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Corporate Finance and Financial Management: Problem Set

A corporate finance problem set exploring financial management and corporate decision-making.

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Corporate Finance and Financial Management: Problem SetQuestion 11.Jefferson City Computers has developed a forecasting model to estimate its AFN for theupcoming year. All else being equal, which of the following factors is most likely to leadtoanincreaseof the additional funds needed (AFN)?AnswerA sharp increase in its forecasted sales.A sharp reduction in its forecasted sales.The company reduces its dividend payout ratio.The company switches its materials purchases to a supplier that sells on terms of 1/5,net 90, from a supplier whose terms are 3/15, net 35.The company discovers that it has excess capacity in its fixed assets.3.3333pointsAnswer:A sharp increase in itsforecasted sales.Question 21.Mid-State BankCorprecently declared a 7-for-2 stock split. Prior to the split, the stocksold for $80 per share. If the firm's total market value is unchanged by the split, what willthe stock price be following the split?Answer$20.63$21.71$22.86$24.00$25.203.3333pointsAnswer:$22.86Question 31.Banerjee Inc. wants to maintain a target capital structure with 30% debt and 70% equity.Itsforecasted net income is $550,000, and its board of directors has decreed that no newstock can be issued during the coming year. If the firm follows the residual dividendmodel, what is the maximum capital budget that is consistent with maintaining the targetcapital structure?Answer

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