Answers to End of Chapter 3 (2nd edition) Problems
Arbitrage and Financial Decision Making
3-1. Honda Motor Company is considering offering a $2000 rebate on its minivan, lowering the vehicles price from $30,000 to $28,000. The marketing group estimates t
Stock Valuation 1. Carlton Corporation just paid a dividend of $3 per share. The company expects to grow their dividend at 20% per year for the next three years. After three years, the company expects to grow their dividends at 6% for the foreseeable futu
Fin 3001 Mid-term #2 Review Questions Exercise #1 A firm can buy a truck at a cost of $80,000 with annual maintenance expenses of $10,000. The truck can be sold at the end of 4 years for $20,000. What is the equivalent annual cost? Exercise #2 The Finnega
Required Return Year Revenue COGS Op. Expenses EBITDA Depreciation B/4 Tax Profit Taxes @ 35% Net Income Operating Cash Flow Net Income Depreciation Operating Cash Flow Investment Cash Flow Total Cash Flow Discount Factor Present Value NPV = Reduction in
Exam #2 Review Chapter 2 a) Income Statement review b) Balance Sheet review c) Cash flow Statement review used to get OCF and NWC changes Chapter 7 a) Net Present Value b) Internal Rate of Return calculation and pitfalls c) Profitability Index (PI) calcul
Chapter 7
Investment Decision Rules
Note: All problems in this chapter are available in MyFinanceLab. An asterisk (*) indicates problems with a higher level of difficulty. 1. Plan: We can compute the NPV of the project using Eq. (7.2). The cash flows are
Chapter 6
Bonds
Note: All problems in this chapter are available in MyFinanceLab. 1. Plan: We can use Eq. (6.1) to determine the semiannual coupon payment on the bond and then create a timeline for the cash flows using the semiannual coupon payment found
Chapter 5
Interest Rates
Note: All problems in this chapter are available in MyFinanceLab. An asterisk (*) indicates problems with a higher level of difficulty. 1. a. Since six months is
6 = 1 24 4
of two years, using our rule (1 + 0.2)1/ 4 = 1.0466.
So t
Chapter 4
NPV and the Time Value of Money
Note: All problems in this chapter are available in MyFinanceLab. An asterisk (*) indicates problems with a higher level of difficulty. 1. 0 4000 1 1000 2 1000 3 1000 4 1000 5 1000
From the bank's perspective the
Chapter 3
The Valuation Principle: The Foundation of Financial Decision Making
Note: A box ( ) indicates problems available in MyFinanceLab. An asterisk (*) indicates problems with a higher level of difficulty. 1. Plan: The benefit of the rebate is that H
Chapter 2
Introduction to Financial Statement Analysis
Note: A box ( ) indicates problems available in MyFinanceLab. An asterisk (*) indicates problems with a higher level of difficulty. 1. Each method will help find the same SEC filings. Yahoo! Finance a
Additional DCF / Economic Break Even Practice Problems 1. Carlson Machine Shop is considering a four-year project to improve its production efficiency by purchasing a new machine press for $480,000 that will result in $160,000 in annual pre-tax cost savin
Additional assigned problems 1) A company has developed a new trap. It can go into production for an initial investment in equipment of $6 million. The equipment will be depreciated straight-line over 5 years to a value of zero, but can be sold for $500,0