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business
intermediate financial management

Questions and Answers of Intermediate Financial Management

10-1 How does value-based pricing differ from cost-based pricing? (AACSB: Communication) pg94
5. Can Reckitt extend its position in emerging markets. If so, how can this be achieved? pg94
4. Will Reckitt be able to maintain its market position in so many areas when strong competitors enter with their own niche products? Why or why not? pg94
3. Based on the product life cycle, what challenges does Reckitt face in managing its brand portfolio? Are the challenges for Mr Kapoor different to those faced earlier by Mr Brecht? In what ways?
2. Is Reckitt’s product development customer-centred?pg94Justify and explain your answer.
1. How has Reckitt been able to achieve leadership positions in so many different areas?
9-13 What other factors must a dentist consider before offering this service in addition to their in-office service?(AACSB: Communication; Reflective thinking) pg94
9-12 What types of fixed costs are associated with this service?Estimate the total fixed costs for this additional service, and, assuming a contribution margin of 40 per cent, determine the amount of
9-10 Discuss the ethical issues surrounding orphan drugs.Should pharmaceutical companies be allowed to charge such high prices for these drugs? (AACSB: Communication;Ethical reasoning) pg94
9-9 Discuss other existing products that have created new life for the product by embracing Internet, mobile or social media platforms. Suggest an app for another tangible pg94
9-8 In what stage of the product life cycle is the Reading Rainbow television programme? Has the mobile app changed that? Explain. (AACSB: Communication; Reflective thinking) pg94
9-7 The ‘Internet of Things’ — a term that refers to everyday objects being connected to the Internet — is growing.Thermostats, ovens, cars, toothbrushes, and even baby clothes are connecting
9-6 Find an example of a company that launched a new consumer product within the last five years. Develop a presentation showing how the company implemented the 4 Ps in launching the product and
9-5 It appears that the sky is the limit regarding ideas for smartphone/tablet apps. In a small group, create an idea for new apps related to (1) business, (2) health, (3) education,(4) sports and
9-3 What are the benefits of an innovation management system and how can a company install such a system?pg94Do all products follow this pattern? Explain. (AACSB:Communication; Reflective thinking)
9-2 What decisions must be made once a company decides to go ahead with commercialisation for a new product?(AACSB: Communication) pg94
1. What do you think that the John Lewis brand means to consumers?Is this brand a strength or a weakness as the company moves forward? pg94•process? What is required in a good marketing strategy
8-13 What brand development strategy is Kellogg’s undertaking?(AACSB: Communication; Reflective thinking) pg94
8-14 Assume the company expects to sell 5 million packages of Pop-Tarts Gone Nutty! in the first year after introduction globally, but expects that 80 per cent of those sales will come from buyers
8-10 Discuss two examples of similar types of wearable technology for humans. (AACSB: Communication; Reflective thinking) pg94
Use of IT; Analytical reasoning) pg94
show. What competitive advantage does the show pg94 have over existing shows? How many and which differences would you promote? (AACSB: Communication;Reflective thinking) pg94
7-4 Explain how a company differentiates its products from competitors’ products. (AACSB: Communication) pg94
7-3 Explain how companies segment international markets.(AACSB: Communication) pg94
7-2 Compare and contrast consumer and business market segmentation. (AACSB: Communication) pg94
7-1 Name and describe the four major steps in designing a customer-driven marketing strategy. (AACSB:Communication) pg94
6-13 How would other company employees interpret your acceptance of this invitation? pg94
6-12 Do you think the supplier will expect ‘special’ treatment in the next buying situation? pg94
6-10 Do you accept or decline the invitation? pg94
6-3 Discuss the major influences on business buyers.(AACSB: Communication) pg94
➤ Objective 3 List and define the steps in the business buying decision process. pg94 pg94E-procurement and online purchasing (pp. 179–180) pg94
5. What role does the Porsche brand play in the self-concept of its buyers? pg94
3. Which concepts from the chapter explain why Porsche sold so many lower-priced models in the 1970s and 1980s? pg94
1. Analyse the buyer decision process of a traditional Porsche customer. pg94
The answers assume all things are held constant other than the item in question.a. Low payout ratio. Highly taxed owners probably will want to realize their returns through capital gains.b. Low
a. Present number of common shares = $2,000,000/$8 par value = 250,000.b. (1) The total market value of the firm before the stock dividend is$60 X 250,000 shares = $15 million. With no change in the
a. Using Eq. (11-1) and rearranging, P, = P,(1 + p) - Dl(1) With a dividend,(2) Without a dividend, The investor would have the same total value (share price plus dividend of $1.35) either way.340
15.90(4) (5)External Capital Financing Expenditures (2) + (4) - (1)d. Aggregate dividends are highest under alternativec, which involves a 50 percent dividend payout. However, they are only slightly
25
a.Income Available Dividends External Year for Dividends Per Share Financing Chapter 11 Dividend Policy: Theory and Practice 339 Year Net Income 1 $2,000 2 1,500 3 2,500 4 2,300 5 1,800 Capital
Forte Papers Corporation and Great Southern Paper Company are in the same industry, both are publicly held with a large number of stockholders, and they have the following characteristics (in
Darcy Dip Doodle Company's earnings per share over the last 10 years were the following:Year 1 2 3 4 5 6 7 8 9 10a. Determine annual dividends per share under the following policies:(1) A constant
The market price of the stock is$50 per share. You own 160 shares of the stock.a. If you sold your stock on March 20, what would be the price per share, all other things the same? (No signaling
The Canales Copper Company declared a 25 percent stock dividend on March 10 to stockholders of record on April
4 million shares of common stock outstanding, and the present market price per share is $36. Its equity capitalization is as follows:Common stock, $2.00 par $ 4,800,000 Additional paid-in capital
Johore Trading Company has
Zoppo Manufacturers shareholders' equity, December 30:Common stock ($100 par, 300,000 shares) $ 30,000,000 Additional paid-in capital 15,000,000 Retained earnings 55,000,000 Shareholders' equity
Singleton Electronics Company repurchased 1 million of 14 million shares outstanding at $98 a share. Immediately before the announcement, market price per share was $91.a. Was the offer price by the
8 million shares outstanding at a price of $42.50 per share.Immediately prior to the share repurchase announcement, share price was$37.00. The company was surprised that nearly 1 million shares were
In October, Baxter Lorry Company was in a flush cash position and repurchased 100,000 shares of its
The Xavier Industrial Coating Company has hired you as a financial consultant to advise the company with respect to its dividend policy. The coating industry has been very stable for some time, and
(Before the ex-dividend date, investors are entitled to the dividend; after, they are not.) The feeling has been that the stock will decline by the amount of the dividend on the exdividend date, so
The University of Northern California pays no taxes on the dividend income and capital gains received on its various endowment funds. Over the years, it has steadily bought the stock of IVM
The Mann Company belongs to a risk class for which the appropriate required equity return is 15 percent. It currently has outstanding 100,000 shares selling at $100 each. The firm is contemplating
Malkor Instruments Company treats dividends as a residual decision. It expects to generate $2 million in net earnings after taxes in the coming year. The company has an all-equity capital structure,
For each of the companies described below, would you expect it to have a medium/high or a low dividend-payout ratio? Explain why.a. A company with a large proportion of inside ownership, all of whom
The Kleidon King Company has the following shareholders' equity account:Common stock ($8 par value) $ 2,000,000 Additional paid-in capital 1,600,000 Retained earnings 8,400,000 Shareholders' equity
Le Pomme de Terre Corporation has enjoyed considerable recent success because Brazil placed a huge order for potatoes. This business is not expected to be repeated, and Le Pomme de Terre has $6
Do-Re-Mi Corporation makes musical instruments and experiences only moderate growth. The company has just paid a dividend and is contemplating a dividend of $1.35 per share 1 year hence. The present
The Beta-Alpha Company expects with some degree of certainty to generate the following net income and to have the following capital expenditures during the next 5 years (in thousands):Year I 2 3 4 5
.-12 -b 0 24 $ +A2 +16 328 Part I11 F i n a n c i n g a n d D i v i d e n d Policies era1 days surrounding the announcement, there is a run-up in the cumulative abnormal return, after which the
27 .uld R~bcrth l Cdnruv dn.1 R.)bcrtS tl.irris. "Sock ~ , ,.Splits and Information: Thc Rolc of SharcPrice," Financial Mnnngcm~nt,28(A utumn 19991,2840 DAYS AROUND ANNOUNCEMENT (0)-I- .- .- :. .. .'
00/1.05), or $1.90. The total value of your holdings then would be$38.10 X 105, or $4,000. Under these conditions, the stock dividend does not represent a thing of value to you. You merely have an
With stock repurchase, share value will increase, all other things remaining the same, and this will benefit the option holder.To the extent a CEO and others in top management strongly influence the
In this chapter, our focus is on stock repurchase as a substitute for cash dividends.Employee Stock Options and Share Repurchase Stock repurchases often occur in conjunction with stock options
However, it generally is agreed that the effect is more important for dividends than it is for capital structure.EMPIRICAL TESTING AND IMPLICATIONS FOR PAYOUT While we have seen that a number of
51 The duthors also analyze mandgcmenl hving to tool tne marker by Inrnsa.;lnl: dividend4 and rhr ~rnpltralinnso i .II;~ an C'I~L.L~.JCf~oOr ~.L~ t~kholJ~anrds iur the .qu~l~br'atutrgr ~rvllartlsrn
Assume that n is the number of shares of record at time 0 and that rn is the number of new shares sold at time 1 at a price of PI. Equation (11-1) then can be rewritten as'Merbn H. Miller and Franco
Perfect certainty by every investor as to future investments and profits of the firm. (MM drop this assumption later.)Dividends versus Terminal Value The aux of MM's position is that the effect of
A given investment policy for the firm, not subject to change.
A world of no taxes.
An absence of flotation costs on securities issued by the firm.
Perfect capital markets in which all investors are rational. Information available to all at no cost, instantaneous transactions without cost, infinitely divisible securities, and no investor large
310 Part III Financing and Dividend Policies The buyer and the seller of a stock have 3 business days to settle the transaction.Therefore, new stockholders are entitled to dividends only if they buy
Jennifer Doakes owned the stock well before May 31, so she is entitled to the dividend, even though she might sell her stock prior to the dividend actually being paid on June
a. There is not a precise solution to this problem; rather, it is a judgment call. In the problem are listed various possibilities for coming to grips with the cash-flow shortfall. In addition, there
3 mi on = .89 is much higher than the industry norm of .47.Its book value of debt to market value of stock ratio is even higher. Although the information is limited, it would appear that Torstein is
84b. Deviation from mean before ratio is one to one:Times interest earned: $2,000 - $732 = $1,268 Debt-service coverage: $2,000 - $1,089 = $911 Standardizing the deviations:1,268 Times interest
73$732$2,000 Debt-service coverage: - $1,089=
a. Total annual interest (in thousands):Serial bonds, 8% on $2,400 $192 Mortgage bonds, 10% on $3,000 300 Subordinated debentures, 12% of $2,000 240-$732 -306 Part 111 Financing and Dividend Policies
a. (in thousands):Preferred Common Debt Stock Stock EBIT $1,500 $1,500 $1,500 Interest on existing debt 360 360 360 Interest on new debt -480 - -Profit before taxes $ 660 $1,140 $1,140 Taxes Profit
Gamma Tube Company plans to undertake a $7.5 million capital improvement program and is considering how much debt to use. It feels that it could obtain debt financing at the following interest rates
Comwell Real Estate Speculators, Inc., and the Northern California Electric Utility Company have the following EBITs and debt-servicing burdens:Northern Corn well California Expected EBIT Annual
The Power Corporation currently has 2 million shares outstanding at a price of$20 each and needs to raise an additional $5 million. These funds could be raised with stock or 10 percent debentures.
1 million shares outstanding and $8 million in debt bearing an interest rate of 10 percent on average. It is considering a $5 million expansion program financed with either (1) common stock at $20
Fazio Pump Corporation presently has
Hi Grade Regulator Company (see Problem 3) expects the EBIT level after the expansion program to be $1 million, with a two-thirds probability that it will be between $600,000 and $1,400,000.a. Which
Hi Grade Regulator Company currently has 100,000 shares of common stock outstanding with a market price of $60 per share. It also has $2 million in 6 percent debt. The company is considering a $3
Callatin Quarter Company makes saddles. During the preceding calendar year,, ->it earned $200,000 after taxes. The company is in a 40 percent tax bracket, it had no debt outstanding at year end, and
The Lemaster Company is a new firm that wishes to determine an appropriate capital structure. It can issue 16 percent debt or 15 percent preferred stock.Moreover, common stock can be sold at $20 per
Sowla Electronics currently has $2 million in cash and marketable securities, a$3 million bank line of credit of which $1.3 million is in use, pays a cash dividend on its stock of $1.2 million
Torstein Torque and Gear Company has $7.4 million in long-term debt having the following schedule:AMOUNT(IN THOUSANDS)8% serial bonds, payable $100,000 in principal annually $2,400 10% first mortgage
Dorsey Porridge Company presently has $3.6 million in debt outstanding bearing an interest rate of 10 percent. It wishes to finance a $4 million expansion program and is considering three
FLEXIBILITY If a company needs to finance on a continuing basis over time, how does the method chosen this time affect future financing? How important is it that a company have flexibility to tap the
TIMING Is it a good time to issue debt? to issue equity? Whenever securities are to be issued, the vitality of the debt and stock markets must be addressed. This consideration is taken up in later
SECLJIUTYRATING Is a particular method of financing likely to result in a downgrade or upgrade of the company's security rating? No financial manager can ignore this consideration, thoug- h it should
DEBT RATIOS What effect does a method of financing have on the company's debt ratios?How do the new debt ratios compare with other companies' in the industry?What is the likely effect on investment
EBIT-EPS ANALYSIS At what point in earnings before interest and taxes (EBIT) are the earnings per share (EPS) of a company the same under alternative methods of financing?How does this relate to the
CASH FLOW ABILITY TO SERVICE DEBT This is probably the most important analytical tool in determining the debt capacity of a corporation. The analysis here brings together the business and financial
FINANCIAL SIGNALING What is likely to be the stock market reaction to a particular financing decision and why? An effect, if any, is based on asymmetric information between management and security

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