Question: A person borrows $200 that he must

> a. Calculate the required rate of return for an asset that has a beta of 1.8, given a risk-free rate of 5% and a market return of 10%. b. If investors have become more risk averse due to recent geopolitical events and the market return rises to 13%, what

> Calculate the value of a $5,000-par-value bond paying quarterly interest at an annual coupon rate of 10% and having 10 years until maturity if the required return on similar-risk bonds is currently a 12% annual rate paid quarterly.

> Melissa is trying to value the stock of Generic Utility Inc., which is clearly not growing at all. Generic declared and paid a $5 dividend last year. The required return for utility stocks is 11%, but Melissa is unsure about the financial reporting integ

> Hamlin Steel Company wishes to determine the value of Craft Foundry, a firm that it is considering acquiring for cash. Hamlin wishes to determine the applicable discount rate to use as an input to the constant growth valuation model. Craftâ€&#

> Giant Enterprises’ stock has a required return of 14.8%. The company, which plans to pay a dividend of $2.60 per share in the coming year, anticipates that its future dividends will increase at an annual rate consistent with that experi

> Given the following information for the stock of Foster Company, calculate the risk premium on its common stock. Current price per share of common Expected dividend per share next year Constant annual dividend growth rate Risk-free rate of return $5

> REH Corporation’s most recent dividend was $3 per share, its expected annual rate of dividend growth is 5%, and the required return is now 15%. A variety of proposals are being considered by management to redirect the firm’s activities. Determine the imp

> For each of the firms shown in the following table, use the data given to estimate its common stock value employing price/earnings (P/E) multiples. Firm Expected EPS Price/earnings multiple A $3.00 6.2 В 4.50 10.0 1.80 12.6 2.40 8.9 E 5.10 15.0

> Acura Labs Inc. has an outstanding issue of preferred stock with a $40 par value and an 8% annual dividend. a. What is the annual dollar dividend? If it is paid quarterly, how much will be paid each quarter? b. If the preferred stock is noncumulative and

> The balance sheet for Gallinas Industries is as follows. Additional information with respect to the firm is available: (1) Preferred stock can be liquidated at book value. (2) Accounts receivable and inventories can be liquidated at 90% of book value.

> Assume that you have an opportunity to buy the stock of CoolTech Inc., an IPO being offered for $12.50 per share. Although you are very much interested in owning the company, you are concerned about whether it is fairly priced. To determine the value of

> Herky Foods is considering acquisition of a new wrapping machine. By purchasing the machine, Herky will save money on packaging in each of the next 5 years, producing the series of cash inflows shown below. The initial investment (CF0) is estimated at $1

> Nabor Industries is considering going public but is unsure of a fair offering price for the company. Before hiring an investment banker to assist in making the public offering, managers at Nabor have decided to make their own estimate of the firmâ&

> You are evaluating the potential purchase of a small business with no debt or preferred stock that is currently generating $42,500 of free cash flow (FCF0 = $42,500). On the basis of a review of similar-risk investment opportunities, you must earn an 18

> Lawrence Industries’ most recent annual dividend was $1.80 per share (D0 = $1.80), and the firm’s required return is 11%. Find the market value of Lawrence’s shares when: a. Dividends are expected to grow at 8% annually for 3 years, followed by a 5% cons

> Home Place Hotels Inc. is entering into a 3-year remodeling and expansion project. The construction will have a limiting effect on earnings during that time, but when completed, it should allow the company to enjoy much improved growth in earnings and di

> Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $4.25 per share and paid cash dividends of $2.55 per share (D0 = 2.55). Grips’ earnings and dividends are expected to grow at 25%

> Over the past 6 years, Elk County Telephone has paid the dividends shown in the following table. The firm’s dividend per share in 2020 is expected to be $3.02. a. If you can earn 13% on similar-risk investments, what is the most you w

> The common stock of Barr Labs Inc. trades for $114 per share. Investors expect the company to pay a $1.35 dividend next year, and they expect that dividend to grow at a constant rate forever. If investors require a 15.8% return on this stock, what divide

> Seagate Technology is a global leader in data storage solutions and a high-yield dividend payer. From 2015 through 2019, Seagate paid the following per-share dividends: Assume that the historical annual growth rate of Seagate dividends is an accurate e

> Aspin Corporation’s charter authorizes issuance of 2,000,000 shares of common stock. Currently, 1,400,000 shares are outstanding, and 100,000 shares are being held as treasury stock. The firm wishes to raise $48,000,000 for a plant expansion. Discussions

> In January 2016, Anheuser-Busch issued an outstanding bond that pays a 3.3% coupon rate, matures in January 2023, and has a yield to maturity of 2.82%. In January 2017, Santander Holdings issued an outstanding bond that pays a 3.571% coupon rate, matures

> Elysian Fields Inc. uses a maximum payback period of 6 years and currently must choose between two mutually exclusive projects. Project Hydrogen requires an initial outlay of $25,000; project Helium requires an initial outlay of $35,000. Using the expect

> A 1-year Treasury bill currently offers a 5% rate of return. A 2-year Treasury note offers a 5.5% rate of return. Under the expectations theory, what rate of return do investors expect a 1-year Treasury bill to pay next year?

> The following yield data for a number of highest quality corporate bonds existed at each of the three points in time noted. a. On the same set of axes, draw the yield curve at each of the three given times. b. Label each curve in part a with its genera

> Tyra loves to shop at her favorite store, Dollar Barrel, where she can find hundreds of items priced at exactly $1. Tyra has $200 to spend and is thinking of going on a shopping spree at Dollar Barrel, but she is also thinking of investing her money. a.

> Economic forecasters predict that the rate of inflation will hold steady at 2% per year indefinitely. The table below shows the nominal interest rate paid on Treasury securities having different maturities. a. Approximately what real interest rate do T

> A firm wishing to evaluate interest rate behavior has gathered yield data on five U.S. Treasury securities, each having a different maturity and all measured at the same point in time. The summarized data follow. a. Draw the yield curve associated with

> Zane Perelli currently has $100 that he can spend today on socks costing $2.50 each. Alternatively, he could invest the $100 in a risk-free U.S. Treasury security that is expected to earn a 9% nominal rate of interest. The consensus forecast of leading e

> Calculate the value of each of the bonds shown in the following table, all of which pay interest semiannually. Required stated annual return Years to Bond Par value Coupon rate maturity A $1,000 10% 12 8% B. 1,000 12 20 12 500 12 5 14 D 1,000 14 10

> Find the value of a bond maturing in 6 years, with a $1,000 par value and a coupon rate of 10% (5% paid semiannually) if the required return on similar-risk bonds is 14% per year (7% paid semiannually).

> Mark Goldsmith’s broker has shown him two bonds issued by different companies. Each has a maturity of 5 years, a par value of $1,000, and a yield to maturity of 7.5%. The first bond is issued by Crabbe Waste Disposal Corporation and has a coupon rate of

> Each of the bonds shown in the following table pays interest annually. a. Calculate the yield to maturity (YTM) for each bond. b. What relationship exists between the coupon rate and yield to maturity and the par value and market value of a bond? Expla

> Oxy Corporation uses debt, preferred stock, and common stock to raise capital. The firm’s capital structure targets the following proportions: debt, 55%; preferred stock, 10%; and common stock, 35%. If the cost of debt is 6.7%, preferred stock costs 9.2%

> The Salem Company bond currently sells for $867.59, has a 6% coupon rate and a $1,000 par value, pays interest annually, and has 15 years to maturity a. Calculate the yield to maturity (YTM) on this bond. b. Explain the relationship that exists between t

> The relationship between a bond’s yield to maturity and coupon rate can be used to predict its pricing level. For each of the bonds listed, state whether the price of the bond will be at a premium to par, at par, or at a discount to par

> To estimate the equilibrium rate of interest, the economics division of Mountain Banks—a major bank holding company—has gathered the data summarized in the following table. Because the likelihood is high that new tax l

> Lynn Parsons is considering investing in either of two outstanding bonds. The bonds both have $1,000 par values and 11% coupon rates and pay annual interest. Bond A has exactly 5 years to maturity, and bond B has 15 years to maturity. a. Calculate the va

> Pecos Manufacturing has just issued a 15-year, 12% coupon rate, $1,000-par bond that pays interest annually. The required return is currently 14%, and the company is certain it will remain at 14% until the bond matures in 15 years. a. Assuming that the r

> Midland Utilities has a bond issue outstanding that will mature to its $1,000 par value in 12 years. The bond has a coupon rate of 11% and pays interest annually. a. Find the value of the bond if the required return is (1) 11%, (2) 15%, and (3) 8%. b. P

> Calculate the value of each of the bonds shown in the following table, all of which pay interest annually. Par value Coupon rate Years to maturity Required return Bond A $1,000 11% 20 12% B 1,000 8 16 8 100 7 D 500 6. 13 8. E 1,000 7 10

> Complex Systems has an outstanding issue of $1,000-parvalue bonds with a 12% coupon rate. The issue pays interest annually and has 16 years remaining to its maturity date. a. If bonds of similar risk are currently earning a 10% rate of return, how much s

> Laura Drake wishes to estimate the value of an asset expected to provide cash inflows of $3,000 per year for each of the next 4 years and $15,000 in 5 years. Her research indicates that she must earn 4% on low-risk assets, 7% on average-risk assets, and

> Using the information provided in the following table, find the value of each asset today. Cash flow Asset Year Amount Appropriate required return A $ 3,000 1 8% 2 3,000 3 3,000 1 through oo $ 500 5% C 1 6% 2 4 5 45,000 $ 1,500 8,500 D 1 through 5 4

> Weekend Warriors Inc. has 35% debt and 65% equity in its capital structure. The firm’s estimated after-tax cost of debt is 8% and its estimated cost of equity is 13%. Determine the firm’s weighted average cost of capital (WACC).

> Imagine that you are trying to evaluate the economics of purchasing a condominium to live in during college rather than renting an apartment. If you buy the condo, during each of the next 4 years you will have to pay property taxes and maintenance expend

> Assume that the Financial Management Corporation’s $1,000-par-value bond had a 5.700% coupon, matures on May 15, 2027, has a current price quote of 97.708, and has a yield to maturity (YTM) of 6.034%. Given this information, answer the following question

> Charter Corp. has issued 2,500 debentures with a total principal value of $2,500,000. The bonds have a coupon rate of 7%. a. What dollar amount of interest per bond can an investor expect to receive each year from Charter? b. What is Charter’s total inte

> Carl Foster, a trainee at an investment banking firm, is trying to get an idea of what real rate of return investors are expecting in today’s marketplace. He has looked up the rate paid on 3-month U.S. Treasury bills and found it to be 1.5%. He has decid

> Misty needs to have $15,000 in 5 years to fulfill her goal of purchasing a small sailboat. She is willing to invest a lump sum today and leave the money untouched for 5 years until it grows to $15,000, but she wonders what sort of investment return she w

> You can deposit $10,000 into an account paying 9% annual interest either today or exactly 10 years from today. How much better off will you be 40 years from now if you decide to make the initial deposit today rather than 10 years from today?

> As part of your financial planning, you wish to purchase a new car 5 years from today. The car you wish to purchase costs $14,000 today, and your research indicates that its price will increase by 2% to 4% per year over the next 5 years. a. Estimate the

> You have $1,500 to invest today at 7% interest compounded annually. a. Find how much you will have accumulated in the account after (1) 3 years, (2) 6 years, and (3) 9 years. b. Use your findings in part a to calculate the amount of interest earned in (1

> For each of the cases shown in the following table, calculate the future value of the single cash flow deposited today and held until the end of the deposit period if the interest is compounded annually at the rate specified. Single cash flow Deposi

> Duke Energy has been paying dividends steadily for 20 years. During that time, dividends have grown at a compound annual rate of 3%. If Duke Energy’s current stock price is $78 and the firm plans to pay a dividend of $6.50 next year, what is the required

> You have $100 to invest. If you put the money into an account earning 5% interest compounded annually, how much money will you have in 10 years? How much money will you have in 10 years if the account pays 5% simple interest?

> Suppose that today’s date is January 1, 2019. You have the opportunity to make an investment that will pay you $100 on January 1 of every year, starting in 2020 and continuing forever. Assume the relevant discount rate is 7%. a. What would you pay now fo

> Consider the data in the following table. Determine the present value of each perpetuity. Perpetuity Annual payment Discount rate A $ 20,000 8% В 100,000 10 C 3,000 6. D 60,000 5

> Assume that you just won the state lottery. Your prize can be taken either in the form of $40,000 at the end of each of the next 25 years (i.e., $1,000,000 over 25 years) or as a single amount of $500,000 paid immediately. a. If you expect to earn 5% ann

> Emily Jacob is 45 years old and has saved nothing for retirement. Fortunately, she just inherited $75,000. Emily plans to put a large portion of that money into an investment account earning an 11% return. She will let the money accumulate for 20 years,

> An insurance agent is trying to sell you an annuity that will provide you with $12,000 at the end of each of the next 25 years. If you don’t purchase this annuity, you can invest your money and earn a return of 9%. What is the most you would pay for this

> Hal Thomas, a 25-year-old college graduate, wishes to retire at age 65. To supplement other sources of retirement income, he can deposit $2,000 each year into a tax-deferred individual retirement arrangement (IRA). The IRA will earn a 10% return over the

> Marian Kirk wishes to select the better of two 10-year annuities. Annuity 1 is an ordinary annuity of $2,500 per year for 10 years. Annuity 2 is an annuity due of $2,300 per year for 10 years. a. Find the future value of both annuities 10 years from now,

> Consider the following cases. a. Calculate the present value of the annuity, assuming that it is (1) An ordinary annuity. (2) An annuity due. b. Compare your findings in parts a(1) and a(2). All else being identical, which type of annuityâ€&

> Future value calculation  Without referring to the preprogrammed function on your financial calculator, use the basic formula for future value along with the given interest rate, r, and the number of periods, n, to calculate the f

> Your firm, People’s Consulting Group, has been asked to consult on a potential preferred stock offering by Brave New World. This 9% preferred stock issue would be sold at its par value of $55 per share. Flotation costs would total $3 per share. Calculate

> For each case in the accompanying table, answer the questions that follow. a. Calculate the future value of the annuity, assuming that it is (1) An ordinary annuity. (2) An annuity due. b. Compare your findings in parts a(1) and a(2). All else being id

> You put $10,000 in an account earning 5%. After 3 years, you make another deposit into the same account. Four years later (that is, 7 years after your original $10,000 deposit), the account balance is $20,000. What was the amount of the deposit at the en

> Tom Alexander has an opportunity to purchase any of the investments shown in the following table. The purchase price, the amount of the single cash inflow, and its year of receipt are given for each investment. Which purchase recommendations would you ma

> In exchange for a $23,000 payment today, a well-known company will allow you to choose one of the alternatives shown in the following table. Your opportunity cost is 9%. a. Find the value today of each alternative. b. Are all the alternatives acceptabl

> You just won a lottery that promises to pay you $1,000,000 exactly 10 years from today. A company approaches you today, offering cash in exchange for your winning lottery ticket. a. What is the least you will sell your claim for if you can earn the follo

> An Iowa state savings bond can be converted to $100 at maturity 6 years from purchase. If the state bonds are to be competitive with U.S. savings bonds, which pay 3% annual interest (compounded annually), at what price must the state sell its bonds? Assu

> Jim Nance has been offered an investment that will pay him $500 three years from today. a. If his opportunity cost is 7% compounded annually, what value should he place on this opportunity today? b. What is the most he should pay to purchase this investm

> Answer each of the following questions. a. How much money would you have to invest today to accumulate $6,000 after 6 years if the rate of return on your investment is 12%? b. What is the present value of $6,000 that you will receive after 6 years if the

> For each of the cases shown in the following table, calculate the present value of the cash flow, discounting at the rate given and assuming that the cash flow is received at the end of the period noted. Single cash flow End of period (ycars) Cash D

> Without referring to the preprogrammed function on your financial calculator, use the basic formula for present value, along with the given discount rate, r, and the number of periods, n, to calculate the present value of $1 in each of the cases shown in

> A firm raises capital by selling $20,000 worth of debt with flotation costs equal to 2% of its par value. If the debt matures in 10 years and has a coupon interest rate of 8% (paid annually), what is the bond’s YTM?

> The financial manager at Starbuck Industries is considering an investment that requires an initial outlay of $25,000 and is expected to produce cash inflows of $3,000 at the end of year 1, $6,000 at the end of years 2 and 3, $10,000 at the end of year 4,

> Maris Brothers Inc. needs a cash disbursement schedule for the months of April, May, and June. Use the format of Table 4.9 and the following information in its preparation. Sales: February = $500,000; March = $500,000; April = $560,000; May = $610,000; J

> A firm has actual sales of $65,000 in April and $60,000 in May. It expects sales of $70,000 in June and $100,000 in July and in August. Assuming that sales are the only source of cash inflows and that half of them are for cash and the remainder are colle

>  Below we reproduce the stockholders’ equity section of the 2019 and 2018 balance sheets for Baker Corporation, which also appear as part. a. The Baker Corporation statement of cash flows shows a $0 cash inflow resulting f

> Use the appropriate items from the following list to prepare Mellark’s Baked Goods balance sheet at December 31, 2019. Value ($000) at December 31, 2019 Value ($000) at December 31, 2019 Item Item Accounts payable $ 220 Inventories

> Everdeen Mining Inc. ended 2019 with a net profit before taxes of $436,000. The company is subject to a 40% tax rate and must pay $64,000 in preferred stock dividends before distributing any earnings on the 170,000 shares of common stock currently outsta

> Adam and Arin Adams have collected their personal income and expense information and have asked you to put together an income and expense statement for the year ended December 31, 2019. You have received the following information from the Adams family.

> Consider the following balance sheets and selected data from the income statement of Keith Corporation. a. Calculate the firm’s net operating profit after taxes (NOPAT) for the year ended December 31, 2019, using Equation 4.1. b. Ca

> McDougal Printing Inc. had sales totaling $40,000,000 in fiscal year 2019. Some ratios for the company are listed below. Use this information to determine the dollar values of various income statement and balance sheet accounts as requested. Calculate

> Financial information from fiscal year 2016 for two companies competing in the cosmetics industry—The Estée Lauder Companies and e.l.f. Beauty Inc.—appears in the table below. All dollar values are in tho

> You wish to calculate the risk level of your portfolio based on its beta. The five stocks in the portfolio with their respective weights and betas are shown in the accompanying table. Calculate the beta of your portfolio. Stock Portfolio weight Beta

> Pelican Paper Inc. and Timberland Forest Inc. are rivals in the manufacture of craft papers. Some financial statement values for each company follow. Use them in a ratio analysis that compares the firms’ financial leverage and profitabi

> On December 31, 2019, Cathy Chen, a self employed certified public accountant (CPA), completed her first full year in business. During the year, she charged her clients $360,000 for accounting services. She had two employees, a bookkeeper and a clerical

> Common-size statement analysis A common-size income statement for Creek Enterprises’ 2018 operations follows. Using the firm’s 2019 income statement presented in Problem 3–16, develop the

> Using Tables 3.1, 3.2, and 3.3, conduct a complete ratio analysis of the Bartlett Company for the years 2018 and 2019. You should assess the firm’s liquidity, activity, debt, and profitability ratios. Highlight any particularly positive

> The table below shows 2016 total revenues, cost of goods sold, earnings available for common stockholders, total assets, and stockholders’ equity for three companies competing in the bottled drinks market: The Coca-Cola Company, Pepsico

> Springfield Bank is evaluating Creek Enterprises, which has requested a $4,000,000 loan, to assess the firm’s financial leverage and financial risk. On the basis of the debt ratios for Creek, along with the industry average and Creek&ac

> The table below shows key financial data for three firms that compete in the consumer products market: Procter & Gamble, Colgate-Palmolive, and Clorox. All dollar values are in thousands. a. Calculate each of the following ratios for all three comp

> The table below shows that Blair Supply had an end-of-year accounts receivable balance of $300,000. The table also shows how much of the receivables balance originated in each of the previous 6 months. The company had annual sales of $2.4 million, and it

> Classify each of the following items as an inflow (I) or an outflow (O) of cash. Item Change ($) Item Change ($) Cash -300 Accounts receivable +1,700 Accounts payable Notes payable Long-term debt Inventory Fixed assets Net profits Depreciation Repur

> Three companies that compete in the footwear market are Foot Locker, Finish Line, and DSW. The table below shows inventory levels and cost of goods sold for each company for the 2016, 2015, and 2014 fiscal years. Calculate the inventory turnover ratio fo

> Your portfolio has three asset classes. U.S. government T-bills account for 45% of the portfolio, large-company stocks constitute another 40%, and small-company stocks make up the remaining 15%. If the expected returns are 2% for the T-bills, 10% for the

> Josh Smith has compiled some of his personal financial data to determine his liquidity position. The data are as follows. a. Calculate Josh’s liquidity ratio. b. Several of Josh’s friends have told him that they have