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essentials managerial finance

Questions and Answers of Essentials Managerial Finance

=+e. If GTI were actually a foreign-based company, what impact would that have on the foregoing analysis? Describe the added regulations, costs, benefits, and risks that are likely to be associated
=+d. What other merger proposals could OS make to GTI’s owners?
=+(3) If the earnings attributed to GTI’s assets grow at a much slower rate than those attributed to OS’s premerger assets, what effect might this growth have on the EPS of the merged firm over
=+(2) What effect will this swap of stock have on the EPS of the original shareholders of (i) Organic Solutions and (ii) Green Thumbs Inc.? Explain why.
=+c. (1) What is the ratio of exchange in a stock swap acquisition if OS pays $30 per share for GTI? Explain why.
=+b. If OS planned to sell bonds to finance 80% of the cash acquisition price found in parta, how might issuance of each of the following bonds affect the firm?Describe the characteristics and pros
=+a. What is the maximum price Organic Solutions should offer GTI for a cash acquisition? (Note: Assume that the relevant time horizon for analysis is 30 years.)
=+c. Provide your assessment of the company’s degree of economic exposure. In other words, is it high or low based on your findings in part b?
=+b. Determine the net cash flow as measured in U.S. dollars. It will represent the value of the economic exposure.
=+a. Determine the net cash flows for both the Mexican peso and the British pound.
=+As the financial manager for a large multinational corporation (MNC), you have been asked to assess the firm’s economic exposure. The two major currencies, other than the U.S. dollar, that affect
=+LG 1 P19–6 ETHICS PROBLEM Maximizing shareholder wealth is your company’s primary financial objective. Many firms do whatever it takes to maximize shareholder wealth, including paying bribes
=+Determine the effective interest rates for all three currencies in both the Euromarket and the domestic market, and then indicate where the funds should be invested and raised. (Note: Assume that
=+LG 5 P19–5 Euromarket investment and fund rising Suppose that Audi AG has two main subsidiaries, one in India (local currency is Indian rupee, INR) and one in Indonesia(local currency is
=+b. Briefly explain how the following four basic categories of mutual funds differ:(1) Global fund.(2) International fund.(3) Emerging-market fund.(4) Country-specific fund.
=+a. Go to http://finance.yahoo.com. Click on “Market Data” and then “Mutual Funds” to find more information regarding mutual funds.
=+LG 4 P19–4 International investment diversification The economies of the world tend to rise and fall in cycles that offset each other. International stocks can be used to diversify an investment
=+b. Joe decided to exchange the amount for incidental expenses and other miscellaneous expenditures from euros to rand. Determine the amount of rand that he will need. Ignore exchange
=+a. What will this trip cost in euros?
=+for incidental expenses and an additional €1,500 to cover other miscellaneous expenditures. The local currency is the Rand (R), and the exchange rate is 14.89 (R/€) or 0.0672 (€/R).
=+P19–3 Exchange rates Joe Smallwood is planning his trip to Kruger National Park in South Africa this summer and, in doing so, is preparing his travel budget. The trip will cost€595 and includes
=+a. Foreign taxes can be applied as a credit against Meridiani’s Italian tax liability.b. No tax credits are allowed.
=+P19–1 Tax credits Meridiani, a Milan-based furniture and interior design company, has just opened a subsidiary in Albania. The subsidiary earns €1,000,000 before local taxes, with all the
=+LG 5 E19–5 British Petroleum needs to borrow a specific amount of money for the next 2 months and can use two foreign lending facilities. It can borrow at a nominal annual interest rate of 0.5%
=+LG 3 LG 5 E19–4 Carry Trade Inc. borrows yen when the yen is trading at ¥110/US$. If the nominal annual interest rate of the loan is 3% and at the end of the year the yen trades at¥120/US$,
=+LG 5 E19–3 If BASF Corp. borrows Swedish krona (kr) at a nominal interest rate of 4% and during the year the krona appreciates by 15%, what will the effective annual interest rate be for the loan?
=+LG 3 E19–2 Assume that the Swedish krona (kr) currently trades at 6.39 kr to the U.S. dollar.During the year, U.S. inflation is expected to average 2.4%, while inflation in Sweden is expected to
=+(a) if foreign taxes can be applied against the Austrian tax liability and (b) if they cannot.
=+E19–1 Raiffeisen Bank International AG is an Austrian banking group whose Albanian subsidiary has a pretax income of €4,000,000; all after-tax income is available in the form of dividends to
=+b. Do you think that over the last year inflation was higher in the United States or in Japan?
=+a. Which currency appreciated and which currency depreciated over the course of the year?
=+ST19–1 Currency movements Today the exchange rate between U.S. dollars and Japanese yen is 97.91(¥/$). A year ago the rate was 98.91(¥/$).
=+19–16 What are some of the major reasons for the rapid expansion in international mergers and joint ventures of firms?
=+19–15 Outline the changes to be undertaken in intra-MNC accounts if a subsidiary’s currency is expected to depreciate in value relative to the currency of the parent MNC.
=+19–14 Discuss the steps to be followed in adjusting a subsidiary’s accounts relative to third parties when that subsidiary’s local currency is expected to appreciate in value in relation to
=+19–13 What is the Eurocurrency market? What are the main factors determining foreign exchange rates in that market? Differentiate between the nominal interest rate and the effective interest
=+19–12 What are the long-run advantages of having more local debt and less MNC-based equity in the capital structure of a foreign subsidiary?
=+19–11 Describe the difference between foreign bonds and Eurobonds. Explain how each is sold, and discuss the determinant(s) of their interest rates.
=+19–10 Briefly discuss some of the international factors that cause the capital structures of MNCs to differ from those of purely domestic firms.
=+19–8 Discuss macro and micro political risk. What is the emerging third path to political risk? Describe some techniques for dealing with political risk.
=+19–7 Explain how differing inflation rates between two countries affect their exchange rate over the long term.
=+19–6 Define spot exchange rate and forward exchange rate. Define and compare accounting exposures and economic exposures to exchange rate fluctuations.
=+19–5 Under FASB No. 52, what are the translation rules for financial statement accounts? How does the temporal method differ from these rules?
=+19–4 Discuss the major reasons for the growth of the Euromarket. What is an offshore center? Name the major participants in the Euromarket.
=+19–3 From the point of view of a U.S.-based MNC, what are the key benefits of the Tax Cuts and Job Act of 2017?
=+19–2 What is a joint venture? Why is it often essential to use this arrangement? What effect do joint-venture laws and restrictions have on the operation of foreign-based subsidiaries?
=+What is the WTO?
=+What is GATT?
=+19–1 What are the important international trading blocs? What is the European Union, and what is its single unit of currency?
=+14–1 What two ways can firms distribute cash to shareholders?
=+14–2 Why do rapidly growing firms generally pay no dividends?
=+14–3 The dividend payout ratio equals dividends paid divided by earnings.
=+How would you expect this ratio to behave during a recession? What about during an economic boom?
=+14–4 Who are holders of record? When does a stock sell ex dividend?
=+14–6 What benefit is available to participants in a dividend reinvestment plan? How might the firm benefit from such a plan?
=+14–8 Contrast the basic arguments about dividend policy advanced by Miller and Modigliani and by Gordon and Lintner
=+14–9 What five factors do firms consider in establishing dividend policy?Briefly describe each of them.
=+14–11 Why do firms issue stock dividends? Comment on the following statement: “I have a stock that promises to pay a 20% stock dividend every year, and therefore it guarantees that I will
=+14–12 Compare a stock split with a stock dividend.
=+ST14–1 Stock repurchase The Off-Shore Steel Company has earnings available for common stockholders of $2 million and has 500,000 shares of common stock outstanding at$60 per share. The firm is
=+a. Calculate the firm’s current earnings per share (EPS) and price/earnings (P/E) ratio.
=+b. If the firm can repurchase stock at $62 per share, how many shares can be purchased in lieu of making the proposed cash dividend payment?
=+c. How much will the EPS be after the proposed repurchase? Why?
=+d. If the stock sells at the old P/E ratio, what will the market price be after repurchase?
=+e. Compare and contrast the earnings per share before and after the proposed repurchase.
=+f. Compare and contrast the stockholders’ position under the dividend and repurchase alternatives.
=+LG 2 E14–2 Staff Excellence Enterprises identified two independent projects to enhance staff training programs. The investments would require financing of $750,000 and$980,800, respectively.
=+LG 3 E14–3 Legal & General, an insurance company, has the following stockholders’ equity account:Common stock (5,871,000 shares at £1 par) £5,871,000 Paid-in capital in excess of par
=+LG 4 E14–4 The board of Kopi Industries is considering a new dividend policy that would set dividends at 60% of earnings. The recent past has witnessed earnings per share(EPS) and dividends paid
=+Based on Kopi’s historical dividend payout ratio, discuss whether a constant payout ratio of 60% would benefit shareholders.
=+LG 5 E14–5 Legal & General, with the equity account as described in E14-3, announces its plans to issue an additional 58,710 shares of common stock as part of its stock dividend plan. The current
=+P14–1 Dividend payment procedures At the quarterly dividend meeting, Perfect Frame Manufacturing declared a $2.00 per share dividend for the holders on record on Monday, March 10. The outstanding
=+a. When is the ex dividend date?b. Calculate the amount of dividend payable on March 31.
=+c. What values would the key accounts have after the March 31 payment date?d. All other things being equal, what will happen to the stock price on the ex dividend date?
=+e. What is the net effect of declaring and paying dividends on the total assets of Perfect Frame Manufacturing?Personal Finance Problem
=+LG 1 P14–2 Dividend payment Sandra Gray owns 800 shares of Steel & Fittings Corporation.At the annual dividend meeting, a cash dividend of $1.05 was declared to be paid on September 30 to all the
=+a. What is the amount of the dividend Sandra would receive on September 30?
=+b. If Sandra increased her stockholding to 900 shares on September 10, what is the amount of the dividend she would receive on September 30?
=+c. What effect does declaring this dividend have on stock prices on September 7?
=+d. If Sandra sold 200 shares for a total of $1,000 on September 15, what is the amount of the dividend she would receive on September 30?
=+LG 2 P14–3 Residual dividend policy A new intern is trying to understand the dividend policy of your firm. Having studied dividend policies at university, the intern wonders why the firm chose
=+a. Describe the purpose of a residual dividend policy.b. Calculate the expected amount of the dividend, if any, for each of the three capital budget amounts.
=+c. Explain why there are differences in the amounts of the dividend for the three capital budget amounts.
=+LG 3 P14–4 Dividend constraints Plastic Enterprises’ stockholders’ equity account is as follows:Common stock (280,000 shares at $3.50 par) $980,000 Paid-in capital in excess of par $900,000
=+a. Calculate the maximum dividend per share that the firm can pay if the legal capital includes all paid-in capital.b. Calculate the maximum dividend per share that the firm can pay if the legal
=+c. If Plastic Enterprises has $25,000 in cash, what is the largest per-share dividend it can pay without borrowing, assuming legal capital includes all paid-in capital?
=+d. What is the purpose of capital impairment restrictions when developing a dividend policy?
=+LG 3 P14–5 Dividend constraints A firm has $800,000 in paid-in capital, retained earnings of$40,000 (including the current year’s earnings), and 25,000 shares of common stock outstanding. In
=+a. What is the most the firm can pay in cash dividends to each common stockholder? (Assume that legal capital includes all paid-in capital.)
=+b. What effect would a cash dividend of $0.80 per share have on the firm’s balance sheet entries?
=+c. If the firm cannot raise any new funds from external sources, what do you consider the key constraint with respect to the magnitude of the firm’s dividend payments? Why?
=+LG 4 P14–6 Low-regular-and-extra dividend policy Cromwall Laboratories has a target payout ratio of 60%. However, the board realizes that adhering strictly to the payout ratio will cause the
=+a. Calculate the payout ratio for each year on the basis of the regular dividend payment and the EPS given.
=+b. For each year, what is the difference between the regular $0.75 dividend and a 60% payout?
=+c. Cromwall Laboratories decides to pay an extra dividend of $0.50 in years when the difference between the regular $0.75 dividend and the 60% payout is at least$0.70. Indicate the dividend
=+d. The company estimates future earnings per share will remain above $3.20 per share for most years. If the board wants to increase the regular dividend from$0.75 to $1.25, what factors should it
=+LG 4 P14–7 Alternative dividend policies Over the past 10 years, a firm has had the earnings per share shown in the following table.Year Earnings per share Year Earnings per share 2019 $4.00 2014
=+a. If the firm’s dividend policy were based on a constant payout ratio of 40% for all years with positive earnings and 0% otherwise, what would be the annual dividend for each year?
=+b. If the firm had a dividend payout of $1.00 per share, increasing by $0.10 per share whenever the dividend payout fell below 50% for 2 consecutive years, what annual dividend would the firm pay
=+c. If the firm’s policy were to pay $0.50 per share each period except when earnings per share exceed $3.00, when an extra dividend equal to 80% of earnings beyond$3.00 would be paid, what annual

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