Answers Corporate Finance

In: English and Literature

Submitted By carolsnake
Words 2058
Pages 9
CHAPTER 10
CONCH REPUBLIC ELECTRONICS, PART 1

This is an in-depth capital budgeting problem. The initial cash outlay at Time 0 is simply the cost of the new equipment, $21,500,000. The sales each year are a combination of the sales of the new PDA, the lost sales each year, and the lost revenue. In this case, the lost sales are 15,000 units of the old PDA each year for two years at a price of $290 each. The company will also be forced to reduce the price of the old PDA on the units they will still sell for the next two years. So, the total change in sales is:

Sales = New sales – Lost sales – Lost revenue

Year 1 = (74,000 × $360) – (15,000 × $290) – [(80,000 – 15,000) × ($290 – 255)] = $20,015,000 Year 2 = (95,000 × $360) – (15,000 × $290) – [(60,000 – 15,000) × ($290 – 255)] = $28,275,000

| |Sales |Year 1 |Year 2 |Year 3 |Year 4 |Year 5 |
| |New |$26,640,000 |$34,200,000 |$45,000,000 |$37,800,000 |$28,800,000 |
| |Lost sales |–4,350,000 |–4,350,000 | | | |
| |Lost revenue |–2,275,000 |–1,575,000 | | | |
| |Net sales |$20,015,000 |$28,275,000 |$45,000,000 |$37,800,000 |$28,800,000 |
| | | | | | | |
| |VC | | | | | |
| |New…...

Similar Documents

Corporate Finance

...APPLIED CORPORATE FINANCE Assignment: 1 Submitted to: Sir Asif Malik Submitted by: ZAINAB HASSAN L12-5295 Section C Question A: The IPO process is characterized by information asymmetries. Explain how these asymmetries may be reduced through the book-building process. Answer: Information asymmetries exist in an IPO market as the insiders have more information about the issuing shares than the investors. Moreover, the investors as well as firms don’t have enough information about the market. There exists a greater asymmetry in IPO market as compared to secondary market because there is no former data available for it. These asymmetries are somewhat limited by using book-building process to float initial public offerings instead of public auctions. The book-building process, which was first examined in the academic literature by Benveniste and Spindt (1989) and Benveniste and Wilhelm (1990), involves shares issuing company, investors and the intermediaries which are generally the investment banks. The investment bank first decides the price range or band for the bidding and then invites investors to evaluate and perhaps buy the issue. Next, investors evaluate the issue and provide the investment bank with preliminary indications of their demand for the issue. Finally, the investment bank prices the issue and allocates shares to investors, generally allocating more shares to investors who indicate higher levels of......

Words: 2471 - Pages: 10

Corporate Finance

...designs. She also expects to invest substantial amounts of money through Balik and Kiefer. DellaTorre is very bright, and she would like to understand in general terms what will happen to her money. Your boss has developed the following set of questions you must answer to explain the U.S. financial system to DellaTorre. a. Why is corporate finance important to all managers? Corporate Finance is important to all managers because they are the ones who have to determine, assess, and mitigate/prevent risks that are financial in nature to the business. Every decision they make is affected by their ability to translate financial calculations into risks for the company. Without corporate finance, those managers will not be able to assist the company in garnering additional money for the company. b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form. As a company evolves from a start-up to a major corporation, it can have several organizational forms such as corporations, sole proprietorships, and partnerships. c. How do corporations go public and continue to grow? What are agency problems? What is corporate governance? d.What should be the primary objective of managers? (1)Do firms have any responsibilities to society at large? (2)Is stock price maximization good or bad for society? (3)Should firms behave ethically? e.What three aspects of cash flows......

Words: 496 - Pages: 2

Corporate Finance Answer

...organizational forms share this characteristic. 1-2. What does the phrase limited liability mean in a corporate context? Owners’ liability is limited to the amount they invested in the firm. Stockholders are not responsible for any encumbrances of the firm; in particular, they cannot be required to pay back any debts incurred by the firm. 1-3. Which organization forms give their owners limited liability? Corporations and limited liability companies give owners limited liability. Limited partnerships provide limited liability for the limited partners, but not for the general partners. 1-4. What are the main advantages and disadvantages of organizing a firm as a corporation? Advantages: Limited liability, liquidity, infinite life Disadvantages: Double taxation, separation of ownership and control 1-5. Explain the difference between an S corporation and a C corporation. C corporations much pay corporate income taxes; S corporations do not pay corporate taxes but must pass through the income to shareholders to whom it is taxable. S corporations are also limited to 75 shareholders and cannot have corporate or foreign stockholders. 1-6. You are a shareholder in a C corporation. The corporation earns $2 per share before taxes. Once it has paid taxes it will distribute the rest of its earnings to you as a dividend. The corporate tax rate is 40% and the personal tax rate on (both dividend and non-dividend) income is 30%. How much......

Words: 1042 - Pages: 5

Corporate Finance

...Acquisitions Corporate Governance Risk Management International Corporate Finance 1 4 16 26 50 69 89 106 123 134 148 166 175 184 193 202 216 225 244 253 263 274 300 306 310 317 324 331 337 340 352 ©2011 Pearson Education, Inc. Publishing as Prentice Hall Chapter 1 The Corporation 1-1. 1-2. What is the most important difference between a corporation and all other organization forms? A corporation is a legal entity separate from its owners. What does the phrase limited liability mean in a corporate context? Owners’ liability is limited to the amount they invested in the firm. Stockholders are not responsible for any encumbrances of the firm; in particular, they cannot be required to pay back any debts incurred by the firm. Which organization forms give their owners limited liability? Corporations and limited liability companies give owners limited liability. Limited partnerships provide limited liability for the limited partners, but not for the general partners. What are the main advantages and disadvantages of organizing a firm as a corporation? Advantages: Limited liability, liquidity, infinite life Disadvantages: Double taxation, separation of ownership and control Explain the difference between an S corporation and a C corporation. C corporations much pay corporate income taxes; S corporations do not pay corporate taxes but must pass through the income to shareholders to whom it is taxable. S corporations are also limited to 75 shareholders and cannot have......

Words: 121426 - Pages: 486

Corporate Finance

...MYERS ALLEN Principlesf of p of Corporate Finance TENTH EDITION Principles of Corporate Finance ● ● ● ● ● THE MCGRAW-HILL/IRWIN SERIES IN FINANCE, INSURANCE, AND REAL ESTATE Stephen A. Ross, Franco Modigliani Professor of Finance and Economics, Sloan School of Management, Massachusetts Institute of Technology, Consulting Editor Financial Management Adair Excel Applications for Corporate Finance First Edition Block, Hirt, and Danielsen Foundations of Financial Management Thirteenth Edition Brealey, Myers, and Allen Principles of Corporate Finance Tenth Edition Brealey, Myers, and Allen Principles of Corporate Finance, Concise Second Edition Brealey, Myers, and Marcus Fundamentals of Corporate Finance Sixth Edition Brooks FinGame Online 5.0 Bruner Case Studies in Finance: Managing for Corporate Value Creation Sixth Edition Chew The New Corporate Finance: Where Theory Meets Practice Third Edition Cornett, Adair, and Nofsinger Finance: Applications and Theory First Edition DeMello Cases in Finance Second Edition Grinblatt (editor) Stephen A. Ross, Mentor: Influence through Generations Grinblatt and Titman Financial Markets and Corporate Strategy Second Edition Higgins Analysis for Financial Management Ninth Edition Kellison Theory of Interest Third Edition Kester, Ruback, and Tufano Case Problems in Finance Twelfth Edition Ross, Westerfield, and Jaffe Corporate Finance Ninth Edition Ross, Westerfield, Jaffe, and Jordan Corporate Finance: Core Principles and Applications......

Words: 345254 - Pages: 1382

Corporate Finance

...Acquisitions Corporate Governance Risk Management International Corporate Finance 1 4 16 26 50 69 89 106 123 134 148 166 175 184 193 202 216 225 244 253 263 274 300 306 310 317 324 331 337 340 352 ©2011 Pearson Education, Inc. Publishing as Prentice Hall Chapter 1 The Corporation 1-1. 1-2. What is the most important difference between a corporation and all other organization forms? A corporation is a legal entity separate from its owners. What does the phrase limited liability mean in a corporate context? Owners’ liability is limited to the amount they invested in the firm. Stockholders are not responsible for any encumbrances of the firm; in particular, they cannot be required to pay back any debts incurred by the firm. Which organization forms give their owners limited liability? Corporations and limited liability companies give owners limited liability. Limited partnerships provide limited liability for the limited partners, but not for the general partners. What are the main advantages and disadvantages of organizing a firm as a corporation? Advantages: Limited liability, liquidity, infinite life Disadvantages: Double taxation, separation of ownership and control Explain the difference between an S corporation and a C corporation. C corporations much pay corporate income taxes; S corporations do not pay corporate taxes but must pass through the income to shareholders to whom it is taxable. S corporations are also limited to 75 shareholders and cannot have......

Words: 121426 - Pages: 486

Corporate Finance

...Corporate finance Suppose you decide to start a firm to make tennis balls. To do this, you hire managers to buy raw materials, and you assemble a workforce that will produce and sell finished tennis balls. In the language of finance, you make an investment in assets such as inventory, machinery, land, and labor. The amount of cash you invest in assets must be matched by an equal amount of cash raised by financing. When you begin to sell tennis balls, your firm will generate cash. This is the basis of value creation. The purpose of the firm is to create value for you, the owner. The firm must generate more cash flow than it uses. The value is reflected in the framework of the simple balance-sheet model of the firm. The Balance-Sheet Model of the Firm Suppose we take a financial snapshot of the firm and its activities at a single point in time. The assets of the firm are on the left-hand side of the balance sheet. These assets can be thought of as current and fixed. Fixed assets are those that will last a long time, such as buildings. Some fixed assets are tangible, such as machinery and equipment. Other fixed assets are intangible, such as patents, trademarks, and the quality of management. The other category of assets, current assets, comprises those that have short lives, such as inventory. The tennis balls that your firm has made but has not yet sold are part of its inventory. Unless you have overproduced, they will leave the firm shortly. Before a......

Words: 663 - Pages: 3

Corporate Finance

... CORPORATE FINANCE T H IRD E DIT ION JONATHAN BERK STANFORD UNIVERSITY PETER D E MARZO STANFORD UNIVERSITY Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo To Rebecca, Natasha, and Hannah, for the love and for being there —J. B. To Kaui, Pono, Koa, and Kai, for all the love and laughter —P. D. Editor in Chief: Donna Battista Acquisitions Editor: Katie Rowland Executive Development Editor: Rebecca Ferris-Caruso Editorial Project Manager: Emily Biberger Managing Editor: Jeff Holcomb Senior Production Project Manager: Nancy Freihofer Senior Manufacturing Buyer: Carol Melville Cover Designer: Jonathan Boylan Cover Photo: Nikreates/Alamy Media Director: Susan Schoenberg Content Lead, MyFinanceLab: Miguel Leonarte Executive Media Producer: Melissa Honig Project Management and Text Design: Gillian Hall, The Aardvark Group Composition and Artwork: Laserwords Printer/Binder: R.R. Donnelley/Jefferson City Cover Printer: Lehigh Phoenix Text Font: Adobe Garamond Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on the appropriate page within text and on this copyright page. Credits: Cover: Sculpture in photo: Detail of Flamingo (1973), Alexander Calder. Installed in Federal Plaza, Chicago. Sheet metal and paint, 1615.4 x 1828.8 x......

Words: 129205 - Pages: 517

Corporate Finance

...Brealey−Meyers: Principles of Corporate Finance, Seventh Edition Front Matter © The McGraw−Hill Companies, 2003 Preface PREFACE This book describes the theory and practice of corpo- Once understood, good theory is common sense. rate finance. We hardly need to explain why financial Therefore we have tried to present it at a common- managers should master the practical aspects of their sense level, and we have avoided proofs and heavy job, but we should spell out why down-to-earth, red- mathematics. There are no ironclad prerequisites for blooded managers need to bother with theory. reading this book except algebra and the English language. An elementary knowledge of accounting, sta- Managers learn from experience how to cope tistics, and microeconomics is helpful, however. with routine problems. But the best managers are also able to respond to change. To do this you need more than time-honored rules of thumb; you must CHANGES IN THE SEVENTH EDITION understand why companies and financial markets This book is written for students of financial man- behave the way they do. In other words, you need a agement. For many readers, it is their first look at the theory of finance. world of finance. Therefore in each edition we strive Does that sound intimidating? It shouldn’t. to make the book simpler, clearer, and more fun to Good theory helps you grasp what is going on in read. But the book is also......

Words: 316669 - Pages: 1267

Finc600 Corporate Finance Midterm Exam Answers

...FINC600 Corporate Finance Midterm Exam Answers http://homeworkfy.com/downloads/finc600-corporate-finance-midterm-exam-answers/ To Get this Tutorial Copy & Paste above URL Into Your Browser Hit Us Email for Any Inquiry at: Homeworkfy@gmail.com Visit our Site for More Tutorials: (http://homeworkfy.com/ ) FINC600 Corporate Finance Mid Term Question 1 of 25 The concept of compound interest is most appropriately described as: A.Interest earned on an investment B.The total amount of interest earned over the life of an investment C.Interest earned on interest 1. None of the above Question 2 of 25 Which of the following investment rules does not use the time value of the money concept? A.Net present value B.Internal rate of return C.The payback period D.All of the above use the time value concept Question 3 of 25 The unique risk is also called the: A.Unsystematic risk B.Diversifiable risk C.Firm specific risk D.All of the above Question 4 of 25 What are some of the important points to remember while estimating the cash flows of a project? The most important points are 1) They are estimates. So there can be deviations 2) Some huge loss may completely change the return from product. 3) Other risks like market risks, reinvestment risk etc. may affect the cash flow pattern Feedback: • Estimate after-tax cash flows on an incremental basis. • Include all incidental effects. • Include working capital requirements.......

Words: 1565 - Pages: 7

Finc600 Corporate Finance Midterm Exam Answers

...FINC600 Corporate Finance Midterm Exam Answers To Buy this tutorial Copy & paste below link in your Brower http://homeworkregency.com/downloads/finc600-corporate-finance-midterm-exam-answers/ Or Visit Our Website Visit : http://www.homeworkregency.com Email Us : homeworkregency@gmail.com FINC600 Corporate Finance Midterm Exam Answers FINC600 Corporate Finance Mid Term Question 1 of 25 The concept of compound interest is most appropriately described as: A.Interest earned on an investment B.The total amount of interest earned over the life of an investment C.Interest earned on interest 1. None of the above Question 2 of 25 Which of the following investment rules does not use the time value of the money concept? A.Net present value B.Internal rate of return C.The payback period D.All of the above use the time value concept Question 3 of 25 The unique risk is also called the: A.Unsystematic risk B.Diversifiable risk C.Firm specific risk D.All of the above Question 4 of 25 What are some of the important points to remember while estimating the cash flows of a project? The most important points are 1) They are estimates. So there can be deviations 2) Some huge loss may completely change the return from product. 3) Other risks like market risks, reinvestment risk etc. may affect the cash flow pattern Feedback: • Estimate after-tax cash flows on an incremental basis. • Include all incidental......

Words: 1566 - Pages: 7

Corporate Finance

...problems are segregated into three learning levels: Basic, Intermediate, and Challenge. All problems are fully annotated so that students and instructors can readily identify particular types. Answers to selected end-of-chapter material appear in Appendix C. See Chapter 6, page 191; Chapter 9, page 305. New! What’s on the Web? These end-of-chapter activities show students how to use and learn from the vast amount of financial resources available on the Internet. See examples in Chapter 1, page 22; Chapter 4, page 126. New! S&P Market Insight Problems Most chapters include two or three new end-of-chapter problems that require the use of the Educational Version of Market Insight, Standard & Poor’s powerful and well- known Compustat® database. These problems provide an easy, online way for students to incorporate current, real-world data into their learning. See examples in Chapter 3, page 92; Chapter 4, page 125. xv Basic (continued ) Intermediate (Questions 19–20) Challenge (Questions 21–23) c. If you apply the NPV criterion, which investment will you choose? Why? d. If you apply the IRR criterion, which investment will you choose? Why? e. If you apply the profitability index criterion, which investment will you choose? Why? f. Based on your answers in (a) through (e), which project will you finally choose? Why? 18. NPV and Discount Rates An investment has an installed cost of $412,670. The cash flows over the four-year life of the......

Words: 1125 - Pages: 5

Corporate Finance

...Continuing and Professional Studies Fundamentals of Corporate Finance New York University School of Continuing & Professional Studies Course #X51.9140 Spring 2011 James Berman 212.388.9873 jberman@jbglobal.com Description: In this introduction to corporate finance, emphasis is on utilizing long-term debt, preferred stock, common stock, and convertibles in the financial structure of a corporation. Learn to analyze methods of financing using internal and external funds. Topics include: financial management; corporate growth; business failures; return on investment; risk leverage; the time value of money; dividend policy; debt policy; and leasing. Instructor Biography: James Berman, the president and founder of JBGlobal.com LLC, a Registered Investment Advisory Firm, specializes in asset management for high-net-worth individuals and trusts. With over thirteen years of experience managing client portfolios, Mr. Berman is a professional analyst of financial vehicles, including equity and bond mutual funds, and is an expert in global investment, asset allocation and modern portfolio theory. As the president of JBGlobal LLC, the general partner of the JBGlobal Fund LP, Mr. Berman manages a global equities fund that invests in the United States, Europe and Asia. Mr. Berman is a faculty member in the Finance Department of the NYU School of Continuing and Professional Studies where he teaches corporate finance. He serves as sub-advisor to Eitan Ventures......

Words: 1595 - Pages: 7

Corporate Finance

...Objectives Corporate finance in emerging markets is a complex field for managers and academics. Most of the models used in investments and corporate finance have been developed under the assumption of at least moderately efficient markets, but this assumption seems to be questionable when moving to less developed markets. Emerging markets are not efficient markets; they are characterized by higher information asymmetries, higher transaction costs, more concentrated ownership, lack of market development, relatively low market liquidity, etc. Additionally, there are relevant differences in terms of suitability for the use of standard corporate finance techniques in the context of small and medium private enterprises. The present survey examines capital budgeting, cost of capital, capital structure and dividend policy decision of the four firms namely Schmit telecom, Sanehwal fasteners, LPS limited and Bharathi Soap works. The study analyses the responses conditional on firm characteristics. It examines the relationship of the executives' response with firm size, profitability, risk, growth, CFO's education, and the sector. By testing whether responses differ across these characteristics, the study throws light on the implications of various finance theories concerning firm size, risk, and growth. The survey also given us the knowledge about practices followed by different companies depending on the sector in which they exist. Market position has also played significant......

Words: 3838 - Pages: 16

Corporate Finance

...An Overview of Corporate Finance and the Financial Environment In a beauty contest for companies, the winner is . . . General Electric. 11 Or at least General Electric is the most admired company in America, according to Fortune magazine’s annual survey. The other top ten finalists are Cisco Systems, WalMart Stores, Southwest Airlines, Microsoft, Home Depot, Berkshire Hathaway, Charles Schwab, Intel, and Dell Computer. What do these companies have that separates them from the rest of the pack? According to more than 4,000 executives, directors, and security analysts, these companies have the highest average scores across eight attributes: (1) innovativeness, (2) quality of management, (3) employee talent, (4) quality of products and services, (5) long-term investment value, (6) financial soundness, (7) social responsibility, and (8) use of corporate assets. These companies also have an incredible focus on using technology to reduce costs, to reduce inventory, and to speed up product delivery. For example, workers at Dell previously touched a computer 130 times during the assembly process but now touch it only 60 times. Using point-of-sale data, Wal-Mart is able to identify and meet surSee http://www.fortune. com for updates on the U.S. prising customer needs, such as bagels in Mexico, smoke detectors in Brazil, and house ranking. Fortune also ranks paint during the winter in Puerto Rico. Many of these companies are changing the way the Global Most Admired. business works...

Words: 351447 - Pages: 1406