Use EDGAR to find Qualcomm’s 10K filing for 2015. From the balance sheet, answer the following questions: a. How much did Qualcomm have in cash, cash equivalents, and marketable securities (short- and long-term)? b. What were Qualcomm’s total accounts receivable? c. What were Qualcomm’s total assets? d. What were Qualcomm’s total liabilities? How much of this was long-term debt? e. What was the book value of Qualcomm’s equity?
> Many of the provisions of the Sarbanes-Oxley Act of 2002 were aimed at auditors. How does this affect corporate governance?
> What is the essential trade-off faced by government in designing regulation of public firms?
> What are a board’s options when confronted with dissident shareholders?
> What is a say-on-pay vote?
> The promised cash flows of three securities are listed here. If the cash flows are risk-free, and the risk-free interest rate is 5%, determine the no-arbitrage price of each security before the first cash flow is paid. Security Cash Flow Today ($) C
> How can proxy contests be used to overcome a captured board?
> Is it necessarily true that increasing managerial ownership stakes will improve firm performance?
> What inherent characteristic of corporations creates the need for a system of checks on manager behavior?
> Diversification is good for shareholders. So why shouldn’t managers acquire firms in different industries to diversify a company?
> How do the carry forward and carryback provisions of the U.S. tax code affect the benefits of merging to capture operating losses?
> Do you agree that the European Union should be able to block mergers between two U.S.based firms? Why or why not?
> If you are planning an acquisition that is motivated by trying to acquire expertise, you are basically seeking to gain intellectual capital. What concerns would you have in structuring the deal and the post-merger integration that would be different from
> Why do you think shareholders from target companies enjoy an average gain when acquired, while acquiring shareholders on average often do not gain anything?
> What are some reasons why a horizontal merger might create value for shareholders?
> Why do you think mergers cluster in time, causing merger waves?
> An American Depositary Receipt (ADR) is security issued by a U.S. bank and traded on a U.S. stock exchange that represents a specific number of shares of a foreign stock. For example, Nokia Corporation trades as an ADR with symbol NOK on the NYSE. Each A
> How does a toehold help overcome the free rider problem?
> Loki, Inc., and Thor, Inc., have entered into a stock swap merger agreement whereby Loki will pay a 40% premium over Thor’s premerger price. If Thor’s premerger price per share was $40 and Loki’s was $50, what exchange ratio will Loki need to offer?
> What are the two primary mechanisms under which ownership and control of a public corporation can change?
> Which of the following one-year $1000 bank loans offers the lowest effective annual rate? a. A loan with an APR of 6%, compounded monthly b. A loan with an APR of 6%, compounded annually, that also has a compensating balance requirement of 10% (on which
> What is the difference between evergreen credit and a revolving line of credit?
> Consider two loans with a 1-year maturity and identical face values: an 8% loan with a 1% loan origination fee and an 8% loan with a 5% (no-interest) compensating balance requirement. Which loan would have the higher effective annual rate? Why?
> Hand-to-Mouth (H2M) is currently cash-constrained, and must make a decision about whether to delay paying one of its suppliers, or take out a loan. They owe the supplier $10,000 with terms of 2/10 Net 40, so the supplier will give them a 2% discount if t
> Why might a company choose to finance permanent working capital with short-term debt?
> Quarterly working capital levels for your firm for the next year are included in the following table. What are the permanent working capital needs of your company? What are the temporary needs? Quarter ($000) 1 2 3 4 Cash $100 $100 $100 $100 Accoun
> What is the difference between permanent working capital and temporary working capital?
> Throughout the 1990s, interest rates in Japan were lower than interest rates in the United States. As a result, many Japanese investors were tempted to borrow in Japan and invest the proceeds in the United States. Explain why this strategy does not repre
> Discuss the three different arrangements under which a firm may use inventory to secure a loan.
> What is the difference between direct paper and dealer paper?
> Which of the following companies are likely to have high short-term financing needs? Why? a. A clothing retailer b. A professional sports team c. An electric utility d. A company that operates toll roads e. A restaurant chain
> What are the three steps involved in establishing a credit policy?
> The Saban Corporation is trying to decide whether to switch to a bank that will accommodate electronic funds transfers from Saban’s customers. Saban’s financial manager believes the new system would decrease its collection float by as much as five days.
> The Greek Connection had sales of $32 million in 2015, and a cost of goods sold of $20 million. A simplified balance sheet for the firm appears below: a. Calculate The Greek Connection’s net working capital in 2015. b. Calculate the c
> Does an increase in a firm’s cash cycle necessarily mean that a firm is managing its cash poorly?
> Which of the following short-term securities would you expect to offer the highest before tax return: Treasury bills, certificates of deposit, short-term tax exempts, or commercial paper? Why?
> Ohio Valley Homecare Suppliers, Inc. (OVHS) had $20 million in sales in 2015. Its cost of goods sold was $8 million, and its average inventory balance was $2,000,000. a. Calculate the average number of inventory days outstanding for OVHS. b. The average
> Use the financial statements supplied on the next page for International Motor Corporation (IMC) to answer the following questions. a. Calculate the cash conversion cycle for IMC for both 2015 and 2016. What change has occurred, if any? All else being eq
> Suppose Bank One offers a risk-free interest rate of 5.5% on both savings and loans, and Bank Enn offers a risk-free interest rate of 6% on both savings and loans. a. What arbitrage opportunity is available? b. Which bank would experience a surge in the
> What is meant by “stretching the accounts payable”?
> Answer the following questions: a. What is the difference between a firm’s cash cycle and its operating cycle? b. How will a firm’s cash cycle be affected if a firm increases its inventory, all else being equal? c. How will a firm’s cash cycle be affect
> Suppose Procter and Gamble (P&G) is considering purchasing $15 million in new manufacturing equipment. If it purchases the equipment, it will depreciate it on a straight-line basis over the five years, after which the equipment will be worthless. It will
> Suppose Clorox can lease a new computer data processing system for $975,000 per year for five years. Alternatively, it can purchase the system for $4.25 million. Assume Clorox has a borrowing cost of 7% and a tax rate of 35%, and the system will be obsol
> Riverton Mining plans to purchase or lease $220,000 worth of excavation equipment. If purchased, the equipment will be depreciated on a straight-line basis over five years, after which it will be worthless. If leased, the annual lease payments will be $5
> Craxton Engineering will either purchase or lease a new $756,000 fabricator. If purchased, the fabricator will be depreciated on a straight-line basis over seven years. Craxton can lease the fabricator for $130,000 per year for seven years. Craxton’s tax
> Your firm is considering leasing a $50,000 copier. The copier has an estimated economic life of eight years. Suppose the appropriate discount rate is 9% APR with monthly compounding. Classify each lease below as a capital lease or operating lease, and ex
> Acme Distribution currently has the following items on its balance sheet: Under current FASB accounting standards (that is, prior to 2019), how will Acme’s balance sheet change if it enters into an $80 million capital lease for new wa
> Consider a five-year lease for a $400,000 bottling machine, with a residual market value of $150,000 at the end of the five years. If the risk-free interest rate is 6% APR with monthly compounding, compute the monthly lease payment in a perfect market fo
> Suppose the risk-free interest rate is 5% APR with monthly compounding. If a $2 million MRI machine can be leased for seven years for $22,000 per month, what residual value must the lessor recover to break even in a perfect market with no risk?
> Your computer manufacturing firm must purchase 10,000 keyboards from a supplier. One supplier demands a payment of $100,000 today plus $10 per keyboard payable in one year. Another supplier will charge $21 per keyboard, also payable in one year. The risk
> Western Airlines is considering a new route that will require adding an additional Boeing 777 to its fleet. Western can purchase the airplane for $225 million or lease it for $25 million per year. If it purchases the airplane, its seating can be optimize
> Suppose Amazon is considering the purchase of computer servers and network infrastructure to expand its very successful business offering cloud-based computing. In total, it will purchase $48 million in new equipment. This equipment will qualify for acce
> Suppose an H1200 supercomputer has a cost of $200,000 and will have a residual market value of $60,000 in five years. The risk-free interest rate is 5% APR with monthly compounding. a. What is the risk-free monthly lease rate for a five-year lease in a p
> What is the distinguishing feature of how municipal bonds are taxed?
> Describe what prepayment risk in a GNMA is.
> On January 15, 2020, the U.S. Treasury issued a 10-year inflation-indexed note with a coupon of 6%. On the date of issue, the CPI was 400. By January 15, 2030, the CPI had decreased to 300. What principal and coupon payment was made on January 15, 2030?
> Suppose on January 15, 2013, the U.S. Treasury issued a five-year inflation-indexed note with a coupon of 3%. On the date of issue, the consumer price index (CPI) was 250. By January 15, 2018, the CPI had increased to 300. What principal and coupon payme
> Describe the kinds of securities the U.S. government uses to finance the federal debt.
> What is the difference between a foreign bond and a Eurobond?
> Explain the difference between a secured corporate bond and an unsecured corporate bond.
> Your firm has identified three potential investment projects. The projects and their cash flows are shown here: Suppose all cash flows are certain and the risk-free interest rate is 10%. a. What is the NPV of each project? b. If the firm can choose onl
> Why do bonds with lower seniority have higher yields than equivalent bonds with higher seniority?
> Explain why the yield on a convertible bond is lower than the yield on an otherwise identical bond without a conversion feature.
> General Electric has just issued a callable 10-year, 6% coupon bond with annual coupon payments. The bond can be called at par in one year or anytime thereafter on a coupon payment date. It has a price of $102. What is the bond’s yield to maturity and yi
> Explain why bond issuers might voluntarily choose to put restrictive covenants into a new bond issue.
> Explain some of the differences between a public debt offering and a private debt offering.
> What are the main advantages and disadvantages of going public?
> Bit Box has raised $10 million in a Series A round with $40 million post-money value and a 1.5x liquidation preference, and $25 million in a Series B round with a $75 million post-money value and a 3x liquidation preference plus seniority over Series A.
> Beru.com recently raised $5 million with a pre-money value of $9 million. They are seeking to raise another $6 million. What is the largest fraction of the firm they can offer and avoid a down round?
> Your robotic automation start-up, Kela Controls, has raised capital as follows: a. How much did Kela raise in each round? b. Assuming no other securities were issued, what fraction of the firm’s shares were held by common shareholders
> Suppose venture capital firm GSB partners raised $100 million of committed capital. Each year over the 10-year life of the fund, 2% of this committed capital will be used to pay GSB’s management fee. As is typical in the venture capital industry, GSB wil
> In early-2015, Abercrombie & Fitch (ANF) had a book equity of $1390 million, a price per share of $25.52, and 69.35 million shares outstanding. At the same time, The Gap (GPS) had a book equity of $2983 million, a share price of $41.19, and 421 million s
> What are the advantages and the disadvantages to a private company of raising money from a corporate investor?
> What are the advantages to a company of selling stock in an SEO using a cash offer? What are the advantages of a rights offer?
> You have an arrangement with your broker to request 1000 shares of all available IPOs. Suppose that 10% of the time, the IPO is “very successful” and appreciates by 100% on the first day, 80% of the time it is “successful” and appreciates by 10%, and 10%
> Your firm has 10 million shares outstanding, and you are about to issue 5 million new shares in an IPO. The IPO price has been set at $20 per share, and the underwriting spread is 7%. The IPO is a big success with investors, and the share price rises to
> What is IPO underpricing? If you decide to try to buy shares in every IPO, will you necessarily make money from the underpricing?
> Three years ago, you founded Outdoor Recreation, Inc., a retailer specializing in the sale of equipment and clothing for recreational activities such as camping, skiing, and hiking. So far, your company has gone through three funding rounds: Currently,
> Do underwriters face the most risk from a best-efforts IPO, a firm commitment IPO, or an auction IPO? Why?
> What are some of the alternative sources from which private companies can raise equity capital?
> Consider again the electric car dealership in Section 22.3. Suppose the current value of a dealership is $5 million because the first-year free cash flow is expected to be $500,000 rather than $600,000. What is the beta of a corporation whose only asset
> A professor in the Computer Science department at United States Institute of Technology has just patented a new search engine technology and would like to sell it to you, an interested venture capitalist. The patent has a 17-year life. The technology wil
> In early 2012, General Electric (GE) had a book value of equity of $116 billion, 10.6 billion shares outstanding, and a market price of $17.00 per share. GE also had cash of $84 billion, and total debt of $410 billion. Three years later, in early 2015, G
> It is the beginning of September and you have been offered the following deal to go heli-skiing. If you pick the first week in January and pay for your vacation now, you can get a week of heli-skiing for $2500. However, if you cannot ski because the heli
> You are a financial analyst at Global Conglomerate and are considering entering the shoe business. You believe that you have a very narrow window for entering this market. Because of Christmas demand, the time is right today and you believe that exactly
> Describe the benefits and costs of delaying an investment opportunity.
> Using the information in Problem 2, rework the problem assuming you find out the size of the Everlasting Gobstopper market one year after you make the investment. That is, if you do not make the investment, you do not find out the size of the market. Con
> Consider the United Studios example in Section 22.2. Suppose United has the rights to produce the first film, but has not yet purchased the sequel rights. a. How much are the sequel rights worth to United? b. Suppose United can purchase the sequel rights
> Assume that the project in Example 22.5 pays an annual cash flow of $80,000 (instead of $90,000). a. What is the NPV of investing today? b. What is the NPV of waiting and investing tomorrow? c. Verify that the hurdle rate rule of thumb gives the correct
> Assume that the project in Example 22.5 pays an annual cash flow of $100,000 (instead of $90,000). a. What is the NPV of investing today? b. What is the NPV of waiting and investing tomorrow? c. Verify that the hurdle rate rule of thumb gives the correct
> Your firm is thinking of expanding. If you invest today, the expansion will generate $10 million in FCF at the end of the year, and will have a continuation value of either $150 million (if the economy improves) or $50 million (if the economy does not im
> Your engineers are developing a new product to launch next year that will require both software and hardware innovations. The software team requests a budget of $5 million and forecasts an 80% chance of success. The hardware team requests a $10 million b
> Genenco is developing a new drug that will slow the aging process. In order to succeed, two breakthroughs are needed: one to increase the potency of the drug, and the second to eliminate toxic side effects. Research to improve the drug’s potency is expec
> What was the change in Global Conglomerate’s book value of equity from 2014 to 2015 according to Table 2.1? Does this imply that the market price of Global’s shares increased in 2015? Explain. Table 2.1: GLOBAL C
> You own a cab company and are evaluating two options to replace your fleet. Either you can take out a five-year lease on the replacement cabs for $500 per month per cab, or you can purchase the cabs outright for $30,000, in which case the cabs will last
> What implicit assumption is made when managers use the equivalent annual benefit method to decide between two projects with different lives that use the same resource?
> You own a piece of raw land in an up-and-coming area in Gotham City. The costs to construct a building increase disproportionately with the size of the building. A building of q square feet costs 0.1 * q2 to build. After you construct a building on the l
> You are trying to decide whether to make an investment of $500 million in a new technology to produce Everlasting Gobstoppers. There is a 60% chance that the market for these candies will produce profits of $100 million annually, a 20% chance the market
> An original silver dollar from the late eighteenth century consists of approximately 24 grams of silver. At a price of $0.19 per gram ($6 per troy ounce), the silver content of the coin is worth about $4.50. Assume that these coins are in plentiful suppl
> You own a copper mine. The price of copper is currently $1.50 per pound. The mine produces 1 million pounds of copper per year and costs $2 million per year to operate. It has enough copper to operate for 100 years. Shutting the mine down would entail br
> You own a wholesale plumbing supply store. The store currently generates revenues of $1 million per year. Next year, revenues will either decrease by 10% or increase by 5%, with equal probability, and then stay at that level as long as you operate the st
