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essentials of corporate finance

Questions and Answers of Essentials Of Corporate Finance

a. In general, what is the present value of an annuity of C dollars per period at a discount rate of r per period? The future value?b. In general, what is the present value of a perpetuity?
a. If an interest rate is given as 12 percent, compounded daily, what do we call this rate?b. What is an APR? What is an EAR? Are they the same thing? c. In general, what is the
a. What is a pure discount loan?b. What does it mean to amortize a loan?
If you deposit $5,300 at the end of each year for the next 20 years into an account paying 9.8 percent interest, how much money will you have in the account in 20 years? How much will you have if you
You want to buy a new sports coupe for $84,500, and the finance office at the dealership has quoted you a loan with an APR of 4.7 percent for 60 months to buy the car. What will your monthly payments
You have an investment that will pay you 1.21 percent per month. How much will you have per dollar invested in one year? In two years?
You are saving to buy a $275,000 house. There are two competing banks in your area, both offering certificates of deposit yielding 4.8 percent. How long will it take your initial $90,000 investment
Peter Lynchpin wants to sell you an investment contract that pays equal $25,000 amounts at the end of each year for the next 20 years. If you require an effective annual return of 9 percent on this
You’re trying to choose between two different investments, both of which have up-front costs of $25,000. Investment G returns $60,000 in six years. Investment H returns $92,000 in nine years. Which
You are planning your retirement in 10 years. You currently have $60,000 in a bond account and $230,000 in a stock account. You plan to add $9,000 per year at the end of each of the next 10 years to
In December 2020, the Milwaukee Bucks signed Giannis Antetokounmpo to a contract reportedly worth $228.2 million. Antetokounmpo’s salary was to be paid as $39,344,970 in 2022, $42,492,568 in 2023,
The contract signed in December 2020 by James McCann that we discussed at the beginning of the chapter called for a $600,000 signing bonus to be paid immediately, an $8 million salary per year for
You have arranged for a loan on your new car that will require the first payment today. The loan is for $24,500, and the monthly payments are $465. If the loan will be paid off over the next 60
A six-year annuity of twelve $8,250 semiannual payments will begin nine years from now, with the first payment coming 9.5 years from now. If the discount rate is 8 percent compounded semiannually,
A 15-year annuity pays $1,750 per month, and payments are made at the end of each month. If the interest rate is 9 percent compounded monthly for the first seven years, and 6 percent compounded
a. What is a junk bond?b. What does a bond rating say about the risk of fluctuations in a bond’s value resulting from interest rate changes?
a. What are the distinguishing features of debt as compared to equity?b. What is the indenture? What are protective covenants? Give some examples.c. What is a sinking fund?
a. What do you think would be the effect of a call provision on a bond’s coupon? Why might an investor want to buy a callable bond?b. What do you think would be the effect of a put feature on
You have your choice of two investment accounts. Investment A is a 13-year annuity that features end-of-month $1,600 payments and has an APR of 7.8 percent compounded monthly. Investment B is an
To calculate the number of years until maturity, assume that it is currently May 2022. All of the bonds have a $1,000 par value and pay semiannual coupons. In the table, find the Treasury bond
a. Why do we say bond markets may have little or no transparency?b. In general, what are bid and ask prices?c. What is the difference between a bond’s clean price and dirty price?
a. What is the difference between a nominal and a real return? Which is more important to a typical investor?b. What is the Fisher effect?
a. What is the term structure of interest rates? What determines its shape?b. What is the Treasury yield curve?c. What are the six components that make up a bond’s yield?
Suppose that the Bethesda Mining Company had sales of $2,751,332 and net income of $86,432 for the year ending December 31, 2022. Calculate the DuPont identity. Current assets Cash Accounts
a. What is the cash flow identity? Explain what it says.b. What are the components of operating cash flow?c. Why is interest paid not a component of operating cash flow?
a. What do we mean by the future value of an investment?b. What does it mean to compound interest? How does compound interest differ from simple interest?c. In general, what is the future value of $1
What is compounding? What is discounting?
a. What do we mean by the present value of an investment? b. The process of discounting a future amount back to the present is the opposite of doing what?c. What do we mean by discounted cash
a. What is the basic present value equation? b. What is the Rule of 72?
What happens to a future value if you increase the rate, r? What happens to a present value?
In 2020, a Liberty Seated half dollar issued in 1890 was sold for $120,000. What was the rate of return on this investment?
The TMCC security is bought and sold on the New York Stock Exchange. If you looked at the price today, do you think the price would exceed the $24,099 original price? Why? If you looked in 2026, do
In 1895, the first U.S. Open Golf Championship was held. The winner’s prize money was $150. In 2020, the winner’s check was $2.2 million. What was the annual percentage increase in the winner’s
You are scheduled to receive $10,000 in two years. When you receive it, you will invest it for six more years at 6.8 percent per year. How much will you have in eight years?
You have $4,300 to deposit. Regency Bank offers 12 percent per year compounded monthly (1 percent per month), while King Bank offers 12 percent but will only compound annually. How much will your
You can earn .23 percent per month at your bank. If you deposit $2,200, how long must you wait until your account has grown to $3,500?
You have decided that you want to be a millionaire when you retire in 45 years. If you can earn an annual return of 11.8 percent, how much do you have to invest today? What if you can earn 5.9
You have $25,000 you want to invest for the next 40 years. You are offered an investment plan that will pay you 6 percent per year for the next 20 years and 10 percent per year for the last 20 years.
Duela Dent is single and had $189,000 in taxable income. Using the rates from Table 2.3 in the chapter, calculate her income taxes. What is the average tax rate? What is the marginal tax rate?Data in
a. What is the balance sheet identity?b. What is liquidity? Why is it important?c. What do we mean by financial leverage?d. Explain the difference between accounting value and market value. Which is
Bing, Inc., has current assets of $5,400, net fixed assets of $28,100, current liabilities of $4,100, and long-term debt of $10,600. What is the value of the shareholders’ equity account for this
a. What is the income statement equation?b. What are the three things to keep in mind when looking at an income statement?c. Why is accounting income not the same as cash flow?
Suppose the firm in Problem 2 paid out $125,000 in cash dividends. What is the addition to retained earnings?Data in Problem 2Nataro, Inc., has sales of $742,000, costs of $316,000, depreciation
Rottweiler Obedience School’s December 31, 2021, balance sheet showed net fixed assets of $2.3 million, and the December 31, 2022, balance sheet showed net fixed assets of $3.1 million. The
Prepare the 2021 and 2022 common-size balance sheets for Bethesda Mining.Bethesda Mining Company reports the following balance sheet information for 2021 and 2022. Use this information to work
The December 31, 2021, balance sheet of Justin’s Golf Shop, Inc., showed current assets of $1,530 and current liabilities of $1,285. The December 31, 2022, balance sheet showed current assets of
The December 31, 2021, balance sheet of Chen, Inc., showed long-term debt of $1.38 million, and the December 31, 2022, balance sheet showed long-term debt of $1.52 million. The 2022 income statement
In December 2020, ExxonMobil announced that it was writing off $20 billion when it removed dry gas assets from its development plans. We would argue that ExxonMobil’s stockholders probably didn’t
The December 31, 2021, balance sheet of Chen, Inc., showed $130,000 in the common stock account and $2.34 million in the additional paid-in surplus account. The December 31, 2022, balance sheet
Polska, Inc., is obligated to pay its creditors $10,300 during the year.a. What is the value of the shareholders’ equity if assets equal $11,600?b. What if assets equal $9,400?
SDJ, Inc., has net working capital of $2,630, current liabilities of $5,970, and inventory of $3,860. What is the current ratio? What is the quick ratio?
a. Why is it often necessary to standardize financial statements?b. Describe how common-size balance sheets and income statements are formed.
a. Return on assets, or ROA, can be expressed as the product of two ratios. Which two? b. Return on equity, or ROE, can be expressed as the product of three ratios. Which three?
a. What does a firm’s internal growth rate tell us?b. What does a firm’s sustainable growth rate tell us?c. Why is the sustainable growth rate likely to be larger than the internal
Mobius, Inc., has a total debt ratio of .57. What is its debt-equity ratio? What is its equity multiplier?
a. What are some uses for financial statement analysis?b. What are SIC codes and how might they be useful?c. Why do we say that financial statement analysis is management by exception?d. What are
After calculating the ratios for Smolira Golf, you have uncovered the following industry ratios for 2022: How is Smolira Golf performing based on these ratios? Current ratio Total
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
Best Buy reported the following numbers (in millions) for the years ending February 1, 2020, and January 30, 2021. What are the internal and sustainable growth rates? What are the internal and
PXG Co. has total assets of $6.45 million and a total asset turnover of 1.8 times. If the return on assets is 7.9 percent, what is its profit margin?
The market value of the equity of Skipper, Inc., is $945,000. The balance sheet shows $49,000 in cash and $245,000 in debt, while the income statement has EBIT of $103,180 and a total of $173,000 in
The Mikado Company has a long-term debt ratio (i.e., the ratio of long-term debt to long-term debt plus equity) of .35 and a current ratio of 1.45. Current liabilities are $1,140, sales are $8,370,

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