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corporate finance

Questions and Answers of Corporate Finance

Magical Experiences Vacation Company has the following data available:Required:Prepare statements of retained earnings for 2011 and 2012.
The table below presents the statements of retained earnings for Dillsboro Corporation for three successive years. Certain numbers are missing.Required:Use your understanding of the relationship
McDonald Marina provides docking and cleaning services for pleasure boats at its marina in southern Florida. The following account balances are available:Required:1. Prepare a single-step income
Data from the financial statements of four different companies are presented in separate columns in the table below. Each column has one or more data items missing.Required:Use your understanding of
Leno Corporation reported the following amounts for assets and liabilities at the beginning and end of a recent year.Required: Calculate Leno€™s net income or net loss for the year in each
James Hadden is a freshman at Major State University. His earnings from a summer job, combined with a small scholarship and a fixed amount per term from his parents, are his only sources of income.
The accounting profession is organized into three major groups: (a) Accountants who work in non business entities, (b) Accountants who work in business entities, (c) Accountants in public
A successful career requires us to take advantage of opportunities that are difficult to foresee. Success is also aided by having a plan or strategy by which to choose among career alternatives as
Agency Rent-A-Car Inc. rents cars to customers whose vehicles are unavailable due to accident, theft, or repair (€˜€˜Wheels while your car heals€™€™). The
Reproduced below are portions of the president€™s letter to shareholders and selected income statement and balance sheet data for the Wright Brothers Aviation Company. Wright Brothers is a
Professional ethics guide public accountants in their work with financial statements. Required: Why is ethical behavior by public accountants important to society? Be sure to describe the incentives
Lola, the CEO of JB Inc., and Frank, the accountant for JB Inc., were recently having a meeting to discuss the upcoming release of the company’s financial statements. Following is an excerpt of
Obtain Apple Inc.’s 2009 annual report either through the ‘‘Investor Relations’’ portion of their website (do a web search for Apple investor relations) or go to www.sec.gov and click
Refer to the financial statements of Abercrombie & Fitch and Aeropostale that are supplied with this text.Required:Answer the following questions:1. a. What is the fiscal year-end of Abercrombie
Cam Mosley and Anna Newton met during their freshman year of college as they were standing in line to buy tickets to a concert. Over the next several hours, the two shared various aspects of their
What are the three basic legal forms of organizing a business? What are the advantages and disadvantages of each? What business form do most start-up companies take? Why?
Critics have charged that compensation to top management in the United States is simply too high and should be cut back. For example, focusing on large corporations, Ray Iraniof Occidental Petroleum
Can our goal of maximizing the value of the stock conflict with other goals, such as avoiding unethical or illegal behavior? In particular, do you think subjects like customer and employee safety,
Why is it that the revenue and cost figures shown on a standard income statement may not be representative of the actual cash inflows and outflows that occurred during the period?
Brees, Inc., has current assets of $7,500, net fixed assets of $28,900, current liabilities of $5,900, and long-term debt of $18,700. What is the value of the shareholders' equity account for this
Given the information for Maria's Tennis Shop, Inc., in the previous two problems, suppose you also know that the firm's net capital spending for 2010 was $810,000, and that the firm reduced its net
Ritter Corporation's accountants prepared the following financial statements for year-end 2010.a. Explain the change in cash during the year 2010.b. Determine the change in net working capital in
Freeman, Inc., reported the following financial statements for the last two years. Construct the cash flow identity for the company. Explain what each number means.
The Stancil Corporation provided the following current information: Proceeds from long-term borrowing ............ $12,000 Proceeds from the sale of common stock .......... 3,000 Purchases of
During the year, the Senbet Discount Tire Company had gross sales of $870,000. The firm’s cost of goods sold and selling expenses were $280,000 and $155,000, respectively. Senbet also had notes
Schwert Corp. shows the following information on its 2010 income statement: sales = $193,000; costs = $96,500; other expenses = $5,100; depreciation expense = $13,800; interest expense = $10,400;
Given the following information for O’Hara Marine Co., calculate the depreciation expense: sales = $43,000; costs = $26,000; addition to retained earnings = $5,600; dividends paid = $1,300;
Prepare a 2010 balance sheet for Jarrow Corp. based on the following information: cash = $175,000; patents and copyrights = $730,000; accounts payable = $435,000; accounts receivable = $240,000;
Huang, Inc., is obligated to pay its creditors $12,500 very soon. a. What is the market value of the shareholders’ equity if assets have a market value of $15,100? b. What if assets equal $10,200?
Tyler, Inc., has sales of $753,000, costs of $308,000, depreciation expense of $46,000, interest expense of $21,500, and a tax rate of 35 percent. What is the net income for the firm? Suppose the
During 2010, Raines Umbrella Corp. had sales of $835,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $620,000, $120,000, and $85,000, respectively. In
In the previous problem, suppose Raines Umbrella Corp. paid out $45,000 in cash dividends. Is this possible? If spending on net fixed assets and net working capital was zero, and if no new stock was
Cusic Industries had the following operating results for 2010; sales _ $25,700; cost of goods sold _ $18,400; depreciation expense _ $3,450; interest expense _ $790; dividends paid _ $1,100. At the
Consider the following abbreviated financial statements for Weston Enterprises:a. What was owners€™ equity for 2009 and 2010? b. What was the change in net working capital for 2010? c. In
Draw up an income statement and balance sheet for this company for 2009 and 2010.
For 2010, calculate the cash flow from assets, cash flow to creditors, and cash flow to stockholders.
You are researching Time Manufacturing and have found the following accounting statement of cash flows for the most recent year. You also know that the company paid $231 million in current taxes and
On the balance sheet, the net fixed assets (NFA) account is equal to the gross fixed assets (FA) account, which records the acquisition cost of fixed assets, minus the accumulated depreciation (AD)
Klingon Cruisers, Inc., purchased new cloaking machinery three years ago for $7 million. The machinery can be sold to the Romulans today for $5.2 million. Klingon's current balance sheet shows net
The Conard Co. had $285,000 in taxable income. Using the rates from Table 2.3 in the chapter, calculate the company's income taxes. What is the average tax rate? What is the marginal tax rate?
Williams, Inc., has sales of $25,300, costs of $9,100, depreciation expense of $1,700, and interest expense of $950. If the tax rate is 40 percent, what is the operating cash flow, or OCF?
Martin Driving School's 2009 balance sheet showed net fixed assets of $4.7 million, and the 2010 balance sheet showed net fixed assets of $5.3 million. The company's 2010 income statement showed a
The following table presents the long-term liabilities and stockholders' equity of Information Control Corp. one year ago: Long-term debt ................. $35,000,000 Preferred stock
The 2009 balance sheet of Maria's Tennis Shop, Inc., showed long-term debt of $2.4 million, and the 2010 balance sheet showed long-term debt of $2.5 million. The 2010 income statement showed an
The 2009 balance sheet of Maria's Tennis Shop, Inc., showed $730,000 in the common stock account and $6.2 million in the additional paid-in surplus account. The 2010 balance sheet showed $775,000
If Alexander, Inc., has an equity multiplier of 2.50, total asset turnover of 1.15, and a profit margin of 6.4 percent, what is its ROE?
The Optical Scam Company has forecast an 18 percent sales growth rate for next year. The current financial statements are shown below. Current assets, fixed assets, and short-term debt are
The Burk Company has a ratio of long-term debt to long-term debt plus equity of 0.40 and a current ratio of 1.25. Current liabilities are $1,075, sales are $6,180, profit margin is 8.5 percent, and
FVA Inc.’s net income for the most recent year was $17,590. The tax rate was 34 percent. The firm paid $4,150 in total interest expense and deducted $5,820 in depreciation expense. What was FVA’s
Sexton Corp. has current liabilities of $325,000, a quick ratio of 0.85, inventory turnover of 9.5, and a current ratio of 1.25. What is the cost of goods sold for the company?
In addition to common-size financial statements, common-base year financial statements are often used. Common-base year financial statements are constructed by dividing the current year account
Pumpkin Mfg., Inc., is currently operating at only 92 percent of fixed asset capacity. Current sales are $725,000. How fast can sales grow before any new fixed assets are needed?
Draiman Company has a debt-equity ratio of 0.75. Return on assets is 10.4 percent, and total equity is $900,000. What is the equity multiplier? Return on equity? Net income?
For the company in the previous problem, suppose fixed assets are $645,000 and sales are projected to grow to $850,000. How much in new fixed assets is required to support this growth in sales?
The most recent financial statements for Retro Machine, Inc., follow. Sales for 2010 are projected to grow by 20 percent. Interest expense will remain constant; the tax rate and the dividend payout
In the previous problem, suppose the firm was operating at only 80 percent capacity in 2009. What is EFN now?
In Problem 21, suppose the firm wishes to keep its debt-equity ratio constant. What is EFN now?
Redo Problem 21 using sales growth rates of 15 and 25 percent in addition to 20 percent. Illustrate graphically the relationship between EFN and the growth rate, and use this graph to determine the
Redo Problem 23 using sales growth rates of 30 and 35 percent in addition to 20 percent. Illustrate graphically the relationship between EFN and the growth rate, and use this graph to determine the
Dahlia, Inc., wishes to maintain a growth rate of 9 percent per year and a debt-equity ratio of 0.55. Profit margin is 6.2 percent, and the ratio of total assets to sales is constant at 1.90. Is this
Define the following: S = Previous year’s sales A = Total assets D = Total debt E = Total equity g = Projected growth in sales PM = Profit margin b = Retention (plowback) ratio Show that EFN can be
Y3K, Inc., has sales of $4,350, total assets of $3,218, and a debtequity ratio of 0.65. If its return on equity is 15 percent, what is its net income?
Use the sustainable growth rate equations from the previous problem to answer the following questions. No Return, Inc., had total assets of $380,000 and equity of $230,000 at the beginning of the
The most recent financial statements for Cornell, Inc., are shown here:Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1,623.60 was paid, and the company wishes
The most recent financial statements for Weyland Co. are shown here:Assets and costs are proportional to sales. The company maintains a constant 30 percent dividend payout ratio and a constant
If the SGS Corp. has a 13 percent ROE and a 25 percent payout ratio, what is its sustainable growth rate?
Assuming the following ratios are constant, what is the sustainable growth rate? Total asset turnover = 2.50 Profit margin = 6.5% Equity multiplier = 1.10 Payout ratio = 60%
The most recent financial statements for Incredible Edibles, Inc., are shown here (assuming no income taxes):Assets and costs are proportional to sales. Debt and equity are not. No dividends are
Cheryl Colby, CFO of Charming Florist Ltd., has created the firm’s pro forma balance sheet for the next fiscal year. Sales are projected to grow by 15 percent to $317.4 million. Current assets,
1. Why would TMCC be willing to accept such a small amount today ($24,099) in exchange for a promise to repay about four times that amount ($100,000) in the future?2. TMCC has the right to buy back
Compute the future value of $1,800 continuously compounded for a. Five years at a stated annual interest rate of 14 percent. b. Three years at a stated annual interest rate of 6 percent. c. Ten
Conoly Co. has identified an investment project with the following cash flows. If the discount rate is 5 percent, what is the present value of these cash flows? What is the present value at 13
Find the EAR in each of the following cases:
Find the APR, or stated rate, in each of the following cases:
Compute the future value of $2,500 compounded annually for a. 10 years at 6 percent b. 10 years at 8 percent c. 20 years at 6 percent d. Why is the interest earned in part (c) not twice the amount
What is the future value in three years of $1,800 invested in an account with a stated annual interest rate of 10 percent, a. Compounded annually? b. Compounded semiannually? c. Compounded
Suppose an investment offers to quintuple your money in 12 months (don’t believe it). What rate of return per quarter are you being offered?
What is the present value of an annuity of $6,000 per year, with the first cash flow received four years from today and the last one received 18 years from today? Use a discount rate of 8 percent.
For each of the following, compute the present value:
Mike Bayles has just arranged to purchase a $750,000 vacation home in the Bahamas with a 25 percent down payment. The mortgage has a 6.5 percent stated annual interest rate, compounded monthly, and
What is the relationship between the value of an annuity and the level of interest rates? Suppose you just bought a 12-year annuity of $7,000 per year at the current interest rate of 10 percent per
You’re prepared to make monthly payments of $125, beginning at the end of this month, into an account that pays 10 percent interest compounded monthly. How many payments will you have made when
The present value of the following cash flow stream is $5,985 when discounted at 10 percent annually. What is the value of the missing cash flow?
Solve for the unknown interest rate in each of the following:
What is the present value of $2,500 per year, at a discount rate of 8 percent, if the first payment is received 7 years from now and the last payment is received 30 years from now?
Given an interest rate of 8.2 percent per year, what is the value at date t = 7 of a perpetual stream of $2,100 payments that begin at date t = 15?
A local finance company quotes a 17 percent interest rate on one-year loans. So, if you borrow $15,000, the interest for the year will be $2,550. Because you must repay a total of $17,550 in one
A 5-year annuity of ten $10,000 semiannual payments will begin 9 years from now, with the first payment coming 9.5 years from now. If the discount rate is 10 percent compounded monthly, what is the
Suppose you are going to receive $8,000 per year for 10 years. The appropriate interest rate is 9 percent. a. What is the present value of the payments if they are in the form of an ordinary
Solve for the unknown number of years in each of the following:
Prepare an amortization schedule for a three-year loan of $69,000. The interest rate is 9 percent per year, and the loan calls for equal annual payments. How much interest is paid in the third year?
Rework Problem 51 assuming that the loan agreement calls for a principal reduction of $23,000 every year instead of equal annual payments.
You have recently won the super jackpot in the Set for Life lottery. On reading the fine print, you discover that you have the following two options: a. You will receive 31 annual payments of
On September 1, 2008, Susan Chao bought a motorcycle for $30,000. She paid $1,000 down and financed the balance with a five-year loan at a stated annual interest rate of 7.8 percent, compounded
Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with a retirement income of $15,000 per month for 20 years, with the first
An All-Pro defensive lineman is in contract negotiations. The team has offered the following salary structure:All salaries are to be paid in a lump sum. The player has asked you as his agent to
You are serving on a jury. A plaintiff is suing the city for injuries sustained after a freak street sweeper accident. In the trial, doctors testified that it will be five years before the plaintiff
This problem illustrates a deceptive way of quoting interest rates called add-on interest . Imagine that you see an advertisement for Crazy Judy’s Stereo City that reads something like this:
An insurance company is offering a new policy to its customers. Typically, the policy is bought by a parent or grandparent for a child at the child’s birth. The details of the policy are as
You have just won the lottery. You will receive $4,000,000 today, and then receive 40 payments of $1,000,000. These payments will start one year from now and will be paid every six months. A

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