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fundamentals of corporate finance 11th
Questions and Answers of
Fundamentals Of Corporate Finance 11th
What is the discount factor that is equivalent to a 6% discount rate?
If your discount factor is 0.9009, what is your discount rate?
You just won a prize that comes with two payout choices. The first option is to get $100,000 right now and nothing thereafter. The second option is to get $94,000 right now and $10,000 three years
How do you calculate the future value of a cash flow stream?
What is the difference between an annuity and a perpetuity?
How do you calculate the future value of an annuity?
What are some examples of perpetuities?
How can a perpetuity have a finite value?
What are some examples of annuities?
How do you calculate the future value of a growing annuity?
If you still donate the $100,000 from Problem 16 today, but ask the university to delay the scholarship payment so that the first scholarship payment is made 10 years from today, then how large will
What is the opportunity cost of capital?
Suppose for its deposit accounts Simplii Financial is offering to pay interest at a rate of 0.25% per month with monthly compounding, but Tangerine is offering to pay interest at a rate of 0.75% per
Consider the loan from the previous question: a 60-month, $50,000 car loan with a 6% APR, compounded monthly. Assume that right after you make your 50th payment, the balance on the loan is $9405.81.
How is yield to maturity related to the concept of rate of return?
What is the price per $100 face value of a two-year, zero-coupon, risk-free bond?
What is the price per $100 face value of a four-year, zero-coupon, risk-free bond?
Why do interest rates and bond prices move in opposite directions?
What is the risk-free interest rate for a five-year maturity?
What is a junk bond?
What are some of the drawbacks of the DDM?
This year, Stang Fabrications Inc. has EBIT of $10 million, depreciation expense of $1 million, and capital expenditures of $1.5 million, and has increased its net working capital by $500,000. If its
Assume the annual return for the lowest turnover portfolio is 18% and the annual return for the highest turnover portfolio is 12%. If you invest $100,000 and have the highest turnover, how much lower
Under what conditions will the IRR rule and NPV rule give the same accept/reject decision?
Explain the NPV decision rule for stand-alone projects.
When is it possible to have no IRR or multiple IRRs?
What information do you need to compute the expected return of a portfolio?
How is the expected return of a portfolio related to the expected returns of the stocks in the portfolio?
HNL has an expected return of 18% and KOA has an expected return of 22%. If you create a portfolio that is 60% HNL and 40% KOA, what is the expected return of the portfolio?
When do stocks have more or less correlation?
What does beta measure? How do we use beta?
What is the market portfolio?
Explain what the following financial terms mean:a. Optionb. Expiration datec. Strike priced. Calle. Put
Why does a firm’s capital have a cost?
Why are market-based weights important?
Your uncle owns 10,000 shares of Walmart stock. He is concerned about the shortterm outlook for Walmart’s stock due to an impending “major announcement.” This announcement has received much
What is a replicating portfolio?
How can the Black-Scholes formula not include the expected return on the stock?
Explain put-call parity
Under what circumstances would equity holders have a possible incentive to take on negative-NPV investments?
You are negotiating with your underwriters in a firm commitment offering of 10 million primary shares. You have two options: set the IPO price at $20.00 per share with a spread of 7%, or set the
What are the seven kinds of securities issued by the Canadian government?
What is an asset-backed security?
What is the major difference between U.S. municipal bonds and Canadian municipal bonds?
Describe the prepayment risk in a mortgage-backed bond guaranteed by the CMHC.
What is the distinguishing feature of how U.S. municipal bonds are taxed?
When will the yield to maturity be higher than the yield to call for a bond with a standard call feature?
What is a sinking fund?
What is meant by “indirect costs of financial distress”?
What is an open market share repurchase?
What is the dividend puzzle?
What is the purpose of long-term forecasting?
How does the pro forma balance sheet help the financial manager forecast net new financing?
What is the basic idea behind the percent of sales method for forecasting?
What does a firm’s cash cycle tell us?
Why is trade credit important?
What are the trade-offs involved in reducing inventory?
Describe “just-in-time” inventory management.
What are the objectives of short-term financial planning?
What is the effect of seasonalities on short-term cash flows?
What are seasonalities and what role do they play in short term financial planning?
What is the matching principle?
If you choose to use only long-term financing, what total amount of borrowing will you need to have on a permanent basis? Forecast your excess cash levels under this scenario.
What is the maximum maturity of commercial paper?
What is the difference between a floating lien and a trust receipt?
What will a short-term financial plan enable a financial manager to do?
What is an exchange rate?
How is an exchange rate used?
How can firms hedge exchange rate risk?
What are merger waves?
You are a shareholder in a C corporation. The corporation earns $2.00 per share before taxes. Once it has paid taxes it will distribute the rest of its earnings to you as a dividend.Assume the
You are a financial manager in a public corporation. One of your engineers says that they can increase the profit margin on your flagship product by using a lower quality vendor. However, the product
How are limit orders and market orders different?
What are the tradeoffs in using a dark pool?
What is the financial cycle?
Consider the following potential events that might have occurred to Global on December30, 2019. For each one, indicate which line items in Global’s balance sheet would be affected and by how much.
What was the change in Global’s book value of equity from 2018 to 2019 according to Table 2.1? Does this imply that the market price of Global’s shares increased in 2019? Explain. Assets Current
What is GAAP and who oversees it?
Use EDGAR (www.sec.gov) to find Qualcomm’s 10K filing for 2018. From the balance sheet, answer the following questions:a. How much did Qualcomm have in cash, cash and equivalents, and marketable
Find the annual 10-K report for Costco Wholesale Corporation (COST) for fiscal year2018 (filed in October 2018). Answer the following questions from its balance sheet:a. How much cash did Costco
Find online the annual 10-K report for Costco Wholesale Corporation (COST) for fiscal year 2018 (filed in October 2018). Answer the following questions from the income statement:a. What were Costco
Suppose a firm’s tax rate is 25%.a. What effect would a $10 million operating expense have on this year’s earnings? What effect would it have on next year’s earnings?b. What effect would a $10
Nokela Industries purchases a $40 million cyclo-converter. The cyclo-converter will be depreciated by $10 million per year over four years, starting this year. Suppose Nokela’s tax rate is 25%.a.
In December 2018, General Electric (GE) had a book value of equity of $52 billion, 8.7 billion shares outstanding, and a market price of $8 per share. GE also had cash of $70 billion, and total debt
In early 2019, the following information was true about Abercrombie and Fitch (ANF) and The Gap (GPS), both clothing retailers. Values (except price per share) are in millions of dollars.a. What is
For 2018, Walmart and Target had the following information (all values are in millions of dollars):a. What is each company’s accounts receivable days?b. What is each company’s inventory
In December 2018, Apple had cash of $86.43 billion, current assets of $140.83 billion, and current liabilities of $108.28 billion. It also had inventories of $4.99 billion.a. What was Apple’s
In fiscal year 2018, Walmart Stores. (WMT) had revenue of $514.41 billion, gross profit of $129.10 billion, and net income of $6.67 billion. Costco Wholesale Corporation (COST) had revenue of $141.58
Suppose that in 2019, Global launched an aggressive marketing campaign that boosted sales by 15%. However, their operating margin fell from 5.57% to 4.50%. Suppose that they had no other income,
Find online the annual 10-K report for Costco Wholesale Corporation (COST) for fiscal year 2018 (filed in October 2018).a. Compute Costco’s net profit margin, total asset turnover, and equity
Repeat the analysis from parts a and b in Problem 35 using Walmart Stores (WMT) instead. Specifically, use Walmart’s 2018 fiscal data, filed in March 2019. Based on the DuPont Identity, what
Find online the annual 10-K report for Costco Wholesale Corporation (COST) for fiscal year 2018 (filed in October 2018).a. Which auditing firm certified the financial statements?b. Which officers of
Examine the values for depreciation in 2022 and net fixed assets in 2021 and 2022. What was Fincorp’s gross investment in plant and equipment during 2022? The table below contains data on Fincorp
a. If a firm’s inventory level of $10,000 represents 30 days’ sales, what is the annual cost of goods sold?b. What is the inventory turnover ratio?
What is the future value of $189,956 at the end of seven years if the interest rate is 11%?
The following table shows income statement and balance sheet data for four U.S. industries in 2020. Calculate the cash cycle for each industry. INCOME STATEMENT AND BALANCE SHEET DATA (Figures in $
Log on to finance.yahoo.com and use the website to update Table 2.3. Search for each firm using its ticker symbol. You can find total market capitalization under the Statistics tab. How have market
Find Microsoft (MSFT) and Ford (F) on finance.yahoo.com, and examine the financial statements of each. Which firm uses more debt finance? Which firm has higher cash as a percentage of total assets?
What is the present value of the following cash-flow stream if the interest rate is 6%? Year 1 23 2 Cash Flow $200 400 300
Now choose two highly profitable technology firms, such as Amazon (AMZN) and Microsoft (MSFT), and two electric utilities, such as American Electric Power (AEP) and Duke Energy (DUK). Which firms
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