Cfin 4 Chapter 2 Homework Questions

Scott Besley, University of South Florida

Dr. Scott Besley is Associate Professor and Chair of the Department of Finance at the University of South Florida. He earned his DBA and MBA degrees from Florida State University. A well-respected author and instructor, Dr. Besley has published numerous research articles in various academic journals and has co-authored two of the leading textbooks in corporate finance that are used at universities around the world. His research interests include areas of corporate finance, working capital management, governance, and investment anomalies. A frequently requested presenter at professional conferences, Dr. Besley is actively involved in numerous finance and professional organizations. When he is not teaching or pursuing research interests, he is heavily involved in his local community.

Eugene Brigham, University of Florida

Dr. Eugene F. Brigham is Graduate Research Professor Emeritus at the University of Florida, where he has taught since 1971. He earned his MBA and Ph.D. from the University of California–Berkeley and his undergraduate degree from the University of North Carolina. Prior to joining the University of Florida, Dr. Brigham held teaching positions at the University of Connecticut, the University of Wisconsin, and the University of California–Los Angeles. A former president of the Financial Management Association, he has written more than 40 journal articles on the cost of capital, capital structure, and other aspects of financial management. He authored or co-authored ten textbooks on managerial finance and managerial economics that have also been translated into 11 languages worldwide. In addition, Dr. Brigham has served as a consultant to many corporations and government agencies.

APPENDIX B Answers to End-of-Chapter Problems We present here some intermediate steps and final answers to selected end-of-chapter problems. Please note that your answer may differ slightly from ours because of rounding differences. Also, although we hope not, some of the problems may have more than one correct solution, depending on what assumptions are made when working the problem. Finally, many of the problems involve some verbal discussion as well as numerical calculations; this verbal material is not presented here. 2-1 5.8%. 2-2 25%. 2-3 $1,000,000. 2-4 $2,500,000. 2-5 $3,600,000. 2-6 $20,000,000. 2-7 Tax = $107,855; NI = $222,145; Marginal tax rate = 39%; Average tax rate = 33.8%. 2-8 a. Tax = $3,575,000. b. Tax = $350,000. c. Tax = $105,000. 2-9 AT&T bond = 4.875%; 5.37%; Florida bond = 5%. 2-10 NI = $450,000; NCF = $650,000. 2-11 a. $2,400,000. b. NI = $0; NCF = $3,000,000. c. NI = $1,350,000; NCF = $2,100,000. 2-12 a. NOPAT = $756 million. b. NOWC 09 = $3.0 billion; NOWC 10 = $3.3 billion. c. Op. capital 09 = $6.5 billion; Op. capital 10 = $7.15 billion. d. FCF = $106 million. e. ROIC = 10.57%. f. Answers in millions: A-T int. = $72. Inc. in debt =-$284. Div. = $220. Rep. stock = $88. Purch. ST inv. = $10. 2-13 Refund = $120,000. Future taxes = $0; $0; $40,000; $60,000; $60,000. 3-1 AR = $400,000. 3-2 D/A = 60%. 3-3 M/B = 10. 3-4 P/E = 16.0. 3-5 ROE = 12%. 3-6 S/TA = 5; TA/E = 1.5. 3-7 CL = $2,000,000; Inv = $1,000,000. 3-8 Net profit margin = 2%; D/A = 40%. 3-9 $262,500; 1.19. 3-10 TIE = 3.86. 3-11 A/P = $90,000; Inv. = $90,000; FA = $138,000. 3-12 Sales = $2,592,000; DSO = 36.33 days. 3-13 a. Current ratio = 1.98; DSO = 76 days; TA turnover = 1.7; Debt ratio = 61.9%. 3-14 a. Quick ratio = 0.8; DSO = 37 days; ROE = 13.1%; Debt ratio = 54.8%. 4-1 FV 5 = $16,105.10. 4-2 PV = $1,292.10. 4-3 I/YR = 8.01%. 4-4 N = 11.01 years. 4-5 N = 11 years. 4-6 FVA 5 = $1,725.22; FVA 5 Due = $1,845.99. 753

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