Question: Table 29.12 summarizes the 2017 income

> Oneal was a teacher employed by the Colton Consolidated School District. Because of a diabetic condition, his eyesight deteriorated so much that he offered to resign if he would be given pay for a specified number of “sick leave” days. The school distri

> A lessor leased a trailer park to a tenant. At the time, sewage was disposed of by a septic tank system that was not connected with the public sewage system. The tenant knew this, and the lease declared that the tenant had examined the premises and that

> Dickson contracted to build a house for Moran. When it was approximately 25 percent to 40 percent completed, Moran would not let Dickson work anymore because he was not following the building plans and specifications and there were many defects. Moran hi

> Christopher Bloom received a medical school scholarship created by the U.S. Department of Health and Human Services to increase the number of doctors serving rural areas. In return for this assistance, Bloom agreed to practice four years in a region iden

> The Tinchers signed a contract to sell land to Creasy. The contract specified that the sales transaction was to be completed in 90 days. At the end of the 90 days, Creasy requested an extension of time. The Tinchers refused to grant an extension and sta

> The American Geophysical Union and 82 other publishers of scientific and technical journals brought a class-action lawsuit against Texaco, claiming that Texaco’s unauthorized photocopying of articles from their journals constituted a copyright infringeme

> Metalcrafters made a contract to design a new earth- moving vehicle for Lamar Highway Construction Co. Metalcrafters was depending on the genius of Samet, the head of its research department, to design a new product. Shortly after the contract was made b

> American Bank loaned Koplik $50,000 to buy equipment for a restaurant about to be opened by Casual Citchen Corp. The loan was not repaid, and Fast Foods, Inc., bought out the interest of Casual Citchen. As part of the transaction, Fast Foods agreed to pa

> Lymon Mitchell operated a Badcock Home Furnishings dealership, under which as dealer he was paid a commission on sales and Badcock retained title to merchandise on display. Mitchell sold his dealership to another and to facilitate the sale, Bad- cock pre

> CIT entered into a sale/leaseback contract with Condere Tire Corporation for 11 tire presses at Condere ’ s tire plant in Natchez, Mississippi. Condere ceased making payments on these presses owned by CIT, and Condere filed for Chapter 11 bankruptcy. CIT

> Henry was owed $10,000 by Jones Corp. In consideration of the many odd jobs performed for him over the years by his nephew, Henry assigned the $10,000 claim to his nephew Charles. Henry died, and his widow claimed that the assignment was ineffective so t

> Zoya operated a store in premises rented from Peer- less. The lease required Zoya to maintain liability insurance to protect Zoya and Peerless. Caswell entered the store, fell through a trap door, and was injured. She then sued Zoya and Peerless on the t

> The New Rochelle Humane Society made a contract with the city of New Rochelle to capture and impound all dogs running at large. Spiegler, a minor, was bitten by some dogs while in her schoolyard. She sued the school district of New Rochelle and the Human

> Lone Star Life Insurance Co. agreed to make a long- term loan to Five Forty Three Land, Inc., whenever that corporation requested one. Five Forty Three wanted this loan to pay off its short-term debts. The loan was never made, as it was never requested b

> Helen obtained an insurance policy insuring her life and naming her niece Julie as beneficiary. Helen died, and about a year later the policy was found in her house. When Julie claimed the insurance money, the insurer refused to pay on the ground that th

> Jessie borrows $1,000 from Thomas and agrees to repay the money in 30 days. Thomas assigns the right to the $1,000 to Douglas Finance Co. Douglas sues Jessie. Jessie argues that she had agreed to pay the money only to Thomas and that when she and Thomas

> Michael Cram alleged that he was the sole creator of a unique talking bottle opener. His product was very successful and he licensed the product to numerous NCAA schools, Major League Baseball, the National Football League, NASCAR, and various movie and

> Assume that Lee agrees to the assignment of the house-painting contract to Karen as stated in question 3. Thereafter, Lee fails to perform the contract to paint Karen ’ s house. Karen sues Sally for damages. Is Sally liable? “Karen notifies Lee that Sal

> Lee contracts to paint Sally ’ s two-story house for $2,500. Sally realizes that she will not have sufficient money, so she transfers her rights under this agree- ment to her neighbor Karen, who has a three-story house. Karen notifies Lee that Sally ’ s

> A court order required John Baldassari to make specified payments for the support of his wife and child. His wife needed more money and applied for Pennsylvania welfare payments. In accordance with the law, she assigned to Pennsylvania her right to the s

> Give an example of a third-party beneficiary contract.

> Ibberson Co., the general contractor hired by AgGrow Oils, LLC, to design and build an oilseed processing plant, contracted with subcontractor Anderson International Corp. to supply critical seed processing equipment for the project. Anderson ’ s formal

> The Dickinson Elks Club conducted an annual Labor Day golf tournament. Charbonneau Buick- Pontiac offered to give a new car as a prize to anyone making “ a hole in one on hole no. 8. ” The golf course of the club was only nine holes. To play 18 holes, th

> Physicians Mutual Insurance Co. issued a policy covering Brown ’ s life. The policy declared that it did not cover any deaths resulting from “ mental disorder, alcoholism, or drug addiction. ” Brown was killed when she fell while intoxicated. The insuran

> Consolidated Credit Counseling Services, Inc. (Consolidated), sued Affinity Internet, Inc., doing business as SkyNetWEB (Affinity), for breach of its contract to provide computer and Web hosting services. Affinity moved to compel arbitration, and Consoli

> A contract made for the sale of a farm stated that the buyer’s deposit would be returned “if for any reason the farm cannot be sold. ” The seller later stated that she had changed her mind and would not sell, and she offered to return the deposit. The bu

> Panasonic Industrial Co. (PIC) created a contract making Manchester Equipment Co., Inc. (MECI), a nonexclusive wholesale distributor of its products. The contract stated that PIC reserved the unrestricted right to solicit and make direct sales of the pro

> Mineral Deposits, Ltd. (MD, Ltd.), an Australian company, manufactures the Reichert Spiral, a device used for recovering gold particles from sand and gravel. The spiral was patented in Australia, and MD, Ltd., had applied for a patent in the United State

> Catherine (wife) and Peter (husband) Mallen had lived together unmarried for some four years when Catherine got pregnant and a marriage was arranged. Peter asked Catherine to sign a prenuptial agreement. Although his financial statement attached to the a

> In February or March, Corning Glass Works orally agreed to retain Hanan as management consultant from May 1 of that year to April 30 of the next year for a present value fee of $200,000. Was this agreement binding? Is this decision ethical? [ Hanan v. Co

> Boeing Airplane Co. contracted with Pittsburgh – Des Moines Steel Co. for the latter to construct a super- sonic wind tunnel. R.H. Freitag Manufacturing Co. sold materials to York-Gillespie Co., which subcontracted to do part of the work. To persuade Fre

> Jackson signed an agreement to sell 79 acres of land to Devenyns. Jackson owned 80 acres and was apparently intending to keep for himself the acre on which his home was located. The written agreement also stated that “Devenyns shall have the option to bu

> Martin made an oral contract with Cresheim Garage to work as its manager for two years. Cresheim wrote Martin a letter stating that the oral contract had been made and setting forth all of its terms. Cresheim later refused to recognize the contract. Mart

> Kelly made a written contract to sell certain land to Brown and gave Brown a deed to the land. There- after, Kelly sued Brown to get back a 20-foot strip of the land. Kelly claimed that before making the written contract, it was agreed that Kelly would s

> Tambe Electric Inc. entered into a written agreement with Home Depot to provide copper wire to Tambe at a price set forth in the writing, and allowing the contractor the option of paying for the wire over a period of time. Home Depot did not fulfill this

> Lawrence loaned money to Moore, who died with- out repaying the loan. Lawrence claimed that when he mentioned the matter to Moore ’ s widow, she promised to pay the debt. She did not pay it, and Lawrence sued her on her promise. Does she have any defense

> Integrated, Inc., entered into a contract with the state of California to construct a building. It then subcontracted the electrical work to Alec Fergusson Electrical Contractors. The subcontract was a printed form with blanks filled in by typewriting. T

> Louise Pulsifer owned a farm that she wanted to sell and ran an ad in the local newspaper. After Russell Gillespie agreed to purchase the farm, Pulsifer wrote him a letter stating that she would not sell it. He sued her to enforce the contract, and she r

> The plaintiff, Herbert Rosenthal Jewelry Corporation, and the defendant, Kalpakian, manufactured jewelry. The plaintiff obtained a copyright registration of a jeweled pin in the shape of a bee. Kalpakian made a similar pin. Rosenthal sued Kalpakian for i

> China is a signatory country to the Madrid Protocol on the international registration of trademarks. Star- bucks opened its first café in China in 1999 and has added outlets in numerous locations including Shanghai and at the Great Wall and the imperial

> The balancing item in the Dynamic long-term planning model is borrowing. What is meant by balancing item? How would the model change if dividends were made the balancing item instead? In that case how would you suggest that planned borrowing be determine

> Corporate financial plans are often used as a basis for judging subsequent performance. What do you think can be learned from such comparisons? What problems are likely to arise, and how might you cope with these problems?

> Our long-term planning model of Dynamic Mattress is an example of a top-down planning model. Some firms use a bottom-up financial planning model, which incorporates forecasts of revenues and costs for particular products, advertising plans, major investm

> Dynamic Mattress decides to lease its new mattress-stuffing machines rather than buy them. As a result, capital expenditure in the first quarter is reduced by $50 million, but the company must make lease payments of $2.5 million for each of the four quar

> Work out a short-term financing plan for Dynamic Mattress Company, assuming the limit on the line of credit is raised from $100 to $120 million. Otherwise keep to the assumptions used in developing Table 29.7. Table 29.7: Firs

> Table 29.16 on the next page shows Dynamic Mattress’s year-end 2013 balance sheet, and Table 29.17 shows its income statement for 2014. Work out the statement of cash flows for 2014. Group these items into source

> Which items in Table 29.7 would be affected by the following events? a. Interest rates rise. b. Suppliers demand interest for late payment. c. Dynamic receives an unexpected bill in the third quarter from the Internal Revenue Service for u

> Table 29.14 lists data from the budget of Ritewell Publishers. Half the company’s sales are for cash on the nail; the other half are paid for with a one-month delay. The company pays all its credit purchases with a one-month

> What is the maximum possible growth rate for Archimedes (see Problem 10) if the payout ratio is set at 50% and (a) no external debt or equity is to be issued? (b) the firm maintains a fixed debt ratio but issues no equity? Problem 10: Abbreviated fina

> Suppose that a shareholder can gain effective control of a company with 30% of the shares. Explain how a shareholder might gain control of company Z by setting up a holding company X2 that holds shares in a second holding company X, which in turn holds s

> A year ago a bank entered into a $50 million five-year interest rate swap. It agreed to pay company A each year a fixed rate of 6% and to receive in return LIBOR. When the bank entered into this swap, LIBOR was 5%, but now interest rates have risen, so o

> True or false? a. Financial planning should attempt to minimize risk. b. The primary aim of financial planning is to obtain better forecasts of future cash flows and earnings. c. Financial planning is necessary because financing and investment decisio

> Each of the following events affects one or more tables in Sections 29-2 to 29-3. Show the effects of each event by adjusting the tables listed in parentheses: a. Dynamic repays only $10 million of short-term debt in 2015. (Tables 29.2 and 29.3) b. Dyn

> Dynamic Futon forecasts the following purchases from suppliers: a. Forty percent of goods are supplied cash-on-delivery. The remainder are paid with an average delay of one month. If Dynamic Futon starts the year with payables of $22 million, what is the

> Here is a forecast of sales by National Bromide for the first four months of 2016 (figures in $ thousands): On the average 50% of credit sales are paid for in the current month, 30% are paid in the next month, and the remainder are paid in the month afte

> State how each of the following events would affect the firm’s balance sheet. State whether each change is a source or use of cash. a. An automobile manufacturer increases production in response to a forecasted increase in demand. Unfortunately, the dem

> Listed below are six transactions that Dynamic Mattress might make. Indicate how each transaction would affect (1) cash and (2) working capital. The transactions are a. Pay out an extra $10 million cash dividend. b. Receive $2,500 from a customer who p

> What effect will each of the following have on the cash cycle? a. The inventory turnover falls from 80 to 60 days. b. Customers are given a larger discount for cash transactions. c. The firm adopts a policy of reducing accounts payable. d. The firm st

> If a firm pays its bills with a 30-day delay, what fraction of its purchases will be paid in the current quarter? In the following quarter? What if the delay is 60 days?

> A firm is considering several policy changes to increase sales. It plans to increase the variety of goods it keeps in inventory, but this will increase inventory by $100,000. It will offer more liberal sales terms, but this will result in receivables inc

> What is the most common form of ownership of corporations worldwide?

> Abbreviated financial statements for Archimedes Levers are shown in Table 29.13 on the next page. If sales increase by 10% in 2017 and all other items, including debt, increase correspondingly, what must be the balancing item? What will be it

> After a record harvest, grain silos are full to the brim. Are storage costs likely to be high or low? What does this imply for the net convenience yield?

> In fiscal 2012 and 2013, Caterpillar’s financial statements included the following items. What was Caterpillar’s cash cycle? $ Millions 2012 2013 Inventory $15,547 $12,625 Receivables 20,113 18,729 Payables 14,969

> This question reviews some of the difficulties encountered in interpreting accounting numbers. a. Give four examples of important assets, liabilities, or transactions that may not be shown on the company’s books. b. How does investment in intangible as

> Look again at the balance sheet for Geomorph in Problem 10. Suppose that at year-end Geomorph had $30 in cash and marketable securities. Immediately after the year-end it used a line of credit to borrow $20 for one year, which it invested in additional m

> Consider this simplified balance sheet for Geomorph Trading: a. Calculate the ratio of debt to equity. b. What are Geomorph’s net working capital and total long-term capital? Calculate the ratio of debt to total long-term capital.

> Magic Flutes has total receivables of $3,000, which represent 20 days’ sales. Total assets are $75,000. The firm’s operating profit margin is 5%. Find the firm’s sales-to-assets ratio and return on assets.

> A firm has a long-term debt–equity ratio of .4. Shareholders’ equity is $1 million. Current assets are $200,000, and total assets are $1.5 million. If the current ratio is 2.0, what is the ratio of debt to total long-term capital?

> Keller Cosmetics maintains an operating profit margin of 8% and a sales-to-assets ratio of 3. It has assets of $500,000 and equity of $300,000. Interest payments are $30,000 and the tax rate is 35%. a. What is the return on assets? b. What is the retur

> There are no universally accepted definitions of financial ratios, but five of the following ratios are clearly incorrect. Substitute the correct definitions. a. Debt–equity ratio = (long-term debt + value of leases)/(long-term debt + value of leases + 

> German banks often control a large fraction of the shareholder votes for German businesses. How do they get that voting power?

> Look again at Table 28.10. At the end of fiscal 2014, Starbucks had 748 million shares outstanding with a share price of $81.25. The company’s weighted average cost of capital was about 9%. Calculate: a. Market value added.

> Look again at Table 28.10. Calculate a common-size balance sheet and income statement for Starbucks. Table 28.10: End of Year Start of Year Balance Sheet Assets Current assets: $ 1,844 $ 3,234 Cash and marketable securities Ac

> Residents of the northeastern United States suffered record-setting low temperatures throughout November and December 2024. Spot prices of heating oil rose 25% to over $7 a gallon. a. What effect did this have on the net convenience yield and on the rela

> Table 28.10 gives abbreviated balance sheets and income statements for Starbucks. Calculate the following using balance-sheet figures from the start of the year: a. Return on assets. b. Operating profit margin. c. Sales-to-assets ratio. d.

> Construct a balance sheet for Galactic Enterprises given the following data: Cash balances………….…………..……………$25,000 Inventories……………………………………… $30,000 Net plant and equipment…………………..$140,000 Accounts receivable…….…………...…………$35,000 Accounts payable…………………

> Take another look at Geomorph Trading’s balance sheet in Problem 10 and consider the following additional information: The “R&R reserve” covers the future costs of removal of an oil pipeline and e

> Sometimes analysts use the average of capital at the start and end of the year to calculate return on capital. Provide some examples to illustrate when this does and does not make sense.

> We noted that, when calculating EVA, you should calculate income as the sum of the after-tax interest payment and net income. Why do you need to deduct the tax shield? Would an alternative be to use a different measure of the cost of capital? Or would yo

> Suppose that you wish to use financial ratios to estimate the risk of a company’s stock. Which of those that we have described in this chapter are likely to be helpful? Can you think of other accounting measures of risk?

> How would rapid inflation affect the accuracy and relevance of a manufacturing company’s balance sheet and income statement? Does your answer depend on how much debt the firm has issued?

> If you buy a nine-month T-bill future, you undertake to buy a $1 million three-month bill in nine months’ time. Suppose that Treasury bills and notes currently offer the following yields: Months to Maturity.....................Annual Yield 3...

> Here are some data for five companies in the same industry: You have been asked to calculate a measure of times-interest-earned for the industry. Discuss the possible ways that you might calculate such a measure. Does changing the method of calculation m

> As you can see, someone has spilled ink over some of the entries in the balance sheet and income statement of Transylvania Railroad (Table 28.11). Can you use the following information to work out the missing entries? (Note: For this problem,

> Sara Togas sells all its output to Federal Stores. The following table shows selected financial data, in millions, for the two firms: Calculate the sales-to-assets ratio, the operating profit margin, and the return on assets for the two firms. Now assum

> The following table shows interest rates and exchange rates for the U.S. dollar and the Lilliputian nano. The spot exchange rate is 15 nanos = $1. Complete the missing entries: 1 Month 3 Months 1 Year Dollar intere

> How would the following actions affect a firm’s current ratio? a. Inventory is sold. b. The firm takes out a bank loan to pay its suppliers. c. The firm arranges a line of credit with a bank that allows it to borrow at any time to pay its suppliers. d

> Suppose that a firm has both fixed-rate and floating-rate debt outstanding. What effect will a decline in interest rates have on the firm’s times-interest-earned ratio? What about the ratio of the market value of debt to that of equity? Would you judge t

> Discuss alternative measures of financial leverage. Should the market value of equity be used or the book value? Is it better to use the market value of debt or the book value? How should you treat off-balance-sheet obligations such as pension liabilitie

> Describe some alternative measures of a firm’s overall performance. What are their advantages and disadvantages? In each case discuss what benchmarks you might use to judge whether performance is satisfactory.

> True or false? a. A company’s debt–equity ratio is always less than 1. b. The quick ratio is always less than the current ratio. c. The return on equity is always less than the return on assets.

> On average, it takes Microlimp’s customers 60 days to pay their bills. If Microlimp has annual sales of $500 million, what is the average value of unpaid bills?

> Do Japanese investors play an important role in corporate financial policy and governance? If not, could they?

> Airlux Antarctica has current assets of $300 million, current liabilities of $200 million and a crash—sorry—cash ratio of .05. How much cash and marketable securities does it hold?

> A firm in the United States is due to receive payment of €1 million in eight years’ time. It would like to protect itself against a decline in the value of the euro, but finds it difficult to get forward cover for such a long period. Is there any other w

> A U.S. company has committed to pay 10 million kronor to a Swedish company in one year. What is the cost (in present value) of covering this liability by buying kronor forward? The Swedish interest rate is .6%, and exchange rates are shown in Table&Acirc

> In March 1997, the exchange rate for the Indonesian rupiah was R2,419 = $1. Inflation in the year to March 1998 was about 30% in Indonesia and 2% in the United States. a. If purchasing power parity held, what should have been the nominal exchange rate i

> “Northern Refineries does not avoid risk by selling oil futures. If prices stay above $2.40 a gallon, then it will actually have lost by selling oil futures at that price.” Is this a fair comment?

> Define each of the following theories in a sentence or simple equation: a. Interest rate parity. b. Expectations theory of forward rates. c. Purchasing power parity. d. International capital market equilibrium (relationship of real and nominal intere