Description
Please explain your answers and provide a copy of all work (including excels and formulas where
applicable). For short answers, each response should be approximately 250 words or more.
Unformatted Attachment Preview
1. What types of changes have financial markets experienced during the last two decades? Have
they been perceived as positive or negative changes? Explain.
2. What does double taxation of corporate income mean? Could income ever be subject to
triple taxation? Explain your answer.
3. Give some examples that illustrate how (a) seasonal factors and (b) different growth rates
might distort a comparative ratio analysis. How might these problems be alleviated? 4. What
does it mean when it is said that the United States is running a trade deficit? What impact will a
trade deficit have on interest rates?
5. What are the similarities and differences between corporate and government bonds?
6. Ratios: For all ratio questions, show your work with formulas.
a. DSO: Baxley Brothers has a DSO of 23 days, and its annual sales are $3,650,000. What is its
accounts receivable balance? Assume that it uses a 365-day year.
b. Thomson Trucking has $12 billion in assets, and its tax rate is 25%. Its basic earning power
(BEP) ratio is 10%, and its return on assets (ROA) is 5.25%. What is its times-interest-earned
(TIE) ratio?
c. The W.C. Pruett Corp. has $600,000 of interest-bearing debt outstanding, and it pays an
annual interest rate of 7%. In addition, it has $600,000 of common equity on its balance sheet.
It finances with only debt and common equity, so it has no preferred stock. Its annual sales are
$2.7 million, its average tax rate is 25%, and its profit margin is 7%. What are its TIE ratio and its
return on invested capital (ROIC)?
7. For (a) and (b) find the future values of the following ordinary annuities:
a. FV of $400 paid each 6 months for 5 years at a nominal rate of 12% compounded
semiannually.
b. FV of $200 paid each 3 months for 5 years at a nominal rate of 12% compounded quarterly.
c. These annuities receive the same amount of cash during the 5-year period and earn interest
at the same nominal rate, yet the annuity in part b ends up larger than the one in part. Why
does this occur?
8. Identify the different types of financial markets and financial institutions and explain how
these markets and institutions enhance capital allocation.
9. What are some actions that stockholders can take to ensure that managements and
stockholders’ interests are aligned?
10. What are the various forms of business organization? What are the advantages and
disadvantages of each?
11. Assume that you have a short investment horizon (less than 1 year). You are considering two
investments: a 1-year Treasury security and a 20-year Treasury security. Which of the two
investments would you view as being riskier? Explain.
12. The president of Southern Semiconductor Corporation (SSC) made this statement in the
company’s annual report: “SSC’s primary goal is to increase the value of our common
stockholders’ equity.” Later in the report, the following announcements were made:
a. The company contributed $1.5 million to the symphony orchestra in Birmingham, Alabama,
its headquarters city.
b. The company is spending $500 million to open a new plant and expand operations in Spain.
No profits will be produced by the Spanish operation for 4 years, so earnings will be depressed
during this period versus what they would have been had the decision been made not to
expand in Spain.
c. The company holds about half of its assets in the form of U.S. Treasury bonds, and it keeps
these funds available for use in emergencies. In the future, though, SSC plans to shift its
emergency funds from Treasury bonds to common stocks. Discuss how SSC’s stockholders might
view each of these actions and how the actions might affect the stock price.
Purchase answer to see full
attachment
