Questions and Answers of Principles Managerial Finance

Listed are the equity sections of balance sheets for the years 2017 and 2018 as reported by Taylor Construction PLC. The overall value of stockholder’s equity has increased from £2,000,000 to
Eddie Greer recently inherited a large amount of money from his grandfather. His financial advisor has suggested to invest equally in four companies to create a stock portfolio. Wishing to learn more
Liquidity ratio Jamie Anderson has compiled some of his personal financial data to determine his liquidity position. The data are as follows.a. Calculate Jamie’s liquidity ratio.b. Jamie knows that
Inventory management Three companies that compete in Scotland’s home furniture industry are Loch Furnishing, Highland Furnishing, and Fell Furniture. The table below shows cost of goods sold and
The table below shows key financial data for three supermarket chains that compete in the grocery retail industry: Almi, Pemco, and Harrison. All euro values are in thousands. a. Calculate each of
The table below shows 2017 total revenues, cost of goods sold, earnings available for common stockholders, total assets, and stockholders’ equity for three companies competing in the local
A common-size income statement for Santa Enterprises’ 2017 operations follows. Using the firm’s 2017 income statement, develop the 2017 common-size income statement and compare it with the 2016
The CEO of Dinnington Glass Company has approached Anne Hersch, the company’s accountant, for an annual financial checkup. As the first step, Anne and her team have prepared a complete set of
Star Industries has published its annual account. It indicates that during the year the firm had sales of $3,500,000, cost of goods sold totaled $2,300,000, operating expenses were $420,000, and
Plato PLC is a supplier to large construction companies. During 2017, Plato experienced an increase in net fixed assets of £1,500,000 and had depreciation of £1,000,000. It also experienced an
York Engineering Ltd. forecasts sales of €1,250,000 for 2022. Assume that the firm has fixed costs of €320,000 and variable costs amount to 30% of sales. Operating expenses are estimated to
The following is an extract from the 2017 and 2018 financial statements of Garmen Ltd. All figures are in thousands (£).a. Garmen’s statement of cash flows for 2018 shows £0 cash inflow resulting
Farmers Delight Corporation reported sales of $350,000 in June, $380,000 in July, and $390,000 in August. The forecasts for September, October, and November are $385,000, $418,000, and $429,000,
The Green PLC has projected following unit sales for January 2019 to August 2019. The sales of Green PLC are 30% in cash and the remainder is on a credit for 1 month. It also expects cash receipts
Markham Enterprises has gathered the following data to plan for its cash requirements and short-term investment opportunities for June, July, and August. All amounts are shown in thousands of
Smyth Inc. has decided to do a scenario analysis for the year 2018. Their pessimistic prediction for sales is $360,000, the most likley amount of sale is $450,000, and the optimistic sales prediction
Randy & Wiskers Enterprises has 2018 sales of $15.5 million. It wishes to analyze expected performance and financing needs for 2019. You are requested to compile a pro forma balance sheet. Given
Abru Industries has decided to prepare financial plans. Use the financial statements and other information provided below to prepare the financial plans.(1) The firm has estimated that its sales for
Assume that Amaya Chidori makes a ¥40,000 deposit into an investment account in a bank in Sendai, Japan. If this account is currently paying 0.5% per annum, what will the account balance be after 2
Paul Jackson saved £6,200 over last 2 years and decided to invest in an individual savings account (ISA), which is a type of savings account that offers tax exemptions to residents of the United
Lisi Ji just won $12 million in the Hong Kong mega lottery. She is given the option of receiving a lump sum immediately, or she can elect to receive an annual payment of $1 million at the end of each
Yassir Ismail is planning to install a new machine for his metal fabrication business in Dubai. The machine will cost AED240,000 (United Arab Emirates dirham). He estimates that the new machine will
Barnaby PLC is considering starting a new branch of their business in Northern Ireland that requires an initial outlay of £280,000 and is expected to produce cash inflows of £80,000 at the end of
James has €4,000 to invest in a savings account at 5% interest compounded annually.a. Find out the compound value in the account after (1) 2 years, (2) 6 years, and (3) 10 years.b. Use your
Isabella wishes to purchase a Nissan GTR. The car costs £85,000 today and, after completing her graduation, she has secured a well-paying job and is able to save for the car. The price trend
Kelly borrows $30,000, to start a motor repair business in Hong Kong, that she must repay in a lump sum within the next 9 years.The interest rate is 10% annually compounded. There is no prepayment
Answer each of the following questions.a. How much money would you have to invest today to accumulate $6,000 after 6 years if the rate of return on your investment is 12%?b. What is the present value
Aziz Hussain has been offered an investment that will pay him $6,000 three years from today.a. If he earns 8% compounded annually in a treasury bond, what value should he place on this opportunity
John Ross has received his pension statement that promises to pay him a lump sum of £150,000 when he retires exactly 10 years from today. A pension release firm has offered him an immediate cash
Peter put £6,000 in an account earning 4% annually. After 4 years, he made another deposit into the same account. At the end of 6 years, the account balance is £13,000. What was the amount
Jill Smyth, a 22-year-old university graduate, has just landed her first job and has planned to retire at age 62. She has decided to deopsit £5,000 every year in an individual savings account (ISA),
Your bank manager has informed you about a new investment plan that will provide you with $5,000 at the end of each of the next 20 years. If you have an opportunity to earn a guaranteed return of 6%,
John Wick is 50 years old and has saved nothing for retirement. However, he has just inherited £150,000 from his great grandfather and wants to invest it in a retirement plan. He plans to put the
Consider the data in the following table.Determine the present value of each perpetuity. Perpetuity A B D E Annual payment 120,000 60,000 1,500 300,000 3000 Discount rate 8% 12 6 47
Suppose you have been offered an investment opportunity that will pay you $500 at the end of every year, starting one year from now and continuing forever. Assume the relevant discount rate is 6%.a.
For each of the mixed streams of cash flows shown in the following table, calculate the future value at the end of the final year if deposits are made into an account paying annual intertest of 8%.
Boris Miller has contracted to sell a piece of land that he owns, which has permission for a residential development. A property developer is willing to buy the land and has proposed two methods of
Consider the mixed streams of cash flows shown in the following table.a. Find the present value of each stream using a 5% discount rate.b. Compare the calculated present values and discuss them in
Neil Tyson has developed a prototype of an armored fabric that is very light, but is capable of stopping projectiles as efficiently as a traditional bullet-proof jacket. A military supplier is
Using the information in the accompanying table, answer the questions that follow. Assume all transactions take place at the end of the year.a. Using a discount rate of 7%, determine the present
François plans to invest $4,000 in an individual savings account (ISA) at a nominal interest rate of 6%.a. How much will François have in the account after 10 years if interest is compounded (1)
Harry Brolin plans to retire after 38 years and wants to accumulate €180,000 when he retires. Harry plans to make equal, end-of-year deposits into a savings account paying 8% annual interest.a.
You have $30,000, and you are making the decision between consumption and investment. You are considering either using all of the money to buy a new car or investing the whole amount. You have two
Sadiq Ansari wants to support his daughter’s education by paying for her MBA degree from a premier university in Britain. Research indicates that the fees for a 1-year MBA course at any good
Han Xiao just closed a $50,000 business loan that she must repay her brother, who has agreed to lend it at 5% annual interest. Han must repay the loan over the next 5 years, in 5 equal, end-of-year
Jamie Turner bought shares of stock in three different companies on January 1, 2012. He eventually sold his shares on January 1, 2017. The following table shows his sale and purchase price for the
Madeline Jones has $6,000 and wants to invest it. Because she is only 20 years old, she is not worried about the length of the investment’s life. Her primary concern is the return she will earn on
Amit Krishnamurthy invests in a bond that promises him $6,000 each year for the next 20 years. If he pays $75,000 for this investment, what is his annual rate of return?
April Bartrick has just received an inheritance of $1,000,000. She plans to invest the entire sum in an annuity, paying at the end of each year for the next 20 years. Two personal bankers suggest
You have a credit card debt amounting to $50,000. The card charges you a 32% interest rate with monthly compounding. You believe that the interest rate of the existing debt is too high, so you decide
In each of the following cases, determine the number of years that the given ordinary annuity cash flows must continue to provide the desired rate of return given the cost of the annuity. Case ABU C
Mia Salto wishes to determine how long it will take to repay a $14,000 loan given that the lender requires her to make annual end-ofyear installment payments of $2,450.a. If the interest rate on the
The Grameen Bank of Bangladesh is considered to be a pioneer institution in developing and promoting ‘micro finance’. This emerging area in banking provides opportunities to the lowest income
At the end of 2019, Uma Corporation is considering a major long-term project in an effort to remain competitive in its industry. The production and sales departments have determined the potential
Assume that the rate of inflation expected over the coming financial year in India is 6.5%. Explain how a 1-year T-bill could earn a negative real rate of return over the next year. How could it have
Calculate the risk premium for each of the following companies offering long-term bonds, assuming that the yield to maturity (YTM) for comparable Treasuries is 4%. Company A B Nominal interest rate
Jennifer has invested in two schemes. The first scheme has a required return of 12% and will produce a stream of £300 at the end of each year indefinitely. The second scheme has a required return of
Jonathan Harper currently has £1,000 that he can spend today on novelty yarn costing £20 a bundle. Alternatively, he could invest the £1,000 in a Bank of England bond that pays 6% nominal rate of
Jack Trading and Brokerage Ltd. wishes to evaluate interest rate behavior. They have gathered data from five Treasury securities issued by Deutsche Bundesbank, Germany’s central bank. Each security
Economic forecasters predict that the rate of inflation in Singapore will be at 3% over the next few decades. The following table shows the nominal interest paid on Treasury securities having
A 2-year Treasury bond currently offers a 6% rate of return. A 3-year Treasury bond offers a 7% rate of return. Under the expectations theory, what rate of return do investors expect a 2-year
Motorway Development Corporation builds and maintains highways across Europe. They have an outstanding issue of €100-par-value bonds with an 8% coupon rate. The issue pays interest annually and has
Heather has just bought a bond that will mature in 5 years for £300, with a £320 par value and a coupon rate of 10% paid semiannually. What should the value of this bond be if the required return
Jane is considering investing in three different stocks or creating three distinct twostock portfolios. Jane considers herself to be a rather conservative investor. She is able to obtain forecasted
Mutually exclusive projects Fitch Industries is in the process of choosing the better of two equal-risk, mutually exclusive capital expenditure projects, M and N. The relevant cash flows for each
Calculate the implied price of each warrant for each of the bonds in the following table. Bond ABCD Price of bond with warrants attached $1,000 1,200 500 980 Par
An investment institution issued four different $1,000-par-value convertible bonds. Calculate the conversion (or stock) value for each of the bonds in the following table. Convertible bond
The Hot Bagel Shop wishes to evaluate two plans for financing an oven: leasing and borrowing to purchase. The firm is in the 40% tax bracket. Lease The shop can lease the oven under a 5-year lease
Five firms have leases with the lease payments and terms shown in the table below. Assume that no purchase option exists. Each firm is in the 40% tax bracket, and all payments are made at the end of
Mountain Mining Company has an outstanding issue of convertible bonds with a $1,000 par value. These bonds are convertible into 40 shares of common stock. They have an 11% annual coupon interest rate
Incredible Solutions issued a $1,120-par-value bond that is convertible at $28 per share. The current stock price is $30 per share. Calculate the conversion ratio and conversion value. Should
Just Water Company needs to purchase water purification equipment at a cost of $250,000. A loan is obtained from the local bank for the full amount at an interest rate of 12.5%. The terms of the loan
Andy McLaren is considering buying a new VW Jetta Sedan with a manufacturer’s suggested retail price (MSRP) of $28,000 and a residual value of $18,000 at the end of 3 years. The car dealership
A firm leases five different pieces of equipment from various suppliers. Details of the leases are provided in the following table. Calculate the capitalized value of each lease, taking into account
The Bonds Specialists issued two types of bonds, one premium bond and one discount bond. The company’s common stock price is $25 per share.a. Calculate the conversion price of Bond A, which is a
A bondholder holds three different bonds. How many shares of common stock will the bondholder obtain if he converts each of the following bonds?a. A $1,000-par-value bond that is convertible into
Evaluation of the implied price of an attached warrant Petra Jones is considering investing in a $1,000-par-value bond with 20 years until maturity and a 12% annual coupon interest rate. The bond has
Use the information for each of the five 100-share options in the following table to calculate the amount of profit or loss an investor would have incurred. Ignore brokerage fees.
Paper Mill Company reported large operating losses over the last few years. Pen and Paper Specialists identified Paper Mill Company as an excellent acquisition prospect. After some analysis, Pen and
Merger decision At the end of 2012, Lake Industries had 80,000 shares of common stock outstanding and had earnings available for common of $160,000. Butler Company, at the end of 2012, had 10,000
Water Worx is evaluating a proposal to acquire Plumbing Enterprises for $3 million. Water Worx knows that some of Plumbing Enterprises’ redundant assets can be sold for $940,000 immediately after
Turner and Fitting Company is considering the acquisition of Steel and Pipes Enterprises for $2.1 million. Steel and Pipes Enterprises has a tax loss carryforward of $1.4 million. Some of the assets
Picture Perfect Solutions reported a tax loss carryforward of $995,000. Two companies are interested in acquiring Picture Perfect Solutions for the amount of the tax loss. Photo Emporium has a cost
Plumbing Co. is evaluating a proposal to acquire Bathroom Goodies for $75,000 in cash. Bathroom Goodies has total liabilities of $90,000 and has some particular assets that Plumbing Co. needs.
Joe Smallwood is planning his trip to Kruger National Park in South Africa and in doing so, is preparing his holiday budget. The cost of the tour will be €595 and includes transport to and from
Air New Zealand’s foreign currency hedging program contributed to the firm’s overall profits. Air New Zealand pays large operating expenses in U.S. dollars, mostly to pay operating costs on
Sheldon Enterprises is considering a merger with Weldon Enterprises by swapping 1.5 shares of its stock for each share of Weldon Enterprises stock. Sheldon Enterprises expects that its stock will
Use the information in the following table to determine (1) the ratio of exchange of shares and (2) the ratio of exchange in market price for each of the cases shown. What is the meaning of each
Shelby Computing is in negotiations with Ponting Consulting. Currently, Shelby Computing is considering swapping 0.6 shares of Shelby Computing for each share of Ponting Consulting. Shelby Computing
After conducting a viability study, Spring Clean Chemicals is considering the acquisition of Daily Chemicals for $250,000 cash. Spring Clean Chemicals estimates that the acquisition would increase
Sunshine Pools is considering the acquisition of Cool Pools. Information about both companies is presented in the following table. Sunshine Pools has sufficient authorized but unissued shares to
The Swedish krona (SEK) is currently trading at 6.39 SEK to one U.S. dollar. During the year, U.S. inflation is expected to average 2.4% while Sweden’s inflation is expected to average 0.6%.
Sam and Suzy Sizeman need to prepare a cash budget for the last quarter of 2016 to make sure they can cover their expenditures during the period. Sam and Suzy have been preparing budgets for the past
The actual sales and purchases for Xenocore, Inc., for September and October 2015, along with its forecast sales and purchases for the period November 2015 through April 2016, follow. The firm makes
Markham Enterprises needs to plan its cash requirements and short-term investment opportunities for the months of June, July, and August. The following data are available. The beginning balance is
Bells Manufacturing estimates that the sales for the 2016 financial year will be $2.25 million. No new borrowing was obtained and, therefore, the interest expense remained unchanged at $24,500. Bells
You are analyzing the stock of First Health Company, a healthcare company with a current stock price of $78. The company just paid an annual dividend of $5, and it is expected that the dividend will
The Best Equipment Company just released a successful new and innovative product. It is expected the product will bring huge profits to the company, and its dividend will grow at 7% every year from
Bill Miller’s investment performance was alternating between the very top and the very bottom of his profession. What aspect of his investment strategy would lead you to expect that his performance
A financial analyst for Smart Securities Limited, Paul Chan, wishes to estimate the rate of return for two similar-risk investments, A and B. Paul’s research indicates that the immediate past

Showing 400 - 500 of 947