Chapter 6
Accounting for Financial Management
ANSWERS TO BEGENNING-OF-CHAPTER QUESTIONS
Note:
There is no Excel model for Chapter 6.
verbal answers.
The questions require only
6-1
Current assets would show cash, A/R, and inventories. More categories
of fi

Chapter 19
Hybrid Financing: Preferred Stock, Warrants, and
Convertibles
ANSWERS TO BEGINNING-OF-CHAPTER QUESTIONS
19-1
Both companies and investors have different preferences regarding risks,
maturities, and so forth.
Companies can offer different types

Chapter 3
Risk and Return: Part II
ANSWERS TO BEGINNING-OF-CHAPTER QUESTIONS
We do not normally cover the material in Chapter 3 in depth in our
intermediate financial management coursethis treatment is reserved for the
investments coursebut it is useful f

Ch 03 Tool Kit
5/29/2002
Chapter 3. Tool Kit for Risk and Return: Portfolio Theory and Asset Pricing Models
PROBABILITY DISTRIBUTIONS
The probability distribution is a listing of all possible outcomes and the corresponding probability.
Probability of
Occu

Ch 02 Tool Kit
5/25/2002
Chapter 2. Tool Kit for Risk and Return
The relationship between risk and return is a fundamental axiom in finance. Generally speaking, it is totally logical to assume
that investors are only willing to assume additional risk if t

CHAPTER 11: THE EFFICIENT MARKET HYPOTHESIS
CHAPTER 11: THE EFFICIENT MARKET HYPOTHESIS
PROBLEM SETS
1.
The correlation coefficient between stock returns for two non-overlapping periods
should be zero. If not, one could use returns from one period to pred

Chapter 21
Short-Term Financing
ANSWERS TO BEGINNING-OF-CHAPTER QUESTIONS
21-1
The principal advantage of matching asset and liability maturities is
that most assets provide cash flows over their lives, and matching
maturities permits the borrower to serv

Lex live: Internal rate of return
>Published: June 1 2005 13:25 | Last updated: June 1 2005 13:25
>
Imagine an investment that requires an upfront payment of $5,000 and then produces
positive cash flows of $3,000 in years two to 10. At a 10 per cent disco

Chapter 20
Current Asset Management
ANSWERS TO BEGINNING-OF-CHAPTER QUESTIONS
20-1
The CCC is defined as the number of days between a companys paying for
some product or service that it sells and the receipt of cash from the
sale of the product or service

Chapter 16
Distributions to Shareholders:
Dividends and Repurchases
ANSWERS TO BEGINNING-OF-CHAPTER QUESTIONS
16-1
Investors who prefer a high payout policy would be those who (a) need
current cash income and (b) are in a low income tax bracket. Those who

Chapter 14
Capital Structure Decisions: The Basics
ANSWERS TO END-OF-CHAPTER QUESTIONS
Preface to Answers: Capital structure is perhaps the most difficult topic
covered in this text. The empirical evidence on the effects of capital
structure is far from d

Chapter 13
Financial Options with Applications to Real Options
ANSWERS TO BEGINNING-OF-CHAPTER QUESTIONS
13-1
See Part 1, Financial Options, of ch13boc-model.xls model, which is
printed out at the end of these answers.
Based on the Black-Scholes
model, we

Chapter 11
Capital Budgeting: Decision Criteria
ANSWERS TO BEGINNING-OF-CHAPTER QUESTIONS
11-1
The 6 criteria are discussed below. They are calculated and analyzed in
the spreadsheet model for the chapter, ch11boc-model.xls, which is
printed at the end of

Chapter 12
Capital Budgeting: Estimating Cash Flows and
Analyzing Risk
ANSWERS TO BEGINNING-OF-CHAPTER QUESTIONS
12-1
Conceptually, project cash flows and a firms free cash flows are
identical.
In practice, project cash flows are analyzed to determine
wha

Chapter 9
The Cost of Capital
ANSWERS TO BEGINNING-OF-CHAPTER QUESTIONS
All of the answers are illustrated in the Excel model, ch09boc-model.xls,
which is on the CD and is printed out at the end of these answers.
9-1
(1) Debt, (2) preferred stock, and (3)

Chapter 8
Financial Planning and Forecasting Financial
Statements
ANSWERS TO BEGINNING-OF-CHAPTER QUESTIONS
We like to use discussion questions along with relatively simple and easy to
follow calculations for our lectures.
Unfortunately, forecasting is by

Chapter 4
Bond Valuation
ANSWERS TO BEGINNING-OF-CHAPTER QUESTIONS
4-1
Coupon rate is normally fixed, but it can be indexed so that it floats
with some market rate, such as the T-bill rate.
The current yield is the annual interest divided by the bonds
cur

Chapter 2
Risk and Return: Part I
ANSWERS TO BEGINNING-OF-CHAPTER QUESTIONS
Our students have had an introductory finance course, and many have also taken
a course on investments and/or capital markets. Therefore, they have seen the
Chapter 2 material pre

ANSWERS TO BEGINNING-OF-CHAPTER QUESTIONS
Chapter 1
An Overview of Financial Management
1-1
The primary goal is shareholder wealth maximization, which translates to
stock price maximization.
That, in turn, means maximizing the PV of
future free cash flows

Chapter 1
An Overview of Financial Management
LEARNING OBJECTIVES
After reading this chapter, students should be able to:
Explain the career opportunities available within the three interrelated
areas of finance.
Identify some of the forces that will affe

CASE43E
INSTRUCTOR MODEL
9/28/96
SWAN-DAVIS, INC.
Bond and Stock Valuation
The model-generated portion of this file can actually be divided into 4 separate parts:
cost of debt and bond valuation, cost of preferred stock, cost of equity/common stock
valuat

CASE12BM
Student Version
9/21/96
TASTY FOODS CORPORATION (PART I)
Capital Budgeting Methods and Cash Flow Estimation
This case focuses on capital budgeting decision criteria and cash flow
estimation. It begins with such basic concepts as incremental cash

CHAPTER 16: MANAGING BOND PORTFOLIOS
CHAPTER 16: MANAGING BOND PORTFOLIOS
PROBLEM SETS
1.
While it is true that short-term rates are more volatile than long-term rates, the longer duration of the
longer-term bonds makes their prices and their rates of ret

CHAPTER 15: THE TERM STRUCTURE OF INTEREST RATES
CHAPTER 15: THE TERM STRUCTURE OF INTEREST RATES
PROBLEM SETS.
1.
In general, the forward rate can be viewed as the sum of the markets expectation of the future short rate
plus a potential risk (or liquidit

CHAPTER 12: BEHAVIORAL FINANCE
AND TECHNICAL ANALYSIS
CHAPTER 12: BEHAVIORAL FINANCE
AND TECHNICAL ANALYSIS
PROBLEM SETS
1.
Technical analysis can generally be viewed as a search for trends or patterns in
market prices. Technical analysts tend to view the

CHAPTER 10: ARBITRAGE PRICING THEORY AND MULTIFACTOR MODELS OF RISK AND RETURN
CHAPTER 10: ARBITRAGE PRICING THEORY AND MULTIFACTOR MODELS OF
RISK AND RETURN
PROBLEM SETS
1.
The revised estimate of the expected rate of return on the stock would be the old

CHAPTER 8: INDEX MODELS
CHAPTER 8: INDEX MODELS
PROBLEM SETS
1.
The advantage of the index model, compared to the Markowitz procedure, is the vastly reduced
number of estimates required. In addition, the large number of estimates required for the
Markowit

CHAPTER 9: THE CAPITAL ASSET PRICING MODEL
CHAPTER 9: THE CAPITAL ASSET PRICING MODEL
PROBLEM SETS
1.
E (rP ) rf P [ E (rM ) rf ]
.18 .06 P [.14 .06] P
2.
.12
1.5
.08
If the securitys correlation coefficient with the market portfolio doubles (with all o