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fundamentals of financial management
Questions and Answers of
Fundamentals Of Financial Management
7-13B. (Duration) Determine the value and duration for the following bonds given a required return of 10 percent. BOND YEARS TO MATURITY J 4 PVAN 12 Y 16 Q 20 Z 15 ANNUAL INTEREST MATURITY VALUE $95
7-10B. (Duration) Calculate the value and the duration for the following bonds:Your required rate of return is 7 percent. BOND D E ABCO YEARS TO MATURITY 55955 ANNUAL INTEREST $90 60 120 90 75
Following you will find data on $1,000 par value bonds issued by Young Corporation, Thomas Resorts, and Entertainment, Inc. at the end of2003. Assume you are thinking about buying these bonds as
7-13A. (Duration) Determine the value and duration for the following bonds given a required return of7 percent. BOND 1 YEARS TO MATURITY 7 6 12 5 10 ANNUAL INTEREST MATURITY VALUE 130 $1,000 90 1,000
7-10A. (Duration) Calculate the value and the duration for the following bonds:Your required rate of return is 8 percent. BOND PORST YEARS TO MATURITY 50005 10 10 15 ANNUAL INTEREST MATURITY VALUE
ST-4. (Duration) Calculate the value and the duration for the following bonds:The required rate of return is 8 percent. BOND Argile Terathon YEARS TO MATURITY 10 115 ANNUAL INTEREST $80 65 MATURITY
ST-5. 3. Portfolio expected return:(.4x 12%)+(.25 x 11%)+(.35 x 15%)= 12.8%Portfolio beta:(.4 xl) + (.25 x .75) + (.35 x 1.3) = 1.04b. Stocks 1 and 2 seem to be right in line with the security market
6-17B. (Camputing holding-period returns) From the following price data, compute the holdingperiod returns for Watkins and Fisher. TIME WATKINS FISHER 1 40 27 2 45 31 3 43 35 49 36
6-16B. (Capital asset pricing model) Grace Corporation is considering the following investments.The current rate on Treasury bills is 5.5 percent, and the expected return for the market is 11
6-15B. (Expected rate of return and risk) Moody, Inc., has collected information on the following three investments. Which investment is the most favorable based on the information presented? STOCK A
6-14B. (Expected return, standard deviation, and capital asset pricing model) Following you will find the end-of-month prices, both for the Market Index and for Hilary's common stock.a. Using the
6-13B. (Porrftlio beta and security market line) You own a portfolio consisting of the following stocks:The risk-free rate is 8 percent. Also, the expected return on the market portfolio is 11.6
6-12B. (Measuring risk and rates ofreturn)a. Given the following holding-period returns, compute the average returns and the standard deviations for the Sugita Corporation and for the market.b. If
6-11B. (Computing holding-period returns) From the following price data, compute the holdingperiod returns for O'Toole and Baltimore.How would you interpret the meaning ofa holding-period return?
6-7B. (Estimating beta) From the following graph relating the holding-period returns for Bram, Inc., to the S&P 500 Index, estimate the firm's beta. -12% -8% .4% Bram 12% 8% 4% 4% -12% S&P 500 4%
6-5B. (Expected rate ofreturn and risk) Clevenger Manufacturing, Inc., has prepared the following information regarding two invesnnents under consideration. Which invesnnent should be accepted?
6-4B. (Expected rate ofreturn and risk) Kelly B. Stites, Inc., is considering an invesnnent in one of two common stocks. Given the information that follows, which invesnnent is better, based on risk
11. The Treasury bill rate at the end ofMay 2003 was approximately 6 percent. Given the betas for Reynolds Computer and Andrews and using the preceding data for the Market Index as a measure for the
6-17A. (Computing holding-period returns) From the following price data, compute the holdingperiod returns for Williams and Davis. TIME WILLIAMS DAVIS 1 33 19 2 27 15 3 35 14 4 39 23
6-15A. (Expected rate of retU17l and risk) Jones Corporation has collected information on the following three investments. Which investment is the most favorable based on the information presented?
6-14A. (Expected return, standard deviation, and capital asset pricing model) Following you will find the end-of-month prices, both for the Market Index and for Mathews, Inc. common stock.a. Using
6-13A (Portfolio beta and security market line) You own a portfolio consisting ofthe following stocks:The risk-free rate is 7 percent. Also, the expected rerum on the market portfolio is 15.5
6-7A. (Estimating beta) From the following graph relating the holding-period returns for Aram, Inc., to the S&P 500 Index, estimate the finn's beta. -12% 12% Aram 8% 4% -8% -12% S&P 500 4% 8% 12%
6-5A. (Expected rate ofreturn and risk) Friedman Manufacmring, Inc., has prepared the following infonnation regarding two investments under consideration. Which investment should be accepted? COMMON
6-4A. (Expected rate ofreturn and risk) Syntex, Inc., is considering an investment in one of two common stocks. Given the infonnation that follows, which investment is better, based on risk (as
6-3A. (Expected rate ofreturn and risk) Pritchard Press, Inc., is evaluating a security. One-year Treasury bills are currently paying 3.1 percent. Calculate the following investment's expected return
ST-5.a. (Security market line) Determine the expected return and beta for the following portfolio:b. Given the preceding information, draw the security market line and show where the securities fit
ST-4. (Holding-period returns) From the following price data, compute the holding-period returns. TIME 1 2 3 4 STOCK PRICE $10 13 11 15
ST-3. (Expected return and risk) Given the following holding-period returns, calculate the average returns and the standard deviations for the Kaifu Corporation and for the market. MONTH 2 3 4 1234
ST-2. (Capital asset pricing model) Using the CAPM, estimate the appropriate required rate of return for the following three stocks, given that the risk-free rate is 5 percent, and the expected
ST-1. (Expected return and risk) Universal Corporation is planning to invest in a security that has several possible rates of return. Given the following probability distribution of the returns, what
5-19B. (Present value ofan uneven stream ofpayments) You are given three investment alternatives to analyze. The cash flows from these three investments are as follows:Assuming a 20 percent discount
5-10B. (Solving for i in annuities) Ellen Denis, a sophomore mechanical engineering student, receives a call from an insurance agent, who believes that Ellen is an older woman ready to retire from
5-8B. (Compound interest with nonannual periods) Calculate the amount of money that will be in each of the following accounts at the end of the given deposit period: AMOUNT ANNUAL INTEREST ACCOUNT
5-24A. (Present value ofan uneven stream ofpayments) You are given three investment alternatives to analyze. The cash flows from these three investments are as follows:What is the present value of
5-19A. (Present value ofan uneven stream ofpayments) You are given three investment alternatives to analyze. The cash flows from these three investments are as follows:Assuming a 20 percent discount
5-10A. (Solvingfor i in annuities) Nicki Johnson, a sophomore mechanical engineering student, receives a call from an insurance agent who believes that Nicki is an older woman ready to retire from
5-8A. (Compound interest with nonannual periods) Calculate the amount of money that will be in each of the following accounts at the end of the given deposit period: AMOUNT ANNUAL INTEREST
ST-3.Neff Industries Free Cash Flows for the Year Ended December 31, 2003 FREE CASH FLOWS: OPERATING PERSPECTIVE Operating income Plus depreciation expense Less tax expense Less change in income
2-9B. (Analyzing free cash jl(Y/J)s) Following you will find our computation of the free cash flows for Retail.com. Interpret the information in terms of where cash came from and where it was used.
2-8B. (AnalyzingJree cash jl(Y/J)s) Following you will find our computation of the free cash flows for Hilary's Ice Cream. Interpret the information in terms of where cash came from and where it was
2-7B. (Measuring cash flows) Calculate the free cash flows for the Cameron Company for the year ended December 31, 2003, both from an asset and a financing perspective. Interpret your results.
2-6B. (Measuring cash flows) Calculate the free cash flows for RPI, Inc., for the year ended December 31, 2003, both from an asset and a financing perspective. Interpret your results. RPI, Inc.,
2-5B. (Measuring cash flows) Calculate the free cash flows for the J. B. Chavez Corporation for the year ended December 31, 2003, both from an asset and a financing perspective. Interpret your
2-9A. (Analyzing free cash flows) Following you will find our computation of the free cash flows for Johnson, Inc. Interpret the information in terms of where cash came from and where it was used.The
2-8A. f,ftnalyzing free cash flows) Following you will find our computation of the free cashıflows for]. T. Williams. Interpret the information in terms of where cash came from andıwhere it was
2-7A. (Measuring cash flows) Calculate the free cash flows for Abrams Manufacturing Company for the year ended December 31, 2003, both from an asset and a financing perspective. Interpret your
2-6A. (Meaml'ing cash flows) Calculate the free cash flows for T P Jannon Company for the year.. ended December 31, 2003, both from an asset and a financing perspective. Interpret your results. T. P.
2-5A. (Measuring cash flows) Calculate the free cash flows for Pamplin, Inc., for the year ended December 31, 2003, both from an asset and a financing perspective. Interpret your results. Pamplin,
2-2A. (Review offinancial statements) Prepare a balance sheet and income statement as of December 31, 2003, for the Sharpe Mfg. Co. from the following information. Accounts receivable Machinery and
2-1A. (Review offinancial statements) Prepare a balance sheet and income statement as of December 31, 2003, for Belmond, Inc., from the following infomlation.. Inventory $ 6,500 General and
ST-2. (Leverage analysis) You have developed the following analytical income statement for your corpotation. It represents the most recent year's operations, which ended yesterday. Your supervisor in
15-1A. (Sales mix ami break-roen point) CheeMortal music store sells four kinds of musical'rnents-pianos, violins, cellos, and flutes. The current sales mix for the store and the contribution gin
15-4A. (Break-roen point ami operating leverage) Some financial data for each ofthree finnsm follows:a.ı What is the profit for each company at the indicated sales volume?b.ı What is the break-even
15-5A. (Lroerage analysis) You have developed the following analytical income statement your corporation. It represents the most recent year's operations, which ended yesterday,Your supervisor in the
IS-SA. (Break-even point and operating leverage) Some financial data for each of three firms are as follows:a.ı What is the profit for each company at the indicated sales volume?b.ı What is the
15-11A. (Leverage analysis) You have developed the following analytical income statement frt your corporation. It represents the most recent year's operations, which ended yesterday. YOUI supervisor
15-12A. (Break-even point) You are a hard-working analyst in the office of financial operarioJII for a manufacturing firm that produces a single product. You have developed the following COlt
15-14A. (Break-even point and operating leverage) Some financial data for each of three finnsm as follows:a.ı What is the profit for each company at the indicated sales volume?b.ı What is the
15-24A. (Leverage analysis) An analytical income statement for Detroit Heat Treating is shown below. It is based on an output (sales) level of 40,000 units. You may refer to the original cost
15-25A. (Break-even point) You are employed as a financial analyst for a single-product manufacturing firm. Your supervisor has made the following cost structure information available to you, all of
15-27A. (Leverage analysis) Your firm's cost analysis supervisor supplies you with the following analytical income statement and requests answers to the four questions listed following the
15-28A. (Leverage analysis) You are supplied with the following analytical income statement for your finn. It reflects last year's operations.a.ı At this level of output, what is the degree of
15-29A. (Sates mix and break-even point) Toledo Components produces four lines of auto accessories for the major Detroit automobile manufacturers. The lines are known by the code letters A, B, C, and
H-lOA. (Sates mix and break-even point) Because ofproduction constraints, Toledo Components(see problem 15-29A) may have to adhere to a different sales mix for next year. The alternative plan is
IS-lB. (Break-even point) Roberto Martinez is the chief financial analyst at New Wave Pharmaceuticals (NWP), a company that produces a vitamin claimed to prevent the common cold. Roberto has been
lS-4B. (Break-even point and operating Leverage) Some financial data for each of three firms are as ioUows:a.ı What is the profit for each company at the indicated sales volume?b.ı What is the
15-7B. (Leverage analysis) You have developed the following analytical income statement for your corporation. It represents the most recent year's operations, which ended yesterday.Your supervisor in
15-8B. (Break-even point) You are a hard-working analyst in the office of financial operations for a manufacturing firm that produces a single product. You have developed the following cost structure
IS-lOB. (Break-even point and operating leverage) Some financial data for each of three firms are as follows:a.ı What is the profit for each company at the indicated sales volume?b. What is the
15-20B. (Leverage analysis) An analytical income statement for Tropical Sun follows. It is based on an output (sales) level of 50,000 units. You may refer to the original cost structure data in
15-2IB. (Break-even point) You are employed as a financial analyst for a single-product manufucturing finn. Your supervisor has made the following cost structure information available to you, all of
#!# 15-23B. (Leverage analysis) Your firm's cost analysis supervisor supplies you with the following analytical income statement and requests answers to the four questions listed following the
#!# 15-24B. (Leverage analysis) You are supplied with the following analytical income statement for your firm. It reflects last year's operations.a. At this level of output, what is the degree of
#!# 15-25B. (Sales mix and the break-even point) Wayne Automotive produces four lines of auto accessories for the major Detroit automobile manufacturers. The lines are known by the code letters A, B,
#!# .l5-26B. (Sales mix and the break-even point) Because of production constraints, Wayne Automotive (see problem 15-25B) may have to adhere to a different sales mix for next year. The alternative
15-8. Break-even analysis assumes linear revenue and cost functions. In reality, these linearıfunctions over large output and sales levels are highly improbable. Why?ıvST-!. (Break-even point) You
#!# 15-22B. (Fixed costs) Sausalito Silkscreen is forecasting fixed costs next year of $375,000. The firm's single product sells for $25 per unit and incurs a variable cost per unit of $13. The finn
15-19B. (Operating leverage) The management of Tropical Sun did not purchase the new piece of equipment (see problem 15-18B). Using the existing cost structure, calculate the degree or operating
15-18B. (Fixed costs) Tropical Sun projects that next year its fixed costs will total $135,000. Its only product sells for $13 per unit, ofwhich $6 is a variable cost. The management ofTropical is
15-17B. (Break-even point and operating leverage) The Palm Patio Company manufactures a full line of lawn furniture. The average selling price of a finished unit is $28. The associated variable cost
IS-16B. (Operating leverage) The B. H. WiJliams Company manufactures an assortment of woodbuming stoves. The average selling price for the various units is $475. The associated variable cost is $350
1S-ISB. (Break-even point and profit margin) A recent business graduate of Dewey University is planning to open a new wholesaling operation. His target operating profit margin is 25 percent. His unit
1S-14B. (Break-even point and selling price) Thomas Appliances will manufacmre and sell 190,000 units next year. Fixed costs will total $300,000, and variable costs will be 75 percent of sales.a.ı
IS-1m. (BI'eak-even point and selling price) Heritage Chain Company wilJ produce 175,000 units next year. All of this production will be sold as finished goods. Fixed costs will total
IS-I2B. (Fixed costs and the break-even point) Mini-Kool hopes to earn $70,000 next year after taxes. Sales will be $2,500,050. The firm's single plant manufactures only smalJ refrigerators.These are
IS-HB. (Fixed costs and the break-even point) Keller's Keg expects to earn $38,000 next year after taxes. Sales will be $420,002. The store is located near the fraternity-row district of Blue Springs
15-9B. (Break-even point and operating leverage) Matthew Electronics manufactures a complete line of radio and communication equipment for law enforcement agencies. The average selling price of its
15-6B. (Break-even point and profit margin) A recent graduate of Neeley University is planning to open a new wholesaling operation. Her target operating profit margin is 28 percent. Her unit
15-5B. (Fixed costs and the break-even point) Cypress Books expects to earn $55,000 next year after taxes. Sales will be $400,008. The store is located near the shopping district surrounding
IS-JR. (Break-even point and ope1'ating Leverage) Avitar Corporation manufactures a line of computer memory expansion boards used in microcomputers. The average selling price of its finished product
IS-2B. (Leverage analysis) New Wave Pharmaceuticals (see description and data in Problem IS-IB) is concerned that recent unfavorable publicity about the questionable medicinal benefits of other
5.ı Prepare another analytical income statement, this time to verify the calculations from question(4).
4.ı Ifsales should increase by 30 percent (as the president expects), by what percent would EBT(earnings before taxes) and net income increase?
3.ı What is the firm's break-even point in sales dollars?
2.ı What is the degree of combined leverage?
I.ı What is the degree of financial leverage?
15-2WW. The Coca-Cola company consistently publishes an outstanding and useful tb annual report, found at www.coca-cola.com or accessed through www.reportgallery,com, a(Coca-Cola is one of the few
15-1ww: Reading the "Finance Matters" box dealing with General Motors' pricing strategyfowul at the end of the break-even analysis discussion in this chapter will provide a useful background fcf this
15-26A. (Fixed costs) Des Moines Printing Services is forecasting fixed costs next year of$300,000. The firm's single product sells for $20 per unit and incurs a variable cost per unit of$14. The
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