Risk R Us Investors has a success ratio of 15% with its venture funding. Their owners require a rate of return of 25% for their portfolio of lending, and the average length on each loan is 4 years. If you were to apply to Risk R Us for a $200,000 loan, what is the annual percentage rate you would be required to pay for this loan?
> Banker’s acceptance supports lending for what type of activities? Explain how collateral works in a banker’s acceptance arrangement.
> What is commercial paper? Why does it not need SEC approval?
> What is the role of an investment bank in selling stock?
> What is the difference between an angel investor and a venture capitalist? What event do these investors want to see happen? Why?
> What is the difference between Chapter 7 and Chapter 11 bankruptcies? Why might Chapter 11 be better for claimants than Chapter 7?
> What does analyzing companies against their industry tell a finance manager or financial analyst?
> What does the P/E ratio tell an outsider about a company? Why might this ratio not provide very compelling evidence on the firm's performance?
> Leeward Sailboats is reviewing the following new boat line: At what adjusted WACCs will the company accept this project? Hint: Find the IRR of the project and use it as the maximum adjusted WACC for accepting the project. Year 0 Year 1 Year 2 Year 3
> What are solvency ratios? Which ratio would be of most interest to a banker considering a debt loan to a company? Why?
> What are liquidity ratios? Given an example of a liquidity ratio and how it helps evaluate a company’s performance or future performance from an outsider’s view.
> What are some potential pitfalls of poor short-term financial planning?
> What does analyzing a company against firms in other industries tell a financial manager or analyst?
> Why might a company have extra inventory on hand above the amount suggested by the economic order quantity? Make a case for a redundant inventory item in a business setting.
> In a pro forma balance sheet, what line item would you expect to be constant from year to year in dollar terms and decreasing in terms of percentage of total assets? When would this line item have a significant change in percentage?
> What is the float? Why does it take time between when you write a check and when the funds come out of the account?
> If a pro forma income statement has 5% for the net income line, what does this mean in terms of a company’s total sales and per dollar sales?
> Should a company take all discounts offered by its suppliers? What criteria should be used when accepting or rejecting a discount on an invoice?
> What is credit screening? When would it be appropriate for a company to use credit screening? When would it be appropriate for a company to not use credit screening?
> Brawn Blenders has the following incremental cash flows for its new project: Should Brawn Blenders accept or reject this project at an adjusted WACC of 6%, 8%, or 10%? Year 0 Year 1 Year 2 Year 3 Category To T1 T2 T3 Investment $4,000,000 NWC -$300,0
> What is a line of credit? Why would a bank require a company with a line of credit to have a zero balance for at least sixty days a year in its line of credit?
> What is the function of the Small Business Administration in regard to business loans? Who receives the guaranty on the loans?
> Explain the three components of the cash conversion cycle.
> What are a company’s main sources of cash for a company? What are a company’s main uses of cash?
> On April 4th, Forex Corporation announced that it would pay a dividend of $0.75 per share to all shareholders that were on record as of April 11th, with checks being mailed on April 21st. Determine what the stock price of Forex Corporation will be after
> McRonald’s, which is currently valued at $10,000,000, is looking at changing its capital structure from an all-equity firm to a leveraged firm with 50% debt and 50% equity. Since McRonald’s is a not-for-profit company it pays no taxes. (a) If the require
> The Fast-Track Co. has thus far only used equity to finance its operations and currently has 1,000,000 shares outstanding with an EBIT of $1,500,000. The newly-hired CFO firmly believes that the firm would benefit its shareholders a great deal by issuing
> Loyola Turbo Engines is looking at expanding its operations by adding another manufacturing location. If successful, the company will make $750,000, but if it fails, the company will lose $300,000. Loyola can borrow the required capital of 300,000 at 16%
> Diversified Holdings has three subsidiaries, each of which borrows funds from the parent company and has a different success rate with the projects it undertakes. Subsidiary A is successful with its projects 80% of the time, Subsidiary B gets it right 93
> Your raw material supplier has been accepting payments on 30 day terms with no interest penalty. Recently, you received an invoice which stated that the supplier would offer terms of 1/10, net 30. You have a line of credit with your bank at an EAR of 14.
> Clark Explorers Inc., an engineering firm has the following capital structure: Using market value and book value (separately, of course), find the adjusted WACC for Clark Explorers at the following tax rates: a. 35% b. 25% c. 15% d. 5% Equity Preferr
> Mid-West Marine Products currently sells its light-weight boat lifts for $3,500 each. The unit cost of each lift is $2,600. On average, the firm sells 2000 lifts a year on a cash basis. Consumer Credit Check is offering Mid-West a credit screening system
> John Gray is really concerned that his company’s working capital is not being managed efficiently. He decides to take a look at the firm’s operating and cash conversion cycles to see what’s going on.
> The Global Growth Corporation is planning for next year and wants you to help them prepare a Pro Forma Balance Sheet for 2015. Their current Balance Sheet is shown below along with some pre-determined changes in key balance sheet accounts. How will you p
> Given the income statement below for Imperial Products Corporation for 2014, and a 20% growth in sales for 2015, prepare a pro forma income statement. Imperial Products Corp. Income Statement for 2014 Sales Revenue $28,800,000 COGS 11,400,000 SG&A E
> The Creative Products Corporation produces its products two months in advance of anticipated sales and ships to warehouse centers the month before sale. The inventory safety stock is 15% of the anticipated month’s sale. Beginning inventory in October 201
> The financial manager of Hearty Cereals is in the process of preparing a cash budget for the first quarter of 2015. The firm typically sells 1/3 of its monthly sales on cash terms and the rest on credit. An analysis of the accounts receivables shows that
> You have been asked to forecast sales for the coming year. Being convinced that the compound average growth rate is the best way to forecast growth, you collect data for the prior three years as listed below. Using the data compute, the compound growth r
> Kalamazoo Marine wants to expand its operations to New Zealand. The current indirect exchange rate is 1.75 for U.S. and New Zealand dollars. The anticipated inflation rate is 3.8% in the United States, but only 1.75% in New Zealand. The discount rate in
> The Wall Street Journal lists forward rates for Euros. Say that the current listings are: 1-month forward rate (indirect) 0.7025 3-month forward rate (indirect) 0.7145 6-month forward rate (indirect) 0.7245 First, is the anticipated inflation rate high
> On-Line Currency, Incorporated is an online currency exchange company that will immediately convert and credit your bank account based on its published rates. Being the smart finance major that you are, you notice that one of the rates published below is
> Lewis runs an outdoor adventure company and wants to know what impact a tax change will have on his WACC. Currently Lewis has the following borrowing pattern: Equity: 35% and cost of 14% Preferred Stock: 15% and cost of 11% Debt: 50% and cost of 10% befo
> On the day you arrive in New Zealand, the exchange rate for U.S. dollars and New Zealand dollars is $1:2.25 NZ$. While you remain in New Zealand for the next few months, the exchange rate falls to $1:$1.75439 NZ$. When you entered New Zealand, you conver
> Comtrak Inc. has a dividend reinvestment program for shareholders. Over the past five years, the company has had the following share prices and the following dividends. If you started with 100 shares of stock at $58 per share and participated fully in th
> Pearl currently owns 600 shares of Ajax, Incorporated. Ajax has a low-payout dividend policy, and this year will pay 4% cash dividend on its shares selling currently at $40. Pearl wants a high-dividend policy of 9% of the stock price. What will Pearl nee
> Joan currently owns 800 shares of RST Inc. RST has a high-dividend-payout policy and this year will pay $3.00 cash dividend on its shares selling currently at $30.00 per share. Joan wants a low-dividend-payout policy of 5% of the stock price. What will J
> Cereal City Instruments will issue commercial paper for a short-term cash inflow. The paper is for 182 days, has a face value of $50,000, and is anticipated to sell at 94% of par value. Cereal City wants to raise $5,000,000, so what is the cost of this b
> Big Apple Investment Bankers offers Northern Diagnostics the following options on its initial public sale of equity: (1) a best-efforts arrangement whereby Big Apple will keep 2 % of the retail sales or (2) a firm-commitment arrangement of $6,000,000.
> The Fire-Keepers Casino is in the process of issuing a 25-year, 9% coupon (paid semi-annually) AA2-rated corporate bond with $1000 par value. If by the time the bonds receive SEC clearance, the market yield on this bond goes to 9.35%, and the company sel
> You want to borrow $250,000 for 1 year from your bank and are given the following 2 options: 1) Pay $35,000 per month for 12 months starting at the end of the 1st month. 2) Take a discount loan at the rate of 8% per year and pay the entire face value of
> Based on the ratios calculated in problem 4 above, and in conjunction with the industry averages given, conduct a DuPont analysis on Trimark’s key profitability ratios.
> The CFO of DMI is trying to determine the company’s WACC. Brad, a promising MBA, says that the company should use book value to assign the components percentage for the WACC. Angela, a long-time employee and experienced financial analys
> Using the 2014 income statement and balance sheet of Trimark Products Inc., as constructed in problems 1 and 2 above, compute its financial ratios. How is the firm doing relative to its industry in the areas of liquidity, asset management, leverage, and
> Re-state Tri-Mark Incorporated’s 2014 financial statements as common-size statements and comment on them
> Quick Start Ventures, Incorporated is has received 6 excellent funding proposals, but is only able to fund up to $2,500,000 Project A: Cost $700,000, NPV $50,000 Project B: Cost $800,000, NPV $60,000 Project C: Cost $500,000, NPV $40,000 Project D: Cost
> New Ideas Inc. currently has 30,000 of its 9% semi-annual coupon bonds outstanding (Par value =1000). The bonds will mature in 15 years and are currently priced at $1,340 per bond. The firm also has an issue of 1 million preferred shares outstanding with
> T.J. Enterprises is trying to determine the weights to be used in estimating their cost of capital. The firm’s current balance sheet and market information regarding the price and number of securities outstanding are listed below.
> Construct Tri-Mark Incorporated’s 2014 year-end Balance Sheet using the asset, liability, and equity accounts listed below: Retained Earnings …………………… $60,500,000 Accounts Payable …………………… $57,000,000 Accounts Receivable …………………… $43,000,000 Common Stoc
> Using the income and expense account information for Tri-Mark Products Inc. listed below, construct an income statement for the year ended 31st December, 2014. Shares outstanding: 16,740,000 Tax rate: ………………………………………………………………………………… 35% Interest expense:
> Using the data from Problem 7, determine what you would lose if you went the wrong way for the arbitrage. Explain this result. Problem 7: Great Exchanges, Inc. is a currency exchange company located at most international airports. Today, a clerk has made
> Great Exchanges, Inc. is a currency exchange company located at most international airports. Today, a clerk has made a mistake on one of the currency exchanges and has posted the following rates: Which corresponding rates do not match? And if you had $1,
> Fill in the missing cross rates and direct rates in the table below: International Cross Rates $ Euro Pound Peso Yen CS Canada 1.3689 Japan 109.48 Mexico 11.3921 U.K. 0.5460 Euro 0.8222 U.S.
> Compare Trout Inc. with Salmon Enterprises using the balance sheet of Trout and the market data of Salmon for the weights in the weighted average cost of capital. Salmon Enterprises Bonds Outstanding 3,000 selling at $980 Common Stock Outstanding 260,000
> On the day you arrive in England, the exchange rate for U.S. dollars and British pounds is $1:£0.58. While you remain in England for the next two weeks, the exchange rate falls to $1:£0.54. When you entered England, you converted $4,200 to pounds. As you
> Verify your answer to Problem 18 using the foreign-currency approach.
> Verify your answer to Problem 17 using the foreign-currency approach. Data from Problem 17: Copy-Cat, Incorporated has signed a deal to make vintage Nissan 240-Z sports cars for the next three years. The cars will be built in Japan and shipped to the Un
> Farbucks is thinking of expanding to South Korea. The current indirect rate for dollars and South Korean won is 1025. The inflation rate in South Korea is expected to hover near 0.5% for the next five years. The U.S. inflation rate is expected to stay ar
> Surfboards USA wants to expand its operations to Australia. The current indirect exchange rate is 1.45 for U.S. and Australian dollars. The anticipated inflation rate is 3% in the United States, but only 1.5% in Australia. The discount rate in the United
> Just before Copy-Cat, Incorporated starts the project outlined in Problem 15, the government announces new anticipated inflation numbers. For Japan, the estimate is a higher inflation rate of 5%. For the United States, the estimate is a lower projection
> Copy-Cat, Incorporated has signed a deal to make vintage Nissan 240-Z sports cars for the next three years. The cars will be built in Japan and shipped to the United States for sale. The current indirect rate is 103.50 for dollars and yen. The inflation
> Using the information in Table 18.4 and an average U.S. inflation rate of 1.733% for the three-year period, determine the inflation rates of Europe (euro currency countries) and Australia where the U.S. dollar strengthened over the period. Table 18.
> Using the information in Table 18.4 and an average U.S. inflation rate of 1.733% for the three year period, determine the inflation rates of Britain and China where the U.S. dollar weakened over the period. Table 18.4 U.S. Dollar Exchange Rates for M
> Determine the nominal rates for the three countries listed if they have the following inflation rates and the real rate the world over is 1.25%. Canada: inflation is 4.5%. Switzerland: inflation is 1.25%. United States: inflation is 3%.
> Stan had to delay the sale of the common stock as outlined in Problem 9 for six months. When he finally did sell the stock, the risk-free rate had fallen to 3%, but the expected return on the market had risen to 13%. What was the effect on the cost of eq
> 1. Compute the yield to maturity and the after-tax cost of debt for the two bond issues. 2. Compute BioCom’s cost of preferred stock. 3. Compute BioCom’s cost of common equity. Use the average of results from the dividend growth model and the security ma
> Why is selecting a beta for a project more of an art than a science?
> What are the types of errors a manager can make if he or she does not assign individual WACCs to each potential project?
> Why not use a single WACC for all company projects?
> What are the two ways to estimate the percentage (weights) of funds that a company has received from lenders and owners? Which is more appropriate?
> When calculating the cost of capital, why is it that the company only adjusts the cost of debt for taxes?
> Should retained earnings reinvested in the company have a zero cost of capital because it generates the funds internally and the company does not need to pay itself for borrowing money? If not, why?
> What are the two different ways to estimate the cost of equity for a firm?
> Why is the yield to maturity on a bond the appropriate cost of debt financing?
> If the capital budget is constrained by the amount of funds available for potential projects, what mistake might a manager make if he or she just lists the potential projects by highest to lowest NPV and picks the projects moving down the list until the
> From what sources can a company raise capital? Do these different sources of capital all charge the same rate? Why or why not?
> Villar Co. uses special journals and a general journal. Identify the journal in which each of the following transactions is recorded. a. Purchased equipment on account. b. Purchased merchandise on account. c. Paid utility expense in cash. d. Sold merchan
> Indicate whether each of the following debits and credits is included in the cash receipts journal. (Use “Yes” or “No” to answer this question.) a. Debit to Sales Revenue. b. Credit to Inventory. c. Credit to Accounts Receivable. d. Debit to Accounts Pay
> Identify in what ledger (general or subsidiary) each of the following accounts is shown. a. Rent Expense. b. Accounts Receivable—Cabrera. c. Notes Payable. d. Accounts Payable—Pacheco.
> Presented below is information related to Gantner Company for its first month of operations. Identify the balances that appear in the accounts receivable subsidiary ledger and the accounts receivable balance that appears in the general ledger at the end
> Benji Borke has prepared the following list of statements about accounting information systems. 1. The accounting information system includes each of the steps of the accounting cycle, the documents that provide evidence of transactions that have occurre
> Rauch Computer Components Inc. uses a multi-column cash receipts journal. Indicate which column(s) is/are posted only in total, only daily, or both in total and daily. a. Accounts Receivable. b. Sales Discounts. c. Cash. d. Other Accounts.
> On June 30, Joanna Fabrics has the following data pertaining to the retail inventory method. Goods available for sale: at cost $38,000; at retail $50,000; net sales $40,000; and ending inventory at retail $10,000. Compute the estimated cost of the ending
> At May 31, Brunet Company has net sales of $340,000 and cost of goods available for sale of $230,000. Compute the estimated cost of the ending inventory, assuming the gross profit rate is 35%.
> Rosario Department Store uses a perpetual inventory system. Data for product E2-D2 include the following purchases. On June 1, Rosario sold 26 units, and on August 27, 40 more units. Prepare the perpetual inventory schedule for the above transactions u
> At December 31, 2020, the following information was available for E. Hetzel Company: ending inventory $40,000, beginning inventory $56,000, cost of goods sold $270,000, and sales revenue $380,000. Calculate inventory turnover and days in inventory for E
> Your friend Ben Johnson has been hired to help take the physical inventory in Pearson Hardware Store. Explain to Ben what this job will entail.
> Cruz Video Center accumulates the following cost and net realizable data at December 31. Compute the lower-of-cost-or-net realizable value valuation for the company’s total inventory. Inventory Categories Cost Net Realizable Data
> Larkin Company reports net income of $90,000 in 2020. However, ending inventory was understated $7,000. What is the correct net income for 2020? What effect, if any, will this error have on total assets as reported in the balance sheet at December 31, 20
> Financial Statement In its first month of operation, Hoff man Company purchased 100 units of inventory for $6, then 200 units for $7, and finally 140 units for $8. At the end of the month, 180 units remained. Compute the amount of phantom profit that wou
> Financial Statement The management of Mastronardo Corp. is considering the effects of inventory-costing methods on its financial statements and its income tax expense. Assuming that the price the company pays for inventory is increasing, which method wil
> Data for Weatherall Company are presented in BE6.3. Compute the cost of the ending inventory under the average-cost method, assuming there are 380 units on hand.
