QUESTION MERGER VALUE Pizza Place, a national pizza chain, is considering purchasing a smaller chain, Western Mountain Pizza. Pizza Places analysts project that the merger will result in incremental net cash flows of $1.5 million in Year 1, $2 million in Year 2, $3 million in Year 3, and $5 million in Year 4. In […]
QUESTION LEASING Connors Construction needs a piece of equipment that can be leased or purchased. The equipment costs $100. One option is to borrow $100 from the local bank and use the money to buy the equipment. The other option is to lease the equipment. If Connors chooses to lease the equipment, it will not […]
QUESTION BLACK-SCHOLES MODEL An analyst is interested in using the Black-Scholes model to value call options on the stock of Ledbetter Inc. The analyst has accumulated the following information:The price of the stock is $33.The strike price is $33.The option matures in 6 months (t = 0.50).The standard deviation of the stocks returns is 0.30, […]
QUESTION Problem 17-1:AFN EQUATION Carter Corporations sales are expected to increase from $5 million in 2008 to $6 million in 2009, or by 20%. Its assets totaled $3 million at the end of 2008. Carter is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2008, current […]
QUESTION CASH CONVERSION CYCLE Zocco Corporation has an inventory conversion period of 75 days, an average collection period of 38 days, and a payables deferral period of 30 days.a. What is the length of the cash conversion cycle?b. If Zoccos annual sales are $3,421,875 and all sales are on credit, what is the investment in […]
QUESTION BREAKEVEN AND OPERATING LEVERAGEa. Given the following graphs, calculate the total fixed costs, variable costs per unit, and sales price for Firm A. Firm Bs fixed costs are $120,000, its variable costs per unit are $4, and its sales price is $8 per unit.b. Which firm has the higher operating leverage at any given […]
QUESTION OPTIMAL CAPITAL BUDGET Marble Construction estimates that its WACC is 10% if equity comes from retained earnings. However, if the company issues new stock to raise new equity, it estimates that its WACC will rise to 10.8%. The company believes that it will exhaust its retained earnings at $2,500,000 of capital due to the […]
QUESTION Kedzie Kord Company had the following balance sheets and income statements over the last three years (in thousands):20X120X220X3Cash$ 561$ 387$ 202Receivables1,9632,8704,051Inventories2,0312,6133,287Current assets$ 4,555$ 5,870$ 7,540Net fixed assets2,5814,4304,364Total assets$ 7,136$10,300$11,904Payables$ 1,862$ 2,944$ 3,613Accruals301516587Bank loan2509001,050Current liabilities$ 2,413$ 4,360$ 5,250Long-term debt5001,000950Total liabilities andShareholders equity4,2234,9405,704shareholders equity$ 7,136$10,300$11,904Sales$11,863$14,952$16,349Cost of goods sold8,53711,12412,016Selling, general, andadministrative expenses2,2762,4712,793Interest73188200Profit before taxes$ 977$ 1,169$ 1,340Taxes […]
QUESTION CAPITAL BUDGETING CRITERIA: ETHICAL CONSIDERATIONS An electric utility is considering a new power plant in northern Arizona. Power from the plant would be sold in the Phoenix area, where it is badly needed. Because the firm has received a permit, the plant would be legal; but it would cause some air pollution. The company […]
QUESTION Salt Lake City Services, Inc., provides maintenance services for commercial buildings. Currently, the beta on its common stock is 1.08. The risk-free rate is now 10 percent, and the expected return on the market portfolio is 15 percent. It is January 1, and the company is expected to pay a $2 per share dividend […]
