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Question: Lisa has an estate worth $3.21


Lisa has an estate worth $3.21 million and three children who will receive her assets on her death. Should she create a will give that her estate is worth less than the $5.43 million threshold that is exempt from estate taxes?



> Next on the Sampsons’ financial planning checklist is saving for retirement. Dave’s employer offers a 401(k) plan, but Dave has not participated in it up to this point. Now he wants to seriously consider contributing.

> Dave and Sharon want to make sure that their family is properly cared for in the event of their death. They recently purchased term life insurance and want to make sure that the funds are allocated to best serve their children in the long run. Specifical

> Dave and Sharon want to make sure that their family is properly cared for in the event of their death. They recently purchased term life insurance and want to make sure that the funds are allocated to best serve their children in the long run. Specifical

> Brad tells you that he has revised his retirement plans. He has set an even more ambitious goal of retiring in 20 years instead of the original goal of 30 years. His goal is to save $500,000 by that time. He is not taking advantage of his employerâ

> Brad tells you that he has revised his retirement plans. He has set an even more ambitious goal of retiring in 20 years instead of the original goal of 30 years. His goal is to save $500,000 by that time. He is not taking advantage of his employer’s reti

> Brad tells you that he has revised his retirement plans. He has set an even more ambitious goal of retiring in 20 years instead of the original goal of 30 years. His goal is to save $500,000 by that time. He is not taking advantage of his employer’s reti

> Brad tells you that he has revised his retirement plans. He has set an even more ambitious goal of retiring in 20 years instead of the original goal of 30 years. His goal is to save $500,000 by that time. He is not taking advantage of his employer’s reti

> Dave and Sharon want to make sure that their family is properly cared for in the event of their death. They recently purchased term life insurance and want to make sure that the funds are allocated to best serve their children in the long run. Specifical

> Judy has just received $12,500 as an inheritance from her uncle and is considering ways to use the money. Judy’s car is one-year-old, and her monthly payment is $304. She owes 48 more payments. The amount to pay off the loan is $12,460. How much will Jud

> Miguel, a recent 22-year-old college graduate, wants to retire a millionaire. How much will he need to set aside annually to achieve his goal, assuming he plans to retire at age 67 and he can earn an 8% annual return on his investment?

> Judy believes that another benefit of investing the extra $3,648 in her employer sponsored retirement plan is the tax savings. Judy is in a 25% marginal tax bracket. How much will investing in this manner save her in taxes annually? Assuming she remains

> Judy pays off her car loan and now must decide how she wants to invest the extra $3,648 per year that she budgeted for car payments. She decides to invest this additional amount in her employer-sponsored retirement plan. Currently, the plan is averaging

> Explain how excessive spending can prevent effective financial planning.

> How does life insurance protect your wealth? Who needs life insurance?

> How does purchasing car insurance and homeowner’s insurance help protect and maintain your wealth?

> In the previous question, you decide to pay off the car loan and invest the difference. Now you no longer have a $350 per month car payment. Suggest some ways you might use these additional funds.

> How does time affect your financial plan?

> Why is it important to integrate the components of your financial plan?

> Explain why having very specific goals is important for financial planning.

> How does budgeting fit into your financial plan? How is your financial plan affected by your spending? What is the budgeting trade-off?

> Why is it important to keep financial records stored in a safe location? List some important documents that you should keep in a safe place.

> Why is it important to track your expenditures for a few months? How does this practice impact your budget?

> How does purchasing sufficient health insurance and disability insurance help protect and maintain your wealth?

> You have some extra cash in your budget that you wish to invest. You have narrowed your choices to a single stock, Treasury bonds, or stock mutual funds. What characteristics of each investment alternative should you consider in making your decision?

> You have a $7,000 balance on your car loan at 11% interest. Your favorite aunt has just left you $10,000 in her will. You can put the money in a money market account at your bank and pay off your car loan, or you can invest the money in mutual funds. Wha

> What do you think happens to your budget when your financial position changes?

> Discuss some methods for maintaining and protecting your wealth. What is the insurance trade-off?

> Describe some advantages and disadvantages of using personal financing to achieve your financial goals. What is the personal financing trade-off?

> Describe some advantages and disadvantages of using personal financing to achieve your financial goals. What is the personal financing trade-off?

> Discuss how managing liquidity fits into your financial plan. What is the liquidity trade-off?

> Judy (from problem 1) is also considering investing the $12,500 in a certificate of deposit (CD). She is guaranteed a return of 4% on a four-year CD. How much would Judy earn from the CD? Which of the two alternatives offers the better return? Data from

> Referring to the previous question, what other factors should Miguel consider with regard to his retirement goal? What recommendation would you give Miguel regarding his goal? Data from Question 5: Miguel, a recent 22-year-old college graduate, wants t

> What is a beneficiary? Why is it important to be specific with regard to beneficiaries and assets in your will?

> How can contributions to charitable organizations help in estate planning?

> What is an irrevocable living trust?

> Beyond the will, what does estate planning involve?

> Jill just inherited $7 million from her grandfather in 2015. How much of the inheritance is subject to estate tax?

> What is a revocable living trust? How can a revocable living trust be used to help your estate? How does a revocable living trust affect estate taxes?

> What is a trust? What is the difference between a living trust and a testamentary trust?

> Why is it important to calculate the value of your estate periodically?

> Discuss estate taxes. When is an estate subject to and not subject to estate taxes? What is the top federal estate tax rate? What other taxes may be levied against an estate?

> What is probate? Describe the probate process.

> When would you change your will? How can your will be changed?

> List and briefly discuss the key components of a will.

> Describe two common types of wills.

> List the requirements for a valid will

> What is a will? Why is a will important? What happens if a person dies without a will?

> What is an estate? What is estate planning? What is the main goal of estate planning?

> In the nineteenth century, people traveled the country selling tonics that were guaranteed to cure all the ailments of humankind. In the twenty-first century, the “snake oil salesmen” have been replaced with individuals making professional presentations

> How can you use annual gifts to reduce the tax burden on your heirs?

> What is an executor? Why is it important to name an executor in your will?

> How should estate plan documents be maintained?

> What is a durable power of attorney for health care? Why is it needed even if you have a living will?

> What is a power of attorney?

> What is a living will? What are its implications for estate planning?

> How do gifts fit into estate planning?

> What is a standard family trust? Give an illustration.

> With your help, Dave and Sharon Sampson have now established a financial plan. Among their key financial planning decisions were the following: • Budgeting. They decided to revise their budget to make it possible to start saving. By reducing their spend

> With your help, Dave and Sharon Sampson have now established a financial plan. Among their key financial planning decisions were the following: • Budgeting. They decided to revise their budget to make it possible to start saving. By reducing their spend

> With your help, Dave and Sharon Sampson have now established a financial plan. Among their key financial planning decisions were the following: • Budgeting. They decided to revise their budget to make it possible to start saving. By reducing their spend

> Next on the Sampsons’ financial planning checklist is saving for retirement. Dave’s employer offers a 401(k) plan, but Dave has not participated in it up to this point. Now he wants to seriously consider contributing. His employer will allow him to inves

> In its most recent financial statements, Del-Castillo Inc. reported $70 million of net income and $900 million of retained earnings. The previous retained earnings were $855 million. How much in dividends did the firm pay to shareholders during the year?

> Kendall Corners Inc. recently reported net income of $3.1 million and depreciation of $500,000. What was its net cash flow? Assume it had no amortization expense.

> Talbot Enterprises recently reported an EBITDA of $8 million and net income of $2.4 million. It had $2.0 million of interest expense, and its corporate tax rate was 40%. What was its charge for depreciation and amortization?

> Molteni Motors Inc. recently reported $6 million of net income. Its EBIT was $13 million, and its tax rate was 40%. What was its interest expense? (Hint: Write out the headings for an income statement and then fill in the known values. Then divide $6 mil

> Porporate bonds issued by Johnson Corporation currently yield 8%. Municipal bonds of equal risk currently yield 6%. At what tax rate would an investor be indifferent between these two bonds?

> Zang Industries has hired the investment banking firm of Eric, Schwartz, & Mann (ESM) to help it go public. Zang and ESM agree that Zang’s current value of equity is $60 million. Zang currently has 4 million shares outstanding and will issue 1 million ne

> The Beranek Company, whose stock price is now $25, needs to raise $20 million in common stock. Underwriters have informed the firm’s management that they must price the new issue to the public at $22 per share because of signaling effects. The underwrite

> On March 1, Minnerly Motors obtains a business loan from a local bank. The loan is a $25,000 interest-only loan with a nominal rate of 11%. Interest is calculated on a simple interest basis with a 365-day year. What is Minnerly’s interest charge for the

> A computer costs $500 in the United States. The same model costs 550 euros in France. If purchasing power parity holds, what is the spot exchange rate between the euro and the dollar?

> Breuer Investment’s convertible bonds have a $1,000 par value and a conversion price of $50 a share. What is the convertible issue’s conversion ratio?

> The D.J. Masson Corporation needs to raise $500,000 for 1 year to supply working capital to a new store. Masson buys from its suppliers on terms of 3/10, net 90, and it currently pays on the 10th day and takes discounts. However, it could forgo the disco

> Calculate the nominal annual cost of nonfree trade credit under each of the following terms. Assume that payment is made either on the discount date or on the due date. a. 1/15, net 20 b. 2/10, net 60 c. 3/10, net 45 d. 2/10, net 45 e. 2/15, net

> A chain of appliance stores, APP Corporation, purchases inventory with a net price of $500,000 each day. The company purchases the inventory under credit terms of 2/15, net 40. APP always takes the discount but takes the full 15 days to pay its bills. Wh

> A large retailer obtains merchandise under the credit terms of 1/15, net 45, but routinely takes 60 days to pay its bills. (Because the retailer is an important customer, suppliers allow the firm to stretch its credit terms.) What is the retailer’s effec

> Medwig Corporation has a DSO of 17 days. The company averages $3,500 in credit sales each day. What is the company’s average accounts receivable?

> In the spot market, 7.8 pesos can be exchanged for 1 U.S. dollar. A pair of headphones costs $15 in the United States. If purchasing power parity holds, what should be the price of the same headphones in Mexico?

> What is and how did Modigliani and Miller use the arbitrage concept in developing their theory that (with no corporate taxes) capital structure has no effect on value or the cost of capital? What real-world impediments exist to creating one’s own “homema

> MM and Miller also assumed that debt is riskless. How does the possibility of default on debt cause equity to take on the characteristics of an option? What types of incentives for shareholders does this lead to?

> In what circumstances is the compressed adjusted present value (APV) model useful and how would it be applied?

> What is the compressed adjusted present value (APV) model and how does this differ from the Modigliani and Miller models? (Hint: think of the discount rate on the tax shield. What is “compressed” about this model?)

> MM and Miller assumed that firms do not grow. If they grow, how would this affect the value of the debt tax shield? What does growth do to the required rate of return on equity and the WACC as a firm increases its use of debt?

> What is the essence of Miller’s contribution to the theory of capital structure, and how does it relate to the earlier MM with-taxes position?

> Define each of the following terms: a. Liquidity ratios: current ratio; quick, or acid test, ratio b. Asset management ratios: inventory turnover ratio; days sales outstanding (DSO); fixed assets turnover ratio; total assets turnover ratio c. Financial l

> Why is it sometimes misleading to compare a company’s financial ratios with those of other firms that operate in the same industry?

> How might (a) seasonal factors and (b) different growth rates distort a comparative ratio analysis? Give some examples. How might these problems be alleviated?

> Profit margins and turnover ratios vary from one industry to another. What differences would you expect to find between a grocery chain such as Safeway and a steel company? Think particularly about the turnover ratios, the profit margin, and the DuPont e

> If euros sell for $1.50 (U.S.) per euro, what should dollars sell for in euros per dollar?

> Over the past year, M. D. Ryngaert & Co. has realized an increase in its current ratio and a drop in its total assets turnover ratio. However, the company’s sales, quick ratio, and fixed assets turnover ratio have remained constant. What explains these c

> Financial ratio analysis is conducted by managers, equity investors, long term creditors, and short-term creditors. What is the primary emphasis of each of these groups in evaluating ratios?

> Using Rhodes Corporation’s financial statements (shown below), answer the following questions. a. What is the net operating profit after taxes (NOPAT) for 2015? b. What are the amounts of net operating working capital for both years?

> The Berndt Corporation expects to have sales of $12 million. Costs other than depreciation are expected to be 75% of sales, and depreciation is expected to be $1.5 million. All sales revenues will be collected in cash, and costs other than depreciation m

> The Moore Corporation has operating income (EBIT) of $750,000. The company’s depreciation expense is $200,000. Moore is 100% equity financed, and it faces a 40% tax rate. What is the company’s net income? What is its net cash flow?

> The Shrieves Corporation has $10,000 that it plans to invest in marketable securities. It is choosing among AT&T bonds, which yield 7.5%, state of Florida muni bonds, which yield 5% (but are not taxable), and AT&T preferred stock, with a dividend yield o

> The Wendt Corporation had $10.5 million of taxable income. a. What is the company’s federal income tax bill for the year? b. Assume the firm receives an additional $1 million of interest income from some bonds it owns. What is the tax on this interest in

> The Talley Corporation had a taxable income of $365,000 from operations after all operating costs but before: (1) interest charges of $50,000, (2) dividends received of $15,000, (3) dividends paid of $25,000, and (4) income taxes. What are the firm’s

> An investor recently purchased a corporate bond that yields 9%. The investor is in the 36% combined federal and state tax bracket. What is the bond’s after-tax yield?

> The Bookbinder Company has made $150,000 before taxes during each of the last 15 years, and it expects to make $150,000 a year before taxes in the future. However, in 2015 the firm incurred a loss of $650,000. The firm will claim a tax credit at the time

> Suppose the exchange rate between U.S. dollars and the Swiss franc is SFr1.6 = $1 and the exchange rate between the dollar and the British pound is £1 = $1.50. What then is the cross rate between francs and pounds?

> Jenny Cochran, a graduate of The University of Tennessee with 4 years of experience as an equities analyst, was recently brought in as assistant to the chairman of the board of Computron’s Industries, a manufacturer of computer compon

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