Solutions of Financial Management

Chapter 1 An Overview of Financial Management schooling Objectives After leaseing this chapter, students should be able to ? Identify the three briny forms of disdain organization and describe the advantages and disadvantages of each maven. ? Identify the primary closing of the management of a publicly held mess, and understand the relationship between shopworn m wholenesstary appraises and shargonholder apprise. ? Differentiate between what is meant by a melodic phrases ingrained rate and its foodstuff value and understand the concept of equalizer in the trade. Briefly develop three of import trends that induct been occurring in business that dumbfound implications for managers. ? Define business ethics and briefly apologise what companies are doing in response to a re spic-and-spaned interest in ethics, the consequences of unethical behavior, and how employees should deal with unethical behavior. ? Briefly explain the conflicts between managers and rail line holders, and explain useable motivational tools that can help to prevent these conflicts. Identify the break officers in the organization and briefly explain their responsibilities. Lecture Suggestions Chapter 1 c everyplaces roughly important concepts, and discussing them in class can be interesting. However, students can read the chapter on their own, so it can be assigned nevertheless non coered in class. We spend the first twenty-four hours going everywhere the syllabus and discussing grading and other mechanics relating to the course. To the extent that time permits, we conference about the topics that allow for be c oered in the course and the grammatical construction of the book.We all everyplacely discuss briefly the fact that it is assumed that managers try to maximize expect impairments, just that they whitethorn have other goals, hence that it is useful to tie executive fee to live conveyholder-oriented performance measures. If time permits, we think it s worth enchantment to spend at least a full day on the chapter. If not, we ask students to read it on their own, and to keep them honest, we ask one or two questions about the material on the first mid-term exam.One blossom we emphasize in the first class is that students should print a transcript of the PowerPoint slides for each chapter covered and purchase a fiscal calculator immediately, and act both to class regularly. We also put copies of the various versions of our Brief figurer Manual, which in about 12 pages explains how to use the most popular calculators, in the copy center. Students allow need to learn how to use their calculators immediately as time value of money concepts are covered in Chapter 2. It is important for students to grasp these concepts early as m whatsoever of the remaining chapters build on the TVM concepts.We are often asked what calculator students should buy. If they already have a financial calculator that can find IRRs, we tell them that it wi ll do, scarce if they do not have one, we recommend either the HP-10BII or 17BII. Please get a line the Lecture Suggestions for Chapter 2 for much on calculators. DAYS ON CHAPTER 1 OF 58 DAYS (50-minute periods) Answers to End-of-Chapter Questions 1-1When you purchase a stock, you expect to receive dividends summing up capital gains. Not all stocks pass dividends immediately, but those corporations that do, typically pay dividends quarterly.Capital gains (losses) are received when the stock is sold. Stocks are risky, so you would not be certain that your expectations would be metas you would if you had purchased a U. S. Treasury protective covering, which offers a guaranteed fee every 6 months plus repayment of the purchase price when the security matures. 1-2No, the stocks of assorted companies are not equally risky. A company tycoon operate in an industry that is viewed as relatively risky, much(prenominal) as biotechnologywhere megs of dollars are spent on R&D that may never result in wage.A company might also be heavily regulated and this could be perceived as increasing its risk. former(a) factors that could cause a companys stock to be viewed as relatively risky allow heavy use of debt financing vs. faithfulness financing, stock price volatility, and so on. 1-3If investors are more than confident that lodge As cash flows will be closer to their pass judgment value than follow Bs cash flows, wherefore(prenominal) investors will drive the stock price up for Company A. Consequently, Company A will have a higher stock price than Company B. -4No, all corporate projects are not equally risky. A debaucheds investment decisions have a significant daze on the riskiness of the stock. For example, the types of as desexualizes a company get hold ofs to invest in can impact the stocks risksuch as capital intensive vs. labor intensive, specialized as fastens vs. general (multipurpose) assetsand how they choose to finance those assets can also im pact risk. 1-5A stiffs ingrained value is an estimate of a stocks true value base on ideal risk and return data. It can be estimated but not deliberate precisely.A stocks catamenia price is its marketplace pricethe value based on perceived but possibly incorrect culture as seen by the marginal investor. From these definitions, you can see that a stocks true long-run value is more closely related to its constitutional value earlier than its occurrent price. 1-6Equilibrium is the situation where the actual market price equals the intimate value, so investors are in divergent between purchasing or selling a stock. If a stock is in residual then there is no fundamental imbalance, hence no pinch for a change in the stocks price.At any precondition time, most stocks are reasonably close to their inborn values and thence are at or close to equilibrium. However, at times stock prices and equilibrium values are different, so stocks can be temporarily undervalued or overvalu ed. 1-7If the three intrinsic value estimates for Stock X were different, I would have the most confidence in Company Xs CFOs estimate. Intrinsic values are strictly estimates, and different analysts with different data and different views of the future tense will form different estimates of the intrinsic value for any given stock.However, a riotouss managers have the best information about the companys future prospects, so managers estimates of intrinsic value are generally better than the estimates of outdoors investors. 1-8If a stocks market price and intrinsic value are equal, then the stock is in equilibrium and there is no pressure (buying/selling) to change the stocks price. So, theoretically, it is better that the two be equal however, intrinsic value is a long-run concept. Managements goal should be to maximize the regulars intrinsic value, not its current price.So, maximizing the intrinsic value will maximize the modal(a) price over the long run but not needs the cur rent price at each point in time. So, stockholders in general would probably expect the firms market price to be under the intrinsic valuerealizing that if management is doing its job that current price at any point in time would not necessarily be maximized. However, the CEO would prefer that the market price be highsince it is the current price that he will receive when drill his stock excerpts.In addition, he will be retiring after physical exercise those elections, so there will be no repercussions to him (with respect to his job) if the market price dropsunless he did something illegal during his tenure as CEO. 1-9The board of directors should set CEO stipend dependent on how sound the firm performs. The stipend package should be sufficient to attract and retain the CEO but not go beyond what is needed. Compensation should be structured so that the CEO is rewarded on the basis of the stocks performance over the long run, not the stocks price on an resource exercise date .This means that options (or direct stock awards) should be phased in over a number of divisions so the CEO will have an motivator to keep the stock price high over time. If the intrinsic value could be measured in an objective and verifiable manner, then performance pay could be based on changes in intrinsic value. However, it is easier to measure the growth rate in reported profits than the intrinsic value, although reported profits can be manipulated through aggressive accounting procedures and intrinsic value cannot be manipulated.Since intrinsic value is not observable, fee must be based on the stocks market pricebut the price used should be an average over time rather than on a injury date. 1-10The three important forms of business organization are sole proprietary, partnership, and corporation. The advantages of the first two include the ease and low cost of formation. The advantages of the corporation include limited liability, questionable life, ease of ownership tra nsfer, and access to capital markets.The disadvantages of a sole proprietorship are (1) difficulty in obtaining large sums of capital (2) interminable someoneised liability for business debts and (3) limited life. The disadvantages of a partnership are (1) unlimited liability, (2) limited life, (3) difficulty of transferring ownership, and (4) difficulty of raising large amounts of capital. The disadvantages of a corporation are (1) double taxation of earnings and (2) setting up a corporation and filing required state and federal reports, which are hard and time-consuming. 1-11Stockholder wealth maximization is a long-run goal.Companies, and consequently the stockholders, prosper by management making decisions that will produce long-term earnings increases. Actions that are continually shortsighted often catch up with a firm and, as a result, it may find itself unable to compete efficaciously against its competitors. There has been much criticism in recent years that U. S. fir ms are too short-run profit-oriented. A prime example is the U. S. auto industry, which has been criminate of continuing to build large fellate guzzler automobiles because they had higher profit margins rather than retooling for smaller, more fuel-efficient models. -12Useful motivational tools that will aid in adjust stockholders and managements interests include (1) reasonable salary packages, (2) direct intervention by shareholders, including firing managers who dont perform well, and (3) the threat of tax returnover. The requital package should be sufficient to attract and retain able managers but not go beyond what is needed. Also, compensation packages should be structured so that managers are rewarded on the basis of the stocks performance over the long run, not the stocks price on an option exercise date.This means that options (or direct stock awards) should be phased in over a number of years so managers will have an incentive to keep the stock price high over time. Since intrinsic value is not observable, compensation must be based on the stocks market pricebut the price used should be an average over time rather than on a spot date. Stockholders can intervene directly with managers. Today, the majority of stock is owned by institutional investors and these institutional money managers have the clout to exercise massive influence over firms operations.First, they can talk with managers and make suggestions about how the business should be run. In effect, these institutional investors act as lobbyists for the body of stockholders. Second, any shareholder who has owned $2,000 of a companys stock for one year can sponsor a proposal that must be voted on at the annual stockholders meeting, even if management opposes the proposal. Although shareholder-sponsored proposals are non-binding, the results of such votes are clearly heard by top management. If a firms stock is undervalued, then corporate raiders will see it to be a bargain and will attemp t to capture the firm in a hostile takeover.If the raid is successful, the targets executives will about certainly be fired. This situation gives managers a strong incentive to take actions to maximize their stocks price. 1-13a. Corporate sympathy is always a sticky issue, but it can be justified in term of helping to create a more attractive community that will make it easier to hire a productive work force. This corporate philanthropy could be received by stockholders negatively, especially those stockholders not living in its headquarters city.Stockholders are interested in actions that maximize share price, and if competing firms are not making similar contributions, the cost of this philanthropy has to be borne by someonethe stockholders. Thus, stock price could decrease. b. Companies must make investments in the current period in order to generate future cash flows. Stockholders should be aware of this, and assuming a correct analysis has been performed, they should react p ositively to the decision. The Mexican plant is in this category. Capital work outing is covered in profoundness in Part 4 of the text.Assuming that the correct capital computeing analysis has been made, the stock price should increase in the future. c. U. S. Treasury bonds are considered safe investments, while common stock are far more risky. If the company were to stir the emergency funds from Treasury bonds to stocks, stockholders should see this as increasing the firms risk because stock returns are not guaranteedsometimes they go up and sometimes they go down. The firm might need the funds when the prices of their investments were low and not have the needed emergency funds.Consequently, the firms stock price would probably fall. 1-14a. No, TIAA-CREF is not an ordinary shareholder. Because it is one of the largest institutional shareholders in the United States and it controls nearly $280 billion in pension funds, its illustration carries a lot of weight. This shareholde r in effect consists of many individual shareholders whose pensions are invested with this group. b. The owners of TIAA-CREF are the individual teachers whose pensions are invested with this group. c. For TIAA-CREF to be effective in wielding its weight, it must act as a coordinated unit.In order to do this, the funds managers should solicit from the individual shareholders their votes on the funds practices, and from those votes act on the majoritys wishes. In so doing, the individual teachers whose pensions are invested in the fund have in effect refractory the funds voting practices. 1-15Earnings per share in the current year will decline payable to the cost of the investment made in the current year and no significant performance impact in the short run. However, the companys stock price should increase due to the significant cost savings expected in the future. -16The board of directors should set CEO compensation dependent on how well the firm performs. The compensation pack age should be sufficient to attract and retain the CEO but not go beyond what is needed. Compensation should be structured so that the CEO is rewarded on the basis of the stocks performance over the long run, not the stocks price on an option exercise date. This means that options (or direct stock awards) should be phased in over a number of years so the CEO will have an incentive to keep the stock price high over time.If the intrinsic value could be measured in an objective and verifiable manner, then performance pay could be based on changes in intrinsic value. Since intrinsic value is not observable, compensation must be based on the stocks market pricebut the price used should be an average over time rather than on a spot date. The board should probably set the CEOs compensation as a mix between a fit(p) salary and stock options. The vice president of Company Xs actions would be different than if he were CEO of some other company. 17.Setting the compensation policy for three di vision managers would be different than setting the compensation policy for a CEO because performance of each of these managers could be more easily observed. For a CEO an award based on stock price performance makes sense, while in this situation it probably doesnt make sense. Each of the managers could still be given stock awards however, rather than the award being based on stock price it could be determined from some observable measure like increased gas output, oil output, etc. Answers to End-of-Chapter ProblemsWe present here some intermediate stairs and final answers to end-of-chapter problems. Please note that your answer may differ or so from ours due to rounding differences. Also, although we hope not, some of the problems may have more than one correct solution, depending on what assumptions are made in work the problem. Finally, many of the problems involve some verbal discussion as well as numerical calculations this verbal material is not presented here. 2-1FV5 = $16 ,105. 10. 2-2PV = $1,292. 10. 2-3I/YR = 8. 01%. 2-4N = 11. 01 years. 2-5N = 11 years. 2-6FVA5 = $1,725. 22 FVA5 Due = $1,845. 99. 2-7PV = $923. 98 FV = $1,466. 4. 2-8PMT = $444. 89 EAR = 12. 6825%. 2-9a. $530. d. $445. 2-10a. $895. 42. b. $1,552. 92. c. $279. 20. d. $499. 99 $867. 13. 2-11a. 14. 87%. 2-12b. 7%. c. 9%. d. 15%. 2-13a. 10. 24 years. c. 4. 19 years. 2-14a. $6,374. 97. d(1). $7,012. 47. 2-15a. $2,457. 83. c. $2,000. d(1). $2,703. 61. 2-16PV7% = $1,428. 57 PV14% = $714. 29. 2-179%. 2-18a. rain cats and dogs A $1,251. 25. 2-19a. $423,504. 48. b. $681,537. 69. c(2). $84,550. 80. 2-20Contract 2 PV = $10,717,847. 14. 2-21a. 30-year payment plan PV = $68,249,727. b. 10-year payment plan PV = $63,745,773. c. prominence sum PV = $61,000,000. 2-22a. $802. 43. c. $984. 88. 2-23a. $881. 7. b. $895. 42. c. $903. 06. d. $908. 35. e. $910. 97. 2-24a. $279. 20. b. $276. 84. c. $443. 72. 2-25a. $5,272. 32. b. $5,374. 07. 2-26$17,290. 89 $19,734. 26. 2-27a. Bank A = 4%. 2-28INOM = 7. 8 771%. 2-293%. 2-30a. E = 63. 74 yrs. K = 41. 04 yrs. b. $35,825. 33. 2-31a. $35,459. 51. b. $27,232. 49. 2-32$496. 11. 2-33$17,659. 50. 2-34a. PMT = $10,052. 87. b. Yr 3 Int/Pymt = 9. 09% Princ/Pymt = 90. 91%. 2-35a. PMT = $34,294. 65. b. PMT = $7,252. 78. c. Balloon PMT = $94,189. 69. 2-36a. $5,308. 12. b. $4,877. 09. 2-37a. 50 mos. b. 13 mos. c. $112. 38. 2-38$309,015. 2-39$36,950. 2-40$9,385. 3-1$1,000,000. 3-2$2,500,000. -3$3,600,000. 3-4$20,000,000. 3-5a, possibly c. 3-6$89,100,000. 3-7a. $50,000. b. $115,000. 3-8NI = $450,000 NCF = $650,000 OCF = $650,000. 3-910,500,000 shares. 3-10a. $2,400,000,000. b. $4,500,000,000. c. $5,400,000,000. d. $1,100,000,000. 3-11$12,681,482. 3-12a. $592 one million million million. b. RE04 = $1,374 million. c. $1,600 million. d. $15 million. e. $620 million. 3-13a. $90,000,000. b. NOWC05 = $192,000,000 NOWC04 = $210,000,000. c. OC04 = $460,000,000 OC05 = $492,000,000. d. FCF = $58,000,000. 3-14a. $2,400,000. b. NI = 0 NCF = $3,000,000. c. NI = $1,350,000 NCF = $2,100,000. 4-1AR = $800,000. 4-2D/A = 58. 33%. 4-3TATO = 5 EM = 1. . 4-4M/B = 4. 2667. 4-5P/E = 12. 0. 4-6 roe = 8%. 4-7$112,500. 4-815. 31%. 4-9$142. 50. 4-10NI/S = 2% D/A = 40%. 4-112. 9867. 4-12TIE = 2. 25. 4-13TIE = 3. 86. 4-14ROE = 23. 1%. 4-15(ROE = +5. 54% QR = 1. 2. 4-167. 2%. 4-17a. 4-186. 0. 4-19$262,500. 4-20$405,682. 4-21$50. 4-22A/P = $90,000 Inv = $90,000 FA = $138,000. 4-23a. Current ratio = 1. 98 DSO = 76. 3 geezerhood count assets turnover = 1. 73 Debt ratio = 61. 9%. 4-24a. TIE = 11 EBITDA coverage = 9. 46 Profit margin = 3. 40% ROE = 8. 57%. 6-1b. upwards sloping yield curve. c. Inflation expected to increase. d. Borrow long term. 6-22. 25%. 6-36% 6. 33%. 6-41. 5%. 6-50. %. 6-621. 8%. 6-75. 5%. 6-88. 5%. 6-96. 8%. 6-106. 0%. 6-111. 55%. 6-120. 35%. 6-131. 775%. 6-14a. r1 in Year 2 = 6%. b. I1 = 2% I2 = 5%. 6-15r1 in Year 2 = 9% I2 = 7%. 6-1614%. 6-177. 2%. 6-18a. r1 = 9. 20% r5 = 7. 20%. 6-19a. 8. 20%. b. 10. 20%. c. r5 = 10. 70%. 7-1$935. 8 2. 7-2a. 7. 11%. b. 7. 22%. c. $988. 46. 7-3$1,028. 60. 7-4YTM = 6. 62% YTC = 6. 49% most likely yield = 6. 49%. 7-5a. VL at 5% = $1,518. 98 VL at 8% = $1,171. 19 VL at 12% = $863. 78. 7-6a. C0 = $1,012. 79 Z0 = $693. 04 C1 = $1,010. 02 Z1 = $759. 57 C2 = $1,006. 98 Z2 = $832. 49 C3 = $1,003. 65 Z3 = $912. 41 C4 = $1,000. 00 Z4 = $1,000. 00. -710-year, 10% coupon = 6. 75% 10-year zero(a) = 9. 75% 5-year zero = 4. 76% 30-year zero = 32. 19% $100 perpetuity = 14. 29%. 7-815. 03%. 7-9a. YTM at $829 ? 15%. 7-10a. YTM = 9. 69%. b. CY = 8. 875% CGY = 0. 816%. 7-11a. YTM = 10. 37% YTC = 10. 15% YTC. b. 10. 91%. c. -0. 54% (based on YTM) -0. 76% (based on YTC). 7-12a. YTM = 8% YTC = 6. 1%. 7-13VB = $974. 42 YTM = 8. 64%. 7-1410. 78%. 7-15a. 5 years. b. YTC = 6. 47%. 7-16$987. 87. 7-17$1,067. 95. 7-188. 88%. 7-19a. ABS = 6. 3% F = 8%. 7-20a. 8. 35%. b. 8. 13%. 8-1pic = 11. 40% ( = 26. 69% CV = 2. 34. 8-2bp = 1. 12. 8-3r = 10. 9%. 8-4rM = 11% r = 12. 2%. 8-5a. = 1. b. r = 13%. 8-6a. picY = 1 4%. b. (X = 12. 20%. 8-7bp = 0. 7625 rp = 12. 1%. 8-8b = 1. 33. 8-94. 5%. 8-104. 2%. 8-11r = 17. 05%. 8-12rM rRF = 4. 375%. 8-13a. ri = 15. 5%. b(1). rM = 15% ri = 16. 5%. c(1). ri = 18. 1%. 8-14bN = 1. 16. 8-157. 2%. 8-16rp = 11. 75%. 8-171. 7275. 8-18a. $0. 5 million. d(2). 15%. 8-19a. CVX = 3. 5 CVY = 2. 0. c. rX = 10. 5% rY = 12%. d. Stock Y. e. rp = 10. 875%. 8-20a. rA = 11. 30%. c. (A = 20. 8% (p = 20. 1%. 8-21a. ri = 6% + (5%)bi. b. 15%. c. Indifference rate = 16%. 9-1D1 = $1. 6050 D3 = $1. 8376 D5 = $2. 0259. 9-2pic = $6. 25. 9-3pic = $21. 20 rs = 11. 30%. 9-4b. $37. 80. c. 34. 09. 9-5$60. 9-6rp = 8. 33%. 9-7a. 13. 33%. b. 10%. c. 8%. d. 5. 71%. 9-8a. $125. b. $83. 33. 9-9a. 10%. b. 10. 38%. 9-10$23. 75. 9-11$13. 11. 9-12a(1). $9. 50. a(2). $13. 33. a(3). $21. 00. a(4). $44. 00. b(1). Undefined. b(2). -$48. 00, which is nonsense. 9-13a. rC = 8. 6% rD = 5%. b. No pic = $32. 61. 9-14pic = $27. 32. 9-15a. P0 = $32. 14. b. P0 = $37. 50. c. P0 = $50. 00. d. P0 = $78. 28. 9-16P0 = $19. 89. 9-17a. $713. 33 million. b. $527. 89 million. c. $42. 79. 9-186. 25%. 9-19a. $2. 10 $2. 205 $2. 31525. b. PV = $5. 29. c. $24. 72. d. $30. 00. e. $30. 00 9-20a. P0 = $54. 11 D1/P0 = 3. 55% CGY = 6. 45%. 9-21a. 24,112,308. b. $321,000,000. c. $228,113,612. d. $16. 81. 9-22$35. 00. 9-23a. New price = $44. 26. b. beta = 0. 5107. 9-24a. $2. 01 $2. 31 $2. 66 $3. 06 $3. 52. b. P0 = $39. 43. c. D1/P0 2006 = 5. 10% CGY2006 = 6. 9% D1/P0 2011 = 7. 00% CGY2011 = 5%. 10-1rd(1 T) = 7. 80%. 10-2rp = 8%. 10-3rs = 13%. 10-4rs = 15% re = 16. 11%. 10-5 looks A through E should be accepted. 10-6a. rs = 16. 3%. b. rs = 15. 4%. c. rs = 16%. d. rs AVG = 15. 9%. 10-7a. rs = 14. 83%. b. F = 10%. c. re = 15. 81%. 10-8rs = 16. 51% WACC = 12. 79%. 10-9WACC = 12. 72%. 10-10WACC = 11. 4%. 10-11wd = 20%. 10-12a. rs = 14. 40%. b. WACC = 10. 62%. c.Project A. 10-13re = 17. 26%. 10-1411. 94%. 10-15a. g = 9. 10%. b. Payout = 50. 39%. 10-16a. g = 8%. b. D1 = $2. 81. c. rs = 15. 81%. 10-17a. g = 3%. b. EP S1 = $5. 562. 10-18a. rd = 7% rp = 10. 20% rs = 15. 72%. b. WACC = 13. 86%. c. Projects 1 and 2 will be accepted. 10-19a. Projects A, C, E, F, and H should be accepted. b. Projects A, F, and H should be accepted $12 million. c. Projects A, C, F, and H should be accepted $15 million. 10-20a. rd(1 T) = 5. 4% rs = 14. 6%. b. WACC = 10. 92%. 11-1NPV = $7,486. 68. 11-2IRR = 16%. 11-3MIRR = 13. 89%. 11-44. 34 years. 11-5DPP = 6. 51 years. 11-6a. 5% NPVA = $3. 52 NPVB = $2. 87. 0% NPVA = $0. 58 NPVB = $1. 04. 15% NPVA = -$1. 91 NPVB = -$0. 55. b. IRRA = 11. 10% IRRB = 13. 18%. c. 5% Choose A 10% Choose B 15% Do not choose either one. 11-7a. NPVA = $866. 16 IRRA = 19. 86% MIRRA = 17. 12% PaybackA = 3 yrs Discounted Payback = 4. 17 yrs NPVB = $1,225. 25 IRRB = 16. 80% MIRRB = 15. 51% PaybackB = 3. 21 yrs Discounted Payback = 4. 58 yrs. 11-8a. Without palliation NPV = $12. 10 million With mitigation NPV = $5. 70 million. 11-9a. Without mitigation NPV = $15. 95 million With mitigation NPV = - $11. 25 million. 11-10Project A NPVA = $30. 16. 11-11NPVS = $448. 86 NPVL = $607. 0 Accept Project L. 11-12IRRL = 11. 74%. 11-13MIRRX = 13. 59%. 11-14a. HCC PV of costs = -$805,009. 87. c. HCC PV of costs = -$767,607. 75. LCC PV of costs = -$686,627. 14. 11-15a. IRRA = 20% IRRB = 16. 7% Crossover rate ? 16%. 11-16a. NPVA = $14,486,808 NPVB = $11,156,893 IRRA = 15. 03% IRRB = 22. 26%. b. Crossover rate ? 12%. 11-17a. NPVA = $200. 41 NPVB = $145. 93. b. IRRA = 18. 1% IRRB = 24. 0%. c. MIRRA = 15. 10% MIRRB = 17. 03%. f. MIRRA = 18. 05% MIRRB = 20. 48%. 11-18a. No PVOld = -$89,910. 08 PVNew = -$94,611. 45. b. $2,470. 80. c. 22. 94%. 11-19b. NPV10% = -$99,174 NPV20% = $500,000. d. 9. 54% 22. 7%. 11-20$10,239. 20. 11-21MIRR = 10. 93%. 11-22$250. 01. 12-1a. $12,000,000. 12-2a. $2,600,000. 12-3$4,600,000. 12-4b. Accelerated method $12,781. 64. 12-5E(NPV) = $3,000,000 (NPV = $23. 622 million CV = 7. 874. 12-6a. -$178,000. b. $52,440 $60,600 $40,200. c. $48,760. d. NPV = -$19,549 Do not purc hase. 12-7b. -$126,000. c. $42,518 $47,579 $34,926. d. $50,702. e. NPV = $10,841 Purchase. 12-8a. Expected CFA = $6,750 Expected CFB = $7,650 CVA = 0. 0703. b. NPVA = $10,036 NPVB = $11,624. 12-9NPV5 = $2,211 NPV4 = -$2,081 NPV8 = $13,329. 12-10a. NPV = $37,035. 13. b. +20% $77,975. 63 -20% NPV = -$3,905. 37. c.E(NPV) = $34,800. 21 (NPV = $35,967. 84 CV = 1. 03. 13-1a. E(NPV) = -$446,998. 50. b. E(NPV) = $2,806,803. 16. c. $3,253,801. 66. 13-2a. Project B NPVB = $2,679. 46. b. Project A NPVA = $3,773. 65. c. Project A EAAA = $1,190. 48. 13-3NPV190-3 = $20,070 NPV360-6 = $22,256. 13-4A EAAA = $1,407. 85. 13-5Projects A, B, C, and D Optimal capital budget = $3,900000. 13-6NPVA = $9. 93 million. 13-7Machine B Extended NPVB = $3. 67 million. 13-8EAAY = $7,433. 12. 13-9Wait NPV = $2,212,964. 13-10No, NPV3 = $1,307. 29. 13-11a. Accept A, B, C, D, and E Capital budget = $5,250,000. b. Accept A, B, D, and E Capital budget = $4,000,000. c.Accept B, C, D, E, F, and G Capital budget = $6,000,0 00. 13-12a. NPV = $4. 6795 million. b. No, NPV = $3. 2083 million. c. 0. 13-13a. NPV = -$2,113,481. 31. b. NPV = $1,973,037. 39. c. E(NPV) = -$70,221. 96. d. E(NPV) = $832,947. 27. e. $1,116,071. 43. 14-1QBE = 500,000. 14-230% debt and 70% equity. 14-3a. E(EPSC) = $5. 10. 14-4bU = 1. 0435. 14-5a. ROELL = 14. 6% ROEHL = 16. 8%. b. ROELL = 16. 5%. 14-6a(1). -$60,000. b. QBE = 14,000. 14-7No leverage ROE = 10. 5% ( = 5. 4% CV = 0. 51 60% leverage ROE = 13. 7% ( = 13. 5% CV = 0. 99. 14-8rs = 17%. 14-9a. P0 = $25. b. P0 = $25. 81. 14-10a. FCA = $80,000 VA = $4. 80/unit PA = $8. 0/unit. 14-11a. 10. 96%. b. 1. 25. c. 1. 086957. d. 14. 13%. e. 10. 76%. 14-12a. EPSOld = $2. 04 New EPSD = $4. 74 EPSS = $3. 27. b. 339,750 units. c. QNew, Debt = 272,250 units. 14-13Debt used E(EPS) = $5. 78 (EPS = $1. 05 E(TIE) = 3. 49(. Stock used E(EPS) = $5. 51 (EPS = $0. 85 E(TIE) = 6. 00(. 15-1Payout = 55%. 15-2P0 = $60. 15-3P0 = $40. 15-4D0 = $3. 44. 15-5$3,250,000. 15-6Payout = 31. 39%. 15-7a. $1. 44. b. 3%. c. $1. 20. d. 33? %. 15-8a. 12%. b. 18%. c. 6% 18%. d. 6%. e. 28,800 new shares $0. 13 per share. 15-9a(1). $3,960,000. a(2). $4,800,000. a(3). $9,360,000. a(4). Regular = $3,960,000 Extra = $5,400,000. c. 5%. d. 15%. 16-1103. 41 days 86. 99 days $400,000 $32,000. 16-273 days 30 days $1,178,082. 16-3$1,205,479 20. 5% 22. 4% 10. 47% bank debt. 16-4a. 83 days. b. $356,250. c. 4. 87(. 16-5a. DSO = 28 days. b. A/R = $70,000. 16-6a. 32 days. b. $288,000. c. $45,000. d(1). 30. d(2). $378,000. 16-7a. 57. 33 days. b(1). 2(. b(2). 12%. c(1). 46. 5 days. c(2). 2. 1262(. c(3). 12. 76%. 16-8a. ROET = 11. 75% ROEM = 10. 80% ROER = 9. 16%. 16-9b. $420,000. c. $35,000. 16-10a. Oct. loan = $22,800. 17-1AFN = $410,000. 17-2AFN = $610,000. 17-3AFN = $200,000. 17-4a. $133. 50 million. b. 39. 06%. 17-5a. $5,555,555,556. b. 30. 6%. c. $13,600,000. 7-6$67 million 5. 01. 17-7$156 million. 17-8a. $480,000. b. $18,750. 17-9? S = $68,965. 52. 17-10$34. 338 million 34. 97 ? 35 days. 17-11$19. 10625 milli on 6. 0451. 17-12a. $2,500,000,000. b. 24%. c. $24,000,000. 17-13a. AFN = $128,783. b. 3. 45%. 17-14a. 33%. b. AFN = $2,549. c. ROE = 13. 06%. 18-1a. $5. 00. b. $2. 00. 18-2$27. 00 $37. 00. 18-3a, b, and c. 18-4$1. 82. 18-5rd = 5. 95% $91,236. 18-6b. Futures = +$4,180,346 Bond = -$2,203,701 Net = $1,976,645. 18-7a. $3. 06 $4. 29. b. 16. 67%, 61. 46% -100%. c. -16. 67% -100% 63. 40%. d. No $30. 00 and $27. 00. e. Yes $37. 50 and $37. 50. 19-10. 6667 pound per dollar. 9-227. 2436 yen per shekel. 19-31 yen = $0. 00907. 19-41 euro = $0. 68966 or $1 = 1. 45 euros. 19-5 Dollars per 1,000 Units of Pounds Can. Dollars Euros Yen Pesos Kronas $1,747. 10 $820. 60 $1,206. 90 $8. 97 $93. 10 $128. 10 19-76. 49351 krones. 19-815 kronas per pound. 19-10rNOM-U. S. = 4. 6%. 19-11117 pesos. 19-12b. $1. 6488. 19-13a. $2,772,003. b. $2,777,585. c. $3,333,333. 19-14+$250,000. 19-15b. $19,865. 19-16$468,837,209. 19-17a. $52. 63 20%. b. 1. 5785 SF per U. S. $. c. 41. 54 Swiss francs 16. 92%. 20-155. 6% 50%. 20-2$196. 6. 20-3CR = 25 shares. 20-4a. D/AJ-H = 50% D/AM-E = 67%. 20-5a. PV cost of leasing = -$954,639 Lease equipment. 20-6a. EV = -$3 EV = $0 EV = $4 EV = $49. d. 9% $90. 20-8a. PV cost of owning = -$185,112 PV cost of leasing = -$187,534 Purchase loom. 20-9b. portion ownership Original = 80% Plan 1 = 53% Plans 2 and 3 = 57%. c. EPS0 = $0. 48 EPS1 = $0. 60 EPS2 = $0. 64 EPS3 = $0. 86. d. D/A0 = 73% D/A1 = 13% D/A2 = 13% D/A3 = 48%. 21-1P0 = $37. 04. 21-2P0 = $43. 48. 21-3$37. 04 to $43. 48. 21-4a. 16. 8%. b. V = $14. 93 million. 21-5NPV = -$6,747. 71 Do not purchase. 21-6a. 14%. b. TV = $1,143. 4 V = $877. 2.