Answers to Problems at the end of the Chapters
Chapter 9
9.2) Investment = $8.8 million
9.3) Cash Flow = $246 million
9.4) Net Income = $86,938
9.5) OCF = $184,762
9.6) OCF = $34,883.50
9.7) NWC increased by $6,750; Net cash flow = $8,585
9.8) OCF = $895,000
9.9) NPV = $49,638.99
9.10) NPV = $20,817
9.15) Payback = 2.82 years; NPV = $30,020.11; IRR = 15.67%
9.16) OCF = $291,300; NPV = $237,652.95; change in NPV = -18,575.33
9.17) Best Case NPV = $2,755,388.35; Worst case NPV = -$1,912,785.76
Chapter 10
10.1) Percentage total return = -20.36%
10.2) Dividend Yield = 2.83%; Capital gains yield = -23.19%
10.3) Total Return = 15.87%; Dividend yield = 2.83%; Capital gains yield = 13.04%
10.4) a. total dollar return = $70
b. total nominal rate of return = 7.25%
c. real rate of return = 2.14%
10.5) a. Average return = 13.0%
b. Average return in real terms = 9.5%
10.6) long-term government bonds = 2.33%
long-term corporate bonds = 2.81%
10.7) Average Return (X) = 5.6%
Standard Deviation (X) = .08877
Average Return (Y) = 11.0%
Standard Deviation (Y) = .2234
10.8) a. average return (small stocks) = 18.17%; T-bills = 4.97%
b. standard deviation (small stocks) = 21.10%? T-bills = 1.54%
10.9) a. 7.2% average return
b. Variance = .02187
Chapter 11
11.1) Weight (1) = .5357
Weight (2) = .4643
11.2) Expected return = .14
11.3) Expected return = .1535
11.4) H = $62,500
L = $37,500
11.5) Expected return = .206
11.6) expected return = .124
11.7) E(RA) = .088; standard deviation = .03919
E(RB) = .20; standard deviation = .2530
11.8) Portfolio?s expected return = .188
11.9) a. E(Rp) = .135
b. standard deviation = .00865
11.10) a. E(Rp) = .0865
b. variance = .00693
standard deviation = .0832
11.15) Beta P = 1.11
11.16) Beta = 1.6
11.17) E(R) = .188
11.18) beta = 1.67
11.19) E(R).16
11.20) Rt = .06
11.21) a. E(R) = .10
b. Weight = .3333
c. Beta = .6
d. Weight R = -1.0
Chapter 12
12.1) 12.06%
12.2) 15.00%
12.3) 15.64%
12.4) 13.4%
12.5) 8.75%
12.6) pretax cost = 7.435%
After tax cost = 4.833%
12.7) a. 8.504%
b. 5.272%
12.8) Book value = $100 million
Market value = $93.4 million
After-tax cost = 5.386%
12.9) a. 11.20%
12.10) 18.71%
12.11) D/E = .7988
12.12) a. E/V = .4395
D/V = .5605
b. E/V = .7072
D/V = .2928
12.13) 13.26%
12.14) a. 17.44%
b. 31.00%
12.15) 9.24%
12.16) a. E/V = .414
D/V = .496
P/V = .090
b. 8.90%
Chapter 16 ? Answers to questions not in back of book
16.2) Carrying cost will decrease because they are not holding goods in inventory. Shortage costs will probably increase depending on how close the suppliers are and how well they can estimate need. The operating cycle will decrease because the inventory period is increased.
16.4) Since the cash cycle equals the operating cycle minus the accounts payable period, it is not possible for the cash cycle to be longer than the operating cycle if the accounts payable period is positive. Moreover, it is unlikely that the accounts payable period would ever be negative since that implies the firm pays its bills before they are incurred.
16.6) a. $1400; $1,275; $1,325; %1,550
b. $1,200; $1,250; $1,333; $1,467
c. $1,600; $1,300; $1,317; $1,633
16.8) 17.8%
16.10) $520, $672, $596; $610
16.11) a. $60,000
b. $90,000
c. $79,500; $94,000; $112,000