Business Finance

The text book is called Fundamentals of Corporate Finance , 11th Edition ( Author Stephen Ross; Randolph Westerfield; Bradford Jordan)

Chapter 9-1
The expected cash flows for a project are as follows. The required return is 12 percent.
Calculate the Internal Rate of Return and state whether the project should be accepted or rejected.
year    cash flow
0    (32,000)
1    14,000 
2    15,750 
3    11,250 

Chapter 9 – 2a and 2b
The expected cash flows for a project are shown below.
Calculate the NPV with a 14% required rate of return and state whether the project should be accepted or rejected.
Calculate the NPV with a 20% required rate of return and state whether the project should be accepted or rejected.
year    cash flow
0    (38,500)
1    16,750 
2    20,250 
3    17,500 

Chapter 10 -1a and 1b
Calculating Projected Net Income [LO1] A proposed new investment has projected sales of $740,000. Variable costs are 46 percent of sales, and fixed costs are $225,000; depreciation is $78,000.
Prepare a pro forma income statement assuming a tax rate of 32 percent.
What is the projected net income?

Chapter 10 -2
Project Evaluation [LO1] A company is looking at a new production system with an installed cost of $725,000. This cost will be depreciated in equal installments over the project’s five-year life, at the end of which the system will retain a salvage value of $125,000. The system will save the firm $275,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $38,000.
If the tax rate is 36 percent and the discount rate is 12 percent, what is the NPV of this project?

Chapter 11 – 1a, 1b and 1c
Calculating Break-Even [LO3] In each of the following cases:
Calculate the accounting break-even and the cash break-even points. Ignore any tax effects in calculating the cash break-even.
unit price    variable cost per unit    fixed cost    annual depreciation    cash break-even quantity    accounting break-even quantity
2,200    1,850    6,000,000    2,200,000          
50    42    150,000    145,000          
275    210    16,250    18,750          

Chapter 11-2
Using Break-Even Analysis [LO3] Consider a project with the following data: accounting break-even quantity = 15,400 units; cash break-even quantity = 12,200 units; project life = 6 years; fixed costs = $220,000; variable costs = $34 per unit; required return = 10 percent. Ignore the effect of taxes.
Find the financial break-even quantity.

Chapter 18 -1

    Changes in the Cycles [LO1] Indicate the effect that the following will have on the cash cycle and the operating cycle. Use the letter "I" to indicate an increase, the letter "D" for a decrease, and the letter "N" for no change:
                                    Impact on        
                                    cash 
cycle    operating cycle        
Ch18-1a    More finished goods are produced for inventory instead of for order.                  
Ch18-1b    A greater percentage of raw material purchases are paid for with credit.                  
Ch18-1c    Fewer raw materials than usual are purchased.                  
Ch18-1d    An increased number of customers begin to pay in cash instead of with credit.                  
Ch18-1e    Cash discounts offered by suppliers are decreased; so, payments are made earlier.                  
Ch18-1f    The terms of cash discounts offered to customers are made less favorable.                  

Chapter 18 – 2
    Here are some important figures from the budget of a retail company for the second quarter of 2015.
The company predicts that 4 percent of its credit sales will never be collected, 36 percent of its sales will be collected in the month of the sale, and the remaining 60 percent will be collected in the following month. Credit purchases will be paid in the month following the purchase.                   Mar    April    May    June
                  credit sales    285,000    325,900    355,300    380,500
                  credit purchases    175,500    235,600    215,000    225,600
        cash disbursements:                    
                  wages, taxes, and expenses         62,150    72,400    76,590
                  interest         12,560    12,560    12,560
                  equipment purchases         88,750    140,000    0
                                       
Ch18-2    Complete the Cash Budget for April, May and June.                        Cash Budget
                            Mar    April    May    June
    (gray areas do not need to be completed)    Beginning cash balance         185,000          
             cash receipts:                         
                        cash receipts for current month                     
                        cash collected for previous month sales                    
                        total cash available                    
                             cash disbursements:                    
                    credit purchases                    
                    wages, taxes, and expenses                    
                    interest                    
                    equipment purchases                    
                    total cash disbursements                    
                    ending cash balance                    

Chapter 20 -1
Size of Accounts Receivable [LO1] A company sells on credit terms of net 30. Its accounts are, on average, five days past due. Annual credit sales are $9.5 million.
What is the company’s balance sheet amount in accounts receivable?

Chapter 20-2

Credit Policy [LO2] A Bicycle Shop has decided to offer credit to its customers during the spring selling season. Sales are expected to be 325 bicycles. The average cost to the shop of a bicycle is $775. The owner knows that only 95 percent of the customers will be able to make their payments. To identify the remaining 5 percent, the company is considering subscribing to a credit agency. The initial charge for this service is $2,400, with an additional charge of $9.50 per individual report.
How much can company save by subscribing to credit agency?                         

Chapter 21 -1

    Cross-Rates and Arbitrage [LO1] 
Suppose the Japanese yen exchange rate is ¥110 = $1, and the British pound exchange rate is £1 = $1.75.
Ch21-1a    What is the cross-rate in terms of yen per pound?                         
Ch21-1b    Suppose the cross-rate is ¥190 = £1. Is there an arbitrage opportunity here?                     
Ch21-1c    If there is, explain how to take advantage of the mispricing and the potential arbitrage profit.                     
Ch21-1d    What is your arbitrage profit per dollar used?                     

Chapter 21 -2
    Interest Rates and Arbitrage [LO2] The treasurer of a major U.S. firm has $20 million to invest for three months. The interest rate in the United States is 0.28 percent per month. The interest rate in Great Britain is 0.33 percent per month. The spot exchange rate is £0.545, and the three-month forward rate is £0.547.
Ch21-2a    What will the treasurer's balance be (in dollars) after three months if he invests in the US?
Ch21-2b    What will the treasurer's balance be (in dollars) after three months if he invests in the UK?

Chapter 26 -1
Calculating Synergy [LO3] Pearl, Inc., has offered $675 million cash for all of the common stock in Jam Corporation. Based on recent market information, Jam is worth $592 million as an independent operation.
If the merger makes economic sense for Pearl, what is the minimum estimated value of the synergistic benefits from the merger?

Chapter 26 -2

Balance Sheets for Mergers [LO2] Consider the following premerger information about Firm X and Firm Y.  Assume that Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $7.50 per share.
Assuming either firm has any debt before or after the merger, constructs the post-merger balance sheet for Firm XY assuming the use of purchase accounting.
          Firm X    Firm Y                            
Total Earnings     $      87,000      $      24,000                             
Shares outstanding             55,000              20,000                             
Per-share values:                                      
     Market     $              72      $              24                             
     Book     $              10      $                5