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Questions and Answers of Finance

The Sterling Tire Company’s income statement for 2013 is as follows:STERLING TIRE COMPANYIncome StatementFor the Year Ended December 31, 2013Sales (20,000 tires at $60 each)
Company manufactures skates. The company’s income statement for 2013 is as follows:HARDING COMPANYIncome StatementFor the Year Ended December 31, 2013Sales (10,500 skates @ $60 each)
Healthy Foods Inc. sells 50-pound bags of grapes to the military for $10 a bag. The fixed costs of this operation are $80,000, while the variable costs of grapes are $.10 per pound.a. What is the
United Snack Company sells 50-pound bags of peanuts to university dormitories for $20 a bag. The fixed costs of this operation are $176,250, while the variable costs of peanuts are $.15 per pound.a.
International Data Systems information on revenue and costs is only relevant up to a sales volume of 105,000 units. After 105,000 units, the market becomes saturated and the price per unit falls from
U.S. Steal has the following income statement data:a. Compute DOL based on the following formula:b. Confirm that your answer to part a is correct by recomputing DOL using Formula 5€“3.
Lenow’s Drug Stores and Hall’s Pharmaceuticals are competitors in the discount drug chain store business. The separate capital structures for Lenow and Hall are presented next.a. Compute earnings
The capital structure for Cain Supplies is presented next. Compute the stock price for Cain if it sells at 19 times earnings per share and EBIT is $50,000. The tax rate is 20 percent.CainDebt @ 9%
Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $132,000.The separate capital structures for Sterling and Royal are shown
Firms in Japan often employ both high operating and financial leverage because of the use of modern technology and close borrower–lender relationships. Assume the Mitaka Company has a sales volume
Sinclair Manufacturing and Boswell Brothers Inc. are both involved in the production of brick for the homebuilding industry. Their financial information is as follows:a. If you combine
DeSoto Tools Inc. is planning to expand production. The expansion will cost $300,000, which can be financed either by bonds at an interest rate of 14 percent or by selling 10,000 shares of common
Dickinson Company has $12 million in assets. Currently half of these assets are financed with long-term debt at 10 percent and half with common stock having a par value of $8. Ms. Smith,
Edsel Research Labs has $27 million in assets. Currently, half of these assets are financed with long-term debt at 5 percent and half with common stock having a par value of $10. Ms. Edsel, the
The Lopez-Portillo Company has $10.6 million in assets, 80 percent financed by debt, and 20 percent financed by common stock. The interest rate on the debt is 9 percent and the par value of the
Mr. Gold is in the widget business. He currently sells 1.5 million widgets a year at $6 each. His variable cost to produce the widgets is $4 per unit, and he has $1,550,000 in fixed costs. His
Delsing Canning Company is considering an expansion of its facilities. Its current income statement is as follows:Sales ..................$5,500,000Less: Variable expense (50% of sales) .....
a. Analyze Ryan Boot Company, using ratio analysis. Compute the ratios on the prior page for Ryan and compare them to the industry data that is given. Discuss the weak points, strong points, and what
What issue does agency theory examine? Why is it important in a public corporation rather than in a private corporation?
Why are institutional investors important in today's business world?
Why is profit maximization, by itself, an inappropriate goal? What is meant by the goal of maximization of shareholder wealth?
When does insider trading occur? What government agency is responsible for protecting against the unethical practice of insider trading?
What changes can take place under restructuring? In recent times, what group of investors has often forced restructuring to take place?
What form of partnership allows some of the investors to limit their liability? Explain briefly.
What is the difference between a primary and a secondary market? Discuss.
What are the basic benefits and purposes of developing pro forma statements and a cash budget?
Explain how the collections and purchases schedules are related to the borrowing needs of the corporation.
With inflation, what are the implications of using LIFO and FIFO inventory methods? How do they affect the cost of goods sold?
Rapid corporate growth in sales and profits can cause financing problems. Elaborate on this statement. Discuss.
What conditions would help make a percent-of-sales forecast almost as accurate as pro forma financial statements and cash budgets?
Discuss the advantage and disadvantage of level production schedules in firms with cyclical sales.
Eli Lilly is very excited because sales for his nursery and Plant Company are expected to double from $600,000 to $1,200,000 next year. Eli notes that net assets (Assets — Liabilities) will remain
Philip Morris expects the sales for his clothing company to be $550,000 next year. Philip notes that net assets (Assets – Liabilities) will remain unchanged. His clothing firm will enjoy a 12
Galehouse Gas Stations Inc. expects sales to increase from $1,550,000 to $1,750,000 next year. Mr. Galehouse believes that net assets (Assets ( Liabilities) will represent 50 percent of sales. His
The Alliance Corp. expects to sell the following number of units of copper cables at the prices indicated, under three different scenarios in the economy. The probability of each outcome is
Bronco Truck Parts expects to sell the following number of units at the prices indicated under three different scenarios in the economy. The probability of each outcome is indicated. What is the
Cyber Security Systems had sales of 3,500 units at $75 per unit last year. The marketing manager projects a 30 percent increase in unit volume sales this year with a 40 percent price increase.
Dodge Ball Bearings had sales of 15,000 units at $45 per unit last year. The marketing manager projects a 30 percent increase in unit volume sales this year with a 20 percent price decrease (due to a
Sales for Ross Pro’s Sports Equipment are expected to be 4,800 units for the coming month. The company likes to maintain 10 percent of unit sales for each month in ending inventory. Beginning
Vitale Hair Spray had sales of 13,000 units in March. A 70 percent increase is expected in April. The company will maintain 30 percent of expected unit sales for April in ending inventory. Beginning
Delsing Plumbing Company has beginning inventory of 16,500 units, will sell 55,000 units for the month, and desires to reduce ending inventory to 25 percent of beginning inventory. How many units
On December 31 of last year, Wolfson Corporation had an inventory of 450 units of its product, which cost $22 per unit to produce. During January, the company produced 850 units at a cost of $25 per
At the end of January, Higgins Data Systems had an inventory of 650 units, which cost $16 per unit to produce. During February, the company produced 950 units at a cost of $19 per unit. If the firm
At the end of January, Mineral Labs had an inventory of 775 units, which cost $12 per unit to produce. During February, the company produced 900 units at a cost of $16 per unit. If the firm sold
Convex Mechanical Supplies produces a product with the following costs as of July 1, 2012:Material ............................... $ 6Labor .................................. 4Overhead
The Bradley Corporation produces a product with the following costs as of July 1, 2014:Material .........$4 per unitLabor .......... 4 per unitOverhead ....... 2 per unitBeginning inventory at these
Sprint Shoes Inc. had a beginning inventory of 9,250 units on January 1, 2013. The costs associated with the inventory were:Material .........$15.00 per unitLabor ........... 8.00 per unitOverhead
J. Lo’s Clothiers has forecast credit sales for the fourth quarter of the year as:September (actual)......................$70,000Fourth QuarterOctober
Simpson Glove Company has made the following sales projections for the next six months. All sales are credit sales.March .........$41,000April......... 50,000May......... 32,000June.........
Watt’s Lighting Stores made the following sales projection for the next six months. All sales are credit sales.March .......... $35,000April ............ 41,000May ............
Ultravision Inc. anticipates sales of $290,000 from January through April. Materials will represent 50 percent of sales, and because of level production, material purchases will be equal for each
Harry€™s Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm
Archer Electronics Company€™s actual sales and purchases for April and May are shown here, along with forecasted sales and purchases for June through September.The company makes 20 percent of its
The Manning Company has financial statements as shown next, which are representative of the companyâ€™s historical average.The firm is expecting a 35 percent increase in sales next year, and
Conn Mana's Shops Inc., a national clothing chain, had sales of $350 million last year. The business has a steady net profit margin of 9 percent and a dividend payout ratio of 25 percent. The balance
Mansfield Corporation had 2013 sales of $100 million. The balance sheet items that vary directly with sales and the profit margin are as follows:PercentCash ..............5%Accounts receivable
The difficult part of solving a problem of this nature is to know what to do with the information contained within a story problem. Therefore, this problem will be easier to complete if you rely on
What are the basic advantages to the corporation of issuing convertible securities? Discuss.
The price of Haltom Corporation 5¼ 2019 convertible bonds is $1,380. For the Williams Corporation, the 6⅛ 2018 convertible bonds are selling at $725.a. Explain what factors might cause their
Explain how convertible bonds and warrants are similar and different.
Why are investors willing to pay a premium over the theoretical value (pure bond value or conversion value)?
Why is it said that convertible securities have a floor price?
How can a company force conversion of a convertible bond?
Explain why warrants are issued. (Why are they used in corporate finance?)
What are the reasons that warrants often sell above their intrinsic value?
Suggest two areas where the use of futures contracts is most common. What percent of the value of the underlying security is typical as a down payment in a futures contract?
You buy a stock option with an exercise price of $50. The cost of the option is $4. If the stock ends up at $56, indicate whether you have a profit or loss with a call option? With a put option?
Preston Toy Co. has warrants outstanding that allow the holder to purchase a share of stock for $22 (exercise price). The common stock is currently selling for $28, while the warrant is selling for
Quantum Inc. has warrants outstanding that allow the holder to purchase 1.5 shares of stock per warrant at $30 per share (exercise price). Thus, each individual share can be purchased at $30 with the
The warrants of Integra Life Sciences allow the holder to buy a share of stock at $11.75 and are selling for $2.85. The stock price is currently $8.50. To what price must the stock go for the warrant
The warrants of Dragon Pet Co. allow the holder to buy a share of stock at $26.20 and are selling for $14.10. The stock price is currently $23.50. To what price must the stock go for the warrant
Plunkett Gym Equipment Inc. has a $1,000 par value convertible bond outstanding that can be converted into 25 shares of common stock. The common stock is currently selling for $34.75 a share, and
O’Reilly Moving Company has a $1,000 par value convertible bond outstanding that can be converted into 20 shares of common stock. The common stock is currently selling for $43.10 a share, and the
The bonds of Goniff Bank & Trust have a conversion premium of $90. Their conversion price is $20. The common stock price is $16.50. What is the price of the convertible bonds? Discuss.
The bonds of Generic Labs Inc. have a conversion premium of $70. Their conversion price is $25. The common stock price is $22.50. What is the price of the convertible bond?
Sherwood Forest Products has a convertible bond quoted on the NYSE bond market at 90. (Bond quotes represent the percentage of par value. Thus, 70 represents $700, 80 represents $800, and so on.) It
Reynolds Technology has a convertible bond outstanding, trading in the marketplace at $835. The par value is $1,000, the coupon rate is 9 percent, and the bond matures in 25 years. The conversion
Pittsburgh Steel Company has a convertible bond outstanding, trading in the marketplace at $960. The par value is $1,000, the coupon rate is 10 percent, and the bond matures in 20 years. The
The Olsen Mining Company has been very successful in the last five years. Its $1,000 par value convertible bonds have a conversion ratio of 32. The bonds have a quoted interest rate of 7 percent a
Standard Olive Company of California has a convertible bond outstanding with a coupon rate of 5 percent and a maturity date of 20 years. It is rated Aa, and competitive, nonconvertible bonds of the
Defense Systems Inc. has convertible bonds outstanding that are callable at $1,070. The bonds are convertible into 33 shares of common stock. The stock is currently selling for $39.25 per share.a.
Vernon Glass Company has $15 million in 10 percent convertible bonds outstanding. The conversion ratio is 40, the stock price is $17, and the bond matures in 10 years. The bonds are currently selling
Assume you can buy a warrant for $6 that gives you the option to buy one share of common stock at $14 per share. The stock is currently selling at $18 per share.a. What is the intrinsic value of the
The Redford Investment Company bought 100 Cinema Corp. warrants one year ago and would like to exercise them today. The warrants were purchased at $24 each, and they expire when trading ends today
The Gifford Investment Company bought 90 Cable Corporation warrants one year ago and would like to exercise them today. The warrants were purchased at $25 each, and they expire when trading ends
Mr. John Hailey has $1,000 to invest in the market. He is considering the purchase of 50 shares of Comet Airlines at $20 per share. His broker suggests that he may wish to consider purchasing
Online Network Inc. has a net income of $650,000 in the current fiscal year. There are 100,000 shares of common stock outstanding, along with convertible bonds, which have a total face value of $1.6
Myers Drugs Inc. has 1.20 million shares of stock outstanding. Earnings after taxes are $9 million. Myers also has warrants outstanding that allow the holder to buy 100,000 shares of stock at $15 per
Tulsa Drilling Company has $1.3 million in 12 percent convertible bonds outstanding. Each bond has a $1,000 par value. The conversion ratio is 40, the stock price is $36, and the bonds mature in 10
Manpower Electric Company has 6 percent convertible bonds outstanding. Each bond has a $1,000 par value. The conversion ratio is 20, the stock price $36, and the bonds mature in 16 years.a. What is
Fondren Exploration Ltd. has 1,000 convertible bonds ($1,000 par value) outstanding, each of which may be converted to 50 shares of stock. The $1 million worth of bonds has 25 years to maturity. The
United Technology Corporation (UTC) has $40 million of convertible bonds outstanding (40,000 bonds at $1,000 par value) with a coupon rate of 11 percent. Interest rates are currently 8 percent for
The Denver Corporation has forecast the following sales for the first seven months of the year:Monthly material purchases are set equal to 40 percent of forecasted sales for the next month. Of the
Wright Lighting Fixtures forecasts its sales in units for the next four months as follows:March ............................. 4,000April ............................... 10,000May
The Volt Battery Company has forecast its sales in units as follows:Volt Battery always keeps an ending inventory equal to 110 percent of the next monthâ€™s expected sales. The ending inventory
Graham Potato Company has projected sales of $6,000 in September, $10,000 in October, $16,000 in November, and $12,000 in December. Of the company’s sales, 20 percent are paid for by cash and 80
Owenâ€™s Electronics has nine operating plants in seven Southwestern states. Sales for last year were $100 million, and the balance sheet at year-end is similar in percentage of sales to that of
What risks does a foreign affiliate of a multinational firm face in today’s business world?
List the factors that affect the value of a currency in foreign exchange markets.
What is meant by translation exposure in terms of foreign exchange risk?

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