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Corporate Finance
Bowyer Driving School's 2014 balance sheet showed net fixed assets of $2.7 million, and the 2015 balance sheet showed net fixed assets of $3.5 million. The company's 2015 income statement showed a
Sunset Boards is a small company that manufactures and sells surfboards in Malibu. Tad Marks, the founder of the company, is in charge of the design and sale of the surfboards, but his background is
SDJ, Inc., has net working capital of $1,920, current liabilities of $4,380, and inventory of $3,750. What is the current ratio? What is the quick ratio?
Hare, Inc., had a cost of goods sold of $57,382. At the end of the year, the accounts payable balance was $10,432. How long on average did it take the company to pay off its suppliers during the
The market value of the equity of Thompson, Inc., is $610,000. The balance sheet shows $39,000 in cash and $204,000 in debt, while the income statement has EBIT of $96,000 and a total of $143,000 in
SME Company has a debt-equity ratio of .65. Return on assets is 8.2 percent, and total equity is $515,000. What is the equity multiplier? Return on equity? Net income?Just Dew It Corporation reports
Prepare the 2014 and 2015 common-size balance sheets for Just Dew It.Just Dew It Corporation reports the following balance sheet information for 2014 and 2015. Use this information to work Problems
Prepare the 2015 common- base year balance sheet for Just Dew It.Just Dew It Corporation reports the following balance sheet information for 2014 and 2015. Use this information to work Problems 13
Prepare the 2015 combined common-size, common-base year balance sheet for Just Dew It.Just Dew It Corporation reports the following balance sheet information for 2014 and 2015. Use this information
Smolira Golf Corp. has 25,000 shares of common stock outstanding, and the market price for a share of stock at the end of 2015 was $58. What is the price-earnings ratio? What are the dividends per
A company has net income of $ 186,000, a profit margin of 7.9 percent, and an accounts receivable balance of $123,840. Assuming 70 percent of sales are on credit, what is the company's days' sales
Shelton, Inc., has sales of $17.5 million, total assets of $13.1 million, and total debt of $5.7 million. If the profit margin is 6 percent, what is net income? What is ROA? What is ROE?
The Caughlin Company has a long-term debt ratio of .45 and a current ratio of 1.25. Current liabilities are $987, sales are $6,860, profit margin is 8.6 percent, and ROE is 17.5 percent. What is the
In response to complaints about high prices, a grocery chain runs the following advertising campaign: "If you pay your child $1.50 to go buy $50 worth of groceries, then your child makes twice as
Ugh Inc.'s net income for the most recent year was $17,382. The tax rate was 34 percent. The firm paid $3,953 in total interest expense and deducted $4,283 in depreciation expense. What was the cash
W & B Corp. has current liabilities of $387,000, a quick ratio of .85, inventory turnover of 8.4, and a current ratio of 1.35. What is the cost of goods sold for the company?
Prince Albert Canning PLC had a net loss of £27,835 on sales of £204,350. What was the company's profit margin? Does the fact that these figures are quoted in a foreign currency make any
Prepare the 2015 statement of cash flows for Smolira Golf Corp.Some recent financial statements for Smolira Golf Corp. follow.
Smolira Golf Corp. has 25,000 shares of common stock outstanding, and the market price for a share of stock at the end of 2015 was $58. What is the price-earnings ratio? What are the dividends per
Aguilera Corp. has a current accounts receivable balance of $438,720. Credit sales for the year just ended were $5,173,820. What is the receivables turnover? The days' sales in receivables? How long
The Green Corporation has ending inventory of $417,381, and cost of goods sold for the year just ended was $4,682,715. What is the inventory turnover? The days' sales in inventory? How long on
Makers Corp. had additions to retained earnings for the year just ended of $395,000. The firm paid out $195,000 in cash dividends, and it has ending total equity of $5.3 million. If the company
Based only on the following information for Dawn Corp., did cash go up or down? By how much? Classify each event as a source or use of cash.Decrease in inventory
Specialized ratios are sometimes used in specific industries. For example, the so-called book-to-bill ratio is closely watched for semiconductor manufacturers. A ratio of .93 indicates that for every
Y3K, Inc., has sales of $5,783, total assets of $2,604, and a debt-equity ratio of .75. If its return on equity is 11 percent, what is its net income?
Firm A and Firm B have debt-total asset ratios of 55% and 40% and returns on total assets of 8% and 11%, respectively. Which firm has a greater return on equity?
Levine, Inc., has a total debt ratio of .53. What is its debt-equity ratio? What is its equity multiplier?
If Roten Rooters, Inc., has an equity multiplier of 1.15, total asset turnover of 2.10, and a profit margin of 6.1 percent, what is its ROE?
Zombie Corp. has a profit margin of 5.1 percent, total asset turnover of 1.95, and ROE of 16.15 percent. What is this firm's debt-equity ratio?
Consider the following simplified financial statements for the Yoo Corporation (assuming no income taxes):The company has predicted a sales increase of 15 percent. It has predicted that every item
Based on the following information, calculate the sustainable growth rate for Kaleb's Welding Supply:Profit margin = 7.5%Capital intensity ratio = .65 Debt-equity ratio = .60Net income =
For the company in the previous problem, suppose fixed assets are $520,000 and sales are projected to grow to $790,000.How much in new fixed assets are required to support this growth in sales?
In the previous question, assume the company pays out half of net income in the form of a cash dividend. Costs and assets vary with sales, but debt and equity do not. Prepare the pro forma statements
Based on the following information, calculate the sutainable growth rate for Hendrix Guitars, Inc.:Profit margin = 5.9%Total asset turnover = 1.90Total debt ratio = .35Payout ratio = 30%
You've collected the following information about Draiman, Inc.:Sales = $195,000Net income = $16,200Dividends = $9,400Total debt = $73,000Total equity = $55,000What is the sustainable growth rate for
Gilmore, Inc., had equity of $161,000 at the beginning of the year. At the end of the year, the company had total assets of $305,000. During the year, the company sold no new equity. Net income for
The most recent financial statements for Fleury, Inc., follow. Sales for 2015 are projected to grow by 20 percent. Interest expense will remain constant; the tax rate and the dividend payout rate
In the previous problem, suppose the firm was operating at only 80 percent capacity in 2014. What is EFN now?In Previous Problem
Volbeat, Inc., wishes to maintain a growth rate of 12 percent per year and a debt-equity ratio of .35. Profit margin is 6.1 percent, and the ratio of total assets to sales is constant at 1.80. Is
The most recent financial statements for Homick, Inc., are shown here (assuming no income taxes):Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next
The most recent financial statements for Reply, Inc., are shown here:Assets and costs are proportional to sales. Debt and equity are not. A dividend of $2,400 was paid, and the company wishes to
The most recent financial statements for Cornwall, Inc., are shown here:Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a
The most recent financial statements for TZ Schenkel Co. are shown here:Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 30 percent dividend
The most recent financial statements for Alexander 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 Stone Sour Co. has an ROA of 8 percent and a payout ratio of 30 percent, what is its internal growth rate?
If Gold Corp. has an ROE of 15 percent and a payout ratio of 25 percent, what is its sustainable growth rate?
Imprudential, Inc., has an unfunded pension liability of $475 million that must be paid in 20 years. To assess the value of the firm's stock, financial analysts want to discount this liability back
You have just received notification that you have won the $2 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you're around to
The "Brasher doubloon," which was featured in the plot of the Raymond Chandler novel The High Window, was sold at auction in 2014 for $4,582,500. The coin had a face value of $15 when it was first
Suppose you are still committed to owning a $225,000 Ferrari (see Problem 9). If you believe your mutual fund can achieve a 12 percent annual rate of return and you want to buy the car in 9 years on
You are scheduled to receive $20,000 in two years. When you receive it, you will invest it for six more years at 7.3 percent per year. How much will you have in eight years?
Assume the total cost of a college education will be $320,000 when your child enters college in 18 years. You presently have $67,000 to invest. What annual rate of interest must you earn on your
At 7.3 percent interest, how long does it take to double your money? To quadruple it?
According to the Census Bureau, in January 2013, the average house price in the United States was $306,900. In January 2000, the average price was $200,300. What was the annual increase in selling
You're trying to save to buy a new $225,000 Ferrari. You have $45,000 today that can be invested at your bank. The bank pays 4.8 percent annual interest on its accounts. How long will it be before
Huggins Co. has identified an investment project with the following cash flows. If the discount rate is 10 percent, what is the present value of these cash flows? What is the present value at 18
Fowler Credit Bank is offering 6.7 percent compounded daily on its savings accounts. If you deposit $7,000 today, how much will you have in the account in 5 years? In 10 years? In 20 years?
Investment X offers to pay you $4,700 per year for eight years, whereas Investment Y offers to pay you $6,700 per year for five years. Which of these cash flow streams has the higher present value if
Friendly's Quick Loans, Inc., offers you "three for four or 1 knock on your door." This means you get $3 today and repay $4 when you get your paycheck in one week (or else). What's the effective
Live Forever Life Insurance Co. is selling a perpetuity contract that pays $1,400 monthly. The contract currently sells for $215,000. What is the monthly return on this investment vehicle? What is
Cannonier, Inc., has identified an investment project with the following cash flows. If the discount rate is 8 percent, what is the future value of these cash flows in Year 4? What is the future
You have an investment that will pay you .74 percent per month. How much will you have per dollar invested in one year? In two years?
Your job pays you only once a year for all the work you did over the previous 12 months. Today, December 31, you just received your salary of $50,000 and you plan to spend all of it. However, you
An investment offers $5,500 per year for 15 years, with the first payment occurring one year from now. If the required return is 6 percent, what is the value of the investment? What would the value
You need a 30-year, fixed-rate mortgage to buy a new home for $240,000. Your mortgage bank will lend you the money at an APR of 5.25 percent for this 360-month loan. However, you can afford monthly
The present value of the following cash flow stream is $6,200 when discounted at 9 percent annually. What is the value of the missing cash flow?Year.........................................Cash
Consider a firm with a contract to sell an asset for $157,000 four years from now. The asset costs $91,700 to produce today. Given a relevant discount rate of 13 percent per year, will the firm make
A 15-year annuity pays $ 1,340 per month, and payments are made at the end of each month. If the interest rate is 10 percent compounded monthly for the first seven years, and 6 percent compounded
A local finance company quotes an interest rate of 16.5 percent on one-year loans. So, if you borrow $25,000, the interest for the year will be $4,125. Because you must repay a total of $29,125 in
A five-year annuity of ten $7,100 semiannual payments will begin 9 years from now, with the first payment coming 9.5 years from now. If the discount rate is 8 percent compounded monthly, what is the
Suppose you are going to receive $15,800 per year for five years. The appropriate interest rate is 7.9 percent.a. What is the present value of the payments if they are in the form of an ordinary
Prepare an amortization schedule for a five-year loan of $67,500. The interest rate is 7 percent per year, and the loan calls for equal annual payments. How much interest is paid in the third year?
Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $20,000 per month for 25 years, with the first
After deciding to buy a new car, you can either lease the car or purchase it on a three-year loan. The car you wish to buy costs $32,000. The dealer has a special leasing arrangement where you pay
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
You are buying a house and will borrow $200,000 on a 30-year fixed rate mortgage with monthly payments to finance the purchase. Your loan officer has offered you a mortgage with an APR of 4 percent.
In the previous problem, suppose that you believe that you will only live in the house for eight years before selling the house and buying another house. This means that in eight years, you will pay
Two banks in the area offer 30-year, $230,000 mortgages at 4.8 percent and charge a $3,900 loan application fee. However, the application fee charged by Insecurity Bank and Trust is refundable if the
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: "$1,000
This is a classic retirement problem. A time line will help in solving it. Your friend is celebrating her 35th birthday today and wants to start saving for her anticipated retirement at age 65. She
Your Christmas ski vacation was great, but it unfortunately ran a bit over budget. All is not lost: You just received an offer in the mail to transfer your $12,000 balance from your current credit
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 follows:
You have just arranged for a $1,950,000 mortgage to finance the purchase of a large tract of land. The mortgage has an APR of 5.2 percent, and it calls for monthly payments over the next 30 years.
A financial planning service offers a college savings program. The plan calls for you to make six annual payments of $15,000 each, with the first payment occurring today, your child's 12th birthday.
A check-cashing store is in the business of making personal loans to walk-up customers. The store makes only one-week loans at 7.5 percent interest per week.a. What APR must the store report to its
Tai Credit Corp. wants to earn an effective annual return 72 on its consumer loans of 16.5 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by
What is the future value of $2,400 in 17 years assuming an interest rate of 7.9 percent compounded semiannually?
An investment will pay you $65,000 in 10 years. If the appropriate discount rate is 7 percent compounded daily, what is the present value?
Big Dom's Pawn Shop charges an interest rate of 32 percent per month on loans to its customers. Like all lenders, Big Dom must report an APR to consumers. What rate should the shop report? What is
You want to buy a new sports coupe for $79,500, and the finance office at the dealership has quoted you an APR of 5.8 percent for a 60-month loan to buy the car. What will your monthly payments be?
One of your customers is delinquent on his accounts payable balance. You've mutually agreed to a repayment schedule of $500 per month. You will charge 1.5 percent per month interest on the overdue
You are planning to make monthly deposits of $450 into a retirement account that pays 10 percent interest compounded monthly. If your first deposit will be made one month from now, how large will
In the previous problem, suppose you make $5,400 annual deposits into the same retirement account. How large will your account balance be in 30 years?
First Simple Bank pays 7.5 percent simple interest on its investment accounts. If First Complex Bank pays interest on its accounts compounded annually, what rate should the bank set if it wants to
You've just joined the investment banking firm of Dewey, Cheatum, and Howe. They've offered you two different salary arrangements. You can have $75,000 per year for the next two years, or you can
You have just won the lottery and will receive $1,500,000 in one year. You will receive payments for 30 years, and the payments will increase by 2.5 percent per year. If the appropriate discount rate
You're prepared to make monthly payments of $190, beginning at the end of this month, into an account that pays 7 percent interest compounded monthly. How many payments will you have made when your
You want to borrow $89,000 from your local bank to buy a new sailboat. You can afford to make monthly payments of $1,850, but no more. Assuming monthly compounding, what is the highest rate you can
What is the value today of $3,500 per year, at a discount rate of 9 percent, if the first payment is received 6 years from today and the last payment is received 20 years from today?
You have your choice of two investment accounts. Investment A is a 13-year annuity that features end-of-month $1,100 payments and has an interest rate of 7.5 percent compounded monthly. Investment B
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