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fundamentals of corporate finance 10th

Questions and Answers of Fundamentals Of Corporate Finance 10th

Bond Returns You purchase a bond with an invoice price of £9,680. The bond has a coupon rate of 7.4 per cent, and there are four months to the next semi-annual coupon date. What is the clean price
Interest Rate Risk Both Bond Tony and Bond Peter have 10 per cent coupons, make semi-annual payments, and are priced at par value. Bond Tony has 3 years to maturity, whereas Bond Peter has 20 years
Interest Rate Risk Bond J is a 4 per cent coupon bond.Bond K is a 12 per cent coupon bond. Both bonds have 9 years to maturity, make semi-annual payments, and have a YTM of 8 per cent. The par value
Bond Yields One More Time Software has 10.2 per cent coupon bonds on the market with 9 years to maturity. The bonds make semi-annual payments and currently sell for 105.8 per cent of par. What is the
Bond Yields Seether plc wants to issue new 20-year bonds for some much-needed expansion projects. The company currently has 8 per cent coupon bonds on the market that sell for £93,000 with a par
Finding the Bond Maturity Fluss AB has 8 per cent coupon bonds making annual payments with a YTM of 7.2 per cent. The current yield on these bonds is 7.55 per cent. How many years do these bonds have
Accrued Interest You purchase a bond with a coupon rate of 6.8 per cent and a clean price of £10,730, face value is £10,000. If the next semi-annual coupon payment is due in 2 months, what is the
Using Bond Quotes Suppose the following bond quotes for Giorni di Estate SpA appear in the financial page of today’s newspaper. Assume the bond makes semi-annual payments, has a face value of
Interest on Zeros Tesla SA needs to raise funds to finance a plant expansion, and it has decided to issue 20-year zero coupon bonds to raise the money. The required return on the bonds will be 12 per
Zero Coupon Bonds Suppose your company needs to raise €30 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 8 per cent, and
Finding the Maturity You’ve just found a 12 per cent coupon bond on the market that sells for par value. What is the yield to maturity on this bond?
Real Cash Flows You want to have €1.5 million in real euros in an account when you retire in 40 years. The nominal return on your investment is 11 per cent and the inflation rate is 3.8 per cent.
Components of Bond Returns Bond P is a premium bond with a 10 per cent coupon. Bond D is a 7 per cent coupon bond currently selling at a discount. Both bonds make annual payments, have a YTM of 9 per
Valuing Bonds Mallory plc has two different bonds currently outstanding. Bond M has a face value of £20,000 and matures in 20 years. The bond makes no payments for the first 6 years, then pays
Valuing the Call Feature Consider the prices in the following three Treasury issues as of 15 May:Coupon Maturity Price Change YTM 6.500 16 May 106:10 −13 5.28 8.250 16 May 103:14 −3 5.24 12.000
Treasury Bonds Consider the following Treasury bond on 11 May: 9.125 15 May 100:03 ...−2.15 Why would anyone buy this Treasury bond with a negative yield to maturity? How is this possible?
Real Cash Flows You are planning to save for retirement over the next 30 years. To save for retirement, you will invest £900 a month in an equity account in real pounds and £450 a month in a bond
You are Robin’s assistant, and she has asked you to prepare a memo to Dan describing the effect of each of the following bond features on the coupon rate of the bond. She would also like you to
How many of the coupon bonds must West Coast Yachts issue to raise the £30 million? How many of the zeros must it issue?
In 20 years, what will be the principal repayment due if West Coast Yachts issues the coupon bonds? What if it issues the zeros?
What are the company’s considerations in issuing a coupon bond compared with a zero coupon bond?
Suppose West Coast Yachts issues the coupon bonds with a makewhole call provision. The make-whole call rate is the Treasury rate plus 0.40 per cent. If West Coast calls the bonds in 7 years when the
Are investors really made whole with a make-whole call provision?
After considering all the relevant factors, would you recommend a zero coupon issue or a regular coupon issue? Why? Would you recommend an ordinary call feature or a make-whole call feature?Why?
You have set up a new social media site that collates user recipes from around the Internet into a MORB (Massive Open Recipe Book). The company’s advertising revenues have started to grow at an
Your financial manager has informed you that in order to grow the firm, you must raise new capital.What are the main options open to the firm? Explain how cash flows will circulate between your
You have been reading in the media that the Government is demanding that companies pay taxes.However, your financial manager has approached you with a legal tax vehicle that results in very little
Auction versus Dealer Markets What does it mean when we say that Euronext is an auction market? How are auction markets different from dealer markets? What kind of market is the London Stock Exchange?
Goal of the Firm Evaluate the following statement:Managers should not focus on the current equity value because doing so will lead to an overemphasis on shortterm profits at the expense of long-term
Corporate Finance Your grandmother sees you reading a fantastic book called Fundamentals of Corporate Finance.She asks you, ‘What does corporate finance mean?’Explain to her in a way that
Financing Goals Small firms tend to raise funds from private investors and venture capitalists. As these firms grow larger, they focus more on raising capital from the organized capital markets.
Financial Management Goals You have read the first chapter of this textbook and have taken over a company that you now discover is losing £100,000 a week. At the rate things are going, the company
Dealer versus Auction Markets Explain the difference between dealer and auction markets. Why do you think both types of market exist? Is there one type of market that is the best? Explain.
Corporate Cash Flows Strang plc raised £2 million in equity financing last year. This year, they were able to earn a net 10 per cent on these funds. The company pays a 23 per cent tax on earnings
Not-for-Profit Firm Goals Suppose you were the financial manager of a not-for-profit business (a not-forprofit hospital, perhaps). What kinds of goals do you think would be appropriate?
International Firm Goal Would our goal of maximizing equity value be different if we were thinking about financial management in a foreign country? Why or why not?
Financial Management Goals If you are in charge of a private firm and it doesn’t have a share price, what should be your goal as a financial manager? Explain.
Corporate Case Study Google is special in many ways because of the firm’s meteoric success and now dominant position in the world. Extend the case study on Google by looking at the title of each
Ethics and Firm Goals Can our goal of maximizing equity value conflict with other goals, such as avoiding unethical or illegal behaviour? In particular, do you think issues such as customer and
Financial Management Goals You have been the manager of a small company for 20 years and have become great friends with your employees. In the last month, new Norwegian owners have bought out the
Financial Market Regulators The UK’s financial regulator states that its objectives are to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal, and improve the
For each firm, find the value of the company’s total assets. Which firm is the biggest?
Visit the Yahoo! Finance website and find the share price of each firm. What does the share price history tell you about each company?
Find the market capitalization of each company. Which firm is the biggest?
On Yahoo! Finance read the news for each company. What does the news tell you about the fortunes of each company?
Combining all the information, which company do you think is the best investment? Explain.
How can the board maintain control of the firm while having only 20 per cent of the shares?
Should the company’s board structure change? If so, what should be done and why?
What processes should be put in place to ensure that all shareholders have some say in the company’s strategy? How should the company deal with foreign shareholders?
How should the company decide upon director remuneration? Are there any structures that should be put in place to ensure that the directors are fairly compensated for the work that they have done?
There is a proposal that the company should instead possibly list in London or Shanghai and move headquarters to the listing location. Are there any institutional differences that the directors
Partnerships Why are professional firms, such as accountants and lawyers, more likely to have a partnership form rather than a sole ownership or limited company structure?
Macro Governance Why do you think corporate behaviour in bank-based financial systems would be different from that in market-based financial systems?How do you think other differences in the macro
Corporate Governance Principles In your opinion what is the most important issue in corporate governance?Explain your answer.
Corporate Governance Explain why the corporate governance of a sole proprietorship should be different from that of a partnership, which in turn should be different from that of a limited corporation.
Corporate Governance across the World Why is there no single code of corporate governance applied to all the countries of the world? Would emerging-market firms have different issues to consider?
Sole Proprietorship Sole proprietorship is the most common type of business throughout the world. Why do you think this is the case? What are the benefits of sole proprietorships over other forms of
Stakeholders Discuss what is meant by a stakeholder. In what ways are stakeholders represented in two-tier board structures? How does this differ from companies with a unitary board structure? Use
Agency Problems Who owns a corporation? Describe the process whereby the owners control the firm’s management. What is the main reason why an agency relationship exists in the corporate form of
Board Committees Explain why you think publicly listed companies have board subcommittees like the remuneration committee, audit committee and risk management committee. Why could this responsibility
Corporate Governance Is it possible to improve one aspect of corporate governance in a firm but weaken another at the same time? Use an illustration to explain your answer.
Government Ownership In recent years, governments have taken control of banks through buying their shares.What impact does this have on the lending culture of these banks? Is this consistent with
Agency Problems Suppose you own equity in a company. The current share price is £25. Another company has just announced that it wants to buy your company, and will pay £35 per share to acquire all
Agency Problems and Corporate Ownership Corporate ownership varies around the world.Historically, individuals have owned the majority of shares in public corporations in the United States. In Germany
Executive Compensation Critics have charged that compensation to top managers in the banking sector is simply too high and should be cut back. Look at the financial accounts of some banks in your
Corporate Governance around the World In the Middle East, many companies have a Sharia Supervisory Board to which the board of directors reports. Evaluate the merits of such a governance structure
Institutional Shareholders Regulators have developed a number of new policies with respect to institutional shareholder involvement in the running of firms. Review the reasons why regulators would
Codes of Corporate Governance Download a set of country codes from the European Corporate Governance Institute website (www.ecgi.org) and identify any differences and similarities between your chosen
What are the advantages and disadvantages of changing the company organization from a sole proprietorship to a partnership?
What are the advantages and disadvantages of changing the company organization from a sole proprietorship to a corporation?
Ultimately, what action would you recommend the company undertake? Why?
What are the five groups of ratios? Give two or three examples of each kind.
Given the total debt ratio, what other two ratios can be computed? Explain how.
Turnover ratios all have one of two figures as the numerator. What are these two figures? What do these ratios measure? How do you interpret the results?
Profitability ratios all have the same figure in the numerator. What is it? What do these ratios measure? How do you interpret the results?
Return on assets, or ROA, can be expressed as the product of two ratios. Which two?
Return on equity, or ROE, can be expressed as the product of three ratios. Which three?
What are some uses for financial statement analysis?
Why do we say that financial statement analysis is management by exception?
What are some problems that can come up with financial statement analysis?
Building a Statement of Financial Position According to AEB Systems plc financial statements as of June 2016, the firm had current assets of £6.642 billion, non-current assets of £16.521 billion,
Building an Income Statement In 2016, the UK insurance firm, Wheeler & Fox, had revenue of £38,440 million, total expenses of £37,133 million, tax of £487 million and zero depreciation. What is
Calculating Liquidity Ratios Guthrie plc has current liabilities of £340,000, a quick ratio of 1.8, inventory turnover of 4.2 and a current ratio of 3.3. What is the cost of goods sold for the
Calculating Profitability Ratios Volkswagen AG had sales of €113,808 million, total assets of €167,919 million, and total debt of €69,380 million. If the profit margin is 4.173 per cent, what
Calculating Leverage Ratios GNR plc has a total debt ratio of 0.43. What is its debt–equity ratio? What is its equity multiplier?
Calculating Market Value Ratios Axel plc had additions to retained earnings for the year just ended of £430,000.The firm paid out £175,000 in cash dividends, and it has ending total equity of £5.3
Book Values versus Market Values In preparing a balance sheet, why do you think International Accounting Standards allow both historical cost and fair value approaches?
Residual Claims Moneyback Limited is obligated to pay its creditors £7,300 during the year.(a) What is the market value of the shareholders’ equity if assets have a market value of £8,400?(b)
Net Income and OCF This year, Southern Coat Company had sales of £730,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were£580,000, £105,000 and £135,000
Accounting Values versus Cash Flows In Problem 3.9, suppose Southern Coat Company paid out £25,000 in cash dividends. Is this possible? If spending on non-current assets and net working capital was
Calculating Cash Flows Consider the following abbreviated financial statements for Parrothead Enterprises:Parrothead Enterprises Partial balance sheets Assets Liabilities and owners’equity Year
Profit Margin In response to complaints about high prices, a grocery chain runs the following advertising campaign: ‘If you pay your child £3 to go and buy £50 worth of groceries, then your child
Calculating Financial Ratios Find the following financial ratios for LVMH Moet Hennessy Louis Vuitton SA (use year-end figures rather than average values where appropriate):Short-term solvency
Du Pont Identity Construct the Du Pont identity for LVMH Moet Hennessy Louis Vuitton SA.
Market Value Ratios LVMH Moet Hennessy Louis Vuitton SA has 473.06 million ordinary shares outstanding, and the market price for a share of equity at the end of 2015 was €46.79. What is the
Tobin’s Q What is Tobin’s Q for LVMH Moet Hennessy Louis Vuitton SA? What assumptions are you making about the book value of debt and the market value of debt? What about the book value of assets
Earnings Management Companies often try to keep accounting earnings growing at a relatively steady pace, thereby avoiding large swings in earnings from period to period. They also try to meet
Cash Flow What are some of the actions that a small company can take if it finds itself in a situation in which growth in sales outstrips production capacity and available financial resources? What
Non-Current Assets and Depreciation On the simplified statement of financial position, the non-current assets (NCA) account is equal to the gross property, plant and equipment (PPE) account (which
Calculate all the ratios listed in the industry table for West Coast Yachts.

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