罗斯公司理财Chap001全英文题库及答案
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) = –$83,794.05The two milling machines have unequal lives, so they can only be compared by expressing both on an equivalent annual basis, which is what the EAC method does. Thus, you prefer the Techron II because it has the lower (less negative) annual cost.。
(公司理财)英文版罗斯公司理财习题答案C
CHAPTER 20INTERNATIONAL CORPORATE FINANCEAnswers to Concepts Review and Critical Thinking Questions1. a.The dollar is selling at a premium because it is more expensive in the forward market than inthe spot market (SFr 1.53 versus SFr 1.50).b.The franc is expected to depreciate relative to the dollar because it will take more francs to buyone dollar in the future than it does today.c.Inflation in Switzerland is higher than in the United States, as are nominal interest rates.2.The exchange rate will increase, as it will take progressively more pesos to purchase a dollar. This isthe relative PPP relationship.3. a.The Australian dollar is expected to weaken relative to the dollar, because it will take moreA$ 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。
公司理财罗斯习题集
• IRR(Project B) = C0 + C1 / (1+IRR) + C2 / (1+IRR)2
•0
= -$100,000 + $65,000 / (1+IRR) + $65,000 /
(1+IRR)2
• IRR
= 0.1943
• The IRR of project B is 19.43%.
The price of the coupon bond is too low, so there is an arbitrage opportunity. To take advantage of it:
11
课堂练习6
• 考虑两个互斥投资项目，现金流如下：
• 年份
项目A 项目B
•0
-5000 -100000
•1
3500
65000
•2
3500
65000
12
课堂练习6
• （1）两个项目的IRR分别是多少？ • （2）仅仅根据IRR，你会选择哪个项目？ • （3）你根据（2）做出决策时忽略了什么？ • （4）如何克服这一问题？请计算。 • （5）根据（4）的结果，你会选择哪一个项目？
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。
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。
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。
公司理财(罗斯)第1章(英文
03 Valuation Basis
The concept and significance of valuation
要点一
Definition
Valuation is the process of estimating the worth of an asset or a company, typically through the use of financial metrics and analysis.
The Time Value of Money
罗斯《公司理财》英文习题答案DOCchap011-推荐下载
公司理财习题答案第十一章Chapter 11: An Alternative View of Risk and Return: The Arbitrage Pricing Theory 11.1Real GNP was higher than anticipated. Since returns are positively related to the level of GNP, returns should rise based on this factor.Inflation was exactly the amount anticipated. Since there was no surprise in this announcement, it will not affect Lewis-Striden returns.Interest Rates are lower than anticipated. Since returns are negatively related to interest rates, the lower than expected rate is good news. Returns should rise due to interest rates.The President’s death is bad news. Although the president was expected to retire, his retirement would not be effective for six months. During that period he would still contribute to the firm. His untimely death mean that thosecontributions would not be made. Since he was generally considered an asset to the firm, his death will cause returns to fall.The poor research results are also bad news. Since Lewis-Striden must continue to test the drug as early as expected. The delay will affect expected future earnings, and thus it will dampen returns now.The research breakthrough is positive news for Lewis Striden. Since it was unexpected, it will cause returns to rise.The competitor’s announcement is also unexpected, but it is not a welcome surprise. this announcement will lower the returns on Lewis-Striden.Systematic risk is risk that cannot be diversified away through formation of a portfolio. Generally, systematic risk factors are those factors that affect a large number of firms in the market. Note those factors do not have to equally affect the firms. The systematic factors in the list are real GNP, inflation and interest rates.Unsystematic risk is the type of risk that can be diversified away throughportfolio formation. Unsystematic risk factors are specific to the firm or industry.Surprises in these factors will affect the returns of the firm in which you are interested, but they will have no effect on the returns of firms in a different industry and perhaps little effect on other firms in the same industry. For Lewis-Striden, the unsystematic risk factors are the president’s ability to contribute to the firm, the research results and the competitor.11.2a.Systematic Risk = 0.042(4,480– 4,416) –1.4(4.3%– 3.1%)– 0.67(11.8% –9.5%)= –0.53%b.Unsystematic Risk = – 2.6%c.Total Return = 9.5% – 0.53% – 2.6% = 6.37%11.3()()()11.81%1.440.3710.0Return Total c.1.44%=23-270.36=Return ic Unsystemat b.0.372%=14.0%15.2%1.903.5%-4.8%2.04=Risk Systematic a.=++=--11.4 a.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%..(..11.5a.Since five stocks have the same expected returns and the same betas, theportfolio also has the same expected return and beta.()R F F E E E E E p =+++++++110084169151212345...b.公司理财习题答案第十一章R F F E N E N E NAs N s are fini F F p N =++++++→∞→=++1100841690110084169121212......,...,1Nbut E te,Thus, R j p 11.6To determine which investment investor would prefer, you must compute the variance of portfolios created by many 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, for all i.X N i =1/If a portfolio is composed of N stocks each forming 1/N proportion of the portfolio, thereturn 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 pi jPijR 1i =++=++===+=+010*********002250040002500412212111222.........,,εεεεεεa.()()()()Corr Corr Var R Var R i j i j ppεεεε112212000225000225,,..====Since Var , a risk averse investor will prefer to invest()()R p 1 Var R 2p 〉in the second market.b.Corr ()()εεεε112090i j j ,.,== and Corr 2i ()()Var R Var R pp120058500025==..Since Var averse investor will prefer to invest()()risk a ,R Var R 2p p 1〉in the second market.c.()()()()Corr Var R Var R i j j ppεεεε112120050022500225,,...==== and Corr 2i Since , a risk averse investor will be indifferent ()()Var R Var R pp12=between investing in the two market.d.Indifference implies that the variances of the portfolio in the two markets are equal.()()()()()()Var R Var R Corr Corr Corr Corr p pijiji jij1211222211002250040002500405=+=+=+..,..,,,.εεεεεεεε公司理财习题答案第十一章This is exactly the relationship used in part c.11.7()()()()()()()()()()()() 2.7225%1.211.5s 1.7424%1.211.2s 0.5929%1.210.7s R Var R Var 0/N Var ,N As i.b.22.30%0.22304.9725/100s 4.9725%2.251.211.5s 17.84%0.17843.1824/100s 3.1824%1.441.211.2s 12.62%1.5929/100s 1.5929%1.001.210.7s Var R Var R Var a.22C 22B 22A m 2i i j C 22C B 2B 2A 2A 2i m 2i j ======β=∴→ε∞→===⇒=+====⇒=+===⇒=+=∴ε+β=ii.APT Model:()R R R R i F m F i=+-β%25.14)5.1)(3.36.10(3.3R %06.12)2.1)(3.36.10(3.3R %41.8)7.0)(3.36.10(3.3R C B A =-+==-+==-+=APT Model shows that assets A & B are accurately priced but asset C isoverpriced. Thus, rational investors will not hold asset C.iii.If short selling is allowed, all rational investors will sell short asset C so that the price of asset C will decrease until no arbitrage opportunity exists. In other words, price of asset C should decrease until the return become 14.25%.11.8 a.Let X= the proportion of security of one in the portfolio and (1-X) = the proportion of security two in the portfolio.()()[]()()[]t 222t 121t 2t 212t 111t 1t2t 1pt F F R E x 1F F R E x R X 1XR R β+β+-++β+=-+=The condition that the return of the portfolio does not depend on implies:F 1()05.0)X 1(X 0X 1X 2111=-+=β-+βThus, P=(-1,2); i.e. sell short security one and buy security two.()()()()()()5.2225.11%20%202%201R E 2p p =+-=β=+-=b.Follow the same logic as in part a, we have()()3X 05.1X 1X 0X 1X 4131==-+=β-+βWhere X is the proportion of security three in the portfolio. Thus, sell short security four and buy security three.()()()()()()075.025.03%10%102%103R E 2p p =-=β=-+=this is a risk free portfolio!c.The portfolio in part b provides a risk free return of 10% which is higher than the5% return provided by the risk free security. To take advantage of this opportunity, borrow at the risk free rate of 5% and invest the funds in a portfolio built by selling short security four and buying security three with weights (3,-2).d.Assuming that the risk free security will not change. The price of security four ( that everyone is trying to sell short) will decrease and the price of security three ( that everyone is trying to buy ) will increase. Hence the return of security four will increase and the return of security three will decrease.The alternative is that the prices of securities three and four will remain the same, and the price of the risk-free security drops until its return is 10%.Finally, a combined movement of all security prices is also possible. The prices of security four and the risk-free security will decrease and the price of security four will increase until the opportunity disappears.E (R j 20%10%5%()ββ1210i =2.5。
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。
理财知识-罗斯 公司理财 名词解释习题答案 精品
CONCEPT QUESTIONS - CHAPTER 11.1•What are the three basic questions of corporate finance?a. Investment decision (capital budgeting): What long-term investment strategyshould a firm adopt?b. Financing decision (capital structure): How much cash must be raised for therequired investments?c.Short-term finance decision (working capital): How much short-term cashflow does pany need to pay its bills.•Describe capital structure.Capital structure is the mix of different securities used to finance a firm'sinvestments.•List three reasons why value creation is difficult.Value creation is difficult because it is not easy to observe cash flows directly.The reasons are:a. Cash flows are sometimes difficult to identify.b. The timing of cash flows is difficult to determine.c. Cash flows are uncertain and therefore risky.1.2•What is a contingent claim?A contingent claim is a claim whose payoffs are dependent on the value of thefirm at the end of the year. In more general terms, contingent claims depend onthe value of an underlying asset.•Describe equity and debt as contingent claims.Both debt and equity depend on the value of the firm. If the value of the firm isgreater than the amount owed to debt holders, they will get what the firm owesthem, while stockholders will get the difference. But if the value of the firm isless than equity, bondholders will get the value of the firm and equity holdersnothing.1.3•Define a proprietorship, a partnership and a corporation.A proprietorship is a business owned by a single individual with unlimitedliability. A partnership is a business owned by two or more individuals withunlimited liability. A corporation is a business which is a "legal person" withmany limited liability owners.•W hat are the advantages of the corporate form of business organization?Limited liability, east of ownership transfer and perpetual succession.1.4•What are the two types of agency costs?Monitoring costs of the shareholders and the incentive fees paid to the managers.•How are managers bonded to shareholders?a.Shareholders determine the membership to the board of directors, whichselects management.b.Management contracts and incentives are build into pensation arrangements.c.If a firm is taken over because the firm's price dropped, managers could losetheir jobs.d.petition in the managerial labor market makes managers perform in the bestinterest of stockholders.•Can you recall some managerial goals?Maximization of corporate wealth, growth and pany size.•What is the set-of-contracts perspective?The view of the corporation as a set of contracting relationships amongindividuals who have conflicting objectives.1.5•Distinguish between money markets and capital markets.Money markets are markets for debt securities that pay off in less than one year,while capital markets are markets for long-term debt and equity shares.•What is listing?Listing refers to the procedures by which a pany applies and qualifies so that itsstock can be traded on the New York Stock Exchange.•What is the difference between a primary market and a secondary market?The primary market is the market where issuers of securities sell them for the first time to investors, while a secondary market is a market for securities previouslyissued.CONCEPT QUESTIONS - CHAPTER 22.1•What is the balance-sheet equation?Assets = Liabilities + Stockholders' equity•What three things should be kept in mind when looking at a balance sheet?Accounting liquidity, debt vs. equity, and value vs. cost.2.2•What is the ine statement equation?Revenue - expenses = Ine•What are the three things to keep in mind when looking at an ine statement?Generally Accepted Accounting Principles (GAAP), noncash items, and time and costs.•What are noncash expenses?Noncash expenses are items included as expenses but which do not directly affect cash flow. The most important one is depreciation.2.3•What is net working capital?It is the difference between current assets and current liabilities.•What is the change in net working capital?To determine changes in net working capital you subtract uses of net workingcapital from sources of net working capital.2.4 •How is cash flow different from changes in net working capital?The difference between cash flow and changes in new working capital is thatsome transactions affect cash flow and not net working capital. The acquisition of inventories with cash is a good example of a change in working capitalrequirements.•What is the difference between operating cash flow and total cash flow of the firm?The main difference between the two is capital spending and additions to working capital, that is, investment in fixed assets and "investment" in working capital. CONCEPT QUESTIONS - CHAPTER 33.1 • What is an interest rate?It is the payment required by the lender of money for the use of it during adetermined period of time. It is expressed in percentage.• What are institutions that match borrowers and lenders called?They are called financial institutions.•What do we mean when we say a market clears? What is an equilibriumrate of interest?A market clears if the amount of money borrowers want to borrow is equal to theamount lenders wish to lend. An equilibrium rate of interest is the interest rate at which markets clear.3.2 • How does an individual change his consumption across periods throughborrowing and lending.By borrowing and lending different amounts the person can achieve any of allconsumption possibilities available.•How do interest rate changes affect one's degree of impatience?A person's level of patience depends upon the interest rate he or she faces in themarket. A person eager to borrow money at a low interest rate will bee less eager if that interest rate is raised and may prefer to lend money to take advantage ofhigher interest rates.3.3 • What is the most important feature of a petitive financial market?No investor, individual or corporation can have a significant effect on totallending or on interest rates. Therefore, investors are price takers.•What conditions are likely to lead to this?a.Trading is costless.rmation about borrowing and lending opportunities is availablec.There are many traders.3.4 •Describe the basic financial principle of investment decision-making?An investment project is worth undertaking only if it is mores desirable than what is available in the financial markets.3.5 • Describe how the financial markets can be used to evaluate investmentalternatives?The financial markets can be used as a benchmark. If the proposed investmentprovides a better alternative than the financial markets, it should be undertaken.•What is the separation theorem? Why is it important?The separation theorem says that the decision as to whether to undertake a project (pared to the financial markets) is independent of the consumption preferences of the individual. It is important because we can make investment decisions basedon objective data, disregarding personal preferences.3.6 • Give the definitions of net present value, future value and present value?New present value is the difference in present value terms between cash inflowsand cash outflows. Given the financial market, the future value is an amountequivalent to the amount currently held, and present value is the amountequivalent now to an amount to be received or given in the future.•What information does a person need to pute an investment's net presentvalue?Cash inflows, cash outflows and an interest or discount rate.3.7 • In terms of the net-present-value rule, what is the essential differencebetween the individual and the corporation.The main difference is that firms have no consumption endowment. CONCEPT QUESTIONS - CHAPTER 44.1 • Define future value and present value.Future value is the value of a sum after investing over one or more periods.Present value is the value today of cash flows to be received in the future.•How does one use net present value when making an investment decision?One determines the present value of future cash flows and then subtracts the costof the investment. If this value is positive, the investment should be undertaken.If the NPV is negative, then the investment should be rejected.4.2 • What is the difference between simple interest and pound interest?With simple interest, the interest on the original investment is not reinvested.With pound interest, each interest payment is reinvested and one earns interest on interest.•What is the formula for the net present value of a project?TNPV = -C0 + ∑ C t /(1+I)tt=14.3 • What is a stated annual interest rate?The stated annual interest rate is the annual interest rate without consideration ofpounding.• What is an effective annual interest rate?An effective annual interest rate is a rate that takes pounding into account.• What is the relationship between the stated annual interest rate and theeffective annual interest rate?Effective annual interest rate = (1 + (r/m) )m - 1.•Define continuous pounding.Continuous pounding pounds investments every instant.4.4 • What are the formulas for perpetuity, growing-perpetuity, annuity, andgrowing annuity?Perpetuity: PV = C/rGrowing Perpetuity: PV = C/(r-g)Annuity: PV = (C/r) [1-1/(1+r)T]Growing Annuity: PV = [C/(r-g)] [1-((1+g) / (1+r))T ]•What are three important points concerning the growing perpetuity formula?1.The numerator.2.The interest rate and the growth rate.3.The timing assumption.•What are four tricks concerning annuities?1. A delayed annuity.2.An annuity in advance3.An infrequent annuity4.The equating of present values of two annuities.CONCEPT QUESTIONS - CHAPTER 55.2 •Define pure discount bonds, level-coupon bonds, and consols.A pure discount bond is one that makes no intervening interest payments. Onereceives a single lump sum payment at maturity. A level-coupon bond is abination of an annuity and a lump sum at maturity. A consol is a bond that makes interest payments forever.•Contrast the state interest rate and the effective annual interest rate for bonds paying semi-annual interest.Effective annual interest rate on a bond takes into account two periods ofpounding per year received on the coupon payments. The state rate does not take this into account.5.3 •What is the relationship between interest rates and bond prices?There is an inverse relationship. When one goes up, the other goes down.•How does one calculate the yield to maturity on a bond?One finds the discount rate that equates the promised future cash flows with theprice of the bond.5.8 •What are the three factors determining a firm's P/E ratio?1.Today's expectations of future growth opportunities.2.The discount rte.3.The accounting method.5.9 •What is the closing price of General Data?The closing price of General Data is 6 3/16.•What is the PE of General House?The PE of General House is 29.•What is the annual dividend of General Host?The annual dividend of General Host is zero.CONCEPT QUESTIONS - Appendix to Chapter 5•What is the difference between a spot interest rate and the yield to maturity?The yield to maturity is the geometric average of the spot rates during the life ofthe bond.•Define the forward rate.Given a one-year bond and a two-year bond, one knows the spot rates for both.The forward rate is the rate of return implicit on a one-year bond purchased in the second year that would equate the terminal wealth of purchasing the one-yearbond today and another in one year with that of the two-year bond.•What is the relationship between the one-year spot rate, the two-year spot rate and the forward rate over the second year?The forward rate f2 = [(1+r2)2 /(1+r1 )] - 1•What is the expectation hypothesis?Investors set interest rates such that the forward rate over a given period equalsthe spot rate for that period.•What is the liquidity-preference hypothesis?This hypothesis maintains that investors require a risk premium for holdinglonger-term bonds (i.e. they prefer to be liquid or short-term investors). Thisimplies that the market sets the forward rate for a given period above the expected spot rate for that period.CONCEPT QUESTIONS - CHAPTER 66.2 •List the problems of the payback period rule.1.It does not take into account the time value of money.2.It ignores payments after the payback period.3.The cutoff period is arbitrary.•What are some advantages?1.It is simple to implement.2.It may help in controlling and evaluating managers.6.4 •What are the three steps in calculating AAR?1.Determine average net ine.2.Determine average investment3.Divide average net ine by average investment.•What are some flaws with the AAR approach?1.It uses accounting figures.2.It takes no account of timing.3.The cutoff period is arbitrary.6.5 •How does one calculate the IRR of a project?Using either trial-and-error or a financial calculator, one finds the discount ratethat produces an NPV of zero.6.6 •What is the difference between independent projects and mutually exclusiveprojects?An independent project is one whose acceptance does not affect the acceptance of another. A mutually exclusive project, on the other hand is one whose acceptance precludes the acceptance of another.•What are two problems with the IRR approach that apply to both independent and mutually exclusive projects?1.The decision rule depends on whether one is investing of financing.2.Multiple rates of return are possible.•What are two additional problems applying only to mutually exclusive projects?1.The IRR approach ignores issues of scale.2.The IRR approach does not acmodate the timing of the cash flows properly.6.7 •How does one calculate a project's profitability index?Divide the present value of the cash flows subsequent to the initial investment by the initial investment.•How is the profitability index applied to independent projects, mutually exclusive projects, and situations of capital rationing?1.With independent projects, accept the project if the PI is greater than 1.0 andreject if less than 1.0.2.With mutually exclusive projects, use incremental analysis, subtracting thecash flows of project 2 from project 1. Find the PI. If the PI is greater than1.0, accept project 1. If less than 1.0, accept project2.3.In capital rationing, the firm should simply rank the projects according to theirrespective PIs and accept the projects with the highest PIs, subject to thebudget constrain.CONCEPT QUESTIONS - CHAPTER 77.1 •What are the three difficulties in determining incremental cash flows?1.Sunk costs.2.Opportunity costs3.Side effects.•Define sunk costs, opportunity costs, and side effects.1.Sunk costs are costs that have already been incurred and that will not beaffected by the decision whether to undertake the investment.2.Opportunity costs are costs incurred by the firm because, if it decides toundertake a project, it will forego other opportunities for using the assets.3.Side effects appear when a project negatively affects cash flows from otherparts of the firm.7.2 •What are the items leading to cash flow in any year?Cash flow from operations (revenue-operating costs-taxes) plus cash flow ofinvestment (cost of new machines + changes in net working capital + opportunity costs).•Why did we determine ine when NPV Analysis discounts cash flows, not ine?Because we need to determine how much is paid out in taxes.•Why is working capital viewed as a cash outflow?Because increases in working capital must be funded by cash generated elsewhere in the firm.7.3 •What is the difference between the nominal and the real interest rate?The nominal interest rate is the real interest rate with a premium for inflation.•What is the difference between nominal and real cash flows?Real cash flows are nominal cash flows adjusted for inflation.7.4 •What is the equivalent annual cost method of capital budgeting?The decision as to which of various mutually exclusive machines to buy is based on the equivalent annual cost. The EAC is determined by dividing the net present value of costs by an annuity factor that has the same life as the machines. Themachine with the lowest EAC should be acquired.•Can you list the assumptions that we must to use EAC?1.All machines do the same job.2.They have different operating costs and lives3.The machine will be indefinitely replaced.CONCEPT QUESTIONS - CHAPTER 88.1 •What are the ways a firm can create positive NPV.1.Be first to introduce a new product.2.Further develop a core petency to product goods or services at lower coststhan petitors.3.Create a barrier that makes it difficult for the other firms to pete effectively.4.Introduce variation on existing products to take advantage of unsatisfieddemand5.Create product differentiation by aggressive advertising and marketingnetworks.e innovation in organizational processes to do all of the above.•How can managers use the market to help them screen out negative NPV projects?8.2 •What is a decision tree?It is a method to help capital budgeting decision-makers evaluating projectsinvolving sequential decisions. At every point in the tree, there are differentalternatives that should be analyzed.•What are potential problems in using a decision tree?Potential problems 1) that a different discount rate should be used for differentbranches in the tree and 2) it is difficult for decision trees to capture managerialoptions.8.3 •What is a sensitivity analysis?It is a technique used to determine how the result of a decision changes whensome of the parameters or assumptions change.•Why is it important to perform a sensitivity analysis?Because it provides an analysis of the consequences of possible prediction orassumption errors.•What is a break-even analysis?It is a technique used to determine the volume of production necessary to breakeven, that is, to cover not only variable costs but fixed costs as well.•Describe how sensitivity analysis interacts with break-even analysis.Sensitivity analysis can determine how the financial break-even point changeswhen some factors (such as fixed costs, variable costs, or revenue) change. CONCEPT QUESTIONS - CHAPTER 99.1 •What are the two parts of total return?Dividend ine and capital gain (or loss)•Why are unrealized capital gains or losses included in the calculation of returns?Because it is as much a part of returns as dividends, even if the investor decides to hold onto the stock and not to realize the capital gain.•What is the difference between a dollar return and a percentage return?A dollar return is the amount of money the original investment provided, whilepercentage return is the percentage of the original investment represented by thetotal return.9.2 •What is the largest one-period return in the 63-year history of monstocks we have displayed, and when did it occur? What is the smallest return, and when did it occur?Largest mon stock return: 53.99% in 1933. Smallest mon stock return: -43.34% in 1931.•In how many years did the mon stock return exceed 30 percent, and in how many years was it below 20 percent?It exceeded 30% in 16 years. It was below 20% in 39 years.•For mon stocks, what is the longest period of time without a single losing year? What is the longest streak of losing years?There are 6 consecutive years of positive returns. The longest losing streak was 4 years.•What is the longest period of time such that if you have invested at the beginning of the period, you would still not have had a positive return onyour mon-stock investment by the end?The longest period of time was 14 years (from 1929 to 1942).9.4 •What is the major observation about capital markets that we will seek toexplain?That the return on risky assets has been higher on average than the return on risk-free assets.•What does the observation tell us about investors for the period from 1926 through 1994.An investor in this period was rewarded for investment in the stock market withan extra or excess return over what would have achieved by simply investing inT-bills.9.5 •What is the definition of sample estimates of variance and standarddeviation?Variance is given by Var (R) = (1 / (T-1) ) ∑t (R t - R)2 where T is the number ofperiods, R t is the period return and R is the sample mean. Standard deviation isgiven by SD = Var 1/2. For large T, (T-1) may be approximated by T.•How does the normal distribution help us interpret standard deviation?For a normal distribution, the probability of having a return that is above or below the men by a certain amount only depends on the standard deviation.9.6 •How can financial managers use the history of capital markets to estimatethe required rate of return on nonfinancial investments with the same risk as the average mon stock?They can determine the historical risk premium and add this amount to the current risk-free rate to determine the required return on investments of that risk.CONCEPT QUESTIONS - CHAPTER 1010.3 •What are the formulas for the expected return, variance, and standarddeviation of a portfolio of two assets?E{R p } = X i R i + X j R jVar p = (X i2 (R i - R i )2 + X j2 (R j - R j )2 + 2X i X j (R i - R i ) (R j - R j )SD p = Var p 1/2•What is the diversification effect?As long as the correlation coefficient between two securities is less than one, thestandard deviation of a portfolio of two securities is less than the weightedaverage of the standard deviations of the individual securities.• What are the highest and lowest possible values for the correlation coefficient?+1 and -1.10.4 •What is the relationship between the shape of the efficient set for two assetsand the correlation between the two assets?The less correlation there is between two assets the more the efficient set bends intoward the y-axis.10.5 •What is the formula for the variance of a portfolio for many assets?N NVar p = ∑∑ [X i X j(R i– R i)(R j–R j)]I=1 j=1•How can the formula be expressed in terms of a box or matrix?The terms on the diagonal of the matrix represent the variances of each term andthe off-diagonal elements represent the covariances.10.6 •What are the two ponents of the total risk of a security?Portfolio risk and diversifiable risk.•Why doesn't diversification eliminate all risk?Because the variances of the portfolio asymptotically approaches the portfolio risk.This risk is the covariance of each pair of securities, which always remains.10.7 •What is the formula for the standard deviation of a portfolio posed of oneriskless and one risky asset?SD P =(X A2Var A)1/2 = X A SD A where A is the risky asset•How does one determine the optimal portfolio among the efficient set of risky assets?This portfolio lies at the point at which a line drawn from the risk-free rate istangent to the efficient set.10.8 •If all investors have homogeneous expectations, what portfolio of risky assetsdo they hold?The market portfolio.•What is the formula for beta?B i = COV(R i R m)/Var(R m)•Why is the beta the appropriate measure of risk for a single security in a large portfolio?Because beta measures the contribution of that single security to the variance ofthe portfolio.10.9 •Why is the SML a straight line?Because investors could form homemade portfolios that dominate portfolios thatdon't lie on a straight line. Buying and selling of these portfolios would thendrive any outliers back to the line.•What is the Capital-Asset-Pricing model?The CAPM is a linear model that relates the expected return on an asset to itssystematic risk (beta).•What are the differences between the capital market line and the security market line?The SML relates expected return to beta, while the CML relates expected returnto the standard deviation. The SML holds both for all individual securities andfor all possible portfolios, whereas the CML holds only for efficient portfolios. CONCEPT QUESTIONS - CHAPTER 1111.1•What are the two basic parts of a return?1.The expected part2.The surprise part•Under what conditions will some news have no effect on mon stock prices?If there is no surprise in the news, there will not be any effect on prices. That is,the news was fully expected.11.2•Describe the difference between systematic risk and unsystematic risk.A systematic risk is any risk that affects a large number of assets, each to a greateror lesser degree. An unsystematic risk is a risk that specifically affects a singleasset or a small group of assets.•Why is unsystematic risk sometimes referred to as idiosyncratic risk?Because information such as the announcement of a labor strike, may affect onlysome panies.11.3 •What is an inflation beta? A GNP beta? An interest-rate beta?An inflation beta is a measure of the sensitivity of a stock's return to changes inthe expected inflation rate. A GNP beta measures the sensitivity of a stock'sreturn to changes in the expected GNP. An interest rate beta reflects thesensitivity of a stock's return to changes in the market interest rate.•What is the difference between a k-factor model and the market model?The main difference is that the market model assumes that only one factor,usually a stock market aggregate, is enough to explain stock returns, while a k-factor model relies on k factors to explain returns.•Define the beta coefficient.The beta coefficient is a measure of the sensitivity of stock's return to unexpected changes in one factor.11.4•How can the return on a portfolio be expressed in terms of a factor model?It is the weighted average of expected returns plus the weighted average of eachsecurity's beta times a factor F plus the weighted average of the unsystematic risks of the individual securities.•What risk is diversified away in a large portfolio?The unsystematic risk.11.5•What is the relationship between the one-factor model and CAPM?Assuming the market portfolio is properly scaled, it can be shown that the one-factor model is identical to the CAPM.11.7 •Empirical models are sometimes called factor models. What is the differencebetween a factor as we have used it previously in this chapter and anattribute as we use it in this section?A factor is generally a market wide or industry wide factor proxying thesystematic risk. An attribute is related with the returns of the stocks.•What is data mining and why might it overstate the relation between some stock attribute and returns?Choosing parameters because they have been shown to be related to returns isdata mining. The relation found between some attribute and returns can beaccidental, thus overstated.•What is wrong with measuring the performance of a U.S. growth stock manager against a benchmark posed of English stocks?。
精编【公司理财】罗斯公司理财名词解释习题答案
【公司理财】罗斯公司理财名词解释习题答案xxxx年xx月xx日xxxxxxxx集团企业有限公司Please enter your company's name and contentvCONCEPT QUESTIONS - CHAPTER 11.1•What are the three basic questions of corporate finance?a. Investment decision (capital budgeting): What long-terminvestment strategy should a firm adopt?b. Financing decision (capital structure): How much cash must be raised for therequired investments?c.Short-term finance decision (working capital): How much short-term cash flow does company need to pay its bills.•Describe capital structure.Capital structure is the mix of different securities used to finance afirm's investments.•List three reasons why value creation is difficult.Value creation is difficult because it is not easy to observe cash flows directly. The reasons are:a. Cash flows are sometimes difficult to identify.b. The timing of cash flows is difficult to determine.c. Cash flows are uncertain and therefore risky.1.2•What is a contingent claim?A contingent claim is a claim whose payoffs are dependent on thevalue of the firm at the end of the year. In more general terms,contingent claims depend on the value of an underlying asset.•Describe equity and debt as contingent claims.Both debt and equity depend on the value of the firm. If the valueof the firm is greater than the amount owed to debt holders, theywill get what the firm owes them, while stockholders will get the2A- Answers to Concept Questionsdifference. But if the value of the firm is less than equity,bondholders will get the value of the firm and equity holdersnothing.1.3•Define a proprietorship, a partnership and a corporation.A proprietorship is a business owned by a single individual withunlimited liability. A partnership is a business owned by two ormore individuals with unlimited liability. A corporation is a business which is a "legal person" with many limited liability owners.•What are the advantages of the corporate form of business organization?Limited liability, east of ownership transfer and perpetual succession.1.4•What are the two types of agency costs?Monitoring costs of the shareholders and the incentive fees paid to the managers.•How are managers bonded to shareholders?a.Shareholders determine the membership to the board ofdirectors, which selects management.b.Management contracts and incentives are build intocompensation arrangements.c.If a firm is taken over because the firm's price dropped, managerscould lose their jobs.petition in the managerial labor market makes managersperform in the best interest of stockholders.•Can you recall some managerial goals?Maximization of corporate wealth, growth and company size.•What is the set-of-contracts perspective?The view of the corporation as a set of contracting relationshipsamong individuals who have conflicting objectives.1.5•Distinguish between money markets and capital markets.Money markets are markets for debt securities that pay off in lessthan one year, while capital markets are markets for long-term debt and equity shares.•What is listing?Listing refers to the procedures by which a company applies andqualifies so that its stock can be traded on the New York StockExchange.•What is the difference between a primary market and a secondary market?The primary market is the market where issuers of securities sellthem for the first time to investors, while a secondary market is amarket for securities previously issued.CONCEPT QUESTIONS - CHAPTER 22.1•What is the balance-sheet equation?Assets = Liabilities + Stockholders' equity•What three things should be kept in mind when looking at a balance sheet?Accounting liquidity, debt vs. equity, and value vs. cost.2.2•What is the income statement equation?4A- Answers to Concept QuestionsRevenue - expenses = Income•What are the three things to keep in mind when looking at anincome statement?Generally Accepted Accounting Principles (GAAP), noncash items,and time and costs.•What are noncash expenses?Noncash expenses are items included as expenses but which do not directly affect cash flow. The most important one is depreciation.2.3•What is net working capital?It is the difference between current assets and current liabilities.•What is the change in net working capital?To determine changes in net working capital you subtract uses ofnet working capital from sources of net working capital.2.4 •How is cash flow different from changes in net working capital?The difference between cash flow and changes in new workingcapital is that some transactions affect cash flow and not networking capital. The acquisition of inventories with cash is a goodexample of a change in working capital requirements.•What is the difference between operating cash flow and totalcash flow of the firm?The main difference between the two is capital spending andadditions to working capital, that is, investment in fixed assets and"investment" in working capital.CONCEPT QUESTIONS - CHAPTER 33.1 •What is an interest rate?It is the payment required by the lender of money for the use of itduring a determined period of time. It is expressed in percentage.• What are institutions that match borrowers and lenders called?They are called financial institutions.•What do we mean when we say a market clears? What is anequilibrium rate of interest?A market clears if the amount of money borrowers want to borrow isequal to the amount lenders wish to lend. An equilibrium rate ofinterest is the interest rate at which markets clear.3.2 •How does an individual change his consumption across periods throughborrowing and lending.By borrowing and lending different amounts the person can achieve any of all consumption possibilities available.•How do interest rate changes affect one's degree of impatience?A person's level of patience depends upon the interest rate he orshe faces in the market. A person eager to borrow money at a lowinterest rate will become less eager if that interest rate is raised and may prefer to lend money to take advantage of higher interest rates.3.3 •What is the most important feature of a competitive financial market?6A- Answers to Concept QuestionsNo investor, individual or corporation can have a significant effecton total lending or on interest rates. Therefore, investors are pricetakers.•What conditions are likely to lead to this?a.Trading is costless.rmation about borrowing and lending opportunities isavailablec.There are many traders.3.4 •Describe the basic financial principle of investment decision-making?An investment project is worth undertaking only if it is moresdesirable than what is available in the financial markets.3.5 •Describe how the financial markets can be used to evaluate investmentalternatives?The financial markets can be used as a benchmark. If the proposedinvestment provides a better alternative than the financial markets, it should be undertaken.•What is the separation theorem? Why is it important?The separation theorem says that the decision as to whether toundertake a project (compared to the financial markets) isindependent of the consumption preferences of the individual. It isimportant because we can make investment decisions based onobjective data, disregarding personal preferences.3.6 •Give the definitions of net present value, future value and present value?New present value is the difference in present value terms betweencash inflows and cash outflows. Given the financial market, thefuture value is an amount equivalent to the amount currently held,and present value is the amount equivalent now to an amount to be received or given in the future.•What information does a person need to compute an investment's net presentvalue?Cash inflows, cash outflows and an interest or discount rate.3.7 •In terms of the net-present-value rule, what is the essential differencebetween the individual and the corporation.The main difference is that firms have no consumption endowment. CONCEPT QUESTIONS - CHAPTER 44.1 •Define future value and present value.Future value is the value of a sum after investing over one or moreperiods. Present value is the value today of cash flows to bereceived in the future.•How does one use net present value when making an investment decision?One determines the present value of future cash flows and thensubtracts the cost of the investment. If this value is positive, theinvestment should be undertaken. If the NPV is negative, then theinvestment should be rejected.8A- Answers to Concept Questions4.2 • What is the difference between simple interest and compound interest?With simple interest, the interest on the original investment is notreinvested. With compound interest, each interest payment isreinvested and one earns interest on interest.•What is the formula for the net present value of a project?TNPV = -C0 + ∑ C t /(1+I)tt=14.3 •What is a stated annual interest rate?The stated annual interest rate is the annual interest rate withoutconsideration of compounding.•What is an effective annual interest rate?An effective annual interest rate is a rate that takes compoundinginto account.• What is the relationship between the stated annual interest rate and the effective annual interest rate?Effective annual interest rate = (1 + (r/m) )m - 1.•Define continuous compounding.Continuous compounding compounds investments every instant.4.4 •What are the formulas for perpetuity, growing-perpetuity, annuity, andgrowing annuity?Perpetuity: PV = C/rGrowing Perpetuity: PV = C/(r-g)Annuity: PV = (C/r) [1-1/(1+r)T]Growing Annuity: PV = [C/(r-g)] [1-((1+g) / (1+r))T ]•What are three important points concerning the growing perpetuity formula?1.The numerator.2.The interest rate and the growth rate.3.The timing assumption.•What are four tricks concerning annuities?1. A delayed annuity.2.An annuity in advance3.An infrequent annuity4.The equating of present values of two annuities.CONCEPT QUESTIONS - CHAPTER 55.2 •Define pure discount bonds, level-coupon bonds, and consols.A pure discount bond is one that makes no intervening interestpayments. One receives a single lump sum payment at maturity. Alevel-coupon bond is a combination of an annuity and a lump sumat maturity. A consol is a bond that makes interest paymentsforever.•Contrast the state interest rate and the effective annual interest rate for bonds paying semi-annual interest.Effective annual interest rate on a bond takes into account twoperiods of compounding per year received on the coupon payments.The state rate does not take this into account.10A- Answers to Concept Questions5.3 •What is the relationship between interest rates and bond prices?There is an inverse relationship. When one goes up, the other goes down.•How does one calculate the yield to maturity on a bond?One finds the discount rate that equates the promised future cashflows with the price of the bond.5.8 •What are the three factors determining a firm's P/E ratio?1.Today's expectations of future growth opportunities.2.The discount rte.3.The accounting method.5.9 •What is the closing price of General Data?The closing price of General Data is 6 3/16.•What is the PE of General House?The PE of General House is 29.•What is the annual dividend of General Host?The annual dividend of General Host is zero.CONCEPT QUESTIONS - Appendix to Chapter 5•What is the difference between a spot interest rate and the yield to maturity?The yield to maturity is the geometric average of the spot ratesduring the life of the bond.•Define the forward rate.Given a one-year bond and a two-year bond, one knows the spotrates for both. The forward rate is the rate of return implicit on aone-year bond purchased in the second year that would equate the terminal wealth of purchasing the one-year bond today and another in one year with that of the two-year bond.•What is the relationship between the one-year spot rate, the two-year spot rate and the forward rate over the second year?The forward rate f2 = [(1+r2)2 /(1+r1 )] - 1•What is the expectation hypothesis?Investors set interest rates such that the forward rate over a givenperiod equals the spot rate for that period.•What is the liquidity-preference hypothesis?This hypothesis maintains that investors require a risk premium forholding longer-term bonds (i.e. they prefer to be liquid or short-term investors). This implies that the market sets the forward ratefor a given period above the expected spot rate for that period. CONCEPT QUESTIONS - CHAPTER 66.2 •List the problems of the payback period rule.1.It does not take into account the time value of money.2.It ignores payments after the payback period.3.The cutoff period is arbitrary.•What are some advantages?1.It is simple to implement.12A- Answers to Concept Questions2.It may help in controlling and evaluating managers.6.4 •What are the three steps in calculating AAR?1.Determine average net income.2.Determine average investment3.Divide average net income by average investment.•What are some flaws with the AAR approach?1.It uses accounting figures.2.It takes no account of timing.3.The cutoff period is arbitrary.6.5 •How does one calculate the IRR of a project?Using either trial-and-error or a financial calculator, one finds thediscount rate that produces an NPV of zero.6.6 •What is the difference between independent projects and mutually exclusiveprojects?An independent project is one whose acceptance does not affect the acceptance of another. A mutually exclusive project, on the otherhand is one whose acceptance precludes the acceptance of another.•What are two problems with the IRR approach that apply to both independent and mutually exclusive projects?1.The decision rule depends on whether one is investing offinancing.2.Multiple rates of return are possible.•What are two additional problems applying only to mutually exclusive projects?1.The IRR approach ignores issues of scale.2.The IRR approach does not accommodate the timing of the cashflows properly.6.7 •How does one calculate a project's profitability index?Divide the present value of the cash flows subsequent to the initialinvestment by the initial investment.•How is the profitability index applied to independent projects, mutually exclusive projects, and situations of capital rationing?1.With independent projects, accept the project if the PI is greaterthan 1.0 and reject if less than 1.0.2.With mutually exclusive projects, use incremental analysis,subtracting the cash flows of project 2 from project 1. Find the PI.If the PI is greater than 1.0, accept project 1. If less than 1.0,accept project 2.3.In capital rationing, the firm should simply rank the projectsaccording to their respective PIs and accept the projects with thehighest PIs, subject to the budget constrain.CONCEPT QUESTIONS - CHAPTER 77.1 •What are the three difficulties in determining incremental cash flows?1.Sunk costs.2.Opportunity costs3.Side effects.•Define sunk costs, opportunity costs, and side effects.14A- Answers to Concept Questions1.Sunk costs are costs that have already been incurred and that willnot be affected by the decision whether to undertake theinvestment.2.Opportunity costs are costs incurred by the firm because, if itdecides to undertake a project, it will forego other opportunitiesfor using the assets.3.Side effects appear when a project negatively affects cash flowsfrom other parts of the firm.7.2 •What are the items leading to cash flow in any year?Cash flow from operations (revenue-operating costs-taxes) plus cash flow of investment (cost of new machines + changes in net working capital + opportunity costs).•Why did we determine income when NPV Analysis discounts cash flows, not income?Because we need to determine how much is paid out in taxes.•Why is working capital viewed as a cash outflow?Because increases in working capital must be funded by cashgenerated elsewhere in the firm.7.3 •What is the difference between the nominal and the real interest rate?The nominal interest rate is the real interest rate with a premium for inflation.•What is the difference between nominal and real cash flows?Real cash flows are nominal cash flows adjusted for inflation.7.4 •What is the equivalent annual cost method of capital budgeting?The decision as to which of various mutually exclusive machines tobuy is based on the equivalent annual cost. The EAC is determinedby dividing the net present value of costs by an annuity factor thathas the same life as the machines. The machine with the lowest EAC should be acquired.•Can you list the assumptions that we must to use EAC?1.All machines do the same job.2.They have different operating costs and lives3.The machine will be indefinitely replaced.CONCEPT QUESTIONS - CHAPTER 88.1 •What are the ways a firm can create positive NPV.1.Be first to introduce a new product.2.Further develop a core competency to product goods or servicesat lower costs than competitors.3.Create a barrier that makes it difficult for the other firms tocompete effectively.4.Introduce variation on existing products to take advantage ofunsatisfied demand5.Create product differentiation by aggressive advertising andmarketing networks.e innovation in organizational processes to do all of the above.•How can managers use the market to help them screen out negative NPV projects?8.2 •What is a decision tree?16A- Answers to Concept QuestionsIt is a method to help capital budgeting decision-makers evaluating projects involving sequential decisions. At every point in the tree,there are different alternatives that should be analyzed.•What are potential problems in using a decision tree?Potential problems 1) that a different discount rate should be usedfor different branches in the tree and 2) it is difficult for decisiontrees to capture managerial options.8.3 •What is a sensitivity analysis?It is a technique used to determine how the result of a decisionchanges when some of the parameters or assumptions change.•Why is it important to perform a sensitivity analysis?Because it provides an analysis of the consequences of possibleprediction or assumption errors.•What is a break-even analysis?It is a technique used to determine the volume of productionnecessary to break even, that is, to cover not only variable costs but fixed costs as well.•Describe how sensitivity analysis interacts with break-even analysis.Sensitivity analysis can determine how the financial break-even point changes when some factors (such as fixed costs, variable costs, orrevenue) change.CONCEPT QUESTIONS - CHAPTER 99.1 •What are the two parts of total return?Dividend income and capital gain (or loss)•Why are unrealized capital gains or losses included in the calculation of returns?Because it is as much a part of returns as dividends, even if theinvestor decides to hold onto the stock and not to realize the capital gain.•What is the difference between a dollar return and a percentage return?A dollar return is the amount of money the original investmentprovided, while percentage return is the percentage of the originalinvestment represented by the total return.9.2 •What is the largest one-period return in the 63-year history of commonstocks we have displayed, and when did it occur? What is thesmallest return, and when did it occur?Largest common stock return: 53.99% in 1933. Smallest commonstock return: -43.34% in 1931.•In how many years did the common stock return exceed 30 percent, and inhow many years was it below 20 percent?It exceeded 30% in 16 years. It was below 20% in 39 years.•For common stocks, what is the longest period of time without a single losingyear? What is the longest streak of losing years?18A- Answers to Concept QuestionsThere are 6 consecutive years of positive returns. The longest losing streak was 4 years.•What is the longest period of time such that if you have invested at thebeginning of the period, you would still not have had a positivereturn on your common-stock investment by the end?The longest period of time was 14 years (from 1929 to 1942).9.4 •What is the major observation about capital markets that we will seek toexplain?That the return on risky assets has been higher on average than thereturn on risk-free assets.•What does the observation tell us about investors for the period from 1926through 1994.An investor in this period was rewarded for investment in the stockmarket with an extra or excess return over what would haveachieved by simply investing in T-bills.9.5 •What is the definition of sample estimates of variance and standarddeviation?Variance is given by Var (R) = (1 / (T-1) ) ∑t (R t - R)2 where T is thenumber of periods, R t is the period return and R is the sample mean.Standard deviation is given by SD = Var 1/2. For large T, (T-1) may be approximated by T.•How does the normal distribution help us interpret standard deviation?For a normal distribution, the probability of having a return that isabove or below the men by a certain amount only depends on thestandard deviation.9.6 •How can financial managers use the history of capital markets to estimatethe required rate of return on nonfinancial investments with the same risk as the average common stock?They can determine the historical risk premium and add this amount to the current risk-free rate to determine the required return oninvestments of that risk.CONCEPT QUESTIONS - CHAPTER 1010.3 •What are the formulas for the expected return, variance, and standarddeviation of a portfolio of two assets?E{R p } = X i R i + X j R jVar p = (X i2 (R i - R i )2 + X j2 (R j - R j )2 + 2X i X j (R i - R i ) (R j - R j )SD p = Var p 1/2•What is the diversification effect?As long as the correlation coefficient between two securities is lessthan one, the standard deviation of a portfolio of two securities is20A- Answers to Concept Questions。
罗斯公司理财题库
Chapter 17Capital Structure: Limits to the Use of Debt Multiple Choice Questions1. The explicit costs, such as the legal expenses, associated with corporate default are classified as _____ costs.A. flotationB. beta conversionC. direct bankruptcyD. indirect bankruptcyE. unlevered2. The costs of avoiding a bankruptcy filing by a financially distressed firm are classified as _____ costs.A. flotationB. direct bankruptcyC. indirect bankruptcyD. financial solvencyE. capital structure3. The explicit and implicit costs associated with corporate default are referred to as the _____ costs of a firm.A. flotationB. default betaC. direct bankruptcyD. indirect bankruptcyE. financial distress4. Indirect costs of financial distress:A. effectively limit the amount of equity a firm issues.B. serve as an incentive to increase the financial leverage of a firm.C. include direct costs such as legal and accounting fees.D. tend to increase as the debt-equity ratio decreases.E. include the costs incurred by a firm as it tries to avoid seeking bankruptcy protection.5. The legal proceeding for liquidating or reorganizing a firm operating in default is called a:A. tender offer.B. bankruptcy.C. merger.D. takeover.E. proxy fight.6. The value of a firm is maximized when the:A. cost of equity is maximized.B. tax rate is zero.C. levered cost of capital is maximized.D. weighted average cost of capital is minimized.E. debt-equity ratio is minimized.7. The optimal capital structure has been achieved when the:A. debt-equity ratio is equal to 1.B. weight of equity is equal to the weight of debt.C. cost of equity is maximized given a pre-tax cost of debt.D. debt-equity ratio is such that the cost of debt exceeds the cost of equity.E. debt-equity ratio selected results in the lowest possible weighed average cost of capital.8. In a world with taxes and financial distress, when a firm is operating with the optimal capital structure:I. the debt-equity ratio will also be optimal.II. the weighted average cost of capital will be at its minimal point.III. the required return on assets will be at its maximum point.IV. the increased benefit from additional debt is equal to the increased bankruptcy costs of that debt.A. I and IV onlyB. II and III onlyC. I and II onlyD. II, III, and IV onlyE. I, II, and IV only9. The optimal capital structure will tend to include more debt for firms with:A. the highest depreciation deductions.B. the lowest marginal tax rate.C. substantial tax shields from other sources.D. lower probability of financial distress.E. less taxable income.10. The optimal capital structure of a firm _____ the marketed claims and _____ the nonmarketed claims against the cash flows of the firm.A. minimizes; minimizesB. minimizes; maximizesC. maximizes; minimizesD. maximizes; maximizesE. equates; (leave blank)11. The optimal capital structure:A. will be the same for all firms in the same industry.B. will remain constant over time unless the firm makes an acquisition.C. of a firm will vary over time as taxes and market conditions change.D. places more emphasis on the operations of a firm rather than the financing of a firm.E. is unaffected by changes in the financial markets.12. The basic lesson of MM theory is that the value of a firm is dependent upon the:A. capital structure of the firm.B. total cash flows of the firm.C. percentage of a firm to which the bondholders have a claim.D. tax claim placed on the firm by the government.E. size of the stockholders claims on the firm.13. Corporations in the U.S. tend to:A. minimize taxes.B. underutilize debt.C. rely less on equity financing than they should.D. have extremely high debt-equity ratios.E. rely more heavily on bonds than stocks as the major source of financing.14. In general, the capital structures used by U.S. firms:A. tend to overweigh debt in relation to equity.B. are easily explained in terms of earnings volatility.C. are easily explained by analyzing the types of assets owned by the various firms.D. tend to be those which maximize the use of the firm's available tax shelters.E. vary significantly across industries.15. The MM theory with taxes implies that firms should issue maximum debt. In practice, this is not true because:A. debt is more risky than equity.B. bankruptcy is a disadvantage to debt.C. firms will incur large agency costs of short term debt by issuing long term debt.D. Both A and B.E. Both B and C.16. Although the use of debt provides tax benefits to the firm, debt also puts pressure on the firm to:A. meet interest and principal payments which, if not met, can put the company into financial distress.B. make dividend payments which if not met can put the company into financial distress.C. meet both interest and dividend payments which when met increase the firm cash flow.D. meet increased tax payments thereby increasing firm value.E. None of the above.17. Given realistic estimates of the probability and cost of bankruptcy, the future costs of a possible bankruptcy are borne by:A. all investors in the firm.B. debtholders only because if default occurs interest and principal payments are not made.C. shareholders because debtholders will pay less for the debt providing less cash for the shareholders.D. management because if the firm defaults they will lose their jobs.E. None of the above.18. Conflicts of interest between stockholders and bondholders are known as:A. trustee costs.B. financial distress costs.C. dealer costs.D. agency costs.E. underwriting costs.19. One of the indirect costs of bankruptcy is the incentive for managers to take large risks. When following this strategy:A. the firm will rank all projects and take the project which results in the highest expected value of the firm.B. bondholders expropriate value from stockholders by selecting high risk projects.C. stockholders expropriate value from bondholders by selecting high risk projects.D. the firm will always take the low risk project.E. Both A and B.20. One of the indirect costs to bankruptcy is the incentive toward underinvestment. Following this strategy may result in:A. the firm always choosing projects with the positive NPVs.B. the firm turning down positive NPV projects that it would clearly accept in an all equity firm.C. stockholders contributing the full amount of the investment, but both stockholders and bondholders sharing in the benefits of the project.D. Both A and C.E. Both B and C.21. Which of the following is true?A. A firm with low anticipated profit will likely take on a high level of debt.B. A successful firm will probably take on zero debt.C. Rational firms raise debt levels when profits are expected to decline.D. Rational investors are likely to infer a higher firm value from a zero debt level.E. Investors will generally view an increase in debt as a positive sign for the firm's value.22. Studies have found that firms with high proportions of intangible assets are likely to use ____________ debt compared with firms with low proportions of intangible assets.A. moreB. the same amount ofC. lessD. either more or the same amount ofE. any amount of debt23. What three factors are important to consider in determining a target debt to equity ratio?A. Taxes, asset types, and pecking order and financial slackB. Asset types, uncertainty of operating income, and pecking order and financial slackC. Taxes, financial slack and pecking order, and uncertainty of operating incomeD. Taxes, asset types, and uncertainty of operating incomeE. None of the above.24. An exchange may offer:A. allow customers a 30 day money-back guarantee on the firm's product.B. allow customers a 90 day warranty on the firm's product from defects.C. allow bondholders to exchange some debt for stock.D. allow stockholders to exchange some of their stock for debt.E. Both C and D.25. Which of the following is not empirically true when formulating capital structure policy?A. Some firms use no debt.B. Most corporations have low debt-asset ratios.C. There are no differences in the capital-structure of different industries.D. Debt levels across industries vary widely.E. Debt ratios in most countries are considerably less than 100%.26. When shareholders pursue selfish strategies such as taking large risks or paying excessive dividends, these will result in:A. no action by debtholders since these are equity holder concerns.B. positive agency costs, as bondholders impose various restrictions and covenants which will diminish firm value.C. investments of the same risk class that the firm is in.D. undertaking scale enhancing projects.E. lower agency costs, as shareholders have more control over the firm's assets.27. Indirect costs of bankruptcy are born principally by:A. bondholders.B. stockholders.C. managers.D. the federal government.E. the firm's suppliers.28. The value of a firm in financial distress is diminished if the firm:A. is declared bankrupt and proceeds to be liquidated.B. is declared insolvent and undergoes financial reorganization.C. is a partnership.D. Both A and C.E. Both A and B.29. Covenants restricting the use of leasing and additional borrowings primarily protect:A. the equityholders from added risk of default.B. the debtholders from the added risk of dilution of their claims.C. the debtholders from the transfer of assets.D. the management from having to pay agency costs.E. None of the above.30. If a firm issues debt but writes protective and restrictive covenants into the loan contract, then the firm's debt may be issued at a _____ interest rate compared with otherwise similar debt.A. significantly higherB. slightly higherC. equalD. lowerE. Either A or B31. When graphing firm value against debt levels, the debt level that maximizes the value of the firm is the level where:A. the increase in the present value of distress costs from an additional dollar of debt is greater than the increase in the present value of the debt tax shield.B. the increase in the present value of distress costs from an additional dollar of debt is equal to the increase in the present value of the debt tax shield.C. the increase in the present value of distress costs from an additional dollar of debt is less than the increase of the present value of the debt tax shield.D. distress costs as well as debt tax shields are zero.E. distress costs as well as debt tax shields are maximized.32. When firms issue more debt, the tax shield on debt _____, the agency costs on debt (i.e., costs of financial distress) _____, and the agency costs on equity _____.A. increases; increase; increaseB. decreases; decrease; decreaseC. increases; increase; decreaseD. decreases; decrease; increaseE. increases; decrease; decrease33. The free cash flow hypothesis states:A. that firms with greater free cash flow will pay more in dividends reducing the risk of financial distress.B. that firms with greater free cash flow should issue new equity to force managers to minimize wasting resources and to work harder.C. that issuing debt requires interest and principal payments reducing the potential of management to waste resources.D. Both A and C.E. Both B and C.34. Issuing debt instead of new equity in a closely held firm more likely:A. causes the owner-manager to work less hard and shirk their duties as they have less capital at risk.B. causes the owner-manager to consume more perquisites because the cost is passed to the debtholders.C. causes both more shirking and perquisite consumption since the government provides a tax shield on debt.D. causes agency costs to fall as owner-managers do not need to worry about other shareholders.E. causes the owner-manager to reduce shirking and perquisite consumption as the excess cash flow must be used to meet debt payments.35. The pecking order states how financing should be raised. In order to avoid asymmetric information problems and misinterpretation of whether management is sending a signal on security overvaluation, the firm's first rule is to:A. finance with internally generated funds.B. always issue debt then the market won't know when management thinks the security is overvalued.C. issue new equity first.D. issue debt first.E. None of the above.。
罗斯公司理财题库cha1
罗斯公司理财题库cha1Chapter 17Capital Structure: Limits to the Use of Debt Multiple Choice Questions1.The explicit costs, such as the legal expenses, associated with corporate default are classified as _____ costs.A.flotationB.beta conversionC.direct bankruptcyD.indirect bankruptcyE.unlevered2.The costs of avoiding a bankruptcy filing by a financially distressed firm are classified as _____ costs.A.flotationB.direct bankruptcyC.indirect bankruptcyD.financial solvencyE.capital structure3.The explicit and implicit costs associated with corporate default are referred to as the _____ costs of a firm.A.flotationB.default betaC.direct bankruptcyD.indirect bankruptcyE.financial distress4.Indirect costs of financial distress:A.effectively limit the amount of equity a firm issues.B.serve as an incentive to increase the financial leverage of a firm.C.include direct costs such as legal and accounting fees.D.tend to increase as the debt-equity ratio decreases.E.include the costs incurred by a firm as it tries to avoid seeking bankruptcy protection.5.The legal proceeding for liquidating or reorganizing a firm operating in default is called a:A.tender offer.B.bankruptcy.C.merger.D.takeover.E.proxy fight.6.The value of a firm is maximized when the:A.cost of equity is maximized.B.tax rate is zero.C.levered cost of capital is maximized.D.weighted average cost of capital is minimized.E.debt-equity ratio is minimized.7.The optimal capital structure has been achieved when the:A.debt-equity ratio is equal to 1.B.weight of equity is equal to the weight of debt.C.cost of equity is maximized given a pre-tax cost of debt.D.debt-equity ratio is such that the cost of debt exceeds the cost of equity.E.debt-equity ratio selected results in the lowest possible weighed average cost of capital.8.In a world with taxes and financial distress, when a firm is operating with the optimal capital structure:I. the debt-equity ratio will also be optimal.II. the weighted average cost of capital will be at its minimal point.III. the required return on assets will be at its maximum point.IV. the increased benefit from additional debt is equal to the increased bankruptcy costs of that debt.A.I and IV onlyB.II and III onlyC.I and II onlyD.II, III, and IV onlyE.I, II, and IV only9.The optimal capital structure will tend to include more debt for firms with:A.the highest depreciation deductions.B.the lowest marginal tax rate.C.substantial tax shields from other sources.D.lower probability of financial distress.E.less taxable income.10.The optimal capital structure of a firm _____ the marketed claims and _____ the nonmarketed claims against the cash flows of the firm.A.minimizes; minimizesB.minimizes; maximizesC.maximizes; minimizesD.maximizes; maximizesE.equates; (leave blank)11.The optimal capital structure:A.will be the same for all firms in the same industry.B.will remain constant over time unless the firm makes an acquisition.C.of a firm will vary over time as taxes and market conditions change.D.places more emphasis on the operations of a firm ratherthan the financing of a firm.E.is unaffected by changes in the financial markets.12.The basic lesson of MM theory is that the value of a firm is dependent upon the:A.capital structure of the firm.B.total cash flows of the firm.C.percentage of a firm to which the bondholders have a claim.D.tax claim placed on the firm by the government.E.size of the stockholders claims on the firm.13.Corporations in the U.S. tend to:A.minimize taxes.B.underutilize debt.C.rely less on equity financing than they should.D.have extremely high debt-equity ratios.E.rely more heavily on bonds than stocks as the major source of financing.14.In general, the capital structures used by U.S. firms:A.tend to overweigh debt in relation to equity.B.are easily explained in terms of earnings volatility.C.are easily explained by analyzing the types of assets owned by the various firms.D.tend to be those which maximize the use of the firm's available tax shelters.E.vary significantly across industries.15.The MM theory with taxes implies that firms should issue maximum debt. In practice, this is not true because:A.debt is more risky than equity.B.bankruptcy is a disadvantage to debt.C.firms will incur large agency costs of short term debt by issuing long term debt.D.Both A and B.E.Both B and C.16.Although the use of debt provides tax benefits to the firm, debt also puts pressure on the firm to:A.meet interest and principal payments which, if not met, can put the company into financial distress.B.make dividend payments which if not met can put the company into financial distress.C.meet both interest and dividend payments which when met increase the firm cash flow.D.meet increased tax payments thereby increasing firm value.E.None of the above.17.Given realistic estimates of the probability and cost of bankruptcy, the future costs ofa possible bankruptcy are borne by:A.all investors in the firm.B.debtholders only because if default occurs interest and principal payments are not made.C.shareholders because debtholders will pay less for the debt providing less cash for the shareholders.D.management because if the firm defaults they will lose their jobs.E.None of the above.18.Conflicts of interest between stockholders and bondholders are known as:A.trustee costs.B.financial distress costs.C.dealer costs.D.agency costs.E.underwriting costs.19.One of the indirect costs of bankruptcy is the incentive for managers to take large risks. When following this strategy:A.the firm will rank all projects and take the project which results in the highest expected value of the firm.B.bondholders expropriate value from stockholders by selecting high risk projects.C.stockholders expropriate value from bondholders by selecting high risk projects.D.the firm will always take the low risk project.E.Both A and B.20.One of the indirect costs to bankruptcy is the incentive toward underinvestment. Following this strategy may result in:A.the firm always choosing projects with the positive NPVs.B.the firm turning down positive NPV projects that it would clearly accept in an all equity firm.C.stockholders contributing the full amount of the investment, but both stockholders and bondholders sharing in the benefits of the project.D.Both A and C.E.Both B and C.21.Which of the following is true?A.A firm with low anticipated profit will likely take on a high level of debt.B.A successful firm will probably take on zero debt.C.Rational firms raise debt levels when profits are expected to decline.D.Rational investors are likely to infer a higher firm value from a zero debt level.E.Investors will generally view an increase in debt as a positive sign for the firm's value.22.Studies have found that firms with high proportions of intangible assets are likely to use ____________ debt compared with firms with low proportions of intangible assets.A.moreB.the same amount ofC.lessD.either more or the same amount ofE.any amount of debt23.What three factors are important to consider in determining a target debt to equity ratio?A.Taxes, asset types, and pecking order and financial slackB.Asset types, uncertainty of operating income, and pecking order and financial slackC.Taxes, financial slack and pecking order, and uncertainty of operating incomeD.Taxes, asset types, and uncertainty of operating incomeE.None of the above.24.An exchange may offer:A.allow customers a 30 day money-back guarantee on the firm's product.B.allow customers a 90 day warranty on the firm's product from defects.C.allow bondholders to exchange some debt for stock.D.allow stockholders to exchange some of their stock for debt.E.Both C and D.25.Which of the following is not empirically true when formulating capital structure policy?A.Some firms use no debt.B.Most corporations have low debt-asset ratios.C.There are no differences in the capital-structure of different industries.D.Debt levels across industries vary widely.E.Debt ratios in most countries are considerably less than 100%.26.When shareholders pursue selfish strategies such as taking large risks or paying excessive dividends, these will result in:A.no action by debtholders since these are equity holder concerns.B.positive agency costs, as bondholders impose various restrictions and covenants which will diminish firm value.C.investments of the same risk class that the firm is in.D.undertaking scale enhancing projects.E.lower agency costs, as shareholders have more control over the firm's assets.27.Indirect costs of bankruptcy are born principally by:A.bondholders.B.stockholders.C.managers.D.the federal government.E.the firm's suppliers.28.The value of a firm in financial distress is diminished if the firm:A.is declared bankrupt and proceeds to be liquidated.B.is declared insolvent and undergoes financial reorganization.C.is a partnership.D.Both A and C.E.Both A and B.29.Covenants restricting the use of leasing and additional borrowings primarily protect:A.the equityholders from added risk of default.B.the debtholders from the added risk of dilution of their claims.C.the debtholders from the transfer of assets.D.the management from having to pay agency costs.E.None of the above.30.If a firm issues debt but writes protective and restrictive covenants into the loan contract, then the firm's debt may be issued at a _____ interest rate compared with otherwise similar debt.A.significantly higherB.slightly higherC.equalD.lowerE.Either A or B31.When graphing firm value against debt levels, the debt level that maximizes the value of the firm is the level where:A.the increase in the present value of distress costs from an additional dollar of debt is greater than the increase in the present value of the debt tax shield.B.the increase in the present value of distress costs from an additional dollar of debt is equal to the increase in the present value of the debt tax shield.C.the increase in the present value of distress costs from an additional dollar of debt is less than the increase of the present value of the debt tax shield.D.distress costs as well as debt tax shields are zero.E.distress costs as well as debt tax shields are maximized.32.When firms issue more debt, the tax shield on debt _____, the agency costs on debt(i.e., costs of financial distress) _____, and the agency costs on equity _____.A.increases; increase; increaseB.decreases; decrease; decreaseC.increases; increase; decreaseD.decreases; decrease; increaseE.increases; decrease; decrease33.The free cash flow hypothesis states:A.that firms with greater free cash flow will pay more in dividends reducing the risk of financial distress.B.that firms with greater free cash flow should issue new equity to force managers to minimize wasting resources and to work harder.C.that issuing debt requires interest and principal payments reducing the potential of management to waste resources.D.Both A and C.E.Both B and C.34.Issuing debt instead of new equity in a closely held firm more likely:A.causes the owner-manager to work less hard and shirk their duties as they have less capital at risk.B.causes the owner-manager to consume more perquisites because the cost is passed to the debtholders.C.causes both more shirking and perquisite consumption since the government provides a tax shield on debt.D.causes agency costs to fall as owner-managers do not need to worry about other shareholders.E.causes the owner-manager to reduce shirking andperquisite consumption as the excess cash flow must be used to meet debt payments.35.The pecking order states how financing should be raised. In order to avoid asymmetric information problems and misinterpretation of whether management is sending a signal on security overvaluation, the firm's first rule is to:A.finance with internally generated funds.B.always issue debt then the market won't know when management thinks the security is overvalued.C.issue new equity first.D.issue debt first.E.None of the above.36.Growth opportunities _______ the _____ of debt financing.A.increase; advantageB.decrease; advantageC.decrease; disadvantageD.Both A and CE.None of the above37.Which of the following industries would tend to have the highest leverage?A.Drugs/doc/2b821424.html,puterC.PaperD.ElectronicsE.Biological products38.The introduction of personal taxes may reveal a disadvantage to the use of debt if the:A.personal tax rate on the distribution of income to stockholders is less than the personal tax rate on interest income.B.personal tax rate on the distribution of income tostockholders is greater than the personal tax rate on interest income.C.personal tax rate on the distribution of income to stockholders is equal to the personal tax rate on interest income.D.personal tax rate on interest income is zero.E.None of the above.39.In Miller's model, when the quantity [(1 - T c)(1 - Ts) = (1 - Tb)], then:A.the firm should hold no debt.B.the value of the levered firm is greater than the value of the unlevered firm.C.the tax shield on debt is exactly offset by higher personal taxes paid on interest income.D.the tax shield on debt is exactly offset by higher levels of dividends.E.the tax shield on debt is exactly offset by higher capital gains.40.In a Miller equilibrium, what type of investments do high tax bracket investors tend to hold?A.BondsB.StocksC.DebenturesD.Both stocks and bonds.E.Neither stocks nor bonds.41.The TrunkLine Company will earn $60 in one year if it does well. The debtholders are promised payments of $35 in one year if the firm does well. If the firm does poorly, expected earnings in one year will be $30 and the repayment will be $20 because of the dead weight cost of bankruptcy. The probability of the firm performing poorly or well is 50%. If bondholders are fully awareof these costs what will they pay for the debt? The interest rate on the bonds is 10%.A.$25.00B.$27.50C.$29.55D.$32.50E.$35.0042.The TrunkLine Company debtholders are promised payments of $35 if the firm does well, but will receive only $20 if the firm does poorly. Bondholders are willing to pay $25. The promised return to the bondholders is approximately:A.2.9%B.16.9%C.27.3%D.40.0%E.100%43.An investment is available that pays a tax-free 6%. The corporate tax rate is 30%. Ignoring risk, what is the pre-tax return on taxable bonds?A.4.20%B.6.00%C.7.67%D.8.57%E.None of the above.44.Your firm has a debt-equity ratio of .60. Your cost of equity is 11% and your after-tax cost of debt is 7%. What will your cost of equity be if the target capital structure becomes a 50/50 mix of debt and equity?A.9.50%B.10.50%C.11.00%D.11.25%E.12.00%45.The Aggie Company has EBIT of $50,000 and market value debt of $100,000 outstanding with a 9% coupon rate. The cost of equity for an all equity firm would be 14%. Aggie has a 35% corporate tax rate. Investors face a 20% tax rate on debt receipts and a 15% rate on equity. Determine the value of Aggie.A.$120,000B.$162,948C.$258,537D.$263,080E.$332,14346.Given the following information, leverage will add how much value to the unlevered firm per dollar of debt?Corporate tax rate: 34%Personal tax rate on income from bonds: 30%Personal tax rate on income from stocks: 30%A.$-0.050B.$0.006C.$0.246D.$0.340E.$0.66047.Given the following information, leverage will add how much value to the unlevered firm per dollar of debt?Corporate tax rate: 34%Personal tax rate on income from bonds: 20%Personal tax rate on income from stocks: 0%A.$0.175B.$0.472C.$0.528D.$0.825E.None of the above48.Given the following information, leverage will add how much value to the unlevered firm per dollar of debt?Corporate tax rate: 34%Personal tax rate on income from bonds: 50%Personal tax rate on income from stocks: 10%A.$-0.050B.$-0.188C.$0.188D.$0.633E.None of the above49.Given the following information, leverage will add how much value to the unlevered firm per dollar of debt?Corporate tax rate: 34%Personal tax rate on income from bonds: 10%Personal tax rate on income from stocks: 50%A.$-0.050B.$-0.188C.$0.367D.$0.633E.None of the above50.The Aggie Company has EBIT of $70,000 and market value debt of $100,000 outstanding with a 9% coupon rate. The cost of equity for an all equity firm would be 14%. Aggie has a 35% corporate tax rate. Investors face a 20% tax rate on debt receipts and a 15% rate on equity. Determine the value of Aggie.A.$120,000B.$162,948C.$258,537D.$263,080E.$355,93851.Suppose a Miller equilibrium exists with a corporate tax rate of 30% and a personal tax rate on income from bonds of 35%. What is the personal tax rate on income from stocks?A.0.0%B.7.1%C.10.05%D.45.5%E.None of the above52.Given the following information, leverage will add how much value to the unlevered firm per dollar of debt?Corporate tax rate: 40%Personal tax rate on income from bonds: 20%Personal tax rate on income from stocks: 30%A.$-0.475B.$0.475C.$0.525D.$0.633E.None of the above。
英文版罗斯公司理财习题答案Chap001
英文版罗斯公司理财习题答案Chap001CHAPTER 1INTRODUCTION TO CORPORATE FINANCEAnswers to Concept Questions1.The three basic forms are sole proprietorships, partnerships, and corporations. The advantages anddisadvantages of sole proprietorships and partnerships are: Disadvantages: unlimited liability, limited life, difficulty in transferring ownership, hard to raise capital funds. Some advantages: simpler, less regulation, the owners are also the managers, sometimes personal tax rates are better than corporate tax rates. The primary disadvantage of the corporate form is the double taxation to shareholders of distributed earnings and dividends. Some advantages include: limited liability, ease of transferability, ability to raise capital, and unlimited life. When a business is started, most take the form ofa sole proprietorship or partnership.2.To maximize the current market value (share price) of the equity of the firm (whether it’s publiclytraded or not).3. In the corporate form of ownership, the shareholders are the owners of the firm. The shareholderselect the directors of the corporation, who in turn appoint the firm’s management. This separation of ownership from control in the corporate form of organization is what causes agency problems to exist. Management may act in its own or someone else’s best interests, rather than those of the shareholders. If such events occur, they may contradict the goal of maximizing the share price of the equity of the firm.4.Such organizations frequently pursue social or political missions, so many different goals areconceivable. One goal that is often cited is revenue minimization; i.e., provide whatever goods and services are offered at the lowest possible cost to society. A better approach might be to observe that even a not-for-profit business has equity. Thus, one answer is that the appropriate goal is to maximize the value of the equity.5.Presumably, the current stock value reflects the risk, timing, and magnitude of all future cash flows,both short-term and long-term. If this is correct, then the statement is false.6.An argument can be made either way. At the one extreme, we could argue that in a market economy,all of these things are priced. There is thus an optimal level of, for example, ethical and/or illegal behavior, and the framework of stock valuation explicitly includes these. At the other extreme, we could argue that these are non-economic phenomena and are best handled through the political process.A classic (and highly relevant) thought question that illustrates this debate goes something like this: “A firm has estimated that the cost of improving the safety of one of its products is $30 million. However, the firm believes that improving the safety of the product will only save $20 million in product liability claims. Wha t should the firm do?”7.The goal will be the same, but the best course of action toward that goal may be different because ofdiffering social, political, and economic institutions.8.The goal of management should be to maximize the share price for the current shareholders. Ifmanagement believes that it can improve the profitability of the firm so that the share price will exceed $35, then they should fight the offer from the outside company. If management believes that this bidder or other unidentified bidders will actually pay more than $35 per share to acquire the company, then they should still fight the offer. However, if the current management cannot increase the value of the firm beyond the bid price, and no other higher bids come in, then management is not acting in the interests of the shareholders by fighting the offer. Since current managers often lose their jobs when the corporation is acquired, poorly monitored managers have an incentive to fight corporate takeovers in situations such as this.9.We would expect agency problems to be less severe in other countries, primarily due to the relativelysmall percentage of individual ownership. Fewer individual owners should reduce the number of diverse opinions concerning corporate goals. The high percentage of institutional ownership might lead to a higher degree of agreement between owners and managers on decisions concerning risky projects. In addition, institutions may be better able to implement effective monitoring mechanisms on managers th an can individual owners, based on the institutions’ deeper resources and experiences with their own management. The increase in institutional ownership of stock in the United States and the growing activism of these large shareholder groups may lead to a reduction in agency problems for U.S. corporations and a more efficient market for corporate control.10. How much is too much? Who is worth more, Jack Welch or Tiger Woods? The simplest answer isthat there is a market for executives just as there is for alltypes of labor. Executive compensation is the price that clears the market. The same is true for athletes and performers. Having said that, one aspect of executive compensation deserves comment.A primary reason that executive compensation has grown so dramatically is that companies have increasingly moved to stock-based compensation.Such movement is obviously consistent with the attempt to better align stockholder and management interests. In recent years, stock prices have soared, so management has cleaned up. It is sometimes argued that much of this reward is simply due to rising stock prices in general, not managerial performance. Perhaps in the future, executive compensation will be designed to reward only differential performance, i.e., stock price increases in excess of general market increases.。
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Chapter 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.3. 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.6. 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 business debts 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 is called a:A. corporation.B. sole proprietorship.C. general partnership.D. limited partnership.E. unlimited liability company.Difficulty level: EasyTopic: CORPORATIONType: DEFINITIONS10. 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 the owners, 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.15. 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 cash flows 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 the cash flows of the firm.E. any person or entity other than a stockholder or creditor who potentially has a claim on the cash 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: CONCEPTS20. 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 States has: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 the firm.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: CONCEPTS24. Working capital management:A. ensures that sufficient equipment is available to produce the amount of product desired on a daily 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 pay company 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: CONCEPTS27. Which one of the following best describes the primary advantage of being a limited partner rather 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 a corporation.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: CONCEPTS30. 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: CONCEPTS33. 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: CONCEPTS37. Which one of the following business types is best suited to raising large amounts of capital?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 of a legal person?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 existing stock 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: CONCEPTS40. 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: CONCEPTS43. 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: CONCEPTS47. 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: CONCEPTS51. 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: CONCEPTS54. 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 receipt of cash flows.D. generally not the same because cash inflows occur before revenue recognition.E. Both c and d.。