Questions and Answers of Principles Managerial Finance

Bejeweled Enterprises received initial proceeds of $984,000 from issuing 120-day commercial paper. The face value of the commercial paper is $1 million. The commercial paper is rolled over every 120
Clothing Unlimited decided to apply for a $100,000 loan from its local bank. Clothing Unlimited will provide accounts receivable as collateral. The bank’s policy states that accounts normally paid
Nokia convertible bond issue in which each investor could exchange his or her €1,000 par value bond for 383 shares of Nokia common stock. When these bonds were issued, Nokia’s stock was trading
Jamie Wong is considering building an investment portfolio containing two stocks, L and M. Stock L will represent 40% of the dollar value of the portfolio, and stock M will account for the other 60%.
You have been given the expected return data shown in the first table on three assets—F, G, and H—over the period 2016–2019.Using these assets, you have isolated the three investment
Joe Martinez, a U.S. citizen living in Brownsville, Texas, invested in the common stock of Telmex, a Mexican corporation. He purchase 1,000 shares at 20.50 pesos per share. Twelve months later, he
A firm wishes to estimate graphically the betas for two assets, A and B. It has gathered the return data shown in the following table for the market portfolio and for both assets over the last 10
You are analyzing the performance of two stocks. The first, shown in Panel A, is Cyclical Industries Incorporated. Cyclical Industries makes machine tools and other heavy equipment, the demand for
Schembri Investment Company Limited wishes to assess then impact of changes in the market return on an asset that has a beta of 0.8.a. If the market return increased by 42%, what impact would this
Answer the questions below for assets W to Z shown in the table.a. What impact would a 10% decrease in the market return be expected to have on each asset’s return?b. What impact would a 10%
You are considering three stocks—A, B, and C—for possible inclusion in your investment portfolio. Stock A has a beta of 0.80, stock B has a beta of 1.40, and stock C has a beta of -0.30.a. Rank
Joe Moss is attempting to evaluate two possible portfolios, which consist of the same five assets held in different proportions. He is particularly interested in using beta to compare the risks of
For each of the states of the economies shown in the following table, use the capital asset pricing model to find the required return. States AB C D E Risk-free rate, RF 6% 3 10 12 5 Market return,
Beta coefficients and the capital asset pricing model Suppose you are wondering how much risk you must undertake to generate an acceptable return on your investment portfolio. The risk-free return
Use the basic equation for the capital asset pricing model (CAPM) to work each of the following situations.a. Find the required return for an asset with a beta of 2.2 when the risk-free rate and
Alcoa’s weighted average cost of capital was around 12 percent, but its investments were earning returns closer to 5 percent. From 2010 to 2012, Alcoa invested roughly $1 billion in capital
Humble Manufacturing is interested in measuring its overall cost of capital. The firm is in the 40% tax bracket. Current investigation has gathered the following data: Debt The firm can raise debt
Profitable Consulting Investment Limited has been hired to evaluate the cost of a potential preferred stock offering by Life Insurance Group. This 6% preferred stock issue would be sold at its par
Simpson Web intends to acquire a bond issued by Orange Group. He has obtained the following information on the security.a. Calculate the before-tax cost of the Orange Group bond.b. Calculate the
Bill William intends to purchase a new racing car. He has decided to borrow money to pay the $500,000 purchase price of the car. He is in the 40% federal income tax bracket. He can either borrow the
Mavis Taylor Corporation has just issued preferred stock. The stock has a 6% annual dividend and a $100 par value, and was sold at $98.5 per share. Flotation costs were an additional $3 per share.a.
The interest expense on debt provides a tax deduction for the issuer so any calculation of a firm’s net cost of debt should reflect this benefit. Based on the information provided at MFL, compute a
Brigham Jewelery Corporation common stock has a beta, b, of 1.8. The risk-free rate is 5%, and the market return is 16%.a. Determine the risk premium on Brigham common stock.b. Determine the required
Smart Finance Corporation wishes to explore the effect on its cost of capital of the rate at which the company pays taxes. The company wishes to maintain a capital structure of 30% debt, 10%
American Travel Limited has on its books the amounts and specific (after-tax) costs shown in the following table for different sources of capital.a. Calculate the firm’s weighted average cost of
Peter Chan has just acquired three houses by obtaining three mortgage loans. They all mature in 15 years and can be repaid without penalty any time before maturity. The amounts owed and the annual
The following is some additional information regarding the Seafield Resources’ mining opportunity mentioned in the chapter opener.a. The chapter opener reported that the project had an NPV of $66
Provincial Imports, Inc., has assembled past (2015) financial statements (income statement and balance sheet below) and financial projections for use in preparing financial plans for the coming year
At the end of 2015, Uma Corporation is considering undertaking a major long-term project in an effort to remain competitive in its industry. The production and sales departments have determined the
Future values for various compounding frequencies Delia Martin has $10,000 that she can deposit in any of three savings accounts for a 3-year period. Bank A compounds interest on an annual basis,
The chapter opener described an arrangement in which the city of Cincinnati gave up the right to collect parking fees over a 30-year period in exchange for a lump sum of $92 million plus a 30-year
Future values of annuities Ramesh Abdul wishes to choose the better of two equally costly cash flow streams: annuity X and annuity Y. X is an annuity due with a cash inflow of $9,000 for each of 6
Present values of single amounts and streams You have a choice of accepting either of two 5-year cash flow streams or single amounts. One cash flow stream is an ordinary annuity, and the other is a
Judi Janson wishes to accumulate $8,000 by the end of 5 years by making equal, annual, end-of-year deposits over the next 5 years. If Judi can earn 7% on her investments, how much must she deposit at
First Choice Bank wants to earn an effective interest rate of 18% per year. In order to suit different potential borrowers’ needs, the bank offers two options. The first calculates interest on a
Peter just got his driver’s license, and he wants to buy a new sports car for $70,000. He has $3,000 to invest as a lump sum today. Peter is a conservative investor and he only invests in safe
Suppose you want to save money to pay for a down payment on an apartment in 5 years’ time. One year from now, you will invest your $30,000 yearend bonus for the down payment. If you can invest at
Since tax time comes around every year you smartly decide to make equal contributions to your IRA at the end of every year. Based on the information provided at MFL, calculate the future value of
You have just graduated from college, begun your new career, and now it is time to buy your first home. Based on the information provided at MFL (www.myfinancelab.com), determine how much you can
In exchange for a $20,000 payment today, a well-known company will allow you to choose one of the alternatives shown in the following table. Your opportunity cost is 11%.a. Find the value today of
As a savvy finance major you realize that you can quickly estimate your retirement age by knowing how much you need to retire, how much you can contribute each month to your retirement account, and
CSM Corporation has a bond issue outstanding at the end of 2015. The bond has 15 years remaining to maturity and carries a coupon interest rate of 6%. Interest on the bond is compounded on a
In the chapter opener, you learned that the U.S. government had more than $16 trillion in debt outstanding in the form of Treasury bills, notes, and bonds in 2013. From time to time, the Treasury
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
Suppose that the real rate of return on T-bills is 5% and the inflation rate is estimated to be 2.4%. What is the nominal rate of return on the T-bills?
Nick is a product manager in an investment banking firm. His supervisor asked him to price an investment product, so Nick conducted some research and the market information he obtained is as follows:
A firm wishing to evaluate interest rate behavior has gathered data on the nominal rate of interest and on inflationary expectations for five U.S. Treasury securities, each having a different
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’ current
Consider the following information:a. Suppose the rate of return on 3-month Treasury bills is 4%, and the 3-month expected inflation rate is 2%. What is the real return?b. Based on your result in
Your company needs to raise $50 million, and you want to issue 10-year annual coupon bonds to raise this capital. Suppose the market requires the return of your company’s bonds to be 6%, and you
An annual coupon bond has a $1,000 face value, coupon rate of 5%, will mature in 10 years, and currently sells for $810.34.a. What is the yield to maturity of the bond?b. What is the current yield of
Peter, an intern at Elite Investments, is asked by his supervisor to perform simple analysis of bonds in the bond market. He wants to calculate the theoretical values of the following six bonds.
Bond X pays an 8% annual coupon and Bond Y pays a 4% annual coupon. Both bonds have 10 years to maturity. The yield to maturity for both bonds is now 8%.a. If the interest rate suddenly rises by 2%,
Three years ago, ABC Company issued 10-year bonds that pay 5% semiannually.a. If the bond currently sells for $1,045, what is the yield to maturity (YTM) on this bond?b. If you are expecting that the
Spreadsheet models can be used to determine the value of a bond based on its provisions and the required rate of return. Based on the information provided at MFL, find the value of an annual coupon
Some bonds make interest payments more than once per year. Based on the information provided at MFL, develop a spreadsheet capable of comparing bond values for differing payment frequencies.
As a financial manager it is often helpful to know the yield to maturity of outstanding bonds. Based on the information provided at MFL, use a spreadsheet to compute the yield to maturity for a bond.
You are considering buying a bond with a 10-year maturity. The bond’s coupon rate is 8%, and the interest is paid semiannually. If you want to earn an effective interest rate of 8.16%, how much
Three years ago, you purchased a bond with a coupon rate of 8% and 9 years left until maturity. The bond pays a coupon semiannually. Today, the market requires a return of 6% for a similar investment
Tesla Motors shares were initially offered to investors at $17. Three years later, the price was $90 per share. What was the compound annual return that Tesla investors owned over this period? Given
Perry Motors’ common stock just paid its 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
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%.
Anson Construction wants to raise $5 million for a new construction project. The company is now evaluating two issue alternatives: (1) a new issue of preferred stock with face value of $100 that pays
You are a financial analyst for Elite Investment Company, and you are looking for undervalued securities. After searching the market, you identify Stock A and Stock B as potential purchases. Stock A
Negative growth Ray Steel Company is a mature manufacturing company. The company just paid a $5 dividend and managementwants to cut future dividends, reducing them by 2% each year indefinitely. If
Nick is a security analyst in an investment banking firm. His supervisor asked him to evaluate a preferred stock. The par value of the preferred stock is $100 and it pays an annual dividend of $5.30
In 2013, Stock A just paid an annual dividend of $2 per share. The dividend is expected to grow 4%, 3%, and 2% in 2014, 2015, and 2016, respectively. After that, it is expected that the dividend will
Sweet Candy will pay a dividend of $0.72 next year. The CEO of the company declared that the company will maintaina constant growth rate of 7% per year every year from now on.a. How much will you pay
In the chapter opener, you learned that Facebook sold shares to investors at $38 each in its IPO. One year later, its stock price was hovering around $26. What was the percentage drop in Facebook
Emphasis on Cash Flows Worldwide Rugs is a rug importer located in the United States that resells its import products to local retailers. Last year, Worldwide Rugs imported $2.5 million worth of rugs
Allie and Austin have operated a small florist business from their garage at home as an informal business for the last three years. After some deliberation, they have decided to make their business
Liability comparisons John Bailey invested $50,000 in The Entertainment Company seven years ago. He is concerned about the future of the firm as the profits have plummeted over the last four years.
Cash flows Sheldon Smith spends many hours monitoring his personal cash flows every month. Sheldon earns 5% on his short-term investments while paying prime plus 2% (prime is 9%) on the mortgage. The
Assume you own stock in a company, and you are in the process of selling the stock to another investor. Since the transaction will occur between the buyer and the seller, the company will receive no
During the 2013 financial year, Stacey Stationeries reported taxable earnings of $78,000. Use Table 2.1 to answer the following questions:a. How much tax should Stacey Stationeries have paid for the
In the chapter opener, you read about the steep decline in home prices in Phoenix. Starting in August 2011, home prices there began to rebound. Consider a buyer who purchased a home in Phoenix that
Brand New Corporation received confirmation that all of its New York Stock Exchange (NYSE) listing requirements were in order, and that it may proceed to issue its stock. The company plans to raise
During the 2013 financial year, World Wide Contractors Corporation reported a gross profit of $520,000 and operating expenses of $235,000. The corporation received income from interest on bonds
Porter Corporation forecast that it would generate earnings before interest and tax of $250,000 for the current financial year. Assume a flat tax rate of 35% and all after-tax earnings are paid to
Woodpecker Manufacturing replaces its equipment and machinery on a regular basis. A number of pieces of equipment and machinery will be sold during the next month. Assume a 40% tax rate, and complete
Hamberg Manufacturing identified two vehicles from the vehicle pool that can be sold. The purchase prices were $2,500 and $3,000 for Vehicle 1 and Vehicle 2, respectively, and the expected selling
The income statement and balance sheet are the primary reports that a firm constructs for use by management and for distribution to stockholders, regulatory bodies, and the general public. They are
Stan Maxwell, a producer for the well-known Rocque Nation Corporation, developed a revolutionary method for selling the company’s music to the public. He knows this development will add value to
Without referring to the text, indicate for each of the following ratios the formula for calculating it and the kinds of problems, if any, the firm may have if that ratio is too high relative to the
Balance sheet completion using ratios Complete the 2015 balance sheet for O’Keefe Industries using the information that follows it.The following financial data for 2015 are also available:1. Sales
Ocean Terminal Company Limited started its business in 2014 with retained earnings of $68,450,000. It paid two semiannual dividends of $0.23 per share to 3,250,000 preferred stockholders during the
David Chan operates Speedy Delivery Service Company, a fleet of delivery trucks in a large metropolitan area, and has just completed his first full year in business. During the year, the company
Bluestone Metals, Inc., is a metal fabrication firm that manufactures prefabricated metal parts for customers in a variety of industries. The firm’s motto is “If you need it, we can make it.”
Zerbel Company Limited ended the year with a net profit before taxes of $361,000 in 2015. The company is subject to a 40% tax rate, and committed to pay $52,000 in preferred stock dividends before
Adam and Arin Adams have collected their personal asset and liability information and have asked you to put together a balance sheet as of December 31, 2015. The following information is received
Use the appropriate items from the following list to prepare in good form Mellark’s Baked Goods balance sheet at December 31, 2015. Item Accounts payable Accounts receivable Accruals Accumulated
Given the following financial statements historical ratios, and industry averages, calculate Sterling Company’s financial ratios for the most recent year. (Assume a 365-day year.)Analyze its
Hayes Enterprises began 2015 with a retained earnings balance of $1,151,000. During 2015, the firm earned $528,000 after taxes. From this amount, preferred stockholders were paid $98,000 in
Changes in stockholders’ equity Listed are the equity sections of balance sheets for years 2014 and 2015 as reported by Golden Mine, Inc. The overall value of stockholders’ equity has risen from
Bauman Company’s total current assets, total current liabilities, and inventory for each of the past 4 years follow:a. Calculate the firm’s current and quick ratios for each year. Compare the
Joyce Cheung has compiled some of her personal financial data to determine her liquidity position. The data are as follows.a. Calculate Joyce’s liquidity ratio.b. Several of Joyce’s friends have
Efficient Production Incorporation has annual sales of $5.8 million and a gross profit margin of 30%. Its end-of-quarter inventories area. Find the average quarterly inventory, and use it to
Speedy Manufacturing Company’s end-of-year accounts receivable balance consists of amounts originating in the months indicated below. The company had annual sales of $3.2 million. The company
Springfield Bank is evaluating Creek Enterprises, which has requested a $4,000,000 loan, to assess the firm’s financial leverage and financial risk. On the basis of the debt ratios for Creek, along
A common-size income statement for Creek Enterprises’ 2014 operations follows. Using the firm’s 2015 income statement presented in Problem 3–18 develop the 2015 common-size income statement and

Showing 600 - 700 of 947