Description
Complete the following problems from Chapters 1 and 2 in Principles of Managerial Finance:
- The Role of Managerial Finance: P1-1; P1-3; P1-4; P1-5
- The Financial Markets: E2-4; P2-1; P2-4; P2-6
Use Excel and the Chapters 1-2 Excel resource (if needed).
Please show all work for each problem.
as similar to stock options and why the delays
and incorrect orders could represent a case of agency costs. If tips are gone forever,
how could Donut Shop reduce these agency costs?
S
All problems are available in MyFinanceLab.
2
P1-1 Liability comparisons Merideth Harper has invested $25,000 in Southwest Develop-
ment Company. The firm has recently declared bankruptcy and has $60,000 in
unpaid debts. Explain the nature of payments, if any, by Merideth in each of the
following situations.
a. Southwest Development Company is a sole proprietorship owned by
Ms. Harper.
b. Southwest Development Company is a 50-50 partnership of Merideth Harper
and Christopher Black.
c. Southwest Development Company is a corporation.
GA
P1-2 Accrual income versus cash flow for a period Thomas Book Sales, Inc., supplies
textbooks to college and university bookstores. The books are shipped with a pro-
viso that they must be paid for within 30 days but can be returned for a full refund
credit within 90 days. In 2014, Thomas shipped and billed book titles totaling
$760,000. Collections, net of return credits, during the year totaled $690,000. The
company spent $300,000 acquiring the books that it shipped.
a. Using accrual accounting and the preceding values, show the firm’s net profit for
the past year.
1
TI
1 heft
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PART 1 Introduction to Managerial Finance
LG 4
Personal Finance Problem
P1-3 Cash flows It is typical for Jane to plan, monitor, and assess her financial position
using cash flows over a given period, typically a month. Jane has a savings account,
and her bank loans money at 6 percent per year while it offers short-term investment
rates of 5 percent. Jane’s cash flows during August were as follows:
Item
Cash inflow
Cash outflow
Clothes
-$1,000
Interest received
$ 450
-500
–800
4,500
Dining out
Groceries
Salary
Auto payment
Utilities
Mortgage
Gas
-355
–280
-1,200
-222
a. Determine Jane’s total cash inflows and cash outflows.
b. Determine the net cash flow for the month of August.
c. If there is a shortage, what are a few options open to Jane?
d. If there is a surplus, what would be a prudent strategy for her to follow?
14
Marminal cost-benefit analysis and the goal of the firm Ken Allen, capital budgeting
d. If there is a surplus, what would be a prudent strategy for her to follow?
LG 3 LG 5
P1-4 Marginal cost-benefit analysis and the goal of the firm Ken Allen, capital budgeting
analyst for Bally Gears, Inc., has been asked to evaluate a proposal. The manager of
the automotive division believes that replacing the robotics used on the heavy truck
gear line will produce total benefits of $560,000 (in today’s dollars) over the next
5 years. The existing robotics would produce benefits of $400,000 (also in today’s
dollars) over that same time period. An initial cash investment of $220,000 would
be required to install the new equipment. The manager estimates that the existing
robotics can be sold for $70,000. Show how Ken will apply marginal cost-benefit
analysis techniques to determine the following:
a. The marginal (added) benefits of the proposed new robotics.
b. The marginal (added) cost of the proposed new robotics.
c. The net benefit of the proposed new robotics.
d. What should Ken recommend that the company do? Why?
e. What factors besides the costs and benefits should be considered before the final
decision is made?
LG 6
P1-5 Identifying agency problems, costs, and resolutions Explain why each of the follow-
ing situations is an agency problem and what costs to the firm might result from it.
Suggest how the problem might be handled short of firing the individual(s) involved.
a. The front desk receptionist routinely takes an extra 20 minutes of lunch time to
run personal errands.
b. Division managers are padding cost estimates so as to show short-term efficiency
gains when the costs come in lower than the estimates.
c. The firm’s chief executive officer has had secret talks with a competitor about the
possibility of a merger in which she would become the CEO of the combined
firms.
ISBN 1-269-86847-0
E2-2 You are the chief financial officer (CFO) of Gaga Enterprises, an edgy fashion design
firm. Your firm needs $10 million to expand production. How do you think the pro-
cess of raising this money will vary if you raise it with the help of a financial institu-
tion versus raising it directly in the financial markets?
E2-3 For what kinds of needs do you think a firm would issue securities in the money
market versus the capital market?
E2-4 Your broker calls to offer you the investment opportunity of a lifetime, the chance
to invest in mortgage-backed securities. The broker explains that these securities are
entitled to the principal and interest payments received from a pool of residential
mortgages. List some of the questions you would ask your broker so as to assess the
risk of this investment opportunity.
E2-5 Over the past 100 years, the level of govnment regulation of financial institutions
and markets has ebbed and flowed or, as some economists might argue, has ebbed
and flooded. Although the laws and regulatory agencies created by the government
have various defined and not-so-well defined goals, what might you argue is the sin-
gle biggest benefit of government regulation?
E2-6 Reston, Inc., has asked your corporation, Pruro, Inc., for financial assistance. As a
c File Edit View
Window Help
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cob_principles_of_managerial_finance_14e(2).pdf (SECURED)
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Problems
LG 6
All problems are available in MyFinanceLab.
P2-1 Corporate taxes Tantor Supply, Inc., is a small corporation acting as the exclusive
distributor of a major line of sporting goods. During 2013, the firm earned $92,500
before taxes.
a. Calculate the firm’s tax liability using the corporate tax rate schedule given in
Table 2.1.
b. How much are Tantor Supply’s 2013 after-tax earnings?
c. What was the firm’s average tax rate, based on your findings in part
d. What was the firm’s marginal tax rate, based on your findings in part a?
a?
ciples of Managerial Finance, Fourteenth Edition, by Lawrence J. Gitman and Chad J. Zutter. Published by Prentice Hall. Copyright © 2015 by Pearson Education, In
Purchase answer to see full
attachment
and incorrect orders could represent a case of agency costs. If tips are gone forever,
how could Donut Shop reduce these agency costs?
S
All problems are available in MyFinanceLab.
2
P1-1 Liability comparisons Merideth Harper has invested $25,000 in Southwest Develop-
ment Company. The firm has recently declared bankruptcy and has $60,000 in
unpaid debts. Explain the nature of payments, if any, by Merideth in each of the
following situations.
a. Southwest Development Company is a sole proprietorship owned by
Ms. Harper.
b. Southwest Development Company is a 50-50 partnership of Merideth Harper
and Christopher Black.
c. Southwest Development Company is a corporation.
GA
P1-2 Accrual income versus cash flow for a period Thomas Book Sales, Inc., supplies
textbooks to college and university bookstores. The books are shipped with a pro-
viso that they must be paid for within 30 days but can be returned for a full refund
credit within 90 days. In 2014, Thomas shipped and billed book titles totaling
$760,000. Collections, net of return credits, during the year totaled $690,000. The
company spent $300,000 acquiring the books that it shipped.
a. Using accrual accounting and the preceding values, show the firm’s net profit for
the past year.
1
TI
1 heft
hom
PART 1 Introduction to Managerial Finance
LG 4
Personal Finance Problem
P1-3 Cash flows It is typical for Jane to plan, monitor, and assess her financial position
using cash flows over a given period, typically a month. Jane has a savings account,
and her bank loans money at 6 percent per year while it offers short-term investment
rates of 5 percent. Jane’s cash flows during August were as follows:
Item
Cash inflow
Cash outflow
Clothes
-$1,000
Interest received
$ 450
-500
–800
4,500
Dining out
Groceries
Salary
Auto payment
Utilities
Mortgage
Gas
-355
–280
-1,200
-222
a. Determine Jane’s total cash inflows and cash outflows.
b. Determine the net cash flow for the month of August.
c. If there is a shortage, what are a few options open to Jane?
d. If there is a surplus, what would be a prudent strategy for her to follow?
14
Marminal cost-benefit analysis and the goal of the firm Ken Allen, capital budgeting
d. If there is a surplus, what would be a prudent strategy for her to follow?
LG 3 LG 5
P1-4 Marginal cost-benefit analysis and the goal of the firm Ken Allen, capital budgeting
analyst for Bally Gears, Inc., has been asked to evaluate a proposal. The manager of
the automotive division believes that replacing the robotics used on the heavy truck
gear line will produce total benefits of $560,000 (in today’s dollars) over the next
5 years. The existing robotics would produce benefits of $400,000 (also in today’s
dollars) over that same time period. An initial cash investment of $220,000 would
be required to install the new equipment. The manager estimates that the existing
robotics can be sold for $70,000. Show how Ken will apply marginal cost-benefit
analysis techniques to determine the following:
a. The marginal (added) benefits of the proposed new robotics.
b. The marginal (added) cost of the proposed new robotics.
c. The net benefit of the proposed new robotics.
d. What should Ken recommend that the company do? Why?
e. What factors besides the costs and benefits should be considered before the final
decision is made?
LG 6
P1-5 Identifying agency problems, costs, and resolutions Explain why each of the follow-
ing situations is an agency problem and what costs to the firm might result from it.
Suggest how the problem might be handled short of firing the individual(s) involved.
a. The front desk receptionist routinely takes an extra 20 minutes of lunch time to
run personal errands.
b. Division managers are padding cost estimates so as to show short-term efficiency
gains when the costs come in lower than the estimates.
c. The firm’s chief executive officer has had secret talks with a competitor about the
possibility of a merger in which she would become the CEO of the combined
firms.
ISBN 1-269-86847-0
E2-2 You are the chief financial officer (CFO) of Gaga Enterprises, an edgy fashion design
firm. Your firm needs $10 million to expand production. How do you think the pro-
cess of raising this money will vary if you raise it with the help of a financial institu-
tion versus raising it directly in the financial markets?
E2-3 For what kinds of needs do you think a firm would issue securities in the money
market versus the capital market?
E2-4 Your broker calls to offer you the investment opportunity of a lifetime, the chance
to invest in mortgage-backed securities. The broker explains that these securities are
entitled to the principal and interest payments received from a pool of residential
mortgages. List some of the questions you would ask your broker so as to assess the
risk of this investment opportunity.
E2-5 Over the past 100 years, the level of govnment regulation of financial institutions
and markets has ebbed and flowed or, as some economists might argue, has ebbed
and flooded. Although the laws and regulatory agencies created by the government
have various defined and not-so-well defined goals, what might you argue is the sin-
gle biggest benefit of government regulation?
E2-6 Reston, Inc., has asked your corporation, Pruro, Inc., for financial assistance. As a
c File Edit View
Window Help
D dish
609.89 MB
* ?) 94%
FE
cob_principles_of_managerial_finance_14e(2).pdf (SECURED)
cob_principles of… x
98
(99 of 931)
+
103%
je
Q
Problems
LG 6
All problems are available in MyFinanceLab.
P2-1 Corporate taxes Tantor Supply, Inc., is a small corporation acting as the exclusive
distributor of a major line of sporting goods. During 2013, the firm earned $92,500
before taxes.
a. Calculate the firm’s tax liability using the corporate tax rate schedule given in
Table 2.1.
b. How much are Tantor Supply’s 2013 after-tax earnings?
c. What was the firm’s average tax rate, based on your findings in part
d. What was the firm’s marginal tax rate, based on your findings in part a?
a?
ciples of Managerial Finance, Fourteenth Edition, by Lawrence J. Gitman and Chad J. Zutter. Published by Prentice Hall. Copyright © 2015 by Pearson Education, In
Purchase answer to see full
attachment
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