in the form of a cash payment or other pledged collateral. Suppose Lambert requires Wildcat to pay a $600,000 security deposit at the inception of the lease.
Harrods PLC has a market value of £85 million and 4.5 million shares outstanding. Selfridge Department Store has a market value of £30 million and 1.8 million shares outstanding. Harrods is
Explain why the aftertax borrowing rate is the appropriate discount rate to use in lease evaluation.
What is meant by the term off-balance-sheet financing? When do leases provide such financing, and what are the accounting and economic consequences of such activity?
Warf Computers has decided to proceed with the manufacture and distribution of the virtual keyboard (VK) the company has developed. To undertake this venture, the company needs to obtain equipment
BQ, Inc., is considering making an offer to purchase iReport Publications. The vice president of finance has collected the following information:BQ also knows that securities analysts expect the
Fly-By-Night Couriers is analyzing the possible acquisition of Flash-in-the-Pan Delivery. Neither firm has debt. The forecasts of Fly-By-Night show that the purchase would increase its annual
Consider the following premerger information about Firm A and Firm B:Assume that Firm A acquires Firm B via an exchange of stock at a price of $61 for each share of B’s stock. Both Firm A and Firm
The shareholders of Bread Company have voted in favor of a buyout offer from Butter Corporation. Information about each firm is given here:Bread’s shareholders will receive one share of Butter
Three Guys Burgers, Inc., has offered $15.3 million for all of the common stock in Two Guys Fries Corp. The current market capitalization of Two Guys as an independent company is $12.1 million.
Penn Corp. is analyzing the possible acquisition of Teller Company. Both firms have no debt. Penn believes the acquisition will increase its total aftertax annual cash flows by $1.45 million
Silver Enterprises has acquired All Gold Mining in a merger transaction. Construct the balance sheet for the new corporation if the merger is treated as a purchase of interests for accounting
In 2019, activist investor Elliott Management was pressuring eBay to sell StubHub. The sale was completed in February 2020, when Ebay sold StubHub to Viagogo. Why might investors prefer that a
Assume that the following balance sheets are stated at book value. Suppose that Meat Co. purchases Loaf, Inc.The fair market value of Loaf’s fixed assets is $11,500 versus the $8,300 book value
Consider the following premerger information about Firm X and Firm Y:Assume that Firm X acquires Firm Y by issuing new long-term debt for all the shares outstanding at a merger premium of $5 per
Define each of the following terms:a. Greenmailb. White knightc. Golden parachuted. Crown jewelse. Shark repellentf. Corporate raiderg. Poison pillh. Tender offeri. Leveraged buyout (LBO)
Birdie Golf, Inc., has been in merger talks with Hybrid Golf Company for the past six months. After several rounds of negotiations, the offer under discussion is a cash offer of $155 million for
Pearl, Inc., has offered $197 million cash for all of the common stock in Jam Corporation. Based on recent market information, Jam is worth $178 million as an independent operation. If the merger
In 2019, Japan-based Mitsubishi Corporation acquired Dutch power provider Eneco for $4.52 billion. Is this a horizontal or vertical acquisition? How do you suppose Eneco’s nationality affected
A stock is currently priced at $50. The stock will never pay a dividend. The risk-free rate is 12 percent per year, compounded continuously, and the standard deviation of the stock’s return is 60
In addition to the five factors discussed in the chapter, dividends also affect the price of an option. The Black-Scholes option pricing model with dividends is:All of the variables are the same as
Marshall Corp. has a zero coupon bond that matures in five years with a face value of $75,000. The current value of the company’s assets is $71,000, and the standard deviation of its return on
Zoso Industries has a zero coupon bond issue that matures in two years with a face value of $50,000. The current value of the company’s assets is $34,600, and the standard deviation of the return
A company has a single zero coupon bond outstanding that matures in five years with a face value of $16.5 million. The current value of the company’s assets is $15.1 million, and the standard
Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $20,000 that matures in one year. The current market value of the firm’s assets is $23,100. The standard
Suppose the firm in Problem 16 is considering two mutually exclusive investments. Project A has an NPV of $2,400, and Project B has an NPV of $2,800. As the result of taking Project A, the standard
Sunburn Sunscreen has a zero coupon bond issue outstanding with a $10,000 face value that matures in one year. The current market value of the firm’s assets is $10,900. The standard deviation of
A call option with an exercise price of $25 and four months to expiration has a price of $3.10. The stock is currently priced at $25.19, and the risk-free rate is 2.5 percent per year, compounded
You are given the following information concerning options on a particular stock:Stock price = $64Exercise price = $60Risk-free rate = 2% per year, compounded continuouslyMaturity = 6 monthsStandard
You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1.35 million. Over the past five years, the price of land in the area has increased 7 percent per
What are the deltas of a call option and a put option with the following characteristics? What does the delta of the option tell you?Stock price = $74Exercise price = $70Risk-free rate = 4.3% per
What are the prices of a call option and a put option with the following characteristics?Stock price = $58Exercise price = $60Risk-free rate = 2.7% per year, compounded continuouslyMaturity = 4
A put option and a call option with an exercise price of $50 expire in four months and sell for $5.99 and $8.64, respectively. If the stock is currently priced at $52.27, what is the annual

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