Foundations of Financial Management 14th. Edition by Block, Stanley; Hirt, Geoffrey; Danielsen, Bartley | 9780077454432 | 007745443X | Holooly

Foundations of Financial Management [EXP-65359]

38 SOLVED PROBLEMS

Question: 8.2

A company plans to borrow $2 million for a year. The stated interest rate is 12 percent. Compute the effective interest rate under each of these assumptions. Each part stands alone. a. The interest is discounted. b. There is a 20 percent compensating balance requirement. c. It is a 12-month install

Verified Answer:

\begin{aligned} \text { a. Effective rate o...

Question: 11.1

a. A $1,000 par value bond issued by Conseco Electronics has 16 years to maturity. The bond pays $78 a year in interest and is selling for $880. What is the approximate yield to maturity? b. If the firm is in a 30 percent tax bracket, what is the aftertax cost of the debt?

Verified Answer:

a. Approximate yield to maturity

\left(\mat...

Question: 11.2

a. Assume the following capital structure for the Morgan Corp. The following facts are also provided: Compute the weighted average cost of capital. b. If there is $30 million in retained earnings, at what dollar value will the marginal cost of capital go up? If the flotation cost on common stock is

Verified Answer:

a. First compute the cost of the components in the...

Question: 18.2

a. Assume United Equipment Corp. in the prior problem had total earnings of $400,000 before the stock dividend. It also had a P/E ratio of 10. What were the EPS and stock price before the stock dividend? b. After the stock dividend, what will earnings per share and the stock price be? Assume the P/

Verified Answer:

a. EPS before the stock dividend = Earnings/Shares...

Question: 17.1

a. George Kelly wishes to elect 5 of the 13 directors on the Data Processing Corp. board. There are 98,000 shares of the company’s stock outstanding. How many shares will be required to accomplish this goal? b. Jennifer Wallace owns 60,001 shares of stock in the Newcastle Corp. There are 12 directo

Verified Answer:

\begin{aligned} \text { a. Shares required...

Question: 9.2

a. How much must Katie Wilson set aside each year to accumulate $80,000 after 15 years? The interest rate is 10 percent. b. How much must Josh Thompson repay each year for five years to pay off a $20,000 loan that he just took out? The interest rate is 8 percent.

Verified Answer:

a. This calls for solving for an annuity to equal ...

Question: 9.1

a. You invest $12,000 today at 9 percent per year. How much will you have after 15 years? b. What is the current value of $100,000 after 10 years if the discount rate is 12 percent? c. You invest $2,000 a year for 20 years at 11 percent. How much will you have after 20 years?

Verified Answer:

a. This is the future value of a single amount. [l...

Question: 7.1

Abbott Communications has annual credit sales of $1,800,000 and accounts receivable of $190,000. What is the average collection period?

Verified Answer:

\begin{array}{l} \text { Average collectio...

Question: 20.1

American Century Corp. is considering acquiring Southern Homes, Inc. Southern Homes has a tax loss carryforward of $240,000. Projected earnings for American Century Corp. are as follows: a. How much of American Century’s total taxes can be reduced by the tax loss carryforward? Keep in mind its tax

Verified Answer:

a. Reduction in taxes due to tax loss carryforward...

Question: 21.2

An investor in the United States bought a one-year New Zealand security valued at 200,000 New Zealand dollars. The U.S. dollar equivalent was $100,000. The New Zealand security earned 15 percent during the year, but the New Zealand dollar depreciated 5 cents against the U.S. dollar during the time

Verified Answer:

Initial value

\times(1+\text { earnings})[/...

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