Solutions to Chapter 1
Goals and Governance of the Firm
Should a new computer be purchased?
Should the firm develop a new drug?
Should the firm shut down an unprofitable factory?
Should the firm borrow money f
Solutions for Chapter 17
Last with-dividend date
The stock price will fall on the ex-dividend date, June 7. The price falls on
Solutions to Chapter 20 Working Capital Management 1. a. b. c. 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 difference is:
Solutions to Chapter 16
False. As financial leverage increases, the expected rate of return on equity rises
by just enough to compensate for its higher risk. The value of the firm and
stockholders wealth are unaffected.
Solutions for Chapter 21
Mergers, Acquisitions and Corporate Control
Merging to achieve economies of scale makes economic sense.
Merging to reduce risk by diversification does not make economic sense.
Shareholders can diversify for themselves.
Solutions to Chapter 19
Short-term Financial Planning
$2 million decrease
$5 million increase
Net Working Capital
$2 million decrease
$1 million increase
Solutions to Chapter 18
Long-Term Financial Planning
False. Financial planning is a process of deciding which risks to take.
False. Financial planning is concerned with possible surprises as well as the
most likely outcomes.
True. Financial plann
Solutions to Chapter 24
Insurance is a part of risk management that is similar in many ways to hedging. Both
activities are designed to eliminate the firms exposure to a particular source of risk.
Hedging and insurance have several adva
Solutions to Chapter 22
International Financial Management
You can buy: 100/1.4621 = 68.395 euros for $100
You can buy: 100 1.4621= 146.21 dollars for 100 euros
You can buy: 100 1.1322 = 113.22 Swiss francs for $100
You can buy: 100/1.1322 = 88.32 d
Solutions to Chapter 5 The Time Value of Money 1. a. b. c. d. 2. a. b. c. d. 3. $100/(1.08)10 = $46.32 $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 (1.04)
Solutions to Chapter 2
Financial Markets and Institutions
The story of Apple Computer provides three examples of financing sources: equity
investments by the founders of the company, trade credit from suppliers and
investments by venture capitalists. O
Solutions to Chapter 7 Valuing Stocks 1. 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 Amazon's growth opportunities moderat
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
Solutions to Chapter 12
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 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 15
Venture Capital, IPOs, and Seasoned Offerings
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
Solutions to Chapter 14
Introduction to 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 23
Payoff and profit if stock price on expiration date = $720:
Call option, X = 620
Put option, X = 620
Call option, X = 720
Put option, X = 720
Call option, X = 820
Put option, X = 820