Honda Motor Company is considering offering a $3,000 rebate
on its minivan, lowering the vehicle’s price from $32,000 to $29,000. The
marketing group estimates that this rebate will increase sales over the next
year from $42,000 to $58,000 vehicles. Honda’s profit margin with the rebate is
$4,000 per vehicle. If the change in
sales is the only consequence of this decision, what are its benefits and
costs? Is it a good idea?
The benefits are $_________ millions. (round to 1 decimal)
2. Suppose the current market price of corn is $4.50 per
bushel, your firm has a technology that can convert, bushel of corn 3 gallon of
ethanol. If the cost of conversion is $ 1.92 per bushel, at what market price of ethanol does conversion
The price at which the con version becomes attractive is$
____________ per gallon. (round to nearest cent.)
3. Suppose the risk-free interest rate is 2%
A. Having $100
today is equivalent to having what amount in one year?
It is equivalent to
having $ ____________ in one year.(round to the nearest cent.)
4. Your firm has a risk-free investment opportunity where it
can invest $165,000 today and receive $180.000 in one year.
For what level of interest rate is this project attractive?
The project will be attractive when the interest rate is any
positive value less than or equal to
_________%(round to 2ndecimal places.)
5. Your firm has identified three potential investment
projects. The project and their cash flows are shown below:
Cash Flow Today Millions
Cash Flow in One Year Million
Supposed all cash flow are certain and the risk-free,
interest rate .38%
What is the NPA of each project?
The NPV of project A is $_______________
million. (round to 2 decimal places)
6. What is the present value of $9,000 received
A. 13 years from
today when the interest rate is 8% per year.
B. 22 years from
today when the interest rate is 10% per year?
C. 7 years from today when the rate is 4% per
A. The present value is $ ______________. (round to the
7. Your daughter is currently 7 years old. You anticipate
that she will be going to college in 11 years. You would like to have
$120,000., in a savings account to fund her education at that time. If the
accounts promises to pay a fixed interest rate of 6% per year, how much money
do you need to put into the account today to ensure that you will have $120,000
in 11 years?
Your deposit to should be $ ________. (round to dearest
8. Suppose you receive $150 at the end of each year for the
next three years
A. Interest rate is 7% what is he present value of these
cash flows$ ____________.(round to the nearest )
9. You have just received a windfall from an investment you
made in a friend’s business. He will be paying you $11,000 at the end of this
year, $22,000 at the end of the following years, and $33,000 at the end of the
year. After that (three years from today). The interest rate is 6.0% per year
A. What is the present value of your windfall?
The present value
of your windfall $ ______________, (round to the nearest dollars.)
10. You have an investment opportunity that requires an
initial investment of $ 9,500 today and will pay $ 12,000 in one year. What is the IRR of this
Internal rate of return (IRR) is ________________%.( round
to the nearest integer.)
are a shareholder in a C corporation. The corporation earns $6.00 per share
before taxes. Once it has paid taxes it will distribute the rest of its
earnings to you as a dividend. The corporate tax rate is 38%, and the personal
tax rate on (both dividend and non-dividend) income is 28%. How much is left
for you after all taxes are paid?
that remains is____ per share( round to nearest cent).
2. You are a shareholder in an S corporation. The
corporation earns $10.00 per share before taxes. Once it has paid any
applicable taxes it will distribute it earnings to you as a dividend. The
corporation tax rate is 42% and the personal tax rate on (both dividend and
non-dividend) income is 35%. How much is left for you after all taxes are paid?
The amount that remains is _____ per share.( round to the
3.Are hostile takeovers necessarily bad for the firms or
their investors? Explain
select one choice:
Yes. They allow new investors to profit at the
expense of employees and existing
investors. If existing investors and employees were better off being taken
over, there would be no reason for the takeover to be hostile.
No. They are a means of disciplining managers
who are not working in the interests of shareholders.
Yes. They allow the entity taking over, the
raider, somewhere. The only source of profit is existing shareholders and
employees, so hostile takeovers must be bad for existing shareholders.
Both A and B are correct answer.
4. What firm financial statements can be found in a firm’s 10 K filing? What checks are there on
the accuracy of these statements?
What firm financial statements can be found in a firm’s 10 K
filing ( select best choice).
Balance sheet, income statement, statement of
cash flows, and statement of stockholder’s equity.
Balance sheet, asset and liability statement,
statements of cash flows, and statement of stockholder’s equity.
Balance sheet, cash budget, earnings statement,
and statement of stockholder’s equity.
Balance sheet, income statement of cash flows, and statement of income and expense.
5. In July 2007, Apple had cash of $7.15 billion, current
assets of $18.80 billion, current liabilities of 7.05 billion, and inventories
of $0.30 billion.
What was Apple’s current ratio?
What was Apple’s quick ratio?
In July 2007, Dell had a quick ratio of 1.30 and
a current ratio of 1.35. What can you say about the asset liquidity of Apple
relative to Dell
Apple’s current ratio is ______________.(round
to 2 decimal places)
6. In November 2007, Abercrombies and Fitch(ANF) had a book
equity of $1,470 million, a price per share of $76.00, and 87.00 million shares
outstanding. At the same time, The Gap(GPS) had a book equity of $5.200
million, a share price of $21.00, and 800.00 million share outstanding
A. What is
the market-to-book ratio of each company?
market-to-book ratio is_________.(round to 2 decimal places)
7. You are analyzing
the leverage of two firms and you note the following(All values in millions of
Debt Book Equity Market Equity Operation Income Interest Expense
Firm A: 497.0 297.0 398.0 99.0 49.0
Firm B 79.0 34.0 39.0 7.6 6.6
What is the market debt-to-equity ratio of each
The market debt-to-equity ratio of
firm A is _____________(round to 2 decimal places)
The market -debt-to-equity ratio of firm B is
________________. (round to 2 decimal places)
8. In January 2009, American Airlines(AMR) had a market
capitalization of $1.7 billion, debt of $11.1 billion, and cash of $4.6
billion. American Airlines had revenue of $23.8 billion. British Airways(BABWF)
had a market capitalization of $2.2 billion. Debt of $4.7 billion, cash of $2.6
billion, and revenue of W$13.1 billion.
Compare the market capitalization-to-revenue
ratio (also called the price-to-sales ratio) for American Airlines and British
The market capitalization-to-revenue
ratio for American Airlines________________.(round to 2 decimal places)
9. Supposed your firm receives a
$7.0 million oder on the last day of the year. You fill the order with $2.4
million worth of inventory. The customer
picks up the entire order the same day
and pays $1.6 million up front in cash; you also, issue a bill for the
customer to pay the remaining balance of $5.4 million in 30 days. Suppose your
firm’s tax rate is 0.0%(I,e, ignore taxes). Determine the consequences of this
transaction for each of the following:
Revenues change by $_______________million.(use
a negative sign(-) for a decrease in value.(round to 1 decimal place).
10. Nokela Industries purchases a W$44.4 million
cyclo-converter. The cyclo-converter will be depreciated by $11.0 million per
year over 4 years, starting this year. Suppose Nokela’s tax rate is 35%.
What impact will the cost of the purchase have
on earnings will be for each of the next 4 years?
The impact on
earnings will be $__________million each year for 4 years.
decline in earnings as a negative number. (round to 1 decimal places)