Fundamentals of Corporate Finance 2nd. Edition by Robert Parrino, David S. Kidwell, Thomas Bates | 9780470876442 | 0470876441 | Holooly

Corporate Finance

Fundamentals of Corporate Finance

223 SOLVED PROBLEMS

Question: 8.1

Risk Taking SITUATION: You work for the treasurer of a large manufacturing corporation where earnings are down substantially for the year. The treasurer’s staff is convinced that interest rates are going to decline over the next three months, and they want to invest in fixed-income securities to ...

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DECISION: First, the staff’s strategy is based on ...

Question: 21.1

Exchange Rate Movement: Good or Bad News? SITUATION: You are the purchasing agent for the U.S.-based firm buying steel in the example just discussed in the text. Your assistant, Omar, who is a British subject, runs into the office and breathlessly says: “The pound is stronger against the dollar! ...

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DECISION: The fact that the pound has risen in val...

Question: 20.2

The Value of Real Options SITUATION: You work for a company that manufactures cardboard packaging for consumer product companies under long-term contacts. For example, your company manufactures the boxes for several popular cereal and aspirin products. You have just won a large five-year contract ...

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DECISION: You should choose the labor-intensive al...

Question: 19.A.3

Sustainable Growth and Financial Statements PROBLEM: Because of your presentation (see Decision-Making Example 19.2), Empire’s top management team has had second thoughts about their goal of growing the firm 20 percent during the next year. As a result, they have asked that you prepare pro forma ...

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Sales = $100 million × 1.133 = $113.30 millionCost...

Question: 19.2

Empire’s Ambitious Growth Plan SITUATION: You are part of the Empire Enterprises finance team. The firm’s strategic plan calls for revenues to grow at 20 percent next year. As mentioned, the board of directors is not interested in using any additional external equity financing. Some members of the ...

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DECISION: You begin by applauding the visionary na...

Question: 20.1

When It Makes Sense to Exercise an Option SITUATION: You own a call option and a put option on a share of Ford Motor Company stock. The exercise price for both of these options is $18 per share, and both options expire today. If the current price of Ford stock is $17, would you exercise either of ...

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DECISION: You should exercise the put option. It a...

Question: 12.1

Using Break-Even Numbers SITUATION: You have just finished calculating the pretax operating cash flow and accounting operating profit break-even numbers for the in-home computer-support business. These numbers are as follows: • Pretax operating cash flow break-even point: 720 house calls per year ...

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DECISION: With annual unit sales of 720, EBIT will...

Question: 19.1

Informed Judgment about Risk SITUATION: You are given some additional information about Sleepy Hollow Corporation’s use of financial leverage, as shown: Debt to total assets before capital project = $400/$600 = 66.7% Debt to total assets after capital project = $660/$890 = 74.2% Industry average ...

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DECISION: Sleepy Hollow’s current leverage ratio o...

Question: 18.2

Choosing an Appropriate Valuation Approach SITUATION: You have decided to make an offer for the recreational vehicle manufacturing business that you evaluated in Learning by Doing Applications 18.1, 18.2, and 18.3. Your analysis yielded the following enterprise value estimates: ...

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DECISION: The price appears to be reasonable. It i...

Question: 18.1

Using a Cash Budget SITUATION: It is January 1, and you have prepared the following cash budget for the next four months for your new business venture: ...

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DECISION: Assuming that your cash forecast is corr...

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