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