Accounting: What the Numbers Mean
11th Edition
ISBN: 9781259535314
Author: David Marshall, Wayne William McManus, Daniel Viele
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 3, Problem 3.15E
Exercise 3.15
LO 6
Effect of transactions on
Required:
- Calculate the firm’s working capital and current ratio under each situation. Would you recommend early payment of the accounts payable? Why? Round your current ratio answer to one decimal place.
- Assume that Bumper to Bumper, Inc., had negotiated a short-term bank loan of $60,000 that can be drawn down either before or after the end of the year. Calculate working capital and the current ratio at year-end under each situation, assuming that early payment of accounts payable is not made. When would you recommend that the loan be taken? Why? Round your current ratio answer to one decimal place.
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Module 6 Question 2
(Individual or component costs of capital) Compute the cost of capital for the firm for the following:
a. Currently bonds with a similar credit rating and maturity as the firm's outstanding debt are selling to yield
8.00 percent while the borrowing firm's corporate tax rate is 34 percent.
b. Common stock for a firm that paid a $1.05 dividend last year. The dividends are expected to grow at a rate of
5.0 percent per year into the foreseeable future. The price of this stock is now $25.00.
c. A bond that has a $1,000 par value and a coupon interest rate of 12.0 percent with interest paid semiannually. A new issue would sell for $1,150 per bond and mature in 20 years. The firm's tax rate is 34 percent.
d. A preferred stock paying a dividend of 7.0 percent on a $100 par value. If a new issue is offered, the shares would sell for $85.00 per share.
a. The after-tax cost of debt debt for the firm is ________%.
Problem 18-12
Eagle Products EBITDA is $500, its tax rate is 21%, depreciation is $30, capital expenditures are $80, and the planned increase in net
working capital is $10. What is the free cash flow to the firm? (Round your answer to 2 decimal place.)
Answer is complete but not entirely correct.
$335.00
FCFF
Exercise 3.4 A company will face the following cash requirements in the
next eight quarters (positive entries represent cash needs while negative entries
represent cash surpluses):
Q1 Q2 Q3 Q4 Q5 Q6 Q7
100 500 100
-600-500 200 600
The company has three borrowing possibilities.
Q8
-900
A 2-year loan available at the beginning of Q1, with a 1% interest per quarter.
• The other two borrowing opportunities are available at the beginning of every
quarter: a 6-month loan with a 1.8% interest per quarter, and a quarterly
loan with a 2.5% interest for the quarter.
• Any surplus can be invested at a 0.5% interest per quarter.
Formulate a linear program that maximizes the wealth of the company at the
beginning of Q9.
Chapter 3 Solutions
Accounting: What the Numbers Mean
Ch. 3 - Prob. 3.1MECh. 3 - Mini-Exercise 3.2 LO 3 ROI analysis using the...Ch. 3 - Mini-Exercise 3.3 LO 4 Calculate ROE Firm L had...Ch. 3 - Prob. 3.4MECh. 3 - Mini-Exercise 3.5 LO 6 Calculate current...Ch. 3 - Mini-Exercise 3.6 LO 6 Calculate working capital...Ch. 3 - Exercise 3.7 LO 2 Compare investment alternatives...Ch. 3 - Prob. 3.8ECh. 3 - Exercise 3.9 LO 2 Compare investment alternatives...Ch. 3 - Exercise 3.10 LO 2 Compare investment alternatives...
Ch. 3 - Exercise 3.11 LO 3 ROI analysis using the DuPont...Ch. 3 - Prob. 3.12ECh. 3 - Prob. 3.13ECh. 3 - Prob. 3.14ECh. 3 - Exercise 3.15 LO 6 Effect of transactions on...Ch. 3 - Exercise 3.16 LO 6 Effect of transactions on...Ch. 3 - Calculate profitability measures using annual...Ch. 3 - Prob. 3.18PCh. 3 - Problem 3.19 LO 6 Calculate and analyze liquidity...Ch. 3 - Problem 3.20 LO 6 Calculate and analyze liquidity...Ch. 3 - Problem 3.21 LO 3 Applications of ROI using the...Ch. 3 - Prob. 3.22PCh. 3 - Case 3.23 LO 3. 4, 6, 2 Focus company-analysis of...Ch. 3 - Case 3.24 LO 3, 4, 6, 7 Analysis of liquidity' and...
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