Question: What implications might the pecking order and

> Peter and Tanya Rothing operated Diamond R Stables near Belgrade, Montana, where they bred, trained, and sold horses. Arnold Kallestad owned a ranch in Gallatin County, Montana, where he grew hay and grain, and raised Red Angus cattle. For more than twen

> In December 1999, Space makers of America, Inc., hired Jenny Triplett as a bookkeeper. Triplett was responsible for maintaining the company checkbook and reconciling it with the monthly statements from SunTrust Bank. She also handled invoices from vendor

> Videotape is recorded magnetically. The magnetic particles that constitute the recorded image are bound to the tape’s polyester base. The binder that holds the particles to the base breaks down over time. This breakdown, which is called sticky shed syndr

> Denise and Nick Purificato signed a note secured by real property in Florida. The note was transferred through several parties to Aurora Loan Services, LLC. The Purificatos defaulted on the payments. Aurora filed a suit in a Florida state court against t

> In November 2000, Monay Jones signed a promissory note in favor of a mortgage company in the amount of $261,250. Jones used the deed to her home in Denver, Colorado, as collateral. Fifth Third Bank soon became the holder of the note. After Jones defaulte

> Mark Denton cosigned a $101,250 loan issued by the First Interstate Bank (FIB) in Missoula, Montana, to Denton’s friend Eric Anderson. Denton’s business assets—a mini-warehouse operation—secured the loan. On his own, Anderson obtained a $260,000 U.S. Sma

> Go to Case Analysis 21.1, BMW Group, LLC v. Castle Oil Corp. Read the excerpt and answer the following questions. (a) Issue: What goods are at the center of this case? Why? (b) Rule of Law: What does the Uniform Commercial Code provide with respect to ca

> John Warren wanted to buy a condominium in California. Hildegard Merrill was the agent for the seller. Because Warren’s credit rating was poor, Merrill told him he needed a co-borrower to obtain a mortgage at a reasonable rate. Merrill said that her daug

> Kenneth West agreed to sell his car, a 1975 Corvette, to a man representing himself as Robert Wilson. In exchange for a cashier’s check, West signed over the Corvette’s title to Wilson and gave him the car. Ten days later, when West learned that the cash

> Technical Consumer Products, Inc. (TCP), makes and distributes energy-efficient lighting products. Emily Bahr was TCP’s district sales manager in Minnesota, North Dakota, and South Dakota when the company announced the details of a bonus plan. A district

> Planned Pethood Plus, Inc., is a veterinarian-owned clinic. It borrowed $389,000 from KeyBank at an interest rate of 9.3 percent to extinguish the obligation. The sooner the loan was paid off, the higher the prepayment penalty. After a year, the veterina

> Premier Building & Development, Inc., entered into a list Development, Inc., entered into a list Development, Inc., entered into a list ing agreement giving Sunset Gold Realty, LLC, the exclusive right to find a tenant for some commercial property. The t

> New England Precision Grinding, Inc. (NEPG), sells precision medical parts in Massachusetts. NEPG agreed to supply Kyphon, Inc., with stylets and nozzles. NEPG contracted with Simply Surgical, LLC, to obtain the parts from Iscon Surgicals, Ltd. The contr

> After a series of e-mails, Jorge Bonilla, the sole proprietor of a printing company in Uruguay, agreed to buy a used printer from Crystal Graphics Equipment, Inc., in New York. Crystal Graphics, through its agent, told Bonilla that the printing press was

> Robert Morris was a licensed insurance agent working for his father’s independent insurance agency when he contacted Farmers Insurance Exchange in Alabama about becoming a Farmers agent. According to Farmers’ company policy, Morris was an unsuitable cand

> Dr. Kevin Bardwell owns Northfield Urgent Care, LLC, a Minnesota medical clinic. Northfield ordered flu vaccine from Clint Pharmaceuticals, a licensed distributer of flu vaccine located in Tennessee. The parties signed a credit agreement that specified t

> Bruce Albea Contracting, Inc., was the general contractor on a state highway project. Albea subcontracted the asphalt work to APAC Southeast, Inc. Their contract prohibited any delegation without Albea’s consent. In mid project, APAC delegated its duties

> King County, Washington, hired Frank Coluccio Construction Co. (FCCC) to act as general contractor for a public works project involving the construction of a small utility tunnel under the Duwamish Waterway. FCCC hired Donald B. Murphy Contractors, Inc.

> ABC Clothiers, Inc., has a contract with Taylor & Sons, a retailer, to deliver one thousand summer suits to Taylor’s place of business on or before May 1. On April 1, Taylor receives a letter from ABC informing him that ABC will not be able to make the d

> Evangel Temple Assembly of God leased a facility from Wood Care Centers, Inc., to house evacuees who had lost their homes in Hurricane Katrina. One clause in the lease contract said that Evangel could terminate the lease at any time by giving Wood Care n

> Randy Jones is an agent for Farmers Insurance Co. of Arizona. Through Jones, Robert and Marcia Murray obtained auto insurance with Farmers. On Jones’s advice, the Murrays increased the policy’s limits over the minimums required by the state of Arizona, e

> Ricky and Sherry Wilcox hired Esprit Log and Timber Frame Homes to build a log house, which the Wilcoxes intended to sell. They paid Esprit $125,260 for materials and services. They eventually sold the home for $1,620,000 but sued Esprit due to construct

> Brendan Coleman created and marketed Clinex, a soft Brendan Coleman created and marketed Clinex, a soft Brendan Coleman created and marketed Clinex, a software billing program. Later, Retina Consultants, P.C., a medical practice, hired Coleman as a softw

> Arkansas Missouri Forest Products, LLC (Ark-Mo), sells supplies to make wood pallets. Blue Chip Manufacturing (BCM) makes pallets. Mark Garnett, an owner of Ark-Mo, and Stuart Lerner, an owner of BCM, went into business together. Garnett and Lerner agree

> Leonard Kranzler loaned Lewis Saltzman $100,000. Saltzman made fifteen payments on the loan, but this did not repay the entire amount. More than ten years after the date of the loan, but less than two years after the date of the last payment, Kranzler fi

> PRM Energy Systems owned patents licensed to Primenergy to use in the United States. Their contract stated that “all disputes” would be settled by arbitration. Kobe Steel of Japan was interested in using the technology represented by PRM’s patents. Prime

> Farrokh and Scheherezade Sharabianlou signed a purchase agreement to buy a building owned by Berenstein Associates for $2 million. They deposited $115,000 toward the purchase. Before the deal closed, an environmental assessment of the property indicated

> Claudia Aceves borrowed from U.S. Bank to buy a home. Two years later, she could no longer afford the monthly payments. The bank notified her that it planned to foreclose on her home. (Foreclosure is a process that allows a lender to repossess and sell t

> International Business Machines Corp. (IBM) hired Niels Jensen in 2000 as a software sales representative. According to the brochure on IBM’s “Sales Incentive Plan” (SIP), “the more you sell, the more earnings for you.” But “the SIP program does not cons

> The Smiths buy a house. They borrow 80 percent of the purchase price from the local ABC Savings and Loan. Before they make their first payment, ABC transfers the right to receive mortgage payments to Citibank. (a) The first group will outline what would

> Cyber crime costs consumers millions of dollars per year, and it costs businesses, including banks and other credit-card issuers, even more. Nonetheless, when cyber criminals are caught and convicted, they are rarely ordered to pay restitution or sentenc

> 1. Finance principles focus on an individual’s a. political and economic behavior. b. economic and social behavior. c. economic and ethical behavior. d. ethical and political behavior. 2. Which principle of finance is not an economic principle? a.

> 1. When did the “Great Recession” occur? a. 1999–2000 b. 2005–2006 c. 2007–2008 d. 2008–2009 2. The reasons for studying finance are to make informed a. economic, personal and business investment, and career decisions. b. political, economic, and

> 1. Finance is the study of how individuals, institutions, governments, and businesses a. acquire, spend, and manage money and other financial assets. b. spend and manage financial assets. c. acquire and spend money. d. acquire and manage money and re

> Visit a firm’s website and obtain historical quarterly balance sheet information from it or from its SEC EDGAR filings (www.walmart.com and www.walgreens.com may be two good sites to use). Record quarterly balance sheet data for several years in a spread

> Using the information below, compute the percentage returns for the following securities:

> Briefly describe how the financial environment has changed during the past few years.

> Briefly describe the terms entrepreneurial finance and personal finance.

> What are the three areas of finance?

> What is meant by the term financial environment?

> Briefly discuss the developments that led to the 2007-2008 financial crisis.

> 1. Which of the following does not appear on the income statement for a firm? a. Net cash flow b. Depreciation c. Gross profit d. Interest expense 2. Which of the following is also referred to as operating income? a. Earnings before interest b. Ea

> Describe how the cost of preferred stock is determined.

> How can a firm estimate its cost of debt financing?

> What is the relationship between a firm’s cost of capital and investor required rates of return?

> Following the Fed’s efforts to lower interest rates, what actions by investors increased their potential exposure to risk?

> How did the Fed’s loose money policies after the 2007-2009 recession affect investors?

> How have the Fed’s policies since the 2007-2009 recession affected corporate financing decisions?

> Corporate tax rates vary with the amount of taxable income. What currently is the range (lowest and highest) of corporate tax rates in the United States?

> How do you expect the capital structures of two firms to differ if one is involved in steel production and the other does designs software to solve business problems?

> Why is it said that the personal-income-tax rate in the United States is progressive?

> 1. Which of these principles guide corporations in the creation of their public accounting statements? a. FINRA b. FASB c. GAAP d. SEC 2. How does the accrual concept affect financial statement data? a. Revenue and expenses are recognized when a s

> How do agency costs affect a firm’s optimal capital structure? How can differences in agency costs explain capital structure differences across countries?

> Assume that a corporation purchases a new piece of equipment for $90,000. The equipment qualifies for a three-year class life for depreciation purposes. a. What is the dollar amount of depreciation that can be taken in the first year? b. Determine the de

> Briefly describe the trends that have occurred in the corporate use of debt.

> Describe the reasoning behind the static tradeoff hypothesis.

> Assume a corporation earns $75,000 in pretax income. a. Determine the firm’s income tax liability. b. Calculate the firm’s average income tax rate.

> If a firm is eligible to receive tax credits, how might that affect its use of debt?

> How do corporate control concerns affect a firm’s capital structure?

> Find the annual depreciation expenses for the following items: a. Original cost is $35,000 for an asset in the three-year class. b. Original cost is $70,000 for an asset in the five-year class.

> Briefly explain how the factors of flexibility and timing affect the mix between debt and equity capital.

> What would the tax obligation be for a corporation with pretax earnings as shown below. What would be the personal tax obligation of a person filing her taxes under the “single” filing status if she had the above pretax income levels? a. $60,000 b. $150,

> 1. In which of the following ways does a proprietorship differ from a partnership? a. Number of owners b. Owner liability c. Liquidity of ownership d. Taxation 2. In what ways does a limited partnership differ from a corporation? a. Limited liabili

> Describe how the degree of combined leverage can be determined by the degrees of operating and financial leverage.

> Determine the marginal and average tax rates under the tax law for corporations with the following amounts of taxable income: a. $60,000 b. $150,000 c. $500,000

> What is meant by the degree of combined leverage?

> How might the following influences affect a firm’s financial risk (consider each separately)? a. Interest rates on the firm’s short-term bank loans are reduced b. The firm refinances a mortgage on one of its buildings at a lower interest rate c. Tax rate

> What is meant by the statement that depreciation provides a tax shield? Explain how this works.

> How might the following influences affect a firm’s business risk (consider each separately)? a. Imports increase the level of competition b. Labor costs decline c. Health care costs (provided for all employees) increase d. The firm’s proportion of social

> Briefly explain the concepts of business risk, operating leverage, and financial leverage in terms of an income statement.

> How is financial leverage created? Describe how the degree of financial leverage is calculated.

> Explain why determining a firm’s optimum debt/equity mix is important.

> Describe how a firm’s business risk can be measured and indicate how operating leverage impacts on business risk.

> 1. What are typical titles for a firm's top financial officers? a. Corporate financial officer, treasurer, controlling manager b. Chief financial officer, payroll, controller c. Controlling manager, chief bill payment officer, financial manager d. Co

> Describe the term “indifference level” in conjunction with EBIT/eps analysis.

> What is EBIT/eps analysis? What information does it provide managers?

> How does management’s strategies toward corporate growth and dividends affect its capital structure policy?

> A booming economy creates an unexpectedly high sales growth rate for a firm with a low internal growth rate. How can the firm respond to this unplanned sales increase?

> The management of Albar Incorporate has decided to increase the firm’s use of debt form 30 percent to 45 percent of assets. How will this affect its internal growth rate in the future? Its sustainable growth rate?

> Should book value weights or market value weights be used to evaluate a firm’s current capital structure weights? Why?

> What is the weighted average cost of capital? Describe how it is calculated.

> How does the cost of new common stock differ from the cost of retained earnings?

> Describe two methods for estimating the cost of retained earnings.

> What is a firm’s capital structure?

> 1. What is a mission or vision statement? a. Management’s plan for the year b. Statement of a firm’s main reason for being c. To be the best d. Written by the firm’s founders’ and is never changed 2. Why is a mission statement important to a firm?

> What is meant by a project’s net present value? How is it used for choosing between projects?

> What kinds of nonfinancial information are needed in order to conduct the analysis of a project?

> What kinds of financial data are needed in order to conduct the analysis of a project?

> Identify some capital budgeting considerations that are unique to multinational corporations.

> Briefly describe the five stages in the capita- budgeting process.

> Where do businesses find attractive capital-budgeting projects?

> How do “mutually exclusive” and “independent” projects differ?

> What is a risk-adjusted discount rate? How are risk-adjusted discount rates determined for individual projects?

> What is a way to keep managers accountable for their capital budgeting forecasts and estimates?

> Why is depreciation considered to be a “tax shield”?

> 1. According to the Capital Asset Pricing Model, which of the following is the market portfolio made up of? a. All assets b. All risky assets c. Shares of common stocks d. Stocks, bonds, and real estate 2. According to the Capital Asset Pricing Mod

> Why is the change in net working capital included in operating cash flow estimates?

> How is a project’s cash flow statement similar to that of a firm? How is it different?

> Classify each of the following as a sunk cost, an opportunity cost, or neither. a. The firm has spent $1 million thus far to develop the next-generation robotic arm; it is now examining whether the project should continue. b. A piece of ground owned by t

> Our bank will finance the product expansion project with at a loan interest rate of 10 percent. Make sure the project’s cash flow estimates include this interest expense.” Do you agree or disagree? Explain.