Questions and Answers of Cfin4 Plus Coursemate Printed Access Card 2014

Universal Utilities (U2) applies the low regular dividend plus extras policy when determining how much of its income will be paid out as dividends each year. U2’s policy states that the minimum
Last year, Absolute Zero Freezers paid a dividend equal to $0.95 per share. Absolute follows the low-regular-dividend-plus-extras policy to determine its annual dividend. The policy requires the
Coldwater Fishery is considering a 1-for-4 reverse stock split. Its stock is currently selling for $15 per share. Coldwater plans to pay a dividend equal to $0.15 per share after the split.But it
Go back to the GCP illustration at the beginning of the chapter. Assume the collection and payment patterns of both GCP and its customers do not change. (a) Construct the balance sheet for GCP at the
Vertical Ladder Company (VLC) forecasts that its sales for January through April will be $60,000,$70,000, $90,000, and $80,000, respectively. All sales are made on credit, and past experience
Beachcomber Treasures has determined that its degree of operating leverage (DOL) is 3.5 and its degree of financial leverage (DFL) is 2.0.(a) What is Beachcomber’s degree of total leverage(DTL)?
Next Week’s Technology (NWT) is evaluating whether to change its credit terms from 2/10, net 30 to 3/10, net 30. At present, 50 percent of NWT’s sales are paid on Day 10, whereas, under the new
Michael’s Mechanical sells 6,000 jettison machines annually. Each machine costs Michael’s$2,000 to purchase, inventory carrying costs are 30 percent of the purchase price, and the cost of placing
Calculate the APR and rEAR of nonfree tradecredit associated with credit terms of 3/10, net50 and 2.5/15, net 45 assuming that customerswho do not take the discount (a) pay on the lastdue date and
Connecticut Advanced Technologies (CAT) isplanning to get a 30-day, $150,000, simple interestloan from its bank. The quoted interest rate on the loan is 10 percent. Calculate the APR andrEAR assuming
Carefree Leisure has a 40-day discount interestloan outstanding. The principal amount of theloan is $60,000, its quoted interest rate is 12 percent,and there is no compensating balance
United Sales Association (USA) recently borrowed$25,000 from its bank at a simple interestrate of 11 percent. The loan is for one year, andthe loan agreement calls for the interest to beadded to the
Xenon Xrays (XX) recently issued 180-day commercialpaper with a face value of $100,000 anda simple interest rate of 7 percent. XX paid atransaction fee equal to 0.3 percent of the issue,which was
Yunes’ Yearlings (YY) is able to raise funds byissuing commercial paper with a face value of$100,000. If commercial paper is issued, the simpleinterest rate would be 5 percent, the time tomaturity
Clicker Corporation must raise $50,000 to supportoperations for the next 12 months. Clickerbuys from its suppliers on terms of 2.5/20, net80, and it normally pays on Day 20 to take thecash discounts,
PDQ Enterprise can borrow from its bank usinga one-year (a) simple interest loan with a 12 percentquoted rate and no compensating balanceor (b) discount interest loan with a quoted rateequal to 10
Last Chance Gaming manufactures slot machines that are sold to individuals for $575 each.Fixed operating costs are $690,000, and each machine’s variable cost is 70 percent of its selling price.
Gabby’s Garage issued a bond with a 10-year maturity, a $1,000 par value, a 10 percent coupon rate, and semiannual interest payments.Two years after the bond was issued, the going rate of interest
One year ago, Henderson Honey issued a 10-year bond for $1,000. The bond’s coupon rate of interest is 4 percent, and interest is paid annually.If the current value of the bond is $929, what are (a)
Eight years ago, Over-the –Top Trampolines issued a 15-year bond with a $1,000 par value and a 6 percent coupon rate (interest is paid annually).Today the going rate of interest on similar bonds is
In 2015, Seaworthy Dingy’s earnings are expected to be $14.4 million, and the firm expects to have profitable investment opportunities of$8.4 million. Last year, the company paid dividends equal to
Baker Island Tours (BIT) expects to grow at a constant rate of 4 percent forever. Its target debt/assets ratio is 40 percent, and it expects to have profitable investments of $1.3 million this year.
Last year, the Creative Artists retained $100,000 of the $250,000 net income it generated. This year, Creative generated net income equal to$275,000. If Creative follows the constant dividend payout
Dirty Dogs Grooming’s optimal capital structure calls for 40 percent debt and 60 percent common equity. The company’s weighted average cost of capital (WACC) is 10 percent if the amount of
Kitty Hawk Airlines recently declared a 10 percent stock dividend. Prior to the stock dividend, the equity section on Kitty Hawk’s balance sheet was:Kitty Hawk’s stock currently sells for $5 per
Suppose that Kitty Hawk Airlines (see Problem 13–19) decided to initiate a 5-for-1 stock split rather than the stock dividend described in the problem. Show what the equity section of the balance
Radcliff Company’s normal daily credit sales are$50,000. The average collection period is 30 days. (a) What is the average accounts receivable that is reported on Radcliff’s balance sheet? (b)If
The balance in Gigantic Inn’s (GI) accounts payable averages $164,000, and its payables deferral period (DPO) is 10 days. (a) How much does GI normally purchase each day from its suppliers.(b) If
Big Bang Fireworks normally purchases $120,000 of inventory each day. Each item normally remains in inventory 18 days before it is sold. (a)What is the average amount of inventory that is reported on
A1 Airplanes normally sells $125,000 of its product on credit each day, and it takes an average of 40 days to collect the credit sales. (a) What is the average accounts receivable that is reported on
Cyber Letter Service’s (CLS) days sales outstanding(DSO) currently is 50 days. (a) If annual sales are $144,000, what is the average balance in accounts receivable? (b) If CLS can reduce its DSO to
Lights Out Utilities (LOU) purchases $15,000 in raw materials from its suppliers each day. LOU’s accounts payable turnover is 12.(a) What is LOU’s payables deferral period(DPO)? (b) What is the
The average inventory shown on Drip-Fixer Plumbing’s balance sheet is $270,000. The inventory conversion period is nine days. (a) What is the inventory turnover? (b) What amount of inventory does
BestSell Auctions carries an average inventory equal to $100,000. The company’s cost of goods sold averages $1.5 million. What are BestSell’s(a) inventory turnover, and (b) inventory conversion
CEO Manufacturing generally has inventory that equals $48,000. If the inventory turnover for the company is 18, what are its (a) inventory conversion period and (b) cost of goods sold?
Lester’s Landscaping and Lawn Service (3LS)projects net income for this year to be $138,000, and that its net profit margin will be 3 percent.Cost of goods sold normally equal 75 percent of sales.
Roughneck Drilling generally carries an amount of receivables equal to $160,000, and its annual credit sales equal $3.2 million. What are Roughneck’s(a) receivables turnover and (b) receivables
Eagle Eyeware generally has accounts receivables that equal $265,000. If the accounts receivables turnover for the company is 6, what are its (a) receivables collection period (DSO) and(b) annual
At any point in time, Tarcomed Hospitals owes its suppliers $45,000. The company’s cost of goods sold averages $810,000. What are Tarcomed’s(a) payables turnover and (b) payables deferral period
The accounts payables of Aesop Publishing generally equal $6.4 million. If the turnover of accounts payables is 30, what are its (a) payables deferral period (DPO) and (b) annual credit purchases?
Balloon Payment Financial (BPF) has an inventory conversion period of 45 days, a receivables collection period of 30 days, and a payables deferral period of 20 days. (a) What is the length of the
Stratosphere Wireless is examining its cash conversion cycle. The company expects its cost of goods sold, which equal 80 percent of sales, to equal $480,000 this year. Stratosphere normally turns
Refer to Table 14.1, which shows the balance sheets for Unilate Textiles on three different dates. Assume all sales and all purchases are made on credit. Calculate the length of Unilate’s cash
Refer to the information provided for M&M in Problem 15–17. Suppose that M&M must place orders in increments of 5,000 units and that it takes three days for each order to be delivered.(a) How many
Refer to the information provided for Roybow Corporation in Problem 15–19. Suppose that Roybow’s supplier decides to offer a 2 percent cash discount if products are ordered in increments of
What is the APR and rEAR on the nonfree creditassociated with credit terms of (a) 2/15, net 45and (b) 3/5 net 45?
Ransco Corporation buys on terms of 2/10, net30 but pays on Day 12 and still takes the discount.What is the APR of Ransco’s nonfreetrade credit?
Foster Industries sells on terms of 2/10, net 35.Gross sales last year were $450,000, and accountsreceivable averaged $60,000. Half ofFoster’s customers paid on Day 10 and took discounts.(a) What
Pennsylvania Air Transportation (PAT) borrowed$80,000 for 60 days from its bank. Thestated interest rate on the loan is 12 percent.Calculate the APR and rEAR assuming the loan isa simple interest
Montana Allied Products (MAP) must borrow$5.1 million to finance its working capital requirements.The bank has offered a 45-daysimple interest loan with a quoted interest rateof 8 percent. Calculate
Refer to the information provided in Problem16–8. To borrow the funds it needs, MAP hadto agree to a simple interest loan that requireda 15 percent compensating balance. Supposethat MAP needs $5.1
Albatross Boats can borrow $450,000 from itsbank using a 30-day discount interest loan. Theloan has a quoted interest of 9 percent and nocompensating balance requirement. Computethe loan’s APR and
MR Consulting recently borrowed from its bankusing a 45-day discount interest loan that has aquoted interest equal to 10 percent. The loan requiresMR to maintain a compensating balanceequal to 20
Refer to the information provided in Problem16–17. Suppose PDQ needs $90,000 today to paypast-due bills. How much must PDQ borrow foreach loan so that it has $90,000 available to paythe bills? How
BoGo Textbooks is evaluating two options forfunding its working capital during the nextyear. Option 1 is borrowing from the bank usinga 180-day discount interest loan, which hasa quoted interest rate
Refer to the information provided in Problem16–19. Suppose BoGo actually needs $200,000to finance working capital during the next year.(a) How much must BoGo borrow with each optionso that $200,000
Esther’s Egg Farm is constructing its pro forma financial statements for this year. At year end, assets were $400,000 and accounts payable (the only current liabilities account) were $125,000.Last
Open Door Manufacturing (ODM) and Closed Door Industries (CWI) have identical operating cost structures. Both firms incur a fixed operating cost equal to $420,000, their variable cost ratio is 80
Debbie’s Sod Farm (DSF) expects its EBIT to be $2,250 this year. DSF’s marginal tax rate is 40 percent, it must pay $1,000 in interest this year, and it has 500 shares of common stock
Callie Corporation’s products sell for $180 each.The variable cost of each product is $135, and fixed operating costs are $371,250. Callie pays$61,875 interest on its outstanding debt each year,
LPM Corporation sells its product for $10 each. Fixed operating costs equal $100,000, and variable operating costs are 75 percent of the selling price. The firm pays $37,500 in interest, and its
Why should persons who pursue careers in business have a basic understanding of finance even if their jobs are in areas other than finance, such as marketing or personnel?
In general terms, how is value measured? What three factors determine value? How does each factor affect value?
What is the difference between stock price maximization and profit maximization? Under what conditions might profit maximization not lead to stock price maximization?
What are some actions stockholders can take to ensure that management’s interests and those of stockholders coincide? What are some other factors that might influence management’s actions?
Why do U.S. corporations go international?
Why do you think hybrid forms of business, such as limited liability partnerships and limited liability companies, have evolved over time?
Differentiate (compare) among the information that is provided in each of the following financial statements: (1) balance sheet, (2) income statement, and (3) statement of cash flows.
Crooked Golf’s 2014 income statement shows that net income was $90,000, depreciation was$25,000, and taxes were $60,000. What was Crooked Golf’s net cash flow in 2014?
Credit Card of America (CCA) has a current ratio of 3.5 and a quick ratio of 3.0. If its total current assets equal $73,500, what are CCA’s(a) current liabilities and (b) inventory?
Last year, Delightful Desserts had a quick ratio of 1.8, a current ratio of 5.0, an inventory turnover of 7, total current assets of $340,000, and cash and equivalents of $43,000. If the cost of
The most recent balance sheet of Infinity Information Systems (IIS) shows that the company has $35 million of common equity and 7 million shares of common stock outstanding. The company’s common
Sixty (60) percent of Extreme Well Drilling’s assets are financed with common equity, which is the only type of equity financing the company has. Extreme’s current ratio is 5.0, its total assets
What does it mean for a financial market to be considered (a) informationally efficient and(b) economically efficient?
What economic functions do financial intermediaries perform?
How do you think intermediaries’ characteristics will change in the future?
Bushwhacker Mowing needs $360 million to support growth. If it issues new common stock to raise the funds, the flotation (issuance) costs will be 4 percent. If Bushwhacker can issue stock at $60 per
Mom’s Motel Corporation (MM) plans to issue bonds to raise $175 million that it needs to support future operations. MM’s investment banker will charge 2.5 percent of the total amount issued to
United Uninsured Underwriters (U3) needs to raise$192 million. If it issues new common stock to raise the funds, the flotation costs will be 8 percent.The new issue will also require U3 to pay
What is the present value of $1,500 due in 14 years at a (a) 5 percent interest rate and(b) 10 percent rate. Explain why the present value is lower when the interest rate is higher.
Compute the present value (PV) of an annuity that pays $320 forever if the opportunity cost is(a) 4 percent, (b) 8 percent, and (c) 10 percent.Why does the PV decrease as the opportunity cost
Yolanda’s bank advertises a savings investment that pays 6 percent compounded monthly. What is the investment’s (a) annual percentage rate(APR) and (b) effective annual rate (rEAR)?
Today is January 1, 2014, and investors expect the annual risk-free interest rates in 2014 through 2016 to be:What is the yield to maturity for Treasury bonds that mature at the end of (a) 2015 (a
Suppose today is January 1, 2014, and investors expect the annual inflation rates in 2014 through 2016 to be:To yield a real risk-free rate, r*, equal to 2 percent, what would the average nominal
Suppose today is January 3, 2014, and investors expect the annual risk-free interest rates in 2018 and 2019 to be:Currently a four-year Treasury bond that matures on December 31, 2017 has an interest
Suppose you own a convertible bond that has a conversion ratio equal to 50. Each convertible bond has a face value equal to $1,000. The current market value of the company’s common stock is $19,
Filkins Farm Equipment’s five-year zero coupon bond is currently selling for $621. The bond’s maturity value is $1,000 bond. What is the bond’s yield to maturity (YTM)?
Décor Interiors has an outstanding bond with a$1,000 maturity value and a 5.5 percent coupon rate of interest that was issued 20 years ago.Interest is paid semiannually. The bond, which matures in
Quiver Archery’s bond currently is selling for$1,005; its value one year ago was $990. The bond has a $1,000 maturity value and a coupon rate equal to 7 percent, and it matures in eight years.
Five years ago Dynamic Systems issued a 15-year bond with a $1,000 par value and a 7 percent coupon rate. Interest is paid semiannually. Today the going interest rate is 10 percent, and it is
Your broker offers to sell you shares of Wingler &Company common stock, which paid a dividend of $2 yesterday. You expect the dividend to grow at a rate of 5 percent per year into perpetuity.If the
What are the (a) expected return, (b) standard deviation, and (c) coefficient of variation for an investment with the following probability distribution? Probability Payoff 0.2 19.0% 0.7 9.0 0.1 4.0
Calculate the (a) expected return, (b) standard deviation, and (c) coefficient of variation for an investment with the following probability distribution: Probability Payoff 0.45 32.0% -4.0 0.35 0.20
Compute the (a) expected return, (b) standard deviation, and (c) coefficient of variation for investments with the following probability distributions: Probability "A 0.3 30.0% 5.0% 0.2 10.0 15.0
Currently, the risk-free return is 3 percent, and the expected market rate of return is 9 percent.What is the expected return of the following three-stock portfolio? Amount Invested Beta $350,000 1.0
Of the $60,000 invested in a two-stock portfolio, 40 percent is invested in Stock S and 60 percent is invested in Stock X. If Stock S has a beta coefficient equal to 1.5 and the beta of the portfolio
What is the internal rate of return (IRR) of a project that costs $20,070 if it is expected to generate $8,500 per year for three years?
Cool Cat Cabinets (CCC) is evaluating whether to replace its aging lathe. The existing lathe is being depreciated at $40,000 per year, whereas the depreciation for a new lathe is expected to
Rader Railway is determining whether to purchase a new rail setter, which has a base price of $432,000 and would cost another $52,000 to install. The setter falls into the MACRS 3-year class, and it
Tropical Tours is considering an expansion of its operations, which will require the company to issue new debt and equity. Tropical’s investment banker provided the following information about the

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