Chapter 10 - Project Analysis
Solutions to Chapter 10
a. The capital budget mitigates the problem of overoptimism by project sponsors by
awarding lower-level managers on the basis of net present value and contribution to
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Answers are in Red
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1. Construct a balance sheet for Sophies Sofas given the following data. (Be sure to list
the assets and liabilities in order of their liquidity.)
The following are the cash flows of two projects:
a. If the opportunity cost of capital is 10%, calculate NPV for both projects? (Do not round intermediate
calculations. Round your a
1.A stock is selling today for $50 per share. At the end of the year, it pays a dividend of $2 per share and sells for $56.
What is the total rate of return on the stock?
Rate of return
What are the dividend yield and percentage capital gain?
1.The authorized share capital of the Alfred Cake Company is 110,000 shares. The equity is currently shown in the companys books as follows:
Common stock ($2 par value)
Additional paid-in capital
Treasury stock (1,000 sha
Solutions to Chapter 21
Credit Management and Bankruptcy
The discount is: 1% of $1,000 = $10
The customer gains an extra 40 days of credit.
With the discount, the customer pays $990. Without the discount, the customer pays
$1,000. The differen
Solutions to Chapter 18
False. Financial planning is concerned with possible surprises as well as the
most likely outcomes.
True. Financial planning considers both the financing and investment decisions.
This is one (but not the o
Solutions to Chapter 14
How Corporations Issue Securities
A rights issue can be used for subsequent issues of stock. A rights issue requires that there
are already existing shareholders.
Seasoned offerings are security issues by firms that are al
Solutions for Chapter 13
An Overview of Corporate Financing
Number of Shares = Par value of issued stock/par value per share
= $60,000/$1.00 = 60,000 shares
Outstanding shares = Issued shares Treasury stock
= 60,000 2,000 = 58,000 shares
Solutions to Chapter 13
The Weighted Average Cost of Capital and Company Valuation
The yield to maturity for the bonds (since maturity is now 19 years) is the interest rate (r) that
is the solution to the following equation:
[$80 annuity factor(r, 19 y
Solutions to Chapter 11
Risk, Return, and Capital Budgeting
False. Investors require higher expected rates of return on investments with high
market risk, not high total risk. Variability of returns is a measure of total risk.
False. If beta = 0,
Solutions to Chapter 7
No, this does not invalidate the dividend discount model. The dividend discount model
allows for the fact that firms may not currently pay dividends. As the market matures,
and Amazons growth opportunities moderate
FIN 302 Chapter 16: Payout Policy
1. a. May 7: June 6: June 7: June 11: July 2: Declaration date Last with-dividend date Ex-dividend date Record date Payment date
Homework Solution Ch16
The stock price will fall on the ex-dividend date, June 7. The pri
Solutions to Chapter 5
The Time Value of Money
$100/(1.08)20 = $21.45
$100/(1.04)10 = $67.56
$100/(1.04)20 = $45.64
$100 (1.08)10 = $215.89
$100 (1.08)20 = $466.10
$100 (1.04)10 = $148.02
$100/(1.08)10 = $46.32
Solutions to Chapter 6
Coupon rate = 6%, which remains unchanged. The coupon payments are fixed
at $60 per year.
When the market yield increases, the bond price will fall. The cash flows are
discounted at a higher rate.
At a lowe
A treatment of the theory and practice of financial decision making in the firm, with emphasis on
the practical application of financial analysis, the course is based on the principle that a f
Solutions to Chapter 20
Cash and Inventory Management
Ledger balance = starting balance payments + deposits
Ledger balance = $250,000 $20,000 $60,000 + $45,000 = $215,000
The payment float is the outstanding total of not-yet-cleared checks written by t