英文版罗斯公司理财习题答案Chap020

罗斯《公司理财》第9版精要版英文原书课后部分章节答案详细»1 / 17 CH5 11，13，18，19，20 11. To find the PV of a lump sum, we use: PV = FV / (1 + r) t PV = $1,000,000 / (1.10) 80 = $488.19 13. To answer this question, we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is: FV = PV(1 + r) t Solving for r, we get: r = (FV / PV) 1 / t –1 r = ($1,260,000 / $150) 1/112 – 1 = .0840 or 8.40% To find the FV of the first prize, we use: FV = PV(1 + r) t FV = $1,260,000(1.0840) 33 = $18,056,409.94 18. To find the FV of a lump sum, we use: FV = PV(1 + r) t FV = $4,000(1.11) 45 = $438,120.97 FV = $4,000(1.11) 35 = $154,299.40 Better start early! 19. We need to find the FV of a lump sum. However, the money will only be invested for six years, so the number of periods is six. FV = PV(1 + r) t FV = $20,000(1.084)6 = $32,449.33 20. To answer this question, we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is: FV = PV(1 + r) t Solving for t, we get: t = ln(FV / PV) / ln(1 + r) t = ln($75,000 / $10,000) / ln(1.11) = 19.31 So, the money must be invested for 19.31 years. However, you will not receive the money for another two years. From now, you’ll wait: 2 years + 19.31 years = 21.31 years CH6 16，24，27，42，58 16. For this problem, we simply need to find the FV of a lump sum using the equation: FV = PV(1 + r) t 2 / 17 It is important to note that compounding occurs semiannually. To account for this, we will divide the interest rate by two (the number of compounding periods in a year), and multiply the number of periods by two. Doing so, we get: FV = $2,100[1 + (.084/2)] 34 = $8,505.93 24. This problem requires us to find the FVA. The equation to find the FVA is: FV A = C{[(1 + r) t – 1] / r} FV A = $300[{[1 + (.10/12) ] 360 – 1} / (.10/12)] = $678,146.38 27. The cash flows are annual and the compounding period is quarterly, so we need to calculate the EAR to make the interest rate comparable with the timing of the cash flows. Using the equation for the EAR, we get: EAR = [1 + (APR / m)] m – 1 EAR = [1 + (.11/4)] 4 – 1 = .1146 or 11.46% And now we use the EAR to find the PV of each cash flow as a lump sum and add them together: PV = $725 / 1.1146 + $980 / 1.1146 2 + $1,360 / 1.1146 4 = $2,320.36 42. The amount of principal paid on the loan is the PV of the monthly payments you make. So, the present value of the $1,150 monthly payments is: PVA = $1,150[(1 – {1 / [1 + (.0635/12)]} 360 ) / (.0635/12)] = $184,817.42 The monthly payments of $1,150 will amount to a principal payment of $184,817.42. The amount of principal you will still owe is: $240,000 – 184,817.42 = $55,182.58 This remaining principal amount will increase at the interest rate on the loan until the end of the loan period. So the balloon payment in 30 years, which is the FV of the remaining principal will be: Balloon payment = $55,182.58[1 + (.0635/12)] 360 = $368,936.54 58. To answer this question, we should find the PV of both options, and compare them. Since we are purchasing the car, the lowest PV is the best option. The PV of the leasing is simply the PV of the lease payments, plus the $99. The interest rate we would use for the leasing option is the same as the interest rate of the loan. The PV of leasing is: PV = $99 + $450{1 –[1 / (1 + .07/12) 12(3) ]} / (.07/12) = $14,672.91 The PV of purchasing the car is the current price of the car minus the PV of the resale price. The PV of the resale price is: PV = $23,000 / [1 + (.07/12)] 12(3) = $18,654.82 The PV of the decision to purchase is: $32,000 – 18,654.82 = $13,345.18 3 / 17 In this case, it is cheaper to buy the car than leasing it since the PV of the purchase cash flows is lower. To find the breakeven resale price, we need to find the resale price that makes the PV of the two options the same. In other words, the PV of the decision to buy should be: $32,000 – PV of resale price = $14,672.91 PV of resale price = $17,327.09 The resale price that would make the PV of the lease versus buy decision is the FV ofthis value, so: Breakeven resale price = $17,327.09[1 + (.07/12)] 12(3) = $21,363.01 CH7 3，18，21，22，31 3. The price of any bond is the PV of the interest payment, plus the PV of the par value. Notice this problem assumes an annual coupon. The price of the bond will be: P = $75({1 – [1/(1 + .0875)] 10 } / .0875) + $1,000[1 / (1 + .0875) 10 ] = $918.89 We would like to introduce shorthand notation here. Rather than write (or type, as the case may be) the entire equation for the PV of a lump sum, or the PV A equation, it is common to abbreviate the equations as: PVIF R,t = 1 / (1 + r) t which stands for Present Value Interest Factor PVIFA R,t = ({1 – [1/(1 + r)] t } / r ) which stands for Present Value Interest Factor of an Annuity These abbreviations are short hand notation for the equations in which the interest rate and the number of periods are substituted into the equation and solved. We will use this shorthand notation in remainder of the solutions key. 18. The bond price equation for this bond is: P 0 = $1,068 = $46(PVIFA R%,18 ) + $1,000(PVIF R%,18 ) Using a spreadsheet, financial calculator, or trial and error we find: R = 4.06% This is the semiannual interest rate, so the YTM is: YTM = 2 4.06% = 8.12% The current yield is: Current yield = Annual coupon payment / Price = $92 / $1,068 = .0861 or 8.61% The effective annual yield is the same as the EAR, so using the EAR equation from the previous chapter: Effective annual yield = (1 + 0.0406) 2 – 1 = .0829 or 8.29% 20. Accrued interest is the coupon payment for the period times the fraction of the period that has passed since the last coupon payment. Since we have a semiannual coupon bond, the coupon payment per six months is one-half of the annual coupon payment. There are four months until the next coupon payment, so two months have passed since the last coupon payment. The accrued interest for the bond is: Accrued interest = $74/2 × 2/6 = $12.33 And we calculate the clean price as: 4 / 17 Clean price = Dirty price –Accrued interest = $968 –12.33 = $955.67 21. Accrued interest is the coupon payment for the period times the fraction of the period that has passed since the last coupon payment. Since we have a semiannual coupon bond, the coupon payment per six months is one-half of the annual coupon payment. There are two months until the next coupon payment, so four months have passed since the last coupon payment. The accrued interest for the bond is: Accrued interest = $68/2 × 4/6 = $22.67 And we calculate the dirty price as: Dirty price = Clean price + Accrued interest = $1,073 + 22.67 = $1,095.67 22. To find the number of years to maturity for the bond, we need to find the price of the bond. Since we already have the coupon rate, we can use the bond price equation, and solve for the number of years to maturity. We are given the current yield of the bond, so we can calculate the price as: Current yield = .0755 = $80/P 0 P 0 = $80/.0755 = $1,059.60 Now that we have the price of the bond, the bond price equation is: P = $1,059.60 = $80[(1 – (1/1.072) t ) / .072 ] + $1,000/1.072 t We can solve this equation for t as follows: $1,059.60(1.072) t = $1,111.11(1.072) t –1,111.11 + 1,000 111.11 = 51.51(1.072) t 2.1570 = 1.072 t t = log 2.1570 / log 1.072 = 11.06 11 years The bond has 11 years to maturity.31. The price of any bond (or financial instrument) is the PV of the future cash flows. Even though Bond M makes different coupons payments, to find the price of the bond, we just find the PV of the cash flows. The PV of the cash flows for Bond M is: P M = $1,100(PVIFA 3.5%,16 )(PVIF 3.5%,12 ) + $1,400(PVIFA 3.5%,12 )(PVIF 3.5%,28 ) + $20,000(PVIF 3.5%,40 ) P M = $19,018.78 Notice that for the coupon payments of $1,400, we found the PV A for the coupon payments, and then discounted the lump sum back to today. Bond N is a zero coupon bond with a $20,000 par value, therefore, the price of the bond is the PV of the par, or: P N = $20,000(PVIF 3.5%,40 ) = $5,051.45 CH8 4，18，20，22，24 4. Using the constant growth model, we find the price of the stock today is: P 0 = D 1 / (R – g) = $3.04 / (.11 – .038) = $42.22 5 / 17 18. The priceof a share of preferred stock is the dividend payment divided by the required return. We know the dividend payment in Year 20, so we can find the price of the stock in Year 19, one year before the first dividend payment. Doing so, we get: P 19 = $20.00 / .064 P 19 = $312.50 The price of the stock today is the PV of the stock price in the future, so the price today will be: P 0 = $312.50 / (1.064) 19 P 0 = $96.15 20. We can use the two-stage dividend growth model for this problem, which is: P 0 = [D 0 (1 + g 1 )/(R – g 1 )]{1 – [(1 + g 1 )/(1 + R)] T }+ [(1 + g 1 )/(1 + R)] T [D 0 (1 + g 2 )/(R –g 2 )] P 0 = [$1.25(1.28)/(.13 – .28)][1 –(1.28/1.13) 8 ] + [(1.28)/(1.13)] 8 [$1.25(1.06)/(.13 – .06)] P 0 = $69.55 22. We are asked to find the dividend yield and capital gains yield for each of the stocks. All of the stocks have a 15 percent required return, which is the sum of the dividend yield and the capital gains yield. To find the components of the total return, we need to find the stock price for each stock. Using this stock price and the dividend, we can calculate the dividend yield. The capital gains yield for the stock will be the total return (required return) minus the dividend yield. W: P 0 = D 0 (1 + g) / (R – g) = $4.50(1.10)/(.19 – .10) = $55.00 Dividend yield = D 1 /P 0 = $4.50(1.10)/$55.00 = .09 or 9% Capital gains yield = .19 – .09 = .10 or 10% X: P 0 = D 0 (1 + g) / (R – g) = $4.50/(.19 – 0) = $23.68 Dividend yield = D 1 /P 0 = $4.50/$23.68 = .19 or 19% Capital gains yield = .19 – .19 = 0% Y: P 0 = D 0 (1 + g) / (R – g) = $4.50(1 – .05)/(.19 + .05) = $17.81 Dividend yield = D 1 /P 0 = $4.50(0.95)/$17.81 = .24 or 24% Capital gains yield = .19 – .24 = –.05 or –5% Z: P 2 = D 2 (1 + g) / (R – g) = D 0 (1 + g 1 ) 2 (1 +g 2 )/(R – g 2 ) = $4.50(1.20) 2 (1.12)/(.19 – .12) = $103.68 P 0 = $4.50 (1.20) / (1.19) + $4.50(1.20) 2 / (1.19) 2 + $103.68 / (1.19) 2 = $82.33 Dividend yield = D 1 /P 0 = $4.50(1.20)/$82.33 = .066 or 6.6% Capital gains yield = .19 – .066 = .124 or 12.4% In all cases, the required return is 19%, but the return is distributed differently between current income and capital gains. High growth stocks have an appreciable capital gains component but a relatively small current income yield; conversely, mature, negative-growth stocks provide a high current income but also price depreciation over time. 24. Here we have a stock with supernormal growth, but the dividend growth changes every year for the first four years. We can find the price of the stock in Year 3 since the dividend growth rate is constant after the third dividend. The price of the stock in Year 3 will be the dividend in Year 4, divided by the required return minus the constant dividend growth rate. So, the price in Year 3 will be: 6 / 17 P 3 = $2.45(1.20)(1.15)(1.10)(1.05) / (.11 – .05) = $65.08 The price of the stock today will be the PV of the first three dividends, plus the PV of the stock price in Year 3, so: P 0 = $2.45(1.20)/(1.11) + $2.45(1.20)(1.15)/1.11 2 + $2.45(1.20)(1.15)(1.10)/1.11 3 + $65.08/1.11 3 P 0 = $55.70 CH9 3，4，6，9，15 3. Project A has cash flows of $19,000 in Year 1, so the cash flows are short by $21,000 of recapturing the initial investment, so the payback for Project A is: Payback = 1 + ($21,000 / $25,000) = 1.84 years Project B has cash flows of: Cash flows = $14,000 + 17,000 + 24,000 = $55,000 during this first three years. The cash flows are still short by $5,000 of recapturing the initial investment, so the payback for Project B is: B: Payback = 3 + ($5,000 / $270,000) = 3.019 years Using the payback criterion and a cutoff of 3 years, accept project A and reject project B. 4. When we use discounted payback, we need to find the value of all cash flows today. The value today of the project cash flows for the first four years is: Value today of Year 1 cash flow = $4,200/1.14 = $3,684.21 Value today of Year 2 cash flow = $5,300/1.14 2 = $4,078.18 Value today of Year 3 cash flow = $6,100/1.14 3 = $4,117.33 V alue today of Year 4 cash flow = $7,400/1.14 4 = $4,381.39 To find the discounted payback, we use these values to find the payback period. The discounted first year cash flow is $3,684.21, so the discounted payback for a $7,000 initial cost is: Discounted payback= 1 + ($7,000 – 3,684.21)/$4,078.18 = 1.81 years For an initial cost of $10,000, the discounted payback is: Discounted payback = 2 + ($10,000 –3,684.21 – 4,078.18)/$4,117.33 = 2.54 years Notice the calculation of discounted payback. We know the payback period is between two and three years, so we subtract the discounted values of the Year 1 and Year 2 cash flows from the initial cost. This is the numerator, which is the discounted amount we still need to make to recover our initial investment. We divide this amount by the discounted amount we will earn in Year 3 to get the fractional portion of the discounted payback. If the initial cost is $13,000, the discounted payback is: Discounted payback = 3 + ($13,000 – 3,684.21 – 4,078.18 – 4,117.33) / $4,381.39 = 3.26 years 7 / 17 6. Our definition of AAR is the average net income divided by the average book value. The average net income for this project is: Average net income = ($1,938,200 + 2,201,600 + 1,876,000 + 1,329,500) / 4 = $1,836,325 And the average book value is: Average book value = ($15,000,000 + 0) / 2 = $7,500,000 So, the AAR for this project is: AAR = Average net income / Average book value = $1,836,325 / $7,500,000 = .2448 or 24.48% 9. The NPV of a project is the PV of the outflows minus the PV of the inflows. Since the cash inflows are an annuity, the equation for the NPV of this project at an 8 percent required return is: NPV = –$138,000 + $28,500(PVIFA 8%, 9 ) = $40,036.31 At an 8 percent required return, the NPV is positive, so we would accept the project. The equation for the NPV of the project at a 20 percent required return is: NPV = –$138,000 + $28,500(PVIFA 20%, 9 ) = –$23,117.45 At a 20 percent required return, the NPV is negative, so we would reject the project. We would be indifferent to the project if the required return was equal to the IRR of the project, since at that required return the NPV is zero. The IRR of the project is: 0 = –$138,000 + $28,500(PVIFA IRR, 9 ) IRR = 14.59% 15. The profitability index is defined as the PV of the cash inflows divided by the PV of the cash outflows. The equation for the profitability index at a required return of 10 percent is: PI = [$7,300/1.1 + $6,900/1.1 2 + $5,700/1.1 3 ] / $14,000 = 1.187 The equation for the profitability index at a required return of 15 percent is: PI = [$7,300/1.15 + $6,900/1.15 2 + $5,700/1.15 3 ] / $14,000 = 1.094 The equation for the profitability index at a required return of 22 percent is: PI = [$7,300/1.22 + $6,900/1.22 2 + $5,700/1.22 3 ] / $14,000 = 0.983 8 / 17 We would accept the project if the required return were 10 percent or 15 percent since the PI is greater than one. We would reject the project if the required return were 22 percent since the PI。

英文版罗斯公司理财习题答案Chap020 INTERNATIONAL CORPORATE FINANCEAnswers to Concepts Review and Critical Thinking Questions1. a.The dollar is selling at a premium because it is more expensive in the forward market than inthe spot market (SFr 1.53 versus SFr 1.50).b.The franc is expected to depreciate relative to the dollar because it will take more francs to buyone dollar in the future than it does today.c.Inflation in Switzerland is higher than in the United States, as are nominal interest rates.2.The exchange rate will increase, as it will take progressively more pesos to purchase a dollar. This isthe relative PPP relationship.3. a.The Australian dollar is expected to weaken relative to the dollar, because it will take moreA$ in the future to buy one dollar than it does today.b.The inflation rate in Australia is higher.c.Nominal interest rates in Australia are higher; relative real rates in the two countries are thesame.4. A Yankee bond is most accurately described by d.5. No. For example, if a country’s currency strengthens, imports become cheaper (good), but its exportsbecome more expensive for others to buy (bad). The reverse is true for currency depreciation.6.Additional advantages include being closer to the final consumer and, thereby, saving ontransportation, significantly lower wages, and less exposure to exchange rate risk. Disadvantages include political risk and costs of supervising distant operations.7.One key thing to remember is that dividend payments are made in the home currency. Moregenerally, it may be that the owners of the multinational are primarily domestic and are ultimately concerned about their wealth denominated in their home currency because, unlike a multinational, they are not internationally diversified.8. a.False. If prices are rising faster in Great Britain, it will take more pounds to buy the sameamount of goods that one dollar can buy; the pound will depreciate relative to the dollar.b.False. The forward market would already reflect the projected deterioration of the euro relativeto the dollar. Only if you feel that there might be additional, unanticipated weakening of the euro that isn’t reflected in forward rates today, will the forward hedge protect you against additional declines.c.True. The market would only be correct on average, while you would be correct all the time.9. a.American exporters: their situation in general improves because a sale of the exported goods fora fixed number of euros will be worth more dollars.American importers: their situation in general worsens because the purchase of the imported goods for a fixed number of euros will cost more in dollars.b.American exporters: they would generally be bette r off if the British government’s intentionsresult in a strengthened pound.American importers: they would generally be worse off if the pound strengthens.c.American exporters: they would generally be much worse off, because an extreme case of fiscalexpansion like this one will make American goods prohibitively expensive to buy, or else Brazilian sales, if fixed in cruzeiros, would become worth an unacceptably low number of dollars.American importers: they would generally be much better off, because Brazilian goods will become much cheaper to purchase in dollars.10.IRP is the most likely to hold because it presents the easiest and least costly means to exploit anyarbitrage opportunities. Relative PPP is least likely to hold since it depends on the absence of market imperfections and frictions in order to hold strictly.11.It all depends on whether the forward market expects the same appreciation over the period andwhether the expectation is accurate. Assuming that the expectation is correct and that other traders do not have the same information, there will be value to hedging the currency exposure.12.One possible reason investment in the foreign subsidiary might be preferred is if this investmentprovides direct diversification that shareholders could not attain by investing on their own. Another reason could be if the political climate in the foreign country was more stable than in the home country. Increased political risk can also be a reason you might prefer the home subsidiary investment. Indonesia can serve as a great example of political risk. If it cannot be diversified away, investing in this type of foreign country will increase the systematic risk. As a result, it will raise the cost of the capital, and could actually decrease the NPV of the investment.13.Yes, the firm should undertake the foreign investment. If, after taking into consideration all risks, aproject in a foreign country has a positive NPV, the firm should undertake it. Note that in practice, the stated assumption (that the adjustment to the discount rate has taken into consideration all political and diversification issues) is a huge task. But once that has been addressed, the net present value principle holds for foreign operations, just as for domestic.14.If the foreign currency depreciates, the U.S. parent will experience an exchange rate loss when theforeign cash flow is remitted to the U.S. This problem could be overcome by selling forward contracts. Another way of overcoming this problem would be to borrow in the country where the project is located.15.False. If the financial markets are perfectly competitive, the difference between the Eurodollar rateand the U.S. rate will be due to differences in risk and government regulation. Therefore, speculating in those markets will not be beneficial.16.The difference between a Eurobond and a foreign bond is that the foreign bond is denominated in thecurrency of the country of origin of the issuing company. Eurobonds are more popular than foreign bonds because of registration differences. Eurobonds are unregistered securities.Solutions to Questions and ProblemsNOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.Basicing the quotes from the table, we get:a.$50(€0.7870/$1) = €39.35b.$1.2706c.€5M($1.2706/€) = $6,353,240d.New Zealand dollare.Mexican pesof.(P11.0023/$1)($1.2186/€1) = P13.9801/€This is a cross rate.g.The most valuable is the Kuwait dinar. The least valuable is the Indonesian rupiah.2. a.You would prefer £100, since:(£100)($.5359/£1) = $53.59b.You would still prefer £100. Using the $/£ exchange rate and the SF/£ exchange rate to find theamount of Swiss francs £100 will buy, we get:(£100)($1.8660/£1)(SF .8233) = SF 226.6489ing the quotes in the book to find the SF/£ cross rate, we find:(SF 1.2146/$1)($0.5359/£1) = SF 2.2665/£1The £/SF exchange rate is the inverse of the SF/£ exchange rate, so:£1/SF .4412 = £0.4412/SF 13. a.F180= ¥104.93 (per $). The yen is selling at a premium because it is more expensive in theforward market than in the spot market ($0.0093659 versus $0.009530).b.F90 = $1.8587/£. The pound is selling at a discount because it is less expensive in the forwardmarket than in the spot market ($0.5380 versus $0.5359).c.The value of the dollar will fall relative to the yen, since it takes more dollars to buy one yen inthe future than it does today. The value of the dollar will rise relative to the pound, because it will take fewer dollars to buy one pound in the future than it does today.4. a.The U.S. dollar, since one Canadian dollar will buy:(Can$1)/(Can$1.26/$1) = $0.7937b.The cost in U.S. dollars is:(Can$2.19)/(Can$1.26/$1) = $1.74Among the reasons that absolute PPP doesn’t hold are tariffs and other barriers to trade, transactions costs, taxes, and different tastes.c.The U.S. dollar is selling at a discount, because it is less expensive in the forward market thanin the spot market (Can$1.22 versus Can$1.26).d.The Canadian dollar is expected to appreciate in value relative to the dollar, because it takesfewer Canadian dollars to buy one U.S. dollar in the future than it does today.e.Interest rates in the United States are probably higher than they are in Canada.5. a.The cross rate in ¥/£ terms is:(¥115/$1)($1.70/£1) = ¥195.5/£1b.The yen is quoted too low relative to the pound. Take out a loan for $1 and buy ¥115. Use the¥115 to purchase pounds at the cross-rate, which will give you:¥115(£1/¥185) = £0.6216Use the pounds to buy back dollars and repay the loan. The cost to repay the loan will be:£0.6216($1.70/£1) = $1.0568You arbitrage profit is $0.0568 per dollar used.6.We can rearrange the interest rate parity condition to answer this question. The equation we will useis:R FC = (F T– S0)/S0 + R USUsing this relationship, we find:Great Britain: R FC = (£0.5394 – £0.5359)/£0.5359 + .038 = 4.45%Japan: R FC = (¥104.93 – ¥106.77)/¥106.77 + .038 = 2.08%Switzerland: R FC = (SFr 1.1980 – SFr 1.2146)/SFr 1.2146 + .038 = 2.43%7.If we invest in the U.S. for the next three months, we will have:$30M(1.0045)3 = $30,406,825.23If we invest in Great Britain, we must exchange the dollars today for pounds, and exchange the pounds for dollars in three months. After making these transactions, the dollar amount we would have in three months would be:($30M)(£0.56/$1)(1.0060)3/(£0.59/$1) = $28,990,200.05We should invest in U.S.ing the relative purchasing power parity equation:F t = S0 × [1 + (h FC– h US)]tWe find:Z3.92 = Z3.84[1 + (h FC– h US)]3h FC– h US = (Z3.92/Z3.84)1/3– 1h FC– h US = .0069Inflation in Poland is expected to exceed that in the U.S. by 0.69% over this period.9.The profit will be the quantity sold, times the sales price minus the cost of production. Theproduction cost is in Singapore dollars, so we must convert this to U.S. dollars. Doing so, we find that if the exchange rates stay the same, the profit will be:Profit = 30,000[$145 – {(S$168.50)/(S$1.6548/$1)}]Profit = $1,295,250.18If the exchange rate rises, we must adjust the cost by the increased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/1.1(S$1.6548/$1)}]Profit = $1,572,954.71If the exchange rate falls, we must adjust the cost by the decreased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/0.9(S$1.6548/$1)}]Profit = $955,833.53To calculate the breakeven change in the exchange rate, we need to find the exchange rate that make the cost in Singapore dollars equal to the selling price in U.S. dollars, so:$145 = S$168.50/S TS T = S$1.1621/$1S T = –.2978 or –29.78% decline10. a.If IRP holds, then:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.5257Since given F180 is Kr6.56, an arbitrage opportunity exists; the forward premium is too high.Borrow Kr1 today at 8% interest. Agree to a 180-day forward contract at Kr 6.56. Convert the loan proceeds into dollars:Kr 1 ($1/Kr 6.43) = $0.15552Invest these dollars at 5%, ending up with $0.15931. Convert the dollars back into krone as$0.15931(Kr 6.56/$1) = Kr 1.04506Repay the Kr 1 loan, ending with a profit of:Kr1.04506 – Kr1.03868 = Kr 0.00638b.To find the forward rate that eliminates arbitrage, we use the interest rate parity condition, so:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.525711.The international Fisher effect states that the real interest rate across countries is equal. We canrearrange the international Fisher effect as follows to answer this question:R US– h US = R FC– h FCh FC = R FC + h US– R USa.h AUS = .05 + .035 – .039h AUS = .046 or 4.6%b.h CAN = .07 + .035 – .039h CAN = .066 or 6.6%c.h TAI = .10 + .035 – .039h TAI = .096 or 9.6%12. a.The yen is expected to get stronger, since it will take fewer yen to buy one dollar in the futurethan it does today.b.h US– h JAP (¥129.76 – ¥131.30)/¥131.30h US– h JAP = – .0117 or –1.17%(1 – .0117)4– 1 = –.0461 or –4.61%The approximate inflation differential between the U.S. and Japan is – 4.61% annually.13. We need to find the change in the exchange rate over time, so we need to use the relative purchasingpower parity relationship:F t = S0 × [1 + (h FC– h US)]TUsing this relationship, we find the exchange rate in one year should be:F1 = 215[1 + (.086 – .035)]1F1 = HUF 225.97The exchange rate in two years should be:F2 = 215[1 + (.086 – .035)]2F2 = HUF 237.49And the exchange rate in five years should be:F5 = 215[1 + (.086 – .035)]5F5 = HUF 275.71ing the interest-rate parity theorem:(1 + R US) / (1 + R FC) = F(0,1) / S0We can find the forward rate as:F(0,1) = [(1 + R US) / (1 + R FC)] S0F(0,1) = (1.13 / 1.08)$1.50/£F(0,1) = $1.57/£Intermediate15.First, we need to forecast the future spot rate for each of the next three years. From interest rate andpurchasing power parity, the expected exchange rate is:E(S T) = [(1 + R US) / (1 + R FC)]T S0So:E(S1) = (1.0480 / 1.0410)1 $1.22/€ = $1.2282/€E(S2) = (1.0480 / 1.0410)2 $1.22/€ = $1.2365/€E(S3) = (1.0480 / 1.0410)3 $1.22/€ = $1.2448/€Now we can use these future spot rates to find the dollar cash flows. The dollar cash flow each year will be:Year 0 cash flow = –€$12,000,000($1.22/€) = –$14,640,000.00Year 1 cash flow = €$2,700,000($1.2282/€) = $3,316,149.86Year 2 cash flow = €$3,500,000($1.2365/€) = $4,327,618.63Year 3 cash flow = (€3,300,000 + 7,400,000)($1.2448/€) = $13,319,111.90And the NPV of the project will be:NPV = –$14,640,000 + $3,316,149.86/1.13 + $4,4327,618.63/1.132 + $13,319,111.90/1.133NPV = $914,618.7316. a.Implicitly, it is assumed that interest rates won’t change over the life of the project, but theexchange rate is projected to decline because the Euroswiss rate is lower than the Eurodollar rate.b.We can use relative purchasing power parity to calculate the dollar cash flows at each time. Theequation is:E[S T] = (SFr 1.72)[1 + (.07 – .08)]TE[S T] = 1.72(.99)TSo, the cash flows each year in U.S. dollar terms will be:t SFr E[S T] US$0 –27.0M –$15,697,674.421 +7.5M 1.7028 $4,404,510.222 +7.5M 1.6858 $4,449,000.223 +7.5M 1.6689 $4,493,939.624 +7.5M 1.6522 $4,539,332.955 +7.5M 1.6357 $4,585,184.79And the NPV is:NPV = –$15,697,674.42 + $4,404,510.22/1.13 + $4,449,000.22/1.132 + $4,493,939.62/1.133 + $4,539,332.95/1.134 + $4,585,184.79/1.135NPV = $71,580.10c.Rearranging the relative purchasing power parity equation to find the required return in Swissfrancs, we get:R SFr = 1.13[1 + (.07 – .08)] – 1R SFr = 11.87%So, the NPV in Swiss francs is:NPV = –SFr 27.0M + SFr 7.5M(PVIFA11.87%,5)NPV = SFr 123,117.76Converting the NPV to dollars at the spot rate, we get the NPV in U.S. dollars as:NPV = (SFr 123,117.76)($1/SFr 1.72)NPV = $71,580.10Challenge17. a.The domestic Fisher effect is:1 + R US = (1 + r US)(1 + h US)1 + r US = (1 + R US)/(1 + h US)This relationship must hold for any country, that is:1 + r FC = (1 + R FC)/(1 + h FC)The international Fisher effect states that real rates are equal across countries, so:1 + r US = (1 + R US)/(1 + h US) = (1 + R FC)/(1 + h FC) = 1 + r FCb.The exact form of unbiased interest rate parity is:E[S t] = F t = S0 [(1 + R FC)/(1 + R US)]tc.The exact form for relative PPP is:E[S t] = S0 [(1 + h FC)/(1 + h US)]td.For the home currency approach, we calculate the expected currency spot rate at time t as:E[S t] = (€0.5)[1.07/1.05]t= (€0.5)(1.019)tWe then convert the euro cash flows using this equation at every time, and find the present value. Doing so, we find:NPV = –[€2M/(€0.5)] + {€0.9M/[1.019(€0.5)]}/1.1 + {€0.9M/[1.0192(€0.5)]}/1.12 + {€0.9M/[1.0193(€0.5/$1)]}/1.13NPV = $316,230.72For the foreign currency approach, we first find the return in the euros as:R FC = 1.10(1.07/1.05) – 1 = 0.121Next, we find the NPV in euros as:NPV = –€2M + (€0.9M)/1.121 + (€0.9M)/1.1212+ (€0.9M)/1.1213= €158,115.36And finally, we convert the euros to dollars at the current exchange rate, which is:NPV ($) = €158,115.36 /(€0.5/$1) = $316,230.72。

Chapter 01 - Introduction to Corporate FinanceChapter 01 Introduction to Corporate Finance Answer KeyMultiple Choice Questions1. The person generally directly responsible for overseeing the tax management, cost accounting, financial accounting, and information system functions is the:A. treasurer.B. director.C. controller.D. chairman of the board.E. chief executive officer.Difficulty level: EasyTopic: CONTROLLERType: DEFINITIONS2. The person generally directly responsible for overseeing the cash and credit functions,financial planning, and capital expenditures is the:A. treasurer.B. director.C. controller.D. chairman of the board.E. chief operations officer.1-1Chapter 01 - Introduction to Corporate Finance3. The process of planning and managing a firm's long-term investments is called:A. working capital management.B. financial depreciation.C. agency cost analysis.D. capital budgeting.E. capital structure.Difficulty level: EasyTopic: CAPITAL BUDGETINGType: DEFINITIONS4. The mixture of debt and equity used by a firm to finance its operations is called:A. working capital management.B. financial depreciation.C. cost analysis.D. capital budgeting.E. capital structure.5. The management of a firm's short-term assets and liabilities is called:A. working capital management.B. debt management.C. equity management.D. capital budgeting.E. capital structure.1-2Chapter 01 - Introduction to Corporate Finance6. A business owned by a single individual is called a:A. corporation.B. sole proprietorship.C. general partnership.D. limited partnership.E. limited liability company.7. A business formed by two or more individuals who each have unlimited liability for businessdebts is called a:A. corporation.B. sole proprietorship.C. general partnership.D. limited partnership.E. limited liability company.8. The division of profits and losses among the members of a partnership is formalized in the:A. indemnity clause.B. indenture contract.C. statement of purpose.D. partnership agreement.E. group charter.9. A business created as a distinct legal entity composed of one or more individuals or entities iscalled a:A. corporation.B. sole proprietorship.C. general partnership.D. limited partnership.E. unlimited liability company.Difficulty level: EasyTopic: CORPORATIONType: DEFINITIONS1-3Chapter 01 - Introduction to Corporate Finance10. The corporate document that sets forth the business purpose of a firm is the:A. indenture contract.B. state tax agreement.C. corporate bylaws.D. debt charter.E. articles of incorporation.11. The rules by which corporations govern themselves are called:A. indenture provisions.B. indemnity provisions.C. charter agreements.D. bylaws.E. articles of incorporation.12. A business entity operated and taxed like a partnership, but with limited liability for theowners, is called a:A. limited liability company.B. general partnership.C. limited proprietorship.D. sole proprietorship.E. corporation.13. The primary goal of financial management is to:A. maximize current dividends per share of the existing stock.B. maximize the current value per share of the existing stock.C. avoid financial distress.D. minimize operational costs and maximize firm efficiency.E. maintain steady growth in both sales and net earnings.14. A conflict of interest between the stockholders and management of a firm is called:A. stockholders' liability.B. corporate breakdown.C. the agency problem.D. corporate activism.E. legal liability.1-4Chapter 01 - Introduction to Corporate Finance15. Agency costs refer to:A. the total dividends paid to stockholders over the lifetime of a firm.B. the costs that result from default and bankruptcy of a firm.C. corporate income subject to double taxation.D. the costs of any conflicts of interest between stockholders and management.E. the total interest paid to creditors over the lifetime of the firm.16. A stakeholder is:A. any person or entity that owns shares of stock of a corporation.B. any person or entity that has voting rights based on stock ownership of a corporation.C. a person who initially started a firm and currently has management control over the cashflows of the firm due to his/her current ownership of company stock.D. a creditor to whom the firm currently owes money and who consequently has a claim on thecash flows of the firm.E. any person or entity other than a stockholder or creditor who potentially has a claim on thecash flows of the firm.17. The Sarbanes Oxley Act of 2002 is intended to:A. protect financial managers from investors.B. not have any effect on foreign companies.C. reduce corporate revenues.D. protect investors from corporate abuses.E. decrease audit costs for U.S. firms.18. The treasurer and the controller of a corporation generally report to the:A. board of directors.B. chairman of the board.C. chief executive officer.D. president.E. chief financial officer.19. Which one of the following statements is correct concerning the organizational structure ofa corporation?A. The vice president of finance reports to the chairman of the board.B. The chief executive officer reports to the board of directors.C. The controller reports to the president.D. The treasurer reports to the chief executive officer.E. The chief operations officer reports to the vice president of production.Difficulty level: MediumTopic: ORGANIZATIONAL STRUCTUREType: CONCEPTS1-5Chapter 01 - Introduction to Corporate Finance20. Which one of the following is a capital budgeting decision?A. determining how much debt should be borrowed from a particular lenderB. deciding whether or not to open a new storeC. deciding when to repay a long-term debtD. determining how much inventory to keep on handE. determining how much money should be kept in the checking account21. The Sarbanes Oxley Act was enacted in:A. 1952.B. 1967.C. 1998.D. 2002.E. 2006.22. Since the implementation of Sarbanes-Oxley, the cost of going public in the United Stateshas:A. increased.B. decreased.C. remained about the same.D. been erratic, but over time has decreased.E. It is impossible to tell since Sarbanes-Oxley compliance does not involve direct cost to thefirm.23. Working capital management includes decisions concerning which of the following?I. accounts payableII. long-term debtIII. accounts receivableIV. inventoryA. I and II onlyB. I and III onlyC. II and IV onlyD. I, II, and III onlyE. I, III, and IV onlyDifficulty level: MediumTopic: WORKING CAPITAL MANAGEMENTType: CONCEPTS1-6Chapter 01 - Introduction to Corporate Finance24. Working capital management:A. ensures that sufficient equipment is available to produce the amount of product desired on adaily basis.B. ensures that long-term debt is acquired at the lowest possible cost.C. ensures that dividends are paid to all stockholders on an annual basis.D. balances the amount of company debt to the amount of available equity.E. is concerned with the upper portion of the balance sheet.Difficulty level: EasyTopic: WORKING CAPITAL MANAGEMENTType: CONCEPTS25. Which one of the following statements concerning a sole proprietorship is correct?A. A sole proprietorship is the least common form of business ownership.B. The profits of a sole proprietorship are taxed twice.C. The owners of a sole proprietorship share profits as established by the partnership agreement.D. The owner of a sole proprietorship may be forced to sell his/her personal assets to paycompany debts.E. A sole proprietorship is often structured as a limited liability company.Difficulty level: EasyTopic: SOLE PROPRIETORSHIPType: CONCEPTS26. Which one of the following statements concerning a sole proprietorship is correct?A. The life of the firm is limited to the life span of the owner.B. The owner can generally raise large sums of capital quite easily.C. The ownership of the firm is easy to transfer to another individual.D. The company must pay separate taxes from those paid by the owner.E. The legal costs to form a sole proprietorship are quite substantial.Difficulty level: EasyTopic: SOLE PROPRIETORSHIPType: CONCEPTS1-7Chapter 01 - Introduction to Corporate Finance27. Which one of the following best describes the primary advantage of being a limited partnerrather than a general partner?A. entitlement to a larger portion of the partnership's incomeB. ability to manage the day-to-day affairs of the businessC. no potential financial lossD. greater management responsibilityE. liability for firm debts limited to the capital investedDifficulty level: EasyTopic: PARTNERSHIPType: CONCEPTS28. A general partner:A. has less legal liability than a limited partner.B. has more management responsibility than a limited partner.C. faces double taxation whereas a limited partner does not.D. cannot lose more than the amount of his/her equity investment.E. is the term applied only to corporations which invest in partnerships.Difficulty level: EasyTopic: PARTNERSHIPType: CONCEPTS29. A partnership:A. is taxed the same as a corporation.B. agreement defines whether the business income will be taxed like a partnership or acorporation.C. terminates at the death of any general partner.D. has less of an ability to raise capital than a proprietorship.E. allows for easy transfer of interest from one general partner to another.Difficulty level: EasyTopic: PARTNERSHIPType: CONCEPTS1-8Chapter 01 - Introduction to Corporate Finance30. Which of the following are disadvantages of a partnership?I. limited life of the firmII. personal liability for firm debtIII. greater ability to raise capital than a sole proprietorshipIV. lack of ability to transfer partnership interestA. I and II onlyB. III and IV onlyC. II and III onlyD. I, II, and IV onlyE. I, III, and IV onlyDifficulty level: MediumTopic: PARTNERSHIPType: CONCEPTS31. Which of the following are advantages of the corporate form of business ownership?I. limited liability for firm debtII. double taxationIII. ability to raise capitalIV. unlimited firm lifeA. I and II onlyB. III and IV onlyC. I, II, and III onlyD. II, III, and IV onlyE. I, III, and IV onlyDifficulty level: MediumTopic: CORPORATIONType: CONCEPTS32. Which one of the following statements is correct concerning corporations?A. The largest firms are usually corporations.B. The majority of firms are corporations.C. The stockholders are usually the managers of a corporation.D. The ability of a corporation to raise capital is quite limited.E. The income of a corporation is taxed as personal income of the stockholders.Difficulty level: EasyTopic: CORPORATIONType: CONCEPTS1-9Chapter 01 - Introduction to Corporate Finance33. Which one of the following statements is correct?A. Both partnerships and corporations incur double taxation.B. Both sole proprietorships and partnerships are taxed in a similar fashion.C. Partnerships are the most complicated type of business to form.D. Both partnerships and corporations have limited liability for general partners and shareholders.E. All types of business formations have limited lives.Difficulty level: MediumTopic: BUSINESS TYPESType: CONCEPTS34. The articles of incorporation:A. can be used to remove company management.B. are amended annually by the company stockholders.C. set forth the number of shares of stock that can be issued.D. set forth the rules by which the corporation regulates its existence.E. can set forth the conditions under which the firm can avoid double taxation.35. The bylaws:A. establish the name of the corporation.B. are rules which apply only to limited liability companies.C. set forth the purpose of the firm.D. mandate the procedure for electing corporate directors.E. set forth the procedure by which the stockholders elect the senior managers of the firm.36. The owners of a limited liability company prefer:A. being taxed like a corporation.B. having liability exposure similar to that of a sole proprietor.C. being taxed personally on all business income.D. having liability exposure similar to that of a general partner.E. being taxed like a corporation with liability like a partnership.Difficulty level: MediumTopic: LIMITED LIABILITY COMPANYType: CONCEPTS1-10Chapter 01 - Introduction to Corporate Finance37. Which one of the following business types is best suited to raising large amounts ofcapital?A. sole proprietorshipB. limited liability companyC. corporationD. general partnershipE. limited partnershipDifficulty level: EasyTopic: CORPORATIONType: CONCEPTS38. Which type of business organization has all the respective rights and privileges ofa legalperson?A. sole proprietorshipB. general partnershipC. limited partnershipD. corporationE. limited liability companyDifficulty level: EasyTopic: CORPORATIONType: CONCEPTS39. Financial managers should strive to maximize the current value per share of the existingstock because:A. doing so guarantees the company will grow in size at the maximum possible rate.B. doing so increases the salaries of all the employees.C. the current stockholders are the owners of the corporation.D. doing so means the firm is growing in size faster than its competitors.E. the managers often receive shares of stock as part of their compensation.Difficulty level: EasyTopic: GOAL OF FINANC IAL MANAGEMENTType: CONCEPTS1-11Chapter 01 - Introduction to Corporate Finance40. The decisions made by financial managers should all be ones which increase the:A. size of the firm.B. growth rate of the firm.C. marketability of the managers.D. market value of the existing owners' equity.E. financial distress of the firm.Difficulty level: EasyTopic: GOAL OF FINANCIAL MANAGEMENTType: CONCEPTS41. Which one of the following actions by a financial manager creates an agency problem?A. refusing to borrow money when doing so will create losses for the firmB. refusing to lower selling prices if doing so will reduce the net profitsC. agreeing to expand the company at the expense of stockholders' valueD. agreeing to pay bonuses based on the book value of the company stockE. increasing current costs in order to increase the market value of the stockholders' equity42. Which of the following help convince managers to work in the best interest of the stockholders?I. compensation based on the value of the stockII. stock option plansIII. threat of a proxy fightIV. threat of conversion to a partnershipA. I and II onlyB. II and III onlyC. I, II and III onlyD. I and III onlyE. I, II, III, and IVDifficulty level: MediumTopic: AGENCY PROBLEMType: CONCEPTS1-12Chapter 01 - Introduction to Corporate Finance43. Which form of business structure faces the greatest agency problems?A. sole proprietorshipB. general partnershipC. limited partnershipD. corporationE. limited liability company44. A proxy fight occurs when:A. the board solicits renewal of current members.B. a group solicits proxies to replace the board of directors.C. a competitor offers to sell their ownership in the firm.D. the firm files for bankruptcy.E. the firm is declared insolvent.45. Which one of the following parties is considered a stakeholder of a firm?A. employeeB. short-term creditorC. long-term creditorD. preferred stockholderE. common stockholderDifficulty level: EasyTopic: STAKEHOLDERSType: CONCEPTS46. Which of the following are key requirements of the Sarbanes-Oxley Act?I. Officers of the corporation must review and sign annual reports.II. Officers of the corporation must now own more than 5% of the firm's stock. III. Annual reports must list deficiencies in internal controlsIV. Annual reports must be filed with the SEC within 30 days of year end.A. I onlyB. II onlyC. I and III onlyD. II and III onlyE. II and IV onlyDifficulty level: MediumTopic: SARBANES-OXLEYType: CONCEPTS1-13Chapter 01 - Introduction to Corporate Finance47. Insider trading is:A. legal.B. illegal.C. impossible to have in our efficient market.D. discouraged, but legal.E. list only the securities of the largest firms.48. Sole proprietorships are predominantly started because:A. they are easily and cheaply setup.B. the proprietorship life is limited to the business owner's life.C. all business taxes are paid as individual tax.D. All of the above.E. None of the above.Difficulty level: EasyTopic: SOLE PROPRIETORSHIPSType: CONCEPTS49. Managers are encouraged to act in shareholders' interests by:A. shareholder election of a board of directors who select management.B. the threat of a takeover by another firm.C. compensation contracts that tie compensation to corporate success.D. Both A and B.E. All of the above.Difficulty level: MediumTopic: GOVERNANCEType: CONCEPTS50. The Securities Exchange Act of 1934 focuses on:A. all stock transactions.B. sales of existing securities.C. issuance of new securities.D. insider trading.E. Federal Deposit Insurance Corporation (FDIC) insurance.Difficulty level: MediumTopic: REGULATIONType: CONCEPTS1-14Chapter 01 - Introduction to Corporate Finance51. The basic regulatory framework in the United States was provided by:A. the Securities Act of 1933.B. the Securities Exchange Act of 1934.C. the monetary system.D. A and B.E. All of the above.Difficulty level: MediumTopic: REGULATIONType: CONCEPTS52. The Securities Act of 1933 focuses on:A. all stock transactions.B. sales of existing securities.C. issuance of new securities.D. insider trading.E. Federal Deposit Insurance Corporation (FDIC) insurance.Difficulty level: EasyTopic: REGULATIONType: CONCEPTS53. In a limited partnership:A. each limited partner's liability is limited to his net worth.B. each limited partner's liability is limited to the amount he put into the partnership.C. each limited partner's liability is limited to his annual salary.D. there is no limitation on liability; only a limitation on what the partner can earn.E. None of the above.Difficulty level: EasyTopic: LIMITED PARTNERSHIPType: CONCEPTS1-15Chapter 01 - Introduction to Corporate Finance54. Accounting profits and cash flows are:A. generally the same since they reflect current laws and accounting standards.B. generally the same since accounting profits reflect when the cash flows are received.C. generally not the same since GAAP allows for revenue recognition separate from the receiptof cash flows.D. generally not the same because cash inflows occur before revenue recognition.E. Both c and d.1-16。

CHAPTER 8MAKING CAPITAL INVESTMENT DECISIONSAnswers to Concepts Review and Critical Thinking Questions1.In this context, an opportunity cost refers to the value of an asset or other input that will be used in aproject. The relevant cost is what the asset or input is actually worth today, not, for example, what it cost to acquire.2. a.Yes, the reduction in the sales of the company’s other products, referred to as erosion, andshould be treated as an incremental cash flow. These lost sales are included because they are a cost (a revenue reduction) that the firm must bear if it chooses to produce the new product.b. Yes, expenditures on plant and equipment should be treated as incremental cash flows. Theseare costs of the new product line. However, if these expenditures have already occurred, they are sunk costs and are not included as incremental cash flows.c. No, the research and development costs should not be treated as incremental cash flows. Thecosts of research and development undertaken on the product during the past 3 years are sunk costs and should not be included in the evaluation of the project. Decisions made and costs incurred in the past cannot be changed. They should not affect the decision to accept or reject the project.d. Yes, the annual depreciation expense should be treated as an incremental cash flow.Depreciation expense must be taken into account when calculating the cash flows related to a given project. While depreciation is not a cash expense that directly affects cash flow, it decreases a firm’s net income and hence, lowers its tax bill for the year. Because of this depreciation tax shield, the firm has more cash on hand at the end of the year than it would have had without expensing depreciation.e.No, dividend payments should not be treated as incremental cash flows. A firm’s decision topay or not pay dividends is independent of the decision to accept or reject any given investment project. For this reason, it is not an incremental cash flow to a given project. Dividend policy is discussed in more detail in later chapters.f.Yes, the resale value of plant and equipment at the end of a project’s life should be treated as anincremental cash flow. The price at which the firm sells the equipment is a cash inflow, and any difference between the book value of the equipment and its sale price will create gains or lossesthat result in either a tax credit or liability.g.Yes, salary and medical costs for production employees hired for a project should be treated asincremental cash flows. The salaries of all personnel connected to the project must be included as costs of that project.3.Item I is a relevant cost because the opportunity to sell the land is lost if the new golf club is produced. Item II is also relevant because the firm must take into account the erosion of sales of existing products when a new product is introduced. If the firm produces the new club, the earnings from the existing clubs will decrease, effectively creating a cost that must be included in the decision.Item III is not relevant because the costs of Research and Development are sunk costs. Decisions made in the past cannot be changed. They are not relevant to the production of the new clubs.4.For tax purposes, a firm would choose MACRS because it provides for larger depreciationdeductions earlier. These larger deductions reduce taxes, but have no other cash consequences.Notice that the choice between MACRS and straight-line is purely a time value issue; the total depreciation is the same; only the timing differs.5.It’s probably only a mild over-simplification. Current liabilities will all be paid, presumably. Thecash portion of current assets will be retrieved. Some receivables won’t be collected, and some inventory will not be sold, of course. Counterbalancing these losses is the fact that inventory sold above cost (and not replaced at the end of the project’s life) acts to increase working capital. These effects tend to offset one another.6.Management’s discretion to set the firm’s capital structure is applicable at the firm level. Since anyone particular project could be financed entirely with equity, another project could be financed with debt, and the firm’s overall capital structure remains unchanged, financing cost s are not relevant in the analysis of a project’s incremental cash flows according to the stand-alone principle.7.The EAC approach is appropriate when comparing mutually exclusive projects with different livesthat will be replaced when they wear out. This type of analysis is necessary so that the projects havea common life span over which they can be compared; in effect, each project is assumed to existover an infinite horizon of N-year repeating projects. Assuming that this type of analysis is valid implies that the project cash flows remain the same forever, thus ignoring the possible effects of, among other things: (1) inflation, (2) changing economic conditions, (3) the increasing unreliability of cash flow estimates that occur far into the future, and (4) the possible effects of future technology improvement that could alter the project cash flows.8.Depreciation is a non-cash expense, but it is tax-deductible on the income statement. Thusdepreciation causes taxes paid, an actual cash outflow, to be reduced by an amount equal to the depreciation tax shield, t c D. A reduction in taxes that would otherwise be paid is the same thing as a cash inflow, so the effects of the depreciation tax shield must be added in to get the total incremental aftertax cash flows.9.There are two particularly important considerations. The first is erosion. Will the “essentialized”book simply displace copies of the existing book that would have otherwise been sold? This is of special concern given the lower price. The second consideration is competition. Will other publishers step in and produce such a product? If so, then any erosion is much less relevant. A particular concern to book publishers (and producers of a variety of other product types) is that the publisher only makes money from the sale of new books. Thus, it is important to examine whether the new book would displace sales of used books (good from the publisher’s perspective) or new books (not good). The concern arises any time there is an active market for used product.10.Definitely. The damage to Porsche’s reputation is definitely a factor the company needed to consider.If the reputation was damaged, the company would have lost sales of its existing car lines.11.One company may be able to produce at lower incremental cost or market better. Also, of course,one of the two may have made a mistake!12.Porsche would recognize that the outsized profits would dwindle as more products come to marketand competition becomes more intense.Solutions to Questions and ProblemsNOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.Basicing the tax shield approach to calculating OCF, we get:OCF = (Sales – Costs)(1 – t C) + t C DepreciationOCF = [($5 × 2,000 – ($2 × 2,000)](1 – 0.35) + 0.35($10,000/5)OCF = $4,600So, the NPV of the project is:NPV = –$10,000 + $4,600(PVIFA17%,5)NPV = $4,7172.We will use the bottom-up approach to calculate the operating cash flow for each year. We also mustbe sure to include the net working capital cash flows each year. So, the total cash flow each year will be:Year 1 Year 2 Year 3 Year 4 Sales Rs.7,000 Rs.7,000 Rs.7,000 Rs.7,000Costs 2,000 2,000 2,000 2,000Depreciation 2,500 2,500 2,500 2,500EBT Rs.2,500 Rs.2,500 Rs.2,500 Rs.2,500Tax 850 850 850 850Net income Rs.1,650 Rs.1,650 Rs.1,650 Rs.1,650OCF 0 Rs.4,150 Rs.4,150 Rs.4,150 Rs.4,150Capital spending –Rs.10,000 0 0 0 0NWC –200 –250 –300 –200 950Incremental cashflow –Rs.10,200 Rs.3,900 Rs.3,850 Rs.3,950 Rs.5,100The NPV for the project is:NPV = –Rs.10,200 + Rs.3,900 / 1.10 + Rs.3,850 / 1.102 + Rs.3,950 / 1.103 + Rs.5,100 / 1.104NPV = Rs.2,978.333. Using the tax shield approach to calculating OCF, we get:OCF = (Sales – Costs)(1 – t C) + t C DepreciationOCF = (R2,400,000 – 960,000)(1 – 0.30) + 0.30(R2,700,000/3)OCF = R1,278,000So, the NPV of the project is:NPV = –R2,700,000 + R1,278,000(PVIFA15%,3)NPV = R217,961.704.The cash outflow at the beginning of the project will increase because of the spending on NWC. Atthe end of the project, the company will recover the NWC, so it will be a cash inflow. The sale of the equipment will result in a cash inflow, but we also must account for the taxes which will be paid on this sale. So, the cash flows for each year of the project will be:Year Cash Flow0 – R3,000,000 = –R2.7M – 300K1 1,278,0002 1,278,0003 1,725,000 = R1,278,000 + 300,000 + 210,000 + (0 – 210,000)(.30)And the NPV of the project is:NPV = –R3,000,000 + R1,278,000(PVIFA15%,2) + (R1,725,000 / 1.153)NPV = R211,871.465. First we will calculate the annual depreciation for the equipment necessary for the project. Thedepreciation amount each year will be:Year 1 depreciation = R2.7M(0.3330) = R899,100Year 2 depreciation = R2.7M(0.4440) = R1,198,800Year 3 depreciation = R2.7M(0.1480) = R399,600So, the book value of the equipment at the end of three years, which will be the initial investment minus the accumulated depreciation, is:Book value in 3 years = R2.7M – (R899,100 + 1,198,800 + 399,600)Book value in 3 years = R202,500The asset is sold at a gain to book value, so this gain is taxable.Aftertax salvage value = R202,500 + (R202,500 – 210,000)(0.30)Aftertax salvage value = R207,750To calculate the OCF, we will use the tax shield approach, so the cash flow each year is:OCF = (Sales – Costs)(1 – t C) + t C DepreciationYear Cash Flow0 – R3,000,000 = –R2.7M – 300K1 1,277,730.00 = (R1,440,000)(.70) + 0.30(R899,100)2 1,367,640.00 = (R1,440,000)(.70) + 0.30(R1,198,800)3 1,635,630.00 = (R1,440,000)(.70) + 0.30(R399,600) + R207,750 + 300,000Remember to include the NWC cost in Year 0, and the recovery of the NWC at the end of the project.The NPV of the project with these assumptions is:NPV = – R3.0M + (R1,277,730/1.15) + (R1,367,640/1.152) + (R1,635,630/1.153)NPV = R220,655.206. First, we will calculate the annual depreciation of the new equipment. It will be:Annual depreciation charge = €925,000/5Annual depreciation charge = €185,000The aftertax salvage value of the equipment is:Aftertax salvage value = €90,000(1 – 0.35)Aftertax salvage value = €58,500Using the tax shield approach, the OCF is:OCF = €360,000(1 – 0.35) + 0.35(€185,000)OCF = €298,750Now we can find the project IRR. There is an unusual feature that is a part of this project. Accepting this project means that we will reduce NWC. This reduction in NWC is a cash inflow at Year 0. This reduction in NWC implies that when the project ends, we will have to increase NWC. So, at the end of the project, we will have a cash outflow to restore the NWC to its level before the project. We also must include the aftertax salvage value at the end of the project. The IRR of the project is:NPV = 0 = –€925,000 + 125,000 + €298,750(PVIFA IRR%,5) + [(€58,500 – 125,000) / (1+IRR)5]IRR = 23.85%7.First, we will calculate the annual depreciation of the new equipment. It will be:Annual depreciation = £390,000/5Annual depreciation = £78,000Now, we calculate the aftertax salvage value. The aftertax salvage value is the market price minus (or plus) the taxes on the sale of the equipment, so:Aftertax salvage value = MV + (BV – MV)t cVery often, the book value of the equipment is zero as it is in this case. If the book value is zero, the equation for the aftertax salvage value becomes:Aftertax salvage value = MV + (0 – MV)t cAftertax salvage value = MV(1 – t c)We will use this equation to find the aftertax salvage value since we know the book value is zero. So, the aftertax salvage value is:Aftertax salvage value = £60,000(1 – 0.34)Aftertax salvage value = £39,600Using the tax shield approach, we find the OCF for the project is:OCF = £120,000(1 – 0.34) + 0.34(£78,000)OCF = £105,720Now we can find the project NPV. Notice that we include the NWC in the initial cash outlay. The recovery of the NWC occurs in Year 5, along with the aftertax salvage value.NPV = –£390,000 – 28,000 + £105,720(PVIFA10%,5) + [(£39,600 + 28,000) / 1.15]NPV = £24,736.268.To find the BV at the end of four years, we need to find the accumulated depreciation for the firstfour years. We could calculate a table with the depreciation each year, but an easier way is to add the MACRS depreciation amounts for each of the first four years and multiply this percentage times the cost of the asset. We can then subtract this from the asset cost. Doing so, we get:BV4 = $9,300,000 – 9,300,000(0.2000 + 0.3200 + 0.1920 + 0.1150)BV4 = $1,608,900The asset is sold at a gain to book value, so this gain is taxable.Aftertax salvage value = $2,100,000 + ($1,608,900 – 2,100,000)(.40)Aftertax salvage value = $1,903,5609. We will begin by calculating the initial cash outlay, that is, the cash flow at Time 0. To undertake theproject, we will have to purchase the equipment and increase net working capital. So, the cash outlay today for the project will be:Equipment –€2,000,000NWC –100,000Total –€2,100,000Using the bottom-up approach to calculating the operating cash flow, we find the operating cash flow each year will be:Sales €1,200,000Costs 300,000Depreciation 500,000EBT €400,000Tax 140,000Net income €260,000The operating cash flow is:OCF = Net income + DepreciationOCF = €260,000 + 500,000OCF = €760,000To find the NPV of the project, we add the present value of the project cash flows. We must be sure to add back the net working capital at the end of the project life, since we are assuming the net working capital will be recovered. So, the project NPV is:NPV = –€2,100,000 + €760,000(PVIFA14%,4) + €100,000 / 1.144NPV = €173,629.3810.We will need the aftertax salvage value of the equipment to compute the EAC. Even though theequipment for each product has a different initial cost, both have the same salvage value. The aftertax salvage value for both is:Both cases: aftertax salvage value = $20,000(1 – 0.35) = $13,000To calculate the EAC, we first need the OCF and NPV of each option. The OCF and NPV for Techron I is:OCF = – $34,000(1 – 0.35) + 0.35($210,000/3) = $2,400NPV = –$210,000 + $2,400(PVIFA14%,3) + ($13,000/1.143) = –$195,653.45EAC = –$195,653.45 / (PVIFA14%,3) = –$84,274.10And the OCF and NPV for Techron II is:OCF = – $23,000(1 – 0.35) + 0.35($320,000/5) = $7,450NPV = –$320,000 + $7,450(PVIFA14%,5) + ($13,000/1.145) = –$287,671.75EAC = –$287,671.75 / (PVIFA14%,5) = –$83,794.05The two milling machines have unequal lives, so they can only be compared by expressing both on an equivalent annual basis, which is what the EAC method does. Thus, you prefer the Techron II because it has the lower (less negative) annual cost.。

公司理财第九版罗斯课后案例答案 Case Solutions CorporateFinance1. 案例一：公司资金需求分析问题：一家公司需要资金支持其新项目。

通过分析现金流量，推断该公司是否需要向外部借款或筹集其他资金。

解答：为了确定公司是否需要外部资金，我们需要分析公司的现金流量状况。

首先，我们需要计算公司的净现金流量（净收入加上非现金项目）。

然后，我们需要将净现金流量与项目的投资现金流量进行对比。

假设公司预计在项目开始时投资100万美元，并在项目运营期为5年。

预计该项目每年将产生50万美元的净现金流量。

现在，我们需要进行以下计算：净现金流量 = 年度现金流量 - 年度投资现金流量年度投资现金流量 = 100万美元年度现金流量 = 50万美元净现金流量 = 50万美元 - 100万美元 = -50万美元根据计算结果，公司的净现金流量为负数（即净现金流出），意味着公司每年都会亏损50万美元。

因此，公司需要从外部筹集资金以支持项目的运营。

2. 案例二：公司股权融资问题：一家公司正在考虑通过股权融资来筹集资金。

根据公司的财务数据和资本结构分析，我们需要确定公司最佳的股权融资方案。

解答：为了确定最佳的股权融资方案，我们需要参考公司的财务数据和资本结构分析。

首先，我们需要计算公司的资本结构比例，即股本占总资本的比例。

然后，我们将不同的股权融资方案与资本结构比例进行对比，选择最佳的方案。

假设公司当前的资本结构比例为60%的股本和40%的债务，在当前的资本结构下，公司的加权平均资本成本（WACC）为10%。

现在，我们需要进行以下计算：•方案一：以新股发行筹集1000万美元，并将其用于项目投资。

在这种方案下，公司的资本结构比例将发生变化。

假设公司的股本增加至80%，债务比例减少至20%。

根据资本结构比例的变化，WACC也将发生变化。

新的WACC可以通过以下公式计算得出：新的WACC = (股本比例 * 股本成本) + (债务比例 * 债务成本)假设公司的股本成本为12%，债务成本为8%：新的WACC = (0.8 * 12%) + (0.2 * 8%) = 9.6%•方案二：以新股发行筹集5000万美元，并将其用于项目投资。

CHAPTER 20INTERNATIONAL CORPORATE FINANCEAnswers to Concepts Review and Critical Thinking Questions1. a.The dollar is selling at a premium because it is more expensive in the forward market than inthe spot market (SFr 1.53 versus SFr 1.50).b.The franc is expected to depreciate relative to the dollar because it will take more francs to buyone dollar in the future than it does today.c.Inflation in Switzerland is higher than in the United States, as are nominal interest rates.2.The exchange rate will increase, as it will take progressively more pesos to purchase a dollar. This isthe relative PPP relationship.3. a.The Australian dollar is expected to weaken relative to the dollar, because it will take moreA$ in the future to buy one dollar than it does today.b.The inflation rate in Australia is higher.c.Nominal interest rates in Australia are higher; relative real rates in the two countries are thesame.4. A Yankee bond is most accurately described by d.5. No. For example, if a country’s currency strengthens, imports become cheaper (good), but its exportsbecome more expensive for others to buy (bad). The reverse is true for currency depreciation.6.Additional advantages include being closer to the final consumer and, thereby, saving ontransportation, significantly lower wages, and less exposure to exchange rate risk. Disadvantages include political risk and costs of supervising distant operations.7.One key thing to remember is that dividend payments are made in the home currency. Moregenerally, it may be that the owners of the multinational are primarily domestic and are ultimately concerned about their wealth denominated in their home currency because, unlike a multinational, they are not internationally diversified.8. a.False. If prices are rising faster in Great Britain, it will take more pounds to buy the sameamount of goods that one dollar can buy; the pound will depreciate relative to the dollar.b.False. The forward market would already reflect the projected deterioration of the euro relativeto the dollar. Only if you feel that there might be additional, unanticipated weakening of the euro that isn’t reflected in forward rates today, will the forward hedge protect you against additional declines.c.True. The market would only be correct on average, while you would be correct all the time.9. a.American exporters: their situation in general improves because a sale of the exported goods fora fixed number of euros will be worth more dollars.American importers: their situation in general worsens because the purchase of the imported goods for a fixed number of euros will cost more in dollars.b.American exporters: they would generally be better off if the British government’s intentionsresult in a strengthened pound.American importers: they would generally be worse off if the pound strengthens.c.American exporters: they would generally be much worse off, because an extreme case of fiscalexpansion like this one will make American goods prohibitively expensive to buy, or else Brazilian sales, if fixed in cruzeiros, would become worth an unacceptably low number of dollars.American importers: they would generally be much better off, because Brazilian goods will become much cheaper to purchase in dollars.10.IRP is the most likely to hold because it presents the easiest and least costly means to exploit anyarbitrage opportunities. Relative PPP is least likely to hold since it depends on the absence of market imperfections and frictions in order to hold strictly.11.It all depends on whether the forward market expects the same appreciation over the period andwhether the expectation is accurate. Assuming that the expectation is correct and that other traders do not have the same information, there will be value to hedging the currency exposure.12.One possible reason investment in the foreign subsidiary might be preferred is if this investmentprovides direct diversification that shareholders could not attain by investing on their own. Another reason could be if the political climate in the foreign country was more stable than in the home country. Increased political risk can also be a reason you might prefer the home subsidiary investment. Indonesia can serve as a great example of political risk. If it cannot be diversified away, investing in this type of foreign country will increase the systematic risk. As a result, it will raise the cost of the capital, and could actually decrease the NPV of the investment.13.Yes, the firm should undertake the foreign investment. If, after taking into consideration all risks, aproject in a foreign country has a positive NPV, the firm should undertake it. Note that in practice, the stated assumption (that the adjustment to the discount rate has taken into consideration all political and diversification issues) is a huge task. But once that has been addressed, the net present value principle holds for foreign operations, just as for domestic.14.If the foreign currency depreciates, the U.S. parent will experience an exchange rate loss when theforeign cash flow is remitted to the U.S. This problem could be overcome by selling forward contracts. Another way of overcoming this problem would be to borrow in the country where the project is located.15.False. If the financial markets are perfectly competitive, the difference between the Eurodollar rateand the U.S. rate will be due to differences in risk and government regulation. Therefore, speculating in those markets will not be beneficial.16.The difference between a Eurobond and a foreign bond is that the foreign bond is denominated in thecurrency of the country of origin of the issuing company. Eurobonds are more popular than foreign bonds because of registration differences. Eurobonds are unregistered securities.Solutions to Questions and ProblemsNOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.Basicing the quotes from the table, we get:a.$50(€0.7870/$1) = €39.35b.$1.2706c.€5M($1.2706/€) = $6,353,240d.New Zealand dollare.Mexican pesof.(P11.0023/$1)($1.2186/€1) = P13.9801/€This is a cross rate.g.The most valuable is the Kuwait dinar. The least valuable is the Indonesian rupiah.2. a.You would prefer £100, since:(£100)($.5359/£1) = $53.59b.You would still prefer £100. Using the $/£ exchange rate and the SF/£ exchange rate to find theamount of Swiss francs £100 will buy, we get:(£100)($1.8660/£1)(SF .8233) = SF 226.6489ing the quotes in the book to find the SF/£ cross rate, we find:(SF 1.2146/$1)($0.5359/£1) = SF 2.2665/£1The £/SF exchange rate is the inverse of the SF/£ exchange rate, so:£1/SF .4412 = £0.4412/SF 13. a.F180= ¥104.93 (per $). The yen is selling at a premium because it is more expensive in theforward market than in the spot market ($0.0093659 versus $0.009530).b.F90 = $1.8587/£. The pound is selling at a discount because it is less expensive in the forwardmarket than in the spot market ($0.5380 versus $0.5359).c.The value of the dollar will fall relative to the yen, since it takes more dollars to buy one yen inthe future than it does today. The value of the dollar will rise relative to the pound, because it will take fewer dollars to buy one pound in the future than it does today.4. a.The U.S. dollar, since one Canadian dollar will buy:(Can$1)/(Can$1.26/$1) = $0.7937b.The cost in U.S. dollars is:(Can$2.19)/(Can$1.26/$1) = $1.74Among the reasons that absolute PPP doe sn’t hold are tariffs and other barriers to trade, transactions costs, taxes, and different tastes.c.The U.S. dollar is selling at a discount, because it is less expensive in the forward market thanin the spot market (Can$1.22 versus Can$1.26).d.The Canadian dollar is expected to appreciate in value relative to the dollar, because it takesfewer Canadian dollars to buy one U.S. dollar in the future than it does today.e.Interest rates in the United States are probably higher than they are in Canada.5. a.The cross rate in ¥/£ terms is:(¥115/$1)($1.70/£1) = ¥195.5/£1b.The yen is quoted too low relative to the pound. Take out a loan for $1 and buy ¥115. Use the¥115 to purchase pounds at the cross-rate, which will give you:¥115(£1/¥185) = £0.6216Use the pounds to buy back dollars and repay the loan. The cost to repay the loan will be:£0.6216($1.70/£1) = $1.0568You arbitrage profit is $0.0568 per dollar used.6.We can rearrange the interest rate parity condition to answer this question. The equation we will useis:R FC = (F T– S0)/S0 + R USUsing this relationship, we find:Great Britain: R FC = (£0.5394 – £0.5359)/£0.5359 + .038 = 4.45%Japan: R FC = (¥104.93 – ¥106.77)/¥106.77 + .038 = 2.08%Switzerland: R FC = (SFr 1.1980 – SFr 1.2146)/SFr 1.2146 + .038 = 2.43%7.If we invest in the U.S. for the next three months, we will have:$30M(1.0045)3 = $30,406,825.23If we invest in Great Britain, we must exchange the dollars today for pounds, and exchange the pounds for dollars in three months. After making these transactions, the dollar amount we would have in three months would be:($30M)(£0.56/$1)(1.0060)3/(£0.59/$1) = $28,990,200.05We should invest in U.S.ing the relative purchasing power parity equation:F t = S0 × [1 + (h FC– h US)]tWe find:Z3.92 = Z3.84[1 + (h FC– h US)]3h FC– h US = (Z3.92/Z3.84)1/3– 1h FC– h US = .0069Inflation in Poland is expected to exceed that in the U.S. by 0.69% over this period.9.The profit will be the quantity sold, times the sales price minus the cost of production. Theproduction cost is in Singapore dollars, so we must convert this to U.S. dollars. Doing so, we find that if the exchange rates stay the same, the profit will be:Profit = 30,000[$145 – {(S$168.50)/(S$1.6548/$1)}]Profit = $1,295,250.18If the exchange rate rises, we must adjust the cost by the increased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/1.1(S$1.6548/$1)}]Profit = $1,572,954.71If the exchange rate falls, we must adjust the cost by the decreased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/0.9(S$1.6548/$1)}]Profit = $955,833.53To calculate the breakeven change in the exchange rate, we need to find the exchange rate that make the cost in Singapore dollars equal to the selling price in U.S. dollars, so:$145 = S$168.50/S TS T = S$1.1621/$1S T = –.2978 or –29.78% decline10. a.If IRP holds, then:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.5257Since given F180 is Kr6.56, an arbitrage opportunity exists; the forward premium is too high.Borrow Kr1 today at 8% interest. Agree to a 180-day forward contract at Kr 6.56. Convert the loan proceeds into dollars:Kr 1 ($1/Kr 6.43) = $0.15552Invest these dollars at 5%, ending up with $0.15931. Convert the dollars back into krone as$0.15931(Kr 6.56/$1) = Kr 1.04506Repay the Kr 1 loan, ending with a profit of:Kr1.04506 – Kr1.03868 = Kr 0.00638b.To find the forward rate that eliminates arbitrage, we use the interest rate parity condition, so:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.525711.The international Fisher effect states that the real interest rate across countries is equal. We canrearrange the international Fisher effect as follows to answer this question:R US– h US = R FC– h FCh FC = R FC + h US– R USa.h AUS = .05 + .035 – .039h AUS = .046 or 4.6%b.h CAN = .07 + .035 – .039h CAN = .066 or 6.6%c.h TAI = .10 + .035 – .039h TAI = .096 or 9.6%12. a.The yen is expected to get stronger, since it will take fewer yen to buy one dollar in the futurethan it does today.b.h US– h JAP (¥129.76 – ¥131.30)/¥131.30h US– h JAP = – .0117 or –1.17%(1 – .0117)4– 1 = –.0461 or –4.61%The approximate inflation differential between the U.S. and Japan is – 4.61% annually.13. We need to find the change in the exchange rate over time, so we need to use the relative purchasingpower parity relationship:F t = S0 × [1 + (h FC– h US)]TUsing this relationship, we find the exchange rate in one year should be:F1 = 215[1 + (.086 – .035)]1F1 = HUF 225.97The exchange rate in two years should be:F2 = 215[1 + (.086 – .035)]2F2 = HUF 237.49And the exchange rate in five years should be:F5 = 215[1 + (.086 – .035)]5F5 = HUF 275.71ing the interest-rate parity theorem:(1 + R US) / (1 + R FC) = F(0,1) / S0We can find the forward rate as:F(0,1) = [(1 + R US) / (1 + R FC)] S0F(0,1) = (1.13 / 1.08)$1.50/£F(0,1) = $1.57/£Intermediate15.First, we need to forecast the future spot rate for each of the next three years. From interest rate andpurchasing power parity, the expected exchange rate is:E(S T) = [(1 + R US) / (1 + R FC)]T S0So:E(S1) = (1.0480 / 1.0410)1 $1.22/€ = $1.2282/€E(S2) = (1.0480 / 1.0410)2 $1.22/€ = $1.2365/€E(S3) = (1.0480 / 1.0410)3 $1.22/€ = $1.2448/€Now we can use these future spot rates to find the dollar cash flows. The dollar cash flow each year will be:Year 0 cash flow = –€$12,000,000($1.22/€) = –$14,640,000.00Year 1 cash flow = €$2,700,000($1.2282/€) = $3,316,149.86Year 2 cash flow = €$3,500,000($1.2365/€) = $4,327,618.63Year 3 cash flow = (€3,300,000 + 7,400,000)($1.2448/€) = $13,319,111.90And the NPV of the project will be:NPV = –$14,640,000 + $3,316,149.86/1.13 + $4,4327,618.63/1.132 + $13,319,111.90/1.133NPV = $914,618.7316. a.Implicitly, it is assumed that interest rates won’t change over the life of the project, but theexchange rate is projected to decline because the Euroswiss rate is lower than the Eurodollar rate.b.We can use relative purchasing power parity to calculate the dollar cash flows at each time. Theequation is:E[S T] = (SFr 1.72)[1 + (.07 – .08)]TE[S T] = 1.72(.99)TSo, the cash flows each year in U.S. dollar terms will be:t SFr E[S T] US$0 –27.0M –$15,697,674.421 +7.5M 1.7028 $4,404,510.222 +7.5M 1.6858 $4,449,000.223 +7.5M 1.6689 $4,493,939.624 +7.5M 1.6522 $4,539,332.955 +7.5M 1.6357 $4,585,184.79And the NPV is:NPV = –$15,697,674.42 + $4,404,510.22/1.13 + $4,449,000.22/1.132 + $4,493,939.62/1.133 + $4,539,332.95/1.134 + $4,585,184.79/1.135NPV = $71,580.10c.Rearranging the relative purchasing power parity equation to find the required return in Swissfrancs, we get:R SFr = 1.13[1 + (.07 – .08)] – 1R SFr = 11.87%So, the NPV in Swiss francs is:NPV = –SFr 27.0M + SFr 7.5M(PVIFA11.87%,5)NPV = SFr 123,117.76Converting the NPV to dollars at the spot rate, we get the NPV in U.S. dollars as:NPV = (SFr 123,117.76)($1/SFr 1.72)NPV = $71,580.10Challenge17. a.The domestic Fisher effect is:1 + R US = (1 + r US)(1 + h US)1 + r US = (1 + R US)/(1 + h US)This relationship must hold for any country, that is:1 + r FC = (1 + R FC)/(1 + h FC)The international Fisher effect states that real rates are equal across countries, so:1 + r US = (1 + R US)/(1 + h US) = (1 + R FC)/(1 + h FC) = 1 + r FCb.The exact form of unbiased interest rate parity is:E[S t] = F t = S0 [(1 + R FC)/(1 + R US)]tc.The exact form for relative PPP is:E[S t] = S0 [(1 + h FC)/(1 + h US)]td.For the home currency approach, we calculate the expected currency spot rate at time t as:E[S t] = (€0.5)[1.07/1.05]t= (€0.5)(1.019)tWe then convert the euro cash flows using this equation at every time, and find the present value. Doing so, we find:NPV = –[€2M/(€0.5)] + {€0.9M/[1.019(€0.5)]}/1.1 + {€0.9M/[1.0192(€0.5)]}/1.12 + {€0.9M/[1.0193(€0.5/$1)]}/1.13NPV = $316,230.72For the foreign currency approach, we first find the return in the euros as:R FC = 1.10(1.07/1.05) – 1 = 0.121Next, we find the NPV in euros as:NPV = –€2M + (€0.9M)/1.121 + (€0.9M)/1.1212+ (€0.9M)/1.1213= €158,115.36And finally, we convert the euros to dollars at the current exchange rate, which is:NPV ($) = €158,115.36 /(€0.5/$1) = $316,230.72。

罗斯《公司理财》第9版精要版英文原书课后部分章节答案详细»1 / 17 CH5 11，13，18，19，20 11. To find the PV of a lump sum, we use: PV = FV / (1 + r) t PV = $1,000,000 / (1.10) 80 = $488.19 13. To answer this question, we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is: FV = PV(1 + r) t Solving for r, we get: r = (FV / PV) 1 / t –1 r = ($1,260,000 / $150) 1/112 – 1 = .0840 or 8.40% To find the FV of the first prize, we use: FV = PV(1 + r) t FV = $1,260,000(1.0840) 33 = $18,056,409.94 18. To find the FV of a lump sum, we use: FV = PV(1 + r) t FV = $4,000(1.11) 45 = $438,120.97 FV = $4,000(1.11) 35 = $154,299.40 Better start early! 19. We need to find the FV of a lump sum. However, the money will only be invested for six years, so the number of periods is six. FV = PV(1 + r) t FV = $20,000(1.084)6 = $32,449.33 20. To answer this question, we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is: FV = PV(1 + r) t Solving for t, we get: t = ln(FV / PV) / ln(1 + r) t = ln($75,000 / $10,000) / ln(1.11) = 19.31 So, the money must be invested for 19.31 years. However, you will not receive the money for another two years. From now, you’ll wait: 2 years + 19.31 years = 21.31 years CH6 16，24，27，42，58 16. For this problem, we simply need to find the FV of a lump sum using the equation: FV = PV(1 + r) t 2 / 17 It is important to note that compounding occurs semiannually. To account for this, we will divide the interest rate by two (the number of compounding periods in a year), and multiply the number of periods by two. Doing so, we get: FV = $2,100[1 + (.084/2)] 34 = $8,505.93 24. This problem requires us to find the FV A. The equation to find the FV A is: FV A = C{[(1 + r) t – 1] / r} FV A = $300[{[1 + (.10/12) ] 360 – 1} / (.10/12)] = $678,146.38 27. The cash flows are annual and the compounding period is quarterly, so we need to calculate the EAR to make the interest rate comparable with the timing of the cash flows. Using the equation for the EAR, we get: EAR = [1 + (APR / m)] m – 1 EAR = [1 + (.11/4)] 4 – 1 = .1146 or 11.46% And now we use the EAR to find the PV of each cash flow as a lump sum and add them together: PV = $725 / 1.1146 + $980 / 1.1146 2 + $1,360 / 1.1146 4 = $2,320.36 42. The amount of principal paid on the loan is the PV of the monthly payments you make. So, the present value of the $1,150 monthly payments is: PV A = $1,150[(1 – {1 / [1 + (.0635/12)]} 360 ) / (.0635/12)] = $184,817.42 The monthly payments of $1,150 will amount to a principal payment of $184,817.42. The amount of principal you will still owe is: $240,000 – 184,817.42 = $55,182.58 This remaining principal amount will increase at the interest rate on the loan until the end of the loan period. So the balloon payment in 30 years, which is the FV of the remaining principal will be: Balloon payment = $55,182.58[1 + (.0635/12)] 360 = $368,936.54 58. To answer this question, we should find the PV of both options, and compare them. Since we are purchasing the car, the lowest PV is the best option. The PV of the leasing is simply the PV of the lease payments, plus the $99. The interest rate we would use for the leasing option is the same as the interest rate of the loan. The PV of leasing is: PV = $99 + $450{1 –[1 / (1 + .07/12) 12(3) ]} / (.07/12) = $14,672.91 The PV of purchasing the car is the current price of the car minus the PV of the resale price. The PV of the resale price is: PV = $23,000 / [1 + (.07/12)] 12(3) = $18,654.82 The PV of the decision to purchase is: $32,000 – 18,654.82 = $13,345.18 3 / 17 In this case, it is cheaper to buy the car than leasing it since the PV of the purchase cash flows is lower. To find the breakeven resale price, we need to find the resale price that makes the PV of the two options the same. In other words, the PV of the decision to buy should be: $32,000 – PV of resale price = $14,672.91 PV of resale price = $17,327.09 The resale price that would make the PV of the lease versus buy decision is the FV ofthis value, so: Breakeven resale price = $17,327.09[1 + (.07/12)] 12(3) = $21,363.01 CH7 3，18，21，22，31 3. The price of any bond is the PV of the interest payment, plus the PV of the par value. Notice this problem assumes an annual coupon. The price of the bond will be: P = $75({1 – [1/(1 + .0875)] 10 } / .0875) + $1,000[1 / (1 + .0875) 10 ] = $918.89 We would like to introduce shorthand notation here. Rather than write (or type, as the case may be) the entire equation for the PV of a lump sum, or the PV A equation, it is common to abbreviate the equations as: PVIF R,t = 1 / (1 + r) t which stands for Present V alue Interest Factor PVIFA R,t = ({1 – [1/(1 + r)] t } / r ) which stands for Present V alue Interest Factor of an Annuity These abbreviations are short hand notation for the equations in which the interest rate and the number of periods are substituted into the equation and solved. We will use this shorthand notation in remainder of the solutions key. 18. The bond price equation for this bond is: P 0 = $1,068 = $46(PVIFA R%,18 ) + $1,000(PVIF R%,18 ) Using a spreadsheet, financial calculator, or trial and error we find: R = 4.06% This is thesemiannual interest rate, so the YTM is: YTM = 2 4.06% = 8.12% The current yield is:Current yield = Annual coupon payment / Price = $92 / $1,068 = .0861 or 8.61% The effective annual yield is the same as the EAR, so using the EAR equation from the previous chapter: Effective annual yield = (1 + 0.0406) 2 – 1 = .0829 or 8.29% 20. Accrued interest is the coupon payment for the period times the fraction of the period that has passed since the last coupon payment. Since we have a semiannual coupon bond, the coupon payment per six months is one-half of the annual coupon payment. There are four months until the next coupon payment, so two months have passed since the last coupon payment. The accrued interest for the bond is: Accrued interest = $74/2 × 2/6 = $12.33 And we calculate the clean price as: 4 / 17 Clean price = Dirty price –Accrued interest = $968 –12.33 = $955.67 21. Accrued interest is the coupon payment for the period times the fraction of the period that has passed since the last coupon payment. Since we have a semiannual coupon bond, the coupon payment per six months is one-half of the annual coupon payment. There are two months until the next coupon payment, so four months have passed since the last coupon payment. The accrued interest for the bond is: Accrued interest = $68/2 × 4/6 = $22.67 And we calculate the dirty price as: Dirty price = Clean price + Accrued interest = $1,073 + 22.67 = $1,095.67 22. To find the number of years to maturity for the bond, we need to find the price of the bond. Since we already have the coupon rate, we can use the bond price equation, and solve for the number of years to maturity. We are given the current yield of the bond, so we can calculate the price as: Current yield = .0755 = $80/P 0 P 0 = $80/.0755 = $1,059.60 Now that we have the price of the bond, the bond price equation is: P = $1,059.60 = $80[(1 – (1/1.072) t ) / .072 ] + $1,000/1.072 t We can solve this equation for t as follows: $1,059.60(1.072) t = $1,111.11(1.072) t –1,111.11 + 1,000 111.11 = 51.51(1.072) t2.1570 = 1.072 t t = log 2.1570 / log 1.072 = 11.06 11 years The bond has 11 years to maturity.31. The price of any bond (or financial instrument) is the PV of the future cash flows. Even though Bond M makes different coupons payments, to find the price of the bond, we just find the PV of the cash flows. The PV of the cash flows for Bond M is: P M = $1,100(PVIFA 3.5%,16 )(PVIF 3.5%,12 ) + $1,400(PVIFA3.5%,12 )(PVIF 3.5%,28 ) + $20,000(PVIF 3.5%,40 ) P M = $19,018.78 Notice that for the coupon payments of $1,400, we found the PV A for the coupon payments, and then discounted the lump sum back to today. Bond N is a zero coupon bond with a $20,000 par value, therefore, the price of the bond is the PV of the par, or: P N = $20,000(PVIF3.5%,40 ) = $5,051.45 CH8 4，18，20，22，244. Using the constant growth model, we find the price of the stock today is: P 0 = D 1 / (R – g) = $3.04 / (.11 – .038) = $42.22 5 / 17 18. The price of a share of preferred stock is the dividend payment divided by the required return. We know the dividend payment in Year 20, so we can find the price of the stock in Y ear 19, one year before the first dividend payment. Doing so, we get: P 19 = $20.00 / .064 P 19 = $312.50 The price of the stock today is the PV of the stock price in the future, so the price today will be: P 0 = $312.50 / (1.064) 19 P 0 = $96.15 20. We can use the two-stage dividend growth model for this problem, which is: P 0 = [D 0 (1 + g 1 )/(R – g 1 )]{1 – [(1 + g 1 )/(1 + R)] T }+ [(1 + g 1 )/(1 + R)] T [D 0 (1 + g 2 )/(R –g 2 )] P0 = [$1.25(1.28)/(.13 –.28)][1 –(1.28/1.13) 8 ] + [(1.28)/(1.13)] 8 [$1.25(1.06)/(.13 – .06)] P 0 = $69.55 22. We are asked to find the dividend yield and capital gains yield for each of the stocks. All of the stocks have a 15 percent required return, which is the sum of the dividend yield and the capital gains yield. To find the components of the total return, we need to find the stock price for each stock. Using this stock price and the dividend, we can calculate the dividend yield. The capital gains yield for the stock will be the total return (required return) minus the dividend yield. W: P 0 = D 0 (1 + g) / (R – g) = $4.50(1.10)/(.19 – .10) = $55.00 Dividend yield = D 1 /P 0 = $4.50(1.10)/$55.00 = .09 or 9% Capital gains yield = .19 – .09 = .10 or 10% X: P 0 = D 0 (1 + g) / (R – g) = $4.50/(.19 – 0) = $23.68 Dividend yield = D 1 /P 0 = $4.50/$23.68 = .19 or 19% Capital gains yield = .19 – .19 = 0% Y: P 0 = D 0 (1 + g) / (R – g) = $4.50(1 – .05)/(.19 + .05) = $17.81 Dividend yield = D 1 /P 0 = $4.50(0.95)/$17.81 = .24 or 24% Capital gains yield = .19 – .24 = –.05 or –5% Z: P 2 = D 2 (1 + g) / (R – g) = D 0 (1 + g 1 ) 2 (1 +g 2 )/(R – g 2 ) = $4.50(1.20) 2 (1.12)/(.19 – .12) = $103.68 P 0 = $4.50 (1.20) / (1.19) + $4.50(1.20) 2 / (1.19) 2 + $103.68 / (1.19) 2 = $82.33 Dividend yield = D 1 /P 0 = $4.50(1.20)/$82.33 = .066 or 6.6% Capital gains yield = .19 – .066 = .124 or 12.4% In all cases, the required return is 19%, but the return is distributed differently between current income and capital gains. High growth stocks have an appreciable capital gains component but a relatively small current income yield; conversely, mature, negative-growth stocks provide a high current income but also price depreciation over time. 24. Here we have a stock with supernormal growth, but the dividend growth changes every year for the first four years. We can find the price of the stock in Y ear 3 since the dividend growth rate is constant after the third dividend. The price of the stock in Y ear 3 will be the dividend in Y ear 4, divided by the required return minus the constant dividend growth rate. So, the price in Y ear 3 will be: 6 / 17 P3 = $2.45(1.20)(1.15)(1.10)(1.05) / (.11 – .05) = $65.08 The price of the stock today will be the PV of the first three dividends, plus the PV of the stock price in Y ear 3, so: P 0 = $2.45(1.20)/(1.11) + $2.45(1.20)(1.15)/1.11 2 + $2.45(1.20)(1.15)(1.10)/1.11 3 + $65.08/1.11 3 P 0 = $55.70 CH9 3，4，6，9，15 3. Project A has cash flows of $19,000 in Y ear 1, so the cash flows are short by $21,000 of recapturing the initial investment, so the payback for Project A is: Payback = 1 + ($21,000 / $25,000) = 1.84 years Project B has cash flows of: Cash flows = $14,000 + 17,000 + 24,000 = $55,000 during this first three years. The cash flows are still short by $5,000 of recapturing the initial investment, so the payback for Project B is: B: Payback = 3 + ($5,000 / $270,000) = 3.019 years Using the payback criterion and a cutoff of 3 years, accept project A and reject project B. 4. When we use discounted payback, we need to find the value of all cash flows today. The value today of the project cash flows for the first four years is: V alue today of Y ear 1 cash flow = $4,200/1.14 = $3,684.21 V alue today of Y ear 2 cash flow = $5,300/1.14 2 = $4,078.18 V alue today of Y ear 3 cash flow = $6,100/1.14 3 = $4,117.33 V alue today of Y ear 4 cash flow = $7,400/1.14 4 = $4,381.39 To findthe discounted payback, we use these values to find the payback period. The discounted first year cash flow is $3,684.21, so the discounted payback for a $7,000 initial cost is: Discounted payback = 1 + ($7,000 – 3,684.21)/$4,078.18 = 1.81 years For an initial cost of $10,000, the discounted payback is: Discounted payback = 2 + ($10,000 –3,684.21 –4,078.18)/$4,117.33 = 2.54 years Notice the calculation of discounted payback. We know the payback period is between two and three years, so we subtract the discounted values of the Y ear 1 and Y ear 2 cash flows from the initial cost. This is the numerator, which is the discounted amount we still need to make to recover our initial investment. We divide this amount by the discounted amount we will earn in Y ear 3 to get the fractional portion of the discounted payback. If the initial cost is $13,000, the discounted payback is: Discounted payback = 3 + ($13,000 – 3,684.21 – 4,078.18 – 4,117.33) / $4,381.39 = 3.26 years 7 / 17 6. Our definition of AAR is the average net income divided by the average book value. The average net income for this project is: A verage net income = ($1,938,200 + 2,201,600 + 1,876,000 + 1,329,500) / 4 = $1,836,325 And the average book value is: A verage book value = ($15,000,000 + 0) / 2 = $7,500,000 So, the AAR for this project is: AAR = A verage net income / A verage book value = $1,836,325 / $7,500,000 = .2448 or 24.48% 9. The NPV of a project is the PV of the outflows minus the PV of the inflows. Since the cash inflows are an annuity, the equation for the NPV of this project at an 8 percent required return is: NPV = –$138,000 + $28,500(PVIFA 8%, 9 ) = $40,036.31 At an 8 percent required return, the NPV is positive, so we would accept the project. The equation for the NPV of the project at a 20 percent required return is: NPV = –$138,000 + $28,500(PVIFA 20%, 9 ) = –$23,117.45 At a 20 percent required return, the NPV is negative, so we would reject the project. We would be indifferent to the project if the required return was equal to the IRR of the project, since at that required return the NPV is zero. The IRR of the project is: 0 = –$138,000 + $28,500(PVIFA IRR, 9 ) IRR = 14.59% 15. The profitability index is defined as the PV of the cash inflows divided by the PV of the cash outflows. The equation for the profitability index at a required return of 10 percent is: PI = [$7,300/1.1 + $6,900/1.1 2 + $5,700/1.1 3 ] / $14,000 = 1.187 The equation for the profitability index at a required return of 15 percent is: PI = [$7,300/1.15 + $6,900/1.15 2 + $5,700/1.15 3 ] / $14,000 = 1.094 The equation for the profitability index at a required return of 22 percent is: PI = [$7,300/1.22 + $6,900/1.22 2 + $5,700/1.22 3 ] / $14,000 = 0.983 8 / 17 We would accept the project if the required return were 10 percent or 15 percent since the PI is greater than one. We would reject the project if the required return were 22 percent since the PI。

CHAPTER 20INTERNATIONAL CORPORATE FINANCEAnswers to Concepts Review and Critical Thinking Questions1. a.The dollar is selling at a premium because it is more expensive in the forward market than inthe spot market (SFr 1.53 versus SFr 1.50).b.The franc is expected to depreciate relative to the dollar because it will take more francs to buyone dollar in the future than it does today.c.Inflation in Switzerland is higher than in the United States, as are nominal interest rates.2.The exchange rate will increase, as it will take progressively more pesos to purchase a dollar. This isthe relative PPP relationship.3. a.The Australian dollar is expected to weaken relative to the dollar, because it will take moreA$ in the future to buy one dollar than it does today.b.The inflation rate in Australia is higher.c.Nominal interest rates in Australia are higher; relative real rates in the two countries are thesame.4. A Yankee bond is most accurately described by d.5. No. For example, if a country’s currency strengthens, imports bee cheaper (good), but its exports beemore expensive for others to buy (bad). The reverse is true for currency depreciation.6.Additional advantages include being closer to the final consumer and, thereby, saving ontransportation, significantly lower wages, and less exposure to exchange rate risk. Disadvantages include political risk and costs of supervising distant operations.7.One key thing to remember is that dividend payments are made in the home currency. Moregenerally, it may be that the owners of the multinational are primarily domestic and are ultimately concerned about their wealth denominated in their home currency because, unlike a multinational, they are not internationally diversified.8. a.False. If prices are rising faster in Great Britain, it will take more pounds to buy the sameamount of goods that one dollar can buy; the pound will depreciate relative to the dollar.b.False. The forward market would already reflect the projected deterioration of the euro relativeto the dollar. Only if you feel that there might be additional, unanticipated weakening of the euro that isn’t reflected in forward rates today, will the forward hedge protect you against additional declines.c.True. The market would only be correct on average, while you would be correct all the time.9. a.American exporters: their situation in general improves because a sale of the exported goods fora fixed number of euros will be worth more dollars.American importers: their situation in general worsens because the purchase of the importedgoods for a fixed number of euros will cost more in dollars.b.American exporters: they would generally be better off if the British government’s intentionsresult in a strengthened pound.American importers: they would generally be worse off if the pound strengthens.c.American exporters: they would generally be much worse off, because an extreme case of fiscalexpansion like this one will make American goods prohibitively expensive to buy, or else Brazilian sales, if fixed in cruzeiros, would bee worth an unacceptably low number of dollars.American importers: they would generally be much better off, because Brazilian goods will beemuch cheaper to purchase in dollars.10.IRP is the most likely to hold because it presents the easiest and least costly means to exploit anyarbitrage opportunities. Relative PPP is least likely to hold since it depends on the absence of market imperfections and frictions in order to hold strictly.11.It all depends on whether the forward market expects the same appreciation over the period andwhether the expectation is accurate. Assuming that the expectation is correct and that other traders do not have the same information, there will be value to hedging the currency exposure.12.One possible reason investment in the foreign subsidiary might be preferred is if this investmentprovides direct diversification that shareholders could not attain by investing on their own. Another reason could be if the political climate in the foreign country was more stable than in the home country. Increased political risk can also be a reason you might prefer the home subsidiary investment. Indonesia can serve as a great example of political risk. If it cannot be diversified away, investing in this type of foreign country will increase the systematic risk. As a result, it will raise the cost of the capital, and could actually decrease the NPV of the investment.13.Yes, the firm should undertake the foreign investment. If, after taking into consideration all risks, aproject in a foreign country has a positive NPV, the firm should undertake it. Note that in practice, the stated assumption (that the adjustment to the discount rate has taken into consideration all political and diversification issues) is a huge task. But once that has been addressed, the net present value principle holds for foreign operations, just as for domestic.14.If the foreign currency depreciates, the U.S. parent will experience an exchange rate loss when theforeign cash flow is remitted to the U.S. This problem could be overe by selling forward contracts.Another way of overing this problem would be to borrow in the country where the project is located.15.False. If the financial markets are perfectly petitive, the difference between the Eurodollar rate andthe U.S. rate will be due to differences in risk and government regulation. Therefore, speculating in those markets will not be beneficial.16.The difference between a Eurobond and a foreign bond is that the foreign bond is denominated in thecurrency of the country of origin of the issuing pany. Eurobonds are more popular than foreign bonds because of registration differences. Eurobonds are unregistered securities.Solutions to Questions and ProblemsNOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.Basicing the quotes from the table, we get:a.$50(€0.7870/$1) = €39.35b.$1.2706c.€5M($1.2706/€) = $6,353,240d.New Zealand dollare.Mexican pesof.(P11.0023/$1)($1.2186/€1) = P13.9801/€This is a cross rate.g.The most valuable is the Kuwait dinar. The least valuable is the Indonesian rupiah.2. a.You would prefer £100, since:(£100)($.5359/£1) = $53.59b.You would still prefer £100. Using the $/£ exchange rate and the SF/£ exchange rate to find theamount of Swiss francs £100 will buy, we get:(£100)($1.8660/£1)(SF .8233) = SF 226.6489ing the quotes in the book to find the SF/£ cross rate, we find:(SF 1.2146/$1)($0.5359/£1) = SF 2.2665/£1The £/SF exchange rate is the inverse of the SF/£ exchange rate, so:£1/SF .4412 = £0.4412/SF 13. a.F180= ¥104.93 (per $). The yen is selling at a premium because it is more expensive in theforward market than in the spot market ($0.0093659 versus $0.009530).b.F90 = $1.8587/£. The pound is selling at a discount because it is less expensive in the forwardmarket than in the spot market ($0.5380 versus $0.5359).c.The value of the dollar will fall relative to the yen, since it takes more dollars to buy one yen inthe future than it does today. The value of the dollar will rise relative to the pound, because it will take fewer dollars to buy one pound in the future than it does today.4. a.The U.S. dollar, since one Canadian dollar will buy:(Can$1)/(Can$1.26/$1) = $0.7937b.The cost in U.S. dollars is:(Can$2.19)/(Can$1.26/$1) = $1.74Among the reasons that absolute PPP doesn’t hold are tariffs an d other barriers to trade, transactions costs, taxes, and different tastes.c.The U.S. dollar is selling at a discount, because it is less expensive in the forward market thanin the spot market (Can$1.22 versus Can$1.26).d.The Canadian dollar is expected to appreciate in value relative to the dollar, because it takesfewer Canadian dollars to buy one U.S. dollar in the future than it does today.e.Interest rates in the United States are probably higher than they are in Canada.5. a.The cross rate in ¥/£ terms is:(¥115/$1)($1.70/£1) = ¥195.5/£1b.The yen is quoted too low relative to the pound. Take out a loan for $1 and buy ¥115. Use the¥115 to purchase pounds at the cross-rate, which will give you:¥115(£1/¥185) = £0.6216Use the pounds to buy back dollars and repay the loan. The cost to repay the loan will be:£0.6216($1.70/£1) = $1.0568You arbitrage profit is $0.0568 per dollar used.6.We can rearrange the interest rate parity condition to answer this question. The equation we will useis:R FC = (F T– S0)/S0 + R USUsing this relationship, we find:Great Britain: R FC = (£0.5394 – £0.5359)/£0.5359 + .038 = 4.45%Japan: R FC = (¥104.93 – ¥106.77)/¥106.77 + .038 = 2.08%Switzerland: R FC = (SFr 1.1980 – SFr 1.2146)/SFr 1.2146 + .038 = 2.43%7.If we invest in the U.S. for the next three months, we will have:$30M(1.0045)3 = $30,406,825.23If we invest in Great Britain, we must exchange the dollars today for pounds, and exchange the pounds for dollars in three months. After making these transactions, the dollar amount we would have in three months would be:($30M)(£0.56/$1)(1.0060)3/(£0.59/$1) = $28,990,200.05We should invest in U.S.ing the relative purchasing power parity equation:F t = S0 × [1 + (h FC– h US)]tWe find:Z3.92 = Z3.84[1 + (h FC– h US)]3h FC– h US = (Z3.92/Z3.84)1/3– 1h FC– h US = .0069Inflation in Poland is expected to exceed that in the U.S. by 0.69% over this period.9.The profit will be the quantity sold, times the sales price minus the cost of production. Theproduction cost is in Singapore dollars, so we must convert this to U.S. dollars. Doing so, we find that if the exchange rates stay the same, the profit will be:Profit = 30,000[$145 – {(S$168.50)/(S$1.6548/$1)}]Profit = $1,295,250.18If the exchange rate rises, we must adjust the cost by the increased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/1.1(S$1.6548/$1)}]Profit = $1,572,954.71If the exchange rate falls, we must adjust the cost by the decreased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/0.9(S$1.6548/$1)}]Profit = $955,833.53To calculate the breakeven change in the exchange rate, we need to find the exchange rate that make the cost in Singapore dollars equal to the selling price in U.S. dollars, so:$145 = S$168.50/S TS T = S$1.1621/$1S T = –.2978 or –29.78% decline10. a.If IRP holds, then:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.5257Since given F180 is Kr6.56, an arbitrage opportunity exists; the forward premium is too high.Borrow Kr1 today at 8% interest. Agree to a 180-day forward contract at Kr 6.56. Convert the loan proceeds into dollars:Kr 1 ($1/Kr 6.43) = $0.15552Invest these dollars at 5%, ending up with $0.15931. Convert the dollars back into krone as$0.15931(Kr 6.56/$1) = Kr 1.04506Repay the Kr 1 loan, ending with a profit of:Kr1.04506 – Kr1.03868 = Kr 0.00638b.To find the forward rate that eliminates arbitrage, we use the interest rate parity condition, so:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.525711.The international Fisher effect states that the real interest rate across countries is equal. We canrearrange the international Fisher effect as follows to answer this question:R US– h US = R FC– h FCh FC = R FC + h US– R USa.h AUS = .05 + .035 – .039h AUS = .046 or 4.6%b.h CAN = .07 + .035 – .039h CAN = .066 or 6.6%c.h TAI = .10 + .035 – .039h TAI = .096 or 9.6%12. a.The yen is expected to get stronger, since it will take fewer yen to buy one dollar in the futurethan it does today.b.h US– h JAP (¥129.76 – ¥131.30)/¥131.30h US– h JAP = – .0117 or –1.17%(1 – .0117)4– 1 = –.0461 or –4.61%The approximate inflation differential between the U.S. and Japan is – 4.61% annually.13. We need to find the change in the exchange rate over time, so we need to use the relative purchasingpower parity relationship:F t = S0 × [1 + (h FC– h US)]TUsing this relationship, we find the exchange rate in one year should be:F1 = 215[1 + (.086 – .035)]1F1 = HUF 225.97The exchange rate in two years should be:F2 = 215[1 + (.086 – .035)]2F2 = HUF 237.49And the exchange rate in five years should be:F5 = 215[1 + (.086 – .035)]5F5 = HUF 275.71ing the interest-rate parity theorem:(1 + R US) / (1 + R FC) = F(0,1) / S0We can find the forward rate as:F(0,1) = [(1 + R US) / (1 + R FC)] S0F(0,1) = (1.13 / 1.08)$1.50/£F(0,1) = $1.57/£Intermediate15.First, we need to forecast the future spot rate for each of the next three years. From interest rate andpurchasing power parity, the expected exchange rate is:E(S T) = [(1 + R US) / (1 + R FC)]T S0So:E(S1) = (1.0480 / 1.0410)1 $1.22/€ = $1.2282/€E(S2) = (1.0480 / 1.0410)2 $1.22/€ = $1.2365/€E(S3) = (1.0480 / 1.0410)3 $1.22/€ = $1.2448/€Now we can use these future spot rates to find the dollar cash flows. The dollar cash flow each year will be:Year 0 cash flow = –€$12,000,000($1.22/€) = –$14,640,000.00Year 1 cash flow = €$2,700,000($1.2282/€) = $3,316,149.86Year 2 cash flow = €$3,500,000($1.2365/€) = $4,327,618.63Year 3 cash flow = (€3,300,000 + 7,400,000)($1.2448/€) = $13,319,111.90And the NPV of the project will be:NPV = –$14,640,000 + $3,316,149.86/1.13 + $4,4327,618.63/1.132 + $13,319,111.90/1.133NPV = $914,618.7316. a.Implicitly, it is assumed that interest rates won’t change over the life of the project, but theexchange rate is projected to decline because the Euroswiss rate is lower than the Eurodollar rate.b.We can use relative purchasing power parity to calculate the dollar cash flows at each time. Theequation is:E[S T] = (SFr 1.72)[1 + (.07 – .08)]TE[S T] = 1.72(.99)TSo, the cash flows each year in U.S. dollar terms will be:t SFr E[S T] US$0 –27.0M –$15,697,674.421 +7.5M 1.7028 $4,404,510.222 +7.5M 1.6858 $4,449,000.223 +7.5M 1.6689 $4,493,939.624 +7.5M 1.6522 $4,539,332.955 +7.5M 1.6357 $4,585,184.79And the NPV is:NPV = –$15,697,674.42 + $4,404,510.22/1.13 + $4,449,000.22/1.132 + $4,493,939.62/1.133 + $4,539,332.95/1.134 + $4,585,184.79/1.135NPV = $71,580.10c.Rearranging the relative purchasing power parity equation to find the required return in Swissfrancs, we get:R SFr = 1.13[1 + (.07 – .08)] – 1R SFr = 11.87%So, the NPV in Swiss francs is:NPV = –SFr 27.0M + SFr 7.5M(PVIFA11.87%,5)NPV = SFr 123,117.76Converting the NPV to dollars at the spot rate, we get the NPV in U.S. dollars as:NPV = (SFr 123,117.76)($1/SFr 1.72)NPV = $71,580.10Challenge17. a.The domestic Fisher effect is:1 + R US = (1 + r US)(1 + h US)1 + r US = (1 + R US)/(1 + h US)This relationship must hold for any country, that is:1 + r FC = (1 + R FC)/(1 + h FC)The international Fisher effect states that real rates are equal across countries, so:1 + r US = (1 + R US)/(1 + h US) = (1 + R FC)/(1 + h FC) = 1 + r FCb.The exact form of unbiased interest rate parity is:E[S t] = F t = S0 [(1 + R FC)/(1 + R US)]tc.The exact form for relative PPP is:E[S t] = S0 [(1 + h FC)/(1 + h US)]td.For the home currency approach, we calculate the expected currency spot rate at time t as:E[S t] = (€0.5)[1.07/1.05]t= (€0.5)(1.019)tWe then convert the euro cash flows using this equation at every time, and find the present value. Doing so, we find:NPV = –[€2M/(€0.5)] + {€0.9M/[1.019(€0.5)]}/1.1 + {€0.9M/[1.0192(€0.5)]}/1.12 + {€0.9M/[1.0193(€0.5/$1)]}/1.13NPV = $316,230.72For the foreign currency approach, we first find the return in the euros as:R FC = 1.10(1.07/1.05) – 1 = 0.121Next, we find the NPV in euros as:NPV = –€2M + (€0.9M)/1.121 + (€0.9M)/1.1212+ (€0.9M)/1.1213= €158,115.36And finally, we convert the euros to dollars at the current exchange rate, which is:NPV ($) = €158,115.36 /(€0.5/$1) = $316,230.72。

CHAPTER 20Cash and Liquidity Management I. DEFINITIONSSPECULATIVE MOTIVEa 1. The need to hold cash to take advantage of additional investment opportunities iscalled the _____ motive.a. speculativeb. precautionaryc. transactiond. floate. compensating balancesPRECAUTIONARY MOTIVEb 2. The need to hold cash as a safety margin to act as a financial reserve is called the_____ motive.a. speculativeb. precautionaryc. transactiond. floate. compensating balancesTRANSACTION MOTIVEc 3. The need to hold cash to satisfy the ongoing disbursement and collection activities of afirm as part of its daily operations is called the _____ motive.a. speculativeb. precautionaryc. transactiond. floate. compensating balancesLEDGER BALANCEd 4. The balance of cash shown by a firm on its boo ks at any one time is the firm’s:a. tax balance.b. ready balance.c. speculative cash.d. ledger balance.e. available balance.AVAILABLE BALANCEe 5. The balance of cash in a firm’s bank account that can be spent is the firm’s:a. tax balance.b. book value.c. float.d. ledger balance.e. available balance.CHAPTER 20FLOATc 6. The difference between a firm’s ledger balance and its available balance is called thefirm’s:a. tax balance.b. market value of cash.c. float.d. book balance.e. collected balance.LOCKBOXESb 7. _____ are special post office boxes often set up by a firm to expedite the receipt andprocessing of its accounts receivables payments.a. Float managersb. Lockboxesc. Open accountsd. Open boxese. List-on-demand boxesCASH CONCENTRATIONa 8. The practice of and procedures for moving cash from multiple banks into a firm’scentralized bank account is known as:a. cash concentration.b. strategic cash disbursement.c. transfer flotation.d. payables management.e. float management.ZERO-BALANCE ACCOUNTd 9. A disbursement account for which the firm maintains no balance, transferring in fundsfrom a master account only when needed to cover demands for payment, is called a_____ account.a. lockboxb. cleanupc. compensating balanced. zero-balancee. revolvingCONTROLLED DISBURSEMENT ACCOUNTe 10. An account where the firm transfers in funds, usually from a master account, in anamount sufficient to cover demands for payment, is called a _____ account.a. lockboxb. cleanupc. compensating balanced. revolvinge. controlled disbursementCHAPTER 20 APPENDIX: TARGET CASH BALANCEa 11. The firm’s desired cash level as determined by the tradeoff between carrying costs a ndshortage costs is called its:a. target cash balance.b. adjustment costs.c. variable costs.d. total costs.e. compensating balance.APPENDIX: ADJUSTMENT COSTSb 12. The costs of holding too little cash are called _____ costs.a. carryingb. adjustmentc. maintenanced. variablee. totalII. CONCEPTSMOTIVES FOR LIQUIDITYb13. Which one of the following statements is correct concerning a motive for maintaining liquidity?a. Firms should maintain compensating balances just in case they encounter anemergency situation.b. Firms need to hold cash as a buffer between inflowing and outflowing transactions.c. International firms have a transactional motive to hold cash in case favorable exchangerates become available.d. Firms need to hold cash for precautionary motives especially since money marketaccounts are not very liquid.e. The increasing use of electronic funds transfers is increasing the transactional motiveto hold cash.DISBURSEMENTS FLOATd 14. Disbursement float:I. is created by checks which have been deposited into a firm’s bank account but whichhave not yet cleared.II. is sometimes used by firms to fund short-term investments even though such use is ethically questionable.III. is created by any transaction which decreases a firm’s book balance but not its available cash balance.IV. is virtually eliminated when payments are made electronically.a. I and III onlyb. II and IV onlyc. I, II, and IV onlyd. II, III, and IV onlye. I, II, III, and IVCHAPTER 20COLLECTION FLOATe 15. Collection float:a. is more desirable to firms than disbursement float.b. is fully eliminated by the installation of a lockbox system.c. exists when a firm’s available balance exceeds its book balance.d. increases for a firm when its customers opt to pay their bills electronically.e. can increase the investment income of a firm if the firm can eliminate such float. NET FLOATd 16. Net float:I. is the sum of the total collection and disbursements float.II. that is positive is preferred by firms over net float that is negative.III. that is positive is called net collection float.IV. is the difference between a firm’s ledger balance and its available balance.a. I and II onlyb. III and IV onlyc. I, II, and III onlyd. I, II, and IV onlye. II, III, and IV onlyETHICAL ISSUEd 17. Check kiting:a. is ethical.b. occurs when you write checks against the collection float of your firm.c. is widely practiced by most corporations.d. is the exploitation of disbursement float through the use of checks.e. is increasing due to recent improvements in the banking system.COLLECTION TIMEd 18. Collection time:a. is equal to mail time plus the processing delay minus the availability delay.b. increases when payments are made electronically.c. increases when customers’ bills are sent electronically.d. is decreased when customers pay at the point of sale rather than when they are billed.e. is independent of the business nature of a firm.COLLECTION TIMEc 19. Which of the following will decrease the total collection time for a firm?I. implementing a lockbox systemII. billing customers electronicallyIII. establishing preauthorized payment arrangementsIV. accepting debit card transactionsa. I and III onlyb. II and IV onlyc. I, III, and IV onlyd. II, III, and IV onlye. I, II, III, and IVCHAPTER 20 COLLECTION TIMEe 20. Which of the following should help reduce the total collection time for your firm?I. collecting your firm’s mail earlier in th e morning and delivering it directly to thepeople who process these paymentsII. adding additional staff in the mornings for mail and payment processingIII. providing a discount for customers who pay electronicallyIV. establishing preauthorized payments for fixed payments from customersa. I and II onlyb. III and IV onlyc. II, III, and IV onlyd. I, II, and IV onlye. I, II, III, and IVLOCKBOXESb 21. A lockbox system:a. entails the use of a bank which is centrally located to collect payments on a nationwidebasis.b. deposits customer checks prior to recording customer payments to their respectivereceivable accounts.c. is used to reduce the disbursement float of a firm.d. is efficient irregardless of the locations selected for lockbox destinations.e. entails the posting of customer payments to their receivables account followed by adeposit of the funds received.LOCKBOXESa 22. Lockboxes:a. should be geographically located close to a firm’s primary customers.b. should be located in remote locations to increase the net disbursement float.c. that are electronic are less efficient than traditional lockboxes.d. tend to be negative net present value projects for firms with a large number ofsizeable transactions.e. tend to also be used as concentration accounts.CASH CONCENTRATIONa 23. Cash concentration accounts:a. tend to increase the funds available for short-term investing.b. tend to increase the complexity of a firm’s cash management.c. that utilize wire transfers are the cheapest to maintain from a cost point of view.d. receive checks directly from all of a firm’s customers.e. are all zero-balance accounts.CHAPTER 20CASH CONCENTRATIONe 24. Which one of the following statements is correct?a. Funds received via an automated clearinghouse transfer is available that day.b. A depository transfer check is the most costly means of transferring funds into a cashconcentration account.c. The means selected to transfer funds is dependent upon both the size and the numberof checks received at a collection point.d. Concentration accounts are used to transfer funds to lockbox locations as needed.e. The most expedient means of transferring funds into a concentration account is a wiretransfer.CASH CONCENTRATIONd 25. A cash concentration account:I. is frequently used to fund the purchase of repurchase agreements.II. could be used to cover a compensating balance requirement.III. is oftentimes used to transfer funds into zero-balance or controlled disbursements accounts.IV. is managed by the credit manager of a firm.a. I and III onlyb. II and IV onlyc. II and III onlyd. I, II, and III onlye. I, II, III, and IVCASH CONCENTRATIONc 26. The main purpose of a cash concentration account is to:a. decrease collection float.b. decrease disbursement float.c. consolidate funds.d. replace a lockbox system.e. cover compensating balance requirements.CASH CONCENTRATIONb 27. Which one of the following statements is correct?a. Cash concentration accounts apply only to firms with geographically diversifiedmanufacturing facilities.b. Cash concentration accounts should improve the efficiency of a firm’s cashmanagement.c. A firm with a lock-box system does not need a concentration account.d. Firms generally need multiple concentration accounts.e. Concentration accounts are not needed when a firm’s disbursements are all doneelectronically.ZERO-BALANCE ACCOUNTSc 28. A zero balance account:a. is used to cover the compensating balance requirement of a line of credit agreement.b. is only used to deposit funds received at local lockboxes.c. is funded on an as-needed basis only.d. is limited to handling payroll disbursements.e. requires a compensating balance.CHAPTER 20 ZERO-BALANCE ACCOUNTSc 29. Which one of the following statements is correct concerning zero-balance accounts?a. Each zero-balance account is offset by a compensating balance account.b. Zero-balance accounts are used for depositing incoming funds.c. A master account must be used in conjunction with a zero-balance account.d. Zero-balance accounts are used solely in conjunction with a lockbox system.e. Zero-balance accounts are still required to maintain a minimal balance. MANAGEMENT OF CASH SURPLUS/DEFICITc 30. Which one of the following statements is correct?a. Short-term assets that trade in the money market account mature in two years or less.b. Banks forbid the transference of excess funds from a checking account into aninvestment account on a daily basis.c. Firms sometimes create a temporary cash surplus because they are saving funds for amajor expenditure.d. Cyclical firms increase their long-term financing such that they continually have a cashsurplus.e. Corporations are not permitted to use money market mutual funds but can use bankmoney market accounts.MANAGEMENT OF CASH SURPLUS/DEFICITe 31. Which two of the following are the primary reasons why firms have cash surpluses?I. cyclical activitiesII. desire to invest fundsIII. excessive short-term financingIV. financing of planned expendituresa. I and III onlyb. II and IV onlyc. I and II onlyd. III and IV onlye. I and IV onlySHORT-TERM SECURITIESc 32. Which one of the following statements is correct?a. Short-term securities are more interest rate sensitive than long-term securities.b. The rate of return earned on short-term securities tends to exceed that earned on long-term securities.c. U.S. Treasury bills are well suited for short-term investments.d. The income earned on U.S. Treasury bills is exempt from all taxation.e. Short-term investments tend to have high levels of default risk.SHORT-TERM SECURITIESa 33. Municipal bonds:a. are less marketable than U.S. Treasury bills.b. produce income which is taxed at the federal level.c. generally carry a higher coupon rate than corporate bonds.d. are also referred to as commercial paper.e. are issued by the federal government.CHAPTER 20SHORT-TERM SECURITIESd 34. Which of the following are characteristics of money market securities?I. long-term maturitiesII. low default riskIII. highly marketableIV. very liquida. I and III onlyb. II and III onlyc. I and IV onlyd. II, III, and IV onlye. I, II, III, and IVSHORT-TERM SECURITIESe 35. A jumbo CD:a. is issued by the federal government.b. generally matures between 2 and 5 years.c. is a loan of $100,000 or more to a state.d. with a 6-month maturity is generally illiquid.e. is a short-term loan to a commercial bank.SHORT-TERM SECURITIESb 36. Assume that your firm buys a U.S. Treasury bill today with the understanding that theseller will buy it back tomorrow at a slightly higher price. This investment is known asa:a. commercial paper transaction.b. repurchase agreement.c. private certificate of deposit.d. revenue anticipation note.e. jumbo CD.SHORT-TERM SECURITIESd 37. A money market preferred stock:a. has a fixed dividend.b. is sold only with the agreement that it will be repurchased by the seller within theweek.c. is a special form of commercial paper.d. provides tax advantaged income to corporations.e. has its interest rate reset daily.APPENDIX: TARGET CASH BALANCEc 38. The target cash balance can be defined as the point where the:a. opportunity costs of holding cash are equal to zero.b. opportunity costs of holding cash are maximized.c. opportunity costs of holding cash are equal to the trading costs.d. trading costs are equal to zero.e. trading costs are maximized.CHAPTER 20 APPENDIX: BAT MODELb 39. Which of the following statements are correct concerning the BAT model?I. This model is used to determine the optimal debt-equity ratio for a firm.II. One advantage of the BAT model is that it assumes that a firm has a constant cash outflow every day.III. The BAT model is a complex model designed to estimate the cash flows of a firm.IV. One disadvantage of the BAT model is the fact that it assumes all cash outflows are known with certainty.a. I onlyb. IV onlyc. II and III onlyd. I and II onlye. III and IV onlyAPPENDIX: BAT MODELe 40. Which of the following are needed to determine the optimal strategy using the BATmodel?I. the amount of cash needed for transactions over a period of timeII. management’s desired lower level of cashIII. the opportunity cost of holding cashIV. the fixed cost of a securities tradea. II onlyb. I and III onlyc. II and IV onlyd. III and IV onlye. I, III, and IV onlyAPPENDIX: BAT MODELb 41. The BAT model is used to:a. maximize the benefits of leverage.b. determine the optimal cash position of a firm.c. eliminate all daily cash surpluses.d. analyze the cash balance given fluctuating cash inflows and outflows.e. maximize the opportunity costs of holding cash.APPENDIX: MILLER-ORR MODELe 42. The Miller-Orr model assumes that:a. all cash flows are constant.b. all cash flows are known with certainty.c. the average change in the daily cash flows is positive and continually increasing.d. management sets the upper cash limit.e. all cash flows fluctuate randomly.CHAPTER 20APPENDIX: MILLER-ORR MODELe 43. The Miller-Orr model:a. is more simplistic than the BAT model.b. analyzes cash balances within both an upper limit and a lower limit as set bymanagement.c. bases the optimal level of cash solely on the opportunity costs of holding cash.d. supports the argument that the target cash balance declines as order costs increase.e. is based on cash flows that randomly fluctuate.APPENDIX: TARGET CASH BALANCEd 44. Which of the following statements is (are) correct?I. A firm has a greater likelihood of needing an unexpected loan when its cash flows arerelatively constant over time.II. The cost of borrowing and the cost of selling securities affect the target cash balance of a firm.III. Management’s desire to maintain a low cash balance affects their need to borrow money.IV. The target cash balance decreases as the interest rate rises.a. II and III onlyb. II and IV onlyc. I, II, and IV onlyd. II, III, and IV onlye. I, II, III, and IVIII. PROBLEMSDISBURSEMENT FLOATe 45. You have a ledger balance of $1,500. You have $2,500 in uncollected deposits and$4,300 in outstanding checks. What is the amount of your disbursement float?a. -$300b. $0c. $1,000d. $2,800e. $4,300DISBURSEMENT FLOATe 46. On an average day, your firm writes 20 checks with an average amount of $430. Thesechecks clear your bank in an average of 4 days. What is the average amount of yourdisbursement float?a. $1,720b. $2,150c. $8,600d. $17,200e. $34,400COLLECTION FLOATc 47. Your firm receives 30 checks from customers on an average day. These checks, onaverage, are worth $45 each and clear the bank in 5 days. In addition, your firm mailsout 20 checks a day with an average amount of $42. These checks clear your bank in 4days. What is the average amount of the collection float?a. $3,360b. $3,390c. $6,750d. $7,240e. $10,110COLLECTION FLOATb 48. When you reconciled your checkbook, you had an adjusted bank balance of $2,650.You had 6 checks outstanding with a total value of $4,100 and 2 outstanding depositsworth $1,200 each. What is the amount of your collection float?a. $1,200b. $2,400c. $6,500d. $24,600e. $27,000NET FLOATd 49. Your firm has an available balance of $1,380 and a ledger balance of $1,210. Thedeposit of $560 that was made today is not yet included in the bank’s balance. Thereare also 5 checks outstanding with a total value of $730. What is the net float?a. net collection float of $170b. net collection float of $340c. net float of $0d. net disbursement float of $170e. net disbursement float of $340NET FLOATa 50. A firm has $23,630 in outstanding checks that have not cleared the bank. The firm alsohas $31,000 in deposits that have been recorded by the firm but not by the bank. Thecurrent available balance is $14,710. What is the status of the net float?a. net collection float of $7,370b. net collection float of $22,080c. net collection float of $31,000d. net disbursement float of $7,370e. net disbursement float of $22,080a 51. Your firm generally receives 4 checks a month. The check amounts and the collectiondelay for each check is shown below. Given this information what is the amount of theaverage daily float? Assume a 30-day month.Item Number Item Amount Delay1 $2,500 42 $8,700 33 $6,000 24 $9,500 6a. $3,503.33b. $4,450.00c. $6,675.00d. $7,006.67e. $9,500.00AVERAGE DAILY FLOATb 52. Your firm generally receives 3 checks a month. A month is defined as a 30-day period.The check amounts and the collection delay for each check are shown below. Giventhis information, what is the amount of the average daily float?Item Number Item Amount Delay1 $8,700 22 $1,200 63 $5,500 5a. $1,333.33b. $1,736.67c. $2,188.89d. $5,133.33e. $6,673.33AVERAGE DAILY FLOATc 53. Your firm generally receives 3 checks a month. The check amounts and the collectiondelay for each check are shown below. Given this information, what is the amount ofthe average daily float? Assume that a month has 30 days.Item Number Item Amount Delay1 $12,700 32 $ 8,200 43 $ 4,500 5a. $705.56b. $934.00c. $3,113.33d. $7,783.33e. $8,466.67a 54. Your firm generally receives 4 checks a month. The check amounts and the collectiondelay for each check are shown below. Given this information, what is the amount ofthe average daily float? Assume that a month has 30 days.Item Number Item Amount Delay1 $1,200 32 $ 800 43 $1,000 54 $1,100 2a. $466.67b. $1,000.00c. $1,025.00d. $2,666.67e. $4,666.67AVERAGE DAILY RECEIPTSa 55. Your firm deals strictly with three customers. The average amount that each customerpays per month along with the collection delay associated with each payment is shownbelow. Given this information, what is the amount of the average daily receipts?Assume that every month has 30 days.Customer Check Amount Collection DelayA $42,000 3 daysB $19,000 5 daysC $31,000 2 daysa. $3,066.67b. $4,600.00c. $6,666.67d. $9,200.00e. $9,433.33AVERAGE DAILY RECEIPTSb 56. Your firm deals strictly with four customers. The average amount that each customerpays per month along with the collection delay associated with each payment is shownbelow. Given this information, what is the amount of the average daily receipts?Assume that every month has 30 days.Customer Check Amount Collection DelayA $3,000 2 daysB $2,000 4 daysC $9,000 3 daysD $6,000 5 daysa. $500.00b. $666.67c. $1,428.57d. $5,000.00e. $6,666.67AVERAGE DAILY RECEIPTSc 57. Your firm deals strictly with three customers. The average amount that each customerpays per month along with the collection delay associated with each payment is shownbelow. Given this information, what is the amount of the average daily receipts?Assume that every month has 30 days.Customer Check Amount Collection DelayA $22,000 2 daysB $18,000 6 daysC $ 9,000 3 daysa. $233.33b. $466.67c. $1,633.33d. $4,454.55e. $5,966.67WEIGHTED AVERAGE DELAYd 58. Your firm deals strictly with three customers. The average amount that each customerpays per month along with the collection delay associated with each payment is shownbelow. Given this information, what is the weighted average delay? Assume that everymonth has 30 days.Customer Check Amount Collection DelayA $42,000 3 daysB $19,000 5 daysC $31,000 2 daysa. 2.33 daysb. 2.67 daysc. 2.87 daysd. 3.08 dayse. 3.24 daysWEIGHTED AVERAGE DELAYe 59. Your firm deals strictly with four customers. The average amount that each customerpays per month along with the collection delay associated with each payment is shownbelow. Given this information, what is the weighted average delay? Assume that everymonth has 30 days.Customer Check Amount Collection DelayA $3,000 2 daysB $2,000 4 daysC $9,000 3 daysD $6,000 5 daysa. 3.01 daysb. 3.27 daysc. 3.32 daysd. 3.50 dayse. 3.55 daysWEIGHTED AVERAGE DELAYd 60. Your firm deals strictly with three customers. The average amount that each customerpays per month along with the collection delay associated with each payment is shownbelow. Given this information, what is the weighted average delay? Assume that everymonth has 30 days.Customer Check Amount Collection DelayA $22,000 2 daysB $18,000 6 daysC $ 9,000 3 daysa. 3.11 daysb. 3.43 daysc. 3.59 daysd. 3.65 dayse. 3.80 daysCOST OF FLOATe 61. On an average day, your firm receives $1,500 in checks from customers. These checksclear the bank in an average of 3.5 days. The applicable daily interest rate is .025percent. What is the present value of the float? Assume each month has 30 days.a. $131.25b. $252.50c. $321.43d. $3,214.29e. $5,250.00COST OF FLOATe 62. On an average day, your firm receives $1,500 in checks from customers. These checksclear the bank in an average of 3.5 days. The applicable daily interest rate is .025percent. What is the maximum amount your firm should pay to completely eliminatethe collection float? Assume each month has 30 days.a. $252.50b $1,125.00c. $2,550.00d. $3,214.29e. $5,250.00MAXIMUM DAILY FEEd 63. On an average day, your firm receives $6,400 in checks from customers. These checksclear the bank in an average of 3 days. The applicable daily interest rate is .03 percent.What is the highest daily fee your firm should pay to completely eliminate thecollection float? Assume each month has 30 days.a. $1.92b. $3.84c. $4.24d. $5.76e. $5.99MAXIMUM DAILY FEEe 64. On an average day, your firm receives $19,200 in checks from customers. Thesechecks clear the bank in an average of 2 days. The applicable daily interest rate is .02percent. What is the highest daily fee your firm should pay to completely eliminate thecollection float? Assume each month has 30 days.a. $1.92b. $3.84c. $4.67d. $6.33e. $7.68COLLECTION TIMEc 65. Your average customer is located 3 mailing days away from your firm. In addition, ittakes 4 days for your funds to be available for use once you have made your bankdeposit. You have determined that your total collection time is 11 days. How long onaverage is it taking your firm to process the payments from your customers?a. 2 daysb. 3 daysc. 4 daysd. 7 dayse. 8 daysCOLLECTION TIMEc 66. It takes your firm 2 days to prepare and mail out the monthly statements to yourcustomers. On average, the mail time between your firm and your customers is 3.5days. It takes your firm an average of 2.5 days to process customer payments once theyare received. Customer checks take an average of 2 days to clear the bank. What isyour total collection time?a. 4.5 daysb. 7.0 daysc. 8.0 daysd. 10.0 dayse. 13.5 daysCOLLECTION TIMEd 67. Currently, your firm requires 2 days to process the checks which customers mail in topay for their credit purchases. The average mail time associated with these payments is4 days and the check clearing time is 3 days. If your firm adopts a lockbox system, themail time will be cut in half. In addition, if employees are reassigned, checks could beprocessed in 1 day. How long will your collection time be if both the lockbox systemand the job reassignments are implemented?a. 3 daysb. 4 daysc. 5 daysd. 6 dayse. 7 daysLOCKBOX DAILY SAVINGSe 68. You are considering implementing a lockbox system for your firm. The system isexpected to reduce the collection time by 2 days. On an average day, your firmreceives 460 checks with an average value of $350 each. The daily interest rate onTreasury bills is .01 percent. The bank charge per check would be $.20. What is theanticipated amount of the daily savings if this system is implemented?a. $16.10b. $24.15c. $27.50d. $29.10e. $32.20LOCKBOX DAILY SAVINGSd 69. The Baker Co. receives an average of 230 checks a day. The average amount per checkis $1,150. The firm is considering a lockbox system which it anticipates will reduce theaverage collection time by 3 days. The daily interest rate on Treasury bills is .008percent. What is the amount of the expected daily savings of the lockbox system?a. $4.68b. $6.35c. $46.82d. $63.48e. $77.78LOCKBOX DAILY COSTa 70. The Baker Co. receives an average of 230 checks a day. The average amount per checkis $1,150. The firm is considering a lockbox system which it anticipates will reduce theaverage collection time by 3 days. The bank charges $.25 a check for this service. Thedaily interest rate on Treasury bills is .008 percent. What is the average daily cost ofthe lockbox system?a. $57.50b. $63.48c. $77.78d. $115.00e. $172.50LOCKBOX DAILY COSTb 71. You are considering implementing a lockbox system for your firm. The system isexpected to reduce the collection time by 2 days. On an average day, your firmreceives 460 checks with an average value of $350 each. The daily interest rate onTreasury bills is .01 percent. The bank charge per check would be $.20. What is theanticipated daily cost of the lockbox system?a. $16.10b. $92.00c. $108.10d. $123.60e. $161.00。

30.1 The new corporation issues $300,000 in new debt. The merger creates $100,000 ofgoodwill because the merger is a purchase.Balance SheetLager Brewing(in $ thousands)Current assets $480 Current liabilities $200Other assets 140 Long-term debt 400Net fixed assets 580 Equity 700Goodwill 100Total assets $1,300 Total liabilities $1,300 30.2 If the balance sheet for Philadelphia Pretzel shows assets at book value instead of marketvalue, the goodwill will be only $60,000 (=$300,000 - $240,000). Thus, the net fixed assetsare $620,000 (=$1,300,000 - $480,000 - $140,000 - $60,000).Balance SheetLager Brewing(in $ thousands)Current assets $480 Current liabilities $200Other assets 140 Long-term debt 400Net fixed assets 620 Equity 700Goodwill 60Total assets $1,300 Total liabilities $1,300 30.3Balance SheetLager Brewing(in $ thousands)Current assets $480 Current liabilities $280Other assets 140 Long-term debt 100Net fixed assets 580 Equity 820Total assets $1,200 Total liabilities $1,200 30.4 a. False. Although the reasoning seems correct, the Stillman-Eckbo data do not supportthe monopoly power theory.b. True. When managers act in their own interest, acquisitions are an important controldevice for shareholders. It appears that some acquisitions and takeovers are theconsequence of underlying conflicts between managers and shareholders.c. False. Even if markets are efficient, the presence of synergy will make the value ofthe combined firm different from the sum of the values of the separate firms.Incremental cash flows provide the positive NPV of the transaction.d. False. In an efficient market, traders will value takeovers based on “Fundamentalfactors” regardless of the time horizon. Recall that the evidence as a whole suggestsefficiency in the markets. Mergers should be no different.e. False. The tax effect of an acquisition depends on whether the merger is taxable ornon-taxable. In a taxable merger, there are two opposing factors to consider, thecapital gains effect and the write-up effect. The net effect is the sum of these twoeffects.f. True. Because of the coinsurance effect, wealth might be transferred from thestockholders to the bondholders. Acquisition analysis usually disregards this effectand considers only the total value.30.530.6 a. The weather conditions are independent. Thus, the joint probabilities are theproducts of the individual probabilities.Possible states Joint probabilityRain Rain 0.1 x 0.1=0.01Rain Warm 0.1 x 0.4=0.04Rain Hot 0.1 x 0.5=0.05Warm Rain 0.4 x 0.1=0.04Warm Warm 0.4 x 0.4=0.16Warm Hot 0.4 x 0.5=0.20Hot Rain 0.5 x 0.1=0.05Hot Warm 0.5 x 0.4=0.20Hot Hot 0.5 x 0.5=0.25Since the state Rain Warm has the same outcome (revenue) as Warm Rain, theirprobabilities can be added. The same is true of Rain Hot, Hot Rain and Warm Hot,Hot Warm. Thus the joint probabilities arePossibleJoint probabilitystatesRain Rain 0.01Rain Warm 0.08Rain Hot 0.10Warm Warm 0.16Warm Hot 0.40Hot Hot 0.25The joint values are the sums of the values of the two companies for the particularstate.Possible states Joint valueRain Rain $200,000Rain Warm 300,000Warm Warm 400,000Rain Hot 500,000Warm Hot 600,000Hot Hot 800,000b. Recall, if a firm cannot service its debt, the bondholders receive the value of the assets.Thus, the value of the debt is the value of the company if the face value of the debt isgreater than the value of the company. If the value of the company is greater than the value of the debt, the value of the debt is its face value. Here the value of the common stock is always the residual value of the firm over the value of the debt.Joint Prob. Joint Value Debt Value Stock Value0.01 $200,000 $200,000 $00.08 300,000 300,000 00.16 400,000 400,000 00.10 500,000 400,000 100,0000.40 600,000 400,000 200,0000.25 800,000 400,000 400,000c. To show that the value of the combined firm is the sum of the individual values, youmust show that the expected joint value is equal to the sum of the separate expected values.Expected joint value= 0.01($200,000) + 0.08($300,000) + 0.16($400,000) + 0.10($500,000) +0.40($600,000) + 0.25($800,000)= $580,000Since the firms are identical, the sum of the expected values is twice the expectedvalue of either.Expected individual value = 0.1($100,000) + 0.4($200,000) + 0.5($400,000) = $290,000 Expected combined value = 2($290,000) = $580,000d. The bondholders are better off if the value of the debt after the merger is greater thanthe value of the debt before the merger.Value of the debt before the merger:The value of debt for either company= 0.1($100,000) + 0.4($200,000) + 0.5($200,000) = $190,000Total value of debt before the merger = 2($190,000) = $380,000Value of debt after the merger= 0.01($200,000) + 0.08($300,000) + 0.16($400,000) + 0.10($400,000) +0.40($400,000) +0.25($400,000)= $390,000The bondholders are $10,000 better off after the merger.30.7 The decision hinges upon the risk of surviving. The final decision should hinge on thewealth transfer from bondholders to stockholders when risky projects are undertaken.High-risk projects will reduce the expected value of the bondholders’ claims on the firm.The telecommunications business is riskier than the utilities business. If the total value of the firm does not change, the increase in risk should favor the stockholder. Hence,management should approve this transaction. Note, if the total value of the firm dropsbecause of the transaction and the wealth effect is lower than the reduction in total value, management should reject the project.30.8 If the market is “smart,” the P/E ratio will not be constant.a. Value = $2,500 + $1,000 = $3,500b. EPS = Post-merger earnings / Total number of shares=($100 + $100)/200 =$1c. Price per share = Value/Total number of shares=$3,500/200 =$17.50d. If the market is “fooled,” the P/E ratio will be constant at $25.Value = P/E * Total number of shares= 25 * 200 = $5,000EPS = Post-merger earnings / Total number of shares=$5,000/200 = $25.0030.9 a. After the merger, Arcadia Financial will have 130,000 [=10,000 + (50,000)(6/10)]shares outstanding. The earnings of the combined firm will be $325,000. The earningsper share of the combined firm will be $2.50 (=$325,000/130,000). The acquisition will increase the EPS for the stockholders from $2.25 to $2.50.b. There will be no effect on the original Arcadia stockholders. No synergies exist in thismerger since Arcadia is buying Coldran at its market price. Examining the relativevalues of the two firms sees the latter point.Share price of Arcadia = (16 * $225,000) / 100,000=$36Share price of Coldran = (10.8 * $100,000) / 50,000=$21.60The relative value of these prices is $21.6/$36 = 0.6. Since Coldran’s shareholdersreceive 0.6 shares of Arcadia for every share of Coldran, no synergies exist.30.10 a. The synergy will be the discounted incremental cash flows. Since the cash flows areperpetual, this amount isb. The value of Flash-in-the-Pan to Fly-by-Night is the synergy plus the current marketvalue of Flash-in-the-Pan.V = $7,500,000 + $20,000,000= $27,500,000c. Cash alternative = $15,000,000Stock alternative = 0.25($27,500,000 + $35,000,000)= $15,625,000d. NPV of cash alternative = V - Cost=$27,500,000 - $15,000,000=$12,500,000NPV of stock alternative = V - Cost=$27,500,000 - $15,625,000=$11,875,000e. Use the cash alternative, its NPV is greater.30.11 a. The value of Portland Industries before the merger is $9,000,000 (=750,000x12). Thisvalue is also the discounted value of the expected future dividends.$9,000,000 =r = 0.1025 = 10.25%r is the risk-adjusted discount rate for Portland’s expected future dividends.the value of Portland Industries after the merger isThis is the value of Portland Industries to Freeport.b. NPV = Gain - Cost= $14,815,385 - ($40x250, 000)= $4,815,385c. If Freeport offers stock, the value of Portland Industries to Freeport is the same, but thecost differs.Cost = (Fraction of combined firm owned by Portland’s stockholders)x(Value of the combined firm)Value of the combined firm = (Value of Freeport before merger)+ (Value of Portland to Freeport)= $15x1,000,000 + $14,815,385= $29,815,385Cost = 0.375x$29,815,385= $11,180,769NPV= $14,815,385 - $11,180,769=$3,634,616d. The acquisition should be attempted with a cash offer since it provides a higher NPV.e. The value of Portland Industries after the merger isThis is the value of Portland Industries to Freeport.NPV = Gain-Cost=$11,223,529 - ($40x250,000)=$1,223,529If Freeport offers stock, the value of Portland Industries to Freeport is the same, but the cost differs.Cost = (Fraction of combined firm owned by Portland’s stockholders)x(Value of the combined firm)Value of the combined firm = (Value of Freeport before merger)+ (Value of Portland to Freeport)= $15x1,000,000 + $11,223,529= $26,223,529Cost = 0.375 * $26,223,529=$9,833,823NPV = $11,223,529 - $9,833,823=$1,389,706The acquisition should be attempted with a stock offer since it provides a higher NPV.30.12 a. Number of shares after acquisition=30 + 15 = 45 milStock price of Harrods after acquisition = 1,000/45=22.22 poundsb. Value of Selfridge stockholders after merger:α * 1,000 = 300α = 30%New shares issued = 12.86 mil12.86:20 = 0.643:1The proper exchange ratio should be 0.643 to make the stock offer’s value to Selfridgeequivalent to the cash offer.30.13 To evaluate this proposal, look at the present value of the incremental cash flows.Cash Flows to Company A(in $ million)Year 0 1 2 3 4 5Acquisition of B -550Dividends from B 150 32 5 20 30 45Tax-loss carryforwards 25 25Terminal value 600Total -400 32 30 45 30 645 The additional cash flows from the tax-loss carry forwards and the proposed level of debt should be discounted at the cost of debt because they are determined with very littleuncertainty.The after-tax cash flows are subject to normal business risk and must be discounted at anormal rate.Beta coefficient for the bond = 0.25 = [(8%-6%)/8%].Beta coefficient for the company = 1 = [(0.25)2 + (1.25)(0.75)]Discount rate for normal operations:r = 6% + 8% (1) = 14%Discount rate for dividends:The new beta coefficient for the company, 1, must be the weighted average of the debtbeta and the stock beta.1 = 0.5(0.25) + 0.5(βs)βs = 1.75r = 6% + 8%(1.75) = 20%Because the NPV of the acquisition is negative, Company A should not acquireCompany B.30.14 The commonly used defensive tactics by target-firm managers include:i. corporate charter amendments like super-majority amendment or staggering theelection of board members.ii. repurchase standstill agreements.iii. exclusionary self-tenders.iv. going private and leveraged buyouts.v. other devices like golden parachutes, scorched earth strategy, poison pill, ..., etc.Mini Case: U.S.Steel’s case.You have 3 choices: tender, or do not tender or sell in the market. If you do sell your shares in the market, at some point, somebody else would need to make a decision in “tender” or “not tender” as well.It is important to recognize that the firm has about 60 million shares outstanding (since 30 million shares will give US Steel 50.1% of Marathon shares). Let’s consider the possible sellingthe market price.If you choose not to tender, and 30 million shares were tendered US Steel succeeds to gain50.1% control, you will only receive $85 a share. If you do tender, the price you will receive will be no worse than $85 a share and can be as high as $125 a share. Depending on the number of shares tendered, you will receive one of the following prices.If only 50.1% tendered, you will get $125 per share.If the shares tendered exceed 50.1% but less than 100%, you will get more than $105 ashare.If all 60 million shares were tendered, you will get $105 per share. (which is )It is clear that, in the above 3 cases, when you are not sure about whether US Steel will succeed or not, you will be better off to tender your shares than not tender. This is because at best, you will only receive $85 per share if you choose not to tender.版权申明本文部分内容，包括文字、图片、以及设计等在网上搜集整理。