Chapter 2Financial Statement and Cash Flow Analysis
MULTIPLE CHOICE
1. Which of the following items can be found on an income statement?
a. Accounts receivable
b. Long-term debt
c. Sales
d. Inventory
ANS: C
PTS: 1
DIF: E
NAT: Reflective thinking
LOC: acqu
End of Chapter Problem 3-4
PVn = FV / (1 + r)n
OR
PVn = FV * (1 + r)-n
The negative sign makes it easier to input into the calculator
when using the formula to solve.
When using the functions on the Financial calculator, enter N as a positive number
when
End of Chapter Problem 4-11
4-11 Griswold Travel Inc. has issued 6-year bonds that pay $30 in interest twice
each year. The par value of these bonds is $1,000 and they offer a yield to
maturity of 5.5 %. How much are the bonds worth?
- The question gives
End of Chapter Problem 4-8
4-8 Calculate the price of a 5-year, $1,000 par value bond that makes
semiannual payments, has a coupon rate of 8 %, and offers a yield to maturity
of 7 %. Recalculate the price assuming a 9 % YTM. What is the general
relationsh
End of Chapter Problem 4-9
4-9 A $1,000 par value bond makes annual interest payment of $75. If it offers a
yield to maturity of 7.5 %, what is the price of the bond?
This question asks to get the price of a bond. It is asking for the current price, so
yo
End of Chapter Problem 4-7
4-7 A bond makes two $45 interest payments each year. Given that the bonds
par value is $1,000 and its price is $1,050, calculate the bonds coupon rate and
coupon yield.
Step 1 Find the coupon for the $1000 par bond. Since the b
End of Chapter Problem 4-23
4-14 What is the price of a zero-coupon bond that has a par value of $1,000?
The bond matures in thirty years and offers a yield to maturity of 4.5 %.
Calculate the price one year later when the bond has twenty-nine years left
End of Chapter Problem 5-1
5 -1 Argaiv Towers has outstanding an issue of preferred stock with a par value
of $100. It pays an annual dividend equal to 8 % of par value. If the required
return on Argaiv preferred stock is 6 %, and if Argaiv pays its next
End of Chapter Problem 5-4
5 4 Suppose a preferred stock pays a quarterly dividend of $2 per share. The
next dividend comes in exactly one-fourth of a year. If the price of the stock is
$80, what is the effective annual rate of return that the stock offer
End of Chapter Problem 4-6
4-6 A bond offers a coupon rate of 5 %. If the par value is $1,000 and the bond
sells for $1,250, what is the coupon yield?
Step 1 Find the coupon for the $1000 par bond:
5% * $1000 = $50 Annual Coupon
Step 2 Solve for yield
Cou
End of Chapter Problem 4-18
4-14 The rate of inflation is 5 % and the real interest rate is 3 %. What is the
nominal interest rate?
Using the Equation 4.4 on page 125.
(1+rnominal) = (1+iinflation) * (1+ rreal)
(1+rnominal) = (1+.05) * (1+ .03)
(1+rnomina
End of Chapter Problem 4-14
4-14 A bond makes annual interest payments of $75. The bond matures in 4
years, has a par value of $1,000, and sells for $975.30. What is the bonds yield
to maturity (YTM)?
- The bond pays annual interest so no adjustments are
End of Chapter Problem 3-11
Robert Williams is considering an offer to sell his medical practice, allowing him to
retire five years early. He has been offered $500,000 for his practice and can invest
this amount in an account earning 10 % per year. If the
End of Chapter Problem 2-5
2 5 Income Statements
Heavy Metal
Manufacturing
(HMM)
Sales
Operatingexpenses
Metallic Stamping
Inc. (MS)
High-Tech Software
Co. (HTS)
$75,000,000
65,000,000
$50,000,000
40,000,000
$100,000,000
60,000,000
Operatingprofit
$10,000
End of Chapter Problem 2-2
2 2 Given the balance sheets and selected data from the income statement of
SMG Industries that follow, answer parts (a)(c).
a.Calculate the firms operating cash flow (OCF) for the year ended December 31,
2012, using Equation 2.
End of Chapter Problem 3-16
In this problem you are give two series of cash flows (A and B). Both cash flows total
$150,000 over the 5 years. The problem highlights the timing aspect and how it
affects Present Value (PV).
Year
A
B
1
$50,000
$10,000
2
40,0
End of Chapter Problem 2-4
Manufacturers Bank is evaluating Aluminum
Industries, Inc., which has requested a $3 million
loan, to assess the firms financial leverage and risk.
On the basis of the debt ratios for Aluminum, along
with the industry averages a
End of Chapter Problem 3-23
Consumer Insurance, Inc. sells extended warranties on appliances that provide
coverage after the manufacturers' warranties expire. An analyst for the company
forecasts that the company will have to pay warranty claims of $5 mil
End of Chapter Problem 3-18
Ruth Nail receives two offers for her seaside home. The first offer is for $1 million
today. The second offer is for an owner-financed sale with annual payments as
follows:
EndofYear
0(Today)
Payment
$200,000
1
200,000
2
200,00
End of Chapter Problem 5-17
5-17 Stephenson Technologies (ST) produces the worlds greatest single-lensreflex (SLR) camera. The camera has been a favorite of professional
photographers and serious amateurs for several years. Unfortunately, the
camera uses
End of Chapter Problem 6-1
6-1 You purchase 1,000 shares of Spears Grinders Inc. stock for $45 per share.
A year later, the stock pays a dividend of $1.25 per share and it sells for $49.
a.
Calculate your total dollar return.
Total Dollar Return = # of Sh
End of Chapter Problem 6-2
6-2 A financial adviser claims that a particular stock earned a total return of 10
% last year. During the year the stock price rose from $30 to $32.50. What
dividend did the stock pay?
Using Eq 6.2
Total Percentage Return = [Di
End of Chapter Problem 12 - 5
12 5 Assume that capital markets are perfect. A firm finances its operations
with $50 million in stock, with a required return of 15 percent, and $40 million in
bonds with a required return of 9 percent. Assume the firm could
End of Chapter Problem 12 - 1
12 1 As Chief Financial Officer of the Magnificent Electronics Corporation
(MEC), you are considering a recapitalization plan that would convert MEC from
its current all-equity capital structure to one including substantial f
End of Chapter Problem 12 - 19
12 19 Magnum Enterprises has net operating income of $5 million; there is $50
million of debt outstanding with a required rate of return of 6 percent; the required
rate of return on the industry is 12 percent; and the corpor
End of Chapter Problem 8-2 A,B,C Only
8 2 Cash flows associated with three different projects are as follows:
Cash Flows
Initial Outflow
Year 1
Year 2
Year 3
Year 4
Year 5
Alpha
($ in millions)
Beta
($ in millions)
Gamma
($ in millions)
- 1.5
0.3
0.5
0.5
End of Chapter Problem 8-12
8 6 Contract Manufacturing, Inc. is considering two alternative investment
proposals. The first proposal calls for a major renovation of the companys
manufacturing facility. The second involves replacing just a few obsolete pie
End of Chapter Problem 8-6
8 6 Using a 14% cost of capital, calculate the NPV for each of the projects
shown in the following table and indicate whether or not each is acceptable.
Project A
Project B
Year
Project C
Project D
Project E
Cash Flows
0
-$20,00
End of Chapter Problem 5-2
5 -2 Artivel Mining Corp.s preferred stock pays a dividend of $5 each year. If the
stock sells for $40 and the next dividend will be paid in one year, what return do
investors require on Artivel preferred stock?
Another simple p
Chapter 4 examples
1.A 15 year, 8% coupon rate, $1000 face value bond is currently trading at $958. The yield to
maturity of this bond must be
a. less than 8%.
b. equal to 8%.
c. greater than 8%.
d. unknown.
The bond is selling at discount YTM > coupon ra
Chapter 3 Homework
1.Which of the following statements is true?
a. In an annuity due payments occur at the end of the period.
b. In an ordinary annuity payments occur at the end of the period.
c. A perpetuity will mature at some point in the future.
d. On
Chapter 2 homework
1. If you only knew a companys total assets and total debt, which item could you easily
calculate?
a. Sales
b. Depreciation
c. Total equity
d. Inventory
2. How do we calculate a companys operating cash flow?
a. EBIT - taxes + depreciati
Chapter 1 Homework
1. One of the tasks for financial managers when identifying projects that increase firm value is to
identify those projects where
a. marginal benefits are at least equal to the projects marginal costs.
b. taking the project will increas
FIN360 Final Exam Review
Chapter 8: 8 questions and 4 problems
1. Understand the desired characteristics for a capital budgeting technique:
Easily applied, consider cash flow, recognize the time value of money,
fully account for expected risk and return,