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corporate finance 8th canadian

Questions and Answers of Corporate Finance 8th Canadian

Hyperion, Inc. currently sells its latest high-speed color printer, the Hyper 500, for $349. It plans to lower the price to $300 next year. Its cost of goods sold for the Hyper 500 is $192 per unit,
After looking at the projections of the HomeNet project, you decide that they are not realistic. It is unlikely that sales will be constant over the four-year life of the project. Furthermore, other
Cellular Access, Inc. is a cellular telephone service provider that reported net income of $241 million for the most recent fiscal year. The firm had depreciation expenses of $128 million, capital
You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant’s report on your desk,
A bicycle manufacturer currently produces 298,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $1.90 a chain. The plant
One year ago, your company purchased a machine used in manufacturing for $90,000. You have learned that a new machine is available that offers many advantages; you can purchase it for $150,000 today.
Beryl’s Iced Tea currently rents a bottling machine for $55,000 per year, including all maintenance expenses. It is considering purchasing a machine instead, and is comparing two options:a.
Markov Manufacturing recently spent $19 million to purchase some equipment used in the manufacture of disk drives. The firm expects that this equipment will have a useful life of five years, and its
Your firm is considering a project that would require purchasing $7.2 million worth of new equipment. Determine the present value of the depreciation tax shield associated with this equipment if the
Arnold Inc. is considering a proposal to manufacture high-end protein bars used as food supplements by body builders. The project requires use of an existing warehouse, which the firm acquired three
Your firm would like to evaluate a proposed new operating division. You have forecasted cash flows for this division for the next five years, and have estimated that the cost of capital is 11%. You
In September 2008, the IRS changed tax laws to allow banks to utilize the tax loss carryforwards of banks they acquire to shield their future income from taxes (prior law restricted the ability of
For the assumptions in part (a) of Problem 5, assuming a cost of capital of 12%, calculate the following:a. The break-even annual sales price decline.b. The break-even annual unit sales
Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks. Bauer plans to use a cost of capital of 12.2%
Suppose the spot exchange rate for the Hungarian forint is HUF209. The inflation rate per year is 3.5 percent in Canada and 5.7 percent in Hungary. What do you predict the exchange rate will be in
Suppose the spot and three-month forward rates for the yen are ¥80.13 and ¥78.96, respectively.a. Is the yen expected to get stronger or weaker?b. What would you estimate is the difference between
The Southeast Asia Corporation (SAC) is to be liquidated. The market value of its assets is $16.3 million. Bonds with a face value of $5.6 million are unsecured. SAC has no subordinated debentures
A put option and a call option with an exercise price of $55 expire in two months and sell for $2.65 and $5.32, respectively. If the stock is currently priced at $57.30, what is the annual
A put option and a call option with an exercise price of $85 and three months to expiration sell for $2.40 and $5.09, respectively. If the risk-free rate is 4.8 percent per year, compounded
What is a call premium? During what period of time is a bond said to be call protected?
Consider the prices of the following three Treasury issues as of February 24, 2018:The bond in the middle is callable in February 2019. What is the implied value of the call feature? Coupon Maturity
KIC Inc. plans to issue $5 million of bonds with a coupon rate of 12 percent paid semiannually and 30 years to maturity. The current market interest rate on these bonds is 11 percent. In one year,
Which form of market efficiency is violated in each of these scenarios?a. You make money each time you buy a stock after its price has risen by 2 percent and sell the stock one month later.b. You
Mullineaux Corporation has a target capital structure of 70 percent common stock and 30 percent debt. Its cost of equity is 15 percent, and the cost of debt is 8 percent. The relevant tax rate is 35
A stock has an expected return of 10.2 percent, the risk-free rate is 4 percent, and the market risk premium is 7 percent. What must the beta of this stock be? Assume the CAPM holds.
A stock has a beta of 1.25, the expected return on the market is 12 percent, and the risk-free rate is 5 percent. What must the expected return on this stock be? Assume the CAPM holds.
You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.65 and the total portfolio is equally as risky as the market, what must the beta be for
A portfolio is invested 10 percent in stock G, 65 percent in stock J, and 25 percent in stock K. The expected returns on these stocks are 9 percent, 11 percent, and 14 percent, respectively. What is
You have $10,000 to invest in a stock portfolio. Your choices are stock X with an expected return of 14 percent and stock Y with an expected return of 9 percent. If your goal is to create a portfolio
What are the portfolio weights for a portfolio that has 135 shares of stock A that sell for $47 per share and 105 shares of stock B that sell for $41 per share?
Suppose the company decides to sell the equipment after three years for $60,000 and terminates the asset pool. Calculate the tax results.
A company has just invested $215,500 in new manufacturing equipment (class 8). Develop a CCA and UCC schedule (like Table 8A.2) for the first 10 years.
What is the difference between CCA and IFRS depreciation?
Bill plans to open a self-serve pet grooming centre in a storefront. The grooming equipment will cost $190,000, to be paid immediately. Bill expects after-tax cash inflows of $65,000 annually for
An investment project provides cash inflows of $970 per year for eight years. What is the project payback period if the initial cost is $4,100? $6,200? $8,000?
Antiques R Us is a mature manufacturing firm. The company just paid a $9 dividend, but management expects to reduce the payout by 4 percent per year, indefinitely. If you require an 11 percent return
Metallica Bearings Inc. is a young start-up company. No dividends will be paid on the stock over the next nine years, because the firm needs to plow back its earnings to fuel growth. The company will
The newspaper reported last week that Bennington Enterprises earned $28 million this year. The report also stated that the firm’s ROE is 15 percent. Bennington retains 70 percent of its earnings.
Suppose you know that a company’s stock currently sells for $72 per share and the required return on the stock is 11.5 percent. You also know that the total return on the stock is evenly divided
Hacker Software has 6.2 percent coupon bonds on the market with nine years to maturity. The bonds make semiannual payments and currently sell for 105 percent of par. What is the current yield on the
If the one-year spot rate is 7.5 percent and the two-year spot rate is 12 percent, what is the forward rate?
The one-year spot rate equals 8 percent, and the two-year spot rate equals 6.5 percent. What should a 5.1 percent coupon two-year bond cost?
A Japanese company has a bond outstanding that sells for 92 percent of its ¥100,000 par value. The bond has a coupon rate of 2.8 percent paid annually and matures in 21 years. What is the YTM of
What is the difference between a spot interest rate and the YTM?
What is the liquidity-preference hypothesis?
What is the expectations hypothesis?
What is the relationship between the one-year spot rate, the two-year spot rate, and the forward rate over the second year?
Your financial planner offers you two different investment plans. Plan X is a $15,000 annual perpetuity. Plan Y is a 10-year, $26,000 annual annuity. Both plans will make their first payment one year
This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $20,000 for one year. The interest rate is 15
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 $23,000 per month for 20 years, with the first
On September 1, 2017, 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 7.2 percent, compounded
You want to buy a new sports car from Muscle Motors for $73,000. The contract is in the form of a 60-month annuity due at a 6.45 percent annual percentage rate. What will your monthly payment be?
A local finance company quotes a 16 percent interest rate on one-year loans. So, if you borrow $26,000, the interest for the year will be $4,160. Because you must repay a total of $30,160 in one
You have your choice of two investment accounts. Investment A is a 15-year annuity that features end-of-month $1,500 payments and has an interest rate of 8.7 percent compounded monthly. Investment B
Consider a firm with a contract to sell an asset for $135,000 three years from now. The asset costs $96,000 to produce today. Given a relevant discount rate on this asset of 13 percent per year, will
You have just purchased a new warehouse. To finance the purchase, you’ve arranged for a 30-year mortgage for 80 percent of the $4,500,000 purchase price. The monthly payment on this loan will be
You are offered an annuity that will pay $20,000 per year for 10 years. The appropriate discount rate is 8%. What is the annuity worth to you today if the first payment will be made one year from
You need a 30-year, fixed-rate mortgage to buy a new home for $250,000. Your bank will lend you the money at a 5.3 percent APR for this 360-month loan. However, you can only afford monthly payments
You receive a credit card application from Shady Banks offering an introductory rate of 2.40 percent per year, compounded monthly for the first six months, increasing thereafter to 18 percent
Mark Weinstein has been working on an advanced technology in laser eye surgery. His technology will be available in the near term. He anticipates his first annual cash flow from the technology to be
You’re trying to choose between two different investments, both of which have up-front costs of $65,000. Investment G returns $125,000 in six years. Investment H returns $185,000 in 10 years. Which
First Simple Bank pays 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
One of your customers is delinquent on his accounts payable balance. You’ve mutually agreed to a repayment schedule of $700 per month. You will charge 1.3 percent per month interest on the overdue
The Perpetual Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $20,000 per year forever. If the required return on this investment is 6.5 percent, how
Imprudential Inc. has an unfunded pension liability of $750 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
For 2018, calculate the cash flow from assets, cash flow to creditors, and cash flow to shareholders for Ingersoll. 2017 2018 Sales $7,835 $ 8,409 Depreciation 1,125 1,126 Cost of goods sold 2,696
Draw up a statement of comprehensive income and a statement of financial position for Ingersoll for 2017 and 2018. 2017 2018 Sales $7,835 $ 8,409 Depreciation 1,125 1,126 Cost of goods sold 2,696
Consider the following abbreviated financial statements for Weston Enterprises:WESTON ENTERPRISES 2018 Statement ofComprehensive IncomeSales
Cusic Industries had the following operating results for 2018: sales = $19,900; cost of goods sold = $14,200; depreciation expense = $2,700; interest expense = $670; dividends paid = $650. At the
In Problem 2.17, suppose Raines Umbrella Corp. paid out $34,000 in cash dividends. Is this possible? If spending on net fixed assets and net working capital was zero, and if no new shares were issued
During 2018, Raines Umbrella Corp. had sales of $630,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $470,000, $95,000, and $140,000, respectively. In
Prepare a 2018 statement of financial position for Jarrow Corp. based on the following information: cash = $274,500; patents and copyrights = $860,000; accounts payable = $697,500; accounts
Schwert Corp. shows the following information on its 2018 statement of comprehensive income: sales = $167,000; costs = $91,000; other expenses = $5,400; depreciation expense = $8,000; interest
Ritter Corporation’s accountants prepared the following financial statements for yearend 2018: RITTER CORPORATIONStatement of Comprehensive
The Cloud Corporation provided the following current information: Earnings before interest and taxes ...............$40,000Interest expense
The 2017 statement of financial position of Anna’s Tennis Shop Inc. showed $490,000 in the common shares account and $3.4 million in the additional paid-in surplus account. The 2018 statement of
Gordon Driving School’s 2017 balance sheet showed net fixed assets of $1.65 million, and the 2018 balance sheet showed net fixed assets of $1.73 million. The company’s 2018 statement of
Given the information for Anna’s Tennis Shop Inc. in the previous two problems, suppose you also know that the firm’s net capital spending for 2018 was $945,000 and that the firm reduced its net
The 2017 statement of financial position of Anna’s Tennis Shop Inc. showed long-term debt of $1.45 million, and the 2018 statement of financial position showed long-term debt of $1.52 million. The
In the absence of agency problems, what is the primary goal of managers in acorporation? How can managers achieve this goal?

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