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business
fundamentals corporate finance

Questions and Answers of Fundamentals Corporate Finance

What is the purpose of a business’s financial statements?
Who are the primary users of financial statements?
What does GAAP stand for, and what is the primary purpose of GAAP?
Why is accrual accounting favored over cash accounting under GAAP?
Are the notes to the financial statements important? Why or why not?
Briefly, what is the difference between patient service revenue based on chargemaster prices and reported net patient service revenue?Between net patient service revenue and other operating revenue?
How are the following types of revenue reported on the income statement? (a) discounts from charges, (b) charity care, (c) bad debt losses resulting from a change in circumstances.
What is the logic behind depreciation expense, and how is it calculated?
Are there any risks to an organization that is overly reliant on nonoperating income? If so, what are they?
How does the total margin differ from the operating margin?
What stakeholders are most interested in the financial condition of a healthcare business?
What is the basic format of the income statement?
a. What is the difference between gross (chargemaster) revenue and net patient service revenue? (Hint: Think about discounts, contractual allowances, and price concessions.)b. What is the difference
a. What is operating income?b. What is net income, and how does it differ from operating income?c. Why is net income called “the bottom line”?d. What is the difference between net income and cash
Entries for the Warren Clinic 2021 income statement are listed in the following hypothetical illustration in alphabetical order. Reorder the data to reflect income statement format. Depreciation
What is the basic accounting equation, and what information does it provide?
What are liabilities?
Using an example, how would you explain the logic behind accruals?
Is there a significant difference in the economic content of balance sheets created by for-profit (investor-owned) and not-for-profit healthcare organizations?
a. What is the difference in timing between the income statement and the balance sheet?b. What is wrong with the following statement? “The clinic’s cash balance for 2021 was \($150,000,\) while
a. What is the basic accounting equation?b. What is its implication for the numbers on a balance sheet?c. What does the basic accounting equation tell us about a business’s equity?
a. What makes an asset a current asset?b. What are some examples of current assets?
What is the relationship between net income on the income statement and the equity section on a balance sheet?
Suppose that San Mateo Healthcare had an equity (net assets) balance of \($1.38\) million at the beginning of the year. At the end of the year, its equity (net assets) balance was \($1.98\) million.
The following are selected entries for the hypothetical Warren Clinic for December 31, 2021, in alphabetical order. Create Warren Clinic’s balance sheet. Accounts payable Accounts receivable, net
What is financial statement analysis, and what is its purpose?
Why is financial statement analysis typically accompanied by an operational analysis?
What did Park Ridge’s 2021 statement of cash flows tell us?
What role do asset and debt utilization play in a business’s profitability as measured by return on equity?
How are common-size statements created?
What are some of the problems encountered when performing financial statement analyses?
Should financial statement analyses be conducted only on historical data? Explain your answer.
a. Assume that Old Gatorland and Badger Manor, two operators of nursing homes, have fiscal years that end at different times—one in June and one in December. Would this fact cause any problems when
Assume that a large group practice has a low return on equity. How could DuPont analysis be used to identify possible actions to help boost profitability?
Mark Sexton and Todd Story, the owners of S&S Air, have been in discussions with a light aircraft dealer in Monaco about selling the company's planes in Europe. Jarek Jachowicz, the dealer, wants
From our discussion of the Fisher effect in Chapter 7, we know that the actual relationship between a nominal rate, R, a real rate, r, and an inflation rate, h, can be written as:This is the domestic
In the previous problem, assume the equity increases by 1,250 solaris due to retained earnings. If the exchange rate at the end of the year is 1.24 solaris per dollar, what does the balance sheet
Suppose the spot and six-month forward rates on the Norwegian krone are Kr 5.15 and Kr 5.22, respectively. The annual risk-free rate in the United States is 3.8 percent, and the annual risk-free rate
Suppose the current exchange rate for the Polish zloty is Z 2.17. The expected exchange rate in three years is Z 2.26. What is the difference in the annual inflation rates for the United States and
Use Figure 21.1 to answer the following questions: Suppose interest rate parity holds, and the current six-month risk-free rate in the United States is 2.2 percent. What must the six-month risk-free
Use the information in Figure 21.1 to answer the following questions:a. What is the six-month forward rate for the Japanese yen in yen per U.S. dollar? Is the yen selling at a premium or a discount?
Use the information in Figure 21.1 to answer the following questions:a. Which would you rather have, $100 or £100? Why?b. Which would you rather have, 100 Swiss francs (SF) or £100? Why?c. What is
Take a look back at Figure 21.1 to answer the following questions:a. If you have $100, how many euros can you get?b. How much is one euro worth?c. If you have 5 million euros, how many dollars do you
a. What is political risk?b. What are some ways of hedging political risk?
a. What are the different types of exchange rate risk?b. How can a firm hedge short-run exchange rate risk? Long-run exchange rate risk?
a. What financial complications arise in international capital budgeting? Describe two procedures for estimating NPV in the case of an international project.b. What are blocked funds?
a. What is covered interest arbitrage?b. What is the international Fisher effect?
a. What does absolute PPP say? Why might it not hold for many types of goods?b. According to relative PPP, what determines the change in exchange rates?
a. What is triangle arbitrage?b. What do we mean by the 90-day forward exchange rate?c. If we say that the exchange rate is SF 1.90, what do we mean?
a. What are the differences between a Eurobond and a foreign bond?b. What are Eurodollars?
Suppose a corporation currently sells Q units per month for a cash-only price of P . Under a new credit policy that allows one month's credit, the quantity sold will be Q' and the price per unit will
a. What is the incremental investment that a firm must make in receivables if credit is extended?b. Describe the trade-off between the default rate and the cash discount.
In Problem 15, what is the break-even price per unit under the new credit policy? Assume all other values remain the same.Data From Problem 15:Happy Times currently has an all-cash credit policy. It
In Problem 14, what is the break-even price per unit that should be charged under the new credit policy? Assume that the sales figure under the new policy is 4,100 units and all other values remain
In Problem 14, what is the break-even quantity for the new credit policy?Data From Problem 14:The Harrington Corporation is considering a change in its cash-only policy. The new terms would be net
In Problem 14, what is the break-even quantity for the new credit policy?Data From Problem 14:The Silver Spokes Bicycle Shop has decided to offer credit to its customers during the spring selling
The Harrington Corporation is considering a change in its cash-only policy. The new terms would be net one period. Based on the following information, determine if Harrington should proceed or not.
The Arizona Bay Corporation sells on credit terms of net 30. Its accounts are, on average, 8 days past due. If annual credit sales are $8.4 million, what is the company’s balance sheet amount in
Kyoto Joe, Inc., sells earnings forecasts for Japanese securities. Its credit terms are 2/10, net 30. Based on experience, 65 percent of all customers will take the discount.a. What is the average
a. What does the EOQ model determine for the firm?b. Which cost component of the EOQ model does JIT inventory minimize?
a. What are the different types of inventory?b. What are three things to remember when examining inventory types?c. What is the basic goal of inventory management?
a. What tools can a manager use to monitor receivables?b. What is an aging schedule?
a. What is credit analysis?b. What are the five Cs of credit?
a. What are the carrying costs of granting credit?b. What are the opportunity costs of not granting credit?c. What is a captive finance subsidiary?
a. What are the important effects to consider in a decision to offer credit?b. Explain how to estimate the NPV of a credit policy switch.
a. What are the important effects to consider in a decision to offer credit?b. Explain how to estimate the NPV of a credit policy switch.
a. What considerations enter the determination of the terms of sale?b. Explain what terms of “3/45, net 90” mean. What is the effective interest rate?
a. What are the basic components of credit policy?b. What are the basic components of the terms of sale if a firm chooses to sell on credit?
a. What is a target cash balance?b. What is the basic trade-off in the BAT model?c. Describe how the Miller–Orr model works.
Webb Corporation was founded 20 years ago by its president, Bryan Webb. The company originally began as a mail-order company, but has grown rapidly in recent years, in large part due to its Web site.
Based on the Miller-Orr model, describe what will happen to the lower limit, the upper limit, and the spread (the distance between the two) if the variation in net cash flow grows. Give an intuitive
No More Pencils, Inc., disburses checks every two weeks that average $93,000 and take seven days to clear. How much interest can the company earn annually if it delays transfer of funds from an
In a typical month, the Jeremy Corporation receives 80 checks totaling $156,000. These are delayed four days on average. What is the average daily float?
a. What are some reasons why firms find themselves with idle cash?b. What are some types of money market securities?c. Why are money market preferred stocks an attractive short-term investment?
a. Is maximizing disbursement float a sound business practice?b. What is a zero-balance account? What is the advantage of such an account?
a. What is a lockbox? What purpose does it serve?b. What is a concentration bank? What purpose does it serve?
a. Which would a firm be most interested in reducing, collection or disbursement float? Why?b. How is daily average float calculated?c. What is the benefit from reducing or eliminating float?
a. What is the transaction motive, and how does it lead firms to hold cash?b. What is the cost to the firm of holding excess cash?
You have recently been hired by Piepkorn Manufacturing to work in the newly established treasury department. Piepkorn Manufacturing is a small company that produces cardboard boxes in a variety of
Come and Go Bank offers your firm a 10 percent discount interest loan for up to $25 million, and in addition requires you to maintain a 5 percent compensating balance against the amount borrowed.
What impact did this change in payables policy have on BlueSky’s operating cycle? Its cash cycle?How many times has Procter & Gamble Last month, BlueSky Airline announced that it would stretch
What impact did this change in payables policy have on BlueSky’s operating cycle? Its cash cycle?How many times has Procter & Gamble Last month, BlueSky Airline announced that it would stretch
a. In Table 18.6 , does Fun Toys have a projected deficit or surplus?b. In Table 18.6 , what would happen to Fun Toys’ deficit or surplus if the minimum cash balance was reduced to $5?Table 18.6:
a. What are the two basic forms of short-term financing?b. Describe two types of secured loans.
a. How would you do a sensitivity analysis for Fun Toys’ net cash balance?b. What could you learn from such an analysis?
a. What keeps the real world from being an ideal one in which net working capital could always be zero?b. What considerations determine the optimal size of the firm’s investment in current
a. Describe the operating cycle and the cash cycle. What are the differences?b. What does it mean to say that a firm has an inventory turnover ratio of 4?c. Explain the connection between a firm’s
a. What is the difference between net working capital and cash?b. Will net working capital always increase when cash increases?c. List five potential sources of cash.d. List five potential uses of
How many times has Procter & Gamble stock split? Go to the Web page at www.pg.com to find the answer to this question. When did Procter & Gamble stock first split? What was the split? When
Which stock has the highest dividend yield? To answer this (and more), go to finance.yahoo.com and find the Stock Screener. How many stocks have a dividend yield above 3 percent and above 5 percent?
Go to www.companyboardroom.com and find how many stock splits are listed. How many are reverse splits? What is the largest split and the largest reverse split in terms of shares? Pick a company and
Go to www.companyboardroom.com and find how many companies went "ex" on this day. What is the largest declared dividend? For the stocks going "ex" today, what is the longest time until the payable
As we mentioned in the chapter, dividend reinvestment plans (DRIPs) permit shareholders to automatically reinvest cash dividends in the company. To find out more about DRIPs go to www.fool.com, and
After completing its capital spending for the year, Carlson Manufacturing has $1,000 extra cash. Carlson's managers must choose between investing the cash in Treasury bonds that yield 6 percent or
As discussed in the text, in the absence of market imperfections and tax effects, we would expect the share price to decline by the amount of the dividend payment when the stock goes ex dividend.
In the previous problem, suppose the company instead decides on a four-for-one stock split. The firm's 85-cent per share cash dividend on the new (postsplit) shares represents an increase of 10
In the previous problem, suppose the company instead decides on a four-for-one stock split. The firm's 85-cent per share cash dividend on the new (postsplit) shares represents an increase of 10
For initial public offerings of common stock, 2007 was a relatively slow year, with about $35.2 billion raised by the process. Relatively few of the 160 firms involved paid cash dividends. Why do you
How does the accounting treatment of a stock split differ from that used with a small stock dividend?
What is the effect of a stock split on stockholder wealth?

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