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 6-3
6-3 D. S. Trucking Company stock pays a $1.50 dividend every year. A year ago
the stock sold for $25 per share, and its total return during the past year was
20%. What does the stock sell for today?
Using Eq 6.2
Total Percentage
End of Chapter Problem 5-19
5 19 Dean and Estevez, Inc. (D&E) is a firm that provides temporary employees to
businesses. D&Es client base has grown rapidly in recent years, and the firm has been
quite profitable. The firms co-founders, Mr. Dean and Mr. Es
End of Chapter Problem 5-10
5 10 Carbohydrates Anonymous (CA) operates a chain of weight-loss centers
for carb lovers. Its services have been in great demand in recent years and its
profits have soared. CA recently paid an annual dividend of $1.35 per sha
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 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 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 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 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 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 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 4-9
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 4-8
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 4-11
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 4-6
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 6-5
6-5 David Rawlings pays $1,000 to buy a five-year Treasury bond that pays a
6% coupon rate (for simplicity, assume annual coupon payments). One year
later, the markets required return on this bond has increased from 6% to 7%.
Wh
End of Chapter Problem 6-15
6-15 The table below shows the average return on U.S. stocks and bonds for
25-year periods ending in 1925, 1950, 1975, and 2000. Calculate the equity risk
premium for each quarter century. What lesson emerges from your calculat
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
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
-$20,00
End of Chapter Problem 8-12
8 6 Contract Manufacturing, Inc. is considering two alternative investment
proposals. The first proposal calls for a major renovation of the companys
manufacturing facility. The second involves replacing just a few obsolete pie
End of Chapter Problem 8-2 A,B,C Only
8 2 Cash flows associated with three different projects are as follows:
Cash Flows
Initial Outflow
Year 1
Year 2
Year 3
Year 4
Year 5
Alpha
($ in millions)
Beta
($ in millions)
Gamma
($ in millions)
- 1.5
0.3
0.5
0.5
End of Chapter Problem 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 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 - 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 7-8
7-8 Wendi Deng recently inherited $1 million and has decided to invest it. Her
portfolio consists of the following positions in several stocks. Calculate the
portfolio weights to fill in the bottom row of the table.
Intel
Shares
End of Chapter Problem 7-2
7-2 The table below shows the difference in returns between stocks and
Treasury bills and the difference between stocks and Treasury bonds at 10-year
intervals.
Stocks vs. Bonds
Stocks vs. Bills
1964-73
3.7%
8.3%
1974-83
0.2%
8.
End of Chapter Problem 7-11
7-11 You analyze the prospects of several companies and come to the following
conclusions about the expected return on each:
Stock
Starbucks
Sears
Microsoft
Limited Brands
Expected Return
18%
8%
16%
12%
You decide to invest $4,
End of Chapter Problem 7-20
7-20 The expected return on the market portfolio equals 12%. The current riskfree rate is 6%. What is the expected return on a stock with a beta of 0.66?
For this problem we need to use Eq 7.2 the Capital Asset Pricing Model.
E
End of Chapter Problem 7-24
7-24 A particular stock sells for $30. The stocks beta is 1.25, the risk-free rate is
4%, and the expected return on the market portfolio is 10%. If you forecast that the
stock will be worth $33 next year (assume no dividends),