Consider a company that has sales in May, June, and July of $10 million, $12 million, and $9 million, respectively. The firm is paid by 35 percent of its customers in the month of the sale, 40 percent in the following month, and 22 percent in the next month (3 percent are bad sales and never pay). What is the cash collected in July?
> Suppose that Papa Bell, Inc.’s, equity is currently selling for $55 per share, with 4 million shares outstanding. If the firm also has 17 thousand bonds outstanding, which are selling at 94 percent of par, what are the firm’s current capital structure we
> A 3 1/8 percent TIPS has an original reference CPI of 180.5. If the current CPI is 206.8, what is the current interest payment and par value of the TIPS?
> A 2 ¾ percent TIPS has an original reference CPI of 185.4. If the current CPI is 210.7, what is the current interest payment and par value of the TIPS?
> A 5.5 percent corporate coupon bond is callable in ten years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond?
> A 6 percent corporate coupon bond is callable in five years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond?
> Compute the expected return and standard deviation given these four economic states, their likelihoods, and the potential returns: Economic Probability Return State Fast growth Slow growth 0.30 60% 0.50 13 Recession 0.15 -15 Depression 0.05 -45
> A bond issued by IBM on December 1, 1996 is scheduled to mature on December 1, 2096. If today is December 2, 2015, what is this bond’s time to maturity?
> A bond issued by Ford on May 15, 1997 is scheduled to mature on May 15, 2097. If today is November 16, 2014, what is this bond’s time to maturity?
> Determine the interest payment for the following three bonds: 4 ½ percent coupon corporate bond (paid semiannually), 5.15 percent coupon Treasury note, and a corporate zero coupon bond maturing in 15 years. (Assume a $1,000 par value.)
> Determine the interest payment for the following three bonds: 3 ½ percent coupon corporate bond (paid semiannually), 4.25 percent coupon Treasury note, and a corporate zero coupon bond maturing in ten years. (Assume a $1,000 par value.)
> Under what conditions would the constant growth rate model not be appropriate?
> A firm recently paid a $0.60 annual dividend. The dividend is expected to increase by 12 percent in each of the next four years. In the fourth year, the stock price is expected to be $110. If the required return for this stock is 14.5 percent, what is
> Explain how it is possible for the DJIA to increase one day while the Nasdaq Composite decreases during the same day.
> Describe how being a residual claimant can be very valuable.
> What’s the relationship between the P/E ratio and a firm’s growth rate?
> Differentiate the characteristics of growth stocks and value stocks?
> How is a firm’s changing P/E ratio reflected in the stock price? Give examples.
> Daddi Mac, Inc., doesn’t face any taxes and has $290 million in assets, currently financed entirely with equity. Equity is worth $37 per share, and book value of equity is equal to market value of equity. Also, let’s a
> Why might a firm’s investors wish to delay receiving cash from the firm?
> Explain why using the P/E relative value approach may be useful for companies that do not pay dividends.
> Can the variable growth rate model be used to value a firm that has a negative growth rate in Stage 1 and a stable and positive growth rate in Stage 2? Explain.
> Describe, in words, how to use the variable growth rate technique to value a stock.
> A firm recently paid a $0.45 annual dividend. The dividend is expected to increase by 10 percent in each of the next four years. In the fourth year, the stock price is expected to be $80. If the required return for this stock is 13.5 percent, what is its
> The expected return derived from the constant growth rate model relies on dividend yield and capital gain. Where do these two parts of the return come from?
> How important is growth to a stock’s value? Illustrate with examples.
> What are the differences between common stock and preferred stock?
> Describe the difference in the timing of trade execution and the certainty of trade price between market orders and limit orders.
> Illustrate through examples how trading commission costs impact an investor’s return.
> Which is higher, the ask quote or the bid quote? Why?
> Why might the Standard & Poor’s 500 Index be a better measure of stock market performance than the Dow Jones Industrial Average? Why is the DJIA more popular than the S&P 500?
> HiLo, Inc., doesn’t face any taxes and has $100 million in assets, currently financed entirely with equity. Equity is worth $7 per share, and book value of equity is equal to market value of equity. Also, let’s assume
> Get the trading statistics for the three main U.S. stock exchanges. Compare the trading activity to that of Table 8.1.
> HotFoot Shoes would like to maintain their cash account at a minimum level of $25,000, but expect the standard deviation in net daily cash flows to be $2,000, the effective annual rate on marketable securities to be 3.5 percent per year, and the trading
> JohnBoy Industries has a cash balance of $45,000, accounts payable of $125,000, inventory of $175,000, accounts receivable of $210,000, notes payable of $120,000, and accrued wages and taxes of $37,000. How much net working capital does the firm need to
> Smelpank, Inc.,estimates that it takes, on average, four days for their customers’ payments to reach them, three days for the payments to be processed and deposited by their bookkeeping department, and three more days for the check to clear once they are
> CM Enterprises estimates that it takes, on average, three days for their customers’ payments to reach them, one day for the payments to be processed and deposited by their bookkeeping department, and two more days for the check to clear once they are dep
> If a firm has a cash cycle of 54 days and an operating cycle of 77 days, what is its payables turnover?
> If a firm has a cash cycle of 73 days and an operating cycle of 127 days, what is its payables turnover?
> If a firm has a cash cycle of 45 days and an operating cycle of 77 days, what is its average payment period?
> If a firm has a cash cycle of 67 days and an operating cycle of 104 days, what is its average payment period?
> Sow Tire, Inc., has sales of $1,450,000 and cost of goods sold of $980,000. The firm had a beginning inventory of $97,000 and an ending inventory of $82,000. What is the length of the days’ sales in inventory?
> Dabble, Inc., has sales of $980,000 and cost of goods sold of $640,000. The firm had a beginning inventory of $36,000 and an ending inventory of $46,000. What is the length of the days’ sales in inventory?
> Obtain a current quote of McDonald’s (MCD) from the Internet. Describe what has changed since the quote in Figure 8.1.
> Suppose that a firm’s recent earnings per share and dividend per share are $2.75 and $1.60, respectively. Both are expected to grow at 9 percent. However, the firm’s current P/E ratio of 23 seems high for this growth rate. The P/E ratio is expected to fa
> You hold the positions in the table below. What is the beta of your portfolio? If you expect the market to earn 12 percent and the risk-free rate is 3.5 percent, what is the required return of the portfolio? Price Shares Beta Advanced Micro $14.70 30
> Dandee Lions, Inc., has a cash balance of $105,000, accounts payable of $220,000, inventory of $203,000, accounts receivable of $319,000, notes payable of $65,000, and accrued wages and taxes of $75,000. How much net working capital does the firm need to
> Would it be worth it to incur a compensating balance of $10,000 in order to get a 1-percent-lower interest rate on a one-year, pure discount loan of $225,000?
> Would it be worth it to incur a compensating balance of $7,500 in order to get a 0.65-percent-lower interest rate on a two-year, pure discount loan of $150,000?
> Consider a company that has sales in May, June, and July of $11 million, $10 million, and $12 million, respectively. The firm is paid by 25 percent of its customers in the month of the sale, 50 percent in the following month, and 23 percent in the next m
> The Snow Adventures Company makes its snowboards the month before they are sold. If sales of $7.8 million are expected in November and the firm pays 65 percent of sales in material costs, then what is the materials cash disbursement in October?
> The Hug’a’Bear company makes its teddy bears the month before they are sold. If sales of $2.5 million are expected in November and the firm pays 50 percent of sales in material costs, then what is the materials cash disbursement in October?
> The Net Cash Flow for a firm in January, February, and March are $3.5 million, $-1.0 million, and $1.4 million. What is the Cumulative Net Cash Flow for March?
> The net cash flow for a firm in January, February, and March are $-2.5 million, $-3.0 million, and $2.4 million. What is the cumulative net cash flow for March?
> As owners, what rights and advantages do shareholders obtain?
> A firm has estimated the following two month cash budget. What is the cash surplus or deficit for these two months?
> You hold the positions in the table below. What is the beta of your portfolio? If you expect the market to earn 12 percent and the risk-free rate is 3.5 percent, what is the required return of the portfolio? Price Shares Beta $40.80 http://www.Amazon
> A firm has estimated the following two month cash budget. What is the cash surplus or deficit for these two months?
> How big of a stock dividend would a firm have to announce for the stock price to be affected as much as it would through a 3-for-1 stock split?
> The company from the text, Yellow Jacket, has decided to change its production strategy. Instead of a steady production throughout the year, they will produce the coats they estimate to sell in the month prior. This will impact the materials and wage dis
> Suppose a firm managed to consistently lower the length of time between the ex-dividend date and the payment date. On average, how would this affect the firm’s stock price?
> Could the record date ever be before the ex-dividend date? Why or why not?
> Suppose a firm announces a new dividend amount every year with the first quarterly dividend declaration, but never explicitly states that the dividend will be continued for the other three quarters of the year. However, in the past the firm has always co
> If a firm follows the modified residual dividend model discussed in this chapter, are extraordinary dividends paid out of residual net income?
> Suppose that federal banking regulators in the United States announced that they are going to allow banks to take on significant equity investments in firms to which they have lent. What would you expect, on average, to happen to those firms’ dividend pa
> Describe the process for using the P/E ratio to estimate a future stock price.
> We talked about how a firm might attract a different clientele by switching dividend payout policies: Might a particular clientele change its preference for dividends versus capital gains through no action of the firm? Explain.
> What condition would have to be necessary in order for the riskiness of the firm’s cash flows to investors to be affected by the firm’s dividend payout policy?
> Why might the government actually want the capital gains tax rate to be lower than the dividend tax rate?
> Explain how an announced increase in a firm’s dividend payout might be perceived as either a good or a bad information signal.
> If a firm announces a dividend decrease, would you expect the stock price to go down more or less than the present value of that decrease? Why?
> What approach should be used to forecast sales if a firm believes that sales will be stable over time?
> JBK, Inc., normally pays an annual dividend. The last such dividend paid was $2.50, all future dividends are expected to grow at 5 percent, and the firm faces a required rate of return on equity of 11 percent. If the firm just announced that the next div
> Kenzie Cos. is expected to pay a dividend of $2.75 per year indefinitely. If the appropriate rate of return on this stock is 16 percent per year, and the stock consistently goes ex-dividend 40 days before dividend payment date, what will be the expected
> Gen Corp. is expected to pay a dividend of $3.50 per year indefinitely. If the appropriate rate of return on this stock is 11 percent per year, and the stock consistently goes ex-dividend 35 days before dividend payment date, what will be the expected mi
> MMK Cos. Normally pays an annual dividend. The last such dividend paid was $2.25, all future dividends are expected to grow at a rate of 7 percent per year, and the firm faces a required rate of return on equity of 13 percent. If the firm just announced
> Spreadsheets are especially useful for computing stock value under different assumptions. Consider a firm that is expected to pay the following dividends: Year 1 2 3 4 5 6 $1.20 $1.20 $1.50 $1.50 $1.75 $1.90 and grow at 5 percent t
> Suppose a firm has a retention ratio of 60 percent, net income of $35 million, and 140 million shares outstanding. What would be the dividend per share paid out on the firm’s stock?
> Suppose a firm has a retention ratio of 40 percent, net income of $17 million, and 10 million shares outstanding. What would be the dividend per share paid out on the firm’s stock?
> Suppose a firm has a retention ratio of 56 percent and net income of $9 million. How much does it pay out in dividends?
> Suppose a firm has a retention ratio of 35 percent and net income of $5 million. How much does it pay out in dividends?
> Suppose a firm pays total dividends of $750,000 out of net income of $5 million. What would the firm’s payout ratio be?
> Suppose a firm pays total dividends of $500,000 out of net income of $2 million. What would the firm’s payout ratio be?
> Explain why we need to use the iterative calculation approach described in the text to get a complete solution for AFN.
> If a firm has retained earnings of $3 million, a common shares account of $5 million, and additional paid-in-capital of $10 million, how would these accounts change in response to a 10 percent stock dividend? Assume market value of equity is equal to boo
> If a firm has retained earnings of $23 million, a common shares account of $275 million, and additional paid-in-capital of $100 million, how would these accounts change in response to a 20 percent stock dividend? Assume market value of equity is equal to
> Suppose that a firm always announces a yearly dividend at the end of the first quarter of the year, but then pays the dividend out as four equal quarterly payments. If the next such “annual” dividend has been announced as $4, it is exactly one quarter un
> Design a spreadsheet similar to the one below to compute the value of a variable growth rate firm over a five-year horizon. A. What is the value of the stock if the current dividend is $1.30, the first stage growth is 18%, the second stage growth is 9%,
> Annually Suppose that a firm always announces a yearly dividend at the end of the first quarter of the year, but then pays the dividend out as four equal quarterly payments. If the next such “annual” dividend has been announced as $6, it is exactly one q
> Everything else held constant, if a firm announces that it will double the length of time between its ex-dividend date and its payment date, what should be the effect on the stock price?
> Show mathematically that, with a tax rate on both dividends and capital gains of 15 percent, it doesn’t matter whether earnings are paid out as dividends or kept in the firm to cause g to grow for a constant-dividend stock.
> Show mathematically that, with a tax rate on both dividends and capital gains of 5 percent, it doesn’t matter whether earnings are paid out as dividends or kept in the firm to cause g to grow for a constant-dividend stock.
> Everything else held constant, if a firm announces that it will halve the length of time between its ex-dividend date and its payment date, what should be the effect on the stock price?
> Which of the following activities result in an increase (decrease) in a firm’s cash?
> What is the difference between current liabilities and long-term debt?
> Which specific item of a pro forma income statement should be most expected to vary proportionately with sales? Why?
> What does the Sarbanes-Oxley Act require of firm managers?
> What is earnings management?
> Carnival Corp. (CCL) provides cruises to major vacation destinations. Carnival operates 99 cruise ships in North America, Europe, Australia, and Asia. The company also operates hotels, sightseeing motor coaches and rail cars, and luxury day boats. These
> What are free cash flows for a firm? What does it mean when a firm’s free cash flow is negative?
> What is the difference between cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities?
