QUESTION John Fillmores lifelong dream is to own his own fishing boat to use in his retirement. John has recently come into an inheritance of $400,000. He estimates that the boat he wants will cost $300,000 when he retires in 5 years. How much of his inheritance must he invest at an annual rate of […]
QUESTION New Colony Corporation (a U.S. company) made a sale to a foreign customer on September 15, 2013, for 100,000 foreign currency units (FCU). It received payment on October 15, 2013. The following exchange rates for 1 FCU apply: September 15, 2013 $0.40 September 30, 2013 0.42 October 15, 2013 0.37 Prepare all journal entries […]
QUESTION For the next fiscal year, you forecast net income of $50,000 and ending assets of $500,000. Your firms payout ratio is 10%. Your beginning stockholders equity is $300,000 and your beginning total liabilities are $120,000. Your non-debt liabilities such as accounts payable are forecasted to increase by $10,000. What is your net new financing […]
QUESTION MacKenzie Corporation currently has 10 million shares of stock outstanding at a price of $40 per share. The company would like to raise money and has announced a rights issue. Every existing shareholder will be sent one right per share of stock that he or she owns. The company plans to require ten rights […]
QUESTION RiverRocks realizes that it will have to raise the financing for the acquisition of Raft Adventures (described in Problem 19) by issuing new debt and equity. The firm estimates that the direct issuing costs will come to $7 million. How should it account for these costs in evaluating the project? Should RiverRocks go ahead […]
QUESTION At the beginning of 2007, Apples beta was 1.4 and the risk-free rate was about 4.5%. Apples price was $84.84. Apples price at the end of 2007 was 198.08. If you estimate the market risk premium to have been 6%, did Apples managers exceed their investors required return as given by the CAPM? Required […]
QUESTION Thoma Pharmaceutical Company may buy DNA testing equipment costing $60,000. This equipment is expected to reduce labor costs of clinical staff by $20,000 annually. The equipment has a useful life of five years but falls in the three-year property class for cost recovery (depreciation) purposes. No salvage value is expected at the end. The […]
QUESTION Covan, Inc., is expected to have the following free cash flows: Year 1 2 3 4 p FCF 10 12 13 14 Grow by 4% per year a. Covan has 8 million shares outstanding, $3 million in excess cash, and it has no debt. If its cost of capital is 12%, what should its […]
QUESTION Carbide Chemical Company is considering the replacement of two old machines with a new, more efficient machine. It has determined that the relevant after-tax incremental operating cash flows of this replacement proposal are as follows:END OF YEAR0123Cash flows$404,424$86,890$106,474$91,612END OF YEAR45678Cash flows$84,801$84,801$75,400$66,000$92,400What is the projects net present value if the required rate of return is […]
QUESTION Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars) ( see MyFinanceLab for the data in Excel format ): 1 Year 1 2 2 Revenues 125 160 3 Operating […]
