New Semester
Started
Get
50% OFF
Study Help!
--h --m --s
Claim Now
Question Answers
Textbooks
Find textbooks, questions and answers
Oops, something went wrong!
Change your search query and then try again
S
Books
FREE
Study Help
Expert Questions
Accounting
General Management
Mathematics
Finance
Organizational Behaviour
Law
Physics
Operating System
Management Leadership
Sociology
Programming
Marketing
Database
Computer Network
Economics
Textbooks Solutions
Accounting
Managerial Accounting
Management Leadership
Cost Accounting
Statistics
Business Law
Corporate Finance
Finance
Economics
Auditing
Tutors
Online Tutors
Find a Tutor
Hire a Tutor
Become a Tutor
AI Tutor
AI Study Planner
NEW
Sell Books
Search
Search
Sign In
Register
study help
business
principles managerial finance
Principles Of Managerial Finance 16th Global Edition Chad Zutter, Scott Smart - Solutions
A firm with no debt expects to generate pretax net operating profit of $100,000 per year in perpetuity. The required return on assets for this firm is 10%, and it faces a corporate tax of 21%.a. What is the value of the firm?b. Suppose the firm borrows $500,000 and uses the proceeds to buy back an
How are the gains from leverage affected by a difference in the personal tax rates on stock versus interest income?
How do bankruptcy and agency costs alter the effect of financial leverage on firm value?
Is there a difference between direct and indirect bankruptcy costs? If yes, what is the difference?
Explain the pecking-order theory and its underlying assumptions.
According to the signaling model of capital structure, how should leverage affect firm value?
RC Media Inc. plans to issue debt and retire stock in order to lever up its currently unlevered financing. The recapitalization proposal is to issue $20,000,000 worth of new debt with a 5.0% interest rate and use the proceeds to buy back shares of common stock that currently sell for $38. RC
Recapitalization A proposed recapitalization plan for Focus Corporation would change its current all-equity capital structure to a leveraged capital structure. The proposal is for Focus to sell $50,000,000 worth of long-term debt at an interest rate of 7.25% and then repurchase as many shares as
Your corporation is currently all-equity financed with 400,000 shares of common stock selling for $32 a share. Currently your firm generates $4,000,000 in EBIT annually and has a 29% dividend payout ratio. Your firm’s tax rate is 21%.a. What is your firm’s current earnings per share and
LexMart maintains a debt-to-equity ratio of 1.0 at all times. At the present time LexMart has $1,000 par value bonds outstanding that pay 9% annual interest. The firm also has 2.5 million shares of common stock outstanding that sell for $18 per share.a. Based on LexMart’s current annual NOP of
Premier Stonework’s shareholders believe that paying off the company’s debt of $10 million with a new stock issue will improve their EPS. Premier’s EPS is currently $7.40. There are 1.6 million shares outstanding that sell for $25 each. Premier’s tax rate is 21% and the interest rate on its
An institutional investor believes that the company he has invested in should increase its leverage to improve the return on its stock. Currently the investor earns a return of 12% on a $7 million investment in the stock.a. What is his debt-to-equity ratio if he borrows $3,500,000 at a 1.5%
At the beginning of the year you invest $40,000 of your own money plus $40,000 that you borrowed at 6% interest to purchase $80,000 worth of GoFast stock, which earns a return of 13%. You pay taxes on the money you make on the stock at the rate of 28%, but you can deduct the interest you pay on
You operate an all-equity financed company in perfect markets and generate a net operating profit of $450,000. Your firm has just sold $1.8 million worth of 4% coupon rate bonds and plans to use the proceeds to buy back outstanding shares of stock. Your firm’s industry requires a 10.75% ROA.a.
A certain firm with no debt that operates in perfect capital markets currently generates a 7.5% return for its shareholders and can issue debt at a cost of 5%. Determine the firm’s ROE at the following debt-to-equity ratios: 0.5, 1.0, and 1.5.
NoLeverage is a firm financed entirely with equity and Leverage is a firm financed with 50-50 equity and debt, but otherwise the two firms are identical. Both firms have an annual NOP of $2 million and operate in a perfect capital market. Also, for both firms the required return on assets, rA, is
Southside Systems has $60 million of outstanding debt with a 7% required rate of return. Southside has a required return on assets of 13%, an EBIT of $45 million, and corporate tax rate of 21%.a. Calculate Southside’s present value of the interest tax shields and total firm value.b. Calculate
TK Implements is an unusual company that will operate for one year, generate cash flow just once, and then shut down.The value of TK Implements today is $4,075,600, a figure which includes both the value of the firm’s equity and the value of its debt. TK equity has a 23.5% expected return.
Assume that capital markets are perfect, then calculate the cost of debt for a group of firms that each are worth $6 million, have a weighted average cost of capital of 19%, and the following equity value and expected return.Firm A: $1.9 million of equity with a 25% expected return Firm B: $2.4
Woods Construction Corp. has no debt and expects to earn annual NOP of $5.8 million indefinitely. Woods has a required return on assets of 11%, a corporate tax rate of 21%, and there are no taxes on dividends or interest at the personal level. In any year, there is a 10% chance that Woods will go
Galaxy Enterprises has earnings before interest and taxes of $9 million and $90 million of debt outstanding with a required rate of return of 7.3%. The required rate of return on assets in the industry is 12%. The corporate tax rate is 21%, but there are no personal taxes. The present value of
As the chief financial officer (CFO) of New Horizon Corporation, you are considering a recapitalization plan that will shift New Horizon’s capital structure from all common stock equity to 30% debt financing. New Horizon expects to generate $13.75 million in annual net operating profit
What is the argument behind the prediction that dividend payments and share repurchases should not affect shareholder wealth? What does the evidence say about how stock prices react to shareholder payouts (and announcement of upcoming payouts)?
Is it easy for managers to dramatically pump up stock prices by repurchasing shares? In what ways might managers’ personal interests prompt them to buy back shares?
Figure 14.4 shows that every year, many more firms increase dividends than cut them. Comment on why you think that is true. FIGURE 14.4 U.S. Publicly Listed Companies Maintaining, Increasing, or Decreasing Dividends 1959 to 2019 Among firms that pay dividends, the most common practice is to
Arrange these events in chronological order: ex-dividend date, declaration date, date of record, payment date.
Weeks ago, the consumer products giant, Unilever, announced plans to buy back 700,000 shares using a Dutch auction. Since then the company has solicited interest from shareholders by asking how many shares they would tender at different prices. The information they collected appears below.a. What
You own 10,000 shares of Broadcom, which currently sells for $304.50 and has announced its plan to pay a $4.50 dividend. You don’t need the cash flow and would prefer that Broadcom reinvest earnings rather than pay them out as dividends. Describe in detail (give specific numbers) how you can
WeDon’tWork Inc. is a company that provides shared leisure space for young adults. The company has $10 million in excess cash on hand, no debt, and 20 million shares of stock outstanding worth $10 per share. The company plans to distribute its excess cash by paying a $0.50 special dividend.a.
Alternative dividend policies Given the earnings per share over the period 2014– 2021 shown in the following table, determine the annual dividend per share under each of the policies set forth in parts a through d.a. Pay out 50% of earnings in all years with positive earnings.b. Pay $0.50 per
On Friday, August 28, 2020, the stock of Tesla Inc. closed at $2,213.40 per share. On the following Monday, the company split its stock 5-for-1, and the stock price traded for $444.61 per share. Were Tesla shareholders better off, worse off, or in the same position after the split compared with
Assume that you are the CFO of a company contemplating a stock repurchase next quarter. Right now you forecast that the company’s EPS will be $2.09, but you receive a large bonus if EPS exceeds $2.10. What ethical considerations should you take into account before initiating a share repurchase
U.S. companies had been cutting back on their working capital investments, most recently by dialing back inventories. Suppose that firms are managing their working capital assets to maximize shareholder value. If market interest rates drop, reflecting a lower opportunity cost of funds for firms,
Regency Rug Repair Company, which currently offers cash sales only, is trying to decide whether to give customers 30 days to pay. The firm repairs 6,000 rugs per month at an average price of $32 each with a variable cost of $28.If it offers credit sales, Regency expects bad-debt expenses at 1% of
Forrester Fashions has monthly credit sales of 20,000 units with an average collection period of 60 days. The company has a per-unit variable cost of $20 and a per-unit sale price of $30. Bad debts currently are 5% of sales. The firm estimates that a proposed relaxation of credit standards would
Garrett Industries turns over its inventory six times each year; it has an average collection period of 45 days and an average payment period of 30 days. The firm’s annual sales are $3 million. Calculate the firm’s operating cycle and its cash conversion cycle.
Explain why an increase in the rate at which a company uses a particular part increases the optimal order size of that part, while an increase in carrying costs decreases the optimal order size.
Tara’s Textiles currently has credit sales of $30 million per month, an average collection period of 60 days, and bad debts equal to 3% of sales. Assume that the price of Tara’s products is $60 per unit and that the variable costs are $55 per unit. The firm is considering tightening up their
Assume that you are a supplier to Tesco and have a payment term that allows Tesco to pay you in 60 days after the date of the invoice. This delay in payment is creating cash issues for you as they are your primary buyers.However, Tesco suggests that if you give them a 3% discount, they will make
To manage accruals better, Alliance Rental will switch from paying its employees every week to paying employees every two weeks. Alliance has 60 employees who work a 40-hour week and earn an average wage of $18.75 per hour. Using a 6% rate of interest, how much will this change save the firm
Salem Instruments sold $475,000 worth of 120-day commercial paper for $468,000. What is the dollar amount of interest paid on the commercial paper? What is the effective 120-day rate on the paper?
On accepting the position of chief executive officer and chairman of Muse Inc., Dominic Howard changed the firm’s weekly payday from Monday afternoon to the following Friday afternoon. The firm’s weekly payroll was $100 million, and the cost of short-term funds was 5%. If the effect of this
Assume Credins Bank made a €10 million, one-year discount loan at 7% interest, requiring a compensating balance equal to 10% of the face value of the loan. Determine the effective annual rate associated with this loan.
Bank has analyzed the accounts receivable of Maxtech, Inc. The bank has chosen eight accounts totaling $876,000 that it will accept as collateral. The bank’s terms include a lending rate set at prime plus 3.3% and a 1.5% commission charge. The prime rate currently is 4.5%.a. The bank will adjust
Inventory financing Heidelberg Cement faces a liquidity crisis: It needs a loan of €1,000,000 for two months. Having no source of additional unsecured borrowing, the firm must find a secured short-term lender. The firms’ accounts receivable are quite low, but its inventory is considered liquid
Jon Jeffery is the new CFO of Sums Metal Casting, a UK-based company. Jon has decided to familiarize himself with the financial status of the business’ operations and is, therefore, interested in different short-term finance-related activities to start with. Sums supplies custom metal parts to
Heidelberg Cement, a German building materials company, is considering leasing a new cement packaging machine for €250,000 per year. The lease arrangement calls for a six-year lease with an option to purchase the machine at the end of the lease for €35,000. Assuming the corporate tax rate in
Hugh, an investment analyst in Brisbane, is analyzing three separate convertible bonds issued by Woolworths Limited, the Commonwealth Bank of Australia, and BHP Billiton. For each of them, calculate the conversion price:a. A bond of A$1,000 par value that is convertible into 15 shares of common
Incredible Solutions issued a $1,120-par-value bond that is convertible at $28 per share. What is the bond’s conversion ratio? If the stock is currently selling at $30 per share, what is the bond’s conversion value? Would it be advisable for a bondholder to exercise the conversion option?
Woolworths Group recently sold a £1,000-par-value, five-year convertible bond with a 5% coupon rate. The interest payments will be paid annually at the end of each year and the principal will be repaid at maturity. A similar bond without a conversion feature would have sold with a 7% coupon rate.
A three-month call option on 100 shares of ThyssenKrupp stock is selling for €150. The strike price for the option is :30, while the current stock price is € 26.30 per share. Ignoring brokerage fees, what price must the stock achieve to just cover the expense of the option? If the stock price
Just Water International Ltd. wants to purchase water purification equipment costing $250,000. The full amount needed to finance the asset can be borrowed at an interest rate of 12.5%. The terms of the loan require equal end of-year payments for the next five years. Calculate the total annual loan
PD Fishing Limited is attempting to determine whether to lease or purchase a new fishing boat for its crab business in Langkawi, Malaysia. The firm is in the 25% tax bracket, and its after-tax cost of debt is currently 10%. The terms of the lease and of the purchase are as follows:Lease Annual
Lease-versus-purchase decision Antonio Di Capri is looking to get the new Alfa Romeo Giulia, a luxury sport sedan. He can either buy it at a retail price of €38,000 or get a lease from an auto dealership. The dealership offers a five-year lease that requires an initial payment of €5,000
Assume that BHP Billiton, an Anglo-Australian multinational public company, has issued the following convertible bonds. What is the conversion (or stock) value for each of these?a. A bond of A$1,000 par value that is convertible into 10 shares of common stock.The common stock is currently selling
The Volkswagen Group has just issued a convertible bond with a €1,000 par value. The bond is convertible into 20 shares of common stock. It has a 3% coupon rate and a 10-year maturity. The interest rate on a straight bond of similar risk is currently 5%.a. Calculate the straight bond value of the
Jackson Limited has an outstanding issue of 16-year convertible bonds with a £1,000 par value. These bonds are convertible into 100 shares of common stock. They have an 8% annual coupon rate, whereas the interest rate on straight bonds of similar risk is 12%.a. Calculate the straight bond value of
Novartis International AG has warrants that allow the purchase of five shares of its outstanding common stock at CHf 7 per share. The common stock price per share and the market values of the warrant associated with that stock price are shown in the table.a. For each of the common stock price
Hans Gruber is evaluating BMW Group’s common stock and warrants to choose the better investment. The company’s stock is currently selling for €94.68 per share, while its warrants to purchase five shares of common stock at €20 per share are selling for €10. Ignoring transaction costs, Mr.
Rajesh Chauhan is a successful doctor who is looking to invest some of his savings (INR 1,000,000) in Dr. Reddy’s Laboratories, an Indian multinational pharmaceutical company based in Hyderabad, Telangana, India. He can either buy common stock, which is currently selling for INR 2,486.10 per
Terence Boyle is considering buying 1000 shares of GHB Corporation at €31 per share. Because he has read that the firm will probably soon receive certain large orders from abroad, he expects the price of GHB to increase to €35 per share.As an alternative, Terence is considering purchase of a
Before the COVID-19 pandemic hit the world, a number of hedge fund managers in the United Kingdom went on a short selling spree. This was similar to buying put options, which are bound to be profitable if prices go down. The hedge fund managers ended up making billions of pounds in profit. Some
Luxe Foods is contemplating acquisition of Valley Canning Company for a cash price of $180,000. Luxe currently has high financial leverage and therefore has a cost of capital of 14%. As a result of acquiring Valley Canning, which is financed entirely with equity, the firm expects its financial
At the end of 2019, Lake Industries had 80,000 shares of common stock outstanding and had earnings available for common shareholders of $160,000. Butler Company, at the end of 2019, had 10,000 shares of common stock outstanding and had earned $20,000 for common shareholders.Lake’s earnings are
Gas Natural Fenosa, a Spanish natural gas and electrical energy utilities company, is analyzing a possible merger with Energias de Portugal, a global energy company.Gas Natural has a tax loss carryforward of €1,000,000, which it could apply to Energias’ expected earnings before taxes of
Banco Santander S.A. is considering the acquisition of Banco Popular Español, S.A., in a stock swap transaction. Currently, Banco Santander’s stock is selling for €5 per share. Although shares of Banco Popular Español are currently trading at €4 per share, the firm’s asking price is €6
SoftBank Group’s stock is currently trading at a price of ¥9,249 per share. The company is considering the acquisition of Vodafone Japan, whose stock is currently trading at ¥2,200 per share. The transaction would require SoftBank to swap its shares for those of Vodafone Japan, which would be
Safran S.A. is considering a merger with Zodiac Aerospace. Safran had earnings of €15.78 billion last year, has 409 million shares outstanding, and expects earnings to grow at an annual rate of 5%. Zodiac had earnings of €5.2 billion last year, has 280 million shares of common stock
Zenith Capital holds enough stock in Company X and Company Y to give it voting control of both firms. Consider the accompanying simplified balance sheets for these companies.a. What percentage of the total assets controlled by Zenith Corporation does its common stock equity represent?b. If another
Assume that the Greek government is considering different options of voluntary settlement with its creditors. Classify each of the following options as an extension, a composition, or a combination of the two.a. Paying all creditors in full in 20 periodic installments.b. Paying all creditors 25¢
Suppose that Banco Espírito Santo has outstanding debt of €15,000,000. Classify each of the following voluntary settlements as an extension, a composition, or a combination of the two.a. Paying all creditors 55¢ for each euro owed.b. Paying all creditors in full in two years.c. Paying a group
Storm Financial Ltd. recently ran into certain financial difficulties that have resulted in the initiation of voluntary settlement procedures.The firm currently has A$500,000 in outstanding debts and approximately A$150,000 in liquidatable short-term assets. Indicate, for each of the following
Ben Stine is in a financial position where he owes more than he earns each month. Due to his lack of financial planning and a heavy debt load, Ben started missing payments and saw his credit rating plunge.Unless corrective action is taken, personal bankruptcy will follow.Ben recently contacted his
When a bankruptcy is imminent, employees and external creditors are likely to be least informed about the same. This may lead to a situation where managers transfer as much cash and assets out of the firm as possible to protect shareholders’ interest, while undermining the interest of other
From the point of view of a U.S.-based MNC, what are the key benefits of the Tax Cuts and Job Act of 2017?
What is the Euromarket?
Currency derivatives are used by Rolls-Royce to hedge against exchange rate movements that may affect its proceeds in non-sterling currencies. Suppose Rolls-Royce signed a contract to supply engines for Boeing for the next five years. Boeing agrees to pay a sum of $680 million in year 4 of this
Today the exchange rate between U.S. dollars and Japanese yen is 97.91(¥/$). A year ago the rate was 98.91(¥/$).a. Which currency appreciated and which currency depreciated over the course of the year?b. Do you think that over the last year inflation was higher in the United States or in Japan?
Raiffeisen Bank International AG is an Austrian banking group whose Albanian subsidiary has a pretax income of €4,000,000; all after-tax income is available in the form of dividends to the parent company. The local tax rate is 15% and the Austrian tax rate is 25%. Compare the net funds available
If BASF Corp. borrows Swedish krona (kr) at a nominal interest rate of 4% and during the year the krona appreciates by 15%, what will the effective annual interest rate be for the loan?
Jane Metal Works borrows Thai baht (THB) when the baht is trading at THB 35 (THB/GBP). If the nominal annual interest rate of the loan is 7% and at the end of the year the baht trades at THB 42 (THB/GBP), what is the effective annual interest rate of the loan?
British Petroleum needs to borrow a specific amount of money for the next two months and can use two foreign lending facilities. It can borrow at a nominal annual interest rate of 0.5% in euros, or it can borrow at 3% in Norwegian krone (kr). If the pound is expected to depreciate by 10% against
Exchange rate movements Suppose a basket of goods in Paris costs € 133 and the same basket purchased in New York costs $153.a. At what exchange rate between euros and dollars is the cost of the basket of goods the same in each city?b. Now suppose that over the next year inflation in France is
Translation of financial statements Daimler AG, a German-based MNC, has a subsidiary in Algeria (local currency, dinar, DZD). The balance sheet and income statement of the subsidiary follow. Assume that on December 31, 2020, the exchange rate is 140 DZD/€. Assume that the local (dinar) figures
Suppose that Audi AG has two main subsidiaries, one in India (local currency is Indian rupee, INR) and one in Indonesia (local currency is Indonesian rupiah, IDR). Forecasts of business operations indicate the following short-term financing position for each subsidiary (in equivalent euros):India:
You are contemplating starting a new business as either a sole proprietorship or a corporation. On the one hand you really value the limited liability provided by incorporating, but on the other hand you are not fond of the double taxation issue faced by owners of corporations. To help you decide,
You intend to start a new aerospace business called Space Ace, but before launching your new enterprise some due diligence is necessary to evaluate your organizing, financing, and investing options. Because of the differing liability and tax treatments you are contemplating organizing your business
Do you agree with the statement that in any economy, individuals are the net supplier of funds? What do you think will happen to financial markets if all individuals decide to consume more and not save at all, thereby reducing the supply of funds to capital markets?
Yin has been following market movements of her portfolio. In October 2020, she decided to sell a losing position in Volkswagen (VW) that she held on the Frankfurt Stock Exchange (Börse Frankfurt). She intended to capture the loss and use it to offset some capital gains for reducing her tax
In June 2019, Forgefast PLC completed its IPO on Alternative Investment Market (AIM), an arm of the London Stock Exchange for smaller companies.Forgefast sold 20,000,000 shares of its stock at an offer price of £5 with an underwriting discount of £0.35 per share. Forgefast’s closing stock price
A Portuguese company called Albufeira Trading Ltd. listed itself on the Frankfurt Stock Exchange through an IPO on October 14, 2019.Albufeira issued a total of 12,345,000 shares to primary market investors at an IPO offer price of €16, with an underwriting discount of 7%. Secondary market
The UK Corporate Governance Code, expects directors to provide a notice to the stock exchange in advance if they intend to sell off any shares of the company they are working for. What ethical issues might be mitigated with the help of this provision? Refer to insider trading and explain your
Velocity Financial, Inc. conducted its IPO on January 17, 2020 for the principal purposes of increasing its capitalization and financial flexibility, creating a public market for its common stock, and enabling access to the public equity markets for it and its stockholders. Velocity sold 7.25
Jatin Koorgi, CFO of South Trading Ltd., is working on the financial plans and projections for his next board meeting. South Trading trades in coffee and tea produced across India, and is one of the world’s largest suppliers for multinational tea and coffee brands. It now plans to acquire coffee
In Table 3.5, a majority of the firms listed have current ratios that fall below their industry average. Why? One exception to this general pattern is Dillard’s, which is an upscale department store chain. Why might Dillard’s operate with greater-than-average liquidity? TABLE 3.5 Financial
Tesla reported total sales of $5,179 million in the second quarter of 2020. The company also reported a gross profit margin of 25.4%. Calculate the cost of goods sold for this quarter.
Use the appropriate items from the following list to prepare L’Originelle Bakery’s balance sheet at December 31, 2020. Item Value at December 31, 2020 ( thousands) 900 Accruals 530 Accounts payable 215 Accumulated depreciation 5,000 Ordinary share capital 90 Long-term debts 1,120 340 640 750
Effect of net income on a firm’s balance sheet Barn Plc. reported net income of £2,650,000 for the year ended December 31, 2020, and the company paid out all earnings as dividends. Indicate how Barn’s 2020 balance sheet would look different if the company had “spent” its earnings in the
Bauman Company’s total current assets, total current liabilities, and inventory for each of the past four years follow:a. Calculate the firm’s current and quick ratios for each year. Compare the resulting time series for these measures of liquidity.b. Comment on the firm’s liquidity over the
Common-size statement analysis A common-size income statement for Creek Enterprises’ 2021 operations follows. Using the firm’s 2022 income statement presented in Problem 3–16, develop the 2022 common-size income statement and compare it with the 2021 common-size statement. Which areas require
Showing 2300 - 2400
of 3159
First
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
Last
Step by Step Answers
Get 50% OFF
Claim Now
