Pearson New International Edition Valuation 2nd Edition Sheridan J. Titman - Solutions

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Should Australia and the USA adopt the Hamburg Rules? Give reasons for your view.
Goods are sold on an FCA basis. The seller experiences delays in obtaining export clearance. The buyer is unaware of this but neglects to notify the seller of the name of the carriers, as required by the contract. The contractual deadlines pass for both the obtaining of export clearance and the
Goods are sold on a DDU basis. What is the legal position as between the parties where the buyer purports to reject the goods for non-conformity with the contract when they are placed at his disposal at the named destination?
The goods are sold on a DAF basis and dispatched by the seller. The buyer does not take delivery of the goods when they have been placed at his disposal. What are the legal consequences?
Goods are sold on a DAF basis. The seller does not, as required by the contract, give sufficient notice to the buyer of the dispatch of the goods to the nominated place at the frontier. What are the consequences of this failure?
What term(s) should the parties use if it is desired that the seller organise and pay for the main carriage and insure against the risks of this journey? If, where such a term is used, the goods are damaged and the insurer is unable or unwilling to pay, is the seller liable to the buyer for this
Goods are sold on an FOB basis. By agreement between the parties, the goods are to be loaded by a stevedore at the seller’s expense. They are damaged during loading once they have passed the ship’s rail. Who is liable for this damage, as between the buyer and the seller?
Goods are sold on a FOB basis, with the buyer being required to nominate a vessel within 30 days of contract. The buyer does not nominate a vessel within this period.What is the legal position as between the parties?
Goods are sold on a CIF basis. The contract provides for payment on presentation of the transport documents on arrival, or in any event no later than one month of the date on the bill of lading. The ship is delayed because of an event which is independent of any fault on the part of the seller. The
Goods are shipped on a CIF basis by a buyer in State X to a seller in State Y. While they are in transit, State Y bans the importation of goods of this class. Is the buyer still obliged to pay?
Goods are sold on a CIF basis. They are lost in transit. Does the buyer nonetheless have to pay for the goods?
What terms impose liability on the seller for loss in transit?
In the case of the FOB and CIF Incoterms, does the buyer have the right to inspect the goods before making payment? If so, can the buyer reject the goods for nonconformity with the contract after they have arrived at the port to which they are to be shipped?
What terms are particularly apt for bulk cargo?
What terms are particularly apt for containerised cargo?
What are the general differences between each of the two classes of ‘shipment’ terms and the ‘arrival’ terms?
What is the major, consistent principle governing the division of risks and costs in the Incoterms? Nominate some common situations where—pursuant to numerous of the Incoterms—this principle of allocation is displaced.
Discuss, compare and assess the interrelationship between the United Nations Convention on Contracts for the International Sale of Goods (CISG, 1980) and the UNIDROIT Principles of International Commercial Contracts.
In September 1989, Mr Müller, a dealer in furniture located in the former German Democratic Republic, buys stocks from Mr Volkov, situated in Bulgaria, also a former socialist country. The goods are to be delivered by Mr Volkov in December 1990. In November 1990, Mr Müller informs Mr Volkov that
What are the differences, if any, between ‘hardship’ and ‘force majeure’?
Discuss the obligations imposed on each party by Article 1.7 to act in accordance with ‘good faith and fair dealing’. Does this obligation apply to pre-contractual negotiations? Compare Article 1.7 with your own civil law or common law system.
Why are parties who wish to adopt the Principles well advised to combine their reference to the Principles with an arbitration agreement?
Professor Ulrich Magnus has argued that, in his opinion, the Principles are ‘to be considered as additional general principles in the context of the CISG. The most important reason for this is that they vastly correspond both to the respective provisions of the CISG as well as to the general
Mr Andrew Townsend is an American manufacturer of a computer software program called ‘Anglialingua’, which is designed to assist non-English speaking high school students in the learning of the English language. Ms Nicole Bitterand is a French distributor of educational materials with a head
The plaintiff buyer had its place of business in Krefeld, Germany. On 18 September 1992, the buyer purchased from the defendant seller—whose place of business was located in Indiana, USA—a cutting machine to be installed in the veneer processing unit of a Russian furniture combine. After the
The buyer, an Italian company, sent a purchase order form ordering goods from the seller in Brisbane. The buyer’s form requested immediate shipment. The seller shipped the goods the next day and mailed an ‘order confirmation form’ to the buyer. The seller’s order confirmation form contained
Buyer B operates a theme park in State X. He contracts with S, who supplies hitech theme park rides to theme park operators. The contract is governed by the Convention. The machinery is very expensive, but in locations in other regions of State X previously supplied it has boosted patronage
Seller S ships goods to B, pursuant to a contract to which the Convention applies.The risk passes, after which time the goods suffer damage. When B takes delivery, he discovers the damage. He also discovers that, even apart from the damage, the goods do not conform to the contract and the
A buyer B orders a large pump from S. The Convention applies to the contract.The contract specifies that the pump must pump at least x thousand litres per minute. The pump is delivered and installed, and it is then discovered that it pumps at only 80% of the nominated capacity. This will not do for
Buyer B and seller S enter into a contract to which the Convention applies. The goods to be supplied consist of frozen meat. B rejects the cargo tendered, contending that one separable part of the cargo (some 10%) has perished because of inadequate refrigeration. The contract is silent as to when
Buyer B contracts with Seller S to buy 2,000 live sheep. S’s State is drought affected and the costs of feeding stock are mounting. S faxes B, proposing that 1,000 sheep be delivered one month early. B does not respond. The sheep are fully delivered, one month early. B does not want to take
A company, B, is incorporated, and has its head office, in State X, which State has ratified the Convention. It runs a chain of bottling plants in several other States, some of which have adopted the Convention. These plants are run by subsidiary companies incorporated in these States. B approaches
In what major way does the sale of goods regime provided for in the Convention differ from that provided by the domestic law of your jurisdiction? On balance, which regime is superior?
CONCEPTUAL ANALYSIS OF REAL OPTIONS The destruction that Hurricane Katrina brought to the Gulf Coast in 2005 devastated the city of New Orleans as well as the Mississippi Gulf Coast. Notably, the burgeoning casino gambling industry along the Mississippi coast was nearly destroyed. CGC Corporation
CONCEPTUAL ANALYSIS OF REAL OPTIONS Highland Properties owns two adjacent four-unit apartment buildings that are both on 20,000 square feet of land near downtown Portland, Oregon. One of the properties is in very good condition, and the apartments can be rented for $2,000 per month. The units in
REFINERY WITH THE OPTION TO SWITCH OUTPUTS—CRYSTAL BALL EXERCISE The Windsor Oil Company is considering the construction of a new refinery that can process 12 million barrels of oil per year for a period of five years. The cost of constructing the refinery is $2 billion, and it will be
OPTION TO SWITCH INPUTS—CRYSTAL BALL EXERCISE The Central and Southeast Power Company of Mobile, Alabama, is considering a new power plant that will allow it to switch between gas and oil. The company has a contract to provide it with gas for$8 that is sufficient to produce one unit of electric
VALUING AN AMERICAN OPTION J&B Drilling Company has recently acquired a lease to drill for natural gas in a remote region of southwest Louisiana and southeast Texas.The area has long been known for oil and gas production, and the company is optimistic about the prospects of the lease. The lease
OPTION TO ABANDON Newport Mining has a lease with two years remaining, in which it can extract copper ore on a remote island in Indonesia. The company has completed the exploration phase and estimates that the mine contains 5 million pounds of ore that can be extracted.The ore deposit is
CONCEPTUAL ANALYSIS OF REAL OPTIONS Huntsman Chemical is a relatively small chemical company located in Port Arthur, Texas. The firm’s management is contemplating its first international investment, which involves the construction of a petrochemical plant in São Paulo, Brazil. The proposed plant
ANALYZING AN OIL LEASE AS AN OPTION TO DRILL FOR OIL Suppose you own the option to extract 1,000 barrels of oil from public land over the next two years. You are deciding whether to extract the oil immediately, allowing you to sell the oil for $20 per barrel, or to wait until next year to extract
VALUING GOLD RECLAIMED FROM OLD PERSONAL COMPUTERS A number of industrial products include gold and silver as a component Because they have very good conductive properties. The S&M Smelting Company engages in the recovery of gold from such products and is considering a contract to begin extracting
VALUING A GOLD INVESTMENT OPPORTUNITY Jim Lytle, a financial advisor, recommends that his clients invest in gold. Specifically, he is advising a client to invest $100,000 to purchase 175 ounces of gold bullion, with the expectation of holding the gold for a period of one year before selling it. The
VALUING A COPPER MINING PROJECT USING FORWARD PRICES Harrington Explorations Inc. is interested in expanding its copper mining operations in Indonesia. The area has long been noted for its rich deposits of copper ore, and with copper prices at near-record levels, the company is considering an
THE LOGIC OF HEDGING WITH OPTIONS Morrison Oil and Gas Company’s (from Problem 1) chief financial analyst is Samuel (Sam) Crawford. Sam completed his analysis, suggesting that the investment is indeed a good one for the company, and presented it to the firm’s executive committee. The executive
VALUING AN ENERGY INVESTMENT USING OIL OPTIONS The Pampa Oil Company operates oil and gas exploration throughout the panhandle of Texas. The firm was recently approached by a wildcatter named William “Wild Bill” Donavan with the prospect to develop what he thinks is a sure thing. Wild Bill owns
USING DERIVATIVES TO ANALYZE A NATURAL GAS INVESTMENT Morrison Oil and Gas is faced with an interesting investment opportunity. The investment involves the exploration for a significant deposit of natural gas in southeastern Louisiana near Cameron.The area has long been known for its oil and gas
LBO VALUATION USING SIMULATION This problem utilizes information from Problem 9 and requires that the LBO valuation model be constructed. Randy was happy with the anticipated results from the acquisition of Flanders Inc., but he wanted to do some exploratory analysis of the risks involved in the
years and has had reasonable success.Clearstone is now completing the investment of its second fund and considering the acquisition of a local manufacturing and distribution company, Flanders Inc. Flanders was founded by Mark Flanders 18 years ago and grew rapidly. Recently, however, the firm made
LBO VALUATION Randy Dillingwater is the chief investment officer for Clearstone Capital. Clearstone is a private equity firm located in Orlando, Florida, that specializes in what Randy describes as “make-over” or “fixer-upper” investments. The firm tries to find privately held firms whose
VC VALUATION AND DEAL STRUCTURING In 2008, Dub Tarun founded a firm using$200,000 of his own money, $200,000 in senior (bank) debt, and an additional $100,000 in subordinated debt borrowed from a family friend. The senior debt pays 10% interest, while the sub debt pays 12% interest and is
VC VALUATION AND DEAL STRUCTURING Brazos Winery was established eight years ago by Anna and Jerry Lutz with the purchase of 200 acres of land. The purchase was followed by a period of intensive planting and development of the grape vineyard. The vineyard is now entering its second year of
VC VALUATION AND DEAL STRUCTURING SimStar Manufacturing Co. needs $500,000 to fund its growth opportunities. The founder of the firm has approached Morningstar Ventures (a Phoenix-based venture capital firm), which has expressed an interest in providing the financing if acceptable terms can be
VC VALUATION Southwest Ventures is considering an investment in an Austin, Texas–based start-up firm called Creed and Company. Creed and Company is involved in organic gardening and has developed a complete line of organic products for sale to the public that ranges from composted soils to
VC VALUATION AND DEAL STRUCTURING Chariot.com needs $500,000 in venture capital to bring a new Internet messaging service to market. The firm’s management has approached Route 128 Ventures, a venture capital firm located in the high-tech start-up mecca, known as Route 128, in Boston,
DEAL STRUCTURING CP Venture Partners is looking at the possible investment of$1 million in an early-stage company (Startco). Given the stage of the investment, CP requires a 40% annual rate of return. The company earned $750,000 in EBITDA last year, and this amount is expected to grow at a rate of
PRE- AND POST-MONEY VALUATION SPC Venture Partners has evaluated an early-stage investment in a start-up company (Startco). Startco needs $4 million in financing, and SPC has offered to provide the financing in exchange for a 40% interest in the company.a. What is SPC’s post-money valuation of
USING DEBT FINANCING TO ENHANCE EQUITY RETURNS Kimble Electronics is a small toy manufacturing company with total assets of $1.5 million. The company has the opportunity to do a leveraged recapitalization that would involve borrowing 30% to 50%of the firm’s assets at a rate of 9% per year.
TERMINAL VALUE AND THE LENGTH OF THE PLANNING PERIOD The Prestonwood Development Corporation has projected its cash flows (i.e., firm free cash flows) for the indefinite future under the following assumptions: (1) Last year the firm’s FCF was $1 million, and the firm expects this to grow at a
ENTERPRISE VALUATION—TRADITIONAL WACC VERSUS APV Answer the following questions for the Canton Corporation, described in Problem 3, where firm revenues grow at a rate of 10% per year during Years 1 through 4 before leveling out at no growth for Year 5 and beyond. You may assume that Canton’s
TERMINAL-VALUE ANALYSIS Terminal value refers to the valuation attached to the end of the planning period and that captures the value of all subsequent cash flows.Estimate the value today for each of the following sets of future cash flow forecasts:a. Claymore Mining Company anticipates that it
APV VALUATION Clarion Manufacturing Company is a publicly held company that is engaged in the manufacture of home and office furniture. The firm’s most recent income statement and balance sheet are found below ($000).
APV VALUATION The following information provides the basis for performing a straightforward application of the adjusted present value (APV) model.a. What is the value of the unlevered firm, assuming that its free cash flows for Year 5 and beyond are equal to the Year 4 free cash flow?b. What is the
ENTERPRISE VALUATION—APV MODEL This problem uses the information from Problem 3 about Canton Corporation to estimate the firm’s enterprise value using the APV model.a. What is the firm’s unlevered cost of equity?
TRADITIONAL WACC VALUATION The owner of Big Boy Flea Market (BBFM), Lewis Redding, passed away on December 30, 2009. His 100% ownership interest in BBFM became part of his estate, on which his heirs must pay estate taxes. The IRS has hired a valuation expert, who has submitted a report stating that
ENTERPRISE VALUATION—TRADITIONAL WACC MODEL Canton Corporation is a privately owned firm that engages in the production and sale of industrial chemicals primarily in North America. The firm’s primary product line consists of organic solvents and intermediates for pharmaceutical, agricultural,
ENTERPRISE VALUATION In the summer of 2010, Smidgeon Industries was evaluating whether or not to purchase one of its suppliers. The supplier, Carswell Manufacturing, provides Smidgeon with the raw steel Smidgeon uses to fabricate utility trailers. One of the first things that Smidgeon’s
ENTERPRISE VALUATION Opex Capital is a small investment advisory firm located in Portland, Oregon, that has been hired by Winston Winery to estimate the value of Hilco Wines. Hilco is a small winery that is being considered for purchase by Winston. Opex has obtained the financial statements of
VALUATION MULTIPLES AND CHANGES IN INTEREST RATES—THOUGHT QUESTION Both EBITDA to enterprise value and P/E ratios can be linked to interest rates through the discount rate used in discounted cash flow valuation. Holding all else equal, when discount rates are higher, valuation ratios are lower.
HIGH-GROWTH OR STABLE-GROWTH FIRM? Intel Corporation is a leading manufacturer of semiconductor chips. The firm was incorporated in 1968 in Santa Clara, California, and represents one of the greatest success stories of the computer age.Although Intel continues to grow, the industry in which it
VALUING THE EQUITY OF A STABLE-GROWTH FIRM The Emerson Electric Company(EMR) was founded in 1890 and is located in St. Louis, Missouri. The firm provides product technologies and engineering services for industrial, commercial, and consumer markets worldwide. The firm operates in five business
OPERATING LEVERAGE AND FLUCTUATIONS IN OPERATING EARNINGS Assume that Jason Kidwell (from Problem 4) is able to purchase Toys’n Things Inc., for $2.2 million. Jason estimates that after initiating his changes in the company’s operations (i.e., the salary savings plus outsourcing savings
NORMALIZING EBITDA Jason Kidwell is considering whether or not to acquire a local toy manufacturing company, Toys’n Things Inc. The company’s annual income statements for the last three years are as follows:a. Jason has learned that small private companies such as this one typically sell for
VALUING A PRIVATELY HELD FIRM The auto parts business has three large publicly held firms: O’Reilly Automotive Inc. (Orly), Advance Auto Parts Inc. (AAP), and Auto Zone Inc. (AZO). In addition to these publicly held firms, Carquest is the largest privately held firm in the industry. Assume that
VALUING COMMERCIAL REAL ESTATE BuildingOne Properties is a limited partnership formed with the express purpose of investing in commercial real estate. The firm is currently considering the acquisition of an office building that we refer to simply as Building B. Building B is very similar to
VALUING RESIDENTIAL REAL ESTATE Sarah Fluggel is considering the purchase of a home located at 2121 Tarter Circle in Frisco, Texas. The home has 3,000 square feet of heated and cooled living area, and the current owners are asking a price of $375,000 for it.a. Use the information provided in the
EVA®, MVA, AND ENTERPRISE VALUATION Calculate the annual EVA®s for Years 1 through 4 using the Canton Corporation. Assuming that the EVA®s remain constant for Year 5 and beyond, calculate the present value of Canton’s EVA®s. How is the present value of Canton’s EVA®s related to enterprise
ECONOMIC PROFIT AND NPV Steele Electronics is considering investing in a new component that requires a $100,000 investment in new capital equipment, as well as additional net working capital. The investment is expected to provide cash flows over the next five years. The anticipated earnings and
EPS VERSUS ECONOMIC PROFIT Let’s modify the Beck Electronics example found on Example #1 as follows: First, we assume that all of the project’s $6 million cost is funded through the use of excess cash (i.e., from equity, funded out of retained earnings). Moreover, we assume that the market rate
ANALYZING A PROJECT WITH FRONT-LOADED EARNINGS Wind Power Inc. builds and operates wind farms that generate electrical power using windmills. The firm has wind farms throughout the Southwest, including Texas, New Mexico, and Oklahoma. In the spring of 2010, the firm was considering an investment in
ANALYZING A PROJECT WITH BACK-LOADED EARNINGS Hospital Services Inc. provides health care services primarily in the western part of the United States. The firm operates psychiatric hospitals that provide mental health care services using inpatient, partial hospitalization, and outpatient settings.
EPS ACCRETION AND NPV This chapter demonstrated that the requirement that new projects be accretive to firm EPS sometimes results in accepting negative-NPV projects and rejecting positive-NPV projects. However, under more restrictive circumstances, requiring that new investments be accretive to
ACCRUAL VS. CASH ACCOUNTING In 2010, Warner Manufacturing produced and sold 2 million bulldog trailer-hitch assemblies. The units were produced at a cost of $45 per unit and sold for $60 each. However, the cash expenses incurred for each unit only amount to $20 per unit because the firm has fixed
ENTERPRISE VALUE An analyst at the Starr Corp. has estimated that the firm’s future cash flows for the next five years will equal $80 million per year. In addition, the terminal value she estimates for the end of Year 5 is $400 million.a. If the cost of capital for Starr is 12%, what is the value
FORECASTING FIRM FCF Using your pro forma financial statements from Problem 12 estimate the firm’s FCF for 2011.
FORECASTING PRO FORMA FINANCIAL STATEMENTS Prepare a pro forma income statement and balance sheet for Webb Enterprises, found in Problem 7, where revenues are expected to grow by 20% in 2011. Make the following assumptions in making your forecast of the firm’s balance sheet for 2011:■ The
CALCULATING OPERATING NET WORKING CAPITAL Hildebrand Corp. had the following current asset and current liability account balances for 2007 through 2010:a. Compute Hildebrand’s operating net working capital for 2007–2010.b. What are the annual changes in operating net working capital for the
ESTIMATING CAPITAL EXPENDITURES At the end of fiscal year 2009, Emerson Electric Co. (EMR) had net property, plant, and equipment equal to $3.5 billion. The ending balance for 2008 was $3.507 billion, and the firm had depreciation expense during 2009 equal to $0.727 billion. How much did the
STATEMENT OF CASH FLOWS The statements of cash flow for Wal-Mart (WMT) are found below for the years 2005 through 2008:a. Describe Wal-Mart’s cash flows from operations for the period. Is the firm generating positive cash flow? How has this cash flow changed over time?b. Is Wal-Mart investing
USING COMMON-SIZE FINANCIAL STATEMENTS The B&G Construction Company expects to have total sales next year totaling $15,000,000. In addition, the firm pays taxes at 35% and will owe $300,000 in interest expense. Based on last year’s operations, the firm’s management predicts that its cost of
COMMON SIZE FINANCIAL STATEMENTS The balance sheet and income statement for Webb Enterprises Inc. are found below:a. Prepare a common size balance sheet for Webb Enterprises.b. Prepare a common size income statement for Webb Enterprises.c. Use your common size financial statements to respond to
ACCRUAL VS. CASH ACCOUNTING A firm’s net income is calculated as the difference in the revenues it recognizes for the period less the expenses it incurred in the process of generating those revenues. The method used to determine what revenues are earned and what expenses have been incurred is
FINANCIAL FORECASTING PROCESS Describe the four-step financial forecasting process as it is used in the estimation of the value of a firm. How does the percent of sales forecasting method fit into this process?
INCOME VS. CASH FLOW The guiding principles underlying the accrual basis of accounting drive a wedge between a firm’s reported income and its cash flow. What are some of the reasons for the differences in net income and cash flow?
FINANCIAL STATEMENT ANALYSIS Financial statement analysis can be used to identify weaknesses in a firm’s operations. Give some examples of the types of problems that can be identified and how the financial analyst might uncover them.
DEALING WITH NONOPERATING INCOME What is “other” or “nonoperating income,”and how should it be incorporated into the valuation of a firm?
CASH FROM OPERATIONS AND FREE CASH FLOW The item called “Cash provided by operations” in the cash flow statement sounds a lot like firm free cash flow. Although these two quantities are related, they are not the same. Discuss the three sources of difference between them.
PROJECT-SPECIFIC WACC USING CORPORATE FINANCING Lampkin Manufacturing Company has two projects. The first, Project A, involves the construction of an addition to the firm’s primary manufacturing facility. The plant expansion will add fixed operating costs equal to $200,000,000 per year and
PROJECT WACC USING CORPORATE FINANCING In the fall of 2009, Pearson Electronics, which manufactures printed circuit boards used in a wide variety of applications ranging from automobiles to washing machines, was considering whether or not to invest in two major projects. The first was a new
PROJECT-SPECIFIC WACC In 2005, worldwide capacity of wind-powered generators was just under 60,000 megawatts.This constitutes less than 1% of worldwide electricity use, but in Denmark, wind power provides over 20% of electricity. Moreover, the use of wind power has grown rapidly in recent years,

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Pearson New International Edition Valuation 2nd Edition Sheridan J. Titman - Solutions

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