Answers to Assignment No. 2 Chapter 17- Questions and Problems: Answer to Q 8
a. High asset turnover means high sales relative to assets. The consulting firm will have relatively few assets. The major asset is the know-how of its employees, which is not m

Answers to Assignment No. 1 Chapter 1- Questions and Problems: Answer to Q 10
a. Real assets are items that are used to produce goods and services. Real assets include both tangible and intangible items. Tangible (physical) real assets include such items

Chapter 19 Question 11 a. If the loan is annual, for every $100 of stated loan amount, the borrower receives $94 and repays $100 in a year. The effective annual interest rate is: interest/loan amount = 6/94 = .0638 = 6.38%. b. If the loan is monthly, then

Answers to Assignment No. 14 Chapter 16- Questions and Problems:
Answer to Q 4
Your dividend income will increase from $750 to $1000. If you view the dividend as excessive, you can invest the extra $250 in the firm. Use part of the dividend proceeds to bu

Answers to Assignment No. 13
Chapter 15- Questions and Problems:
Answer to Q 1
a. b.
True. False. As leverage increases, the expected rate of return on equity rises by just enough to compensate for its higher risk. The stock price and stockholders wealth

Answers to Assignment No. 12
Chapter 13- Questions and Problems:
Answer to Q 4
a. b. c.
True. False. True.
Answer to Q 5
Preferred stock is like long-term debt in that it commits the firm to paying the security holder a fixed sum either a specified coupon

Answers to Assignment No. 11
Chapter 12- Questions and Problems:
Answer to Q 5
The total value of the firm is $80 million. The weights for each security class are: Debt: Preferred: Common: D/V = 20/80 = .250 P/V = 10/80 = .125 E/V = 50/80 = .625
P E D WAC

Answers to Assignment No. 7 Chapter 8- Questions and Problems:
Answer to Q 6 Cash flow = Net income + depreciation increase in NWC 1.2 = 1.2 + .5 NWC NWC = $0.5 million Answer to Q 13 At the break-even level of sales, which is 60,000 units, profit would b

Answers to Assignment No. 5 Chapter 6- Questions and Problems:
Answer to Q 4 r = DIV1/P0 + g = 8% + 5% = 13%
Answer to Q 5
The value of a common stock equals the present value of dividends received out to the investment horizon, plus the present value of

Answers to Assignment No. 4 Chapter 5- Questions and Problems: Answer to Q 2 When the bond is selling at a discount, $970 in this case, the yield to maturity is greater than 8%. We know that if the discount rate were 8%, the bond would sell at par. At a p

Answers to Assignment No. 3 Chapter 4- Questions and Problems: Answer to Q 6
You should compare the present values of the two annuities. Discount Rate a. b. 5% 20% Present Value of 10-year, $1000 annuity 7721.73 4192.47 Present Value of 15-year, $800 annu

CHAPTER 3
Analysis of Financial Statements
Ratio Analysis
Du Pont system
Why are ratios useful?
Ratios standardize numbers and facilitate
comparisons.
Ratios are used to highlight weaknesses and
strengths.
Simplest example: common-size statements (all
it