CHAPTER 2
Solutions to Questions and Problems
1.
The balance sheet for the company will look like this:
Current assets
Net fixed assets
Total assets
Balance sheet
$3,840
Current liabilities
10,190
Long-term debt
Owner's equity
$14,030
Total liabilities &
Chapter 3 End-of-Chapter Questions
Please do questions: 1 - 12, 16 - 18, 22 - 26, and 34-37. If you dont have the textbook,
please see the scanned pages below.
Chapter 2 End-of-Chapter Questions
Please do questions: 1 - 4, 8 - 13, 14 - 16, and 21 - 23. If you dont have the textbook,
please see the scanned pages below.
Note: Q23 is the one we did in class. The financial statements information for Q 23 is attached
CHAPTER 13
Solutions to Questions and Problems
1.
a.
A table outlining the income statement for the three possible states of the economy is shown
below. The EPS is the net income divided by the 3,600 shares outstanding. The last row shows
the percentage c
CHAPTER 3
Solutions to Questions and Problems
1.
To find the current assets, we must use the net working capital equation. Doing so, we find:
NWC = Current assets Current liabilities
$1,410 = Current assets $5,810
Current assets = $7,220
Now, use this num
1
CHAPTER 6
Solutions to Questions and Problems
2.
Price and yield move in opposite directions; if interest rates fall, the price of the bond will rise. This
is because the fixed coupon payments determined by the fixed coupon rate are more valuable when
i
CHAPTER 7
Solutions to Questions and Problems
1.
The constant dividend growth model is:
Pt = Dt (1 + g) / (R g)
So, the price of the stock today is:
P0 = D0 (1 + g) / (R g)
P0 = $2.53 (1.054) / (.10 .054)
P0 = $57.97
The dividend at year 4 is the dividend
1
CHAPTER 8
Solutions to Questions and Problems
3.
Project A has cash flows of:
Cash flows = $17,000 + 23,000
Cash flows = $40,000
during the first two years. The cash flows are still short by $5,000 of recapturing the initial
investment, so the payback f
1
CHAPTER 9
Solutions to Questions and Problems
2.
Sales due solely to the new product line are:
23,000($19,000) = $437,000,000
Increased sales of the motor home line occur because of the new product line introduction; thus :
2,600($73,000) = $189,800,000
1
CHAPTER 10
Solutions to Questions and Problems
1.
The return of any asset is the increase in price, plus any dividends or cash flows, all divided by the
initial price. The return of this stock is:
R = [($96 81) + 4.10] / $81
R = .2358 or 23.58%
The divi
CHAPTER 11
Solutions to Questions and Problems
3.
The expected return of a portfolio is the sum of the weight of each asset times the expected return of
each asset. So, the expected return of the portfolio is:
E(Rp) = .25(.10) + .40(.12) + .35(.15)
E(Rp)
CHAPTER 12
Solutions to Questions and Problems
3.
We have the information available to calculate the cost of equity, using the CAPM and the dividend
growth model. Using the CAPM, we find:
RE = .04 + 0.90(.07) = .1030 or 10.30%
And using the dividend growt