consideration What might be important in the selection of an investment banking firm?
A member of your board has asked if you have considered competitive bids for the
distribution of your securities compared with a negotiated contract with a particular firm.
What factors are involved in this decision?
Assuming that you have decided upon a negotiated contract what are the first questions
that you would ask of the firm chosen to represent you?
As the investment banker what would be your first actions before offering advice?
Assuming the investment banking firm is willing to distribute your securities describe the
alternative plans that might be included in a contract with the banking firm.
How does the investment banking firm establish a selling strategy?
How might the investment banking firm protect itself against a drop in the price of the
security during the selling process?
What follow up services will be provided by the banking firm following a successful
distribution of the securities?
Three years later as an individual investor you decided to add to your own holding of the
security but only at a price that you consider appropriate. What form of order might you
place with your broker?
In late 2010 you purchased the common stock of a company that has reported significant
earnings increases in nearly every quarter since your purchase. The price of the stock
increased from $12 a share at the time of the purchase to a current level of $45.
Notwithstanding the success of the company competitors are gaining much strength.
Further you analysis indicates that the stock may be over priced based on your projection
of future earning growth. Your analysis however was the same one year ago and the
earnings have continued to increase. Actions that you might take range from an outright
sale of the stock to doing nothing and continuing to hold the shares. You
Chapter 12
From the information below compute the average annual return, variance, standard
deviation and coefficient of variation for each asset.
Asset
A
B
C
D
Annual returns
5% 10% 15% 4%
-6% 20% 2% -5% 10%
12% 15% 17%
10% -10% 20% -15% 8% -7%
Based upon your answers to question 1 which asset appears riskest based on standard
deviation? Based on coefficient of variation?
Recalling the definitions of risk premiums chapter from 8 and using the nominal risk free
rate what is the risk premium from investing in each of the other asset classes listed in
Tabel 12.4?
What is the real or after inflation return from each of the asset classes listed in Table
12.4?
Chapter 13
1. Use the balance sheet equation to determine owners equity if liabilities are $5
million and assets are $10 million.
2. Use your knowledge of balance sheets to fill in the missing amounts.
Assets
Cash
$10,000
Account receivable
100,000
Inventory
Total current assets
220,000
Gross plant and equipment
500,000
Less: accumulated depreciation
Net plant and equipment
375,000
Total assets
Liabilit
5. Use your knowledge of income statements to fill in the missing items:
Sales
Cost of goods sold
Gross profit
General and administrative expense
Selling and marketing expense
Depreciation
Operating income
Interest
Income before taxes
Income taxes(30%)
Net income
$575,000
1,600,000
200,000
50,000
100,000
$700,000
Chapter 14
2. The Robinson Company had a cost of goods sold of $1,000,000 in 2011 and
$1,200,000 in 2012.
A. Calculate the inventory turnover for each year. Comment on your findings.
B. What would have been the amount of inventories in 2012 if the 2011 turnover
ratio had been maintained?
3. The Dayco Manufacturing Company had the following financial statement result
for last year. Net sales were $1.2 million with net income of $90,000. Total assets
at year end amounted to $900,000
A Calculate Daycos asset turnover ratio and its profit margin
B. Show how the two ratios in Part (a) can be used to determine Daycos rate of
return on assets
C. Dayco operates industry average ratios are these; Return on assets: 11 percent;
Asset turnover; 2.5 times, net profit margin; 3.6 percent. Compare Daycos
performance against the industry averages.
7. This problem uses the financial statements for the Genatron Manufacturing
Corporation for the years 2012 and 2011 from Problem 6.
A. calculate Genatrons dollar amount of net working capital in each year.
B. calculate the current ratio and the acid test ratio in each year.
C. calculate the average collection period and the inventory turnover ratio in each
year.
D. What changes in the management of Genatrons current assets seems to have
occurred between the two years?