Fundamentals Of Financial Management, Concise, 8th Edition Solution Manual

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ContentsiiiSolution GuideContentsPrefaceAlternative Formats for the Introductory CoursevContents of the Instructor’s ManualvIntegrated Cases and Lecture Presentation SoftwarevPowerPointSlide ShowviiComprehensive/SpreadsheetProblemsviiChapterSpreadsheet ModelsviiTextbook Companion WebsiteviiStudy GuideviiiTest BankviiiOrdering Ancillary MaterialsixConclusionxCourse SyllabusxiCourse SchedulexvAnswers to End-of-Chapter ProblemsxviiChapter 1An Overviewof Financial Management1Chapter 2Financial Markets and Institutions7Chapter 3Financial Statements, Cash Flow, and Taxes23Chapter 4Analysis of Financial Statements47Chapter 5Time Value of Money79Chapter 6Interest Rates121Chapter 7Bonds and Their Valuation145Chapter 8Risk and Rates of Return183Chapter 9Stocks and Their Valuation215Chapter 10The Cost of Capital247Chapter 11The Basics of Capital Budgeting269Chapter 12Cash Flow Estimation and Risk Analysis307Chapter 13Capital Structure and Leverage351

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ivContentsChapter 14Distributions to Shareholders: Dividends andShare Repurchases387Chapter 15Working Capital Management413Chapter 16Financial Planning and Forecasting441Chapter 17Multinational Financial Management465

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PrefacexiSyllabus for Finance 3403Finance 3403Course OutlineSpring2014Instructor:Joel F. Houston303DSTZ392-7546Office Hours: M W 10:30 A.M.–11:30 A.M., and by appointment.Course Pre-requisite:ACG 2021 or an approved equivalent.Required materialsE.F. Brigham and J. Houston,Fundamentals of Financial Management,Concise EighthEdition.Course Packet for FIN 3403: Includes the syllabus, a calculator tutorial, detailed solutions to some of theend-of-chapter questions, and past exams.CalculatorYou must have afinancialcalculator to get through the course.Many of the exam problems involvecomplex arithmetic and financial calculations—and a financial calculator is necessary to solve them.I recommend either the HP-10BII+or the HP-17BII+. The 10BII+does everything needed in the course. Iwill use one in class and explain how to work various problems with it, so you can follow lectures most easily ifyou use a 10BII+. Moreover, the TAs will all know how to help you with a 10BII+, but you might havetrouble getting help with another calculator. The HP-17BII+does more and costs more.Some argue that the17BII+is easier to useonce you get used to it.Also,some students argue that the 17BII+is better to havein some of the upper level Finance classes. Again, however, everything in this class can be done with a10BII+.As you will soon see, the ability to use a financial calculator is critical to success in the class. You areresponsible for learning how to operate your financial calculator—and it is crucial that you are familiar withyour calculator by the time we beginChapter 5.Calculator tutorials for both the 10BII+and 17BII+areincluded in theCourse Packet.Makesure that you bring your calculator to class.Students maynotshare calculators on exams. Please besure to check your batteries before exams.Optional materialsStudy Guide for Fundamentals of Financial Management,Concise EighthEdition.This workbook containslearning objectives and outlines of the chapter plus questions and problems with detailed answers. It isuseful when studying, especially when preparing for exams, but it is not required.

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xiiPrefaceCourse objectivesThis course is designed for the general business student, not just the finance major. Since this is a surveycourse, we will cover a lot of ground. We will begin with a general overview and then go into more detailon several concepts, financial instruments, and techniques used in financial decision making.The chief objectives of the course are:1.To introduce you to the world of finance. Anyone involved with the management of a business needsto have at least some minimal knowledge of business finance.2.To introduce you to basic financial concepts such as the time value of money, asset valuation, and riskand return.My hope is that by the end of the class you have a basic grasp of finance principles and that you go beyondjust memorizing a number of facts and formulas. Doing so will enable you to better understand currentevents in Finance and will provide a solid framework for any subsequent courses you may take in Finance.Hopefully, by the end of the semester you will want to take additional classes in Finance!Class procedures1.The structure of this class makes your individual study and preparation outside class extremelyimportant. The lecture material will focus on the major points introduced in the text.Reading theassigned chapters and having some familiarity with them before class willgreatlyassist yourunderstanding of the lecture. After the lecture, you should study yournotesand work relevantproblems from the end of the chapter and sample exam questions.2.Throughout the semester we will also have a number of review sessions. These review sessions willtake place during the regularly scheduled class periods,and will generally be offered by the headteaching assistant (TA). I will generally conduct the review sessions prior to each of the examinations.You will find that the review sessions are much more helpful if you keep up with the assigned reading,and make an effort to work the relevant problems.3.There are a number of learning aids offered in addition to the regularly scheduled lectures and reviewsessions. You should utilize those that may contribute to your understanding of the material.(a)There are several teaching assistants associated with this course. The TAs will hold office hours inBryan 125A. The TA schedule will vary from week to week and will be posted (1) outside theFinance office, 321 STZ, (2) outside Bryan 125A, and (3) on the classwebpage. The TAs know thematerial quite well and they are more than willing to help you, so you should use them. You shouldstudy the text, your notes, and the problems, and then ask the TAs for help in clearing up anyquestions you might have.The head TA has also established an e-mail address for the course. Students may use this forumto ask administrative questions about the course, or to provide any comments they have about theclass. This forum is not appropriate for answering long and detailed questions about the coursematerial—for those questions you should see the TAs in person.You may think that your questions are “too dumb to ask,” but they aren’t!Finance covers sometough material, and most students have trouble with at least some of it. The TAs have all gonethrough it recently, and they know what you are up against. They are also really nice people whowant very much to help you, so use them!

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Prefacexiii(b)Tapes of the lectures will be maintained on file in the Media Center for one week following theoriginal presentation. Tapes can also be purchased from University Book and Supply.4.There is also a home page for Finance 3403 on the World Wide Web.The class web page will includethe course outline, office hours,schedules, class examples, and exam solutions.As time goes by, theresources available on the classwebpage will expand, so it is worth checking it from time to time.ExaminationsThere will be three exams, two during the semester and one during the final exam week. The examschedule is as follows:First Midterm:ThursdayJanuary30,2014,7:00-9:00 P.M.Second Midterm:WednesdayFebruary26,2014,7:00-9:00 P.M.Final Exam:WednesdayApr23,2014,1:00-3:00 P.M.Exam locations will be announced in class, and posted at Bryan 125, the FIN3403 notice board outsideSTZ321, and on the classwebpage.Your grade in the course will be determined based on your performance on the three examinations. Eachexamination will count as one-third of your final course grade.To determine your final grade in the course, we will first calculate your total score as follows:Total Score = (1st Exam Score) + (2nd Exam Score) + (Final Exam Score).Your total score has a maximum of 60 points.To calculate the “cutoffs” for each course grade, we calculate a weighted average of the lowest scores foreach grade. So, for example, to determine the cutoff for an A:Lowest A = (Lowest A, 1st Exam) + (Lowest A, 2nd Exam) + (Lowest A, FinalExam).Likewise, the lowest C grade would be a weighted average of the lowest C grades from each of the exams.Therefore, if the curve was set such that you needed 17 or higher to get an A on the first exam, 16 orhigher to get an A on the second exam, and 17 or higher to get an A on the final, the cutoff for an A in thecourse would be 50(17 + 16 + 17). In this hypothetical example, if your total score is 50 points or higheryou would earn an A in the class. Obviously, the actual cutoff for an A will depend on the curves set for theindividual examinations.Please recognize that the size of this class makes it necessary for the cutoffs to be firm, i.e.,there will be no rounding up, regardless of how close you are to the higher grade.There will beNOmakeup exams.If you have a valid excuse for missing either of the first two exams,your final grade will be based on your performanceon the other two examinations—each of theseexaminations will count as 50%of your final grade.If you miss the final with a valid excuse, you must makeit up the following term. If you do not have a valid excuse for missing an exam, it will count as a zero.

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xivPrefaceIn order to be excused from an exam, the student must contact mebefore the exam. If you cannotreach me, leave a message with the department secretaries at 392-0153. In most cases I will requirestudents to provide me with additional documentation to justify why the student is unable to take the exam.Please note that a simple note indicating that you were seen at the health center the day of the examdoesnot,in and of itself,provide sufficient documentation. Excuses will be granted if the student is unable totake the exambecause of serious illness or injury, or a significant personal or professional commitment.Excuses will not be granted for social activities such as ski trips, cruises, and trips to sporting events (unlessyou are participating).The exams will all be cumulative. Most of the questions on each exam will be taken from chapters coveredsince the last exam, but some will come from earlier chapters. I will tell you several days before the exam,how many questions will come from each chapter. In general, the coverage will reflect the amount of timespent in class on the different chapters.For the exams you will be allowed to bring in a financial calculator, and an 8½ by 11 sheet of paper onwhich you can write, type, or copy anything that you like (yes you can write on both sides!)Included withthe test will also be sheets that summarize the major formulas used in the text chapters. No othermaterials may be used during the exam.The exams will all be multiple choice. Each will have 10 conceptual questions and 10 numerical problems,for a total of 20 questions.Since the exams are multiple choice, you will receive no partial credit. This lowers scores considerably fromwhat they would be if partial credit were given. Thus, if you get 50%correct, thisdoes notmean that youknow only 50%of the material—you probably know a lot more. Therefore, we curve the exams, and onlythe curved grade is meaningful.

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PrefacexvCourse ScheduleSpring2014This schedule is extremely tentative, and subject to change.Any variations will be announcedin class.Jan 6Introduction/Chapter 1:An Overview of Financial ManagementJan 7Chapter 2:Financial Markets and InstitutionsJan 8Chapter 2:Financial Markets and InstitutionsJan 9Chapter 3:Financial Statements, Cash Flow, and TaxesJan 13Chapter 3:Financial Statements, Cash Flow, and TaxesJan 14Chapter 4:Analysis ofFinancial StatementsJan 15Chapter 4:Analysis ofFinancial StatementsJan16Chapter 4:Analysis ofFinancial StatementsJan 20MARTIN LUTHER KINGDAY (NO CLASS)Jan 21Chapter 5:Time Value of MoneyJan 22Chapter 5:Time Value of MoneyJan 23Chapter 5:Time Value of MoneyJan 27Chapter 5:Time Value of MoneyJan 28Chapter 6:Interest RatesJan 29Chapter6:Interest Ratesand ReviewJan 30EXAM (NO CLASS)Feb 3Chapter 7:Bonds and Their ValuationFeb 4Chapter 7:Bonds and Their ValuationFeb 5Chapter 7:Bonds and Their ValuationFeb 6Chapter 7:Bonds and Their ValuationFeb10Chapter 8:Risk and Rates of ReturnFeb11Chapter 8:Risk and Rates of ReturnFeb 12Chapter 8:Risk and Rates of ReturnFeb 13Chapter 9:Stocks and Their ValuationFeb 17Chapter 9:Stocks and Their ValuationFeb 18Chapter 9:Stocks and Their ValuationFeb 19Chapter 10:The Cost of CapitalFeb 20Chapter 10:The Cost of CapitalFeb 24Chapter 10:The Cost of CapitalFeb 25ReviewFeb 26EXAM (NO CLASS)Feb 27Chapter 11:The Basics of Capital BudgetingMARCH 1-8 SPRING BREAK

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xviPrefaceMar 10Chapter 11:The Basics of Capital BudgetingMar 11Chapter 11:The Basics of Capital BudgetingMar 12Chapter 11:The Basics of Capital BudgetingMar 13Chapter 12:Cash Flow Estimation and Risk AnalysisMar 17Chapter 12:Cash Flow Estimation and Risk AnalysisMar18Chapter 12:Cash Flow Estimation and Risk AnalysisMar19Chapter 12:Cash Flow Estimation and Risk AnalysisMar20Chapter 13:Capital Structure and LeverageMar 24Chapter 13:Capital Structure and LeverageMar 25Chapter 13:Capital Structure and LeverageMar 26Chapter 13:Capital Structure and LeverageMar 27Chapter 14:Distributions to ShareholdersMar 31Chapter 14:Distributions to ShareholdersApr 1Chapter 14:Distributions to ShareholdersApr 2Chapter 15:Working Capital ManagementApr 3Chapter 15:Working Capital ManagementApr 7Chapter 15:Working Capital ManagementApr 8Chapter 16:Financial Planning and ForecastingApr 9Chapter 16:Financial Planning and ForecastingApr10Chapter 16:Financial Planning and ForecastingApr 14Chapter 17:Multinational Financial ManagementApr 15Chapter 17:Multinational Financial ManagementApr 16Chapter 17:Multinational Financial ManagementApr 17ReviewApr 23FINAL EXAM

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PrefacexviiAnswers to End-of-Chapter ProblemsWe present here some intermediate steps and final answers to end-of-chapter problems. Please note thatyour answer may differ slightly from ours due to rounding differences. Also, although we hope not, some ofthe problems may have more than one correct solution, depending on what assumptions are made inworking the problem. Finally, many of the problems involve some verbal discussion as well as numericalcalculations; this verbal material is not presented here.3-1a.$900,000.b.$2,500,000.c.$500,000.d.$250,000.e.$100,000.f.$250,000.g.$400,000.3-2$1,000,000.3-3$2,500,000.3-4$20,000,000.3-510,500,000.3-6$25,000,000.3-7$200,000.3-8a, possibly c.3-9$89,100,000.3-10$1,575,000.3-11a.$50,000.b.$115,000.3-12$300,000.3-13a.NOWC2013= $44,000; NOWC2014= $53,725.b.$10,675.c.CS = $50,000; RE = $32,025.d.EVA = $13,027.50.e.MVA = $17,975.3-14$12,681,482.3-15a.RE2013= $1,374 million.b.$1,600 million.c.$15 million.d.$620 million.3-16a.NOWC2013= $210,000,000; NOWC2014=$192,000,000.b.FCF2014= $58,000,000.c.Increase in FCF.4-1AR = $800,000.4-244%.4-3S/TA = 5;TA/E = 1.5.4-4M/B = 4.2667.4-5P/E = 12.0×.4-6ROE = 8%.4-7ROE = 10%; ROIC = 8%.4-8$112,500.4-9BEP =15.31%; ROE = 15.38%; ROIC =11.48%.4-10$142.50.4-11PM= 2%; D/C= 40%.4-12TIE = 2.25×.4-13TIE = 3.86×; ROIC = 11.25%.4-14ROE = 23.1%.4-15ROE = +5.54%; QR = 1.2.4-167.2%.4-17a.4-186.0×.4-19$262,500.4-20$405,682.4-21$50.4-22AR = $45,000;Inv = $90,000; FA = $150,000;Sales = $450,000; CL= $75,000.4-23a.CR= 1.98×; DSO = 76.3 days; TATO=1.70×; Debt-to-capitalratio =48.5%.4-24a.CR = 3.65×; Debt-to-total capital = 20.05%;DSO = 30.3 days; ROA = 6.00%.b.Firm: ROE = 8.6%; Ind.: ROE = 12.86%.5-1FV5= $16,105.10.5-2PV = $1,292.10.5-3I/YR = 8.01%.5-4N = 11.01 years.5-5N = 11 years.5-6FVA5= $1,725.22; FVA5 Due= $1,845.99.5-7PV =$923.98; FV = $1,466.23.5-8PMT = $444.89; EAR = 12.6825%.5-9a.$530.b.$561.80.c.$471.70.d.$445.5-10a.$895.42.b.$1,552.92.c.$279.20.d.$499.99; $867.13.5-11a.14.87%.5-12a.7%.b.7%.c.9%.d.15%.5-13a.10.24 years.b.7.27 years.c.4.19 years.d.1 year.

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xviiiPreface5-14a.$6,374.97.b.$1,105.13.c.$2,000.d(1). $7,012.47.d(2).$1,160.38.d(3). $2,000.5-15a.$2,457.83.b.$865.90.c.$2,000.d(1). $2,703.61.d(2). $909.19.d(3). $2,000.5-16PV7%= $1,428.57; PV14%= $714.29.5-179%.5-18a.Stream A: $1,251.25; Stream B: $1,300.32.b.PVA= $1,600; PVB= $1,600.5-19a.$423,504.48.b.$681,537.69.c(1).$46,393.42.c(2).$84,550.80.5-20Contract 2; PV = $10,717,847.14.5-21a.30-year payment plan; PV = $68,249,727.b.10-year payment plan; PV = $63,745,773.c.Lump sum; PV = $61,000,000.5-22a.$802.43.b.Int.1= $500; Princ.1= $302.43; Int.2=$484.88; Princ.2= $317.55.c.$984.88.5-23a.$881.17.b.$895.42.c.$903.06.d.$908.35.e.$910.97.5-24a.$279.20.b.$276.84.c.$443.72.5-25a.$5,272.32.b.$5,374.07.5-26$17,290.89; $19,734.26.5-27a.Bank A = 4%.5-28INOM= 7.8771%.5-293%.5-30a.E = 63.74 yrs.old; K = 41.04 yrs.old.b.$35,825.33.5-31a.$35,459.51.b.$27,232.49.5-32$496.11.5-33$17,659.50.5-34a.PMT = $10,052.87.b.Yr.1: Int/Pymt = 24.87%, Princ/Pymt =75.13%; Yr.2: Int/Pymt = 17.36%, Princ/Pymt= 82.64%;Yr.3: Int/Pymt = 9.09%;Princ/Pymt = 90.91%.5-35a.PMT = $34,294.65.b.PMT = $7,252.78.c.Balloon PMT = $94,189.69.5-36a.$5,308.12.b.$4,877.09.5-37a.55mos.b.12mos.c.$140.88.5-38$309,015.5-39$36,950.5-40$9,385.6-1b.Upward sloping yield curve.c.Inflation expected to increaseor increasingMRP.d.Borrow long term.6-22.25%.6-36%; 6.33%.6-41.5%.6-50.2%.6-621.8%.6-75.5%.6-88.5%.6-96.8%.6-106.0%.6-111.55%.6-120.35%.6-131.775%.6-14a.r1in Year 2 = 6%.b.I1= 2%; I2= 5%.6-15rT1in Year 2 = 9%; I2= 7%.6-1614%.6-177.2%.6-18a.rT1= 9.20%;rT2= 8.40%; rT3= 7.60%; rT4=7.30%;rT5= 7.20%; rT10= 6.60%; rT20=6.30%.6-19a.8.20%.b.10.20%.c.rT1= 15.1%; rT2= 13.2%;rT5= 10.70%; rT10=10.1%; rT20= 10.6%.7-1$935.82.7-2a.7.22%.b.$988.46.7-3$1,028.60.7-4YTM = 6.62%; YTC = 6.49%; most likely yield= 6.49%.7-5a.VLat 5% = $1,518.98; VLat 8% = $1,171.19;VLat 12% = $863.78; VSat 5%= $1,047.62;VSat 8% = $1,018.52; VSat 12% = $982.14.7-6a.C0= $1,012.79; Z0= $693.04; C1= $1,010.02;Z1= $759.57; C2= $1,006.98; Z2= $832.49;C3= $1,003.65; Z3= $912.41; C4= $1,000.00;Z4= $1,000.00.7-710-year, 10% coupon = 6.75%; 10-year zero =9.75%; 5-year zero = 4.76%; 30-year zero =32.19%; $100 perpetuity = 14.29%.

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Prefacexix7-815.03%.7-9a.YTM at $829 ≈ 15%; YTM at $1,104 = 6%.b.Yes, purchase if VB< $908.88.7-10a.YTM = 9.69%.b.CY = 8.875%; CGY = 0.816%.7-11a.YTM = 10.27%; YTC = 10.15%; YTC.b.10.91%.c.-0.64% (based on YTM);-0.76% (based onYTC).7-12a.YTM = 8%; YTC = 6.1%.7-13VB= $974.42; YTM = 8.64%.7-14a.5 years.b.YTC = 6.47%.7-15$987.87.7-16$1,067.95.7-178.88%.7-18a.8.35%.b.8.13%.c.YTC.d.Yr.6: 8.27%; Yr.7: 8.37%; Yr.8: 8.46%; Yr.9: 8.53%; call would be expected no later thanYr.6.8-1rˆ= 11.40%;= 26.69%; CV = 2.34.8-2bp= 1.12.8-3r = 10.9%.8-4rM= 11%; r = 12.2%.8-5a.b = 1.b.r = 13%.8-6a.Yrˆ= 14%.b.X= 12.20%; CVY= 1.45.8-7bp= 0.7625; rp= 12.1%.8-8b = 1.33.8-94.5%.8-104.2%.8-11r = 17.05%.8-12a.ri= 15.5%.b(1). rM= 15%; ri= 16.5%.b(2). rM= 13%; ri= 14.5%.c(1). ri= 18.1%.c(2). ri= 14.2%.8-13a.rM–rRF= 4.375%.b.bQ= 1.2.c.rQ= 10.75%.d.σQ< 15%.8-14bN1.16.8-157.2%.8-16rp= 11.75%.8-171.7275.8-18a.$0.5 million.d(1). $75,000.d(2). 15%.8-19a.CVX= 3.5; CVY= 2.0.b.Stock Y.c.rX= 10.5%; rY= 12%.d.Stock Y.e.rp= 10.875%.f.Stock Y.8-20a.rA= 11.30%; rB= 11.30%.b.rp Avg= 11.30%.c.A= 20.8%;σB= 20.8%;p= 20.1%.d.CVA= 1.84; CVB= 1.84; CVp= 1.78.8-21a.ri= 6% + (7%)bi.b.13.616%.c.Indifference rate = 16.5%.9-1D1= $1.6050;D2= $1.7174;D3= $1.8376;D4=$1.9294;D5= $2.0259.9-20Pˆ= $6.25.9-31Pˆ= $21.20; rs= 11.30%.9-4a.End of Year 2.b.$37.80.c.$34.09.9-5$60.9-6rp= 8.33%.9-7a.13.33%.b.10%.c.8%.d.5.71%.9-8a.$125.b.$83.33.9-9a.10%.b.10.38%.9-10$23.75.9-11$13.11.9-12a(1). $9.50.a(2). $13.33.a(3). $21.00.a(4). $44.00.b(1). Undefined.b(2).-$48.00, which is nonsense.9-133Pˆ= $27.32.9-14P0= $19.89.9-15a.$713.33 million.b.$527.89 million.c.$42.79.9-166.25%.9-17a.$2.10; $2.205; $2.31525.b.PV = $5.28.c.$24.72.d.$30.00.e.$30.00.9-18a.P0= $54.11; D1/P0= 3.55%; CGY = 6.45%.9-19a.$24,112,308.b.$321,000,000.c.$228,113,612.d.$16.81.9-20$35.00.9-21a.$2.01; $2.31; $2.66; $3.06; $3.52.

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xxPrefaceb.P0= $39.43.c.D1/P02015= 5.10%; CGY2015= 6.9%; D1/P0 2020= 7.00%; CGY2020= 5%.9A-1a.rC= 8.6%; rD= 5%.b.No;CPˆ= $32.61.9A-2a.P0= $32.14.b.P0= $37.50.c.P0= $50.00.d.P0= $78.28.9A-3a.POld= $58.89; PNew= $44.26.b.beta = 0.5107.10-1rd(1–T) = 7.80%.10-2rp= 8%.10-3rs= 13%.10-4a.rs= 15%.b.re= 16.11%.10-5Projects A through E should be accepted.10-6a.rs= 16.3%.b.rs= 15.4%.c.rs= 16%.d.rs AVG= 15.9%.10-7a.rs= 14.83%.b.F = 10%.c.re= 15.81%.10-8rs= 16.51%; WACC = 12.79%.10-9WACC = 13.27%.10-10WACC = 11.4%.10-11wd= 20%.10-12a.rs= 14.40%.b.WACC = 10.62%.c.Project A.10-13re= 17.26%.10-1411.94%.10-15a.g = 9.10%.b.Payout = 50.39%.10-16a.g = 8%.b.D1= $2.81.c.rs= 15.81%.10-17a.g = 3%.b.EPS1= $5.562.10-18a.rd(1–T)= 7%; rp= 10.20%; rs= 15.72%.b.WACC = 13.86%.c.Projects 1 and 2 will be accepted.10-19a.Projects A, C, E, F, and H should be accepted.b.Projects A, F, and H should be accepted; $12million.c.Projects A, C, F, and H should be accepted;$15 million.10-20a.rd(1–T) = 5.4%; rs= 14.6%.b.WACC = 10.92%.11-1NPV = $7,486.68.11-2IRR = 16%.11-3MIRR = 13.89%.11-44.34 years.11-5DPP = 6.51 years.11-6a.5%: NPVA= $3.52; NPVB= $2.87.10%: NPVA= $0.58; NPVB= $1.04.15%: NPVA=-$1.91; NPVB=-$0.55.b.IRRA= 11.10%; IRRB= 13.18%.c.5%: Choose A; 10%: Choose B; 15%: Do notchoose either one.11-7a.NPVA= $866.16; IRRA= 19.86%; MIRRA=17.12%; PaybackA= 3 yrs.; DiscountedPayback = 4.17 yrs.;NPVB= $1,225.25; IRRB= 16.80%; MIRRB= 15.51%; PaybackB= 3.21yrs.; Discounted Payback = 4.58 yrs.b.Both projects.c.Project B.d.Project size.11-8a.Without mitigation: NPV = $12.10 million;IRR = 19.86%; Withmitigation: NPV = $5.70million; IRR = 15.24%.11-9a.Without mitigation: NPV = $15.95 million;IRR = 19.86%;With mitigation: NPV =-$11.25 million; IRR = 15.24%.11-10Project A; NPVA= $30.16.11-11NPVS= $448.86; NPVL= $607.20; AcceptProject L.11-12IRRL= 11.74%.11-13MIRRX= 13.59%.11-14a.HCC; PV of costs =-$805,009.87.c.LCC; PV of costs =-$686,627.14.11-15a.IRRA= 20%; IRRB= 16.7%; Crossover rate ≈16%.11-16a.NPVA= $14,486,808; NPVB= $11,156,893;IRRA= 15.03%; IRRB= 22.26%.c.Crossover rate11.71%.11-17a.NPVA= $200.41; NPVB= $145.93.b.IRRA= 18.1%; IRRB= 24.0%.c.MIRRA= 15.10%; MIRRB= 17.03%.d.WACC = 12%: Project A; WACC = 18%:Project B.f.14.53%.g.MIRRA= 18.05%; MIRRB= 20.49%.11-18a.No; PVOld=-$89,910.08; PVNew=-$94,611.45.b.$2,470.80.c.22.94%.11-19b.NPV10%=-$99,174; NPV20%= $500,000.d.9.54%; 22.87%.11-20$10,239.20.11-21MIRR = 10.93%.11-22$250.01.12-1a.$12,000,000.12-2a.$2,600,000.b.$2,000,000.c.$2,700,000;= +$100,000.

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Prefacexxi12-3$4,600,000.12-4Yes, NPV = $15,301.10.12-5Projects A, B, C, and D; Optimal capital budget= $3,900,000.12-6a.SL Deprec.: $200,000/yr.; MACRS: $264,000,$360,000, $120,000, $56,000.b.MACRS;$12,781.64.12-7E(NPV) = $3,000,000;NPV= $23.622 million;CV = 7.874.12-8a.-$178,000.b.$52,440; $60,600; $88,960.c.No, NPV =-$19,549.12-9b.-$126,000.c.$42,518; $47,579; $85,628.d.Yes, NPV = $10,841.12-10Yes, NPV = $921.36.12-11Yes,NPV = $22,329.39.12-12a.ExpectedCFA= $6,750; Expected CFB=$7,650;σA= $474.34;CVA= 0.0703.b.NPVA= $10,036; NPVB= $11,624.12-13NPV5= $2,211; NPV4=-$2,081; NPV8=$13,329; E(NPV) = $4,486.46.12-14a.NPV = $37,035.13;IRR = 15.30%; MIRR =12.81%; Payback = 3.33 yrs.b.+20%:NPV =$77,975.63;-20%: NPV=-$3,905.37.c.E(NPV) = $34,800.21;NPV= $35,967.84; CV= 1.03.12-15a.-$98,500.b.CF1= $46,675; CF2= $52,975; CF3=$37,225; CF4= $33,025; CF5= $22,850.c.Yes, NPV = $34,073.20.12-16a.-$792,750.b.Deprec.New:$235,000; $376,000; $233,250;$141,000; $129,250.Deprec.Old:$120,000/yr.Deprec.: $115,000; $256,000; $103,250;$21,000; $9,250.c.CF1= $206,000; CF2= $255,350; CF3=$201,888; CF4= $173,100; CF5= $287,913.d.Yes, NPV = $11,819.67.12-17a.No, NPV3= $1,307.29.12-18a.Accept A, B, C, D, and E; Capital budget =$5,250,000.b.Accept A, B, D, and E; Capital budget =$4,000,000.c.Accept B, C, D, E, F, and G; Capital budget =$6,000,000.13-1QBE= 500,000.13-230% debt and 70% equity.13-3a.E(EPSC) = $5.10.13-4bU= 1.0435.13-5a.ROICHL= 12%; ROICLL= 12%.b.ROELL= 14.6%; ROEHL= 16.8%.c.ROELL= 16.5%.13-6a(1).-$60,000.a(2). $40,000.b.QBE= 14,000.c.QBE= 8,750.d.QBE= 17,500.13-7No leverage: ROE = 10.5%;= 5.4%; CV =0.51;10% leverage: ROE = 11.1%; σ = 6%; CV= 0.54; 50% leverage: ROE = 14.4%; σ = 10.8%;CV = 0.75;60% leverage: ROE = 13.7%;=13.5%; CV = 0.99.13-8rs= 17%.13-9a.P0= $25.b.P0= $25.81.13-10a.FCA= $80,000; VA= $4.80/unit; PA=$8.00/unit.b.Firm B.c.50,000 units.13-11a.10.96%.b.1.25.c.1.086957.d.14.13%.e.10.76%.f.Yes, WACCNew< WACCOld.13-12a.EPSOld= $2.04; New: EPSD= $4.74; EPSS=$3.27.b.339,750 units.c.QOld= 316,957 units;QNew, Debt= 272,250units; QNew, Stock= 204,750 units.13-13Debt used: E(EPS) = $4.59;EPS= $1.05; E(TIE)=2.30.Stock used: E(EPS) = $4.54;EPS= $0.86;E(TIE) = 3.19.14-1Payout = 55%.14-2P0= $60.14-3EPSNew= $2.50.14-4D0= $3.44.14-5$3,250,000.14-6Payout = 31.39%.14-7a.$1.44.b.3%.c.$1.20.d.331/3%.14-8a.12%.b.18%.c.6%; 18%.d.6%.e.28,800 new shares; $0.13 per share.14-9a(1). $3,960,000.a(2). $4,800,000.a(3). $9,360,000.a(4). Regular = $3,960,000; Extra = $5,400,000.c.15%.d.15%.

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xxiiPreface15-1103.41 days; 86.99 days; $600,000; $48,000.15-273 days; 30 days; $1,178,082.15-3$1,205,479; 20.52%; 22.40%; 10.47%; bankdebt.15-4a.83 days.b.$356,250.c.6.49.15-5a.DSO = 28 days.b.A/R = $70,000.c.NOM% = 56.44%;EFF% = 74.35%.d.NOM% = 37.63%;EFF% = 44.86%.e.$55,000.15-6a.32 days.b.$288,000.c.$45,000.d.30days; $378,000.15-7a.72.54days.b.S/TA = 2×; ROA = 12%.c.47.19days;S/TA = 2.25×; ROA = 13.5%.15-8a.ROERestricted= 11.75%; ROEM= 10.80%;ROERelaxed= 9.16%.15-9a.$4,200,000.b.$420,000.c.$35,000.15-10a.Oct. loan = $22,800.b.$111,300; $297,600;-$155,100;-$22,800;$118,500; $187,800.16-1AFN = $410,000.16-2AFN = $610,000.16-3AFN = $200,000.16-4a.$133.50 million.b.39.06%.16-5a.$5,555,555,556.b.30.6%.c.$13,600,000.16-6$67 million; 5.01×.16-7$156 million.16-8a.$480,000.b.$18,750.16-9∆S = $68,965.52.16-10$34.338 million; 34.97 ≈ 35 days.16-11$19.10625 million; 6.0451×.16-12a.$2,500,000,000.b.24%.c.$24,000,000.16-13a.Notes payable2015= $89,100; LT debt2015=$207,900;RE2015= $109,890.b.3.45%.16-14a.33%.b.Notes payable2015=$3,553.2; Bonds2015=$6,598.8; Common stock2015= $2,514.0;RE2015= $28,284.0.17-10.6410pound per dollar.17-226.45yen per shekel.17-31 yen = $0.010477.17-41 euro = $1.60or $1 =0.625euro.17-5Dollars per 1,000 Units of:PoundsCan.$EurosYenPesosKronas$1,564,50$981.40$1,331.30$10.41$78.00$152.7017-75.0505krones.17-810.218kronas per pound.17-10rNOM-U.S.= 2%.17-11128.00pesos.17-12a.$1.558067.b.Discount.17-13a.$3,770,384.b.$3,746,020.c.$3,883,495.17-14+$500,000.17-15b.$22,969.17-16$568,092,486.17-17a.$71.43; 20%.b.0.90467SF per U.S. $.c.49.29Swiss francs;18%.

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Chapter 1: An Overview of Financial ManagementLearning Objectives1Chapter 1An Overview of Financial ManagementLearning ObjectivesAfter reading this chapter, students should be able to:◆Explainthe role of finance and the different types of jobs in finance.◆Identifythe advantages and disadvantages of different forms of business organization.◆Explainthe links between stock price, intrinsic value,and executive compensation.◆Identifythe potential conflicts that arise within the firm between stockholders and managers andbetween stockholders and bondholders,and discussthe techniques that firms can use to mitigate thesepotential conflicts.◆Discussthe importance of business ethics and the consequences of unethical behavior.

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