Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
11th Edition
ISBN: 9780077861759
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Textbook Question
Chapter 2, Problem 3QP
Market Values and Book Values Klingon Cruisers, Inc., purchased new cloaking machinery three years ago for $9.5 million. The machinery can be sold to the Romulans today for $6.5 million. Klingon’s current balance sheet shows net fixed assets of $5.2 million, current liabilities of $2.4 million, and net working capital of $800,000. If all the current assets were liquidated today, the company would receive $2.6 million cash. What is the book value of Klingon’s assets today? What is the market value?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Muffins masonry incs balance sheet list next fixed assets as $ 14 million. The fixed assets could currently be sold for 19 million dollars. muffins current balance sheet shows current liabilities of 5.5 million dollars and networking capital of 4.5 million dollars. if all the current accounts were liquidated today the company would receive 7.25 million dollars cash after paying the 5.5 million incurrent liabilities.
what is the book value of muffins missionaries assets today and market value of these assets?
Enter answers in millions of dollars rounded to 2 decimal places
Book value. Market value.
Current assets:
Fixed assets:
Total:
Provide answer in table format
B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $384,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 153,600 units of the equipment’s product each year. The expected annual income related to this equipment follows.
Sales
$
240,000
Costs
Materials, labor, and overhead (except depreciation on new equipment)
128,000
Depreciation on new equipment
32,000
Selling and administrative expenses
24,000
Total costs and expenses
184,000
Pretax income
56,000
Income taxes (20%)
11,200
Net income
$
44,800
1. Compute the payback period.2. Compute the accounting rate of return for this equipment.
Gmail >
docs.google.com a
P Company is trying to decide
whether to acquire S Co., P Co.
expects that S will earn approximately
$200,000 per year in net income over
the next five years. This income is
higher than the 14% annual return on
assets considered to be the industry
"norm."
Read the above case and choose the
best answer of the following:
If the fair value of Hager Inc. assets
equal to $1,000,000. What is the
estimation of goodwill if P Co. is willing
to pay for excess earnings for an
expected life of 4 years? *
$250,000
$240,000
$260,000
None of the answers
Chapter 2 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 2 - Prob. 1CQCh. 2 - Prob. 2CQCh. 2 - Prob. 3CQCh. 2 - Prob. 4CQCh. 2 - Prob. 5CQCh. 2 - Cash Flow from Assets Why is it not necessarily...Ch. 2 - Operating Cash flow Why is it not necessarily bad...Ch. 2 - Net Working Capital and Capital Spending Could a...Ch. 2 - Cash Flow to Stockholders and Creditors Could a...Ch. 2 - Prob. 10CQ
Ch. 2 - Building a Balance Sheet Sankey, Inc., has current...Ch. 2 - Building an Income Statement Shellon, Inc., has...Ch. 2 - Market Values and Book Values Klingon Cruisers,...Ch. 2 - Prob. 4QPCh. 2 - Calculating OCF Barrell, Inc., has sales of...Ch. 2 - Calculating Net Capital Spending Gordon Driving...Ch. 2 - Building a Balance Sheet The following table...Ch. 2 - Cash Flow to Creditors The 2014 balance sheet of...Ch. 2 - Cash. Flow to Stockholders The 2014 balance sheet...Ch. 2 - Prob. 10QPCh. 2 - Cash Flows Ritter Corporations accountants...Ch. 2 - Financial Cash flows The Stancil Corporation...Ch. 2 - Building an Income Statement During the year, the...Ch. 2 - Calculating total Cash Flows Schwert Corp. shows...Ch. 2 - Using Income Statements Given the .following...Ch. 2 - Prob. 16QPCh. 2 - Marginal versus Average Tax Rates (Refer to Table...Ch. 2 - Prob. 18QPCh. 2 - Accounting Values versus Cash Flows In Problem 18,...Ch. 2 - Calculating Cash Flows Cusic Industries had the...Ch. 2 - Prob. 21QPCh. 2 - Use the following information for Ingersoll, Inc.,...Ch. 2 - Prob. 23QPCh. 2 - Prob. 24QPCh. 2 - Net Fixed Assets and Depreciation On the balance...Ch. 2 - Prob. 26QPCh. 2 - Prob. 1MCCh. 2 - Prob. 2MCCh. 2 - Prob. 3MC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- On August 1, Rantoul Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $900,000 of 3% U.S. Treasury bonds that mature in 15 years. The bonds could be purchased at face value. The following data have been assembled:Revenues/costs AmountCost of store equipment $900,000Life of store equipment 15 yearsEstimated residual value of equipment $45,000Annual store operating costs less depreciation 200,000Annual expected revenues in years 1-6 250,000Annual expected revenues in years 7-15 300,000Problem 1 Instructions a. Prepare a differential analysis as of August 1 presenting the proposed operation of the store for the 15 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). b. Based on the results disclosed by the differential analysis, should the proposal be accepted? c. If the proposal is accepted, what would be the total estimated income…arrow_forwardOn August 1, Rantoul Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $1,000,000 of 4% U.S. Treasury bonds that mature in 15 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $1,000,000 Life of store equipment 15 years Estimated residual value of store equipment $50,000 Yearly costs to operate the store, excluding depreciation of store equipment $200,000 Yearly expected revenues—years 1–6 $300,000 Yearly expected revenues—years 7–15 $400,000 Required: 1. Prepare a differential analysis as of August 1 presenting the proposed operation of the store for the 15 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0".arrow_forwardOn August 1, Rantoul Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $1,000,000 of 4% U.S. Treasury bonds that mature in 15 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $1,000,000 Life of store equipment 15 years Estimated residual value of store equipment $50,000 Yearly costs to operate the store, excluding depreciation of store equipment $200,000 Yearly expected revenues—years 1–6 $300,000 Yearly expected revenues—years 7–15 $400,000 1. Prepare a differential analysis as of August 1 presenting the proposed operation of the store for the 15 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". Differential AnalysisOperate Retail (Alt. 1) or Invest in Bonds (Alt. 2)August 1…arrow_forward
- On July 1, Coastal Distribution Company is considering leasing a building and buying the necessaryequipment to operate a public warehouse. Alternatively, the company could use the funds to invest in$740,000 of 5% U.S. Treasury bonds that mature in 14 years. The bonds could be purchased at face value.The following data have been assembled:Cost of store equipment $740,000Life of store equipment 14 yearsEstimated residual value of store equipment $75,000Yearly costs to operate the warehouse, excludingdepreciation of store equipment $175,000Yearly expected revenues—years 1-7 $280,000Yearly expected revenues—years 8-14 $240,000Required:1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the14 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amountis zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minussign.arrow_forwardOn August 1, Rantoul Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $900,000 of 3% U.S. Treasury bonds that mature in 15 years. The bonds could be purchased at face value. The following data have been assembled: Revenues/costs Amount Cost of store equipment $900,000 Life of store equipment 15 years Estimated residual value of equipment $45,000 Annual store operating costs less depreciation 200,000 Annual expected revenues in years 1-6 250,000 Annual expected revenues in years 7-15 300,000 Prepare a differential analysis as of August 1 presenting the proposed operation of the store for the 15 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). Based on the results disclosed by the differential analysis, should the proposal be accepted? If the proposal…arrow_forwardOn October 1, Midway Distribution Company is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $150,400 of 5% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $150,400 Life of store equipment 16 years Estimated residual value of store equipment $19,000 Yearly costs to operate the store, excluding depreciation of store equipment $56,900 Yearly expected revenues—years 1-8 $74,100 Yearly expected revenues—years 9-16 $70,800 Required: Question Content Area 1. Prepare a differential analysis as of October 1 to determine whether to Operate Retail Store (Alternative 1) or Invest in Bonds (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential…arrow_forward
- Heidi Company is considering the acquisition of a machine that costs $453,000. The machine is expected to have a useful life of 6 years, a negligible residual value, an annual net cash inflow of $119,000, and annual operating income of $80,621. The estimated cash payback period for the machine is (round to one decimal point)? Oa. 18 years Ob. 5.6 years Oc. 50 years Od. 65 yearsarrow_forwardFinance golden gate co. is evaluating the replacement of its existing manufacturing equipment with a new equipment. the old equipment is 5 years old and it was originally bought four $170,000,the current book value of it is $82,000, and its useful life 10 years . it can be sold for $13,000 at the end of it's life. the old equipment current market price is $115,000.golden gate co. will buy the new equipment for $330,000 which has a useful life of 6 years, depreciation is based on straight line method. management expect to sell it at the end of its life for $80,000. the revenues are expected to increase in the coming 5 years as follows respectively : $10,000 , $25,000 , $25,000, $20,000 , $25,000 management expected to reduce productions cost by $60,000 each year of its operation it will also reduce work- in progress and inventory by $10,000 as soon as it placed in service . the company is taxed at an income tax rate of 35% and no tax credit assume cost of capital is 20% a- calculate the…arrow_forwardOn October 1, White Way Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $180,000 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment$180,000Life of store equipment16 yearsEstimated residual value of store equipment$15,000Yearly costs to operate the store, excluding depreciation of store equipment$58,000Yearly expected revenues—years 1–8$85,000Yearly expected revenues—years 9–16$73,000 Required:A. Prepare a differential analysis as of October 1 presenting the proposed operation of the store for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or…arrow_forward
- The abc company is contemplating the purchase of a new milling machine. The purchase price of the new machine is $60,000 and its annual operating cost is $2,675.40. The machine has a life of 7 years, and it is expected to generate $15,000 in revenues in each year of its life. MARR is set at 20%a. What is the rate of return of the acquisition? (percentage value)b. how much is the cash flow excess? (whole number)c. The NPV of the investment is? (whole number)d. payback period is (2 decimal places)arrow_forwardFive Star is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $148,700 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of equipment $148,700 Life of equipment 16 years Estimated residual value of equipment $27,100 Yearly costs to operate the warehouse, excluding depreciation of equipment $55,000 Yearly expected revenues—years 1-8 86,000 Yearly expected revenues—years 9-16 73,100 Required: 1. Prepare a differential analysis report of the proposed operation of the warehouse for the 16 years as compared with present conditions.arrow_forwardTopic: Illiquidity, Synergy, Control, Book Value, Sound Value, Liquidation Value, Income Approach, and Forex Translation ABC Corporation acquired 100 ounces of gold as a long-term investment. The total amount invested is P8,500,000. Gold is expected to increase in prices by an average of 8% per year. ABC plans to hold this investment for 10 years but would incur P800,000 to sell it by that time. What is the rate of return that investors should expect for them to consider this investment acceptable?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
Asset impairment explained; Author: The Finance Storyteller;https://www.youtube.com/watch?v=lWMDdtHF4ZU;License: Standard Youtube License