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financial management

Questions and Answers of Financial Management

Times are tough for Auger Biotech. Having raised $85 million in an initial public offering of its stock early in the year, the company is poised to launch its product. If Auger engages in a
One year ago, Caffe Vita Coffee Roasting Co. (CVCRC) purchased three small-batch coffee roasters for $3.3 million. The company-now finds that new roasters are available that offer significant
(Read the chapter appendix before attempting this problem.) A com- pany is considering the following investment opportunities. Investment A B C Initial cost ($ millions) $5.5 $3.0 $2.0 Expected life.
In 1987, a Van Gogh painting Sunflowers (not reputed to be one of his best) sold at auction, net of fees, for $36 million. In 1889, 98 years ear- lier, the same painting sold for $125. Calculate the
You are advising a friend who has a decision to make regarding Social Security. He is about to turn 62 years old, and is eligible for early So- cial Security benefits. His early benefits would amount
Feeling very generous toward your alma mater because of the fine ed- ucation you received there, you decide to fund a scholarship to help future students with the cost of their education. You want
You are looking to purchase the latest model of the BMW 750i luxury sedan. The price of the car is $75,000. However, you negotiate a six year loan, with no money down and no monthly payments during
Your brother, age 40, is the regional manager at an office supply com- pany. He thinks he might want to leave his job to go back to school for an MBA. He expects that his current job, if he were to
Read the information regarding a possible new investment presented at www.mhhe.com/higgins9e. (Select Student Edition > Choose a Chapter Excel Spreadsheets.)a. Complete the spreadsheet to estimate
The spreadsheet for this problem provides a brief overview of se- lected financial functions in Excel and poses several questions regard- ing mortgage loans requiring monthly payments. The
This problem asks you to evaluate two mutually exclusive investment alternatives with differing life expectancies under various conditions in- cluding capital rationing. Relevant information about
You work for Mattel and you are negotiating with Warner Brothers for the rights to manufacture and sell Harry Potter lunchboxes (you already sell related action figures). Your marketing department
Is each of the following statements true or false? Explain your answers.a. Using the same risk-adjusted discount rate to discount all future cash flows ignores the fact that the more distant cash
Your company's weighted-average cost of capital is 11 percent. Your company is planning to undertake a project with an internal rate of return of 14 percent, but you believe that this project is not
Looking at Figure 8.1, explain why a company should reject invest- ment opportunities lying below the market line and accept those lying above the line.AppendixLO1
You have the following information about Burgundy Basins, a sink manufacturer. Equity shares outstanding Stock price per share Yield to maturity on debt Book value of interest-bearing debt Coupon
How will an increase in financial leverage affect a company's cost of equity capital, if at all? How will it affect a company's equity beta? Are these effects consistent with the M&M Irrelevance
What is the present value of a cash flow stream of $1,000 per year an- nually for 15 years that then grows at 4 percent per year forever when the discount rate is 13 percent?AppendixLO1
You are a commercial real estate broker eager to sell an office build- ing. An investor is interested but demands a 20 percent return on her equity investment. The building's selling price is $25
(You will need a computer for this problem.) The following informa- tion is available about an investment opportunity. Investment will occur at time 0 and sales will commence at time 1. Initial cost
The chapter discusses General Design's option to expand its diamond film project.a. Is the option a call or a put?b. What is the option's strike price?AppendixLO1
(This problem tests your understanding of the chapter appendix.) Dome Appliance, Inc., a private firm that manufactures home appli- ances, has hired you to estimate the company's beta. You have ob-
Use the Standard & Poor's Market Insight Web site (www.mhhe.com/ edumarketinsight) for this problem. Assume Starbucks Corporation is reviewing the cost of equity and the WACC it uses to evaluate new
Use the Standard & Poor's Market Insight Web site (www.mhhe.com/ edumarketinsight) for this problem. Assume that Starbucks contem- plates selling music online over a Web site, via existing wireless
The Excel file C8 Problem 13.xls available at www.mhhe.com/ higgins90 (Select Student Edition >Choose a Chapter > Excel Spreadsheets) provides key facts and assumptions concerning Kroger Company, a
The Excel file C8 Problem 14.xls at www.mhhe.com/higgins9e (Select Student Edition > Choose a Chapter > Excel Spreadsheets) gives in- formation regarding Kroger Company and four industry competitors.
Newscorp entered into an agreement to purchase all of the outstanding shares of Dow Jones and Company for $60 per share. The number of outstanding shares at the time of the announcement was 82
In the acquisition described above, Newscorp paid $60 per share for the outstanding shares of Dow Jones and Company. Immediately prior to the Newscorp bid, the shares of Dow Jones traded at $33 per
Below is a recent income statement for Hegel Publishing. Net sales $8,000 Cost of sales (including depreciation of $800) 4,700 Gross profit 3,300 Selling and admin, expenses (including interest
Stolid, Inc. is a no-growth company expected to pay a $12-per-share annual dividend into the distant future. Its cost of equity capital is 15 percent. The new president abhors the no-growth image and
a. What does it mean when a company's free cash flow is negative in one or more years?b. Do negative values of free cash flow in any way alter or invalidate the notion that a company's fair market
Procureps, Inc. (P) is considering two possible acquisitions, neither of which promises any enhancements or synergistic benefits. VI is a poorly performing firm in a declining industry with a
Ametek, Inc. is a billion dollar manufacturer of electronic instruments and motors headquartered in Paoli, Pennsylvania. Use the following information on Ametek and five other similar companies to
Following is a four-year forecast for Torino Marine. Year 2009 2010 2011 2012 Free cash flow ($ millions) $-52 $76 $92 $112a. Estimate the fair market value of Torino Marine at the end of 2008.
A venture capital company buys 400,000 shares of a start-up's stock for $5 million. If the company has 1.6 million shares outstanding prior to the purchase, what is the company's pre-money value?
New ventures commonly set aside 10 to 20 percent of company shares at the valuation date for employee bonuses and stock options. Modify the valuation of ZMW Enterprises in Panel B of Table 9A.1 to
Using the information below, please answer the following questions below about Surelock Homes, a start-up company. In your analysis, assume the valuation date is the end of year 6, projected earnings
The Excel file C9 Problem 13.xls available at www.mhhe.com/ higgins9e (Select Student Edition > Choose a Chapter > Excel Spread- sheets) contains information concerning the potential acquisition of
The spreadsheet available at www.mhhe.com/higgins9e (Select Student Edition Choose a Chapter > Excel Spreadsheets) presents information concerning Harley Davidson and five of its peers. Use the given
An Excel spreadsheet containing selected financial information for Eight Ball Sporting Goods is available at www.mhhe.com/higgins9e. (Select Student Edition > Choose a Chapter > Excel Spreadsheets.)
Chapter 3, Problem 15, partf. asks you to construct a five-year finan- cial projection for Aquatic Supplies beginning in 2009. Based on your forecast, or the suggested answer at
You will need to use the Standard & Poor's Market Insight Web site (www.mhhe.com/edumarketinsight) for this problem.a. For fiscal year 2006, what is the largest single asset on General Motors Corp's
Harley-Davidson, Inc. has the following ratios for the years 2000 through 2004: 2000 2001 2002 2003 2004 Profit margin (%) 11.4 12.3 13.5 15.5 16.7 Retention ratio (%) 91.3 91.9 92.8 92.2 86.6 Asset
Robert Half International, Inc. (RHI), headquartered in Menlo Park California, is the world's first and largest provider of temporary and permanent personnel in accounting, finance, and information
Biosite, Inc. is a developer, manufacturer, and marketer of medical diagnostic products in San Diego, California. If you wanted to test for parasites, drug abuse, or congestive heart failure, you
Looking at Figure 4.6, describe the trend in gross public equity issues and IPOs in the U.S. during the last 25 years. How do you explain this trend given what we observe in Figure 4.5?
Looking at Figure 4.5, describe the trend in net equity financing in the U.S. during the last 30 years. What does this say about the use of equity financing in U.S. corporations?AppendixLO1
Table 3.1 in the last chapter presents R&E Supplies financial state- ments for the period 200$ through 2008, and Table 3.5 presents a pro forma financial forecast for 2009. Use the information in
Are the following statements true or false? Please explain why.a. A company's sustainable growth rate is the highest growth rate in sales it can attain without issuing new stock.b. The stock market
Why do you suppose financial statements are constructed on an ac- crual basis rather than a cash basis when cash accounting is so much easier to understand?AppendixLO1
a. What does it mean when cash flow from operations on a company's cash flow statement is negative? Is this bad news? Is it dangerous?b. What does it mean when cash flow from investing activities on
True or false:a. It is impossible for a firm to have a negative book value of equity without the firm going into bankruptcy.b. You can construct a sources and uses statement for 2007 if you have a
Explain briefly how each of the following transactions would affect a company's balance sheet. (Remember, assets must equal liabilities plus owners' equity before and after the transaction.)a.
Global Travel Inc. is in negotiations to acquire Vacations Unlim- ited Corporation. Global Travel will pay $6 million for Vacations Unlimited, and plans to finance this purchase with 55 percent in
Table 3.1 in Chapter 3 presents financial statements over the period 2005-2008 for R&E Supplies, Inc.a. Construct a sources and uses statement for the company over this period (one statement for all
You are responsible for labor relations in your company. During heated labor negotiations, the General Secretary of your largest union exclaims, "Look, this company has $15 billion in assets, $7.5
Please ignore taxes for this problem. During 2007, Becky Construction earned net income of $400,000. The firm increased its accounts receiv able during the year by $250,000. The book value of its
Jonathan currently is a brewmaster for HopsScotch Brewery. He really enjoys his job, but is intrigued by the prospect of quitting his job and starting his own brewery. He currently makes $53,000 at
Selected information about Sam 'n' Ella's Chicken Delight, a chain of hot new restaurants, follows. ($ in millions) 2007 2008 Net sales $296 $304 Cost of goods sold 168 223 Depreciation 51 61 Net
Below are summary cash flow statements for three roughly equal-size companies ($ millions) A B C Net cash flows from operating activities $(300) $1300) $300 Net cash used in investing activities
Epic Record's equity has a market value of $5 million with 500,000 shares outstanding. The book value of its equity is $1,750,000.a. What is Epic's stock price per share? What is its book value per
Use Standard & Poor's Market Insight Web site (www.mhhe.com/ edumarketinsight) for this problem. Qwest Communications Inc. re- ported a $757 million loss in 2005.a. Does this necessarily mean the
Use Standard & Poor's Market Insight Web site (www.mhhe.com/ edumarketinsight) for this problem.a. What was the ratio of the market value of equity to the book value of equity for Amazon.com, Inc. at
An Excel spreadsheet containing the Whistler Corporation's finan- cial statements is available for download at www.mhhe.com/higgins9e. (Select Student Edition > Choose a Chapter > Excel
True or false?a. A company's return on equity will always equal or exceed its return on assets.b. A company's assets-to-equity ratio always equals one plus its liabil- ities to equity ratio.c. A
a. Which company would you expect to have the higher debt-to- equity ratio, a financial institution or a high-technology company? Why?b. Which company would you expect to have a higher profit margin,
The Board of Directors for Broadstar Entertainment Inc. has been pressuring the CEO to increase ROE for shareholders. During an in- terview on CNBC, he announces his plan for improving the financial
Your firm is considering the acquisition of a very promising technol- ogy company. One executive argues against the move, pointing out that because the technology company is presently losing money,
Financial data for Industrial Inc follows: ($ in thousands) Year 1 $160,835 $141,829 Year 2 $274,219 $209,628 -$257,981 Cash flow from operations -$ 35,831 -$ 12,538 Sales Cost of goods sold Net
Top management measures your division's performance by calculat- ing the division's return on investment (ROI), defined as division- operating income per period divided by division assets. Your
Answer the questions below based on the following information. Taxes are 35 percent and all dollars are in millions. Sesame Inc. Rogers Corp Earnings before interest and taxes $280 $294 Debt (at 10%
Table 3.1 in Chapter 3 presents financial statements over the period 2005 through 2008 for R&E Supplies, Inc.a. Use these statements to calculate as many of the ratios in Table 2.2 as you can.b. What
You are trying to put together the financial statements of Mont- gomery Shoe Company, but seem to be missing its balance sheet. However, you have Montgomery Shoe's income statement, which shows sales
In 2004, Natural Selection, a nationwide computer dating service, had $250 million of assets and $100 million of liabilities. Earnings be- fore interest and taxes were $60 million, interest expense
Given the following information, complete the balance sheet shown below. Collection period Days sales in cash Current ratio Inventory turnover Liabilities to assets Payables period 71 days 34 days
You will need to use the Standard & Poor's Market Insight website (www.mhhe.com/edumarketinsight) for this problem. Observe the sales- to-net property, plant, and equipment ratio for fiscal 2006 for
An Excel spreadsheet containing Maui Land & Pineapple Company's financial statements for 2004-2006 is available for download at www.mhhe.com/higgins9e. (Select Student Edition > Choose a Chap- ter >
Use Limited Brands, Inc.'s financial statements available on the Web at www.mhhe.com/higgins9e to answer the questions below. (Select Student Edition > Choose a Chapter > Excel Spreadsheets.) Use the
The U. S. dollar. The primary reason for using the dollar was that it provided a relatively stable benchmark, and it was accepted universally for transaction purposes.
Under the fixed exchange rate system, the fluctuations were limited to \(+1 \%\) and \(-1 \%\). Under the floating exchange rate system, there are no agreed-upon limits.
A dollar will buy more Swiss francs.
There will be an excess supply of dollars in the foreign exchange markets, and thus, will tend to drive down the value of the dollar. Foreign investments in the United States will increase.
Taking into account differential labor costs abroad, transportation, tax advantages, and so forth, U. S. corporations can maximize long-run profits. There are also nonprofit behavioral and strategic
The foreign project's cash flows have to be converted to U. S. dollars, since the shareholders of the U. S. corporation (assuming they are mainly U. S. residents) are interested in dollar returns.
A Eurodollar is a dollar deposit in a foreign bank, normally a European bank. The foreign bank need not be owned by foreigners--it only has to be located in a foreign country. For example, a Citibank
No, interest rate parity implies that an investment in the U. S. with the same risk as a similar investment in a foreign country should have the same return. Interest rate parity is expressed as:\[
Purchasing power parity assumes there are neither transaction costs nor regulations which limit the ability to buy and sell goods across different countries. In many cases, these assumptions are
a. Our suppliers switch from delivering by train to air freight.b. We change from producing just in time to meet seasonal sales to steady, year-round production.c. Competition in the markets in which
When money is tight, interest rates are generally high. This means that near-cash assets have high returns; hence, it is expensive to hold idle cash balances. Firms tend to economize on their cash
a. Better synchronization of cash inflows and outflows would allow the firm to keep its transactions balance at a minimum, and would therefore lower the target cash balance.b. Improved sales
Ideally, the employee will choose the plan that provides the incremental cash flows (both costs and benefits) that maximize the employee's expected utility of consumption. However, there are many
From an employer's standpoint, the defined benefit plan's major advantage is promotion of low employee turnover. The economic consequences of job-changing are not desirable under a defined benefit
Pension fund data are found in the annual report section entitled "Notes to Consolidated Financial Statements." For example, the 1991 IBM Annual Report indicated a present value of pension benefits
If the returns on these assets are less than perfectly positively correlated with the fund's other assets, then the addition of such investments as foreign stocks and precious metals would lower the
a. Defined benefit plans carry with them economic incentive to discriminate against older workers in hiring, while defined contribution plans and cash balance plans are neutral in this regard.b.
Most economists would argue that insurance premiums of any type should reflect the relative risk to the insurer. Thus, corporate liability insurance is higher for drug manufacturers than for greeting
The major difference in ownership structure is that investor-owned firms have welldefined owners, who own stock in the business and exercise control over the firm through the proxy mechanism.
No. The asymmetric information theory refers to a preferred "pecking order" of financing by corporate managers, with new common stock being the least preferred because of the negative signals that
No. The break in an investor-owned firm's MCC schedule is due to the higher cost involved with issuing new common stock once the firm's retained earnings has been exhausted. Since not-for-profit
a. Without access to tax-exempt debt, all of the benefits to using debt for a not-for-profit firm would disappear. Thus, in accordance with MM capital structure theory, and considering financial

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