英文版罗斯公司理财习题答案Chap020
公司理财罗斯第九版课后习题答案
罗斯《公司理财》第9版精要版英文原书课后部分章节答案详细»1 / 17 CH5 11，13，18，19，20 11. To find the PV of a lump sum, we use: PV = FV / (1 + r) t PV = $1,000,000 / (1.10) 80 = $488.19 13. To answer this question, we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is: FV = PV(1 + r) t Solving for r, we get: r = (FV / PV) 1 / t –1 r = ($1,260,000 / $150) 1/112 – 1 = .0840 or 8.40% To find the FV of the first prize, we use: FV = PV(1 + r) t FV = $1,260,000(1.0840) 33 = $18,056,409.94 18. To find the FV of a lump sum, we use: FV = PV(1 + r) t FV = $4,000(1.11) 45 = $438,120.97 FV = $4,000(1.11) 35 = $154,299.40 Better start early! 19. We need to find the FV of a lump sum. However, the money will only be invested for six years, so the number of periods is six. FV = PV(1 + r) t FV = $20,000(1.084)6 = $32,449.33 20. To answer this question, we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is: FV = PV(1 + r) t Solving for t, we get: t = ln(FV / PV) / ln(1 + r) t = ln($75,000 / $10,000) / ln(1.11) = 19.31 So, the money must be invested for 19.31 years. However, you will not receive the money for another two years. From now, you’ll wait: 2 years + 19.31 years = 21.31 years CH6 16，24，27，42，58 16. For this problem, we simply need to find the FV of a lump sum using the equation: FV = PV(1 + r) t 2 / 17 It is important to note that compounding occurs semiannually. To account for this, we will divide the interest rate by two (the number of compounding periods in a year), and multiply the number of periods by two. Doing so, we get: FV = $2,100[1 + (.084/2)] 34 = $8,505.93 24. This problem requires us to find the FVA. The equation to find the FVA is: FV A = C{[(1 + r) t – 1] / r} FV A = $300[{[1 + (.10/12) ] 360 – 1} / (.10/12)] = $678,146.38 27. The cash flows are annual and the compounding period is quarterly, so we need to calculate the EAR to make the interest rate comparable with the timing of the cash flows. Using the equation for the EAR, we get: EAR = [1 + (APR / m)] m – 1 EAR = [1 + (.11/4)] 4 – 1 = .1146 or 11.46% And now we use the EAR to find the PV of each cash flow as a lump sum and add them together: PV = $725 / 1.1146 + $980 / 1.1146 2 + $1,360 / 1.1146 4 = $2,320.36 42. The amount of principal paid on the loan is the PV of the monthly payments you make. So, the present value of the $1,150 monthly payments is: PVA = $1,150[(1 – {1 / [1 + (.0635/12)]} 360 ) / (.0635/12)] = $184,817.42 The monthly payments of $1,150 will amount to a principal payment of $184,817.42. The amount of principal you will still owe is: $240,000 – 184,817.42 = $55,182.58 This remaining principal amount will increase at the interest rate on the loan until the end of the loan period. So the balloon payment in 30 years, which is the FV of the remaining principal will be: Balloon payment = $55,182.58[1 + (.0635/12)] 360 = $368,936.54 58. To answer this question, we should find the PV of both options, and compare them. Since we are purchasing the car, the lowest PV is the best option. The PV of the leasing is simply the PV of the lease payments, plus the $99. The interest rate we would use for the leasing option is the same as the interest rate of the loan. The PV of leasing is: PV = $99 + $450{1 –[1 / (1 + .07/12) 12(3) ]} / (.07/12) = $14,672.91 The PV of purchasing the car is the current price of the car minus the PV of the resale price. The PV of the resale price is: PV = $23,000 / [1 + (.07/12)] 12(3) = $18,654.82 The PV of the decision to purchase is: $32,000 – 18,654.82 = $13,345.18 3 / 17 In this case, it is cheaper to buy the car than leasing it since the PV of the purchase cash flows is lower. To find the breakeven resale price, we need to find the resale price that makes the PV of the two options the same. In other words, the PV of the decision to buy should be: $32,000 – PV of resale price = $14,672.91 PV of resale price = $17,327.09 The resale price that would make the PV of the lease versus buy decision is the FV ofthis value, so: Breakeven resale price = $17,327.09[1 + (.07/12)] 12(3) = $21,363.01 CH7 3，18，21，22，31 3. The price of any bond is the PV of the interest payment, plus the PV of the par value. Notice this problem assumes an annual coupon. The price of the bond will be: P = $75({1 – [1/(1 + .0875)] 10 } / .0875) + $1,000[1 / (1 + .0875) 10 ] = $918.89 We would like to introduce shorthand notation here. Rather than write (or type, as the case may be) the entire equation for the PV of a lump sum, or the PV A equation, it is common to abbreviate the equations as: PVIF R,t = 1 / (1 + r) t which stands for Present Value Interest Factor PVIFA R,t = ({1 – [1/(1 + r)] t } / r ) which stands for Present Value Interest Factor of an Annuity These abbreviations are short hand notation for the equations in which the interest rate and the number of periods are substituted into the equation and solved. We will use this shorthand notation in remainder of the solutions key. 18. The bond price equation for this bond is: P 0 = $1,068 = $46(PVIFA R%,18 ) + $1,000(PVIF R%,18 ) Using a spreadsheet, financial calculator, or trial and error we find: R = 4.06% This is the semiannual interest rate, so the YTM is: YTM = 2 4.06% = 8.12% The current yield is: Current yield = Annual coupon payment / Price = $92 / $1,068 = .0861 or 8.61% The effective annual yield is the same as the EAR, so using the EAR equation from the previous chapter: Effective annual yield = (1 + 0.0406) 2 – 1 = .0829 or 8.29% 20. Accrued interest is the coupon payment for the period times the fraction of the period that has passed since the last coupon payment. Since we have a semiannual coupon bond, the coupon payment per six months is one-half of the annual coupon payment. There are four months until the next coupon payment, so two months have passed since the last coupon payment. The accrued interest for the bond is: Accrued interest = $74/2 × 2/6 = $12.33 And we calculate the clean price as: 4 / 17 Clean price = Dirty price –Accrued interest = $968 –12.33 = $955.67 21. Accrued interest is the coupon payment for the period times the fraction of the period that has passed since the last coupon payment. Since we have a semiannual coupon bond, the coupon payment per six months is one-half of the annual coupon payment. There are two months until the next coupon payment, so four months have passed since the last coupon payment. The accrued interest for the bond is: Accrued interest = $68/2 × 4/6 = $22.67 And we calculate the dirty price as: Dirty price = Clean price + Accrued interest = $1,073 + 22.67 = $1,095.67 22. To find the number of years to maturity for the bond, we need to find the price of the bond. Since we already have the coupon rate, we can use the bond price equation, and solve for the number of years to maturity. We are given the current yield of the bond, so we can calculate the price as: Current yield = .0755 = $80/P 0 P 0 = $80/.0755 = $1,059.60 Now that we have the price of the bond, the bond price equation is: P = $1,059.60 = $80[(1 – (1/1.072) t ) / .072 ] + $1,000/1.072 t We can solve this equation for t as follows: $1,059.60(1.072) t = $1,111.11(1.072) t –1,111.11 + 1,000 111.11 = 51.51(1.072) t 2.1570 = 1.072 t t = log 2.1570 / log 1.072 = 11.06 11 years The bond has 11 years to maturity.31. The price of any bond (or financial instrument) is the PV of the future cash flows. Even though Bond M makes different coupons payments, to find the price of the bond, we just find the PV of the cash flows. The PV of the cash flows for Bond M is: P M = $1,100(PVIFA 3.5%,16 )(PVIF 3.5%,12 ) + $1,400(PVIFA 3.5%,12 )(PVIF 3.5%,28 ) + $20,000(PVIF 3.5%,40 ) P M = $19,018.78 Notice that for the coupon payments of $1,400, we found the PV A for the coupon payments, and then discounted the lump sum back to today. Bond N is a zero coupon bond with a $20,000 par value, therefore, the price of the bond is the PV of the par, or: P N = $20,000(PVIF 3.5%,40 ) = $5,051.45 CH8 4，18，20，22，24 4. Using the constant growth model, we find the price of the stock today is: P 0 = D 1 / (R – g) = $3.04 / (.11 – .038) = $42.22 5 / 17 18. The priceof a share of preferred stock is the dividend payment divided by the required return. We know the dividend payment in Year 20, so we can find the price of the stock in Year 19, one year before the first dividend payment. Doing so, we get: P 19 = $20.00 / .064 P 19 = $312.50 The price of the stock today is the PV of the stock price in the future, so the price today will be: P 0 = $312.50 / (1.064) 19 P 0 = $96.15 20. We can use the two-stage dividend growth model for this problem, which is: P 0 = [D 0 (1 + g 1 )/(R – g 1 )]{1 – [(1 + g 1 )/(1 + R)] T }+ [(1 + g 1 )/(1 + R)] T [D 0 (1 + g 2 )/(R –g 2 )] P 0 = [$1.25(1.28)/(.13 – .28)][1 –(1.28/1.13) 8 ] + [(1.28)/(1.13)] 8 [$1.25(1.06)/(.13 – .06)] P 0 = $69.55 22. We are asked to find the dividend yield and capital gains yield for each of the stocks. All of the stocks have a 15 percent required return, which is the sum of the dividend yield and the capital gains yield. To find the components of the total return, we need to find the stock price for each stock. Using this stock price and the dividend, we can calculate the dividend yield. The capital gains yield for the stock will be the total return (required return) minus the dividend yield. W: P 0 = D 0 (1 + g) / (R – g) = $4.50(1.10)/(.19 – .10) = $55.00 Dividend yield = D 1 /P 0 = $4.50(1.10)/$55.00 = .09 or 9% Capital gains yield = .19 – .09 = .10 or 10% X: P 0 = D 0 (1 + g) / (R – g) = $4.50/(.19 – 0) = $23.68 Dividend yield = D 1 /P 0 = $4.50/$23.68 = .19 or 19% Capital gains yield = .19 – .19 = 0% Y: P 0 = D 0 (1 + g) / (R – g) = $4.50(1 – .05)/(.19 + .05) = $17.81 Dividend yield = D 1 /P 0 = $4.50(0.95)/$17.81 = .24 or 24% Capital gains yield = .19 – .24 = –.05 or –5% Z: P 2 = D 2 (1 + g) / (R – g) = D 0 (1 + g 1 ) 2 (1 +g 2 )/(R – g 2 ) = $4.50(1.20) 2 (1.12)/(.19 – .12) = $103.68 P 0 = $4.50 (1.20) / (1.19) + $4.50(1.20) 2 / (1.19) 2 + $103.68 / (1.19) 2 = $82.33 Dividend yield = D 1 /P 0 = $4.50(1.20)/$82.33 = .066 or 6.6% Capital gains yield = .19 – .066 = .124 or 12.4% In all cases, the required return is 19%, but the return is distributed differently between current income and capital gains. High growth stocks have an appreciable capital gains component but a relatively small current income yield; conversely, mature, negative-growth stocks provide a high current income but also price depreciation over time. 24. Here we have a stock with supernormal growth, but the dividend growth changes every year for the first four years. We can find the price of the stock in Year 3 since the dividend growth rate is constant after the third dividend. The price of the stock in Year 3 will be the dividend in Year 4, divided by the required return minus the constant dividend growth rate. So, the price in Year 3 will be: 6 / 17 P 3 = $2.45(1.20)(1.15)(1.10)(1.05) / (.11 – .05) = $65.08 The price of the stock today will be the PV of the first three dividends, plus the PV of the stock price in Year 3, so: P 0 = $2.45(1.20)/(1.11) + $2.45(1.20)(1.15)/1.11 2 + $2.45(1.20)(1.15)(1.10)/1.11 3 + $65.08/1.11 3 P 0 = $55.70 CH9 3，4，6，9，15 3. Project A has cash flows of $19,000 in Year 1, so the cash flows are short by $21,000 of recapturing the initial investment, so the payback for Project A is: Payback = 1 + ($21,000 / $25,000) = 1.84 years Project B has cash flows of: Cash flows = $14,000 + 17,000 + 24,000 = $55,000 during this first three years. The cash flows are still short by $5,000 of recapturing the initial investment, so the payback for Project B is: B: Payback = 3 + ($5,000 / $270,000) = 3.019 years Using the payback criterion and a cutoff of 3 years, accept project A and reject project B. 4. When we use discounted payback, we need to find the value of all cash flows today. The value today of the project cash flows for the first four years is: Value today of Year 1 cash flow = $4,200/1.14 = $3,684.21 Value today of Year 2 cash flow = $5,300/1.14 2 = $4,078.18 Value today of Year 3 cash flow = $6,100/1.14 3 = $4,117.33 V alue today of Year 4 cash flow = $7,400/1.14 4 = $4,381.39 To find the discounted payback, we use these values to find the payback period. The discounted first year cash flow is $3,684.21, so the discounted payback for a $7,000 initial cost is: Discounted payback= 1 + ($7,000 – 3,684.21)/$4,078.18 = 1.81 years For an initial cost of $10,000, the discounted payback is: Discounted payback = 2 + ($10,000 –3,684.21 – 4,078.18)/$4,117.33 = 2.54 years Notice the calculation of discounted payback. We know the payback period is between two and three years, so we subtract the discounted values of the Year 1 and Year 2 cash flows from the initial cost. This is the numerator, which is the discounted amount we still need to make to recover our initial investment. We divide this amount by the discounted amount we will earn in Year 3 to get the fractional portion of the discounted payback. If the initial cost is $13,000, the discounted payback is: Discounted payback = 3 + ($13,000 – 3,684.21 – 4,078.18 – 4,117.33) / $4,381.39 = 3.26 years 7 / 17 6. Our definition of AAR is the average net income divided by the average book value. The average net income for this project is: Average net income = ($1,938,200 + 2,201,600 + 1,876,000 + 1,329,500) / 4 = $1,836,325 And the average book value is: Average book value = ($15,000,000 + 0) / 2 = $7,500,000 So, the AAR for this project is: AAR = Average net income / Average book value = $1,836,325 / $7,500,000 = .2448 or 24.48% 9. The NPV of a project is the PV of the outflows minus the PV of the inflows. Since the cash inflows are an annuity, the equation for the NPV of this project at an 8 percent required return is: NPV = –$138,000 + $28,500(PVIFA 8%, 9 ) = $40,036.31 At an 8 percent required return, the NPV is positive, so we would accept the project. The equation for the NPV of the project at a 20 percent required return is: NPV = –$138,000 + $28,500(PVIFA 20%, 9 ) = –$23,117.45 At a 20 percent required return, the NPV is negative, so we would reject the project. We would be indifferent to the project if the required return was equal to the IRR of the project, since at that required return the NPV is zero. The IRR of the project is: 0 = –$138,000 + $28,500(PVIFA IRR, 9 ) IRR = 14.59% 15. The profitability index is defined as the PV of the cash inflows divided by the PV of the cash outflows. The equation for the profitability index at a required return of 10 percent is: PI = [$7,300/1.1 + $6,900/1.1 2 + $5,700/1.1 3 ] / $14,000 = 1.187 The equation for the profitability index at a required return of 15 percent is: PI = [$7,300/1.15 + $6,900/1.15 2 + $5,700/1.15 3 ] / $14,000 = 1.094 The equation for the profitability index at a required return of 22 percent is: PI = [$7,300/1.22 + $6,900/1.22 2 + $5,700/1.22 3 ] / $14,000 = 0.983 8 / 17 We would accept the project if the required return were 10 percent or 15 percent since the PI is greater than one. We would reject the project if the required return were 22 percent since the PI。
英文版罗斯公司理财习题答案Chap020
英文版罗斯公司理财习题答案Chap020 INTERNATIONAL CORPORATE FINANCEAnswers to Concepts Review and Critical Thinking Questions1. a.The dollar is selling at a premium because it is more expensive in the forward market than inthe spot market (SFr 1.53 versus SFr 1.50).b.The franc is expected to depreciate relative to the dollar because it will take more francs to buyone dollar in the future than it does today.c.Inflation in Switzerland is higher than in the United States, as are nominal interest rates.2.The exchange rate will increase, as it will take progressively more pesos to purchase a dollar. This isthe relative PPP relationship.3. a.The Australian dollar is expected to weaken relative to the dollar, because it will take moreA$ in the future to buy one dollar than it does today.b.The inflation rate in Australia is higher.c.Nominal interest rates in Australia are higher; relative real rates in the two countries are thesame.4. A Yankee bond is most accurately described by d.5. No. For example, if a country’s currency strengthens, imports become cheaper (good), but its exportsbecome more expensive for others to buy (bad). The reverse is true for currency depreciation.6.Additional advantages include being closer to the final consumer and, thereby, saving ontransportation, significantly lower wages, and less exposure to exchange rate risk. Disadvantages include political risk and costs of supervising distant operations.7.One key thing to remember is that dividend payments are made in the home currency. Moregenerally, it may be that the owners of the multinational are primarily domestic and are ultimately concerned about their wealth denominated in their home currency because, unlike a multinational, they are not internationally diversified.8. a.False. If prices are rising faster in Great Britain, it will take more pounds to buy the sameamount of goods that one dollar can buy; the pound will depreciate relative to the dollar.b.False. The forward market would already reflect the projected deterioration of the euro relativeto the dollar. Only if you feel that there might be additional, unanticipated weakening of the euro that isn’t reflected in forward rates today, will the forward hedge protect you against additional declines.c.True. The market would only be correct on average, while you would be correct all the time.9. a.American exporters: their situation in general improves because a sale of the exported goods fora fixed number of euros will be worth more dollars.American importers: their situation in general worsens because the purchase of the imported goods for a fixed number of euros will cost more in dollars.b.American exporters: they would generally be bette r off if the British government’s intentionsresult in a strengthened pound.American importers: they would generally be worse off if the pound strengthens.c.American exporters: they would generally be much worse off, because an extreme case of fiscalexpansion like this one will make American goods prohibitively expensive to buy, or else Brazilian sales, if fixed in cruzeiros, would become worth an unacceptably low number of dollars.American importers: they would generally be much better off, because Brazilian goods will become much cheaper to purchase in dollars.10.IRP is the most likely to hold because it presents the easiest and least costly means to exploit anyarbitrage opportunities. Relative PPP is least likely to hold since it depends on the absence of market imperfections and frictions in order to hold strictly.11.It all depends on whether the forward market expects the same appreciation over the period andwhether the expectation is accurate. Assuming that the expectation is correct and that other traders do not have the same information, there will be value to hedging the currency exposure.12.One possible reason investment in the foreign subsidiary might be preferred is if this investmentprovides direct diversification that shareholders could not attain by investing on their own. Another reason could be if the political climate in the foreign country was more stable than in the home country. Increased political risk can also be a reason you might prefer the home subsidiary investment. Indonesia can serve as a great example of political risk. If it cannot be diversified away, investing in this type of foreign country will increase the systematic risk. As a result, it will raise the cost of the capital, and could actually decrease the NPV of the investment.13.Yes, the firm should undertake the foreign investment. If, after taking into consideration all risks, aproject in a foreign country has a positive NPV, the firm should undertake it. Note that in practice, the stated assumption (that the adjustment to the discount rate has taken into consideration all political and diversification issues) is a huge task. But once that has been addressed, the net present value principle holds for foreign operations, just as for domestic.14.If the foreign currency depreciates, the U.S. parent will experience an exchange rate loss when theforeign cash flow is remitted to the U.S. This problem could be overcome by selling forward contracts. Another way of overcoming this problem would be to borrow in the country where the project is located.15.False. If the financial markets are perfectly competitive, the difference between the Eurodollar rateand the U.S. rate will be due to differences in risk and government regulation. Therefore, speculating in those markets will not be beneficial.16.The difference between a Eurobond and a foreign bond is that the foreign bond is denominated in thecurrency of the country of origin of the issuing company. Eurobonds are more popular than foreign bonds because of registration differences. Eurobonds are unregistered securities.Solutions to Questions and ProblemsNOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.Basicing the quotes from the table, we get:a.$50(€0.7870/$1) = €39.35b.$1.2706c.€5M($1.2706/€) = $6,353,240d.New Zealand dollare.Mexican pesof.(P11.0023/$1)($1.2186/€1) = P13.9801/€This is a cross rate.g.The most valuable is the Kuwait dinar. The least valuable is the Indonesian rupiah.2. a.You would prefer £100, since:(£100)($.5359/£1) = $53.59b.You would still prefer £100. Using the $/£ exchange rate and the SF/£ exchange rate to find theamount of Swiss francs £100 will buy, we get:(£100)($1.8660/£1)(SF .8233) = SF 226.6489ing the quotes in the book to find the SF/£ cross rate, we find:(SF 1.2146/$1)($0.5359/£1) = SF 2.2665/£1The £/SF exchange rate is the inverse of the SF/£ exchange rate, so:£1/SF .4412 = £0.4412/SF 13. a.F180= ¥104.93 (per $). The yen is selling at a premium because it is more expensive in theforward market than in the spot market ($0.0093659 versus $0.009530).b.F90 = $1.8587/£. The pound is selling at a discount because it is less expensive in the forwardmarket than in the spot market ($0.5380 versus $0.5359).c.The value of the dollar will fall relative to the yen, since it takes more dollars to buy one yen inthe future than it does today. The value of the dollar will rise relative to the pound, because it will take fewer dollars to buy one pound in the future than it does today.4. a.The U.S. dollar, since one Canadian dollar will buy:(Can$1)/(Can$1.26/$1) = $0.7937b.The cost in U.S. dollars is:(Can$2.19)/(Can$1.26/$1) = $1.74Among the reasons that absolute PPP doesn’t hold are tariffs and other barriers to trade, transactions costs, taxes, and different tastes.c.The U.S. dollar is selling at a discount, because it is less expensive in the forward market thanin the spot market (Can$1.22 versus Can$1.26).d.The Canadian dollar is expected to appreciate in value relative to the dollar, because it takesfewer Canadian dollars to buy one U.S. dollar in the future than it does today.e.Interest rates in the United States are probably higher than they are in Canada.5. a.The cross rate in ¥/£ terms is:(¥115/$1)($1.70/£1) = ¥195.5/£1b.The yen is quoted too low relative to the pound. Take out a loan for $1 and buy ¥115. Use the¥115 to purchase pounds at the cross-rate, which will give you:¥115(£1/¥185) = £0.6216Use the pounds to buy back dollars and repay the loan. The cost to repay the loan will be:£0.6216($1.70/£1) = $1.0568You arbitrage profit is $0.0568 per dollar used.6.We can rearrange the interest rate parity condition to answer this question. The equation we will useis:R FC = (F T– S0)/S0 + R USUsing this relationship, we find:Great Britain: R FC = (£0.5394 – £0.5359)/£0.5359 + .038 = 4.45%Japan: R FC = (¥104.93 – ¥106.77)/¥106.77 + .038 = 2.08%Switzerland: R FC = (SFr 1.1980 – SFr 1.2146)/SFr 1.2146 + .038 = 2.43%7.If we invest in the U.S. for the next three months, we will have:$30M(1.0045)3 = $30,406,825.23If we invest in Great Britain, we must exchange the dollars today for pounds, and exchange the pounds for dollars in three months. After making these transactions, the dollar amount we would have in three months would be:($30M)(£0.56/$1)(1.0060)3/(£0.59/$1) = $28,990,200.05We should invest in U.S.ing the relative purchasing power parity equation:F t = S0 × [1 + (h FC– h US)]tWe find:Z3.92 = Z3.84[1 + (h FC– h US)]3h FC– h US = (Z3.92/Z3.84)1/3– 1h FC– h US = .0069Inflation in Poland is expected to exceed that in the U.S. by 0.69% over this period.9.The profit will be the quantity sold, times the sales price minus the cost of production. Theproduction cost is in Singapore dollars, so we must convert this to U.S. dollars. Doing so, we find that if the exchange rates stay the same, the profit will be:Profit = 30,000[$145 – {(S$168.50)/(S$1.6548/$1)}]Profit = $1,295,250.18If the exchange rate rises, we must adjust the cost by the increased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/1.1(S$1.6548/$1)}]Profit = $1,572,954.71If the exchange rate falls, we must adjust the cost by the decreased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/0.9(S$1.6548/$1)}]Profit = $955,833.53To calculate the breakeven change in the exchange rate, we need to find the exchange rate that make the cost in Singapore dollars equal to the selling price in U.S. dollars, so:$145 = S$168.50/S TS T = S$1.1621/$1S T = –.2978 or –29.78% decline10. a.If IRP holds, then:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.5257Since given F180 is Kr6.56, an arbitrage opportunity exists; the forward premium is too high.Borrow Kr1 today at 8% interest. Agree to a 180-day forward contract at Kr 6.56. Convert the loan proceeds into dollars:Kr 1 ($1/Kr 6.43) = $0.15552Invest these dollars at 5%, ending up with $0.15931. Convert the dollars back into krone as$0.15931(Kr 6.56/$1) = Kr 1.04506Repay the Kr 1 loan, ending with a profit of:Kr1.04506 – Kr1.03868 = Kr 0.00638b.To find the forward rate that eliminates arbitrage, we use the interest rate parity condition, so:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.525711.The international Fisher effect states that the real interest rate across countries is equal. We canrearrange the international Fisher effect as follows to answer this question:R US– h US = R FC– h FCh FC = R FC + h US– R USa.h AUS = .05 + .035 – .039h AUS = .046 or 4.6%b.h CAN = .07 + .035 – .039h CAN = .066 or 6.6%c.h TAI = .10 + .035 – .039h TAI = .096 or 9.6%12. a.The yen is expected to get stronger, since it will take fewer yen to buy one dollar in the futurethan it does today.b.h US– h JAP (¥129.76 – ¥131.30)/¥131.30h US– h JAP = – .0117 or –1.17%(1 – .0117)4– 1 = –.0461 or –4.61%The approximate inflation differential between the U.S. and Japan is – 4.61% annually.13. We need to find the change in the exchange rate over time, so we need to use the relative purchasingpower parity relationship:F t = S0 × [1 + (h FC– h US)]TUsing this relationship, we find the exchange rate in one year should be:F1 = 215[1 + (.086 – .035)]1F1 = HUF 225.97The exchange rate in two years should be:F2 = 215[1 + (.086 – .035)]2F2 = HUF 237.49And the exchange rate in five years should be:F5 = 215[1 + (.086 – .035)]5F5 = HUF 275.71ing the interest-rate parity theorem:(1 + R US) / (1 + R FC) = F(0,1) / S0We can find the forward rate as:F(0,1) = [(1 + R US) / (1 + R FC)] S0F(0,1) = (1.13 / 1.08)$1.50/£F(0,1) = $1.57/£Intermediate15.First, we need to forecast the future spot rate for each of the next three years. From interest rate andpurchasing power parity, the expected exchange rate is:E(S T) = [(1 + R US) / (1 + R FC)]T S0So:E(S1) = (1.0480 / 1.0410)1 $1.22/€ = $1.2282/€E(S2) = (1.0480 / 1.0410)2 $1.22/€ = $1.2365/€E(S3) = (1.0480 / 1.0410)3 $1.22/€ = $1.2448/€Now we can use these future spot rates to find the dollar cash flows. The dollar cash flow each year will be:Year 0 cash flow = –€$12,000,000($1.22/€) = –$14,640,000.00Year 1 cash flow = €$2,700,000($1.2282/€) = $3,316,149.86Year 2 cash flow = €$3,500,000($1.2365/€) = $4,327,618.63Year 3 cash flow = (€3,300,000 + 7,400,000)($1.2448/€) = $13,319,111.90And the NPV of the project will be:NPV = –$14,640,000 + $3,316,149.86/1.13 + $4,4327,618.63/1.132 + $13,319,111.90/1.133NPV = $914,618.7316. a.Implicitly, it is assumed that interest rates won’t change over the life of the project, but theexchange rate is projected to decline because the Euroswiss rate is lower than the Eurodollar rate.b.We can use relative purchasing power parity to calculate the dollar cash flows at each time. Theequation is:E[S T] = (SFr 1.72)[1 + (.07 – .08)]TE[S T] = 1.72(.99)TSo, the cash flows each year in U.S. dollar terms will be:t SFr E[S T] US$0 –27.0M –$15,697,674.421 +7.5M 1.7028 $4,404,510.222 +7.5M 1.6858 $4,449,000.223 +7.5M 1.6689 $4,493,939.624 +7.5M 1.6522 $4,539,332.955 +7.5M 1.6357 $4,585,184.79And the NPV is:NPV = –$15,697,674.42 + $4,404,510.22/1.13 + $4,449,000.22/1.132 + $4,493,939.62/1.133 + $4,539,332.95/1.134 + $4,585,184.79/1.135NPV = $71,580.10c.Rearranging the relative purchasing power parity equation to find the required return in Swissfrancs, we get:R SFr = 1.13[1 + (.07 – .08)] – 1R SFr = 11.87%So, the NPV in Swiss francs is:NPV = –SFr 27.0M + SFr 7.5M(PVIFA11.87%,5)NPV = SFr 123,117.76Converting the NPV to dollars at the spot rate, we get the NPV in U.S. dollars as:NPV = (SFr 123,117.76)($1/SFr 1.72)NPV = $71,580.10Challenge17. a.The domestic Fisher effect is:1 + R US = (1 + r US)(1 + h US)1 + r US = (1 + R US)/(1 + h US)This relationship must hold for any country, that is:1 + r FC = (1 + R FC)/(1 + h FC)The international Fisher effect states that real rates are equal across countries, so:1 + r US = (1 + R US)/(1 + h US) = (1 + R FC)/(1 + h FC) = 1 + r FCb.The exact form of unbiased interest rate parity is:E[S t] = F t = S0 [(1 + R FC)/(1 + R US)]tc.The exact form for relative PPP is:E[S t] = S0 [(1 + h FC)/(1 + h US)]td.For the home currency approach, we calculate the expected currency spot rate at time t as:E[S t] = (€0.5)[1.07/1.05]t= (€0.5)(1.019)tWe then convert the euro cash flows using this equation at every time, and find the present value. Doing so, we find:NPV = –[€2M/(€0.5)] + {€0.9M/[1.019(€0.5)]}/1.1 + {€0.9M/[1.0192(€0.5)]}/1.12 + {€0.9M/[1.0193(€0.5/$1)]}/1.13NPV = $316,230.72For the foreign currency approach, we first find the return in the euros as:R FC = 1.10(1.07/1.05) – 1 = 0.121Next, we find the NPV in euros as:NPV = –€2M + (€0.9M)/1.121 + (€0.9M)/1.1212+ (€0.9M)/1.1213= €158,115.36And finally, we convert the euros to dollars at the current exchange rate, which is:NPV ($) = €158,115.36 /(€0.5/$1) = $316,230.72。
罗斯公司理财chap001全英文题库及答案
Chapter 01 - Introduction to Corporate FinanceChapter 01 Introduction to Corporate Finance Answer KeyMultiple Choice Questions1. The person generally directly responsible for overseeing the tax management, cost accounting, financial accounting, and information system functions is the:A. treasurer.B. director.C. controller.D. chairman of the board.E. chief executive officer.Difficulty level: EasyTopic: CONTROLLERType: DEFINITIONS2. The person generally directly responsible for overseeing the cash and credit functions,financial planning, and capital expenditures is the:A. treasurer.B. director.C. controller.D. chairman of the board.E. chief operations officer.1-1Chapter 01 - Introduction to Corporate Finance3. The process of planning and managing a firm's long-term investments is called:A. working capital management.B. financial depreciation.C. agency cost analysis.D. capital budgeting.E. capital structure.Difficulty level: EasyTopic: CAPITAL BUDGETINGType: DEFINITIONS4. The mixture of debt and equity used by a firm to finance its operations is called:A. working capital management.B. financial depreciation.C. cost analysis.D. capital budgeting.E. capital structure.5. The management of a firm's short-term assets and liabilities is called:A. working capital management.B. debt management.C. equity management.D. capital budgeting.E. capital structure.1-2Chapter 01 - Introduction to Corporate Finance6. A business owned by a single individual is called a:A. corporation.B. sole proprietorship.C. general partnership.D. limited partnership.E. limited liability company.7. A business formed by two or more individuals who each have unlimited liability for businessdebts is called a:A. corporation.B. sole proprietorship.C. general partnership.D. limited partnership.E. limited liability company.8. The division of profits and losses among the members of a partnership is formalized in the:A. indemnity clause.B. indenture contract.C. statement of purpose.D. partnership agreement.E. group charter.9. A business created as a distinct legal entity composed of one or more individuals or entities iscalled a:A. corporation.B. sole proprietorship.C. general partnership.D. limited partnership.E. unlimited liability company.Difficulty level: EasyTopic: CORPORATIONType: DEFINITIONS1-3Chapter 01 - Introduction to Corporate Finance10. The corporate document that sets forth the business purpose of a firm is the:A. indenture contract.B. state tax agreement.C. corporate bylaws.D. debt charter.E. articles of incorporation.11. The rules by which corporations govern themselves are called:A. indenture provisions.B. indemnity provisions.C. charter agreements.D. bylaws.E. articles of incorporation.12. A business entity operated and taxed like a partnership, but with limited liability for theowners, is called a:A. limited liability company.B. general partnership.C. limited proprietorship.D. sole proprietorship.E. corporation.13. The primary goal of financial management is to:A. maximize current dividends per share of the existing stock.B. maximize the current value per share of the existing stock.C. avoid financial distress.D. minimize operational costs and maximize firm efficiency.E. maintain steady growth in both sales and net earnings.14. A conflict of interest between the stockholders and management of a firm is called:A. stockholders' liability.B. corporate breakdown.C. the agency problem.D. corporate activism.E. legal liability.1-4Chapter 01 - Introduction to Corporate Finance15. Agency costs refer to:A. the total dividends paid to stockholders over the lifetime of a firm.B. the costs that result from default and bankruptcy of a firm.C. corporate income subject to double taxation.D. the costs of any conflicts of interest between stockholders and management.E. the total interest paid to creditors over the lifetime of the firm.16. A stakeholder is:A. any person or entity that owns shares of stock of a corporation.B. any person or entity that has voting rights based on stock ownership of a corporation.C. a person who initially started a firm and currently has management control over the cashflows of the firm due to his/her current ownership of company stock.D. a creditor to whom the firm currently owes money and who consequently has a claim on thecash flows of the firm.E. any person or entity other than a stockholder or creditor who potentially has a claim on thecash flows of the firm.17. The Sarbanes Oxley Act of 2002 is intended to:A. protect financial managers from investors.B. not have any effect on foreign companies.C. reduce corporate revenues.D. protect investors from corporate abuses.E. decrease audit costs for U.S. firms.18. The treasurer and the controller of a corporation generally report to the:A. board of directors.B. chairman of the board.C. chief executive officer.D. president.E. chief financial officer.19. Which one of the following statements is correct concerning the organizational structure ofa corporation?A. The vice president of finance reports to the chairman of the board.B. The chief executive officer reports to the board of directors.C. The controller reports to the president.D. The treasurer reports to the chief executive officer.E. The chief operations officer reports to the vice president of production.Difficulty level: MediumTopic: ORGANIZATIONAL STRUCTUREType: CONCEPTS1-5Chapter 01 - Introduction to Corporate Finance20. Which one of the following is a capital budgeting decision?A. determining how much debt should be borrowed from a particular lenderB. deciding whether or not to open a new storeC. deciding when to repay a long-term debtD. determining how much inventory to keep on handE. determining how much money should be kept in the checking account21. The Sarbanes Oxley Act was enacted in:A. 1952.B. 1967.C. 1998.D. 2002.E. 2006.22. Since the implementation of Sarbanes-Oxley, the cost of going public in the United Stateshas:A. increased.B. decreased.C. remained about the same.D. been erratic, but over time has decreased.E. It is impossible to tell since Sarbanes-Oxley compliance does not involve direct cost to thefirm.23. Working capital management includes decisions concerning which of the following?I. accounts payableII. long-term debtIII. accounts receivableIV. inventoryA. I and II onlyB. I and III onlyC. II and IV onlyD. I, II, and III onlyE. I, III, and IV onlyDifficulty level: MediumTopic: WORKING CAPITAL MANAGEMENTType: CONCEPTS1-6Chapter 01 - Introduction to Corporate Finance24. Working capital management:A. ensures that sufficient equipment is available to produce the amount of product desired on adaily basis.B. ensures that long-term debt is acquired at the lowest possible cost.C. ensures that dividends are paid to all stockholders on an annual basis.D. balances the amount of company debt to the amount of available equity.E. is concerned with the upper portion of the balance sheet.Difficulty level: EasyTopic: WORKING CAPITAL MANAGEMENTType: CONCEPTS25. Which one of the following statements concerning a sole proprietorship is correct?A. A sole proprietorship is the least common form of business ownership.B. The profits of a sole proprietorship are taxed twice.C. The owners of a sole proprietorship share profits as established by the partnership agreement.D. The owner of a sole proprietorship may be forced to sell his/her personal assets to paycompany debts.E. A sole proprietorship is often structured as a limited liability company.Difficulty level: EasyTopic: SOLE PROPRIETORSHIPType: CONCEPTS26. Which one of the following statements concerning a sole proprietorship is correct?A. The life of the firm is limited to the life span of the owner.B. The owner can generally raise large sums of capital quite easily.C. The ownership of the firm is easy to transfer to another individual.D. The company must pay separate taxes from those paid by the owner.E. The legal costs to form a sole proprietorship are quite substantial.Difficulty level: EasyTopic: SOLE PROPRIETORSHIPType: CONCEPTS1-7Chapter 01 - Introduction to Corporate Finance27. Which one of the following best describes the primary advantage of being a limited partnerrather than a general partner?A. entitlement to a larger portion of the partnership's incomeB. ability to manage the day-to-day affairs of the businessC. no potential financial lossD. greater management responsibilityE. liability for firm debts limited to the capital investedDifficulty level: EasyTopic: PARTNERSHIPType: CONCEPTS28. A general partner:A. has less legal liability than a limited partner.B. has more management responsibility than a limited partner.C. faces double taxation whereas a limited partner does not.D. cannot lose more than the amount of his/her equity investment.E. is the term applied only to corporations which invest in partnerships.Difficulty level: EasyTopic: PARTNERSHIPType: CONCEPTS29. A partnership:A. is taxed the same as a corporation.B. agreement defines whether the business income will be taxed like a partnership or acorporation.C. terminates at the death of any general partner.D. has less of an ability to raise capital than a proprietorship.E. allows for easy transfer of interest from one general partner to another.Difficulty level: EasyTopic: PARTNERSHIPType: CONCEPTS1-8Chapter 01 - Introduction to Corporate Finance30. Which of the following are disadvantages of a partnership?I. limited life of the firmII. personal liability for firm debtIII. greater ability to raise capital than a sole proprietorshipIV. lack of ability to transfer partnership interestA. I and II onlyB. III and IV onlyC. II and III onlyD. I, II, and IV onlyE. I, III, and IV onlyDifficulty level: MediumTopic: PARTNERSHIPType: CONCEPTS31. Which of the following are advantages of the corporate form of business ownership?I. limited liability for firm debtII. double taxationIII. ability to raise capitalIV. unlimited firm lifeA. I and II onlyB. III and IV onlyC. I, II, and III onlyD. II, III, and IV onlyE. I, III, and IV onlyDifficulty level: MediumTopic: CORPORATIONType: CONCEPTS32. Which one of the following statements is correct concerning corporations?A. The largest firms are usually corporations.B. The majority of firms are corporations.C. The stockholders are usually the managers of a corporation.D. The ability of a corporation to raise capital is quite limited.E. The income of a corporation is taxed as personal income of the stockholders.Difficulty level: EasyTopic: CORPORATIONType: CONCEPTS1-9Chapter 01 - Introduction to Corporate Finance33. Which one of the following statements is correct?A. Both partnerships and corporations incur double taxation.B. Both sole proprietorships and partnerships are taxed in a similar fashion.C. Partnerships are the most complicated type of business to form.D. Both partnerships and corporations have limited liability for general partners and shareholders.E. All types of business formations have limited lives.Difficulty level: MediumTopic: BUSINESS TYPESType: CONCEPTS34. The articles of incorporation:A. can be used to remove company management.B. are amended annually by the company stockholders.C. set forth the number of shares of stock that can be issued.D. set forth the rules by which the corporation regulates its existence.E. can set forth the conditions under which the firm can avoid double taxation.35. The bylaws:A. establish the name of the corporation.B. are rules which apply only to limited liability companies.C. set forth the purpose of the firm.D. mandate the procedure for electing corporate directors.E. set forth the procedure by which the stockholders elect the senior managers of the firm.36. The owners of a limited liability company prefer:A. being taxed like a corporation.B. having liability exposure similar to that of a sole proprietor.C. being taxed personally on all business income.D. having liability exposure similar to that of a general partner.E. being taxed like a corporation with liability like a partnership.Difficulty level: MediumTopic: LIMITED LIABILITY COMPANYType: CONCEPTS1-10Chapter 01 - Introduction to Corporate Finance37. Which one of the following business types is best suited to raising large amounts ofcapital?A. sole proprietorshipB. limited liability companyC. corporationD. general partnershipE. limited partnershipDifficulty level: EasyTopic: CORPORATIONType: CONCEPTS38. Which type of business organization has all the respective rights and privileges ofa legalperson?A. sole proprietorshipB. general partnershipC. limited partnershipD. corporationE. limited liability companyDifficulty level: EasyTopic: CORPORATIONType: CONCEPTS39. Financial managers should strive to maximize the current value per share of the existingstock because:A. doing so guarantees the company will grow in size at the maximum possible rate.B. doing so increases the salaries of all the employees.C. the current stockholders are the owners of the corporation.D. doing so means the firm is growing in size faster than its competitors.E. the managers often receive shares of stock as part of their compensation.Difficulty level: EasyTopic: GOAL OF FINANC IAL MANAGEMENTType: CONCEPTS1-11Chapter 01 - Introduction to Corporate Finance40. The decisions made by financial managers should all be ones which increase the:A. size of the firm.B. growth rate of the firm.C. marketability of the managers.D. market value of the existing owners' equity.E. financial distress of the firm.Difficulty level: EasyTopic: GOAL OF FINANCIAL MANAGEMENTType: CONCEPTS41. Which one of the following actions by a financial manager creates an agency problem?A. refusing to borrow money when doing so will create losses for the firmB. refusing to lower selling prices if doing so will reduce the net profitsC. agreeing to expand the company at the expense of stockholders' valueD. agreeing to pay bonuses based on the book value of the company stockE. increasing current costs in order to increase the market value of the stockholders' equity42. Which of the following help convince managers to work in the best interest of the stockholders?I. compensation based on the value of the stockII. stock option plansIII. threat of a proxy fightIV. threat of conversion to a partnershipA. I and II onlyB. II and III onlyC. I, II and III onlyD. I and III onlyE. I, II, III, and IVDifficulty level: MediumTopic: AGENCY PROBLEMType: CONCEPTS1-12Chapter 01 - Introduction to Corporate Finance43. Which form of business structure faces the greatest agency problems?A. sole proprietorshipB. general partnershipC. limited partnershipD. corporationE. limited liability company44. A proxy fight occurs when:A. the board solicits renewal of current members.B. a group solicits proxies to replace the board of directors.C. a competitor offers to sell their ownership in the firm.D. the firm files for bankruptcy.E. the firm is declared insolvent.45. Which one of the following parties is considered a stakeholder of a firm?A. employeeB. short-term creditorC. long-term creditorD. preferred stockholderE. common stockholderDifficulty level: EasyTopic: STAKEHOLDERSType: CONCEPTS46. Which of the following are key requirements of the Sarbanes-Oxley Act?I. Officers of the corporation must review and sign annual reports.II. Officers of the corporation must now own more than 5% of the firm's stock. III. Annual reports must list deficiencies in internal controlsIV. Annual reports must be filed with the SEC within 30 days of year end.A. I onlyB. II onlyC. I and III onlyD. II and III onlyE. II and IV onlyDifficulty level: MediumTopic: SARBANES-OXLEYType: CONCEPTS1-13Chapter 01 - Introduction to Corporate Finance47. Insider trading is:A. legal.B. illegal.C. impossible to have in our efficient market.D. discouraged, but legal.E. list only the securities of the largest firms.48. Sole proprietorships are predominantly started because:A. they are easily and cheaply setup.B. the proprietorship life is limited to the business owner's life.C. all business taxes are paid as individual tax.D. All of the above.E. None of the above.Difficulty level: EasyTopic: SOLE PROPRIETORSHIPSType: CONCEPTS49. Managers are encouraged to act in shareholders' interests by:A. shareholder election of a board of directors who select management.B. the threat of a takeover by another firm.C. compensation contracts that tie compensation to corporate success.D. Both A and B.E. All of the above.Difficulty level: MediumTopic: GOVERNANCEType: CONCEPTS50. The Securities Exchange Act of 1934 focuses on:A. all stock transactions.B. sales of existing securities.C. issuance of new securities.D. insider trading.E. Federal Deposit Insurance Corporation (FDIC) insurance.Difficulty level: MediumTopic: REGULATIONType: CONCEPTS1-14Chapter 01 - Introduction to Corporate Finance51. The basic regulatory framework in the United States was provided by:A. the Securities Act of 1933.B. the Securities Exchange Act of 1934.C. the monetary system.D. A and B.E. All of the above.Difficulty level: MediumTopic: REGULATIONType: CONCEPTS52. The Securities Act of 1933 focuses on:A. all stock transactions.B. sales of existing securities.C. issuance of new securities.D. insider trading.E. Federal Deposit Insurance Corporation (FDIC) insurance.Difficulty level: EasyTopic: REGULATIONType: CONCEPTS53. In a limited partnership:A. each limited partner's liability is limited to his net worth.B. each limited partner's liability is limited to the amount he put into the partnership.C. each limited partner's liability is limited to his annual salary.D. there is no limitation on liability; only a limitation on what the partner can earn.E. None of the above.Difficulty level: EasyTopic: LIMITED PARTNERSHIPType: CONCEPTS1-15Chapter 01 - Introduction to Corporate Finance54. Accounting profits and cash flows are:A. generally the same since they reflect current laws and accounting standards.B. generally the same since accounting profits reflect when the cash flows are received.C. generally not the same since GAAP allows for revenue recognition separate from the receiptof cash flows.D. generally not the same because cash inflows occur before revenue recognition.E. Both c and d.1-16。
英文版罗斯公司理财习题答案ChapWord版
CHAPTER 8MAKING CAPITAL INVESTMENT DECISIONSAnswers to Concepts Review and Critical Thinking Questions1.In this context, an opportunity cost refers to the value of an asset or other input that will be used in aproject. The relevant cost is what the asset or input is actually worth today, not, for example, what it cost to acquire.2. a.Yes, the reduction in the sales of the company’s other products, referred to as erosion, andshould be treated as an incremental cash flow. These lost sales are included because they are a cost (a revenue reduction) that the firm must bear if it chooses to produce the new product.b. Yes, expenditures on plant and equipment should be treated as incremental cash flows. Theseare costs of the new product line. However, if these expenditures have already occurred, they are sunk costs and are not included as incremental cash flows.c. No, the research and development costs should not be treated as incremental cash flows. Thecosts of research and development undertaken on the product during the past 3 years are sunk costs and should not be included in the evaluation of the project. Decisions made and costs incurred in the past cannot be changed. They should not affect the decision to accept or reject the project.d. Yes, the annual depreciation expense should be treated as an incremental cash flow.Depreciation expense must be taken into account when calculating the cash flows related to a given project. While depreciation is not a cash expense that directly affects cash flow, it decreases a firm’s net income and hence, lowers its tax bill for the year. Because of this depreciation tax shield, the firm has more cash on hand at the end of the year than it would have had without expensing depreciation.e.No, dividend payments should not be treated as incremental cash flows. A firm’s decision topay or not pay dividends is independent of the decision to accept or reject any given investment project. For this reason, it is not an incremental cash flow to a given project. Dividend policy is discussed in more detail in later chapters.f.Yes, the resale value of plant and equipment at the end of a project’s life should be treated as anincremental cash flow. The price at which the firm sells the equipment is a cash inflow, and any difference between the book value of the equipment and its sale price will create gains or lossesthat result in either a tax credit or liability.g.Yes, salary and medical costs for production employees hired for a project should be treated asincremental cash flows. The salaries of all personnel connected to the project must be included as costs of that project.3.Item I is a relevant cost because the opportunity to sell the land is lost if the new golf club is produced. Item II is also relevant because the firm must take into account the erosion of sales of existing products when a new product is introduced. If the firm produces the new club, the earnings from the existing clubs will decrease, effectively creating a cost that must be included in the decision.Item III is not relevant because the costs of Research and Development are sunk costs. Decisions made in the past cannot be changed. They are not relevant to the production of the new clubs.4.For tax purposes, a firm would choose MACRS because it provides for larger depreciationdeductions earlier. These larger deductions reduce taxes, but have no other cash consequences.Notice that the choice between MACRS and straight-line is purely a time value issue; the total depreciation is the same; only the timing differs.5.It’s probably only a mild over-simplification. Current liabilities will all be paid, presumably. Thecash portion of current assets will be retrieved. Some receivables won’t be collected, and some inventory will not be sold, of course. Counterbalancing these losses is the fact that inventory sold above cost (and not replaced at the end of the project’s life) acts to increase working capital. These effects tend to offset one another.6.Management’s discretion to set the firm’s capital structure is applicable at the firm level. Since anyone particular project could be financed entirely with equity, another project could be financed with debt, and the firm’s overall capital structure remains unchanged, financing cost s are not relevant in the analysis of a project’s incremental cash flows according to the stand-alone principle.7.The EAC approach is appropriate when comparing mutually exclusive projects with different livesthat will be replaced when they wear out. This type of analysis is necessary so that the projects havea common life span over which they can be compared; in effect, each project is assumed to existover an infinite horizon of N-year repeating projects. Assuming that this type of analysis is valid implies that the project cash flows remain the same forever, thus ignoring the possible effects of, among other things: (1) inflation, (2) changing economic conditions, (3) the increasing unreliability of cash flow estimates that occur far into the future, and (4) the possible effects of future technology improvement that could alter the project cash flows.8.Depreciation is a non-cash expense, but it is tax-deductible on the income statement. Thusdepreciation causes taxes paid, an actual cash outflow, to be reduced by an amount equal to the depreciation tax shield, t c D. A reduction in taxes that would otherwise be paid is the same thing as a cash inflow, so the effects of the depreciation tax shield must be added in to get the total incremental aftertax cash flows.9.There are two particularly important considerations. The first is erosion. Will the “essentialized”book simply displace copies of the existing book that would have otherwise been sold? This is of special concern given the lower price. The second consideration is competition. Will other publishers step in and produce such a product? If so, then any erosion is much less relevant. A particular concern to book publishers (and producers of a variety of other product types) is that the publisher only makes money from the sale of new books. Thus, it is important to examine whether the new book would displace sales of used books (good from the publisher’s perspective) or new books (not good). The concern arises any time there is an active market for used product.10.Definitely. The damage to Porsche’s reputation is definitely a factor the company needed to consider.If the reputation was damaged, the company would have lost sales of its existing car lines.11.One company may be able to produce at lower incremental cost or market better. Also, of course,one of the two may have made a mistake!12.Porsche would recognize that the outsized profits would dwindle as more products come to marketand competition becomes more intense.Solutions to Questions and ProblemsNOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.Basicing the tax shield approach to calculating OCF, we get:OCF = (Sales – Costs)(1 – t C) + t C DepreciationOCF = [($5 × 2,000 – ($2 × 2,000)](1 – 0.35) + 0.35($10,000/5)OCF = $4,600So, the NPV of the project is:NPV = –$10,000 + $4,600(PVIFA17%,5)NPV = $4,7172.We will use the bottom-up approach to calculate the operating cash flow for each year. We also mustbe sure to include the net working capital cash flows each year. So, the total cash flow each year will be:Year 1 Year 2 Year 3 Year 4 Sales Rs.7,000 Rs.7,000 Rs.7,000 Rs.7,000Costs 2,000 2,000 2,000 2,000Depreciation 2,500 2,500 2,500 2,500EBT Rs.2,500 Rs.2,500 Rs.2,500 Rs.2,500Tax 850 850 850 850Net income Rs.1,650 Rs.1,650 Rs.1,650 Rs.1,650OCF 0 Rs.4,150 Rs.4,150 Rs.4,150 Rs.4,150Capital spending –Rs.10,000 0 0 0 0NWC –200 –250 –300 –200 950Incremental cashflow –Rs.10,200 Rs.3,900 Rs.3,850 Rs.3,950 Rs.5,100The NPV for the project is:NPV = –Rs.10,200 + Rs.3,900 / 1.10 + Rs.3,850 / 1.102 + Rs.3,950 / 1.103 + Rs.5,100 / 1.104NPV = Rs.2,978.333. Using the tax shield approach to calculating OCF, we get:OCF = (Sales – Costs)(1 – t C) + t C DepreciationOCF = (R2,400,000 – 960,000)(1 – 0.30) + 0.30(R2,700,000/3)OCF = R1,278,000So, the NPV of the project is:NPV = –R2,700,000 + R1,278,000(PVIFA15%,3)NPV = R217,961.704.The cash outflow at the beginning of the project will increase because of the spending on NWC. Atthe end of the project, the company will recover the NWC, so it will be a cash inflow. The sale of the equipment will result in a cash inflow, but we also must account for the taxes which will be paid on this sale. So, the cash flows for each year of the project will be:Year Cash Flow0 – R3,000,000 = –R2.7M – 300K1 1,278,0002 1,278,0003 1,725,000 = R1,278,000 + 300,000 + 210,000 + (0 – 210,000)(.30)And the NPV of the project is:NPV = –R3,000,000 + R1,278,000(PVIFA15%,2) + (R1,725,000 / 1.153)NPV = R211,871.465. First we will calculate the annual depreciation for the equipment necessary for the project. Thedepreciation amount each year will be:Year 1 depreciation = R2.7M(0.3330) = R899,100Year 2 depreciation = R2.7M(0.4440) = R1,198,800Year 3 depreciation = R2.7M(0.1480) = R399,600So, the book value of the equipment at the end of three years, which will be the initial investment minus the accumulated depreciation, is:Book value in 3 years = R2.7M – (R899,100 + 1,198,800 + 399,600)Book value in 3 years = R202,500The asset is sold at a gain to book value, so this gain is taxable.Aftertax salvage value = R202,500 + (R202,500 – 210,000)(0.30)Aftertax salvage value = R207,750To calculate the OCF, we will use the tax shield approach, so the cash flow each year is:OCF = (Sales – Costs)(1 – t C) + t C DepreciationYear Cash Flow0 – R3,000,000 = –R2.7M – 300K1 1,277,730.00 = (R1,440,000)(.70) + 0.30(R899,100)2 1,367,640.00 = (R1,440,000)(.70) + 0.30(R1,198,800)3 1,635,630.00 = (R1,440,000)(.70) + 0.30(R399,600) + R207,750 + 300,000Remember to include the NWC cost in Year 0, and the recovery of the NWC at the end of the project.The NPV of the project with these assumptions is:NPV = – R3.0M + (R1,277,730/1.15) + (R1,367,640/1.152) + (R1,635,630/1.153)NPV = R220,655.206. First, we will calculate the annual depreciation of the new equipment. It will be:Annual depreciation charge = €925,000/5Annual depreciation charge = €185,000The aftertax salvage value of the equipment is:Aftertax salvage value = €90,000(1 – 0.35)Aftertax salvage value = €58,500Using the tax shield approach, the OCF is:OCF = €360,000(1 – 0.35) + 0.35(€185,000)OCF = €298,750Now we can find the project IRR. There is an unusual feature that is a part of this project. Accepting this project means that we will reduce NWC. This reduction in NWC is a cash inflow at Year 0. This reduction in NWC implies that when the project ends, we will have to increase NWC. So, at the end of the project, we will have a cash outflow to restore the NWC to its level before the project. We also must include the aftertax salvage value at the end of the project. The IRR of the project is:NPV = 0 = –€925,000 + 125,000 + €298,750(PVIFA IRR%,5) + [(€58,500 – 125,000) / (1+IRR)5]IRR = 23.85%7.First, we will calculate the annual depreciation of the new equipment. It will be:Annual depreciation = £390,000/5Annual depreciation = £78,000Now, we calculate the aftertax salvage value. The aftertax salvage value is the market price minus (or plus) the taxes on the sale of the equipment, so:Aftertax salvage value = MV + (BV – MV)t cVery often, the book value of the equipment is zero as it is in this case. If the book value is zero, the equation for the aftertax salvage value becomes:Aftertax salvage value = MV + (0 – MV)t cAftertax salvage value = MV(1 – t c)We will use this equation to find the aftertax salvage value since we know the book value is zero. So, the aftertax salvage value is:Aftertax salvage value = £60,000(1 – 0.34)Aftertax salvage value = £39,600Using the tax shield approach, we find the OCF for the project is:OCF = £120,000(1 – 0.34) + 0.34(£78,000)OCF = £105,720Now we can find the project NPV. Notice that we include the NWC in the initial cash outlay. The recovery of the NWC occurs in Year 5, along with the aftertax salvage value.NPV = –£390,000 – 28,000 + £105,720(PVIFA10%,5) + [(£39,600 + 28,000) / 1.15]NPV = £24,736.268.To find the BV at the end of four years, we need to find the accumulated depreciation for the firstfour years. We could calculate a table with the depreciation each year, but an easier way is to add the MACRS depreciation amounts for each of the first four years and multiply this percentage times the cost of the asset. We can then subtract this from the asset cost. Doing so, we get:BV4 = $9,300,000 – 9,300,000(0.2000 + 0.3200 + 0.1920 + 0.1150)BV4 = $1,608,900The asset is sold at a gain to book value, so this gain is taxable.Aftertax salvage value = $2,100,000 + ($1,608,900 – 2,100,000)(.40)Aftertax salvage value = $1,903,5609. We will begin by calculating the initial cash outlay, that is, the cash flow at Time 0. To undertake theproject, we will have to purchase the equipment and increase net working capital. So, the cash outlay today for the project will be:Equipment –€2,000,000NWC –100,000Total –€2,100,000Using the bottom-up approach to calculating the operating cash flow, we find the operating cash flow each year will be:Sales €1,200,000Costs 300,000Depreciation 500,000EBT €400,000Tax 140,000Net income €260,000The operating cash flow is:OCF = Net income + DepreciationOCF = €260,000 + 500,000OCF = €760,000To find the NPV of the project, we add the present value of the project cash flows. We must be sure to add back the net working capital at the end of the project life, since we are assuming the net working capital will be recovered. So, the project NPV is:NPV = –€2,100,000 + €760,000(PVIFA14%,4) + €100,000 / 1.144NPV = €173,629.3810.We will need the aftertax salvage value of the equipment to compute the EAC. Even though theequipment for each product has a different initial cost, both have the same salvage value. The aftertax salvage value for both is:Both cases: aftertax salvage value = $20,000(1 – 0.35) = $13,000To calculate the EAC, we first need the OCF and NPV of each option. The OCF and NPV for Techron I is:OCF = – $34,000(1 – 0.35) + 0.35($210,000/3) = $2,400NPV = –$210,000 + $2,400(PVIFA14%,3) + ($13,000/1.143) = –$195,653.45EAC = –$195,653.45 / (PVIFA14%,3) = –$84,274.10And the OCF and NPV for Techron II is:OCF = – $23,000(1 – 0.35) + 0.35($320,000/5) = $7,450NPV = –$320,000 + $7,450(PVIFA14%,5) + ($13,000/1.145) = –$287,671.75EAC = –$287,671.75 / (PVIFA14%,5) = –$83,794.05The two milling machines have unequal lives, so they can only be compared by expressing both on an equivalent annual basis, which is what the EAC method does. Thus, you prefer the Techron II because it has the lower (less negative) annual cost.。
公司理财第九版罗斯课后案例答案 Case Solutions Corporate Finance
公司理财第九版罗斯课后案例答案 Case Solutions CorporateFinance1. 案例一：公司资金需求分析问题：一家公司需要资金支持其新项目。
通过分析现金流量，推断该公司是否需要向外部借款或筹集其他资金。
解答：为了确定公司是否需要外部资金，我们需要分析公司的现金流量状况。
首先，我们需要计算公司的净现金流量（净收入加上非现金项目）。
然后，我们需要将净现金流量与项目的投资现金流量进行对比。
假设公司预计在项目开始时投资100万美元，并在项目运营期为5年。
预计该项目每年将产生50万美元的净现金流量。
现在，我们需要进行以下计算：净现金流量 = 年度现金流量 - 年度投资现金流量年度投资现金流量 = 100万美元年度现金流量 = 50万美元净现金流量 = 50万美元 - 100万美元 = -50万美元根据计算结果，公司的净现金流量为负数（即净现金流出），意味着公司每年都会亏损50万美元。
因此，公司需要从外部筹集资金以支持项目的运营。
2. 案例二：公司股权融资问题：一家公司正在考虑通过股权融资来筹集资金。
根据公司的财务数据和资本结构分析，我们需要确定公司最佳的股权融资方案。
解答：为了确定最佳的股权融资方案，我们需要参考公司的财务数据和资本结构分析。
首先，我们需要计算公司的资本结构比例，即股本占总资本的比例。
然后，我们将不同的股权融资方案与资本结构比例进行对比，选择最佳的方案。
假设公司当前的资本结构比例为60%的股本和40%的债务，在当前的资本结构下，公司的加权平均资本成本（WACC）为10%。
现在，我们需要进行以下计算：•方案一：以新股发行筹集1000万美元，并将其用于项目投资。
在这种方案下，公司的资本结构比例将发生变化。
假设公司的股本增加至80%，债务比例减少至20%。
根据资本结构比例的变化，WACC也将发生变化。
新的WACC可以通过以下公式计算得出：新的WACC = (股本比例 * 股本成本) + (债务比例 * 债务成本)假设公司的股本成本为12%，债务成本为8%：新的WACC = (0.8 * 12%) + (0.2 * 8%) = 9.6%•方案二：以新股发行筹集5000万美元，并将其用于项目投资。
英文版罗斯公司理财习题答案Chap020.doc
CHAPTER 20INTERNATIONAL CORPORATE FINANCEAnswers to Concepts Review and Critical Thinking Questions1. a.The dollar is selling at a premium because it is more expensive in the forward market than inthe spot market (SFr 1.53 versus SFr 1.50).b.The franc is expected to depreciate relative to the dollar because it will take more francs to buyone dollar in the future than it does today.c.Inflation in Switzerland is higher than in the United States, as are nominal interest rates.2.The exchange rate will increase, as it will take progressively more pesos to purchase a dollar. This isthe relative PPP relationship.3. a.The Australian dollar is expected to weaken relative to the dollar, because it will take moreA$ in the future to buy one dollar than it does today.b.The inflation rate in Australia is higher.c.Nominal interest rates in Australia are higher; relative real rates in the two countries are thesame.4. A Yankee bond is most accurately described by d.5. No. For example, if a country’s currency strengthens, imports become cheaper (good), but its exportsbecome more expensive for others to buy (bad). The reverse is true for currency depreciation.6.Additional advantages include being closer to the final consumer and, thereby, saving ontransportation, significantly lower wages, and less exposure to exchange rate risk. Disadvantages include political risk and costs of supervising distant operations.7.One key thing to remember is that dividend payments are made in the home currency. Moregenerally, it may be that the owners of the multinational are primarily domestic and are ultimately concerned about their wealth denominated in their home currency because, unlike a multinational, they are not internationally diversified.8. a.False. If prices are rising faster in Great Britain, it will take more pounds to buy the sameamount of goods that one dollar can buy; the pound will depreciate relative to the dollar.b.False. The forward market would already reflect the projected deterioration of the euro relativeto the dollar. Only if you feel that there might be additional, unanticipated weakening of the euro that isn’t reflected in forward rates today, will the forward hedge protect you against additional declines.c.True. The market would only be correct on average, while you would be correct all the time.9. a.American exporters: their situation in general improves because a sale of the exported goods fora fixed number of euros will be worth more dollars.American importers: their situation in general worsens because the purchase of the imported goods for a fixed number of euros will cost more in dollars.b.American exporters: they would generally be better off if the British government’s intentionsresult in a strengthened pound.American importers: they would generally be worse off if the pound strengthens.c.American exporters: they would generally be much worse off, because an extreme case of fiscalexpansion like this one will make American goods prohibitively expensive to buy, or else Brazilian sales, if fixed in cruzeiros, would become worth an unacceptably low number of dollars.American importers: they would generally be much better off, because Brazilian goods will become much cheaper to purchase in dollars.10.IRP is the most likely to hold because it presents the easiest and least costly means to exploit anyarbitrage opportunities. Relative PPP is least likely to hold since it depends on the absence of market imperfections and frictions in order to hold strictly.11.It all depends on whether the forward market expects the same appreciation over the period andwhether the expectation is accurate. Assuming that the expectation is correct and that other traders do not have the same information, there will be value to hedging the currency exposure.12.One possible reason investment in the foreign subsidiary might be preferred is if this investmentprovides direct diversification that shareholders could not attain by investing on their own. Another reason could be if the political climate in the foreign country was more stable than in the home country. Increased political risk can also be a reason you might prefer the home subsidiary investment. Indonesia can serve as a great example of political risk. If it cannot be diversified away, investing in this type of foreign country will increase the systematic risk. As a result, it will raise the cost of the capital, and could actually decrease the NPV of the investment.13.Yes, the firm should undertake the foreign investment. If, after taking into consideration all risks, aproject in a foreign country has a positive NPV, the firm should undertake it. Note that in practice, the stated assumption (that the adjustment to the discount rate has taken into consideration all political and diversification issues) is a huge task. But once that has been addressed, the net present value principle holds for foreign operations, just as for domestic.14.If the foreign currency depreciates, the U.S. parent will experience an exchange rate loss when theforeign cash flow is remitted to the U.S. This problem could be overcome by selling forward contracts. Another way of overcoming this problem would be to borrow in the country where the project is located.15.False. If the financial markets are perfectly competitive, the difference between the Eurodollar rateand the U.S. rate will be due to differences in risk and government regulation. Therefore, speculating in those markets will not be beneficial.16.The difference between a Eurobond and a foreign bond is that the foreign bond is denominated in thecurrency of the country of origin of the issuing company. Eurobonds are more popular than foreign bonds because of registration differences. Eurobonds are unregistered securities.Solutions to Questions and ProblemsNOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.Basicing the quotes from the table, we get:a.$50(€0.7870/$1) = €39.35b.$1.2706c.€5M($1.2706/€) = $6,353,240d.New Zealand dollare.Mexican pesof.(P11.0023/$1)($1.2186/€1) = P13.9801/€This is a cross rate.g.The most valuable is the Kuwait dinar. The least valuable is the Indonesian rupiah.2. a.You would prefer £100, since:(£100)($.5359/£1) = $53.59b.You would still prefer £100. Using the $/£ exchange rate and the SF/£ exchange rate to find theamount of Swiss francs £100 will buy, we get:(£100)($1.8660/£1)(SF .8233) = SF 226.6489ing the quotes in the book to find the SF/£ cross rate, we find:(SF 1.2146/$1)($0.5359/£1) = SF 2.2665/£1The £/SF exchange rate is the inverse of the SF/£ exchange rate, so:£1/SF .4412 = £0.4412/SF 13. a.F180= ¥104.93 (per $). The yen is selling at a premium because it is more expensive in theforward market than in the spot market ($0.0093659 versus $0.009530).b.F90 = $1.8587/£. The pound is selling at a discount because it is less expensive in the forwardmarket than in the spot market ($0.5380 versus $0.5359).c.The value of the dollar will fall relative to the yen, since it takes more dollars to buy one yen inthe future than it does today. The value of the dollar will rise relative to the pound, because it will take fewer dollars to buy one pound in the future than it does today.4. a.The U.S. dollar, since one Canadian dollar will buy:(Can$1)/(Can$1.26/$1) = $0.7937b.The cost in U.S. dollars is:(Can$2.19)/(Can$1.26/$1) = $1.74Among the reasons that absolute PPP doe sn’t hold are tariffs and other barriers to trade, transactions costs, taxes, and different tastes.c.The U.S. dollar is selling at a discount, because it is less expensive in the forward market thanin the spot market (Can$1.22 versus Can$1.26).d.The Canadian dollar is expected to appreciate in value relative to the dollar, because it takesfewer Canadian dollars to buy one U.S. dollar in the future than it does today.e.Interest rates in the United States are probably higher than they are in Canada.5. a.The cross rate in ¥/£ terms is:(¥115/$1)($1.70/£1) = ¥195.5/£1b.The yen is quoted too low relative to the pound. Take out a loan for $1 and buy ¥115. Use the¥115 to purchase pounds at the cross-rate, which will give you:¥115(£1/¥185) = £0.6216Use the pounds to buy back dollars and repay the loan. The cost to repay the loan will be:£0.6216($1.70/£1) = $1.0568You arbitrage profit is $0.0568 per dollar used.6.We can rearrange the interest rate parity condition to answer this question. The equation we will useis:R FC = (F T– S0)/S0 + R USUsing this relationship, we find:Great Britain: R FC = (£0.5394 – £0.5359)/£0.5359 + .038 = 4.45%Japan: R FC = (¥104.93 – ¥106.77)/¥106.77 + .038 = 2.08%Switzerland: R FC = (SFr 1.1980 – SFr 1.2146)/SFr 1.2146 + .038 = 2.43%7.If we invest in the U.S. for the next three months, we will have:$30M(1.0045)3 = $30,406,825.23If we invest in Great Britain, we must exchange the dollars today for pounds, and exchange the pounds for dollars in three months. After making these transactions, the dollar amount we would have in three months would be:($30M)(£0.56/$1)(1.0060)3/(£0.59/$1) = $28,990,200.05We should invest in U.S.ing the relative purchasing power parity equation:F t = S0 × [1 + (h FC– h US)]tWe find:Z3.92 = Z3.84[1 + (h FC– h US)]3h FC– h US = (Z3.92/Z3.84)1/3– 1h FC– h US = .0069Inflation in Poland is expected to exceed that in the U.S. by 0.69% over this period.9.The profit will be the quantity sold, times the sales price minus the cost of production. Theproduction cost is in Singapore dollars, so we must convert this to U.S. dollars. Doing so, we find that if the exchange rates stay the same, the profit will be:Profit = 30,000[$145 – {(S$168.50)/(S$1.6548/$1)}]Profit = $1,295,250.18If the exchange rate rises, we must adjust the cost by the increased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/1.1(S$1.6548/$1)}]Profit = $1,572,954.71If the exchange rate falls, we must adjust the cost by the decreased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/0.9(S$1.6548/$1)}]Profit = $955,833.53To calculate the breakeven change in the exchange rate, we need to find the exchange rate that make the cost in Singapore dollars equal to the selling price in U.S. dollars, so:$145 = S$168.50/S TS T = S$1.1621/$1S T = –.2978 or –29.78% decline10. a.If IRP holds, then:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.5257Since given F180 is Kr6.56, an arbitrage opportunity exists; the forward premium is too high.Borrow Kr1 today at 8% interest. Agree to a 180-day forward contract at Kr 6.56. Convert the loan proceeds into dollars:Kr 1 ($1/Kr 6.43) = $0.15552Invest these dollars at 5%, ending up with $0.15931. Convert the dollars back into krone as$0.15931(Kr 6.56/$1) = Kr 1.04506Repay the Kr 1 loan, ending with a profit of:Kr1.04506 – Kr1.03868 = Kr 0.00638b.To find the forward rate that eliminates arbitrage, we use the interest rate parity condition, so:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.525711.The international Fisher effect states that the real interest rate across countries is equal. We canrearrange the international Fisher effect as follows to answer this question:R US– h US = R FC– h FCh FC = R FC + h US– R USa.h AUS = .05 + .035 – .039h AUS = .046 or 4.6%b.h CAN = .07 + .035 – .039h CAN = .066 or 6.6%c.h TAI = .10 + .035 – .039h TAI = .096 or 9.6%12. a.The yen is expected to get stronger, since it will take fewer yen to buy one dollar in the futurethan it does today.b.h US– h JAP (¥129.76 – ¥131.30)/¥131.30h US– h JAP = – .0117 or –1.17%(1 – .0117)4– 1 = –.0461 or –4.61%The approximate inflation differential between the U.S. and Japan is – 4.61% annually.13. We need to find the change in the exchange rate over time, so we need to use the relative purchasingpower parity relationship:F t = S0 × [1 + (h FC– h US)]TUsing this relationship, we find the exchange rate in one year should be:F1 = 215[1 + (.086 – .035)]1F1 = HUF 225.97The exchange rate in two years should be:F2 = 215[1 + (.086 – .035)]2F2 = HUF 237.49And the exchange rate in five years should be:F5 = 215[1 + (.086 – .035)]5F5 = HUF 275.71ing the interest-rate parity theorem:(1 + R US) / (1 + R FC) = F(0,1) / S0We can find the forward rate as:F(0,1) = [(1 + R US) / (1 + R FC)] S0F(0,1) = (1.13 / 1.08)$1.50/£F(0,1) = $1.57/£Intermediate15.First, we need to forecast the future spot rate for each of the next three years. From interest rate andpurchasing power parity, the expected exchange rate is:E(S T) = [(1 + R US) / (1 + R FC)]T S0So:E(S1) = (1.0480 / 1.0410)1 $1.22/€ = $1.2282/€E(S2) = (1.0480 / 1.0410)2 $1.22/€ = $1.2365/€E(S3) = (1.0480 / 1.0410)3 $1.22/€ = $1.2448/€Now we can use these future spot rates to find the dollar cash flows. The dollar cash flow each year will be:Year 0 cash flow = –€$12,000,000($1.22/€) = –$14,640,000.00Year 1 cash flow = €$2,700,000($1.2282/€) = $3,316,149.86Year 2 cash flow = €$3,500,000($1.2365/€) = $4,327,618.63Year 3 cash flow = (€3,300,000 + 7,400,000)($1.2448/€) = $13,319,111.90And the NPV of the project will be:NPV = –$14,640,000 + $3,316,149.86/1.13 + $4,4327,618.63/1.132 + $13,319,111.90/1.133NPV = $914,618.7316. a.Implicitly, it is assumed that interest rates won’t change over the life of the project, but theexchange rate is projected to decline because the Euroswiss rate is lower than the Eurodollar rate.b.We can use relative purchasing power parity to calculate the dollar cash flows at each time. Theequation is:E[S T] = (SFr 1.72)[1 + (.07 – .08)]TE[S T] = 1.72(.99)TSo, the cash flows each year in U.S. dollar terms will be:t SFr E[S T] US$0 –27.0M –$15,697,674.421 +7.5M 1.7028 $4,404,510.222 +7.5M 1.6858 $4,449,000.223 +7.5M 1.6689 $4,493,939.624 +7.5M 1.6522 $4,539,332.955 +7.5M 1.6357 $4,585,184.79And the NPV is:NPV = –$15,697,674.42 + $4,404,510.22/1.13 + $4,449,000.22/1.132 + $4,493,939.62/1.133 + $4,539,332.95/1.134 + $4,585,184.79/1.135NPV = $71,580.10c.Rearranging the relative purchasing power parity equation to find the required return in Swissfrancs, we get:R SFr = 1.13[1 + (.07 – .08)] – 1R SFr = 11.87%So, the NPV in Swiss francs is:NPV = –SFr 27.0M + SFr 7.5M(PVIFA11.87%,5)NPV = SFr 123,117.76Converting the NPV to dollars at the spot rate, we get the NPV in U.S. dollars as:NPV = (SFr 123,117.76)($1/SFr 1.72)NPV = $71,580.10Challenge17. a.The domestic Fisher effect is:1 + R US = (1 + r US)(1 + h US)1 + r US = (1 + R US)/(1 + h US)This relationship must hold for any country, that is:1 + r FC = (1 + R FC)/(1 + h FC)The international Fisher effect states that real rates are equal across countries, so:1 + r US = (1 + R US)/(1 + h US) = (1 + R FC)/(1 + h FC) = 1 + r FCb.The exact form of unbiased interest rate parity is:E[S t] = F t = S0 [(1 + R FC)/(1 + R US)]tc.The exact form for relative PPP is:E[S t] = S0 [(1 + h FC)/(1 + h US)]td.For the home currency approach, we calculate the expected currency spot rate at time t as:E[S t] = (€0.5)[1.07/1.05]t= (€0.5)(1.019)tWe then convert the euro cash flows using this equation at every time, and find the present value. Doing so, we find:NPV = –[€2M/(€0.5)] + {€0.9M/[1.019(€0.5)]}/1.1 + {€0.9M/[1.0192(€0.5)]}/1.12 + {€0.9M/[1.0193(€0.5/$1)]}/1.13NPV = $316,230.72For the foreign currency approach, we first find the return in the euros as:R FC = 1.10(1.07/1.05) – 1 = 0.121Next, we find the NPV in euros as:NPV = –€2M + (€0.9M)/1.121 + (€0.9M)/1.1212+ (€0.9M)/1.1213= €158,115.36And finally, we convert the euros to dollars at the current exchange rate, which is:NPV ($) = €158,115.36 /(€0.5/$1) = $316,230.72。
罗斯《公司理财》第9版英文原书课后部分章节答案
罗斯《公司理财》第9版精要版英文原书课后部分章节答案详细»1 / 17 CH5 11，13，18，19，20 11. To find the PV of a lump sum, we use: PV = FV / (1 + r) t PV = $1,000,000 / (1.10) 80 = $488.19 13. To answer this question, we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is: FV = PV(1 + r) t Solving for r, we get: r = (FV / PV) 1 / t –1 r = ($1,260,000 / $150) 1/112 – 1 = .0840 or 8.40% To find the FV of the first prize, we use: FV = PV(1 + r) t FV = $1,260,000(1.0840) 33 = $18,056,409.94 18. To find the FV of a lump sum, we use: FV = PV(1 + r) t FV = $4,000(1.11) 45 = $438,120.97 FV = $4,000(1.11) 35 = $154,299.40 Better start early! 19. We need to find the FV of a lump sum. However, the money will only be invested for six years, so the number of periods is six. FV = PV(1 + r) t FV = $20,000(1.084)6 = $32,449.33 20. To answer this question, we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is: FV = PV(1 + r) t Solving for t, we get: t = ln(FV / PV) / ln(1 + r) t = ln($75,000 / $10,000) / ln(1.11) = 19.31 So, the money must be invested for 19.31 years. However, you will not receive the money for another two years. From now, you’ll wait: 2 years + 19.31 years = 21.31 years CH6 16，24，27，42，58 16. For this problem, we simply need to find the FV of a lump sum using the equation: FV = PV(1 + r) t 2 / 17 It is important to note that compounding occurs semiannually. To account for this, we will divide the interest rate by two (the number of compounding periods in a year), and multiply the number of periods by two. Doing so, we get: FV = $2,100[1 + (.084/2)] 34 = $8,505.93 24. This problem requires us to find the FV A. The equation to find the FV A is: FV A = C{[(1 + r) t – 1] / r} FV A = $300[{[1 + (.10/12) ] 360 – 1} / (.10/12)] = $678,146.38 27. The cash flows are annual and the compounding period is quarterly, so we need to calculate the EAR to make the interest rate comparable with the timing of the cash flows. Using the equation for the EAR, we get: EAR = [1 + (APR / m)] m – 1 EAR = [1 + (.11/4)] 4 – 1 = .1146 or 11.46% And now we use the EAR to find the PV of each cash flow as a lump sum and add them together: PV = $725 / 1.1146 + $980 / 1.1146 2 + $1,360 / 1.1146 4 = $2,320.36 42. The amount of principal paid on the loan is the PV of the monthly payments you make. So, the present value of the $1,150 monthly payments is: PV A = $1,150[(1 – {1 / [1 + (.0635/12)]} 360 ) / (.0635/12)] = $184,817.42 The monthly payments of $1,150 will amount to a principal payment of $184,817.42. The amount of principal you will still owe is: $240,000 – 184,817.42 = $55,182.58 This remaining principal amount will increase at the interest rate on the loan until the end of the loan period. So the balloon payment in 30 years, which is the FV of the remaining principal will be: Balloon payment = $55,182.58[1 + (.0635/12)] 360 = $368,936.54 58. To answer this question, we should find the PV of both options, and compare them. Since we are purchasing the car, the lowest PV is the best option. The PV of the leasing is simply the PV of the lease payments, plus the $99. The interest rate we would use for the leasing option is the same as the interest rate of the loan. The PV of leasing is: PV = $99 + $450{1 –[1 / (1 + .07/12) 12(3) ]} / (.07/12) = $14,672.91 The PV of purchasing the car is the current price of the car minus the PV of the resale price. The PV of the resale price is: PV = $23,000 / [1 + (.07/12)] 12(3) = $18,654.82 The PV of the decision to purchase is: $32,000 – 18,654.82 = $13,345.18 3 / 17 In this case, it is cheaper to buy the car than leasing it since the PV of the purchase cash flows is lower. To find the breakeven resale price, we need to find the resale price that makes the PV of the two options the same. In other words, the PV of the decision to buy should be: $32,000 – PV of resale price = $14,672.91 PV of resale price = $17,327.09 The resale price that would make the PV of the lease versus buy decision is the FV ofthis value, so: Breakeven resale price = $17,327.09[1 + (.07/12)] 12(3) = $21,363.01 CH7 3，18，21，22，31 3. The price of any bond is the PV of the interest payment, plus the PV of the par value. Notice this problem assumes an annual coupon. The price of the bond will be: P = $75({1 – [1/(1 + .0875)] 10 } / .0875) + $1,000[1 / (1 + .0875) 10 ] = $918.89 We would like to introduce shorthand notation here. Rather than write (or type, as the case may be) the entire equation for the PV of a lump sum, or the PV A equation, it is common to abbreviate the equations as: PVIF R,t = 1 / (1 + r) t which stands for Present V alue Interest Factor PVIFA R,t = ({1 – [1/(1 + r)] t } / r ) which stands for Present V alue Interest Factor of an Annuity These abbreviations are short hand notation for the equations in which the interest rate and the number of periods are substituted into the equation and solved. We will use this shorthand notation in remainder of the solutions key. 18. The bond price equation for this bond is: P 0 = $1,068 = $46(PVIFA R%,18 ) + $1,000(PVIF R%,18 ) Using a spreadsheet, financial calculator, or trial and error we find: R = 4.06% This is thesemiannual interest rate, so the YTM is: YTM = 2 4.06% = 8.12% The current yield is:Current yield = Annual coupon payment / Price = $92 / $1,068 = .0861 or 8.61% The effective annual yield is the same as the EAR, so using the EAR equation from the previous chapter: Effective annual yield = (1 + 0.0406) 2 – 1 = .0829 or 8.29% 20. Accrued interest is the coupon payment for the period times the fraction of the period that has passed since the last coupon payment. Since we have a semiannual coupon bond, the coupon payment per six months is one-half of the annual coupon payment. There are four months until the next coupon payment, so two months have passed since the last coupon payment. The accrued interest for the bond is: Accrued interest = $74/2 × 2/6 = $12.33 And we calculate the clean price as: 4 / 17 Clean price = Dirty price –Accrued interest = $968 –12.33 = $955.67 21. Accrued interest is the coupon payment for the period times the fraction of the period that has passed since the last coupon payment. Since we have a semiannual coupon bond, the coupon payment per six months is one-half of the annual coupon payment. There are two months until the next coupon payment, so four months have passed since the last coupon payment. The accrued interest for the bond is: Accrued interest = $68/2 × 4/6 = $22.67 And we calculate the dirty price as: Dirty price = Clean price + Accrued interest = $1,073 + 22.67 = $1,095.67 22. To find the number of years to maturity for the bond, we need to find the price of the bond. Since we already have the coupon rate, we can use the bond price equation, and solve for the number of years to maturity. We are given the current yield of the bond, so we can calculate the price as: Current yield = .0755 = $80/P 0 P 0 = $80/.0755 = $1,059.60 Now that we have the price of the bond, the bond price equation is: P = $1,059.60 = $80[(1 – (1/1.072) t ) / .072 ] + $1,000/1.072 t We can solve this equation for t as follows: $1,059.60(1.072) t = $1,111.11(1.072) t –1,111.11 + 1,000 111.11 = 51.51(1.072) t2.1570 = 1.072 t t = log 2.1570 / log 1.072 = 11.06 11 years The bond has 11 years to maturity.31. The price of any bond (or financial instrument) is the PV of the future cash flows. Even though Bond M makes different coupons payments, to find the price of the bond, we just find the PV of the cash flows. The PV of the cash flows for Bond M is: P M = $1,100(PVIFA 3.5%,16 )(PVIF 3.5%,12 ) + $1,400(PVIFA3.5%,12 )(PVIF 3.5%,28 ) + $20,000(PVIF 3.5%,40 ) P M = $19,018.78 Notice that for the coupon payments of $1,400, we found the PV A for the coupon payments, and then discounted the lump sum back to today. Bond N is a zero coupon bond with a $20,000 par value, therefore, the price of the bond is the PV of the par, or: P N = $20,000(PVIF3.5%,40 ) = $5,051.45 CH8 4，18，20，22，244. Using the constant growth model, we find the price of the stock today is: P 0 = D 1 / (R – g) = $3.04 / (.11 – .038) = $42.22 5 / 17 18. The price of a share of preferred stock is the dividend payment divided by the required return. We know the dividend payment in Year 20, so we can find the price of the stock in Y ear 19, one year before the first dividend payment. Doing so, we get: P 19 = $20.00 / .064 P 19 = $312.50 The price of the stock today is the PV of the stock price in the future, so the price today will be: P 0 = $312.50 / (1.064) 19 P 0 = $96.15 20. We can use the two-stage dividend growth model for this problem, which is: P 0 = [D 0 (1 + g 1 )/(R – g 1 )]{1 – [(1 + g 1 )/(1 + R)] T }+ [(1 + g 1 )/(1 + R)] T [D 0 (1 + g 2 )/(R –g 2 )] P0 = [$1.25(1.28)/(.13 –.28)][1 –(1.28/1.13) 8 ] + [(1.28)/(1.13)] 8 [$1.25(1.06)/(.13 – .06)] P 0 = $69.55 22. We are asked to find the dividend yield and capital gains yield for each of the stocks. All of the stocks have a 15 percent required return, which is the sum of the dividend yield and the capital gains yield. To find the components of the total return, we need to find the stock price for each stock. Using this stock price and the dividend, we can calculate the dividend yield. The capital gains yield for the stock will be the total return (required return) minus the dividend yield. W: P 0 = D 0 (1 + g) / (R – g) = $4.50(1.10)/(.19 – .10) = $55.00 Dividend yield = D 1 /P 0 = $4.50(1.10)/$55.00 = .09 or 9% Capital gains yield = .19 – .09 = .10 or 10% X: P 0 = D 0 (1 + g) / (R – g) = $4.50/(.19 – 0) = $23.68 Dividend yield = D 1 /P 0 = $4.50/$23.68 = .19 or 19% Capital gains yield = .19 – .19 = 0% Y: P 0 = D 0 (1 + g) / (R – g) = $4.50(1 – .05)/(.19 + .05) = $17.81 Dividend yield = D 1 /P 0 = $4.50(0.95)/$17.81 = .24 or 24% Capital gains yield = .19 – .24 = –.05 or –5% Z: P 2 = D 2 (1 + g) / (R – g) = D 0 (1 + g 1 ) 2 (1 +g 2 )/(R – g 2 ) = $4.50(1.20) 2 (1.12)/(.19 – .12) = $103.68 P 0 = $4.50 (1.20) / (1.19) + $4.50(1.20) 2 / (1.19) 2 + $103.68 / (1.19) 2 = $82.33 Dividend yield = D 1 /P 0 = $4.50(1.20)/$82.33 = .066 or 6.6% Capital gains yield = .19 – .066 = .124 or 12.4% In all cases, the required return is 19%, but the return is distributed differently between current income and capital gains. High growth stocks have an appreciable capital gains component but a relatively small current income yield; conversely, mature, negative-growth stocks provide a high current income but also price depreciation over time. 24. Here we have a stock with supernormal growth, but the dividend growth changes every year for the first four years. We can find the price of the stock in Y ear 3 since the dividend growth rate is constant after the third dividend. The price of the stock in Y ear 3 will be the dividend in Y ear 4, divided by the required return minus the constant dividend growth rate. So, the price in Y ear 3 will be: 6 / 17 P3 = $2.45(1.20)(1.15)(1.10)(1.05) / (.11 – .05) = $65.08 The price of the stock today will be the PV of the first three dividends, plus the PV of the stock price in Y ear 3, so: P 0 = $2.45(1.20)/(1.11) + $2.45(1.20)(1.15)/1.11 2 + $2.45(1.20)(1.15)(1.10)/1.11 3 + $65.08/1.11 3 P 0 = $55.70 CH9 3，4，6，9，15 3. Project A has cash flows of $19,000 in Y ear 1, so the cash flows are short by $21,000 of recapturing the initial investment, so the payback for Project A is: Payback = 1 + ($21,000 / $25,000) = 1.84 years Project B has cash flows of: Cash flows = $14,000 + 17,000 + 24,000 = $55,000 during this first three years. The cash flows are still short by $5,000 of recapturing the initial investment, so the payback for Project B is: B: Payback = 3 + ($5,000 / $270,000) = 3.019 years Using the payback criterion and a cutoff of 3 years, accept project A and reject project B. 4. When we use discounted payback, we need to find the value of all cash flows today. The value today of the project cash flows for the first four years is: V alue today of Y ear 1 cash flow = $4,200/1.14 = $3,684.21 V alue today of Y ear 2 cash flow = $5,300/1.14 2 = $4,078.18 V alue today of Y ear 3 cash flow = $6,100/1.14 3 = $4,117.33 V alue today of Y ear 4 cash flow = $7,400/1.14 4 = $4,381.39 To findthe discounted payback, we use these values to find the payback period. The discounted first year cash flow is $3,684.21, so the discounted payback for a $7,000 initial cost is: Discounted payback = 1 + ($7,000 – 3,684.21)/$4,078.18 = 1.81 years For an initial cost of $10,000, the discounted payback is: Discounted payback = 2 + ($10,000 –3,684.21 –4,078.18)/$4,117.33 = 2.54 years Notice the calculation of discounted payback. We know the payback period is between two and three years, so we subtract the discounted values of the Y ear 1 and Y ear 2 cash flows from the initial cost. This is the numerator, which is the discounted amount we still need to make to recover our initial investment. We divide this amount by the discounted amount we will earn in Y ear 3 to get the fractional portion of the discounted payback. If the initial cost is $13,000, the discounted payback is: Discounted payback = 3 + ($13,000 – 3,684.21 – 4,078.18 – 4,117.33) / $4,381.39 = 3.26 years 7 / 17 6. Our definition of AAR is the average net income divided by the average book value. The average net income for this project is: A verage net income = ($1,938,200 + 2,201,600 + 1,876,000 + 1,329,500) / 4 = $1,836,325 And the average book value is: A verage book value = ($15,000,000 + 0) / 2 = $7,500,000 So, the AAR for this project is: AAR = A verage net income / A verage book value = $1,836,325 / $7,500,000 = .2448 or 24.48% 9. The NPV of a project is the PV of the outflows minus the PV of the inflows. Since the cash inflows are an annuity, the equation for the NPV of this project at an 8 percent required return is: NPV = –$138,000 + $28,500(PVIFA 8%, 9 ) = $40,036.31 At an 8 percent required return, the NPV is positive, so we would accept the project. The equation for the NPV of the project at a 20 percent required return is: NPV = –$138,000 + $28,500(PVIFA 20%, 9 ) = –$23,117.45 At a 20 percent required return, the NPV is negative, so we would reject the project. We would be indifferent to the project if the required return was equal to the IRR of the project, since at that required return the NPV is zero. The IRR of the project is: 0 = –$138,000 + $28,500(PVIFA IRR, 9 ) IRR = 14.59% 15. The profitability index is defined as the PV of the cash inflows divided by the PV of the cash outflows. The equation for the profitability index at a required return of 10 percent is: PI = [$7,300/1.1 + $6,900/1.1 2 + $5,700/1.1 3 ] / $14,000 = 1.187 The equation for the profitability index at a required return of 15 percent is: PI = [$7,300/1.15 + $6,900/1.15 2 + $5,700/1.15 3 ] / $14,000 = 1.094 The equation for the profitability index at a required return of 22 percent is: PI = [$7,300/1.22 + $6,900/1.22 2 + $5,700/1.22 3 ] / $14,000 = 0.983 8 / 17 We would accept the project if the required return were 10 percent or 15 percent since the PI is greater than one. We would reject the project if the required return were 22 percent since the PI。
理财知识-英文版罗斯公司理财习题答案Chap020 精品
CHAPTER 20INTERNATIONAL CORPORATE FINANCEAnswers to Concepts Review and Critical Thinking Questions1. a.The dollar is selling at a premium because it is more expensive in the forward market than inthe spot market (SFr 1.53 versus SFr 1.50).b.The franc is expected to depreciate relative to the dollar because it will take more francs to buyone dollar in the future than it does today.c.Inflation in Switzerland is higher than in the United States, as are nominal interest rates.2.The exchange rate will increase, as it will take progressively more pesos to purchase a dollar. This isthe relative PPP relationship.3. a.The Australian dollar is expected to weaken relative to the dollar, because it will take moreA$ in the future to buy one dollar than it does today.b.The inflation rate in Australia is higher.c.Nominal interest rates in Australia are higher; relative real rates in the two countries are thesame.4. A Yankee bond is most accurately described by d.5. No. For example, if a country’s currency strengthens, imports bee cheaper (good), but its exports beemore expensive for others to buy (bad). The reverse is true for currency depreciation.6.Additional advantages include being closer to the final consumer and, thereby, saving ontransportation, significantly lower wages, and less exposure to exchange rate risk. Disadvantages include political risk and costs of supervising distant operations.7.One key thing to remember is that dividend payments are made in the home currency. Moregenerally, it may be that the owners of the multinational are primarily domestic and are ultimately concerned about their wealth denominated in their home currency because, unlike a multinational, they are not internationally diversified.8. a.False. If prices are rising faster in Great Britain, it will take more pounds to buy the sameamount of goods that one dollar can buy; the pound will depreciate relative to the dollar.b.False. The forward market would already reflect the projected deterioration of the euro relativeto the dollar. Only if you feel that there might be additional, unanticipated weakening of the euro that isn’t reflected in forward rates today, will the forward hedge protect you against additional declines.c.True. The market would only be correct on average, while you would be correct all the time.9. a.American exporters: their situation in general improves because a sale of the exported goods fora fixed number of euros will be worth more dollars.American importers: their situation in general worsens because the purchase of the importedgoods for a fixed number of euros will cost more in dollars.b.American exporters: they would generally be better off if the British government’s intentionsresult in a strengthened pound.American importers: they would generally be worse off if the pound strengthens.c.American exporters: they would generally be much worse off, because an extreme case of fiscalexpansion like this one will make American goods prohibitively expensive to buy, or else Brazilian sales, if fixed in cruzeiros, would bee worth an unacceptably low number of dollars.American importers: they would generally be much better off, because Brazilian goods will beemuch cheaper to purchase in dollars.10.IRP is the most likely to hold because it presents the easiest and least costly means to exploit anyarbitrage opportunities. Relative PPP is least likely to hold since it depends on the absence of market imperfections and frictions in order to hold strictly.11.It all depends on whether the forward market expects the same appreciation over the period andwhether the expectation is accurate. Assuming that the expectation is correct and that other traders do not have the same information, there will be value to hedging the currency exposure.12.One possible reason investment in the foreign subsidiary might be preferred is if this investmentprovides direct diversification that shareholders could not attain by investing on their own. Another reason could be if the political climate in the foreign country was more stable than in the home country. Increased political risk can also be a reason you might prefer the home subsidiary investment. Indonesia can serve as a great example of political risk. If it cannot be diversified away, investing in this type of foreign country will increase the systematic risk. As a result, it will raise the cost of the capital, and could actually decrease the NPV of the investment.13.Yes, the firm should undertake the foreign investment. If, after taking into consideration all risks, aproject in a foreign country has a positive NPV, the firm should undertake it. Note that in practice, the stated assumption (that the adjustment to the discount rate has taken into consideration all political and diversification issues) is a huge task. But once that has been addressed, the net present value principle holds for foreign operations, just as for domestic.14.If the foreign currency depreciates, the U.S. parent will experience an exchange rate loss when theforeign cash flow is remitted to the U.S. This problem could be overe by selling forward contracts.Another way of overing this problem would be to borrow in the country where the project is located.15.False. If the financial markets are perfectly petitive, the difference between the Eurodollar rate andthe U.S. rate will be due to differences in risk and government regulation. Therefore, speculating in those markets will not be beneficial.16.The difference between a Eurobond and a foreign bond is that the foreign bond is denominated in thecurrency of the country of origin of the issuing pany. Eurobonds are more popular than foreign bonds because of registration differences. Eurobonds are unregistered securities.Solutions to Questions and ProblemsNOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.Basicing the quotes from the table, we get:a.$50(€0.7870/$1) = €39.35b.$1.2706c.€5M($1.2706/€) = $6,353,240d.New Zealand dollare.Mexican pesof.(P11.0023/$1)($1.2186/€1) = P13.9801/€This is a cross rate.g.The most valuable is the Kuwait dinar. The least valuable is the Indonesian rupiah.2. a.You would prefer £100, since:(£100)($.5359/£1) = $53.59b.You would still prefer £100. Using the $/£ exchange rate and the SF/£ exchange rate to find theamount of Swiss francs £100 will buy, we get:(£100)($1.8660/£1)(SF .8233) = SF 226.6489ing the quotes in the book to find the SF/£ cross rate, we find:(SF 1.2146/$1)($0.5359/£1) = SF 2.2665/£1The £/SF exchange rate is the inverse of the SF/£ exchange rate, so:£1/SF .4412 = £0.4412/SF 13. a.F180= ¥104.93 (per $). The yen is selling at a premium because it is more expensive in theforward market than in the spot market ($0.0093659 versus $0.009530).b.F90 = $1.8587/£. The pound is selling at a discount because it is less expensive in the forwardmarket than in the spot market ($0.5380 versus $0.5359).c.The value of the dollar will fall relative to the yen, since it takes more dollars to buy one yen inthe future than it does today. The value of the dollar will rise relative to the pound, because it will take fewer dollars to buy one pound in the future than it does today.4. a.The U.S. dollar, since one Canadian dollar will buy:(Can$1)/(Can$1.26/$1) = $0.7937b.The cost in U.S. dollars is:(Can$2.19)/(Can$1.26/$1) = $1.74Among the reasons that absolute PPP doesn’t hold are tariffs an d other barriers to trade, transactions costs, taxes, and different tastes.c.The U.S. dollar is selling at a discount, because it is less expensive in the forward market thanin the spot market (Can$1.22 versus Can$1.26).d.The Canadian dollar is expected to appreciate in value relative to the dollar, because it takesfewer Canadian dollars to buy one U.S. dollar in the future than it does today.e.Interest rates in the United States are probably higher than they are in Canada.5. a.The cross rate in ¥/£ terms is:(¥115/$1)($1.70/£1) = ¥195.5/£1b.The yen is quoted too low relative to the pound. Take out a loan for $1 and buy ¥115. Use the¥115 to purchase pounds at the cross-rate, which will give you:¥115(£1/¥185) = £0.6216Use the pounds to buy back dollars and repay the loan. The cost to repay the loan will be:£0.6216($1.70/£1) = $1.0568You arbitrage profit is $0.0568 per dollar used.6.We can rearrange the interest rate parity condition to answer this question. The equation we will useis:R FC = (F T– S0)/S0 + R USUsing this relationship, we find:Great Britain: R FC = (£0.5394 – £0.5359)/£0.5359 + .038 = 4.45%Japan: R FC = (¥104.93 – ¥106.77)/¥106.77 + .038 = 2.08%Switzerland: R FC = (SFr 1.1980 – SFr 1.2146)/SFr 1.2146 + .038 = 2.43%7.If we invest in the U.S. for the next three months, we will have:$30M(1.0045)3 = $30,406,825.23If we invest in Great Britain, we must exchange the dollars today for pounds, and exchange the pounds for dollars in three months. After making these transactions, the dollar amount we would have in three months would be:($30M)(£0.56/$1)(1.0060)3/(£0.59/$1) = $28,990,200.05We should invest in U.S.ing the relative purchasing power parity equation:F t = S0 × [1 + (h FC– h US)]tWe find:Z3.92 = Z3.84[1 + (h FC– h US)]3h FC– h US = (Z3.92/Z3.84)1/3– 1h FC– h US = .0069Inflation in Poland is expected to exceed that in the U.S. by 0.69% over this period.9.The profit will be the quantity sold, times the sales price minus the cost of production. Theproduction cost is in Singapore dollars, so we must convert this to U.S. dollars. Doing so, we find that if the exchange rates stay the same, the profit will be:Profit = 30,000[$145 – {(S$168.50)/(S$1.6548/$1)}]Profit = $1,295,250.18If the exchange rate rises, we must adjust the cost by the increased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/1.1(S$1.6548/$1)}]Profit = $1,572,954.71If the exchange rate falls, we must adjust the cost by the decreased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/0.9(S$1.6548/$1)}]Profit = $955,833.53To calculate the breakeven change in the exchange rate, we need to find the exchange rate that make the cost in Singapore dollars equal to the selling price in U.S. dollars, so:$145 = S$168.50/S TS T = S$1.1621/$1S T = –.2978 or –29.78% decline10. a.If IRP holds, then:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.5257Since given F180 is Kr6.56, an arbitrage opportunity exists; the forward premium is too high.Borrow Kr1 today at 8% interest. Agree to a 180-day forward contract at Kr 6.56. Convert the loan proceeds into dollars:Kr 1 ($1/Kr 6.43) = $0.15552Invest these dollars at 5%, ending up with $0.15931. Convert the dollars back into krone as$0.15931(Kr 6.56/$1) = Kr 1.04506Repay the Kr 1 loan, ending with a profit of:Kr1.04506 – Kr1.03868 = Kr 0.00638b.To find the forward rate that eliminates arbitrage, we use the interest rate parity condition, so:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.525711.The international Fisher effect states that the real interest rate across countries is equal. We canrearrange the international Fisher effect as follows to answer this question:R US– h US = R FC– h FCh FC = R FC + h US– R USa.h AUS = .05 + .035 – .039h AUS = .046 or 4.6%b.h CAN = .07 + .035 – .039h CAN = .066 or 6.6%c.h TAI = .10 + .035 – .039h TAI = .096 or 9.6%12. a.The yen is expected to get stronger, since it will take fewer yen to buy one dollar in the futurethan it does today.b.h US– h JAP (¥129.76 – ¥131.30)/¥131.30h US– h JAP = – .0117 or –1.17%(1 – .0117)4– 1 = –.0461 or –4.61%The approximate inflation differential between the U.S. and Japan is – 4.61% annually.13. We need to find the change in the exchange rate over time, so we need to use the relative purchasingpower parity relationship:F t = S0 × [1 + (h FC– h US)]TUsing this relationship, we find the exchange rate in one year should be:F1 = 215[1 + (.086 – .035)]1F1 = HUF 225.97The exchange rate in two years should be:F2 = 215[1 + (.086 – .035)]2F2 = HUF 237.49And the exchange rate in five years should be:F5 = 215[1 + (.086 – .035)]5F5 = HUF 275.71ing the interest-rate parity theorem:(1 + R US) / (1 + R FC) = F(0,1) / S0We can find the forward rate as:F(0,1) = [(1 + R US) / (1 + R FC)] S0F(0,1) = (1.13 / 1.08)$1.50/£F(0,1) = $1.57/£Intermediate15.First, we need to forecast the future spot rate for each of the next three years. From interest rate andpurchasing power parity, the expected exchange rate is:E(S T) = [(1 + R US) / (1 + R FC)]T S0So:E(S1) = (1.0480 / 1.0410)1 $1.22/€ = $1.2282/€E(S2) = (1.0480 / 1.0410)2 $1.22/€ = $1.2365/€E(S3) = (1.0480 / 1.0410)3 $1.22/€ = $1.2448/€Now we can use these future spot rates to find the dollar cash flows. The dollar cash flow each year will be:Year 0 cash flow = –€$12,000,000($1.22/€) = –$14,640,000.00Year 1 cash flow = €$2,700,000($1.2282/€) = $3,316,149.86Year 2 cash flow = €$3,500,000($1.2365/€) = $4,327,618.63Year 3 cash flow = (€3,300,000 + 7,400,000)($1.2448/€) = $13,319,111.90And the NPV of the project will be:NPV = –$14,640,000 + $3,316,149.86/1.13 + $4,4327,618.63/1.132 + $13,319,111.90/1.133NPV = $914,618.7316. a.Implicitly, it is assumed that interest rates won’t change over the life of the project, but theexchange rate is projected to decline because the Euroswiss rate is lower than the Eurodollar rate.b.We can use relative purchasing power parity to calculate the dollar cash flows at each time. Theequation is:E[S T] = (SFr 1.72)[1 + (.07 – .08)]TE[S T] = 1.72(.99)TSo, the cash flows each year in U.S. dollar terms will be:t SFr E[S T] US$0 –27.0M –$15,697,674.421 +7.5M 1.7028 $4,404,510.222 +7.5M 1.6858 $4,449,000.223 +7.5M 1.6689 $4,493,939.624 +7.5M 1.6522 $4,539,332.955 +7.5M 1.6357 $4,585,184.79And the NPV is:NPV = –$15,697,674.42 + $4,404,510.22/1.13 + $4,449,000.22/1.132 + $4,493,939.62/1.133 + $4,539,332.95/1.134 + $4,585,184.79/1.135NPV = $71,580.10c.Rearranging the relative purchasing power parity equation to find the required return in Swissfrancs, we get:R SFr = 1.13[1 + (.07 – .08)] – 1R SFr = 11.87%So, the NPV in Swiss francs is:NPV = –SFr 27.0M + SFr 7.5M(PVIFA11.87%,5)NPV = SFr 123,117.76Converting the NPV to dollars at the spot rate, we get the NPV in U.S. dollars as:NPV = (SFr 123,117.76)($1/SFr 1.72)NPV = $71,580.10Challenge17. a.The domestic Fisher effect is:1 + R US = (1 + r US)(1 + h US)1 + r US = (1 + R US)/(1 + h US)This relationship must hold for any country, that is:1 + r FC = (1 + R FC)/(1 + h FC)The international Fisher effect states that real rates are equal across countries, so:1 + r US = (1 + R US)/(1 + h US) = (1 + R FC)/(1 + h FC) = 1 + r FCb.The exact form of unbiased interest rate parity is:E[S t] = F t = S0 [(1 + R FC)/(1 + R US)]tc.The exact form for relative PPP is:E[S t] = S0 [(1 + h FC)/(1 + h US)]td.For the home currency approach, we calculate the expected currency spot rate at time t as:E[S t] = (€0.5)[1.07/1.05]t= (€0.5)(1.019)tWe then convert the euro cash flows using this equation at every time, and find the present value. Doing so, we find:NPV = –[€2M/(€0.5)] + {€0.9M/[1.019(€0.5)]}/1.1 + {€0.9M/[1.0192(€0.5)]}/1.12 + {€0.9M/[1.0193(€0.5/$1)]}/1.13NPV = $316,230.72For the foreign currency approach, we first find the return in the euros as:R FC = 1.10(1.07/1.05) – 1 = 0.121Next, we find the NPV in euros as:NPV = –€2M + (€0.9M)/1.121 + (€0.9M)/1.1212+ (€0.9M)/1.1213= €158,115.36And finally, we convert the euros to dollars at the current exchange rate, which is:NPV ($) = €158,115.36 /(€0.5/$1) = $316,230.72。
公司理财 习题库 Chap020
CHAPTER 20Cash and Liquidity Management I. DEFINITIONSSPECULATIVE MOTIVEa 1. The need to hold cash to take advantage of additional investment opportunities iscalled the _____ motive.a. speculativeb. precautionaryc. transactiond. floate. compensating balancesPRECAUTIONARY MOTIVEb 2. The need to hold cash as a safety margin to act as a financial reserve is called the_____ motive.a. speculativeb. precautionaryc. transactiond. floate. compensating balancesTRANSACTION MOTIVEc 3. The need to hold cash to satisfy the ongoing disbursement and collection activities of afirm as part of its daily operations is called the _____ motive.a. speculativeb. precautionaryc. transactiond. floate. compensating balancesLEDGER BALANCEd 4. The balance of cash shown by a firm on its boo ks at any one time is the firm’s:a. tax balance.b. ready balance.c. speculative cash.d. ledger balance.e. available balance.AVAILABLE BALANCEe 5. The balance of cash in a firm’s bank account that can be spent is the firm’s:a. tax balance.b. book value.c. float.d. ledger balance.e. available balance.CHAPTER 20FLOATc 6. The difference between a firm’s ledger balance and its available balance is called thefirm’s:a. tax balance.b. market value of cash.c. float.d. book balance.e. collected balance.LOCKBOXESb 7. _____ are special post office boxes often set up by a firm to expedite the receipt andprocessing of its accounts receivables payments.a. Float managersb. Lockboxesc. Open accountsd. Open boxese. List-on-demand boxesCASH CONCENTRATIONa 8. The practice of and procedures for moving cash from multiple banks into a firm’scentralized bank account is known as:a. cash concentration.b. strategic cash disbursement.c. transfer flotation.d. payables management.e. float management.ZERO-BALANCE ACCOUNTd 9. A disbursement account for which the firm maintains no balance, transferring in fundsfrom a master account only when needed to cover demands for payment, is called a_____ account.a. lockboxb. cleanupc. compensating balanced. zero-balancee. revolvingCONTROLLED DISBURSEMENT ACCOUNTe 10. An account where the firm transfers in funds, usually from a master account, in anamount sufficient to cover demands for payment, is called a _____ account.a. lockboxb. cleanupc. compensating balanced. revolvinge. controlled disbursementCHAPTER 20 APPENDIX: TARGET CASH BALANCEa 11. The firm’s desired cash level as determined by the tradeoff between carrying costs a ndshortage costs is called its:a. target cash balance.b. adjustment costs.c. variable costs.d. total costs.e. compensating balance.APPENDIX: ADJUSTMENT COSTSb 12. The costs of holding too little cash are called _____ costs.a. carryingb. adjustmentc. maintenanced. variablee. totalII. CONCEPTSMOTIVES FOR LIQUIDITYb13. Which one of the following statements is correct concerning a motive for maintaining liquidity?a. Firms should maintain compensating balances just in case they encounter anemergency situation.b. Firms need to hold cash as a buffer between inflowing and outflowing transactions.c. International firms have a transactional motive to hold cash in case favorable exchangerates become available.d. Firms need to hold cash for precautionary motives especially since money marketaccounts are not very liquid.e. The increasing use of electronic funds transfers is increasing the transactional motiveto hold cash.DISBURSEMENTS FLOATd 14. Disbursement float:I. is created by checks which have been deposited into a firm’s bank account but whichhave not yet cleared.II. is sometimes used by firms to fund short-term investments even though such use is ethically questionable.III. is created by any transaction which decreases a firm’s book balance but not its available cash balance.IV. is virtually eliminated when payments are made electronically.a. I and III onlyb. II and IV onlyc. I, II, and IV onlyd. II, III, and IV onlye. I, II, III, and IVCHAPTER 20COLLECTION FLOATe 15. Collection float:a. is more desirable to firms than disbursement float.b. is fully eliminated by the installation of a lockbox system.c. exists when a firm’s available balance exceeds its book balance.d. increases for a firm when its customers opt to pay their bills electronically.e. can increase the investment income of a firm if the firm can eliminate such float. NET FLOATd 16. Net float:I. is the sum of the total collection and disbursements float.II. that is positive is preferred by firms over net float that is negative.III. that is positive is called net collection float.IV. is the difference between a firm’s ledger balance and its available balance.a. I and II onlyb. III and IV onlyc. I, II, and III onlyd. I, II, and IV onlye. II, III, and IV onlyETHICAL ISSUEd 17. Check kiting:a. is ethical.b. occurs when you write checks against the collection float of your firm.c. is widely practiced by most corporations.d. is the exploitation of disbursement float through the use of checks.e. is increasing due to recent improvements in the banking system.COLLECTION TIMEd 18. Collection time:a. is equal to mail time plus the processing delay minus the availability delay.b. increases when payments are made electronically.c. increases when customers’ bills are sent electronically.d. is decreased when customers pay at the point of sale rather than when they are billed.e. is independent of the business nature of a firm.COLLECTION TIMEc 19. Which of the following will decrease the total collection time for a firm?I. implementing a lockbox systemII. billing customers electronicallyIII. establishing preauthorized payment arrangementsIV. accepting debit card transactionsa. I and III onlyb. II and IV onlyc. I, III, and IV onlyd. II, III, and IV onlye. I, II, III, and IVCHAPTER 20 COLLECTION TIMEe 20. Which of the following should help reduce the total collection time for your firm?I. collecting your firm’s mail earlier in th e morning and delivering it directly to thepeople who process these paymentsII. adding additional staff in the mornings for mail and payment processingIII. providing a discount for customers who pay electronicallyIV. establishing preauthorized payments for fixed payments from customersa. I and II onlyb. III and IV onlyc. II, III, and IV onlyd. I, II, and IV onlye. I, II, III, and IVLOCKBOXESb 21. A lockbox system:a. entails the use of a bank which is centrally located to collect payments on a nationwidebasis.b. deposits customer checks prior to recording customer payments to their respectivereceivable accounts.c. is used to reduce the disbursement float of a firm.d. is efficient irregardless of the locations selected for lockbox destinations.e. entails the posting of customer payments to their receivables account followed by adeposit of the funds received.LOCKBOXESa 22. Lockboxes:a. should be geographically located close to a firm’s primary customers.b. should be located in remote locations to increase the net disbursement float.c. that are electronic are less efficient than traditional lockboxes.d. tend to be negative net present value projects for firms with a large number ofsizeable transactions.e. tend to also be used as concentration accounts.CASH CONCENTRATIONa 23. Cash concentration accounts:a. tend to increase the funds available for short-term investing.b. tend to increase the complexity of a firm’s cash management.c. that utilize wire transfers are the cheapest to maintain from a cost point of view.d. receive checks directly from all of a firm’s customers.e. are all zero-balance accounts.CHAPTER 20CASH CONCENTRATIONe 24. Which one of the following statements is correct?a. Funds received via an automated clearinghouse transfer is available that day.b. A depository transfer check is the most costly means of transferring funds into a cashconcentration account.c. The means selected to transfer funds is dependent upon both the size and the numberof checks received at a collection point.d. Concentration accounts are used to transfer funds to lockbox locations as needed.e. The most expedient means of transferring funds into a concentration account is a wiretransfer.CASH CONCENTRATIONd 25. A cash concentration account:I. is frequently used to fund the purchase of repurchase agreements.II. could be used to cover a compensating balance requirement.III. is oftentimes used to transfer funds into zero-balance or controlled disbursements accounts.IV. is managed by the credit manager of a firm.a. I and III onlyb. II and IV onlyc. II and III onlyd. I, II, and III onlye. I, II, III, and IVCASH CONCENTRATIONc 26. The main purpose of a cash concentration account is to:a. decrease collection float.b. decrease disbursement float.c. consolidate funds.d. replace a lockbox system.e. cover compensating balance requirements.CASH CONCENTRATIONb 27. Which one of the following statements is correct?a. Cash concentration accounts apply only to firms with geographically diversifiedmanufacturing facilities.b. Cash concentration accounts should improve the efficiency of a firm’s cashmanagement.c. A firm with a lock-box system does not need a concentration account.d. Firms generally need multiple concentration accounts.e. Concentration accounts are not needed when a firm’s disbursements are all doneelectronically.ZERO-BALANCE ACCOUNTSc 28. A zero balance account:a. is used to cover the compensating balance requirement of a line of credit agreement.b. is only used to deposit funds received at local lockboxes.c. is funded on an as-needed basis only.d. is limited to handling payroll disbursements.e. requires a compensating balance.CHAPTER 20 ZERO-BALANCE ACCOUNTSc 29. Which one of the following statements is correct concerning zero-balance accounts?a. Each zero-balance account is offset by a compensating balance account.b. Zero-balance accounts are used for depositing incoming funds.c. A master account must be used in conjunction with a zero-balance account.d. Zero-balance accounts are used solely in conjunction with a lockbox system.e. Zero-balance accounts are still required to maintain a minimal balance. MANAGEMENT OF CASH SURPLUS/DEFICITc 30. Which one of the following statements is correct?a. Short-term assets that trade in the money market account mature in two years or less.b. Banks forbid the transference of excess funds from a checking account into aninvestment account on a daily basis.c. Firms sometimes create a temporary cash surplus because they are saving funds for amajor expenditure.d. Cyclical firms increase their long-term financing such that they continually have a cashsurplus.e. Corporations are not permitted to use money market mutual funds but can use bankmoney market accounts.MANAGEMENT OF CASH SURPLUS/DEFICITe 31. Which two of the following are the primary reasons why firms have cash surpluses?I. cyclical activitiesII. desire to invest fundsIII. excessive short-term financingIV. financing of planned expendituresa. I and III onlyb. II and IV onlyc. I and II onlyd. III and IV onlye. I and IV onlySHORT-TERM SECURITIESc 32. Which one of the following statements is correct?a. Short-term securities are more interest rate sensitive than long-term securities.b. The rate of return earned on short-term securities tends to exceed that earned on long-term securities.c. U.S. Treasury bills are well suited for short-term investments.d. The income earned on U.S. Treasury bills is exempt from all taxation.e. Short-term investments tend to have high levels of default risk.SHORT-TERM SECURITIESa 33. Municipal bonds:a. are less marketable than U.S. Treasury bills.b. produce income which is taxed at the federal level.c. generally carry a higher coupon rate than corporate bonds.d. are also referred to as commercial paper.e. are issued by the federal government.CHAPTER 20SHORT-TERM SECURITIESd 34. Which of the following are characteristics of money market securities?I. long-term maturitiesII. low default riskIII. highly marketableIV. very liquida. I and III onlyb. II and III onlyc. I and IV onlyd. II, III, and IV onlye. I, II, III, and IVSHORT-TERM SECURITIESe 35. A jumbo CD:a. is issued by the federal government.b. generally matures between 2 and 5 years.c. is a loan of $100,000 or more to a state.d. with a 6-month maturity is generally illiquid.e. is a short-term loan to a commercial bank.SHORT-TERM SECURITIESb 36. Assume that your firm buys a U.S. Treasury bill today with the understanding that theseller will buy it back tomorrow at a slightly higher price. This investment is known asa:a. commercial paper transaction.b. repurchase agreement.c. private certificate of deposit.d. revenue anticipation note.e. jumbo CD.SHORT-TERM SECURITIESd 37. A money market preferred stock:a. has a fixed dividend.b. is sold only with the agreement that it will be repurchased by the seller within theweek.c. is a special form of commercial paper.d. provides tax advantaged income to corporations.e. has its interest rate reset daily.APPENDIX: TARGET CASH BALANCEc 38. The target cash balance can be defined as the point where the:a. opportunity costs of holding cash are equal to zero.b. opportunity costs of holding cash are maximized.c. opportunity costs of holding cash are equal to the trading costs.d. trading costs are equal to zero.e. trading costs are maximized.CHAPTER 20 APPENDIX: BAT MODELb 39. Which of the following statements are correct concerning the BAT model?I. This model is used to determine the optimal debt-equity ratio for a firm.II. One advantage of the BAT model is that it assumes that a firm has a constant cash outflow every day.III. The BAT model is a complex model designed to estimate the cash flows of a firm.IV. One disadvantage of the BAT model is the fact that it assumes all cash outflows are known with certainty.a. I onlyb. IV onlyc. II and III onlyd. I and II onlye. III and IV onlyAPPENDIX: BAT MODELe 40. Which of the following are needed to determine the optimal strategy using the BATmodel?I. the amount of cash needed for transactions over a period of timeII. management’s desired lower level of cashIII. the opportunity cost of holding cashIV. the fixed cost of a securities tradea. II onlyb. I and III onlyc. II and IV onlyd. III and IV onlye. I, III, and IV onlyAPPENDIX: BAT MODELb 41. The BAT model is used to:a. maximize the benefits of leverage.b. determine the optimal cash position of a firm.c. eliminate all daily cash surpluses.d. analyze the cash balance given fluctuating cash inflows and outflows.e. maximize the opportunity costs of holding cash.APPENDIX: MILLER-ORR MODELe 42. The Miller-Orr model assumes that:a. all cash flows are constant.b. all cash flows are known with certainty.c. the average change in the daily cash flows is positive and continually increasing.d. management sets the upper cash limit.e. all cash flows fluctuate randomly.CHAPTER 20APPENDIX: MILLER-ORR MODELe 43. The Miller-Orr model:a. is more simplistic than the BAT model.b. analyzes cash balances within both an upper limit and a lower limit as set bymanagement.c. bases the optimal level of cash solely on the opportunity costs of holding cash.d. supports the argument that the target cash balance declines as order costs increase.e. is based on cash flows that randomly fluctuate.APPENDIX: TARGET CASH BALANCEd 44. Which of the following statements is (are) correct?I. A firm has a greater likelihood of needing an unexpected loan when its cash flows arerelatively constant over time.II. The cost of borrowing and the cost of selling securities affect the target cash balance of a firm.III. Management’s desire to maintain a low cash balance affects their need to borrow money.IV. The target cash balance decreases as the interest rate rises.a. II and III onlyb. II and IV onlyc. I, II, and IV onlyd. II, III, and IV onlye. I, II, III, and IVIII. PROBLEMSDISBURSEMENT FLOATe 45. You have a ledger balance of $1,500. You have $2,500 in uncollected deposits and$4,300 in outstanding checks. What is the amount of your disbursement float?a. -$300b. $0c. $1,000d. $2,800e. $4,300DISBURSEMENT FLOATe 46. On an average day, your firm writes 20 checks with an average amount of $430. Thesechecks clear your bank in an average of 4 days. What is the average amount of yourdisbursement float?a. $1,720b. $2,150c. $8,600d. $17,200e. $34,400COLLECTION FLOATc 47. Your firm receives 30 checks from customers on an average day. These checks, onaverage, are worth $45 each and clear the bank in 5 days. In addition, your firm mailsout 20 checks a day with an average amount of $42. These checks clear your bank in 4days. What is the average amount of the collection float?a. $3,360b. $3,390c. $6,750d. $7,240e. $10,110COLLECTION FLOATb 48. When you reconciled your checkbook, you had an adjusted bank balance of $2,650.You had 6 checks outstanding with a total value of $4,100 and 2 outstanding depositsworth $1,200 each. What is the amount of your collection float?a. $1,200b. $2,400c. $6,500d. $24,600e. $27,000NET FLOATd 49. Your firm has an available balance of $1,380 and a ledger balance of $1,210. Thedeposit of $560 that was made today is not yet included in the bank’s balance. Thereare also 5 checks outstanding with a total value of $730. What is the net float?a. net collection float of $170b. net collection float of $340c. net float of $0d. net disbursement float of $170e. net disbursement float of $340NET FLOATa 50. A firm has $23,630 in outstanding checks that have not cleared the bank. The firm alsohas $31,000 in deposits that have been recorded by the firm but not by the bank. Thecurrent available balance is $14,710. What is the status of the net float?a. net collection float of $7,370b. net collection float of $22,080c. net collection float of $31,000d. net disbursement float of $7,370e. net disbursement float of $22,080a 51. Your firm generally receives 4 checks a month. The check amounts and the collectiondelay for each check is shown below. Given this information what is the amount of theaverage daily float? Assume a 30-day month.Item Number Item Amount Delay1 $2,500 42 $8,700 33 $6,000 24 $9,500 6a. $3,503.33b. $4,450.00c. $6,675.00d. $7,006.67e. $9,500.00AVERAGE DAILY FLOATb 52. Your firm generally receives 3 checks a month. A month is defined as a 30-day period.The check amounts and the collection delay for each check are shown below. Giventhis information, what is the amount of the average daily float?Item Number Item Amount Delay1 $8,700 22 $1,200 63 $5,500 5a. $1,333.33b. $1,736.67c. $2,188.89d. $5,133.33e. $6,673.33AVERAGE DAILY FLOATc 53. Your firm generally receives 3 checks a month. The check amounts and the collectiondelay for each check are shown below. Given this information, what is the amount ofthe average daily float? Assume that a month has 30 days.Item Number Item Amount Delay1 $12,700 32 $ 8,200 43 $ 4,500 5a. $705.56b. $934.00c. $3,113.33d. $7,783.33e. $8,466.67a 54. Your firm generally receives 4 checks a month. The check amounts and the collectiondelay for each check are shown below. Given this information, what is the amount ofthe average daily float? Assume that a month has 30 days.Item Number Item Amount Delay1 $1,200 32 $ 800 43 $1,000 54 $1,100 2a. $466.67b. $1,000.00c. $1,025.00d. $2,666.67e. $4,666.67AVERAGE DAILY RECEIPTSa 55. Your firm deals strictly with three customers. The average amount that each customerpays per month along with the collection delay associated with each payment is shownbelow. Given this information, what is the amount of the average daily receipts?Assume that every month has 30 days.Customer Check Amount Collection DelayA $42,000 3 daysB $19,000 5 daysC $31,000 2 daysa. $3,066.67b. $4,600.00c. $6,666.67d. $9,200.00e. $9,433.33AVERAGE DAILY RECEIPTSb 56. Your firm deals strictly with four customers. The average amount that each customerpays per month along with the collection delay associated with each payment is shownbelow. Given this information, what is the amount of the average daily receipts?Assume that every month has 30 days.Customer Check Amount Collection DelayA $3,000 2 daysB $2,000 4 daysC $9,000 3 daysD $6,000 5 daysa. $500.00b. $666.67c. $1,428.57d. $5,000.00e. $6,666.67AVERAGE DAILY RECEIPTSc 57. Your firm deals strictly with three customers. The average amount that each customerpays per month along with the collection delay associated with each payment is shownbelow. Given this information, what is the amount of the average daily receipts?Assume that every month has 30 days.Customer Check Amount Collection DelayA $22,000 2 daysB $18,000 6 daysC $ 9,000 3 daysa. $233.33b. $466.67c. $1,633.33d. $4,454.55e. $5,966.67WEIGHTED AVERAGE DELAYd 58. Your firm deals strictly with three customers. The average amount that each customerpays per month along with the collection delay associated with each payment is shownbelow. Given this information, what is the weighted average delay? Assume that everymonth has 30 days.Customer Check Amount Collection DelayA $42,000 3 daysB $19,000 5 daysC $31,000 2 daysa. 2.33 daysb. 2.67 daysc. 2.87 daysd. 3.08 dayse. 3.24 daysWEIGHTED AVERAGE DELAYe 59. Your firm deals strictly with four customers. The average amount that each customerpays per month along with the collection delay associated with each payment is shownbelow. Given this information, what is the weighted average delay? Assume that everymonth has 30 days.Customer Check Amount Collection DelayA $3,000 2 daysB $2,000 4 daysC $9,000 3 daysD $6,000 5 daysa. 3.01 daysb. 3.27 daysc. 3.32 daysd. 3.50 dayse. 3.55 daysWEIGHTED AVERAGE DELAYd 60. Your firm deals strictly with three customers. The average amount that each customerpays per month along with the collection delay associated with each payment is shownbelow. Given this information, what is the weighted average delay? Assume that everymonth has 30 days.Customer Check Amount Collection DelayA $22,000 2 daysB $18,000 6 daysC $ 9,000 3 daysa. 3.11 daysb. 3.43 daysc. 3.59 daysd. 3.65 dayse. 3.80 daysCOST OF FLOATe 61. On an average day, your firm receives $1,500 in checks from customers. These checksclear the bank in an average of 3.5 days. The applicable daily interest rate is .025percent. What is the present value of the float? Assume each month has 30 days.a. $131.25b. $252.50c. $321.43d. $3,214.29e. $5,250.00COST OF FLOATe 62. On an average day, your firm receives $1,500 in checks from customers. These checksclear the bank in an average of 3.5 days. The applicable daily interest rate is .025percent. What is the maximum amount your firm should pay to completely eliminatethe collection float? Assume each month has 30 days.a. $252.50b $1,125.00c. $2,550.00d. $3,214.29e. $5,250.00MAXIMUM DAILY FEEd 63. On an average day, your firm receives $6,400 in checks from customers. These checksclear the bank in an average of 3 days. The applicable daily interest rate is .03 percent.What is the highest daily fee your firm should pay to completely eliminate thecollection float? Assume each month has 30 days.a. $1.92b. $3.84c. $4.24d. $5.76e. $5.99MAXIMUM DAILY FEEe 64. On an average day, your firm receives $19,200 in checks from customers. Thesechecks clear the bank in an average of 2 days. The applicable daily interest rate is .02percent. What is the highest daily fee your firm should pay to completely eliminate thecollection float? Assume each month has 30 days.a. $1.92b. $3.84c. $4.67d. $6.33e. $7.68COLLECTION TIMEc 65. Your average customer is located 3 mailing days away from your firm. In addition, ittakes 4 days for your funds to be available for use once you have made your bankdeposit. You have determined that your total collection time is 11 days. How long onaverage is it taking your firm to process the payments from your customers?a. 2 daysb. 3 daysc. 4 daysd. 7 dayse. 8 daysCOLLECTION TIMEc 66. It takes your firm 2 days to prepare and mail out the monthly statements to yourcustomers. On average, the mail time between your firm and your customers is 3.5days. It takes your firm an average of 2.5 days to process customer payments once theyare received. Customer checks take an average of 2 days to clear the bank. What isyour total collection time?a. 4.5 daysb. 7.0 daysc. 8.0 daysd. 10.0 dayse. 13.5 daysCOLLECTION TIMEd 67. Currently, your firm requires 2 days to process the checks which customers mail in topay for their credit purchases. The average mail time associated with these payments is4 days and the check clearing time is 3 days. If your firm adopts a lockbox system, themail time will be cut in half. In addition, if employees are reassigned, checks could beprocessed in 1 day. How long will your collection time be if both the lockbox systemand the job reassignments are implemented?a. 3 daysb. 4 daysc. 5 daysd. 6 dayse. 7 daysLOCKBOX DAILY SAVINGSe 68. You are considering implementing a lockbox system for your firm. The system isexpected to reduce the collection time by 2 days. On an average day, your firmreceives 460 checks with an average value of $350 each. The daily interest rate onTreasury bills is .01 percent. The bank charge per check would be $.20. What is theanticipated amount of the daily savings if this system is implemented?a. $16.10b. $24.15c. $27.50d. $29.10e. $32.20LOCKBOX DAILY SAVINGSd 69. The Baker Co. receives an average of 230 checks a day. The average amount per checkis $1,150. The firm is considering a lockbox system which it anticipates will reduce theaverage collection time by 3 days. The daily interest rate on Treasury bills is .008percent. What is the amount of the expected daily savings of the lockbox system?a. $4.68b. $6.35c. $46.82d. $63.48e. $77.78LOCKBOX DAILY COSTa 70. The Baker Co. receives an average of 230 checks a day. The average amount per checkis $1,150. The firm is considering a lockbox system which it anticipates will reduce theaverage collection time by 3 days. The bank charges $.25 a check for this service. Thedaily interest rate on Treasury bills is .008 percent. What is the average daily cost ofthe lockbox system?a. $57.50b. $63.48c. $77.78d. $115.00e. $172.50LOCKBOX DAILY COSTb 71. You are considering implementing a lockbox system for your firm. The system isexpected to reduce the collection time by 2 days. On an average day, your firmreceives 460 checks with an average value of $350 each. The daily interest rate onTreasury bills is .01 percent. The bank charge per check would be $.20. What is theanticipated daily cost of the lockbox system?a. $16.10b. $92.00c. $108.10d. $123.60e. $161.00。
罗斯《公司理财》英文习题答案DOCchap
30.1 The new corporation issues $300,000 in new debt. The merger creates $100,000 ofgoodwill because the merger is a purchase.Balance SheetLager Brewing(in $ thousands)Current assets $480 Current liabilities $200Other assets 140 Long-term debt 400Net fixed assets 580 Equity 700Goodwill 100Total assets $1,300 Total liabilities $1,300 30.2 If the balance sheet for Philadelphia Pretzel shows assets at book value instead of marketvalue, the goodwill will be only $60,000 (=$300,000 - $240,000). Thus, the net fixed assetsare $620,000 (=$1,300,000 - $480,000 - $140,000 - $60,000).Balance SheetLager Brewing(in $ thousands)Current assets $480 Current liabilities $200Other assets 140 Long-term debt 400Net fixed assets 620 Equity 700Goodwill 60Total assets $1,300 Total liabilities $1,300 30.3Balance SheetLager Brewing(in $ thousands)Current assets $480 Current liabilities $280Other assets 140 Long-term debt 100Net fixed assets 580 Equity 820Total assets $1,200 Total liabilities $1,200 30.4 a. False. Although the reasoning seems correct, the Stillman-Eckbo data do not supportthe monopoly power theory.b. True. When managers act in their own interest, acquisitions are an important controldevice for shareholders. It appears that some acquisitions and takeovers are theconsequence of underlying conflicts between managers and shareholders.c. False. Even if markets are efficient, the presence of synergy will make the value ofthe combined firm different from the sum of the values of the separate firms.Incremental cash flows provide the positive NPV of the transaction.d. False. In an efficient market, traders will value takeovers based on “Fundamentalfactors” regardless of the time horizon. Recall that the evidence as a whole suggestsefficiency in the markets. Mergers should be no different.e. False. The tax effect of an acquisition depends on whether the merger is taxable ornon-taxable. In a taxable merger, there are two opposing factors to consider, thecapital gains effect and the write-up effect. The net effect is the sum of these twoeffects.f. True. Because of the coinsurance effect, wealth might be transferred from thestockholders to the bondholders. Acquisition analysis usually disregards this effectand considers only the total value.30.530.6 a. The weather conditions are independent. Thus, the joint probabilities are theproducts of the individual probabilities.Possible states Joint probabilityRain Rain 0.1 x 0.1=0.01Rain Warm 0.1 x 0.4=0.04Rain Hot 0.1 x 0.5=0.05Warm Rain 0.4 x 0.1=0.04Warm Warm 0.4 x 0.4=0.16Warm Hot 0.4 x 0.5=0.20Hot Rain 0.5 x 0.1=0.05Hot Warm 0.5 x 0.4=0.20Hot Hot 0.5 x 0.5=0.25Since the state Rain Warm has the same outcome (revenue) as Warm Rain, theirprobabilities can be added. The same is true of Rain Hot, Hot Rain and Warm Hot,Hot Warm. Thus the joint probabilities arePossibleJoint probabilitystatesRain Rain 0.01Rain Warm 0.08Rain Hot 0.10Warm Warm 0.16Warm Hot 0.40Hot Hot 0.25The joint values are the sums of the values of the two companies for the particularstate.Possible states Joint valueRain Rain $200,000Rain Warm 300,000Warm Warm 400,000Rain Hot 500,000Warm Hot 600,000Hot Hot 800,000b. Recall, if a firm cannot service its debt, the bondholders receive the value of the assets.Thus, the value of the debt is the value of the company if the face value of the debt isgreater than the value of the company. If the value of the company is greater than the value of the debt, the value of the debt is its face value. Here the value of the common stock is always the residual value of the firm over the value of the debt.Joint Prob. Joint Value Debt Value Stock Value0.01 $200,000 $200,000 $00.08 300,000 300,000 00.16 400,000 400,000 00.10 500,000 400,000 100,0000.40 600,000 400,000 200,0000.25 800,000 400,000 400,000c. To show that the value of the combined firm is the sum of the individual values, youmust show that the expected joint value is equal to the sum of the separate expected values.Expected joint value= 0.01($200,000) + 0.08($300,000) + 0.16($400,000) + 0.10($500,000) +0.40($600,000) + 0.25($800,000)= $580,000Since the firms are identical, the sum of the expected values is twice the expectedvalue of either.Expected individual value = 0.1($100,000) + 0.4($200,000) + 0.5($400,000) = $290,000 Expected combined value = 2($290,000) = $580,000d. The bondholders are better off if the value of the debt after the merger is greater thanthe value of the debt before the merger.Value of the debt before the merger:The value of debt for either company= 0.1($100,000) + 0.4($200,000) + 0.5($200,000) = $190,000Total value of debt before the merger = 2($190,000) = $380,000Value of debt after the merger= 0.01($200,000) + 0.08($300,000) + 0.16($400,000) + 0.10($400,000) +0.40($400,000) +0.25($400,000)= $390,000The bondholders are $10,000 better off after the merger.30.7 The decision hinges upon the risk of surviving. The final decision should hinge on thewealth transfer from bondholders to stockholders when risky projects are undertaken.High-risk projects will reduce the expected value of the bondholders’ claims on the firm.The telecommunications business is riskier than the utilities business. If the total value of the firm does not change, the increase in risk should favor the stockholder. Hence,management should approve this transaction. Note, if the total value of the firm dropsbecause of the transaction and the wealth effect is lower than the reduction in total value, management should reject the project.30.8 If the market is “smart,” the P/E ratio will not be constant.a. Value = $2,500 + $1,000 = $3,500b. EPS = Post-merger earnings / Total number of shares=($100 + $100)/200 =$1c. Price per share = Value/Total number of shares=$3,500/200 =$17.50d. If the market is “fooled,” the P/E ratio will be constant at $25.Value = P/E * Total number of shares= 25 * 200 = $5,000EPS = Post-merger earnings / Total number of shares=$5,000/200 = $25.0030.9 a. After the merger, Arcadia Financial will have 130,000 [=10,000 + (50,000)(6/10)]shares outstanding. The earnings of the combined firm will be $325,000. The earningsper share of the combined firm will be $2.50 (=$325,000/130,000). The acquisition will increase the EPS for the stockholders from $2.25 to $2.50.b. There will be no effect on the original Arcadia stockholders. No synergies exist in thismerger since Arcadia is buying Coldran at its market price. Examining the relativevalues of the two firms sees the latter point.Share price of Arcadia = (16 * $225,000) / 100,000=$36Share price of Coldran = (10.8 * $100,000) / 50,000=$21.60The relative value of these prices is $21.6/$36 = 0.6. Since Coldran’s shareholdersreceive 0.6 shares of Arcadia for every share of Coldran, no synergies exist.30.10 a. The synergy will be the discounted incremental cash flows. Since the cash flows areperpetual, this amount isb. The value of Flash-in-the-Pan to Fly-by-Night is the synergy plus the current marketvalue of Flash-in-the-Pan.V = $7,500,000 + $20,000,000= $27,500,000c. Cash alternative = $15,000,000Stock alternative = 0.25($27,500,000 + $35,000,000)= $15,625,000d. NPV of cash alternative = V - Cost=$27,500,000 - $15,000,000=$12,500,000NPV of stock alternative = V - Cost=$27,500,000 - $15,625,000=$11,875,000e. Use the cash alternative, its NPV is greater.30.11 a. The value of Portland Industries before the merger is $9,000,000 (=750,000x12). Thisvalue is also the discounted value of the expected future dividends.$9,000,000 =r = 0.1025 = 10.25%r is the risk-adjusted discount rate for Portland’s expected future dividends.the value of Portland Industries after the merger isThis is the value of Portland Industries to Freeport.b. NPV = Gain - Cost= $14,815,385 - ($40x250, 000)= $4,815,385c. If Freeport offers stock, the value of Portland Industries to Freeport is the same, but thecost differs.Cost = (Fraction of combined firm owned by Portland’s stockholders)x(Value of the combined firm)Value of the combined firm = (Value of Freeport before merger)+ (Value of Portland to Freeport)= $15x1,000,000 + $14,815,385= $29,815,385Cost = 0.375x$29,815,385= $11,180,769NPV= $14,815,385 - $11,180,769=$3,634,616d. The acquisition should be attempted with a cash offer since it provides a higher NPV.e. The value of Portland Industries after the merger isThis is the value of Portland Industries to Freeport.NPV = Gain-Cost=$11,223,529 - ($40x250,000)=$1,223,529If Freeport offers stock, the value of Portland Industries to Freeport is the same, but the cost differs.Cost = (Fraction of combined firm owned by Portland’s stockholders)x(Value of the combined firm)Value of the combined firm = (Value of Freeport before merger)+ (Value of Portland to Freeport)= $15x1,000,000 + $11,223,529= $26,223,529Cost = 0.375 * $26,223,529=$9,833,823NPV = $11,223,529 - $9,833,823=$1,389,706The acquisition should be attempted with a stock offer since it provides a higher NPV.30.12 a. Number of shares after acquisition=30 + 15 = 45 milStock price of Harrods after acquisition = 1,000/45=22.22 poundsb. Value of Selfridge stockholders after merger:α * 1,000 = 300α = 30%New shares issued = 12.86 mil12.86:20 = 0.643:1The proper exchange ratio should be 0.643 to make the stock offer’s value to Selfridgeequivalent to the cash offer.30.13 To evaluate this proposal, look at the present value of the incremental cash flows.Cash Flows to Company A(in $ million)Year 0 1 2 3 4 5Acquisition of B -550Dividends from B 150 32 5 20 30 45Tax-loss carryforwards 25 25Terminal value 600Total -400 32 30 45 30 645 The additional cash flows from the tax-loss carry forwards and the proposed level of debt should be discounted at the cost of debt because they are determined with very littleuncertainty.The after-tax cash flows are subject to normal business risk and must be discounted at anormal rate.Beta coefficient for the bond = 0.25 = [(8%-6%)/8%].Beta coefficient for the company = 1 = [(0.25)2 + (1.25)(0.75)]Discount rate for normal operations:r = 6% + 8% (1) = 14%Discount rate for dividends:The new beta coefficient for the company, 1, must be the weighted average of the debtbeta and the stock beta.1 = 0.5(0.25) + 0.5(βs)βs = 1.75r = 6% + 8%(1.75) = 20%Because the NPV of the acquisition is negative, Company A should not acquireCompany B.30.14 The commonly used defensive tactics by target-firm managers include:i. corporate charter amendments like super-majority amendment or staggering theelection of board members.ii. repurchase standstill agreements.iii. exclusionary self-tenders.iv. going private and leveraged buyouts.v. other devices like golden parachutes, scorched earth strategy, poison pill, ..., etc.Mini Case: U.S.Steel’s case.You have 3 choices: tender, or do not tender or sell in the market. If you do sell your shares in the market, at some point, somebody else would need to make a decision in “tender” or “not tender” as well.It is important to recognize that the firm has about 60 million shares outstanding (since 30 million shares will give US Steel 50.1% of Marathon shares). Let’s consider the possible sellingthe market price.If you choose not to tender, and 30 million shares were tendered US Steel succeeds to gain50.1% control, you will only receive $85 a share. If you do tender, the price you will receive will be no worse than $85 a share and can be as high as $125 a share. Depending on the number of shares tendered, you will receive one of the following prices.If only 50.1% tendered, you will get $125 per share.If the shares tendered exceed 50.1% but less than 100%, you will get more than $105 ashare.If all 60 million shares were tendered, you will get $105 per share. (which is )It is clear that, in the above 3 cases, when you are not sure about whether US Steel will succeed or not, you will be better off to tender your shares than not tender. This is because at best, you will only receive $85 per share if you choose not to tender.版权申明本文部分内容，包括文字、图片、以及设计等在网上搜集整理。
英文版罗斯公司理财习题答案
CHAPTER 7NET PRESENT VALUE AND OTHER INVESTMENT CRITERIAAnswers to Concepts Review and Critical Thinking Questions1. A payback period less than the project’s life means that the NPV is positive for a zero discount rate,but nothing more definitive can be said. For discount rates greater than zero, the payback period will still be less than the project’s life, but the NPV may be positive, zero, or negative, depending on whether the discount rate is less than, equal to, or greater than the IRR. The discounted payback includes the effect of the relevant discount rate. If a project’s discounted payback period is less than the project’s life, it must be the case that NPV is positive.2.If a project has a positive NPV for a certain discount rate, then it will also have a positive NPV for azero discount rate; thus, the payback period must be less than the project life. Since discounted payback is calculated at the same discount rate as is NPV, if NPV is positive, the discounted payback period must be less than the project’s life. If NPV is positive, then the present value of future cash inflows is greater than the initial investment cost; thus PI must be greater than 1. If NPV is positive for a certain discount rate R, then it will be zero for some larger discount rate R*; thus, the IRR must be greater than the required return.3. a.Payback period is simply the accounting break-even point of a series of cash flows. To actuallycompute the payback period, it is assumed that any cash flow occurring during a given period isrealized continuously throughout the period, and not at a single point in time. The payback isthen the point in time for the series of cash flows when the initial cash outlays are fullyrecovered. Given some predetermined cutoff for the payback period, the decision rule is toaccept projects that payback before this cutoff, and reject projects that take longer to payback.The worst problem associated with payback period is that it ignores the time value of money. Inaddition, the selection of a hurdle point for payback period is an arbitrary exercise that lacksany steadfast rule or method. The payback period is biased towards short-term projects; it fullyignores any cash flows that occur after the cutoff point.b.The average accounting return is interpreted as an average measure of the accountingperformance of a project over time, computed as some average profit measure attributable tothe project divided by some average balance sheet value for the project. This text computesAAR as average net income with respect to average (total) book value. Given somepredetermined cutoff for AAR, the decision rule is to accept projects with an AAR in excess ofthe target measure, and reject all other projects. AAR is not a measure of cash flows and marketvalue, but a measure of financial statement accounts that often bear little resemblance to therelevant value of a project. In addition, the selection of a cutoff is arbitrary, and the time valueof money is ignored. For a financial manager, both the reliance on accounting numbers ratherthan relevant market data and the exclusion of time value of money considerations are troubling.Despite these problems, AAR continues to be used in practice because (1) the accountinginformation is usually available, (2) analysts often use accounting ratios to analyze firmperformance, and (3) managerial compensation is often tied to the attainment of targetaccounting ratio goals.c.The IRR is the discount rate that causes the NPV of a series of cash flows to be identically zero.IRR can thus be interpreted as a financial break-even rate of return; at the IRR discount rate,the net value of the project is zero. The acceptance and rejection criteria are:If C0 < 0 and all future cash flows are positive, accept the project if the internal rate ofreturn is greater than or equal to the discount rate.If C0 < 0 and all future cash flows are positive, reject the project if the internal rate ofreturn is less than the discount rate.If C0 > 0 and all future cash flows are negative, accept the project if the internal rate ofreturn is less than or equal to the discount rate.If C0 > 0 and all future cash flows are negative, reject the project if the internal rate ofreturn is greater than the discount rate.IRR is the interest rate that causes NPV for a series of cash flows to be zero. NPV is preferred in all situations to IRR; IRR can lead to ambiguous results if there are non-conventional cash flows, and it also ambiguously ranks some mutually exclusive projects. However, for stand-alone projects with conventional cash flows, IRR and NPV are interchangeable techniques. The IRR decision rule for projectsd.The profitability index is the present value of cash inflows relative to the project cost. As such,it is a benefit/cost ratio, providing a measure of the relative profitability of a project. The profitability index decision rule is to accept projects with a PI greater than one, and to reject projects with a PI less than one. The profitability index can be expressed as: PI = (NPV + cost)/cost = 1 + (NPV/cost). If a firm has a basket of positive NPV projects and is subject to capital rationing, PI may provide a good ranking measure of the projects, indicating the “bang for the buck” of each particu lar project.e.NPV is simply the present value of a project’s cash flows. NPV specifically measures, afterconsidering the time value of money, the net increase or decrease in firm wealth due to the project. The decision rule is to accept projects that have a positive NPV, and reject projects with a negative NPV. NPV is superior to the other methods of analysis presented in the text because it has no serious flaws. The method unambiguously ranks mutually exclusive projects, and can differentiate between projects of different scale and time horizon. The only drawback to NPV is that it relies on cash flow and discount rate values that are often estimates and not certain, but this is a problem shared by the other performance criteria as well. A project with NPV = $2,500 implies that the total shareholder wealth of the firm will increase by $2,500 if the project is accepted.4.For a project with future cash flows that are an annuity:Payback = I / CAnd the IRR is:0 = – I + C / IRRSolving the IRR equation for IRR, we get:IRR = C / INotice this is just the reciprocal of the payback. So:IRR = 1 / PBFor long-lived projects with relatively constant cash flows, the sooner the project pays back, the greater is the IRR.5.There are a number of reasons. Two of the most important have to do with transportation costs andexchange rates. Manufacturing in the U.S. places the finished product much closer to the point of sale, resulting in significant savings in transportation costs. It also reduces inventories because goods spend less time in transit. Higher labor costs tend to offset these savings to some degree, at least compared to other possible manufacturing locations. Of great importance is the fact that manufacturing in the U.S. means that a much higher proportion of the costs are paid in dollars. Since sales are in dollars, the net effect is to immunize profits to a large extent against fluctuations in exchange rates. This issue is discussed in greater detail in the chapter on international finance.6.The single biggest difficulty, by far, is coming up with reliable cash flow estimates. Determining anappropriate discount rate is also not a simple task. These issues are discussed in greater depth in the next several chapters. The payback approach is probably the simplest, followed by the AAR, but even these require revenue and cost projections. The discounted cash flow measures (discounted payback, NPV, IRR, and profitability index) are really only slightly more difficult in practice.7.Yes, they are. Such entities generally need to allocate available capital efficiently, just as for-profitsdo. However, it is frequently the case that the “revenues” from not-for-profit ventures are not tangible. For example, charitable giving has real opportunity costs, but the benefits are generally hard to measure. To the extent that benefits are measurable, the question of an appropriate required return remains. Payback rules are commonly used in such cases. Finally, realistic cost/benefit analysis along the lines indicated should definitely be used by the U.S. government and would go a long way toward balancing the budget!8.The statement is false. If the cash flows of Project B occur early and the cash flows of Project Aoccur late, then for a low discount rate the NPV of A can exceed the NPV of B. Observe the following example.C0C1C2IRR NPV @ 0% Project A –$1,000,000 $0 $1,440,000 20% $440,000 Project B –$2,000,000 $2,400,000 $0 20% 400,000However, in one particular case, the statement is true for equally risky Projects. If the lives of the two Projects are equal and the cash flows of Project B are twice the cash flows of Project A in every time period, the NPV of Project B will be twice the NPV of Project A.9. Although the profitability index (PI) is higher for Project B than for Project A, Project A should bechosen because it has the greater NPV. Confusion arises because Project B requires a smaller investment than Project A requires. Since the denominator of the PI ratio is lower for Project B than for Project A, B can have a higher PI yet have a lower NPV. Only in the case of capital rationing could the company’s decision have been incorrect.10. a.Project A would have a higher IRR since initial investment for Project A is less than that ofProject B, if the cash flows for the two projects are identical.b.Yes, since both the cash flows as well as the initial investment are twice that of Project B.11.Project B would have a more sensitive NPV to changes in the discount rate. The reason is the timevalue of money. Cash flows that occur further out in the future are always more sensitive to changes in the interest rate. This is similar to the interest rate risk of a bond.12.The MIRR is calculated by finding the present value of all cash outflows, the future value of all cashinflows to the end of the project, and then calculating the IRR of the two cash flows. As a result, the cash flows have been discounted or compounded by one interest rate (the required return), and then the interest rate between the two remaining cash flows is calculated. As such, the MIRR is not a true interest rate. In contrast, consider the IRR. If you take the initial investment, and calculate the future value at the IRR, you can replicate the future cash flows of the project exactly.13.The criticism is incorrect. It is true that if you calculate the future value of all intermediate cashflows to the end of the project at the required return, then calculate the NPV of this future value and the initial investment, you will get the same NPV. However, NPV says nothing about reinvestment of intermediate cash flows. The NPV is the present value of the project cash flows. The fact that the reinvestment works is an artifact of the time value of money.14.The criticism is incorrect for several reasons. It is true that if you calculate the future value of allintermediate cash flows to the end of the project at the IRR, then calculate the IRR of this future value and the initial investment, you will get the same IRR. This only occurs if the intermediate cash flows are reinvested at the IRR. However, similar to the previous question, IRR deals with the present value of the cash flows, not the future value. There is also another important point. This criticism deals with the reinvestment of the intermediate cash flows. As we will see in the next chapter, any reinvestment assumption concerning the intermediate cash flows is incorrect. The reason is that when we are calculating the cash flows for a project, we are concerned with the incremental cash flows from the project, that is, the cash flows the project creates. Reinvestment violates this principal. Consider the following example:C0C1C2IRR Project A –$100 $10 $110 10% Suppose this is a deposit into a bank account. The IRR of the cash flows is 10 percent. Does it the IRR change if the Year 1 cash flow is reinvested in the account, or if it is withdrawn and spent on pizza? No. Finally, think back to the yield to maturity calculation on a bond. The YTM is the IRR of the bond investment, but no mention of a reinvestment assumption of the bond coupons is inferred.The reason is that the reinvestment assumption is irrelevant to calculating the YTM on a bond; in the same way, the reinvestment assumption is irrelevant in the IRR calculation.Solutions to Questions and ProblemsNOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.Basic1. a.The payback period is the time that it takes for the cumulative undiscounted cash inflows toequal the initial investment.Project A:Cumulative cash flows Year 1 = €4,000 = €4,000Cumulative cash flows Year 2 = €4,000 +3,500 = €7,500 Payback period = 2 yearsProject B:Cumulative cash flows Year 1 = €2,500 = €2,500Cumulative cash flows Year 2 = €2,500 + 1,200 = €3,700Cumulative cash flows Year 3 = €2,500 + 1,200 + 3,000 = €6,700 Companies can calculate a more precise value using fractional years. To calculate the fractionalpayba ck period, find the fraction of year 3’s cash flows that is needed for the company to have cumulative undiscounted cash flows of €5,000. Divide the difference between the initial investment and the cumulative undiscounted cash flows as of year 2 by the undiscounted cashflow of year 3.Payback period = 2 + (€5,000 –€3,700) / €3,000Payback period = 2.43Since project A has a shorter payback period than project B has, the company should chooseproject A.b.Discount each project’s cash flows at 15 percent. Choose the project with the highest NPV.Project A:NPV = –€7,500 + €4,000 / 1.15 + €3,500 / 1.152 + €1,500 / 1.153NPV = –€388.96Project B:NPV = –€5,000 + €2,500 / 1.15 + €1,200 / 1.152 + €3,000 / 1.153NPV = €53.83The firm should choose Project B since it has a higher NPV than Project A has.2.To calculate the payback period, we need to find the time that the project has recovered its initialinvestment. The cash flows in this problem are an annuity, so the calculation is simpler. If the initial cost is £3,000, the payback period is:Payback = 3 + (£300 / £900) = 3.33 yearsThere is a shortcut to calculate the payback period if the future cash flows are an annuity. Just divide the initial cost by the annual cash flow. For the £3,000 cost, the payback period is:Payback = £3,000 / £900 = 3.33 yearsFor an initial cost of £5,000, the payback period is:Payback = 5 + (£500 / £900) = 5.55 yearsThe payback period for an initial cost of £10,000 is a little trickier. Notice that the total cash inflows after nine years will be:Total cash inflows = 8(£900) = £7,200If the initial cost is £10,000, the project never pays back. Notice that if you use the shortcut forannuity cash flows, you get:Payback = £10,000 / £900 = 11.11 years.This answer does not make sense since the cash flows stop after nine years, so the payback period is never.3.When we use discounted payback, we need to find the value of all cash flows today. The value todayof the project cash flows for the first four years is:Value today of Year 1 cash flow = $7,000/1.14 = $6,140.35Value today of Year 2 cash flow = $7,500/1.142 = $5,771.01Value today of Year 3 cash flow = $8,000/1.143 = $5,399.77Value today of Year 4 cash flow = $8,500/1.144 = $5,032.68To find the discounted payback, we use these values to find the payback period. The discounted first year cash flow is $6,140.35, so the discounted payback for an $8,000 initial cost is:Discounted payback = 1 + ($8,000 – 6,140.35)/$5,771.01 = 1.32 yearsFor an initial cost of $13,000, the discounted payback is:Discounted payback = 2 + ($13,000 – 6,140.35 – 5,771.01)/$5,399.77 = 2.20 yearsNotice the calculation of discounted payback. We know the payback period is between two and three years, so we subtract the discounted values of the Year 1 and Year 2 cash flows from the initial cost.This is the numerator, which is the discounted amount we still need to make to recover our initial investment. We divide this amount by the discounted amount we will earn in Year 3 to get the fractional portion of the discounted payback.If the initial cost is $18,000, the discounted payback is:Discounted payback = 3 + ($18,000 – 6,140.35 – 5,771.01 – 5,399.77) / $5,032.68 = 3.14 years4.To calculate the discounted payback, discount all future cash flows back to the present, and use thesediscounted cash flows to calculate the payback period. Doing so, we find:R = 0%: 4 + (£1,100 / £2,100) = 4.52 yearsDiscounted payback = Regular payback = 4.52 yearsR = 5%: £2,100/1.05 + £2,100/1.052 + £2,100/1.053 + £2,100/1.054 + £2,100/1.055 = £9,091.90 £2,100/1.056 = £1,567.05Discounted payback = 5 + (£9,500 – 9,091.90) / £1,567.05 = 5.26 years R = 15%: £2,100/1.15 + £2,100/1.152 + £2,100/1.153 + £2,100/1.154 + £2,100/1.155 + £2,100/1.156 = £7,947.41; The project never pays back.5. a.The average accounting return is the average project earnings after taxes, divided by theaverage book value, or average net investment, of the machine during its life. The book value of the machine is the gross investment minus the accumulated depreciation.Average book value = (Book Value0 + Book Value1 + Book Value2 + Book Value3 +Book Value4 + Book Value5) / (Economic Life)Average book value = ($16,000 + 12,000 + 8,000 + 4,000 + 0) / (5 years)Average book value = $8,000Average Project Earnings = $4,500To find the average accounting return, we divide the average project earnings by the average book value of the machine to calculate the average accounting return. Doing so, we find:Average Accounting Return = Average Project Earnings / Average Book ValueAverage Accounting Return = $4,500 / $8,000Average Accounting Return = 0.5625 or 56.25%6.First, we need to determine the average book value of the project. The book value is the grossinvestment minus accumulated depreciation.Purchase Date Year 1 Year 2 Year 3 Gross Investment €8,000 €8,000 €8,000 €8,000Less: Accumulated Depreciation 0 4,000 6,500 8,000Net Investment €8,000 €4,000 €1,500 €0 Now, we can calculate the average book value as:Average book value = (€8,000 + 4,000 + 1,500 + 0) / (4 years)Average book value = €3,375To calculate the average accounting return, we must remember to use the aftertax average netincome when calculating the average accounting return. So, the average aftertax net income is:Average aftertax net income = (1 – t c) Annual pretax net incomeAverage aftertax net income = (1 – 0.25) €2,000Average aftertax net income = €1,500The average accounting return is the average after-tax net income divided by the average book value, which is:Average accounting return = €1,500 / €3,375Average accounting return = 0.4444 or 44.44%7.The IRR is the interest rate that makes the NPV of the project equal to zero. So, the equation that definesthe IRR for this project is:0 = C0 + C1 / (1 + IRR) + C2 / (1 + IRR)2 + C3 / (1 + IRR)30 = –¥8,000,000 + ¥4,000,000/(1 + IRR) + ¥3,000,000/(1 + IRR)2 + ¥2,000,000/(1 + IRR)3Using a spreadsheet, financial calculator, or trial and error to find the root of the equation, we find that: IRR = 6.93%Since the IRR is less than the required return we would reject the project.8.The IRR is the interest rate that makes the NPV of the project equal to zero. So, the equation that definesthe IRR for this Project A is:0 = C0 + C1 / (1 + IRR) + C2 / (1 + IRR)2 + C3 / (1 + IRR)30 = – £2,000 + £1,000/(1 + IRR) + £1,500/(1 + IRR)2 + £2,000/(1 + IRR)3Using a spreadsheet, financial calculator, or trial and error to find the root of the equation, we find that: IRR = 47.15%And the IRR for Project B is:0 = C0 + C1 / (1 + IRR) + C2 / (1 + IRR)2 + C3 / (1 + IRR)30 = – £1,500 + £500/(1 + IRR) + £1,000/(1 + IRR)2 + £1,500/(1 + IRR)3Using a spreadsheet, financial calculator, or trial and error to find the root of the equation, we find that: IRR = 36.19%9.The profitability index is defined as the PV of the cash inflows divided by the PV of the cashoutflows. The cash flows from this project are an annuity, so the equation for the profitability index is:PI = C(PVIFA R,t) / C0PI = €41,000(PVIFA15%,7) / €160,000PI = 1.066110. a.The profitability index is the present value of the future cash flows divided by the initial cost.So, for Project Alpha, the profitability index is:PI Alpha = [$300 / 1.10 + $700 / 1.102 + $600 / 1.103] / $500 = 2.604And for Project Beta the profitability index is:PI Beta = [$300 / 1.10 + $1,800 / 1.102 + $1,700 / 1.103] / $2,000 = 1.519b.According to the profitability index, you would accept Project Alpha. However, remember theprofitability index rule can lead to incorrect decision when ranking mutually exclusive projects.Intermediate11. a.To have a payback equal to the project’s life, given C is a constant cash flow for N years:C = I/Nb.To have a positive NPV, I < C (PVIFA R%, N). Thus, C > I / (PVIFA R%, N).c.Benefits = C (PVIFA R%, N) = 2 × costs = 2IC = 2I / (PVIFA R%, N)12. a.The IRR is the interest rate that makes the NPV of the project equal to zero. So, the equationthat defines the IRR for this project is:0 = C0 + C1 / (1 + IRR) + C2 / (1 + IRR)2 + C3 / (1 + IRR)3 + C4 / (1 + IRR)40 = ₩5,000 –₩2,500 / (1 + IRR) –₩2,000 / (1 + IRR)2–₩1,000 / (1 + IRR)3–₩1,000 / (1 +IRR)4Using a spreadsheet, financial calculator, or trial and error to find the root of the equation, we find that:IRR = 13.99%b.This problem differs from previous ones because the initial cash flow is positive and all futurecash flows are negative. In other words, this is a financing-type project, while previous projects were investing-type projects. For financing situations, accept the project when the IRR is less than the discount rate. Reject the project when the IRR is greater than the discount rate.IRR = 13.99%Discount Rate = 12%IRR > Discount RateReject the offer when the discount rate is less than the IRR.ing the same reason as part b., we would accept the project if the discount rate is 20 percent.IRR = 13.99%Discount Rate = 19%IRR < Discount RateAccept the offer when the discount rate is greater than the IRR.d.The NPV is the sum of the present value of all cash flows, so the NPV of the project if thediscount rate is 10 percent will be:NPV = ₩5,000 –₩2,500 / 1.12 –₩2,000 / 1.122–₩1,000 / 1.123–₩1,000 / 1.124NPV = –₩173.83When the discount rate is 12 percent, the NPV of the offer is –₩359.95. Reject the offer.And the NPV of the project is the discount rate is 19 percent will be:NPV = ₩5,000 –₩2,500 / 1.19 –₩2,000 / 1.192–₩1,000 / 1.193–₩1,000 / 1.194NPV = ₩394.75When the discount rate is 19 percent, the NPV of the offer is ₩466.82. Accept the offer.e.Yes, the decisions under the NPV rule are consistent with the choices made under the IRR rulesince the signs of the cash flows change only once.13. a.The IRR is the interest rate that makes the NPV of the project equal to zero. So, the IRR foreach project is:Deepwater Fishing IRR:0 = C0 + C1 / (1 + IRR) + C2 / (1 + IRR)2 + C3 / (1 + IRR)30 = –$600,000 + $270,000 / (1 + IRR) + $350,000 / (1 + IRR)2 + $300,000 / (1 + IRR)3Using a spreadsheet, financial calculator, or trial and error to find the root of the equation, we find that:IRR = 24.30%Submarine Ride IRR:0 = C0 + C1 / (1 + IRR) + C2 / (1 + IRR)2 + C3 / (1 + IRR)30 = –$1,800,000 + $1,000,000 / (1 + IRR) + $700,000 / (1 + IRR)2 + $900,000 / (1 + IRR)3Using a spreadsheet, financial calculator, or trial and error to find the root of the equation, we find that:IRR = 21.46%Based on the IRR rule, the deepwater fishing project should be chosen because it has the higher IRR.b.To calculate the incremental IRR, we s ubtract the smaller project’s cash flows from the largerproject’s cash flows. In this case, we subtract the deepwater fishing cash flows from the submarine ride cash flows. The incremental IRR is the IRR of these incremental cash flows. So, the incremental cash flows of the submarine ride are:Year 0Year 1Year 2 Year 3 Submarine Ride –$1,800,000 $1,000,000 $700,000 $900,000Deepwater Fishing –600,000 270,000 350,000 300,000Submarine – Fishing –$1,200,000 $730,000 $350,000 $600,000 Setting the present value of these incremental cash flows equal to zero, we find the incremental IRR is:0 = C0 + C1 / (1 + IRR) + C2 / (1 + IRR)2 + C3 / (1 + IRR)30 = –$1,200,000 + $730,000 / (1 + IRR) + $350,000 / (1 + IRR)2 + $600,000 / (1 + IRR)3Using a spreadsheet, financial calculator, or trial and error to find the root of the equation, we find that:Incremental IRR = 19.92%For investing-type projects, accept the larger project when the incremental IRR is greater than the discount rate. Since the incremental IRR, 19.92%, is greater than the required rate of return of 15 percent, choose the submarine ride project. Note that this is the choice when evaluating only the IRR of each project. The IRR decision rule is flawed because there is a scale problem.That is, the submarine ride has a greater initial investment than does the deepwater fishing project. This problem is corrected by calculating the IRR of the incremental cash flows, or by evaluating the NPV of each project.c.The NPV is the sum of the present value of the cash flows from the project, so the NPV of eachproject will be:Deepwater fishing:NPV = –$600,000 + $270,000 / 1.15 + $350,000 / 1.152 + $300,000 / 1.153NPV = $96,687.76Submarine ride:NPV = –$1,800,000 + $1,000,000 / 1.15 + $700,000 / 1.152 + $900,000 / 1.153NPV = $190,630.39Since the NPV of the submarine ride project is greater than the NPV of the deepwater fishingproject, choose the submarine ride project. The incremental IRR rule is always consistent withthe NPV rule.14. a.The profitability index is the PV of the future cash flows divided by the initial investment. Thecash flows for both projects are an annuity, so:PI I = 元15,000(PVIFA10%,3 ) / 元30,000 = 1.243PI II = 元2,800(PVIFA10%,3) / 元5,000 = 1.393The profitability index decision rule implies that we accept project II, since PI II is greater thanthe PI I.b.The NPV of each project is:NPV I = –元30,000 + 元15,000(PVIFA10%,3) = 元7,302.78NPV II = –元5,000 + 元2,800(PVIFA10%,3) = 元1,963.19The NPV decision rule implies accepting Project I, since the NPV I is greater than the NPV II.ing the profitability index to compare mutually exclusive projects can be ambiguous whenthe magnitudes of the cash flows for the two projects are of different scale. In this problem,project I is roughly 3 times as large as project II and produces a larger NPV, yet the profit-ability index criterion implies that project II is more acceptable.15. a.The equation for the NPV of the project is:NPV = –₦28,000,000 + ₦53,000,000/1.11 –₦8,000,000/1.112 = ₦13,254,768.28The NPV is greater than 0, so we would accept the project.b.The equation for the IRR of the project is:0 = –₦28,000,000 + ₦53,000,000/(1+IRR) –₦8,000,000/(1+IRR)2From Descartes rule of signs, we know there are two IRRs since the cash flows change signstwice. From trial and error, the two IRRs are:IRR = 72.75%, –83.46%。
(完整版)公司理财-罗斯课后习题答案
(完整版)公司理财-罗斯课后习题答案-CAL-FENGHAI-(2020YEAR-YICAI)_JINGBIAN第一章1.在所有权形式的公司中,股东是公司的所有者。
股东选举公司的董事会,董事会任命该公司的管理层。
企业的所有权和控制权分离的组织形式是导致的代理关系存在的主要原因。
管理者可能追求自身或别人的利益最大化,而不是股东的利益最大化。
在这种环境下,他们可能因为目标不一致而存在代理问题。
2.非营利公司经常追求社会或政治任务等各种目标。
非营利公司财务管理的目标是获取并有效使用资金以最大限度地实现组织的社会使命。
3.这句话是不正确的。
管理者实施财务管理的目标就是最大化现有股票的每股价值，当前的股票价值反映了短期和长期的风险、时间以及未来现金流量。
4.有两种结论。
一种极端,在市场经济中所有的东西都被定价。
因此所有目标都有一个最优水平，包括避免不道德或非法的行为，股票价值最大化。
另一种极端,我们可以认为这是非经济现象,最好的处理方式是通过政治手段。
一个经典的思考问题给出了这种争论的答案:公司估计提高某种产品安全性的成本是30美元万。
然而,该公司认为提高产品的安全性只会节省20美元万。
请问公司应该怎么做呢?”5.财务管理的目标都是相同的,但实现目标的最好方式可能是不同的,因为不同的国家有不同的社会、政治环境和经济制度。
6.管理层的目标是最大化股东现有股票的每股价值。
如果管理层认为能提高公司利润，使股价超过35美元,那么他们应该展开对恶意收购的斗争。
如果管理层认为该投标人或其它未知的投标人将支付超过每股35美元的价格收购公司,那么他们也应该展开斗争。
然而,如果管理层不能增加企业的价值,并且没有其他更高的投标价格,那么管理层不是在为股东的最大化权益行事。
现在的管理层经常在公司面临这些恶意收购的情况时迷失自己的方向。
7.其他国家的代理问题并不严重,主要取决于其他国家的私人投资者占比重较小。
较少的私人投资者能减少不同的企业目标。
Cha02 罗斯公司理财第九版原版书课后习题
reported in the financing activity section of the accounting statement of cash flows. When Tyco received payments from customers, the cash inflows were reported as operating cash flows. Another method used by Tyco was to have acquired companies prepay operating expenses. In other words, the company acquired by Tyco would pay vendors for items not yet received. In one case, the payments totaled more than $50 million. When the acquired company was consolidated with Tyco, the prepayments reduced Tyco’s cash outflows, thus increasing the operating cash flows.Dynegy, the energy giant, was accused of engaging in a number of complex “round-trip trades.” The round-trip trades essentially involved the sale of natural resources to a counterparty, with the repurchase of the resources from the same party at the same price. In essence, Dynegy would sell an asset for $100, and immediately repurchase it from the buyer for $100. The problem arose with the treatment of the cash flows from the sale. Dynegy treated the cash from the sale of the asset as an operating cash flow, but classified the repurchase as an investing cash outflow. The total cash flows of the contracts traded by Dynegy in these round-trip trades totaled $300 million.Adelphia Communications was another company that apparently manipulated cash flows. In Adelphia’s case, the company capitalized the labor required to install cable. In other words, the company classified this labor expense as a fixed asset. While this practice is fairly common in the telecommunications industry, Adelphia capitalized a higher percentage of labor than is common. The effect of this classification was that the labor was treated as an investment cash flow, which increased the operating cash flow.In each of these examples, the companies were trying to boost operating cash flows by shifting cash flows to a different heading. The important thing to notice is that these movements don’t affect the total cash flow of the firm, which is why we recommend focusing on this number, not just operating cash flow.Summary and ConclusionsBesides introducing you to corporate accounting, the purpose of this chapter has been to teach you how to determine cash flow from the accounting statements of a typical company.1. Cash flow is generated by the firm and paid to creditors and shareholders. It can be classifiedas:1. Cash flow from operations.2. Cash flow from changes in fixed assets.3. Cash flow from changes in working capital.2. Calculations of cash flow are not difficult, but they require care and particular attention to detailin properly accounting for noncash expenses such as depreciation and deferred taxes. It is especially important that you do not confuse cash flow with changes in net working capital and net income.Concept Questions1. Liquidity True or false: All assets are liquid at some price. Explain.2. Accounting and Cash Flows Why might the revenue and cost figures shown on a standardincome statement not represent the actual cash inflows and outflows that occurred during a period?3. Accounting Statement of Cash Flows Looking at the accounting statement of cash flows,what does the bottom line number mean? How useful is this number for analyzing a company? 4. Cash Flows How do financial cash flows and the accounting statement of cash flows differ?Which is more useful for analyzing a company?5. Book Values versus Market Values Under standard accounting rules, it is possible for astockholders’ equity of Information Control Corp. one year ago:During the past year, Information Control issued 10 million shares of new stock at a total price of $43 million, and issued $10 million in new long-term debt. The company generated $9 million in net income and paid $2 million in dividends. Construct the current balance sheet reflecting the changes that occurred at Information Control Corp. during the year.8. Cash Flow to Creditors The 2009 balance sheet of Anna’s Tennis Shop, Inc., showed long-term debt of $1.34 million, and the 2010 balance sheet showed long-term debt of $1.39 million.The 2010 income statement showed an interest expense of $118,000. What was the firm’s cash flow to creditors during 2010?9. Cash Flow to Stockholders The 2009 balance sheet of Anna’s Tennis Shop, Inc., showed$430,000 in the common stock account and $2.6 million in the additional paid-in surplus account.The 2010 balance sheet showed $450,000 and $3.05 million in the same two accounts, respectively. If the company paid out $385,000 in cash dividends during 2010, what was the cash flow to stockholders for the year?10. Calculating Cash Flows Given the information for Anna’s Tennis Shop, Inc., in the previoustwo problems, suppose you also know that the firm’s net capital spending for 2010 was $875,000 and that the firm reduced its net working capital investment by $69,000. What was the firm’s 2010 operating cash flow, or OCF?INTERMEDIATE (Questions 11–24)11. Cash Flows Ritter Corporation’s accountants prepared the following financial statements foryear-end 2010:1. Explain the change in cash during 2010.2. Determine the change in net working capital in 2010.3. Determine the cash flow generated by the firm’s assets during 2010.12. Financial Cash Flows The Stancil Corporation provided the following current information:Determine the cash flows from the firm and the cash flows to investors of the firm.13. Building an Income Statement During the year, the Senbet Discount Tire Company hadgross sales of $1.2 million. The firm’s cost of goods sold and selling expenses were $450,000 and $225,000, respectively. Senbet also had notes payable of $900,000. These notes carried an interest rate of 9 percent. Depreciation was $110,000. Senbet’s tax rate was 35 percent.1. What was Senbet’s net income?2. What was Senbet’s operating cash flow?14. Calculating Total Cash Flows Schwert Corp. shows the following information on its 2010income statement: sales = $167,000; costs = $91,000; other expenses = $5,400; depreciation expense = $8,000; interest expense = $11,000; taxes = $18,060; dividends = $9,500. In addition, you’re told that the firm issued $7,250 in new equity during 2010 and redeemed $7,100 in outstanding long-term debt.1. What is the 2010 operating cash flow?2. What is the 2010 cash flow to creditors?3. What is the 2010 cash flow to stockholders?4. If net fixed assets increased by $22,400 during the year, what was the addition to networking capital (NWC)?15. Using Income Statements Given the following information for O’Hara Marine Co., calculatethe depreciation expense: sales = $43,000; costs = $27,500; addition to retained earnings = $5,300; dividends paid = $1,530; interest expense = $1,900; tax rate = 35 percent.1. What is owners’ equity for 2009 and 2010?2. What is the change in net working capital for 2010?3. In 2010, Weston Enterprises purchased $1,800 in new fixed assets. How much in fixedassets did Weston Enterprises sell? What is the cash flow from assets for the year? (The tax rate is 35 percent.)4. During 2010, Weston Enterprises raised $360 in new long-term debt. How much long-termdebt must Weston Enterprises have paid off during the year? What is the cash flow to creditors?Use the following information for Ingersoll, Inc., for Problems 23 and 24 (assume the tax rate is34 percent):23. Financial Statements Draw up an income statement and balance sheet for this company for2009 and 2010.24. Calculating Cash Flow For 2010, calculate the cash flow from assets, cash flow to creditors,and cash flow to stockholders.CHALLENGE (Questions 25–27)25. Cash Flows You are researching Time Manufacturing and have found the following accountingstatement of cash flows for the most recent year. You also know that the company paid $82 million in current taxes and had an interest expense of $43 million. Use the accounting statement of cash flows to construct the financial statement of cash flows.Nick has also provided the following information: During the year the company raised $118,000 in new long-term debt and retired $98,000 in long-term debt. The company also sold $11,000 in new stock and repurchased $40,000 in stock. The company purchased $786,000 in fixed assets and sold $139,000 in fixed assets.Angus has asked you to prepare the financial statement of cash flows and the accounting statement of cash flows. He has also asked you to answer the following questions:1. How would you describe Warf Computers’ cash flows?2. Which cash flow statement more accurately describes the cash flows at the company?3. In light of your previous answers, comment on Nick’s expansion plans.。
英文版罗斯公司理财习题答案Chap020
CHAPTER 20INTERNATIONAL CORPORATE FINANCEAnswers to Concepts Review and Critical Thinking Questions1. a.The dollar is selling at a premium because it is more expensive in the forward market than inthe spot market (SFr 1.53 versus SFr 1.50).b.The franc is expected to depreciate relative to the dollar because it will take more francs to buyone dollar in the future than it does today.c.Inflation in Switzerland is higher than in the United States, as are nominal interest rates.2.The exchange rate will increase, as it will take progressively more pesos to purchase a dollar. This isthe relative PPP relationship.3. a.The Australian dollar is expected to weaken relative to the dollar, because it will take moreA$ in the future to buy one dollar than it does today.b.The inflation rate in Australia is higher.c.Nominal interest rates in Australia are higher; relative real rates in the two countries are thesame.4. A Yankee bond is most accurately described by d.5. No. For example, if a country’s currency strengthens, imports become cheaper (good), but its exportsbecome more expensive for others to buy (bad). The reverse is true for currency depreciation.6.Additional advantages include being closer to the final consumer and, thereby, saving ontransportation, significantly lower wages, and less exposure to exchange rate risk. Disadvantages include political risk and costs of supervising distant operations.7.One key thing to remember is that dividend payments are made in the home currency. Moregenerally, it may be that the owners of the multinational are primarily domestic and are ultimately concerned about their wealth denominated in their home currency because, unlike a multinational, they are not internationally diversified.8. a.False. If prices are rising faster in Great Britain, it will take more pounds to buy the sameamount of goods that one dollar can buy; the pound will depreciate relative to the dollar.b.False. The forward market would already reflect the projected deterioration of the euro relativeto the dollar. Only if you feel that there might be additional, unanticipated weakening of the euro that isn’t reflected in forward rates today, will the forward hedge protect you against additional declines.c.True. The market would only be correct on average, while you would be correct all the time.9. a.American exporters: their situation in general improves because a sale of the exported goods fora fixed number of euros will be worth more dollars.American importers: their situation in general worsens because the purchase of the imported goods for a fixed number of euros will cost more in dollars.b.American exporters: they would generally be better off if the British government’s intent ionsresult in a strengthened pound.American importers: they would generally be worse off if the pound strengthens.c.American exporters: they would generally be much worse off, because an extreme case of fiscalexpansion like this one will make American goods prohibitively expensive to buy, or else Brazilian sales, if fixed in cruzeiros, would become worth an unacceptably low number of dollars.American importers: they would generally be much better off, because Brazilian goods will become much cheaper to purchase in dollars.10.IRP is the most likely to hold because it presents the easiest and least costly means to exploit anyarbitrage opportunities. Relative PPP is least likely to hold since it depends on the absence of market imperfections and frictions in order to hold strictly.11.It all depends on whether the forward market expects the same appreciation over the period andwhether the expectation is accurate. Assuming that the expectation is correct and that other traders do not have the same information, there will be value to hedging the currency exposure.12.One possible reason investment in the foreign subsidiary might be preferred is if this investmentprovides direct diversification that shareholders could not attain by investing on their own. Another reason could be if the political climate in the foreign country was more stable than in the home country. Increased political risk can also be a reason you might prefer the home subsidiary investment. Indonesia can serve as a great example of political risk. If it cannot be diversified away, investing in this type of foreign country will increase the systematic risk. As a result, it will raise the cost of the capital, and could actually decrease the NPV of the investment.13.Yes, the firm should undertake the foreign investment. If, after taking into consideration all risks, aproject in a foreign country has a positive NPV, the firm should undertake it. Note that in practice, the stated assumption (that the adjustment to the discount rate has taken into consideration all political and diversification issues) is a huge task. But once that has been addressed, the net present value principle holds for foreign operations, just as for domestic.14.If the foreign currency depreciates, the U.S. parent will experience an exchange rate loss when theforeign cash flow is remitted to the U.S. This problem could be overcome by selling forward contracts. Another way of overcoming this problem would be to borrow in the country where the project is located.15.False. If the financial markets are perfectly competitive, the difference between the Eurodollar rateand the U.S. rate will be due to differences in risk and government regulation. Therefore, speculating in those markets will not be beneficial.16.The difference between a Eurobond and a foreign bond is that the foreign bond is denominated in thecurrency of the country of origin of the issuing company. Eurobonds are more popular than foreign bonds because of registration differences. Eurobonds are unregistered securities.Solutions to Questions and ProblemsNOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.Basicing the quotes from the table, we get:a.$50(€0.7870/$1) = €39.35b.$1.2706c.€5M($1.2706/€) = $6,353,240d.New Zealand dollare.Mexican pesof.(P11.0023/$1)($1.2186/€1) = P13.9801/€This is a cross rate.g.The most valuable is the Kuwait dinar. The least valuable is the Indonesian rupiah.2. a.You would prefer £100, since:(£100)($.5359/£1) = $53.59b.You would still prefer £100. Using the $/£ exchange rate and the SF/£ exchange rate to find theamount of Swiss francs £100 will buy, we get:(£100)($1.8660/£1)(SF .8233) = SF 226.6489ing the quotes in the book to find the SF/£ cross rate, we find:(SF 1.2146/$1)($0.5359/£1) = SF 2.2665/£1The £/SF exchange rate is the inverse of the SF/£ exchange rate, so:£1/SF .4412 = £0.4412/SF 13. a.F180= ¥104.93 (per $). The yen is selling at a premium because it is more expensive in theforward market than in the spot market ($0.0093659 versus $0.009530).b.F90 = $1.8587/£. The pound is selling at a discount because it is less expensive in the forwardmarket than in the spot market ($0.5380 versus $0.5359).c.The value of the dollar will fall relative to the yen, since it takes more dollars to buy one yen inthe future than it does today. The value of the dollar will rise relative to the pound, because it will take fewer dollars to buy one pound in the future than it does today.4. a.The U.S. dollar, since one Canadian dollar will buy:(Can$1)/(Can$1.26/$1) = $0.7937b.The cost in U.S. dollars is:(Can$2.19)/(Can$1.26/$1) = $1.74Among the reasons that absolute PPP doesn’t hold are tariffs and other barriers to trade, transactions costs, taxes, and different tastes.c.The U.S. dollar is selling at a discount, because it is less expensive in the forward market thanin the spot market (Can$1.22 versus Can$1.26).d.The Canadian dollar is expected to appreciate in value relative to the dollar, because it takesfewer Canadian dollars to buy one U.S. dollar in the future than it does today.e.Interest rates in the United States are probably higher than they are in Canada.5. a.The cross rate in ¥/£ terms is:(¥115/$1)($1.70/£1) = ¥195.5/£1b.The yen is quoted too low relative to the pound. Take out a loan for $1 and buy ¥115. Use the¥115 to purchase pounds at the cross-rate, which will give you:¥115(£1/¥185) = £0.6216Use the pounds to buy back dollars and repay the loan. The cost to repay the loan will be:£0.6216($1.70/£1) = $1.0568You arbitrage profit is $0.0568 per dollar used.6.We can rearrange the interest rate parity condition to answer this question. The equation we will useis:R FC = (F T– S0)/S0 + R USUsing this relationship, we find:Great Britain: R FC = (£0.5394 – £0.5359)/£0.5359 + .038 = 4.45%Japan: R FC = (¥104.93 – ¥106.77)/¥106.77 + .038 = 2.08%Switzerland: R FC = (SFr 1.1980 – SFr 1.2146)/SFr 1.2146 + .038 = 2.43%7.If we invest in the U.S. for the next three months, we will have:$30M(1.0045)3 = $30,406,825.23If we invest in Great Britain, we must exchange the dollars today for pounds, and exchange the pounds for dollars in three months. After making these transactions, the dollar amount we would have in three months would be:($30M)(£0.56/$1)(1.0060)3/(£0.59/$1) = $28,990,200.05We should invest in U.S.ing the relative purchasing power parity equation:F t = S0 × [1 + (h FC– h US)]tWe find:Z3.92 = Z3.84[1 + (h FC– h US)]3h FC– h US = (Z3.92/Z3.84)1/3– 1h FC– h US = .0069Inflation in Poland is expected to exceed that in the U.S. by 0.69% over this period.9.The profit will be the quantity sold, times the sales price minus the cost of production. Theproduction cost is in Singapore dollars, so we must convert this to U.S. dollars. Doing so, we find that if the exchange rates stay the same, the profit will be:Profit = 30,000[$145 – {(S$168.50)/(S$1.6548/$1)}]Profit = $1,295,250.18If the exchange rate rises, we must adjust the cost by the increased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/1.1(S$1.6548/$1)}]Profit = $1,572,954.71If the exchange rate falls, we must adjust the cost by the decreased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/0.9(S$1.6548/$1)}]Profit = $955,833.53To calculate the breakeven change in the exchange rate, we need to find the exchange rate that make the cost in Singapore dollars equal to the selling price in U.S. dollars, so:$145 = S$168.50/S TS T = S$1.1621/$1S T = –.2978 or –29.78% decline10. a.If IRP holds, then:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.5257Since given F180 is Kr6.56, an arbitrage opportunity exists; the forward premium is too high.Borrow Kr1 today at 8% interest. Agree to a 180-day forward contract at Kr 6.56. Convert the loan proceeds into dollars:Kr 1 ($1/Kr 6.43) = $0.15552Invest these dollars at 5%, ending up with $0.15931. Convert the dollars back into krone as$0.15931(Kr 6.56/$1) = Kr 1.04506Repay the Kr 1 loan, ending with a profit of:Kr1.04506 – Kr1.03868 = Kr 0.00638b.To find the forward rate that eliminates arbitrage, we use the interest rate parity condition, so:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.525711.The international Fisher effect states that the real interest rate across countries is equal. We canrearrange the international Fisher effect as follows to answer this question:R US– h US = R FC– h FCh FC = R FC + h US– R USa.h AUS = .05 + .035 – .039h AUS = .046 or 4.6%b.h CAN = .07 + .035 – .039h CAN = .066 or 6.6%c.h TAI = .10 + .035 – .039h TAI = .096 or 9.6%12. a.The yen is expected to get stronger, since it will take fewer yen to buy one dollar in the futurethan it does today.b.h US– h JAP (¥129.76 – ¥131.30)/¥131.30h US– h JAP = – .0117 or –1.17%(1 – .0117)4– 1 = –.0461 or –4.61%The approximate inflation differential between the U.S. and Japan is – 4.61% annually.13. We need to find the change in the exchange rate over time, so we need to use the relative purchasingpower parity relationship:F t = S0 × [1 + (h FC– h US)]TUsing this relationship, we find the exchange rate in one year should be:F1 = 215[1 + (.086 – .035)]1F1 = HUF 225.97The exchange rate in two years should be:F2 = 215[1 + (.086 – .035)]2F2 = HUF 237.49And the exchange rate in five years should be:F5 = 215[1 + (.086 – .035)]5F5 = HUF 275.71ing the interest-rate parity theorem:(1 + R US) / (1 + R FC) = F(0,1) / S0We can find the forward rate as:F(0,1) = [(1 + R US) / (1 + R FC)] S0F(0,1) = (1.13 / 1.08)$1.50/£F(0,1) = $1.57/£Intermediate15.First, we need to forecast the future spot rate for each of the next three years. From interest rate andpurchasing power parity, the expected exchange rate is:E(S T) = [(1 + R US) / (1 + R FC)]T S0So:E(S1) = (1.0480 / 1.0410)1 $1.22/€ = $1.2282/€E(S2) = (1.0480 / 1.0410)2 $1.22/€ = $1.2365/€E(S3) = (1.0480 / 1.0410)3 $1.22/€ = $1.2448/€Now we can use these future spot rates to find the dollar cash flows. The dollar cash flow each year will be:Year 0 cash flow = –€$12,000,000($1.22/€) = –$14,640,000.00Year 1 cash flow = €$2,700,000($1.2282/€) = $3,316,149.86Year 2 cash flow = €$3,500,000($1.2365/€) = $4,327,618.63Year 3 cash flow = (€3,300,000 + 7,400,000)($1.2448/€) = $13,319,111.90And the NPV of the project will be:NPV = –$14,640,000 + $3,316,149.86/1.13 + $4,4327,618.63/1.132 + $13,319,111.90/1.133NPV = $914,618.7316. a.Implicitly, it is assumed that interest rates won’t change over the life of the project, but theexchange rate is projected to decline because the Euroswiss rate is lower than the Eurodollar rate.b.We can use relative purchasing power parity to calculate the dollar cash flows at each time. Theequation is:E[S T] = (SFr 1.72)[1 + (.07 – .08)]TE[S T] = 1.72(.99)TSo, the cash flows each year in U.S. dollar terms will be:t SFr E[S T] US$0 –27.0M –$15,697,674.421 +7.5M 1.7028 $4,404,510.222 +7.5M 1.6858 $4,449,000.223 +7.5M 1.6689 $4,493,939.624 +7.5M 1.6522 $4,539,332.955 +7.5M 1.6357 $4,585,184.79And the NPV is:NPV = –$15,697,674.42 + $4,404,510.22/1.13 + $4,449,000.22/1.132 + $4,493,939.62/1.133 + $4,539,332.95/1.134 + $4,585,184.79/1.135NPV = $71,580.10c.Rearranging the relative purchasing power parity equation to find the required return in Swissfrancs, we get:R SFr = 1.13[1 + (.07 – .08)] – 1R SFr = 11.87%So, the NPV in Swiss francs is:NPV = –SFr 27.0M + SFr 7.5M(PVIFA11.87%,5)NPV = SFr 123,117.76Converting the NPV to dollars at the spot rate, we get the NPV in U.S. dollars as:NPV = (SFr 123,117.76)($1/SFr 1.72)NPV = $71,580.10Challenge17. a.The domestic Fisher effect is:1 + R US = (1 + r US)(1 + h US)1 + r US = (1 + R US)/(1 + h US)This relationship must hold for any country, that is:1 + r FC = (1 + R FC)/(1 + h FC)The international Fisher effect states that real rates are equal across countries, so:1 + r US = (1 + R US)/(1 + h US) = (1 + R FC)/(1 + h FC) = 1 + r FCb.The exact form of unbiased interest rate parity is:E[S t] = F t = S0 [(1 + R FC)/(1 + R US)]tc.The exact form for relative PPP is:E[S t] = S0 [(1 + h FC)/(1 + h US)]td.For the home currency approach, we calculate the expected currency spot rate at time t as:E[S t] = (€0.5)[1.07/1.05]t= (€0.5)(1.019)tWe then convert the euro cash flows using this equation at every time, and find the present value. Doing so, we find:NPV = –[€2M/(€0.5)] + {€0.9M/[1.019(€0.5)]}/1.1 + {€0.9M/[1.0192(€0.5)]}/1.12 + {€0.9M/[1.0193(€0.5/$1)]}/1.13NPV = $316,230.72For the foreign currency approach, we first find the return in the euros as:R FC = 1.10(1.07/1.05) – 1 = 0.121Next, we find the NPV in euros as:NPV = –€2M + (€0.9M)/1.121 + (€0.9M)/1.1212+ (€0.9M)/1.1213= €158,115.36And finally, we convert the euros to dollars at the current exchange rate, which is:NPV ($) = €158,115.36 /(€0.5/$1) = $316,230.72。
(完整版)公司理财-罗斯课后习题答案
(完整版)公司理财-罗斯课后习题答案-CAL-FENGHAI-(2020YEAR-YICAI)_JINGBIAN第一章1.在所有权形式的公司中,股东是公司的所有者。
股东选举公司的董事会,董事会任命该公司的管理层。
企业的所有权和控制权分离的组织形式是导致的代理关系存在的主要原因。
管理者可能追求自身或别人的利益最大化,而不是股东的利益最大化。
在这种环境下,他们可能因为目标不一致而存在代理问题。
2.非营利公司经常追求社会或政治任务等各种目标。
非营利公司财务管理的目标是获取并有效使用资金以最大限度地实现组织的社会使命。
3.这句话是不正确的。
管理者实施财务管理的目标就是最大化现有股票的每股价值，当前的股票价值反映了短期和长期的风险、时间以及未来现金流量。
4.有两种结论。
一种极端,在市场经济中所有的东西都被定价。
因此所有目标都有一个最优水平，包括避免不道德或非法的行为，股票价值最大化。
另一种极端,我们可以认为这是非经济现象,最好的处理方式是通过政治手段。
一个经典的思考问题给出了这种争论的答案:公司估计提高某种产品安全性的成本是30美元万。
然而,该公司认为提高产品的安全性只会节省20美元万。
请问公司应该怎么做呢?”5.财务管理的目标都是相同的,但实现目标的最好方式可能是不同的,因为不同的国家有不同的社会、政治环境和经济制度。
6.管理层的目标是最大化股东现有股票的每股价值。
如果管理层认为能提高公司利润，使股价超过35美元,那么他们应该展开对恶意收购的斗争。
如果管理层认为该投标人或其它未知的投标人将支付超过每股35美元的价格收购公司,那么他们也应该展开斗争。
然而,如果管理层不能增加企业的价值,并且没有其他更高的投标价格,那么管理层不是在为股东的最大化权益行事。
现在的管理层经常在公司面临这些恶意收购的情况时迷失自己的方向。
7.其他国家的代理问题并不严重,主要取决于其他国家的私人投资者占比重较小。
较少的私人投资者能减少不同的企业目标。
英文版罗斯公司理财习题答案Chap002
CHAPTER 2ACCOUNTING STATEMENTS, TAXES AND CASH FLOWAnswers to Concepts Review and Critical Thinking Questions1.Liquidity measures how quickly and easily an asset can be converted to cash without significant lossin value. It’s desirable for firms to have high liquidity so that they have a large factor of safety in meeting short-term creditor demands. However, since liquidity also has an opportunity cost associated with it - namely that higher returns can generally be found by investing the cash into productive assets - low liquidity levels are also desirable to the firm. It’s up to the firm’s financial management staff to find a reasonable compromise between these opposing needs2.The recognition and matching principles in financial accounting call for revenues, and the costsassociated with producing those revenues, to be “booked” when the revenue process is essentially complete, not necessarily when the cash is collected or bills are paid. Note that this way is not necessarily correct; it’s the way accountants have chosen to do it.3.The bottom line number shows the change in the cash balance on the balance sheet. As such, it is nota useful number for analyzing a company.4. The major difference is the treatment of interest expense. The accounting statement of cash flowstreats interest as an operating cash flow, while the financial cash flows treat interest as a financing cash flow. The logic of the accounting statement of cash flows is that since interest appears on the income statement, which shows the operations for the period, it is an operating cash flow. In reality, interest is a financing expense, which results from the company’s choice of debt/equity. We will have more to say about this in a later chapter. When comparing the two cash flow statements, the financial statement of cash flows is a more appropriate measure of the company’s performance because of its treatment of interest.5.Market values can never be negative. Imagine a share of stock selling for –$20. This would meanthat if you placed an order for 100 shares, you would get the stock along with a check for $2,000.How many shares do you want to buy? More generally, because of corporate and individual bankruptcy laws, net worth for a person or a corporation cannot be negative, implying that liabilities cannot exceed assets in market value.6.For a successful company that is rapidly expanding, for example, capital outlays will be large,possibly leading to negative cash flow from assets. In general, what matters is whether the money is spent wisely, not whether cash flow from assets is positive or negative.7.It’s probably not a good sign for an established company, but it would be fairly ordinary for a start-up, so it depends.8.For example, if a company were to become more efficient in inventory management, the amount ofinventory needed would decline. The same might be true if it becomes better at collecting its receivables. In general, anything that leads to a decline in ending NWC relative to beginning would have this effect. Negative net capital spending would mean more long-lived assets were liquidated than purchased.9.If a company raises more money from selling stock than it pays in dividends in a particular period,its cash flow to stockholders will be negative. If a company borrows more than it pays in interest and principal, its cash flow to creditors will be negative.10.The adjustments discussed were purely accounting changes; they had no cash flow or market valueconsequences unless the new accounting information caused stockholders to revalue the derivatives. Solutions to Questions and ProblemsNOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.Basic1.To find owner’s equity, we must construct a balance sheet as follows:Balance SheetCA $5,000 CL $4,500NFA 23,000 LTD 13,000OE ??TA $28,000 TL & OE $28,000We know that total liabilities and owner’s equity (TL & OE) must equal total assets of $28,000. We also know that TL & OE is equal to current liabilities plus long-term debt plus owner’s equity, so owner’s equity is:O E = $28,000 –13,000 – 4,500 = $10,500N WC = CA – CL = $5,000 – 4,500 = $5002. The income statement for the company is:Income StatementSales S/.527,000Costs 280,000Depreciation 38,000EBIT S/.209,000Interest 15,000EBT S/.194,000Taxes (35%) 67,900Net income S/.126,100One equation for net income is:Net income = Dividends + Addition to retained earningsRearranging, we get:Addition to retained earnings = Net income – DividendsAddition to retained earnings = S/.126,100 – 48,000Addition to retained earnings = S/.78,1003.To find the book value of current assets, we use: NWC = CA – CL. Rearranging to solve for currentassets, we get:CA = NWC + CL = $900K + 2.2M = $3.1MThe market value of current assets and fixed assets is given, so:Book value CA = $3.1M Market value CA = $2.8MBook value NFA = $4.0M Market value NFA = $3.2MBook value assets = $3.1M + 4.0M = $7.1M Market value assets = $2.8M + 3.2M = $6.0M 4.Taxes = 0.15(€50K) + 0.25(€25K) + 0.34(€25K) + 0.39(€273K – 100K)Taxes = €89,720The average tax rate is the total tax paid divided by net income, so:Average tax rate = €89,720 / €273,000Average tax rate = 32.86%.The marginal tax rate is the tax rate on the next €1 of earnings, so the marginal tax rate = 39%.5.To calculate OCF, we first need the income statement:Income StatementSales 元13,500Costs 5,400Depreciation 1,200EBIT 元6,900Interest 680Taxable income 元6,220Taxes (35%) 2,177Net income 元4,043OCF = EBIT + Depreciation – TaxesOCF = 元6,900 + 1,200 – 2,177OCF = 元5,923 capital spending = NFA end– NFA beg + DepreciationNet capital spending = £4,700,000 – 4,200,000 + 925,000 Net capital spending = £1,425,0007.The long-term debt account will increase by $8 million, the amount of the new long-term debt issue.Since the company sold 10 million new shares of stock with a $1 par value, the common stock account will increase by $10 million. The capital surplus account will increase by $16 million, the value of the new stock sold above its par value. Since the company had a net income of $7 million, and paid $4 million in dividends, the addition to retained earnings was $3 million, which will increase the accumulated retained earnings account. So, the new long-term debt and stockholders’ equity portion of the balance sheet will be:Long-term debt $ 68,000,000Total long-term debt $ 68,000,000Shareholders equityPreferred stock $ 18,000,000Common stock ($1 par value) 35,000,000Accumulated retained earnings 92,000,000Capital surplus 65,000,000Total equity $ 210,000,000Total Liabilities & Equity $ 278,000,0008.Cash flow to creditors = Interest paid – Net new borrowingCash flow to creditors = €340,000 – (LTD end– LTD beg)Cash flow to creditors = €340,000 – (€3,100,000 – 2,800,000)Cash flow to creditors = €340,000 – 300,000Cash flow to creditors = €40,0009. Cash flow to stockholders = Dividends paid – Net new equityCash flow to stockholders = €600,000 – [(Common end + APIS end) – (Common beg + APIS beg)]Cash flow to stockholders = €600,000 – [(€855,000 + 7,600,000) – (€820,000 + 6,800,000)]Cash flow to stockholders = €600,000 – (€7,620,000 – 8,455,000)Cash flow to stockholders = –€235,000Note, APIS is the additional paid-in surplus.10. Cash flow from assets = Cash flow to creditors + Cash flow to stockholders= €40,000 – 235,000= –€195,000Cash flow from assets = –€195,000 = OCF – Change in NWC – Net capital spending= OCF – (–€165,000) – 760,000= –€195,000Operating cash flow = –€195,000 – 165,000 + 760,000= €400,000Intermediate11. a.The accounting statement of cash flows explains the change in cash during the year. Theaccounting statement of cash flows will be:Statement of cash flowsOperationsNet income ZW$125Depreciation 75Changes in other current assets (25)Total cash flow from operations ZW$175Investing activitiesAcquisition of fixed assets ZW$(175)Total cash flow from investing activities ZW$(175)Financing activitiesProceeds of long-term debt ZW$90Current liabilities 10Dividends (65)Total cash flow from financing activities ZW$35Change in cash (on balance sheet) ZW$35b.Change in NWC = NWC end– NWC beg= (CA end– CL end) – (CA beg– CL beg)= [(ZW$45 + 145) – 70] – [(ZW$10 + 120) – 60)= ZW$120 – 70= ZW$50c.To find the cash flow generated by the firm’s assets, we need the operating cash flow, and thecapital spending. So, calculating each of these, we find:Operating cash flowNet income ZW$125Depreciation 75Operating cash flow ZW$200Note that we can calculate OCF in this manner since there are no taxes.Capital spendingEnding fixed assets ZW$250Beginning fixed assets (150)Depreciation 75Capital spending ZW$175Now we can calculate the cash flow generated by the firm’s assets, which is:Cash flow from assetsOperating cash flow ZW$200Capital spending (175)Change in NWC (50)Cash flow from assets ZW$(25)Notice that the accounting statement of cash flows shows a positive cash flow, but the financial cash flows show a negative cash flow. The cash flow generated by the firm’s assets is a better number for analyzing the firm’s performance.12.With the information provided, the cash flows from the firm are the capital spending and the changein net working capital, so:Cash flows from the firmCapital spending $(3,000)Additions to NWC (1,000)Cash flows from the firm $(4,000)And the cash flows to the investors of the firm are:Cash flows to investors of the firmSale of short-term debt $(7,000)Sale of long-term debt (18,000)Sale of common stock (2,000)Dividends paid 23,000Cash flows to investors of the firm $(4,000)13. a. The interest expense for the company is the amount of debt times the interest rate on the debt.So, the income statement for the company is:Income StatementSales £1,000,000Cost of goods sold 300,000Selling costs 200,000Depreciation 100,000EBIT £400,000Interest 100,000Taxable income £300,000Taxes (35%) 105,000Net income £195,000b. And the operating cash flow is:OCF = EBIT + Depreciation – TaxesOCF = £400,000 + 100,000 – 105,000OCF = £395,00014.To find the OCF, we first calculate net income.Income StatementSales Au$145,000Costs 86,000Depreciation 7,000Other expenses 4,900EBIT Au$47,100Interest 15,000Taxable income Au$32,100Taxes 12,840Net income Au$19,260Dividends Au$8,700Additions to RE Au$10,560a.OCF = EBIT + Depreciation – TaxesOCF = Au$47,100 + 7,000 – 12,840OCF = Au$41,260b.CFC = Interest – Net new LTDCFC = Au$15,000 – (–Au$6,500)CFC = Au$21,500Note that the net new long-term debt is negative because the company repaid part of its long-term debt.c.CFS = Dividends – Net new equityCFS = Au$8,700 – 6,450CFS = Au$2,250d.We know that CFA = CFC + CFS, so:CFA = Au$21,500 + 2,250 = Au$23,750CFA is also equal to OCF – Net capital spending – Change in NWC. We already know OCF.Net capital spending is equal to:Net capital spending = Increase in NFA + DepreciationNet capital spending = Au$5,000 + 7,000Net capital spending = Au$12,000Now we can use:CFA = OCF – Net capital spending – Change in NWCAu$23,750 = Au$41,260 – 12,000 – Change in NWC.Solving for the change in NWC gives Au$5,510, meaning the company increased its NWC by Au$5,510.15.The solution to this question works the income statement backwards. Starting at the bottom:Net income = Dividends + Addition to ret. earningsNet income = $900 + 4,500Net income = $5,400Now, looking at the income statement:EBT –EBT × Tax rate = Net incomeRecognize that EBT × tax rate is simply the calculation for taxes. Solving this for EBT yields: EBT = NI / (1– tax rate)EBT = $5,400 / 0.65EBT = $8,308Now we can calculate:EBIT = EBT + interestEBIT = $8,308 + 1,600EBIT = $9,908The last step is to use:EBIT = Sales – Costs – DepreciationEBIT = $29,000 – 13,000 – DepreciationEBIT = $9,908Solving for depreciation, we find that depreciation = $6,092.16.The balance sheet for the company looks like this:Balance SheetCash ¥175,000 Accounts payable ¥430,000 Accounts receivable 140,000 Notes payable 180,000 Inventory 265,000 Current liabilities ¥610,000 Current assets ¥580,000 Long-term debt 1,430,000Total liabilities ¥2,040,000 Tangible net fixed assets 2,900,000Intangible net fixed assets 720,000 Common stock ??Accumulated ret. earnings 1,240,000 Total assets ¥4,200,000 Total liab. & owners’ equity¥4,200,000Total liabilities and owners’ equity is:TL & OE = CL + LTD + Common stockSolving for this equation for equity gives us:Common stock = ¥4,200,000 – 1,240,000 – 2,040,000Common stock = ¥920,00017.The market value of shareholders’ equity cannot be zero. A negative market va lue in this case wouldimply that the company would pay you to own the stock. The market value of shareholders’ equity can be stated as: Shareholders’ equity = Max [(TA – TL), 0]. So, if TA is 元4,000,000 equity is equal to 元1,000,000 and if TA is 元2,500,000 equity is equal to 元0. We should note here that the book value of shareholders’ equity can be negative.18. a. Taxes Growth = 0.15($50K) + 0.25($25K) + 0.34($10K) = $17,150Taxes Income = 0.15($50K) + 0.25($25K) + 0.34($25K) + 0.39($235K) + 0.34($8.165M)= $2,890,000b. Each firm has a marginal tax rate of 34% on the next $10,000 of taxable income, despite theirdifferent average tax rates, so both firms will pay an additional $3,400 in taxes.19.Income StatementSales ₦850,000COGS 630,000A&S expenses 120,000Depreciation 130,000EBIT (₦30,000)Interest 85,000Taxable income (₦115,000)Taxes (30%) 0 income (₦115,000)b.OCF = EBIT + Depreciation – TaxesOCF = (₦30,000) + 130,000 – 0OCF = ₦100,000 income was negative because of the tax deductibility of depreciation and interest expense.However, the actual cash flow from operations was positive because depreciation is a non-cash expense and interest is a financing expense, not an operating expense.20. A firm can still pay out dividends if net income is negative; it just has to be sure there is sufficientcash flow to make the dividend payments.Change in NWC = Net capital spending = Net new equity = 0. (Given)Cash flow from assets = OCF – Change in NWC – Net capital spendingCash flow from assets = ₦100,000 – 0 – 0 = ₦100,000Cash flow to stockholders = Dividends – Net new equityCash flow to stockholders = ₦30,000 – 0 = ₦30,000Cash flow to creditors = Cash flow from assets – Cash flow to stockholdersCash flow to creditors = ₦100,000 – 30,000Cash flow to creditors = ₦70,000Cash flow to creditors is also:Cash flow to creditors = Interest – Net new LTDSo:Net new LTD = Interest – Cash flow to creditorsNet new LTD = ₦85,000 – 70,000Net new LTD = ₦15,00021. a.The income statement is:Income StatementSales $12,800Cost of good sold 10,400Depreciation 1,900EBIT $ 500Interest 450Taxable income $ 50Taxes (34%) 17Net income $33b.OCF = EBIT + Depreciation – TaxesOCF = $500 + 1,900 – 17OCF = $2,383c.Change in NWC = NWC end– NWC beg= (CA end– CL end) – (CA beg– CL beg)= ($3,850 – 2,100) – ($3,200 – 1,800)= $1,750 – 1,400 = $350Net capital spending = NFA end– NFA beg + Depreciation= $9,700 – 9,100 + 1,900= $2,500CFA = OCF – Change in NWC – Net capital spending= $2,383 – 350 – 2,500= –$467The cash flow from assets can be positive or negative, since it represents whether the firm raised funds or distributed funds on a net basis. In this problem, even though net income and OCF are positive, the firm invested heavily in both fixed assets and net working capital; it had to raise a net $467 in funds from its stockholders and creditors to make these investments.d.Cash flow to creditors = Interest – Net new LTD= $450 – 0= $450Cash flow to stockholders = Cash flow from assets – Cash flow to creditors= –$467 – 450= –$917We can also calculate the cash flow to stockholders as:Cash flow to stockholders = Dividends – Net new equitySolving for net new equity, we get:Net new equity = $500 – (–917)= $1,417The firm had positive earnings in an accounting sense (NI > 0) and had positive cash flow from operations. The firm invested $350 in new net working capital and $2,500 in new fixed assets. The firm had to raise $467 from its stakeholders to support this new investment. It accomplished this by raising $1,417 in the form of new equity. After paying out $500 of this in the form of dividends to shareholders and $450 in the form of interest to creditors, $467 was left to meet the firm’s cash flow needs for investment.22. a.Total assets 2005 = ¥650,000 + 2,900,000 = ¥3,550,000Total liabilities 2005 = ¥265,000 + 1,500,000 = ¥1,765,000Owners’ equity 2005 = ¥3,550,000 – 1,765,000 = ¥1,785,000Total assets 2006 = ¥705,000 + 3,400,000 = ¥4,105,000Total liabilities 2006 = ¥290,000 + 1,720,000 = ¥2,010,000Owners’ equity 2006 = ¥4,105,000 – 2,010,000 = ¥2,095,000b.NWC 2005 = CA05 – CL05 = ¥650,000 – 265,000 = ¥385,000NWC 2006 = CA06 – CL06 = ¥705,000 – 290,000 = ¥415,000Change in NWC = NWC06 – NWC05 = ¥415,000 – 385,000 = ¥30,000c.We can calculate net capital spending as:Net capital spending = Net fixed assets 2006 – Net fixed assets 2005 + DepreciationNet capital spending = ¥3,400,000 – 2,900,000 + 800,000Net capital spending = ¥1,300,000So, the company had a net capital spending cash flow of ¥1,300,000. We also know that net capital spending is:Net capital spending = Fixed assets bought – Fixed assets sold¥1,300,000 = ¥1,500,000 – Fixed assets soldFixed assets sold = ¥1,500,000 – 1,300,000 = ¥200,000To calculate the cash flow from assets, we must first calculate the operating cash flow. The operating cash flow is calculated as follows (you can also prepare a traditional income statement):EBIT = Sales – Costs – DepreciationEBIT = ¥8,600,000 – 4,150,000 – 800,000EBIT = ¥3,650,000EBT = EBIT – InterestEBT = ¥3,650,000 – 216,000EBT = ¥3,434,000Taxes = EBT ⨯ .35Taxes = ¥3,434,000 ⨯ .35Taxes = ¥1,202,000OCF = EBIT + Depreciation – TaxesOCF = ¥3,650,000 + 800,000 – 1,202,000OCF = ¥3,248,000Cash flow from assets = OCF – Change in NWC – Net capital spending.Cash flow from assets = ¥3,248,000 – 30,000 – 1,300,000Cash flow from assets = ¥1,918,000 new borrowing = LTD06 – LTD05Net new borrowing = ¥1,720,000 – 1,500,000Net new borrowing = ¥220,000Cash flow to creditors = Interest – Net new LTDCash flow to creditors = ¥216,000 – 220,000Cash flow to creditors = –¥4,000Net new borrowing = ¥220,000 = Debt issued – Debt retiredDebt retired = ¥300,000 – 220,000 = ¥80,00023.Balance sheet as of Dec. 31, 2005Cash €2,107 Accounts payable €2,213Accounts receivable 2,789 Notes payable 407Inventory 4,959 Current liabilities €2,620Current assets €9,855Long-term debt €7,056 Net fixed assets €17,669 Owners' equity €17,848Total assets €27,524 Total liab. & equity €27,524Balance sheet as of Dec. 31, 2006Cash €2,155 Accounts payable €2,146Accounts receivable 3,142 Notes payable 382Inventory 5,096 Current liabilities €2,528Current assets €10,393Long-term debt €8,232 Net fixed assets €18,091 Owners' equity €17,724Total assets €28,484 Total liab. & equity €28,4842005 Income Statement 2006 Income Statement Sales €4,018.00 Sales €4,312.00 COGS 1,382.00 COGS 1,569.00 Other expenses 328.00 Other expenses 274.00 Depreciation 577.00 Depreciation 578.00 EBIT €1,731.00 EBIT €1,891.00 Interest 269.00 Interest 309.00 EBT €1,462.00 EBT €1,582.00 Taxes (34%) 497.08 Taxes (34%) 537.88 Net income € 964.92 Net income €1,044.12 Dividends €490.00 Dividends €539.00 Additions to RE €474.92 Additions to RE €505.12 24.OCF = EBIT + Depreciation – TaxesOCF = €1,891 + 578 – 537.88OCF = €1,931.12Change in NWC = NWC end– NWC beg = (CA – CL) end– (CA – CL) begChange in NWC = (€10,393 – 2,528) – (€9,855 – 2,620)Change in NWC = €7,865 – 7,235 = €630Net capital spending = NFA end– NFA beg+ DepreciationNet capital spending = €18,091 – 17,669 + 578Net capital spending = €1,000Cash flow from assets = OCF – Change in NWC – Net capital spendingCash flow from assets = €1,931.12 – 630 – 1,000Cash flow from assets = €301.12Cash flow to creditors = Interest – Net new LTDNet new LTD = LTD end– LTD begCash flow to creditors = €309 – (€8,232 – 7,056)Cash flow to creditors = –€867Net new equity = Common stock end– Common stock begCommon stock + Retained earnings = T otal owners’ equityNet new equity = (OE – RE) end– (OE – RE) begNet new equity = OE end– OE beg + RE beg– RE endRE end= RE beg+ Additions to RE04Net new equity = OE end– OE beg+ RE beg– (RE beg + Additions to RE06)= OE end– OE beg– Additions to RENet new equity = €17,724 – 17,848 – 505.12 = –€629.12Cash flow to stockholders = Dividends – Net new equityCash flow to stockholders = €539 – (–€629.12)Cash flow to stockholders = €1,168.12As a check, cash flow from assets is €301.12.Cash flow from assets = Cash flow from creditors + Cash flow to stockholdersCash flow from assets = –€867 + 1,168.12Cash flow from assets = €301.12Challenge25.We will begin by calculating the operating cash flow. First, we need the EBIT, which can becalculated as:EBIT = Net income + Current taxes + Deferred taxes + InterestEBIT = £192 + 110 + 21 + 57EBIT = £380Now we can calculate the operating cash flow as:Operating cash flowEarnings before interest and taxes £380Depreciation 105Current taxes (110)Operating cash flow £375The cash flow from assets is found in the investing activities portion of the accounting statement of cash flows, so:Cash flow from assetsAcquisition of fixed assets £198Sale of fixed assets (25)Capital spending £173The net working capital cash flows are all found in the operations cash flow section of the accounting statement of cash flows. However, instead of calculating the net working capital cash flows as the change in net working capital, we must calculate each item individually. Doing so, we find:Net working capital cash flowCash £140Accounts receivable 31Inventories (24)Accounts payable (19)Accrued expenses 10Notes payable (6)Other (2)NWC cash flow £130Except for the interest expense and notes payable, the cash flow to creditors is found in the financing activities of the accounting statement of cash flows. The interest expense from the income statement is given, so:Cash flow to creditorsInterest £57Retirement of debt 84Debt service £141Proceeds from sale of long-term debt (129)Total £12And we can find the cash flow to stockholders in the financing section of the accounting statement of cash flows. The cash flow to stockholders was:Cash flow to stockholdersDividends £94Repurchase of stock 15Cash to stockholders £109Proceeds from new stock issue (49)Total £60 capital spending = NFA end– NFA beg + Depreciation= (NFA end– NFA beg) + (Depreciation + AD beg) – AD beg= (NFA end– NFA beg)+ AD end– AD beg= (NFA end + AD end) – (NFA beg + AD beg) = FA end– FA beg27. a.The tax bubble causes average tax rates to catch up to marginal tax rates, thus eliminating thetax advantage of low marginal rates for high income corporations.b.Assuming a taxable income of $100,000, the taxes will be:Taxes = 0.15($50K) + 0.25($25K) + 0.34($25K) + 0.39($235K) = $113.9KAverage tax rate = $113.9K / $335K = 34%The marginal tax rate on the next dollar of income is 34 percent.For corporate taxable income levels of $335K to $10M, average tax rates are equal to marginal tax rates.Taxes = 0.34($10M) + 0.35($5M) + 0.38($3.333M) = $6,416,667Average tax rate = $6,416,667 / $18,333,334 = 35%The marginal tax rate on the next dollar of income is 35 percent. For corporate taxable income levels over $18,333,334, average tax rates are again equal to marginal tax rates.c.Taxes = 0.34($200K) = $68K = 0.15($50K) + 0.25($25K) + 0.34($25K) + X($100K);X($100K) = $68K – 22.25K = $45.75KX = $45.75K / $100KX = 45.75%。
《公司理财》课后答案(英文版,第六版).doc
Chapter 2: Accounting Statements and Cash Flow2.10AssetsCurrent assetsCash $ 4,000Accounts receivable 8,000Total current assets $ 12,000Fixed assetsMachinery $ 34,000Patents 82,000Total fixed assets $116,000Total assets $128,000Liabilities and equityCurrent liabilitiesAccounts payable $ 6,000Taxes payable 2,000Total current liabilities $ 8,000Long-term liabilitiesBonds payable $7,000Stockholders equityCommon stock ($100 par) $ 88,000Capital surplus 19,000Retained earnings 6,000Total stockholders equity $113,000Total liabilities and equity $128,0002.11One year ago TodayLong-term debt $50,000,000 $50,000,000Preferred stock 30,000,000 30,000,000Common stock 100,000,000 110,000,000Retained earnings 20,000,000 22,000,000Total $200,000,000 $212,000,0002.12Total Cash Flow ofthe Stancil CompanyCash flows from the firmCapital spending $(1,000)Additions to working capital (4,000)Total $(5,000)Cash flows to investors of the firmShort-term debt $(6,000)Long-term debt (20,000)Equity (Dividend - Financing) 21,000Total $(5,000)[Note: This table isn’t the Statement of Cash Flows, which is only covered in Appendix 2B, since the latter has th e change in cash (on the balance sheet) as a final entry.]2.13 a. The changes in net working capital can be computed from:Sources of net working capitalNet income $100Depreciation 50Increases in long-term debt 75Total sources $225Uses of net working capitalDividends $50Increases in fixed assets* 150Total uses $200Additions to net working capital $25*Includes $50 of depreciation.b.Cash flow from the firmOperating cash flow $150Capital spending (150)Additions to net working capital (25)Total $(25)Cash flow to the investorsDebt $(75)Equity 50Total $(25)Chapter 3: Financial Markets and Net Present Value: First Principles of Finance (Advanced)3.14 $120,000 - ($150,000 - $100,000) (1.1) = $65,0003.15 $40,000 + ($50,000 - $20,000) (1.12) = $73,6003.16 a. ($7 million + $3 million) (1.10) = $11.0 millionb.i. They could spend $10 million by borrowing $5 million today.ii. They will have to spend $5.5 million [= $11 million - ($5 million x 1.1)] at t=1.Chapter 4: Net Present Valuea. $1,000 ⨯ 1.0510 = $1,628.89b. $1,000 ⨯ 1.0710 = $1,967.15c. $1,000 ⨯ 1.0520 = $2,653.30d. Interest compounds on the interest already earned. Therefore, the interest earned inSince this bond has no interim coupon payments, its present value is simply the present value of the $1,000 that will be received in 25 years. Note: As will be discussed in the next chapter, the present value of the payments associated with a bond is the price of that bond.PV = $1,000 /1.125 = $92.30PV = $1,500,000 / 1.0827 = $187,780.23a. At a discount rate of zero, the future value and present value are always the same. Remember, FV =PV (1 + r) t. If r = 0, then the formula reduces to FV = PV. Therefore, the values of the options are $10,000 and $20,000, respectively. You should choose the second option.b. Option one: $10,000 / 1.1 = $9,090.91Option two: $20,000 / 1.15 = $12,418.43Choose the second option.c. Option one: $10,000 / 1.2 = $8,333.33Option two: $20,000 / 1.25 = $8,037.55Choose the first option.d. You are indifferent at the rate that equates the PVs of the two alternatives. You know that rate mustfall between 10% and 20% because the option you would choose differs at these rates. Let r be thediscount rate that makes you indifferent between the options.$10,000 / (1 + r) = $20,000 / (1 + r)5(1 + r)4 = $20,000 / $10,000 = 21 + r = 1.18921r = 0.18921 = 18.921%The $1,000 that you place in the account at the end of the first year will earn interest for six years. The $1,000 that you place in the account at the end of the second year will earn interest for five years, etc. Thus, the account will have a balance of$1,000 (1.12)6 + $1,000 (1.12)5 + $1,000 (1.12)4 + $1,000 (1.12)3= $6,714.61PV = $5,000,000 / 1.1210 = $1,609,866.18a. $1.000 (1.08)3 = $1,259.71b. $1,000 [1 + (0.08 / 2)]2 ⨯ 3 = $1,000 (1.04)6 = $1,265.32c. $1,000 [1 + (0.08 / 12)]12 ⨯ 3 = $1,000 (1.00667)36 = $1,270.24d. $1,000 e0.08 ⨯ 3 = $1,271.25e. The future value increases because of the compounding. The account is earning interest on interest. Essentially, the interest is added to the account balance at the e nd of every compounding period. During the next period, the account earns interest on the new balance. When the compounding period shortens, the balance that earns interest is rising faster.The price of the consol bond is the present value of the coupon payments. Apply the perpetuity formula to find the present value. PV = $120 / 0.15 = $800a. $1,000 / 0.1 = $10,000b. $500 / 0.1 = $5,000 is the value one year from now of the perpetual stream. Thus, the value of theperpetuity is $5,000 / 1.1 = $4,545.45.c. $2,420 / 0.1 = $24,200 is the value two years from now of the perpetual stream. Thus, the value of the perpetuity is $24,200 / 1.12 = $20,000.pply the NPV technique. Since the inflows are an annuity you can use the present value of an annuity factor.ANPV = -$6,200 + $1,200 81.0= -$6,200 + $1,200 (5.3349)= $201.88Yes, you should buy the asset.Use an annuity factor to compute the value two years from today of the twenty payments. Remember, the annuity formula gives you the value of the stream one year before the first payment. Hence, the annuity factor will give you the value at the end of year two of the stream of payments.A= $2,000 (9.8181)Value at the end of year two = $2,000 20.008= $19,636.20The present value is simply that amount discounted back two years.PV = $19,636.20 / 1.082 = $16,834.88The easiest way to do this problem is to use the annuity factor. The annuity factor must be equal to $12,800 / $2,000 = 6.4; remember PV =C A T r. The annuity factors are in the appendix to the text. To use the factor table to solve this problem, scan across the row labeled 10 years until you find 6.4. It is close to the factor for 9%, 6.4177. Thus, the rate you will receive on this note is slightly more than 9%.You can find a more precise answer by interpolating between nine and ten percent.[ 10% ⎤[6.1446 ⎤a ⎡r ⎥bc ⎡6.4 ⎪ d⎣9%⎦⎣6.4177 ⎦By interpolating, you are presuming that the ratio of a to b is equal to the ratio of c to d.(9 - r ) / (9 - 10) = (6.4177 - 6.4 ) / (6.4177 - 6.1446)r = 9.0648%The exact value could be obtained by solving the annuity formula for the interest rate. Sophisticated calculators can compute the rate directly as 9.0626%.[Note: A standard financial calculator’s TVM keys can solve for this rate. With annuity flows, the IRR key on “advanced” financial c alculators is unnecessary.]a. The annuity amount can be computed by first calculating the PV of the $25,000 which youThat amount is $17,824.65 [= $25,000 / 1.075]. Next compute the annuity which has the same present value.A$17,824.65 = C 507.0$17,824.65 = C (4.1002)C = $4,347.26Thus, putting $4,347.26 into the 7% account each year will provide $25,000 five years from today.b. The lump sum payment must be the present value of the $25,000, i.e., $25,000 / 1.075 =$17,824.65The formula for future value of any annuity can be used to solve the problem (see footnote 11 of the text).Option one: This cash flow is an annuity due. To value it, you must use the after-tax amounts. Theafter-tax payment is $160,000 (1 - 0.28) = $115,200. Value all except the first payment using the standard annuity formula, then add back the first payment of $115,200 to obtain the value of this option.AValue = $115,200 + $115,200 30.010= $115,200 + $115,200 (9.4269)= $1,201,178.88Option two: This option is valued similarly. You are able to have $446,000 now; this is already on an after-tax basis. You will receive an annuity of $101,055 for each of the next thirty years. Those payments are taxable when you receive them, so your after-tax payment is $72,759.60 [= $101,055 (1 - 0.28)].AValue = $446,000 + $72,759.60 30.010= $446,000 + $72,759.60 (9.4269)= $1,131,897.47Since option one has a higher PV, you should choose it.et r be the rate of interest you must earn.$10,000(1 + r)12 = $80,000(1 + r)12= 8r = 0.18921 = 18.921%First compute the present value of all the payments you must make for your children’s educati on. The value as of one year before matriculation of one child’s education isA= $21,000 (2.8550) = $59,955.$21,000 415.0This is the value of the elder child’s education fourteen years from now. It is the value of the younger child’s education sixteen years from today. The present value of these isPV = $59,955 / 1.1514 + $59,955 / 1.1516= $14,880.44You want to make fifteen equal payments into an account that yields 15% so that the present value of the equal payments is $14,880.44.A= $14,880.44 / 5.8474 = $2,544.80Payment = $14,880.44 / 15.015This problem applies the growing annuity formula. The first payment is$50,000(1.04)2(0.02) = $1,081.60.PV = $1,081.60 [1 / (0.08 - 0.04) - {1 / (0.08 - 0.04)}{1.04 / 1.08}40]= $21,064.28This is the present value of the payments, so the value forty years from today is$21,064.28 (1.0840) = $457,611.46se the discount factors to discount the individual cash flows. Then compute the NPV of the project. NoticeYou can still use the factor tables to compute their PV. Essentially, they form cash flows that are a six year annuity less a two year annuity. Thus, the appropriate annuity factor to use with them is 2.6198 (= 4.3553 - 1.7355).Year Cash Flow Factor PV0.9091 $636.371$70020.8264 743.769003 1,000 ⎤4 1,000 ⎥ 2.6198 2,619.805 1,000 ⎥6 1,000 ⎦7 1,250 0.5132 641.508 1,375 0.4665 641.44Total $5,282.87NPV = -$5,000 + $5,282.87= $282.87Purchase the machine.Chapter 5: How to Value Bonds and StocksThe amount of the semi-annual interest payment is $40 (=$1,000 ⨯ 0.08 / 2). There are a total of 40 periods;i.e., two half years in each of the twenty years in the term to maturity. The annuity factor tables can be usedto price these bonds. The appropriate discount rate to use is the semi-annual rate. That rate is simply the annual rate divided by two. Thus, for part b the rate to be used is 5% and for part c is it 3%.A+F/(1+r)40PV=C Tra. $40 (19.7928) + $1,000 / 1.0440 = $1,000Notice that whenever the coupon rate and the market rate are the same, the bond is priced at par.b. $40 (17.1591) + $1,000 / 1.0540 = $828.41Notice that whenever the coupon rate is below the market rate, the bond is priced below par.c. $40 (23.1148) + $1,000 / 1.0340 = $1,231.15Notice that whenever the coupon rate is above the market rate, the bond is priced above par.a. The semi-annual interest rate is $60 / $1,000 = 0.06. Thus, the effective annual rate is 1.062 - 1 =0.1236 = 12.36%.A+ $1,000 / 1.0612b. Price = $30 12.006= $748.48A+ $1,000 / 1.0412c. Price = $30 1204.0= $906.15Note: In parts b and c we are implicitly assuming that the yield curve is flat. That is, the yield in year 5applies for year 6 as well.rice = $2 (0.72) / 1.15 + $4 (0.72) / 1.152 + $50 / 1.153= $36.31The number of shares you own = $100,000 / $36.31 = 2,754 sharesPrice = $1.15 (1.18) / 1.12 + $1.15 (1.182) / 1.122 + $1.152 (1.182) / 1.123+ {$1.152 (1.182)(1.06) / (0.12 - 0.06)} / 1.123= $26.95[Insert before last sentence of question: Assume that dividends are a fixed proportion of earnings.] Dividend one year from now = $5 (1 - 0.10) = $4.50Price = $5 + $4.50 / {0.14 - (-0.10)}= $23.75Since the current $5 dividend has not yet been paid, it is still included in the stock price.Chapter 6: Some Alternative Investment Rulesa. Payback period of Project A = 1 + ($7,500 - $4,000) / $3,500 = 2 yearsPayback period of Project B = 2 + ($5,000 - $2,500 -$1,200) / $3,000 = 2.43 yearsProject A should be chosen.b. NPV A = -$7,500 + $4,000 / 1.15 + $3,500 / 1.152 + $1,500 / 1.153 = -$388.96NPV B = -$5,000 + $2,500 / 1.15 + $1,200 / 1.152 + $3,000 / 1.153 = $53.83Project B should be chosen.a. Average Investment:($16,000 + $12,000 + $8,000 + $4,000 + 0) / 5 = $8,000Average accounting return:$4,500 / $8,000 = 0.5625 = 56.25%b. 1. AAR does not consider the timing of the cash flows, hence it does not consider the timevalue of money.2. AAR uses an arbitrary firm standard as the decision rule.3. AAR uses accounting data rather than net cash flows.aAverage Investment = (8000 + 4000 + 1500 + 0)/4 = 3375.00Average Net Income = 2000(1-0.75) = 1500=> AAR = 1500/3375=44.44%a. Solve x by trial and error:-$8,000 + $4,000 / (1 + x) + $3000 / (1 + x)2 + $2,000 / (1 + x)3 = 0x = 6.93%b. No, since the IRR (6.93%) is less than the discount rate of 8%.Alternatively, the NPV @ a discount rate of 0.08 = -$136.62.a. Solve r in the equation:$5,000 - $2,500 / (1 + r) - $2,000 / (1 + r)2 - $1,000 / (1 + r)3- $1,000 / (1 + r)4 = 0By trial and error,IRR = r = 13.99%b. Since this problem is the case of financing, accept the project if the IRR is less than the required rate of return.IRR = 13.99% > 10%Reject the offer.c. IRR = 13.99% < 20%Accept the offer.d. When r = 10%:NPV = $5,000 - $2,500 / 1.1 - $2,000 / 1.12 - $1,000 / 1.13 - $1,000 / 1.14When r = 20%:NPV = $5,000 - $2,500 / 1.2 - $2,000 / 1.22 - $1,000 / 1.23 - $1,000 / 1.24= $466.82Yes, they are consistent with the choices of the IRR rule since the signs of the cash flows change only once.A/ $160,000 = 1.04PI = $40,000 715.0Since the PI exceeds one accept the project.Chapter 7: Net Present Value and Capital BudgetingSince there is uncertainty surrounding the bonus payments, which McRae might receive, you must use the expected value of McRae’s bonuses in the computation of the PV of his contract. McRae’s salary plus the expected value of his bonuses in years one through three is$250,000 + 0.6 ⨯ $75,000 + 0.4 ⨯ $0 = $295,000.Thus the total PV of his three-year contract isPV = $400,000 + $295,000 [(1 - 1 / 1.12363) / 0.1236]+ {$125,000 / 1.12363} [(1 - 1 / 1.123610 / 0.1236]= $1,594,825.68EPS = $800,000 / 200,000 = $4NPVGO = (-$400,000 + $1,000,000) / 200,000 = $3Price = EPS / r + NPVGO= $4 / 0.12 + $3=$36.33Year 0 Year 1 Year 2 Year 3 Year 4 Year 51. Annual Salary$120,000 $120,000 $120,000 $120,000 $120,000 Savings2. Depreciation 100,000 160,000 96,000 57,600 57,6003. Taxable Income 20,000 -40,000 24,000 62,400 62,4004. Taxes 6,800 -13,600 8,160 21,216 21,2165. Operating Cash Flow113,200 133,600 111,840 98,784 98,784 (line 1-4)$100,000 -100,0006. ∆ Net workingcapital7. Investment $500,000 75,792*8. Total Cash Flow -$400,000 $113,200 $133,600 $111,840 $98,784 $74,576*75,792 = $100,000 - 0.34 ($100,000 - $28,800)NPV = -$400,000+ $113,200 / 1.12 + $133,600 / 1.122 + $111,840 / 1.123+ $98,784 / 1.124 + $74,576 / 1.125= -$7,722.52Real interest rate = (1.15 / 1.04) - 1 = 10.58%NPV A = -$40,000+ $20,000 / 1.1058 + $15,000 / 1.10582 + $15,000 / 1.10583= $1,446.76NPV B = -$50,000+ $10,000 / 1.15 + $20,000 / 1.152 + $40,000 / 1.153= $119.17Choose project A.PV = $120,000 / {0.11 - (-0.06)}t = 0 t = 1 t = 2 t = 3 t = 4 t = 5 t = 6 ...$12,000 $6,000 $6,000 $6,000$4,000$12,000 $6,000 $6,000 ...The present value of one cycle is:A+ $4,000 / 1.064PV = $12,000 + $6,000 306.0= $12,000 + $6,000 (2.6730) + $4,000 / 1.064= $31,206.37The cycle is four years long, so use a four year annuity factor to compute the equivalent annual cost (EAC).AEAC = $31,206.37 / 406.0= $31,206.37 / 3.4651= $9,006The present value of such a stream in perpetuity is$9,006 / 0.06 = $150,100o evaluate the word processors, compute their equivalent annual costs (EAC).BangAPV(costs) = (10 ⨯ $8,000) + (10 ⨯ $2,000) 414.0= $80,000 + $20,000 (2.9137)= $138,274EAC = $138,274 / 2.9137= $47,456IOUAPV(costs) = (11 ⨯ $5,000) + (11 ⨯ $2,500) 3.014- (11 ⨯ $500) / 1.143= $55,000 + $27,500 (2.3216) - $5,500 / 1.143= $115,132EAC = $115,132 / 2.3216= $49,592BYO should purchase the Bang word processors.Chapter 8: Strategy and Analysis in Using Net Present ValueThe accounting break-even= (120,000 + 20,000) / (1,500 - 1,100)= 350 units. The accounting break-even= 340,000 / (2.00 - 0.72)= 265,625 abalonesb. [($2.00 ⨯ 300,000) - (340,000 + 0.72 ⨯ 300,000)] (0.65)= $28,600This is the after tax profit.Chapter 9: Capital Market Theory: An Overviewa. Capital gains = $38 - $37 = $1 per shareb. Total dollar returns = Dividends + Capital Gains = $1,000 + ($1*500) = $1,500 On a per share basis, this calculation is $2 + $1 = $3 per sharec. On a per share basis, $3/$37 = 0.0811 = 8.11% On a total dollar basis, $1,500/(500*$37) = 0.0811 = 8.11%d. No, you do not need to sell the shares to include the capital gains in the computation of the returns. The capital gain is included whether or not you realize the gain. Since you could realize the gain if you choose, you should include it.The expected holding period return is:()[]%865.1515865.052$/52$75.54$50.5$==-+There appears to be a lack of clarity about the meaning of holding period returns. The method used in the answer to this question is the one used in Section 9.1. However, the correspondence is not exact, because in this question, unlike Section 9.1, there are cash flows within the holding period. The answer above ignores the dividend paid in the first year. Although the answer above technically conforms to the eqn at the bottom of Fig. 9.2, the presence of intermediate cash flows that aren’t accounted for renders th is measure questionable, at best. There is no similar example in the body of the text, and I have never seen holding period returns calculated in this way before.Although not discussed in this book, there are two generally accepted methods of computing holding period returns in the presence of intermediate cash flows. First, the time weighted return calculates averages (geometric or arithmetic) of returns between cash flows. Unfortunately, that method can’t be used here, because we are not given the va lue of the stock at the end of year one. Second, the dollar weighted measure calculates the internal rate of return over the entire holding period. Theoretically, that method can be applied here, as follows: 0 = -52 + 5.50/(1+r) + 60.25/(1+r)2 => r = 0.1306.This produces a two year holding period return of (1.1306)2 – 1 = 0.2782. Unfortunately, this book does not teach the dollar weighted method.In order to salvage this question in a financially meaningful way, you would need the value of the stock at the end of one year. Then an illustration of the correct use of the time-weighted return would be appropriate. A complicating factor is that, while Section 9.2 illustrates the holding period return using the geometric return for historical data, the arithmetic return is more appropriate for expected future returns.E(R) = T-Bill rate + Average Excess Return = 6.2% + (13.0% -3.8%) = 15.4%. Common Treasury Realized Stocks Bills Risk Premium -7 32.4% 11.2% 21.2%-6 -4.9 14.7 -19.6-5 21.4 10.5 10.9 -4 22.5 8.8 13.7 -3 6.3 9.9 -3.6 -2 32.2 7.7 24.5 Last 18.5 6.2 12.3 b. The average risk premium is 8.49%.49.873.125.246.37.139.106.192.21=++-++- c. Yes, it is possible for the observed risk premium to be negative. This can happen in any single year. The.b.Standard deviation = 03311.0001096.0=.b.Standard deviation = = 0.03137 = 3.137%.b.Chapter 10: Return and Risk: The Capital-Asset-Pricing Model (CAPM)a. = 0.1 (– 4.5%) + 0.2 (4.4%) + 0.5 (12.0%) + 0.2 (20.7%) = 10.57%b.σ2 = 0.1 (–0.045 – 0.1057)2 + 0.2 (0.044 – 0.1057)2 + 0.5 (0.12 – 0.1057)2+ 0.2 (0.207 – 0.1057)2 = 0.0052σ = (0.0052)1/2 = 0.072 = 7.20%Holdings of Atlas stock = 120 ⨯ $50 = $6,000 ⨯ $20 = $3,000Weight of Atlas stock = $6,000 / $9,000 = 2 / 3Weight of Babcock stock = $3,000 / $9,000 = 1 / 3a. = 0.3 (0.12) + 0.7 (0.18) = 0.162 = 16.2%σP 2= 0.32 (0.09)2 + 0.72 (0.25)2 + 2 (0.3) (0.7) (0.09) (0.25) (0.2)= 0.033244σP= (0.033244)1/2 = 0.1823 = 18.23%a.State Return on A Return on B Probability1 15% 35% 0.4 ⨯ 0.5 = 0.22 15% -5% 0.4 ⨯ 0.5 = 0.23 10% 35% 0.6 ⨯ 0.5 = 0.34 10% -5% 0.6 ⨯ 0.5 = 0.3b. = 0.2 [0.5 (0.15) + 0.5 (0.35)] + 0.2[0.5 (0.15) + 0.5 (-0.05)]+ 0.3 [0.5 (0.10) + 0.5 (0.35)] + 0.3 [0.5 (0.10) + 0.5 (-0.05)]= 0.135= 13.5%Note: The solution to this problem requires calculus.Specifically, the solution is found by minimizing a function subject to a constraint. Calculus ability is not necessary to understand the principles behind a minimum variance portfolio.Min { X A2 σA2 + X B2σB2+ 2 X A X B Cov(R A , R B)}subject to X A + X B = 1Let X A = 1 - X B. Then,Min {(1 - X B)2σA2 + X B2σB2+ 2(1 - X B) X B Cov (R A, R B)}Take a derivative with respect to X B.d{∙} / dX B = (2 X B - 2) σA2+ 2 X B σB2 + 2 Cov(R A, R B) - 4 X B Cov(R A, R B)Set the derivative equal to zero, cancel the common 2 and solve for X B.X BσA2- σA2+ X B σB2 + Cov(R A, R B) - 2 X B Cov(R A, R B) = 0X B = {σA2 - Cov(R A, R B)} / {σA2+ σB2 - 2 Cov(R A, R B)}andX A = {σB2 - Cov(R A, R B)} / {σA2+ σB2 - 2 Cov(R A, R B)}Using the data from the problem yields,X A = 0.8125 andX B = 0.1875.a. Using the weights calculated above, the expected return on the minimum variance portfolio isE(R P) = 0.8125 E(R A) + 0.1875 E(R B)= 0.8125 (5%) + 0.1875 (10%)= 5.9375%b. Using the formula derived above, the weights areX A = 2 / 3 andX B = 1 / 3c. The variance of this portfolio is zero.σP 2= X A2 σA2 + X B2σB2+ 2 X A X B Cov(R A , R B)= (4 / 9) (0.01) + (1 / 9) (0.04) + 2 (2 / 3) (1 / 3) (-0.02)= 0This demonstrates that assets can be combined to form a risk-free portfolio.14.2%= 3.7%+β(7.5%) ⇒β = 1.40.25 = R f + 1.4 [R M– R f] (I)0.14 = R f + 0.7 [R M– R f] (II)(I) – (II)=0.11 = 0.7 [R M– R f] (III)[R M– R f ]= 0.1571Put (III) into (I) 0.25 = R f + 1.4[0.1571]R f = 3%[R M– R f ]= 0.1571R M = 0.1571 + 0.03= 18.71%a. = 4.9% + βi (9.4%)βD= Cov(R D, R M) / σM 2 = 0.0635 / 0.04326 = 1.468= 4.9 + 1.468 (9.4) = 18.70%Weights:X A = 5 / 30 = 0.1667X B = 10 / 30 = 0.3333X C = 8 / 30 = 0.2667X D = 1 - X A - X B - X C = 0.2333Beta of portfolio= 0.1667 (0.75) + 0.3333 (1.10) + 0.2667 (1.36) + 0.2333 (1.88)= 1.293= 4 + 1.293 (15 - 4) = 18.22%a. (i) βA= ρA,MσA / σMρA,M= βA σM / σA= (0.9) (0.10) / 0.12= 0.75(ii) σB= βB σM / ρB,M= (1.10) (0.10) / 0.40= 0.275(iii) βC= ρC,MσC / σM= (0.75) (0.24) / 0.10= 1.80(iv) ρM,M= 1(v) βM= 1(vi) σf= 0(vii) ρf,M= 0(viii) βf= 0b. SML:E(R i) = R f + βi {E(R M) - R f}= 0.05 + (0.10) βiSecurity βi E(R i)A 0.13 0.90 0.14B 0.16 1.10 0.16C 0.25 1.80 0.23Security A performed worse than the market, while security C performed better than the market.Security B is fairly priced.c. According to the SML, security A is overpriced while security C is under-priced. Thus, you could invest in security C while sell security A (if you currently hold it).a. The typical risk-averse investor seeks high returns and low risks. To assess thetwo stocks, find theReturns:State of economy ProbabilityReturn on A*Recession 0.1 -0.20 Normal 0.8 0.10 Expansion0.10.20* Since security A pays no dividend, the return on A is simply (P 1 / P 0) - 1. = 0.1 (-0.20) + 0.8 (0.10) + 0.1 (0.20) = 0.08 = 0.09 This was given in the problem.Risk:R A - (R A -)2 P ⨯ (R A -)2 -0.28 0.0784 0.00784 0.02 0.0004 0.00032 0.12 0.0144 0.00144 Variance 0.00960Standard deviation (R A ) = 0.0980βA = {Corr(R A , R M ) σ(R A )} / σ(R M ) = 0.8 (0.0980) / 0.10= 0.784βB = {Corr(R B , R M ) σ(R B )} / σ(R M ) = 0.2 (0.12) / 0.10= 0.24The return on stock B is higher than the return on stock A. The risk of stock B, as measured by itsbeta, is lower than the risk of A. Thus, a typical risk-averse investor will prefer stock B.b. = (0.7) + (0.3) = (0.7) (0.8) + (0.3) (0.09) = 0.083σP 2= 0.72 σA 2 + 0.32 σB 2 + 2 (0.7) (0.3) Corr (R A , R B ) σA σB = (0.49) (0.0096) + (0.09) (0.0144) + (0.42) (0.6) (0.0980) (0.12) = 0.0089635 σP = = 0.0947 c. The beta of a portfolio is the weighted average of the betas of the components of the portfolio. βP = (0.7) βA + (0.3) βB = (0.7) (0.784) + (0.3) (0.240) = 0.621Chapter 11:An Alternative View of Risk and Return: The Arbitrage Pricing Theorya. Stock A:()()R R R R R A A A m m Am A=+-+=+-+βεε105%12142%...Stock B:()()R R R R R B B m m Bm B=+-+=+-+βεε130%098142%...Stock C:()R R R R R C C C m m Cm C=+-+=+-+βεε157%137142%)..(.b.()[]()[]()[]()()()()()()[]()()CB A m cB A m c m B m A m CB A P 25.045.030.0%2.14R 1435.1%925.1225.045.030.0%2.14R 37.125.098.045.02.130.0%7.1525.0%1345.0%5.1030.0%2.14R 37.1%7.1525.0%2.14R 98.0%0.1345.0%2.14R 2.1%5.1030.0R 25.0R 45.0R 30.0R ε+ε+ε+-+=ε+ε+ε+-+++++=ε+-++ε+-++ε+-+=++= c.i.()R R R A B C =+-==+-==+-=105%1215%142%)1113%09815%142%)137%157%13715%142%168%..(..46%.(......ii.R P =+-=12925%1143515%142%)138398%..(..To determine which investment investor would prefer, you must compute the variance of portfolios created bymany stocks from either market. Note, because you know that diversification is good, it is reasonable to assume that once an investor chose the market in which he or she will invest, he or she will buy many stocks in that market.Known:E EF ====001002 and and for all i.i σσεε..Assume: The weight of each stock is 1/N; that is, X N i =1/for all i.If a portfolio is composed of N stocks each forming 1/N proportion of the portfolio, the return on the portfolio is 1/N times the sum of the returns on the N stocks. Recall that the return on each stock is 0.1+βF+ε.()()()()()()[]()()()()()()()[]()[]()[]()()[]()()()()()j i 2j i 22j i i 2222222222P P P P iP ,0.04Corr 0.01,Cov s =isvariance the ,N as limit In the ,Cov 1/N 1s 1/N s )(1/N 1/N F 2F E 1/N F E 0.10.1/N F 0.1E R E R E R Var 0.101/N 00.1E 1/N F E 0.11/N F 0.1E R E 1/N F 0.1F 0.1(1/N)R 1/N R εε+β=εε+β∞⇒εε-+ε+β=ε∑+εβ+β=ε+β=-ε+β+=-==+β+=ε+β+=ε∑+β+=ε+β+=ε+β+==∑∑∑∑∑∑∑∑()()()()()()Thus,F R f E R E R Var R Corr Var R Corr ii ip P p i j PijR 1i =++=++===+=+010*********002250040002500412212111222.........,,εεεεεεa.()()()()Corr Corr Var R Var R i j i j p pεεεε112212000225000225,,..====Since Var ()()R p 1 Var R 2p 〉, a risk averse investor will prefer to invest in the second market.b. Corr ()()εεεε112090i j j ,.,== and Corr 2i()()Var R Var R pp120058500025==..。
罗斯公司理财Chap002全英文题库及答案
罗斯公司理财Chap002全英⽂题库及答案Chapter 02 Financial Statements and Cash Flow Answer KeyMultiple Choice Questions1. The financial statement showing a firm's accounting value on a particular date is the:A. income statement.B. balance sheet.C. statement of cash flows.D. tax reconciliation statement.E. shareholders' equity sheet.Difficulty level: EasyTopic: BALANCE SHEETType: DEFINITIONS2. A current asset is:A. an item currently owned by the firm.B. an item that the firm expects to own within the next year.C. an item currently owned by the firm that will convert to cash within the next 12 months.D. the amount of cash on hand the firm currently shows on its balance sheet.E. the market value of all items currently owned by the firm.Difficulty level: EasyTopic: CURRENT ASSETSType: DEFINITIONS3. The long-term debts of a firm are liabilities:A. that come due within the next 12 months.B. that do not come due for at least 12 months.C. owed to the firm's suppliers.D. owed to the firm's shareholders.E. the firm expects to incur within the next 12 months.Difficulty level: EasyTopic: LONG-TERM DEBTType: DEFINITIONS4. Net working capital is defined as:A. total liabilities minus shareholders' equity.B. current liabilities minus shareholders' equity.C. fixed assets minus long-term liabilities.D. total assets minus total liabilities.E. current assets minus current liabilities.Difficulty level: EasyTopic: NET WORKING CAPITALType: DEFINITIONS5. A(n) ____ asset is one which can be quickly converted into cash without significant loss in value.A. currentB. fixedC. intangibleD. liquidE. long-termDifficulty level: EasyTopic: LIQUID ASSETSType: DEFINITIONS6. The financial statement summarizing a firm's accounting performance over a period of time is the:A. income statement.B. balance sheet.C. statement of cash flows.D. tax reconciliation statement.E. shareholders' equity sheet.Difficulty level: EasyTopic: INCOME STATEMENTType: DEFINITIONS7. Noncash items refer to:A. the credit sales of a firm.B. the accounts payable of a firm.C. the costs incurred for the purchase of intangible fixed assets.D. expenses charged against revenues that do not directly affect cash flow.E. all accounts on the balance sheet other than cash on hand.Difficulty level: EasyTopic: NONCASH ITEMSType: DEFINITIONS8. Your _____ tax rate is the amount of tax payable on the next taxable dollar you earn.A. deductibleB. residualC. totalD. averageE. marginalDifficulty level: EasyTopic: MARGINAL TAX RATESType: DEFINITIONS9. Your _____ tax rate is the total taxes you pay divided by your taxable income.A. deductibleB. residualC. totalD. averageE. marginalDifficulty level: EasyTopic: AVERAGE TAX RATESType: DEFINITIONS10. _____ refers to the cash flow that results from the firm's ongoing, normal business activities.A. Cash flow from operating activitiesB. Capital spendingC. Net working capitalD. Cash flow from assetsE. Cash flow to creditorsDifficulty level: MediumTopic: CASH FLOW FROM OPERATING ACTIVITIESType: DEFINITIONS11. _____ refers to the changes in net capital assets.A. Operating cash flowB. Cash flow from investingC. Net working capitalD. Cash flow from assetsE. Cash flow to creditorsDifficulty level: MediumTopic: CASH FLOW FROM INVESTINGType: DEFINITIONS12. _____ refers to the difference between a firm's current assets and its current liabilities.A. Operating cash flowB. Capital spendingC. Net working capitalD. Cash flow from assetsE. Cash flow to creditorsDifficulty level: EasyTopic: NET WORKING CAPITALType: DEFINITIONS13. _____ is calculated by adding back noncash expenses to net income and adjusting for changes in current assets and liabilities.A. Operating cash flowB. Capital spendingC. Net working capitalD. Cash flow from operationsE. Cash flow to creditorsDifficulty level: MediumTopic: CASH FLOW FROM OPERATIONSType: DEFINITIONS14. _____ refers to the firm's interest payments less any net new borrowing.A. Operating cash flowB. Capital spendingC. Net working capitalD. Cash flow from shareholdersE. Cash flow to creditorsDifficulty level: MediumTopic: CASH FLOW TO CREDITORSType: DEFINITIONS15. _____ refers to the firm's dividend payments less any net new equity raised.A. Operating cash flowB. Capital spendingC. Net working capitalD. Cash flow from creditorsE. Cash flow to stockholdersDifficulty level: MediumTopic: CASH FLOW TO STOCKHOLDERSType: DEFINITIONS16. Earnings per share is equal to:A. net income divided by the total number of shares outstanding.B. net income divided by the par value of the common stock.C. gross income multiplied by the par value of the common stock.D. operating income divided by the par value of the common stock.E. net income divided by total shareholders' equity.Difficulty level: MediumTopic: EARNINGS PER SHAREType: DEFINITIONS17. Dividends per share is equal to dividends paid:A. divided by the par value of common stock.B. divided by the total number of shares outstanding.C. divided by total shareholders' equity.D. multiplied by the par value of the common stock.E. multiplied by the total number of shares outstanding. Difficulty level: MediumTopic: DIVIDENDS PER SHAREType: DEFINITIONS18. Which of the following are included in current assets?I. equipmentII. inventoryIII. accounts payableIV. cashA. II and IV onlyB. I and III onlyC. I, II, and IV onlyD. III and IV onlyE. II, III, and IV onlyDifficulty level: MediumTopic: CURRENT ASSETSType: CONCEPTS19. Which of the following are included in current liabilities?I. note payable to a supplier in eighteen monthsII. debt payable to a mortgage company in nine monthsIII. accounts payable to suppliersIV. loan payable to the bank in fourteen monthsA. I and III onlyB. II and III onlyC. III and IV onlyD. II, III, and IV onlyE. I, II, and III onlyDifficulty level: MediumTopic: CURRENT LIABILITIESType: CONCEPTS20. An increase in total assets:A. means that net working capital is also increasing.B. requires an investment in fixed assets.C. means that shareholders' equity must also increase.D. must be offset by an equal increase in liabilities and shareholders' equity.E. can only occur when a firm has positive net income.Difficulty level: MediumTopic: BALANCE SHEETType: CONCEPTS21. Which one of the following assets is generally the most liquid?A. inventoryB. buildingsC. accounts receivableD. equipmentE. patentsDifficulty level: MediumTopic: LIQUIDITYType: CONCEPTS22. Which one of the following statements concerning liquidity is correct?A. If you sold an asset today, it was a liquid asset.B. If you can sell an asset next year at a price equal to its actual value, the asset is highly liquid.C. Trademarks and patents are highly liquid.D. The less liquidity a firm has, the lower the probability the firm will encounter financial difficulties.E. Balance sheet accounts are listed in order of decreasing liquidity.Difficulty level: MediumTopic: LIQUIDITYType: CONCEPTS23. Liquidity is:A. a measure of the use of debt in a firm's capital structure.B. equal to current assets minus current liabilities.C. equal to the market value of a firm's total assets minus its current liabilities.D. valuable to a firm even though liquid assets tend to be less profitable to own.E. generally associated with intangible assets.Difficulty level: MediumTopic: LIQUIDITYType: CONCEPTS24. Which of the following accounts are included in shareholders' equity?I. interest paidII. retained earningsIII. capital surplusIV. long-term debtA. I and II onlyB. II and IV onlyC. I and IV onlyD. II and III onlyE. I and III onlyDifficulty level: MediumTopic: SHAREHOLDERS' EQUITYType: CONCEPTS25. Book value:A. is equivalent to market value for firms with fixed assets.B. is based on historical cost.C. generally tends to exceed market value when fixed assets are included.D. is more of a financial than an accounting valuation.E. is adjusted to market value whenever the market value exceeds the stated book value. Difficulty level: Medium Topic: BOOK VALUEType: CONCEPTS26. When making financial decisions related to assets, you should:A. always consider market values.B. place more emphasis on book values than on market values.C. rely primarily on the value of assets as shown on the balance sheet.D. place primary emphasis on historical costs.E. only consider market values if they are less than book values.Topic: MARKET VALUEType: CONCEPTS27. As seen on an income statement:A. interest is deducted from income and increases the total taxes incurred.B. the tax rate is applied to the earnings before interest and taxes when the firm has both depreciation and interest expenses.C. depreciation is shown as an expense but does not affect the taxes payable.D. depreciation reduces both the pretax income and the net income.E. interest expense is added to earnings before interest and taxes to get pretax income. Difficulty level: MediumTopic: INCOME STATEMENTType: CONCEPTS28. The earnings per share will:A. increase as net income increases.B. increase as the number of shares outstanding increase.C. decrease as the total revenue of the firm increases.D. increase as the tax rate increases.E. decrease as the costs decrease.Difficulty level: MediumTopic: EARNINGS PER SHAREType: CONCEPTS29. Dividends per share:A. increase as the net income increases as long as the number of shares outstanding remains constant.B. decrease as the number of shares outstanding decrease, all else constant.C. are inversely related to the earnings per share.D. are based upon the dividend requirements established by Generally Accepted Accounting Procedures.E. are equal to the amount of net income distributed to shareholders divided by the number of shares outstanding. Difficulty level: MediumTopic: DIVIDENDS PER SHAREType: CONCEPTS30. Earnings per shareA. will increase if net income increases and number of shares remains constant.B. will increase if net income decreases and number of shares remains constant.C. is number of shares divided by net income.D. is the amount of money that goes into retained earnings on a per share basis.E. None of the above.Topic: EARNINGS PER SHAREType: CONCEPTS31. According to Generally Accepted Accounting Principles, costs are:A. recorded as incurred.B. recorded when paid.C. matched with revenues.D. matched with production levels.E. expensed as management desires.Difficulty level: MediumTopic: MATCHING PRINCIPLEType: CONCEPTS32. Depreciation:A. is a noncash expense that is recorded on the income statement.B. increases the net fixed assets as shown on the balance sheet.C. reduces both the net fixed assets and the costs of a firm.D. is a non-cash expense which increases the net operating income.E. decreases net fixed assets, net income, and operating cash flows.Difficulty level: MediumTopic: NONCASH ITEMSType: CONCEPTS33. When you are making a financial decision, the most relevant tax rate is the _____ rate.A. averageB. fixedC. marginalD. totalE. variableDifficulty level: MediumTopic: MARGINAL TAX RATEType: CONCEPTS34. An increase in which one of the following will cause the operating cash flow to increase?A. depreciationB. changes in the amount of net fixed capitalC. net working capitalD. taxesE. costsDifficulty level: MediumTopic: OPERATING CASH FLOWType: CONCEPTS35. A firm starts its year with a positive net working capital. During the year, the firm acquires more short-term debt than it does short-term assets. This means that:A. the ending net working capital will be negative.B. both accounts receivable and inventory decreased during the year.C. the beginning current assets were less than the beginning current liabilities.D. accounts payable increased and inventory decreased during the year.E. the ending net working capital can be positive, negative, or equal to zero.Difficulty level: MediumTopic: CHANGE IN NET WORKING CAPITALType: CONCEPTS36. The cash flow to creditors includes the cash:A. received by the firm when payments are paid to suppliers.B. outflow of the firm when new debt is acquired.C. outflow when interest is paid on outstanding debt.D. inflow when accounts payable decreases.E. received when long-term debt is paid off.Difficulty level: MediumTopic: CASH FLOW TO CREDITORSType: CONCEPTS37. Cash flow to stockholders must be positive when:A. the dividends paid exceed the net new equity raised.B. the net sale of common stock exceeds the amount of dividends paid.C. no income is distributed but new shares of stock are sold.D. both the cash flow to assets and the cash flow to creditors are negative.E. both the cash flow to assets and the cash flow to creditors are positive. Difficulty level: MediumTopic: CASH FLOW TO STOCKHOLDERSType: CONCEPTS38. Which equality is the basis for the balance sheet?A. Fixed Assets = Stockholder's Equity + Current AssetsB. Assets = Liabilities + Stockholder's EquityC. Assets = Current Long-Term Debt + Retained EarningsD. Fixed Assets = Liabilities + Stockholder's EquityE. None of the aboveDifficulty level: MediumTopic: BALANCE SHEETType: CONCEPTS39. Assets are listed on the balance sheet in order of:A. decreasing liquidity.B. decreasing size.C. increasing size.D. relative life.E. None of the above.Difficulty level: MediumTopic: BALANCE SHEETType: CONCEPTS40. Debt is a contractual obligation that:A. requires the payout of residual flows to the holders of these instruments.B. requires a repayment of a stated amount and interest over the period.C. allows the bondholders to sue the firm if it defaults.D. Both A and B.E. Both B and C.Difficulty level: MediumTopic: DEBTType: CONCEPTS41. The carrying value or book value of assets:A. is determined under GAAP and is based on the cost of the asset.B. represents the true market value according to GAAP.C. is always the best measure of the company's value to an investor.D. is always higher than the replacement cost of the assets.E. None of the above.Difficulty level: MediumTopic: CARRYING VALUEType: CONCEPTS42. Under GAAP, a firm's assets are reported at:A. market value.B. liquidation value.C. intrinsic value.D. cost.E. None of the above.Difficulty level: MediumTopic: GAAPType: CONCEPTS43. Which of the following statements concerning the income statement is true?A. It measures performance over a specific period of time.B. It determines after-tax income of the firm.C. It includes deferred taxes.D. It treats interest as an expense.E. All of the above.Difficulty level: MediumTopic: INCOME STATEMENTType: CONCEPTS44. According to generally accepted accounting principles (GAAP), revenue is recognized as income when:A. a contract is signed to perform a service or deliver a good.B. the transaction is complete and the goods or services are delivered.C. payment is requested.D. income taxes are paid.E. All of the above.Difficulty level: MediumTopic: GAAP INCOME RECOGNITIONType: CONCEPTS45. Which of the following is not included in the computation of operating cash flow?A. Earnings before interest and taxesB. Interest paidC. DepreciationD. Current taxesE. All of the above are includedDifficulty level: MediumTopic: OPERATING CASH FLOWType: CONCEPTS46. Net capital spending is equal to:A. net additions to net working capital.B. the net change in fixed assets.C. net income plus depreciation.D. total cash flow to stockholders less interest and dividends paid.E. the change in total assets.Difficulty level: MediumTopic: NET CAPITAL SPENDINGType: CONCEPTS47. Cash flow to stockholders is defined as:A. interest payments.B. repurchases of equity less cash dividends paid plus new equity sold.C. cash flow from financing less cash flow to creditors.D. cash dividends plus repurchases of equity minus new equity financing.E. None of the above.Difficulty level: MediumTopic: CASH FLOW TO STOCKHOLDERSType: CONCEPTS48. Free cash flow is:A. without cost to the firm.B. net income plus taxes.C. an increase in net working capital.D. cash that the firm is free to distribute to creditors and stockholders.E. None of the above.Difficulty level: MediumTopic: FREE CASH FLOWType: CONCEPTS49. The cash flow of the firm must be equal to:A. cash flow to stockholders minus cash flow to debtholders.B. cash flow to debtholders minus cash flow to stockholders.C. cash flow to governments plus cash flow to stockholders.D. cash flow to stockholders plus cash flow to debtholders.E. None of the above.Difficulty level: MediumTopic: CASH FLOWType: CONCEPTS50. Which of the following are all components of the statement of cash flows?A. Cash flow from operating activities, cash flow from investing activities, and cash flow from financing activitiesB. Cash flow from operating activities, cash flow from investing activities, and cash flow from divesting activitiesC. Cash flow from internal activities, cash flow from external activities, and cash flow from financing activitiesD. Cash flow from brokering activities, cash flow from profitable activities, and cash flow from non-profitable activitiesE. None of the above.Difficulty level: MediumTopic: STATEMENT OF CASH FLOWSType: CONCEPTS51. One of the reasons why cash flow analysis is popular is because:A. cash flows are more subjective than net income.B. cash flows are hard to understand.C. it is easy to manipulate, or spin the cash flows.D. it is difficult to manipulate, or spin the cash flows.E. None of the above.Difficulty level: MediumTopic: CASH FLOW MANAGEMENTType: CONCEPTS52. A firm has $300 in inventory, $600 in fixed assets, $200 in accounts receivable, $100 in accounts payable, and $50 in cash. What is the amount of the current assets?A. $500B. $550C. $600D. $1,150E. $1,200Current assets = $300 + $200 + $50 = $550Difficulty level: MediumTopic: CURRENT ASSETSType: PROBLEMS53. Total assets are $900, fixed assets are $600, long-term debt is $500, and short-term debt is $200. What is the amount of net working capital?A. $0B. $100C. $200D. $300E. $400Net working capital = $900 - $600 - $200 = $100Difficulty level: MediumTopic: NET WORKING CAPITALType: PROBLEMS54. Brad's Company has equipment with a book value of $500 that could be sold today at a 50% discount. Its inventory is valued at $400 and could be sold to a competitor for that amount. The firm has $50 in cash and customers owe it $300. What is the accounting value of its liquid assets?A. $50B. $350C. $700D. $750E. $1,000Liquid assets = $400 + $50 + $300 = $750Difficulty level: MediumTopic: LIQUIDITYType: PROBLEMS55. Martha's Enterprises spent $2,400 to purchase equipment three years ago. This equipment is currently valued at $1,800 on today's balance sheet but could actually be sold for $2,000. Net working capital is $200 and long-term debt is $800. Assuming the equipment is the firm's only fixed asset, what is the book value of shareholders' equity?A. $200B. $800C. $1,200D. $1,400E. The answer cannot be determined from the information providedBook value of shareholders' equity = $1,800 + $200 - $800 = $1,200Difficulty level: MediumTopic: BOOK VALUEType: PROBLEMS。
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CHAPTER 20INTERNATIONAL CORPORATE FINANCEAnswers to Concepts Review and Critical Thinking Questions1. a. The dollar is selling at a premium because it is more expensive in theforward market than in the spot market (SFr 1.53 versus SFr 1.50).b.The franc is expected to depreciate relative to the dollar because it will takemore francs to buy one dollar in the future than it does today.c.Inflation in Switzerland is higher than in the United States, as are nominalinterest rates.2.The exchange rate will increase, as it will take progressively more pesos topurchase a dollar. This is the relative PPP relationship.3.a.The Australian dollar is expected to weaken relative to the dollar, becauseit will take more A$ in the future to buy one dollar than it does today.b.The inflation rate in Australia is higher.c.Nominal interest rates in Australia are higher; relative real rates in the twocountries are the same.4. A Yankee bond is most accurately described by d.5. No. For example, if a cou ntry’s currency strengthens, imports bee cheaper (good),but its exports bee more expensive for others to buy (bad). The reverse is true for currency depreciation.6.Additional advantages include being closer to the final consumer and, thereby,saving on transportation, significantly lower wages, and less exposure to exchange rate risk. Disadvantages include political risk and costs of supervising distant operations.7. One key thing to remember is that dividend payments are made in the home currency.More generally, it may be that the owners of the multinational are primarily domestic and are ultimately concerned about their wealth denominated in their home currency because, unlike a multinational, they are not internationally diversified.8.a.False. If prices are rising faster in Great Britain, it will take morepounds to buy the same amount of goods that one dollar can buy; the pound will depreciate relative to the dollar.b.False. The forward market would already reflect the projected deterioration ofthe euro relative to the dollar. Only if you feel that there might be additional, unanticipated weakening of the euro that isn’t reflected in forward rates today, will the forward hedge protect you against additional declines.c.True. The market would only be correct on average, while you would be correct allthe time.9.a.American exporters: their situation in general improves because a sale ofthe exported goods for a fixed number of euros will be worth more dollars.American importers: their situation in general worsens because the purchase of the imported goods for a fixed number of euros will cost more in dollars.b.American exporters: they would generally be better off if the Britishgovernment’s intentions result in a strengthened pound.American importers: they would generally be worse off if the pound strengthens.c.American exporters: they would generally be much worse off, because an extremecase of fiscal expansion like this one will make American goods prohibitively expensive to buy, or else Brazilian sales, if fixed in cruzeiros, would bee worth an unacceptably low number of dollars.American importers: they would generally be much better off, because Brazilian goods will bee much cheaper to purchase in dollars.10. IRP is the most likely to hold because it presents the easiest and least costlymeans to exploit any arbitrage opportunities. Relative PPP is least likely to hold since it depends on the absence of market imperfections and frictions in order to hold strictly.11. It all depends on whether the forward market expects the same appreciation overthe period and whether the expectation is accurate. Assuming that the expectation is correct and that other traders do not have the same information, there will be value to hedging the currency exposure.12. One possible reason investment in the foreign subsidiary might be preferred is ifthis investment provides direct diversification that shareholders could not attain by investing on their own. Another reason could be if the political climate in the foreign country was more stable than in the home country.Increased political risk can also be a reason you might prefer the home subsidiary investment. Indonesia can serve as a great example of political risk.If it cannot be diversified away, investing in this type of foreign country will increase the systematic risk. As a result, it will raise the cost of the capital, and could actually decrease the NPV of the investment.13. Yes, the firm should undertake the foreign investment. If, after taking intoconsideration all risks, a project in a foreign country has a positive NPV, the firm should undertake it. Note that in practice, the stated assumption (that the adjustment to the discount rate has taken into consideration all political and diversification issues) is a huge task. But once that has been addressed, the net present value principle holds for foreign operations, just as for domestic.14. If the foreign currency depreciates, the U.S. parent will experience an exchangerate loss when the foreign cash flow is remitted to the U.S. This problem could be overe by selling forward contracts. Another way of overing this problem would be to borrow in the country where the project is located.15. False. If the financial markets are perfectly petitive, the difference betweenthe Eurodollar rate and the U.S. rate will be due to differences in risk and government regulation. Therefore, speculating in those markets will not be beneficial.16. The difference between a Eurobond and a foreign bond is that the foreign bond isdenominated in the currency of the country of origin of the issuing pany.Eurobonds are more popular than foreign bonds because of registration differences.Eurobonds are unregistered securities.Solutions to Questions and ProblemsNOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.Basicing the quotes from the table, we get:a.$50(€0.7870/$1) = €39.35b.$1.2706c.€5M($1.2706/€) = $6,353,240d.New Zealand dollare.Mexican pesof.(P11.0023/$1)($1.2186/€1) = P13.9801/€This is a cross rate.g.The most valuable is the Kuwait dinar. The least valuable is the Indonesianrupiah.2. a.You would prefer £100, since:(£100)($.5359/£1) = $53.59b.You would still prefer £100. Using the $/£ exchange rate and the SF/£ exchangerate to find the amount of Swiss francs £100 will buy, we get:(£100)($1.8660/£1)(SF .8233) = SF 226.6489ing the quotes in the book to find the SF/£ cross rate, we find:(SF 1.2146/$1)($0.5359/£1) = SF 2.2665/£1The £/SF exchange rate is the inverse of the SF/£ exchange rate, so: £1/SF .4412 = £0.4412/SF 13.a.F180 = ¥104.93 (per $). The yen is selling at a premium because it is moreexpensive in the forward market than in the spot market ($0.0093659 versus $0.009530).b.F90 = $1.8587/£. The pound is selling at a discount because it is less expensivein the forward market than in the spot market ($0.5380 versus $0.5359).c.The value of the dollar will fall relative to the yen, since it takes moredollars to buy one yen in the future than it does today. The value of the dollar will rise relative to the pound, because it will take fewer dollars to buy one pound in the future than it does today.4.a.The U.S. dollar, since one Canadian dollar will buy:(Can$1)/(Can$1.26/$1) = $0.7937b.The cost in U.S. dollars is:(Can$2.19)/(Can$1.26/$1) = $1.74Among the reasons that absolute PPP doesn’t hold are tariffs and other barriers to trade, transactions costs, taxes, and different tastes.c.The U.S. dollar is selling at a discount, because it is less expensive in theforward market than in the spot market (Can$1.22 versus Can$1.26).d.The Canadian dollar is expected to appreciate in value relative to the dollar,because it takes fewer Canadian dollars to buy one U.S. dollar in the future than it does today.e.Interest rates in the United States are probably higher than they are in Canada.5.a.The cross rate in ¥/£ terms is:(¥115/$1)($1.70/£1) = ¥195.5/£1b.The yen is quoted too low relative to the pound. Take out a loan for $1 and buy¥115. Use the ¥115 to purchase pounds at the cross-rate, which will give you:¥115(£1/¥185) = £0.6216Use the pounds to buy back dollars and repay the loan. The cost to repay the loan will be:£0.6216($1.70/£1) = $1.0568You arbitrage profit is $0.0568 per dollar used.6.We can rearrange the interest rate parity condition to answer this question. Theequation we will use is:R FC = (F T– S0)/S0 + R USUsing this relationship, we find:Great Britain: R FC = (£0.5394 –£0.5359)/£0.5359 + .038 = 4.45%Japan: R FC = (¥104.93 –¥106.77)/¥106.77 + .038 = 2.08%Switzerland: R FC = (SFr 1.1980 – SFr 1.2146)/SFr 1.2146 + .038 = 2.43%7.If we invest in the U.S. for the next three months, we will have:$30M(1.0045)3 = $30,406,825.23If we invest in Great Britain, we must exchange the dollars today for pounds, and exchange the pounds for dollars in three months. After making these transactions, the dollar amount we would have in three months would be:($30M)(£0.56/$1)(1.0060)3/(£0.59/$1) = $28,990,200.05We should invest in U.S.ing the relative purchasing power parity equation:F t = S0× [1 + (h FC– h US)]tWe find:Z3.92 = Z3.84[1 + (h FC– h US)]3h FC– h US = (Z3.92/Z3.84)1/3– 1h FC– h US = .0069Inflation in Poland is expected to exceed that in the U.S. by 0.69% over this period.9.The profit will be the quantity sold, times the sales price minus the cost ofproduction. The production cost is in Singapore dollars, so we must convert this to U.S. dollars. Doing so, we find that if the exchange rates stay the same, the profit will be:Profit = 30,000[$145 – {(S$168.50)/(S$1.6548/$1)}]Profit = $1,295,250.18If the exchange rate rises, we must adjust the cost by the increased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/1.1(S$1.6548/$1)}]Profit = $1,572,954.71If the exchange rate falls, we must adjust the cost by the decreased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/0.9(S$1.6548/$1)}]Profit = $955,833.53To calculate the breakeven change in the exchange rate, we need to find the exchange rate that make the cost in Singapore dollars equal to the selling price in U.S. dollars, so:$145 = S$168.50/S TS T = S$1.1621/$1S T = –.2978 or –29.78% decline10.a.If IRP holds, then:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.5257Since given F180is Kr6.56, an arbitrage opportunity exists; the forward premium is too high. Borrow Kr1 today at 8% interest. Agree to a 180-day forward contract at Kr 6.56. Convert the loan proceeds into dollars:Kr 1 ($1/Kr 6.43) = $0.15552Invest these dollars at 5%, ending up with $0.15931. Convert the dollars back into krone as$0.15931(Kr 6.56/$1) = Kr 1.04506Repay the Kr 1 loan, ending with a profit of:Kr1.04506 – Kr1.03868 = Kr 0.00638b.To find the forward rate that eliminates arbitrage, we use the interest rateparity condition, so:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.525711. The international Fisher effect states that the real interest rate acrosscountries is equal. We can rearrange the international Fisher effect as follows to answer this question:R US– h US = R FC– h FCh FC = R FC + h US– R USa.h AUS = .05 + .035 – .039h AUS = .046 or 4.6%b.h CAN = .07 + .035 – .039h CAN = .066 or 6.6%c.h TAI = .10 + .035 – .039h TAI = .096 or 9.6%12. a.The yen is expected to get stronger, since it will take fewer yen to buy onedollar in the future than it does today.b.h US– h JAP (¥129.76 –¥131.30)/¥131.30h US– h JAP = – .0117 or –1.17%(1 – .0117)4– 1 = –.0461 or –4.61%The approximate inflation differential between the U.S. and Japan is –4.61% annually.13. We need to find the change in the exchange rate over time, so we need to use therelative purchasing power parity relationship:F t = S0× [1 + (h FC– h US)]TUsing this relationship, we find the exchange rate in one year should be:F1 = 215[1 + (.086 – .035)]1F1 = HUF 225.97The exchange rate in two years should be:F2 = 215[1 + (.086 – .035)]2F2 = HUF 237.49And the exchange rate in five years should be:F5 = 215[1 + (.086 – .035)]5F5 = HUF 275.7114. Using the interest-rate parity theorem:(1 + R US) / (1 + R FC) = F(0,1) / S0We can find the forward rate as:F(0,1) = [(1 + R US) / (1 + R FC)] S0F(0,1) = (1.13 / 1.08)$1.50/£F(0,1) = $1.57/£Intermediate15. First, we need to forecast the future spot rate for each of the next three years.From interest rate and purchasing power parity, the expected exchange rate is:E(S T) = [(1 + R US) / (1 + R FC)]T S0So:E(S1) = (1.0480 / 1.0410)1 $1.22/€ = $1.2282/€E(S2) = (1.0480 / 1.0410)2 $1.22/€ = $1.2365/€E(S3) = (1.0480 / 1.0410)3 $1.22/€ = $1.2448/€Now we can use these future spot rates to find the dollar cash flows. The dollar cash flow each year will be:Year 0 cash flow = –€$12,000,000($1.22/€) = –$14,640,000.00Year 1 cash flow = €$2,700,000($1.2282/€) = $3,316,149.86Year 2 cash flow = €$3,500,000($1.2365/€) = $4,327,618.63Year 3 cash flow = (€3,300,000 + 7,400,000)($1.2448/€) = $13,319,111.90And the NPV of the project will be:NPV = –$14,640,000 + $3,316,149.86/1.13 + $4,4327,618.63/1.132+ $13,319,111.90/1.133NPV = $914,618.7316.a.Implicitly, it is assumed that interest rates won’t change over the life ofthe project, but the exchange rate is projected to decline because the Euroswiss rate is lower than the Eurodollar rate.b.We can use relative purchasing power parity to calculate the dollar cash flows ateach time. The equation is:E[S T] = (SFr 1.72)[1 + (.07 – .08)]TE[S T] = 1.72(.99)TSo, the cash flows each year in U.S. dollar terms will be:tSFrE[S T]US$0 –27.0M 1.7200 –$15,697,674.421 +7.5M 1.7028 $4,404,510.222 +7.5M 1.6858 $4,449,000.223 +7.5M 1.6689 $4,493,939.624 +7.5M 1.6522 $4,539,332.955 +7.5M 1.6357 $4,585,184.79And the NPV is:NPV = –$15,697,674.42 + $4,404,510.22/1.13 + $4,449,000.22/1.132+ $4,493,939.62/1.133 +$4,539,332.95/1.134 + $4,585,184.79/1.135NPV = $71,580.10c.Rearranging the relative purchasing power parity equation to find the requiredreturn in Swiss francs, we get:R SFr = 1.13[1 + (.07 – .08)] – 1R SFr = 11.87%So, the NPV in Swiss francs is:NPV = –SFr 27.0M + SFr 7.5M(PVIFA11.87%,5)NPV = SFr 123,117.76Converting the NPV to dollars at the spot rate, we get the NPV in U.S.dollars as:NPV = (SFr 123,117.76)($1/SFr 1.72)NPV = $71,580.10Challenge17. a.The domestic Fisher effect is:1 + R US = (1 + r US)(1 + h US)1 + r US = (1 + R US)/(1 + h US)This relationship must hold for any country, that is:1 + r FC = (1 + R FC)/(1 + h FC)The international Fisher effect states that real rates are equal across countries, so:1 + r US = (1 + R US)/(1 + h US) = (1 + R FC)/(1 + h FC) = 1 + r FCb.The exact form of unbiased interest rate parity is:E[S t] = F t = S0 [(1 + R FC)/(1 + R US)]tc.The exact form for relative PPP is:E[S t] = S0 [(1 + h FC)/(1 + h US)]td.For the home currency approach, we calculate the expected currency spot rate attime t as:E[S t] = (€0.5)[1.07/1.05]t= (€0.5)(1.019)tWe then convert the euro cash flows using this equation at every time, and find the present value. Doing so, we find:NPV = –[€2M/(€0.5)] + {€0.9M/[1.019(€0.5)]}/1.1 + {€0.9M/[1.0192(€0.5)]}/1.12 +{€0.9M/[1.0193(€0.5/$1)]}/1.13NPV = $316,230.72For the foreign currency approach, we first find the return in the euros as:R FC = 1.10(1.07/1.05) – 1 = 0.121Next, we find the NPV in euros as:NPV = –€2M + (€0.9M)/1.121 + (€0.9M)/1.1212+ (€0.9M)/1.1213= €158,115.36And finally, we convert the euros to dollars at the current exchange rate, which is:NPV ($) = €158,115.36 /(€0.5/$1) = $316,230.72。