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 Study Guide 10th Edition Gitman - Solutions
8–7 What effect do sunk costs and opportunity costs have on a project’s incremental cash flows?
8–6 What three components of cash flow may exist for a given project? How can expansion decisions be treated as replacement decisions? Explain.
8–5 Why is it important to evaluate capital budgeting projects on the basis of incremental cash flows?
8–4 Differentiate between the members of each of the following pairs of capital budgeting terms: (a) independent versus mutually exclusive projects;(b) unlimited funds versus capital rationing; (c) accept–reject versus ranking approaches; and (d) conventional versus nonconventional cash flow
8–3 What are the five steps involved in the capital budgeting process?
8–2 What are the key motives for making capital expenditures? Discuss, compare, and contrast them.
8–1 What is capital budgeting? Do all capital expenditures involve fixed assets? Explain.
7-1 To use the price/earnings multiples approach to valuation, you need to find a firm’s projected earnings and the P/E multiple. One of the most popular sites to obtain these estimates is Zacks Investment Research, www.zacks.com.1. At the top of the page, locate the area where you can enter a
7-1 Early in 2004, Inez Marcus, the chief financial officer for Suarez Manufacturing, was given the task of assessing the impact of a proposed risky investment on the firm’s stock value. To perform the necessary analysis, Inez gathered the following information on the firm’s stock.During the
7–23 Integrative—Valuation and CAPM Hamlin Steel Company wishes to determine the value of Craft Foundry, a firm that it is considering acquiring for cash.Hamlin wishes to use the capital asset pricing model (CAPM) to determine the applicable discount rate to use as an input to the
7–22 Integrative—Risk and valuation Giant Enterprises has a beta of 1.20, the riskfree rate of return is currently 10%, and the market return is 14%. The company, which plans to pay a dividend of $2.60 per share in the coming year, anticipates that its future dividends will increase at an
7–21 Integrative—Valuation and CAPM formulas Given the following information for the stock of Foster Company, calculate its beta.Current price per share of common $50.00 Expected dividend per share next year $ 3.00 Constant annual dividend growth rate 9%Risk-free rate of return 7%Return on
7–20 Management action and stock value REH Corporation’s most recent dividend was $3 per share, its expected annual rate of dividend growth is 5%, and the required return is now 15%. A variety of proposals are being considered by management to redirect the firm’s activities. Determine the
7–19 Valuation with price/earnings multiples For each of the firms shown in the following table, use the data given to estimate their common stock value employing price/earnings (P/E) multiples. Firm Expected EPS Price/earnings multiple ABC $3.00 6.2 4.50 10.0 1.80 12.6 D 2.40 8.9 E 5.10 15.0
7–18 Book and liquidation value The balance sheet for Gallinas Industries is as follows.Additional information with respect to the firm is available:(1) Preferred stock can be liquidated at book value.(2) Accounts receivable and inventories can be liquidated at 90% of book value.(3) The firm has
7–17 Using the free cash flow valuation model to price an IPO Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for$12.50 per share. Although you are very much interested in owning the company, you are concerned about whether it is fairly priced. In
7–16 Free cash flow valuation Nabor Industries is considering going public but is unsure of a fair offering price for the company. Before hiring an investment banker to assist in making the public offering, managers at Nabor have decided to make their own estimate of the firm’s common stock
7–15 Common stock value—All growth models You are evaluating the potential purchase of a small business currently generating $42,500 of after-tax cash flow(D0$42,500). On the basis of a review of similar-risk investment opportunities, you must earn an 18% rate of return on the proposed
7–14 Common stock value—Variable growth Lawrence Industries’ most recent annual dividend was $1.80 per share (D0$1.80), and the firm’s required return is 11%. Find the market value of Lawrence’s shares when:a. Dividends are expected to grow at 8% annually for 3 years, followed by a 5%
7–13 Common stock value—Variable growth Home Place Hotels, Inc., is entering into a 3-year remodeling and expansion project. The construction will have a limiting effect on earnings during that time, but when it is complete, it should allow the company to enjoy much improved growth in earnings
7–12 Common stock value—Variable growth Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $4.25 per share and paid cash dividends of $2.55 per share (D0$2.55). Grips’ earnings and dividends are expected to grow at 25%
7–11 Common stock value—Constant growth Elk County Telephone has paid the dividends shown in the following table over the past 6 years.The firm’s dividend per share next year is expected to be $3.02.a. If you can earn 13% on similar-risk investments, what is the most you would be willing to
7–10 Common stock value—Constant growth McCracken Roofing, Inc., common stock paid a dividend of $1.20 per share last year. The company expects earnings and dividends to grow at a rate of 5% per year for the foreseeable future.a. What required rate of return for this stock would result in a
7–9 Common stock value—Constant growth Use the constant-growth model(Gordon model) to find the value of each firm shown in the following table. Firm Dividend expected next year Dividend growth rate Required return ABCDE $1.20 8% 13% 4.00 0.65 5 15 10 14 6.00 8 9 2.25 8 20
7–8 Preferred stock valuation Jones Design wishes to estimate the value of its outstanding preferred stock. The preferred issue has an $80 par value and pays an annual dividend of $6.40 per share. Similar-risk preferred stocks are currently earning a 9.3% annual rate of return.a. What is the
7–7 Common stock value—Zero growth Kelsey Drums, Inc., is a well-established supplier of fine percussion instruments to orchestras all over the United States.The company’s class A common stock has paid a dividend of $5.00 per share per year for the last 15 years. Management expects to
7–6 Common stock valuation—Zero growth Scotto Manufacturing is a mature firm in the machine tool component industry. The firm’s most recent common stock dividend was $2.40 per share. Because of its maturity as well as its stable sales and earnings, the firm’s management feels that dividends
7–5 Stock quotation Assume that the following quote for the Advanced Business Machines stock (traded on the NYSE) was found in the Thursday, December 14, issue of the Wall Street Journal.3.2 84.13 51.25 AdvBusMach ABM 1.32 1.6 23 12432 81.75 1.63 Given this information, answer the following
7–4 Convertible preferred stock Valerian Corp. convertible preferred stock has a fixed conversion ratio of 5 common shares per 1 share of preferred stock. The preferred stock pays a dividend of $10.00 per share per year. The common stock currently sells for $20.00 per share and pays a dividend of
7–3 Preferred dividends In each case in the following table, how many dollars of preferred dividends per share must be paid to preferred stockholders before common stock dividends are paid? Case Type Par value Dividend per share per period Periods of dividends passed ABCDE Cumulative $ 80 $ 5
7–2 Preferred dividends Slater Lamp Manufacturing has an outstanding issue of preferred stock with an $80 par value and an 11% annual dividend.a. What is the annual dollar dividend? If it is paid quarterly, how much will be paid each quarter?b. If the preferred stock is noncumulative and the
7–1 Authorized and available shares Aspin Corporation’s charter authorizes issuance of 2,000,000 shares of common stock. Currently, 1,400,000 shares are outstanding and 100,000 shares are being held as treasury stock. The firm wishes to raise $48,000,000 for a plant expansion. Discussions with
ST 7–2 Free cash flow valuation Erwin Footwear wishes to assess the value of its Active Shoe Division. This division has debt with a market value of $12,500,000 and no preferred stock. Its weighted average cost of capital is 10%. The ActiveShoe Division’s estimated free cash flow each year from
ST 7–1 Common stock valuation Perry Motors’ common stock currently pays an annual dividend of $1.80 per share. The required return on the common stock is 12%. Estimate the value of the common stock under each of the following assumptions about the dividend.a. Dividends are expected to grow at
7–19 Assuming that all other variables remain unchanged, what impact would each of the following have on stock price? (a) The firm’s beta increases.(b) The firm’s required return decreases. (c) The dividend expected next year decreases. (d) The rate of growth in dividends is expected to
7–18 Explain the linkages among financial decisions, return, risk, and stock value.
7–17 Explain each of the three other approaches to common stock valuation:(a) book value, (b) liquidation value, and (c) price/earnings (P/E) multiples.Which of these is considered the best?
7–16 Describe the free cash flow valuation model and explain how it differs from the dividend valuation models. What is the appeal of this model?
7–15 Describe, compare, and contrast the following common stock dividend valuation models: (a) zero-growth, (b) constant-growth, and (c) variablegrowth.
7–14 What does the efficient-market hypothesis say about (a) securities prices,(b) their reaction to new information, and (c) investor opportunities to profit?
7–13 Describe the events that occur in an efficient market in response to new information that causes the expected return to exceed the required return.What happens to the market value?
7–12 Describe the key items of information included in a stock quotation. What information does the stock’s price/earnings (P/E) ratio provide?
7–11 What role does an investment banker play in a public offering? Explain the sequence of events in the issuing of stock.
7–10 What general procedures must a private firm go through in order to go public via an initial public offering (IPO)?
7–9 Into what bodies are institutional VCs most commonly organized? How are their deals structured and priced?
7–8 What is the difference between a venture capitalist (VC) and an angel capitalist(angel)?
7–7 Explain the cumulative feature of preferred stock. What is the purpose of a call feature in a preferred stock issue?
7–6 What claims do preferred stockholders have with respect to distribution of earnings (dividends) and assets?
7–5 What are the advantages to both U.S.-based and foreign corporations of issuing stock outside their home markets? What are American depositary receipts (ADRs)?
7–4 Explain the relationships among authorized shares, outstanding shares, treasury stock, and issued shares.
7–3 How does a rights offering protect a firm’s stockholders against the dilution of ownership?
7–2 What risks do common stockholders take that other suppliers of longterm capital do not?
7–1 What are the key differences between debt capital and equity capital?
6-1 Go to the Web site www.smartmoney.com. Click on Economy & Bonds. Then click on Bond Calculator, which is located down the page under the column Bond Tools. Read the instructions on how to use the bond calculator. Using the bond calculator:1. Calculate the yield to maturity (YTM) for a bond
6-1 Annie Hegg has been considering investing in the bonds of Atilier Industries.The bonds were issued 5 years ago at their $1,000 par value and have exactly 25 years remaining until they mature. They have an 8% coupon interest rate, are convertible into 50 shares of common stock, and can be called
6–26 Bond valuation—Quarterly interest Calculate the value of a $5,000-par-value bond paying quarterly interest at an annual coupon interest rate of 10% and having 10 years until maturity if the required return on similar-risk bonds is currently a 12% annual rate paid quarterly.
6–25 Bond valuation—Semiannual interest Calculate the value of each of the bonds shown in the following table, all of which pay interest semiannually. Bond Par value Coupon interest rate Years to maturity Required stated annual return ABCDE $1,000 10% 12 8% 1,000 12 20 12 500 12 5 14 1,000 14
6–24 Bond valuation—Semiannual interest Find the value of a bond maturing in 6 years, with a $1,000 par value and a coupon interest rate of 10% (5% paid semiannually) if the required return on similar-risk bonds is 14% annual interest(7% paid semiannually).
6–23 Bond valuation and yield to maturity Mark Goldsmith’s broker has shown him two bonds. Each has a maturity of 5 years, a par value of $1,000, and a yield to maturity of 12%. Bond A has a coupon interest rate of 6% paid annually.Bond B has a coupon interest rate of 14% paid annually.a.
6–22 Yield to maturity Each of the bonds shown in the following table pays interest annually.a. Calculate the yield to maturity (YTM) for each bond.b. What relationship exists between the coupon interest rate and yield to maturity and the par value and market value of a bond? Explain. Bond Par
6–21 Yield to maturity The Salem Company bond currently sells for $955, has a 12% coupon interest rate and a $1,000 par value, pays interest annually, and has 15 years to maturity.a. Calculate the yield to maturity (YTM) on this bond.b. Explain the relationship that exists between the coupon
6–20 Yield to maturity The relationship between a bond’s yield to maturity and coupon interest rate can be used to predict its pricing level. For each of the bonds listed, state whether the price of the bond will be at a premium to par, at par, or at a discount to par. Bond Coupon interest rate
6–19 Bond value and time—Changing required returns Lynn Parsons is considering investing in either of two outstanding bonds. The bonds both have $1,000 par values and 11% coupon interest rates and pay annual interest. Bond A has exactly 5 years to maturity, and bond B has 15 years to
6–18 Bond value and time—Constant required returns Pecos Manufacturing has just issued a 15-year, 12% coupon interest rate, $1,000-par bond that pays interest annually. The required return is currently 14%, and the company is certain it will remain at 14% until the bond matures in 15 years.a.
6–17 Bond value and changing required returns Midland Utilities has outstanding a bond issue that will mature to its $1,000 par value in 12 years. The bond has a coupon interest rate of 11% and pays interest annually.a. Find the value of the bond if the required return is (1) 11%, (2) 15%, and(3)
6–16 Bond valuation—Annual interest Calculate the value of each of the bonds shown in the following table, all of which pay interest annually. Bond Par value Coupon interest rate Years to maturity Required return ABCDE $1,000 1,000 100 500 1,000 14% 20 12% 8 16 8 162 10 16 12 *39 8 13 13 18 10
6–15 Basic bond valuation Complex Systems has an outstanding issue of $1,000-par-value bonds with a 12% coupon interest rate. The issue pays interest annually and has 16 years remaining to its maturity date.a. If bonds of similar risk are currently earning a 10% rate of return, how much should
6–14 Asset valuation and risk Laura Drake wishes to estimate the value of an asset expected to provide cash inflows of $3,000 per year at the end of years 1 through 4 and $15,000 at the end of year 5. Her research indicates that she must earn 10% on low-risk assets, 15% on average-risk assets,
6–13 Valuation of assets Using the information provided in the following table, find the value of each asset. Cash flow Asset End of year Amount Appropriate required return A 1 $ 5,000 18% 2 5,000 3 5,000 B 1 througho $ 300 15% C 1 $ 0 16% 2 0 3 0 4 0 5 35,000 D 1 through 5 $ 1,500 12% 6 8,500 E
6–12 Valuation fundamentals Imagine that you are trying to evaluate the economics of purchasing an automobile. You expect the car to provide annual after-tax cash benefits of $1,200 at the end of each year, and assume that you can sell the car for after-tax proceeds of $5,000 at the end of the
6–11 Bond quotation Assume that the following quote for the Financial Management Corporation’s $1,000-par-value bond was found in the Wednesday, November 8, issue of the Wall Street Journal.Fin Mgmt 8.75 05 8.7 558 100.25 0.63 Given this information, answer the following questions.a. On what
6–10 Bond interest payments before and after taxes Charter Corp. has issued 2,500 debentures with a total principal value of $2,500,000. The bonds have a coupon interest rate of 7%.a. What dollar amount of interest per bond can an investor expect to receive each year from Charter Corp.?b. What is
6–9 Risk premiums Eleanor Burns is attempting to find the nominal rate of interest for each of two securities—A and B—issued by different firms at the same point in time. She has gathered the following data:a. If the real rate of interest is currently 2%, find the risk-free rate of interest
6–8 Risk-free rate and risk premiums The real rate of interest is currently 3%; the inflation expectation and risk premiums for a number of securities follow.a. Find the risk-free rate of interest, RF , that is applicable to each security.b. Although not noted, what factor must be the cause of
6–7 Term structure of interest rates The following yield data for a number of highest quality corporate bonds existed at each of the three points in time noted.a. On the same set of axes, draw the yield curve at each of the three given times.b. Label each curve in part a with its general shape
6–6 Nominal and real rates and yield curves A firm wishing to evaluate interest rate behavior has gathered data on nominal rate of interest and on inflationary expectation for five U.S. Treasury securities, each having a different maturity and each measured at a different point in time during the
6–5 Nominal interest rates and yield curves A recent study of inflationary expectations has revealed that the consensus among economic forecasters yields the following average annual rates of inflation expected over the periods noted. (Note:Assume that the risk that future interest rate movements
6–4 Yield curve A firm wishing to evaluate interest rate behavior has gathered yield data on five U.S. Treasury securities, each having a different maturity and all measured at the same point in time. The summarized data follow.a. Draw the yield curve associated with these data.b. Describe the
6–3 Real and nominal rates interest Zane Perelli currently has $100 that he can spend today on polo shirts costing $25 each. Instead he could invest the $100 in a risk-free U.S. Treasury security that is expected to earn a 9% nominal rate of interest. The consensus forecast of leading economists
6–2 Real rate of interest To estimate the real rate of interest, the economics division of Mountain Banks—a major bank holding company—has gathered the data summarized in the following table. Because there is a high likelihood that new tax legislation will be passed in the near future,
6–1 Interest rate fundamentals: The real rate of return Carl Foster, a trainee at an investment banking firm, is trying to get an idea of what real rate of return investors are expecting in today’s marketplace. He has looked up the rate paid on 3-month U.S. Treasury bills and found it to be
ST 6–2 Yield to maturity Elliot Enterprises’ bonds currently sell for $1,150, have an 11% coupon interest rate and a $1,000 par value, pay interest annually, and have 18 years to maturity.a. Calculate the bonds’ yield to maturity (YTM).b. Compare the YTM calculated in part a to the bonds’
ST 6–1 Bond valuation Lahey Industries has outstanding a $1,000 par-value bond with an 8% coupon interest rate. The bond has 12 years remaining to its maturity date.a. If interest is paid annually, find the value of the bond when the required return is (1) 7%, (2) 8%, and (3) 10%?b. Indicate for
6–20 What is a bond’s yield to maturity (YTM)? Briefly describe both the trialand-error approach and the use of a financial calculator for finding YTM.
6–19 As a risk-averse investor, would you prefer bonds with short or long periods until maturity? Why?
6–18 If the required return on a bond differs from its coupon interest rate, describe the behavior of the bond value over time as the bond moves toward maturity.
6–17 What relationship between the required return and the coupon interest rate will cause a bond to sell at a discount? At a premium? At its par value?
6–16 What basic procedure is used to value a bond that pays annual interest?Semiannual interest?
6–15 Define and specify the general equation for the value of any asset, V0.
6–14 Does the valuation process apply only to assets that provide an annual cash flow? Explain.
6–13 What are the three key inputs to the valuation process?
6–12 Why is it important for financial managers to understand the valuation process?
6–11 Compare the basic characteristics of Eurobonds and foreign bonds.
6–10 What information is found in a bond quotation? How are bonds rated, and why?
6–9 What is a conversion feature? A call feature? Stock purchase warrants?
6–8 How is the cost of bond financing typically related to the cost of shortterm borrowing? In addition to a bond’s maturity, what other major factors affect its cost to the issuer?
6–7 Differentiate between standard debt provisions and restrictive covenants included in a bond indenture. What are the consequences of violation of them by the bond issuer?
6–6 What are typical maturities, denominations, and interest payments of a corporate bond? What mechanisms protect bondholders?
6–5 List and briefly describe the potential issuer- and issue-related risk components that are embodied in the risk premium. Which are the purely debtspecific risks?
6–4 Briefly describe the following theories of the general shape of the yield curve: (a) expectations theory; (b) liquidity preference theory; and (c) market segmentation theory.
Showing 200 - 300
of 3159
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Last
Step by Step Answers
Get 50% OFF
Claim Now
