Essentials of corporate finance 2nd edition answers

Consequently, net income is NOT the same as cash flow. Noncash Items The largest noncash deduction for most firms is depreciation.

Time and Costs In the short run, some costs are fixed regardless of output, and other costs are variable, meaning they vary with the level of output. In the long run, all costs are variable. Tax liability:. Table 2. The first equation shows the cash flow that the firm receives from its assets. Market vs. Example: Marginal vs. Slide 2. Market value of net fixed assets Book value of net fixed assets Book value of current liabilities Net working capital Market value of current assets.

Cash Patents and copyrights Accounts payable Accounts receivable Tangible net fixed assets Inventory Notes payable Accumulated retained earnings Long-term debt. Chapter 2 Question 18 Input area: Corporation growth taxable income Corporation income taxable income. Sales Costs of goods sold Administrative and selling expenses Depreciation expense Interest expense. New information: Cash dividend New investment in net fixed income New investment in net working capital New stock issued during year Net capital spending Net new equity.

A firm can still pay out dividends if net income is negative; it just has to be sure there is sufficient cash flow to make dividend payments. Download TestGen testbank file - Mac sit 0. Glen Arnold is a businessman, investor and professor of investment at the University of Salford. We're sorry! We don't recognize your username or password. Please try again. The work is protected by local and international copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning.

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Glen Arnold, Salford University. If you're an educator Request a copy Buy this product Download instructor resources Alternative formats. This E-mail is already registered as a Premium Member with us. Kindly login to access the content at no cost. This E-mail is already registered with us. Request a Book. Flag Content. Solutions for Corporate Finance - 2nd Edition. All 31 Chapters Covered. Access Solutions. Related Guides.

Foundations of Financial Management, 15th Edition Answers. You will need to own one-half of the shares, plus one share, in order to guarantee enough votes to win the election. If the company uses cumulative voting, the board of directors are all elected at once. The price of the bond today is the present value of the expected price in one year.

If the bond is callable, then the bond value will be less than the amount computed in part a. If the bond price rises above the call price, the company will call it. Therefore, bondholders will not pay as much for a callable bond. First, we need to find the expected price in one year.

If interest rates rise, the price of the bonds will fall. If the price of the bonds is low, the company will not call them. The firm would be foolish to pay the call price for something worth less than the call price. In this case, the bondholders will receive the coupon payment, C, plus the present value of the remaining payments.

In this case, the bondholders will receive the call price, plus the coupon payment, C. To find the coupon rate, we can set the desired issue price equal to the present value of the expected value of end of year payoffs, and solve for C. To the company, the value of the call provision will be given by the difference between the value of an outstanding, non-callable bond and the call provision. The company should refund when the NPV of refunding is greater than zero, so we need to find the interest rate that results in a zero NPV.

The NPV of the refunding is the difference between the gain from refunding and the refunding costs. The gain from refunding is the bond value times the difference in the interest rate, discounted to the present value. The NPV of each decision is the gain minus the cost. Challenge To calculate this, we need to set up an equation with the callable bond equal to a weighted average of the noncallable bonds. We will invest X percent of our money in the first noncallable bond, which means our investment in Bond 3 the other noncallable bond will be 1 — X.

This combination of bonds should have the same value as the callable bond, excluding the value of the call. In general, this is not likely to happen, although it can and did. The reason that this bond has a negative YTM is that it is a callable U. Treasury bond.