Fundamentals of Corporate Finance Standard Edition by Stephen Ross, Randolph Westerfield, Bradford Jordan | 9780078034633 | 0078034639 | Holooly

Corporate Finance

Fundamentals of Corporate Finance Standard Edition

162 SOLVED PROBLEMS

Question: 18.S-TP.2

Cash Balance for Greenwell Corporation The Greenwell Corporation has a 60-day average collection period and wishes to maintain a $160 million minimum cash balance. Based on this and the information given in the following cash budget, complete the cash budget. What conclusions do you draw? ...

Verified Answer:

Because Greenwell has a 60-day collection period, ...

Question: 5.11

Saving for College You estimate that you will need about $80,000 to send your child to college in eight years. You have about $35,000 now. If you can earn 20 percent per year, will you make it? At what rate will you just reach your goal? ...

Verified Answer:

If you can earn 20 percent, the future value of yo...

Question: 21.S-TP.2

Covered Interest Arbitrage The spot and 360-day forward rates on the Swiss franc are SF 2.1 and SF 1.9, respectively. The risk-free interest rate in the United States is 6 percent, and the risk-free rate in Switzerland is 4 percent. Is there an arbitrage opportunity here? How would you exploit it? ...

Verified Answer:

Based on interest rate parity, the forward rate sh...

Question: 21.S-TP.1

Relative Purchasing Power Parity The inflation rate in the United States is projected at 3 percent per year for the next several years. The New Zealand inflation rate is projected to be 5 percent during that time. The exchange rate is currently NZ$ 1.66. Based on relative PPP, what is the expected ...

Verified Answer:

Based on relative PPP, the expected exchange rate ...

Question: 20.S-TP.3

The EOQ Annondale Manufacturing starts each period with 10,000 “Long John” golf clubs in stock. This stock is depleted each month and reordered. If the carrying cost per golf club is $1, and the fixed order cost is $5, is Annondale following aneconomically advisable strategy? ...

Verified Answer:

We can answer by first calculating Annondale’s car...

Question: 20.S-TP.1

Credit Policy The Cold Fusion Corp. (manufacturer of the Mr. Fusion home power plant) is considering a new credit policy. The current policy is cash only. The new policy would involve extending credit for one period. Based on the following information, determine if a switch is ...

Verified Answer:

If the switch is made, an extra 100 units per peri...

Question: 20.S-TP.2

Credit Where Credit Is Due You are trying to decide whether or not to extend credit to a particular customer. Your variable cost is $15 per unit; the selling price is $22. This customer wants to buy 1,000 units today and pay in 30 days. You think there is a 15 percent chance of default. ...

Verified Answer:

If the customer pays in 30 days, then you will col...

Question: 20A.S-TP.2

Discounts and Default Risk The De Long Corporation is considering a change in credit policy. The current policy is cash only, and sales per period are 2,000 units at a price of $110. If credit is offered, the new price will be $120 per unit, and the credit will be extended for one period. Unit ...

Verified Answer:

The costs per period are the same whether or not c...

Question: 20A.S-TP.1

Credit Policy Rework Chapter Review and Self-Test Problem 20.1 using the oneshot and accounts receivable approaches. As before, the required return is 2.0 percent per period, and there will be no defaults. Here is the basic information: ...

Verified Answer:

As we saw earlier, if the switch is made, an extra...

Question: 12.4

Calculating the Geometric Average Return Calculate the geometric average return for S&P 500 large-cap stocks for the first five years in Table 12.1, 1926–1930. ...

Verified Answer:

First, convert percentages to decimal returns, add...

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