Question: This problem is useful for testing the

> Gilmore, Inc., had equity of $145,000 at the beginning of the year. At the end of the year, the company had total assets of $210,000. During the year, the company sold no new equity. Net income for the year was $27,000 and dividends were $5,800. What is

> Light-emitting diode (LED) light bulbs have become required in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent light bulb costs $.45 and lasts for 1,000 hours. A 7- watt LED, which provides the same light, costs $2.

> Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,900,000 and will last for six years. Variable costs are 35 percent of sales, and fixed costs are $210,000 per year. Machine B costs $5,800,00

> In the previous problem, suppose you were going to use a three-year MACRS depreciation schedule for your manufacturing equipment and you could keep working capital investments down to only $25,000 per year. How would this new information affect your calc

> Consider a project to supply 100 million postage stamps per year to the U.S. Postal Service for the next five years. You have an idle parcel of land available that cost $750,000 five years ago; if the land were sold today, it would net you $1,125,000 aft

> Letang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $265,000, has a four-year life, and requires $73,000 in pretax annual operating costs. System B costs $345,000, has a six-year life,

> Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale. The equipment will cost $425,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $25,000 a

> Masters Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $385,000 is estimated to result in $145,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it w

> Martin Enterprises needs someone to supply it with 125,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost you $910,000 to install the equipment neces

> Winnebagel Corp. currently sells 20,000 motor homes per year at $97,000 each and 14,000 luxury motor coaches per year at $145,000 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 30,000 of these ca

> Lucas Corp. has a debt-equity ratio of .65. The company is considering a new plant that will cost $51 million to build. When the company issues new equity, it incurs a flotation cost of 7 percent. The flotation cost on new debt is 2.7 percent. What is th

> One of your customers is delinquent on his accounts payable balance. You’ve mutually agreed to a repayment schedule of $450 per month. You will charge 1.3 percent per month interest on the overdue balance. If the current balance is $18,000, how long will

> What is the NAL of the lease from the lessor’s viewpoint? Assume a 21 percent tax rate

> You are evaluating two different silicon wafer milling machines. The Techron I costs $245,000, has a three-year life, and has pretax operating costs of $63,000 per year. The Techron II costs $420,000, has a five-year life, and has pretax operating costs

> A five-year project has an initial fixed asset investment of $315,000, an initial NWC investment of $25,000, and an annual OCF of −$35,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required return

> In the previous problem, suppose your required return on the project is 11 percent and your pretax cost savings are $150,000 per year. Will you accept the project? What if the pretax cost savings are $100,000 per year? At what level of pretax cost saving

> In the previous problem, suppose the fixed asset actually qualifies for 100 percent bonus depreciation in the first year. What is the new NPV?Data from Problem 14:Dog Up! Franks is looking at a new sausage system with an installed cost of $460,000. This

> Dog Up! Franks is looking at a new sausage system with an installed cost of $460,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $55,000. The sausage s

> In the previous problem, suppose the fixed asset actually qualifies for 100 percent bonus depreciation in the first year. All the other facts are the same. What is the project’s Year 1 net cash flow now? Year 2? Year 3? What is the new NPV?Data from Prob

> In the previous problem, suppose the fixed asset actually falls into the three-year MACRS class. All the other facts are the same. What is the project’s Year 1 net cash flow now? Year 2? Year 3? What is the new NPV?Data from Problem 11:In the previous pr

> In the previous problem, suppose the project requires an initial investment in net working capital of $250,000, and the fixed asset will have a market value of $180,000 at the end of the project. What is the project’s Year 0 net cash flow? Year 1? Year 2

> In the previous problem, suppose the required return on the project is 12 percent. What is the project’s NPV?Data from Problem 9:Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.32 m

> Sunburn Sunscreen has a zero coupon bond issue outstanding with a $15,000 face value that matures in one year. The current market value of the firm’s assets is $16,200. The standard deviation of the return on the firm’s assets is 34 percent per year, and

> Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $3.6 million in anticipation of using it as a warehouse and distribution site, but the company

> Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of .60. It’s considering building a new $65 million manufacturing facility. This new plant is expected to generate aftertax

> A project that provides annual cash flows of $11,700 for nine years costs $63,000 today. Is this a good project if the required return is 8 percent? What if it’s 20 percent? At what discount rate would you be indifferent between accepting the project and

> For the cash flows in the previous problem, suppose the firm uses the NPV decision rule. At a required return of 11 percent, should the firm accept this project? What if the required return is 24 percent?

> A firm evaluates all of its projects by applying the IRR rule. If the required return is 14 percent, should the firm accept the following project? Year …………………………………………………………………………………….. Cash Flow0 …………………………………………………………………………………………. −$34,0001 …………………………

> You’re trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $13.5 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net

> An investment project costs $17,000 and has annual cash flows of $4,700 for six years. What is the discounted payback period if the discount rate is zero percent? What if the discount rate is 5 percent? If it is 19 percent?

> You’re prepared to make monthly payments of $175, beginning at the end of this month, into an account that pays 7 percent interest compounded monthly. How many payments will you have made when your account balance reaches $15,000?

> An investment project has annual cash inflows of $2,800, $3,700, $5,100, and $4,300, for the next four years, respectively. The discount rate is 11 percent. What is the discounted payback period for these cash flows if the initial cost is $5,200? What if

> What is the relationship between the value of an annuity and the level of interest rates? Suppose you just bought an annuity with 11 annual payments of $8,500 per year at the current interestof 10 percent per year. What happens to the value of your inves

> You want to buy a new sports coupe for $84,500, and the finance office at the dealership has quoted you an APR of 5.2 percent for a 60-month loan to buy the car. What will your monthly payments be? What is the effective annual rate on this loan?

> You are planning to save for retirement over the next 30 years. To save for retirement, you will invest $800 per month in a stock account in real dollars and $400 per month in a bond account in real dollars. The effective annual return of the stock accou

> When Marilyn Monroe died, ex-husband Joe DiMaggio vowed to place fresh flowers on her grave every Sunday as long as he lived. The week after she died in 1962, a bunch of fresh flowers that the former baseball player thought appropriate for the star cost

> In the previous problem, suppose you believe that sales in five years will be $29.2 million and the price-sales ratio will be 2.45. What is the share price now?Previous problem:You have looked at the current financial statements for Reigle Homes, Co. The

> You’ve just joined the investment banking firm of Dewey, Cheatum, and Howe. They’ve offered you two different salary arrangements. You can have $85,000 per year for the next two years, or you can have $74,000 per year for the next two years, along with a

> This one’s a little harder. Suppose the current share price for the firm in the previous problem is $54.50 and all the dividend information remains the same. What required return must investors be demanding on the company’s stock? (Hint: Set up the valua

> Storico Co. just paid a dividend of $3.15 per share. The company will increase its dividend by 20 percent next year and then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent dividend growt

> In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the “terminal” stock price using a benchmark PE ratio. Suppose a company just paid a dividend of $1.36.

> Bronco, Inc., imposes a payback cutoff of three years for its international investment projects. If the company has the following two projects available, should it accept either of them? ,,,

> RAK, Inc., currently has an EPS of $2.45 and an earnings growth rate of 8 percent. If the benchmark PE ratio is 23, what is the target share price five years from now?

> Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows:Year …………………………………………………………………………………………….. Cash Flow0 ……………………………………………………………………………………………… −$1,275,0001 …………………………………………………………………………………………

> Big Dom’s Pawn Shop charges an interest rate of 27 percent per month on loans to its customers. Like all lenders, Big Dom must report an APR to consumers. What rate should the shop report? What is the effective annual rate?

> McKeekin Corp. has a project with the following cash flows: Year ………………………………………………………………….. Cash Flow0 ………………………………………………………………………… $25,0001 ………………………………………………………………………… − 11,0002 …………………………………………………………………………….. 7,000What is the IRR of the project? What

> A project has the following cash flows: Year …………………………………………………………………………………………. Cash Flow0 ………………………………………………………………………………………………... $59,0001 ……………………………………………………………………………………………….. − 34,0002 ………………………………………………………………………………………………… − 39,000What is the IRR fo

> The Yurdone Corporation wants to set up a private cemetery business. According to the CFO, Barry M. Deep, business is “looking up.” As a result, the cemetery project will provide a net cash inflow of $145,000 for the firm during the first year, and the c

> Use the Black-Scholes model for pricing a call, put-call parity, and Problem 25 to show that the Black-Scholes model for directly pricing a put can be written as:P = E × e Rt × N (d2) − S × N (d1)

> An investment under consideration has a payback of seven years and a cost of $685,000. If the required return is 11 percent, what is the worst-case NPV? The best-case NPV? Explain. Assume the cash flows are conventional.

> E-Eyes.com just issued some new preferred stock. The issue will pay an annual dividend of $20 in perpetuity, beginning 20 years from now. If the market requires a return of 5.65 percent on this investment, how much does a share of preferred stock cost to

> Mannix Corporation stock currently sells for $57 per share. The market requires a return of 11 percent on the firm’s stock. If the company maintains a constant 3.75 percent growth rate in dividends, what was the most recent dividend per share paid on the

> Suppose the company in the previous problem uses a discount rate of 11 percent and a reinvestment rate of 8 percent on all of its projects. Calculate the MIRR of the project using all three methods using these interest rates.Data from Problem 19:Solo Cor

> An investment project provides cash inflows of $745 per year for eight years. What is the project payback period if the initial cost is $1,700? What if the initial cost is $3,300? What if it is $6,100?

> An investment will pay you $80,000 in 10 years. If the appropriate discount rate is 9 percent compounded daily, what is the present value?

> Solo Corp. is evaluating a project with the following cash flows: Year ………………………………………………………………………………………………. Cash Flow0 …………………………………………………………………………………………………… −$47,0001 …………………………………………………………………………………………………………. 16,9002 ……………………………………………………………………………………………

> An investment has an installed cost of $527,630. The cash flows over the four-year life of the investment are projected to be $212,200, $243,800, $203,500, and $167,410, respectively. If the discount rate is zero, what is the NPV? If the discount rate is

> Consider the following two mutually exclusive projects: Whichever project you choose, if any, you require a return of 11 percent on your investment.a. If you apply the payback criterion, which investment will you choose? Why?b. If you apply the discount

> The Sloan Corporation is trying to choose between the following two mutually exclusive design projects: a. If the required return is 10 percent and the company applies the profitability index decision rule, which project should the firm accept?b. If the

> In the previous problem, instead of a perpetual growth rate in adjusted cash flow from assets, you decide to calculate the terminal value of the company with the price-sales ratio. You believe that Year 5 sales will be $16.9 million and the appropriate p

> What is the profitability index for the following set of cash flows if the relevant discount rate is 10 percent? What if the discount rate is 15 percent? If it is 22 percent? Year ……………………………………………………………………………….. Cash Flow0 ………………………………………………………………………………

> Light Sweet Petroleum, Inc., is trying to evaluate a generation project with the followingcash flows:Year …………………………………………………………………………………………… Cash Flow0 ………………………………………………………………………………………… −$48,000,0001 ……………………………………………………………………………………………… 71,000,0002 ………

> Consider the following two mutually exclusive projects:

> Bruin, Inc., has identified the following two mutually exclusive projects:b. If the required return is 11 percent, what is the NPV for each of these projects? Which project will the company choose if it applies the NPV decision rule?c. Over what range of

> For the cash flows in the previous problem, what is the NPV at a discount rate of zero percent? What if the discount rate is 10 percent? If it is 20 percent? If it is 30 percent?

> Spartan Credit Bank is offering 8.1 percent compounded daily on its savings accounts. If you deposit $6,500 today, how much will you have in the account in 5 years? In 10 years? In 20 years?

> What is the IRR of the following set of cash flows? Year ……………………………………………………………………………………… Cash Flow0 …………………………………………………………………………………………… −$15,4001 ………………………………………………………………………………………………… 7,3002 …………………………………………………………………………………………………. 9,1003 ………………………………………

> What is the payback period for the following set of cash flows?Year …………………………………………………………………………………….. Cash Flow0 ……………………………………………………………………………………………. −$8,3001 ………………………………………………………………………………………….……. 2,1002 ……………………………………………………………………………………………….. 3,0003 ……

> Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $3.65 next year. The growth rate in dividends for all three companies is 4 percent. The required return for each company’s stock is 8 percent, 11 percent, and 14 percent, respectively.

> Bedekar, Inc., has an issue of preferred stock outstanding that pays a $3.40 dividend every year in perpetuity. If this issue currently sells for $91 per share, what is the required return?

> Burnett Corp. pays a constant $8.25 dividend on its stock. The company will maintain this dividend for the next 13 years and will then cease paying dividends forever. If the required return on this stock is 11.2 percent, what is the current share price?

> The put-call parity condition is altered when dividends are paid. The dividend adjusted put-call parity formula is:S × e dt + P =E × e Rt + Cwhere d is again the continuously compounded dividend yield.a. What effect do you think the dividend yield will h

> Suppose you know that a company’s stock currently sells for $74 per share and the required return on the stock is 10.6 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it’s

> Grateful Eight Co. is expected to maintain a constant 3.7 percent growth rate in its dividends indefinitely. If the company has a dividend yield of 5.6 percent, what is the required return on the company’s stock?

> Hudson Corporation will pay a dividend of $3.28 per share next year. The company pledges to increase its dividend by 3.75 percent per year indefinitely. If you require a return of 10 percent on your investment, how much will you pay for the company’s sto

> For the company in the previous problem, what is the dividend yield? What is the expected capital gains yield?Previous problem:The next dividend payment by Savitz, Inc., will be $2.34 per share. The dividends are anticipated to maintain a growth rate of

> What is the future value of $3,100 in 17 years assuming an interest rate of 8.4 percent compounded semiannually?

> The most recent financial statements for Alexander Co. are shown here:Assets and costs are proportional to sales. The company maintains a constant 40 percent dividend payout ratio and a constant debt-equity ratio. What is the maximum increase in sales th

> Given the information for Kerber’s Tennis Shop, Inc., in Problems 8 and 9, suppose you also know that the firm’s net capital spending for 2018 was $1,250,000 and that the firm reduced its net working capital investment by $45,000. What was the firm’s 201

> Wims, Inc., has current assets of $4,900, net fixed assets of $27,300, current liabilities of $4,100, and long-term debt of $10,200. What is the value of the shareholders’ equity account for this firm? How much is net working capital?

> Smolira Golf Corp. has 20,000 shares of common stock outstanding, and the market price for a share of stock at the end of 2018 was $58. What is the price-earnings ratio? What are the dividends per share? What is the market-to-book ratio at the end of 201

> Prepare the 2018 statement of cash flows for Smolira Golf Corp.

> Construct the DuPont identity for Smolira Golf Corp.

> Find the following financial ratios for Smolira Golf Corp. (use year-end figures rather than average values where appropriate):Short-term solvency ratios:Current ratio. Quick ratio. Cash ratio. Asset utilization ratios:Total asset turnover. Inventory tur

> Prince Albert Canning PLC had a net loss of £29,157 on sales of £315,650. What was the company’s profit margin? Does the fact that these figures are quoted in a foreign currency make any difference? Why? In dollars, sales were $395,183. What was the net

> BQ, Inc., is considering making an offer to purchase iReport Publications. The vice president of finance has collected the following information:BQ also knows that securities analysts expect the earnings and dividends of iReport to grow at a constant rat

> For the company in Problem 6, what is the sustainable growth rate?Data from Problem 6:The most recent financial statements for Bello Co. are shown here:

> Highly Suspect Corp. has current liabilities of $415,000, a quick ratio of .79, inventory turnover of 9.5, and a current ratio of 1.25. What is the cost of goods sold for the company?

> Pop Evil Inc.’s net income for the most recent year was $16,481. The tax rate was 34 percent. The firm paid $3,681 in total interest expense and deducted $4,385 in depreciation expense. What was the cash coverage ratio for the year?

> Firm A and Firm B have debt-total asset ratios of 65 percent and 45 percent, respectively, and returns on total assets of 5 percent and 9 percent, respectively. Which firm has a greater return on equity?

> In response to complaints about high prices, a grocery chain runs the following advertising campaign: “If you pay your child $1.50 to go buy $50 worth of groceries, then your child makes twice as much on the trip as we do.” You’ve collected the following

> The Maurer Company has a long-term debt ratio of .35 and a current ratio of 1.30. Current liabilities are $955, sales are $7,210, profit margin is 8.3 percent, and ROE is 17.5 percent. What is the amount of the firm’s net fixed assets?

> DTO, Inc., has sales of $16.7 million, total assets of $12.9 million, and total debt of $5.7 million. If the profit margin is 5 percent, what is net income? What is ROA? What is ROE?

> A company has net income of $196,500, a profit margin of 6.8 percent, and an accounts receivable balance of $119,630. Assuming 65 percent of sales are on credit, what is the company’s days’ sales in receivables?

> Y3K, Inc., has sales of $6,183, total assets of $2,974, and a debt-equity ratio of .57. If its return on equity is 11 percent, what is its net income?

> Based on the balance sheets given for Just Dew It, calculate the following financial ratios for each year: b. Quick ratio.c. Cash ratio.d. NWC to total assets ratioe. Debt-equity ratio and equity multiplier.f. Total debt ratio and long-term debt ratio.

> Harrods PLC has a market value of £95 million and 4.5 million shares outstanding. Selfridge Department Store has a market value of £32 million and 1.8 million shares outstanding. Harrods is contemplating acquiring Selfridge. Harrods’s CFO concludes that

> For each account on this company’s balance sheet, show the change in the account during 2018 and note whether this change was a source or use of cash. Do your numbers add up and make sense? Explain your answer for total assets as compar

> The most recent financial statements for Bello Co. are shown here:

> Prepare the 2018 combined common-size, common-base year balance sheet for Just Dew It.