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Chapter 1
Short answer:
1.1. A company is now in the final year of a project. The equipment originally cost $100
million, of which 70% has been depreciated. It can sell the used equipment today for $9
million, and its tax rate is 40%. What is the equipment’s after-tax net salvage value?
- After tax net SV = SV – [(SV-BV) x tax rate] = 9 – [(9-30) x 40%]= 17.4$
1.2. ABC is now in the final year of a project. The equipment originally cost $20 million,
of which 85% has been depreciated. ABC can sell the used equipment today for $5
million, and its tax rate is 40%. What is the equipment’s after-tax net salvage value?
- After tax net SV = SV – [(SV-BV) x tax rate] = 5 – [(5-3) x 40%] = 4.2$
Problem:
1.1. ABC Inc. is considering the purchase of a new machine that cost $200,000, plus
$50,000 for shipping and installation. ABC will use the MACRS 3-year class to
depreciate the machine; so the applicable depreciation rates would be 33%,
45%, 15%, and 7%. And it expects to sell the machine at the end of its 3-year operating
life for $20,000. Annual sales would be 5,000 units at a price of $65 per unit, and the
project’s life would be 3 years. Current assets would increase by $15,000 and payables by
$7,000. Variable costs (VC) would be 60% of sales revenues, fixed costs
excluding depreciation would be $20,000 per year. ABC’s marginal tax rate is 40 percent,
and it uses a 12 percent cost of capital to evaluate projects of this nature.
a. (0.5 point) What is the net salvage value?
b. (1.00 point) What are the project’s annual net cash flows?
c. (0.5 point) If the project is of average risk, what is its IRR? Should it be accepted?
1.2. You must evaluate the purchase of a proposed spectrometer for the R&D department.
The base price is $200,000, and it would cost another $50,000 to modify the equipment
for special use by the firm. The equipment falls into the MACRS 3-year class and would
be sold after 3 years for $80,000. The applicable depreciation rates are 33%, 45%, 15%,
and 7%, as discussed in Appendix 12A. The equipment would require an $8,000 increase
in net operating working capital (spare parts inventory). The project would have no effect
on revenues, but it should save the firm $55,000 per year in before-tax labor costs. The
firm’s marginal federal-plus-state tax rate is 35%.
a. (0.5 point) What is the initial investment outlay for the spectrometer, that is,
what is the Year 0 project cash flow?
b. (1.00 point)What are the project’s annual cash flows in Years 1, 2, and 3?
c. (0.5 point) If the WACC is 9%, should the spectrometer be purchased? Explain.
Chapter 2
Short answer:
2.1. A company’s fixed operating costs are $500,000, its variable costs are $3.50 per unit,
and the product’s sales price is $7.00. What is the company’s breakeven point?
Qbe= F/P-V=(500000/(7-3.5)=142857.1
2.2. A company’s fixed operating costs are $1,000,000, its variable costs are $5.00 per
unit, and it expects to sell 50,000 units per month. What price must the company charge
in order to break even?
(1000000+250000)/50000 = 25

2.3. A company expects to sell 50,000 units per month. The product’s sales price is
$7.00, its variable costs are $5.00 per unit. What is the fixed operating cost?
TC = VC +FC
7*50000 = 5*50000 – FC FC = 100000

2.4. ABC corporation has $8 million in total debt and $10 million in total equity. ABC’s
unlevered beta (bU) is 1.3, and its tax rate is 40%. Use the Hamada equation to find
ABC’s current beta, bL.

BL = BU*(1+(1-T)*D/E)
BL = 1.3*(1+(1-40%)*8/10 = 1.924

2.5. A company has $20 million in assets, which were financed with $8 million of debt
and $12 million in equity. Its beta is currently 1.3, and its tax rate is 40%. Use the
Hamada equation to find its unlevered beta, bU.

BL = BU*(1+(1-T)*D/E)
1.3 = BU * (1+(1-40%)*

Problem:
2.1. Harley Motors Co. is trying to establish its optimal capital structure. Its current
capital structure consists of 70% debt and 30% equity; however, the CEO believes that
the firm should use less debt. The risk-free rate, r RF, is 5%; the market risk premium,
RPM, is 6%; and the firm’s tax rate is 40%. Currently, Harley’s cost of equity (r S) is 14%,
which is determined by the CAPM.
a. Use the Hamada equation to find Harley’s unlevered beta, bU.
b. What would be Harley’s estimated cost of equity (rS) if it changed its capital
structure to 30% debt and 70% equity?
Giải :
Câu a, determine current beta
Rs= Rrf + rpm*bL  14% = 5% + 6%*bL  BL = 1.5
+ unlevered beta : Bu=Bl/(1+(1-tax)*d/e)  1.5/(1+(1-40%)*70%/30%) = 0.625
Câu b:
BL = Bu*(1+(1-40%)*d/e) = 0.625*(1+(1-40%)*(30%/70%)) = 0.786
Rs = rrf + rpm* BL = 5% + 6%*0.786 = 9.716%
Chapter 3
Short answer:
3.1. A company has a capital budget of $10,000,000. The company wants to maintain a
target capital structure that consists of 70 percent debt and 30 percent equity. The
company forecasts that its net income this year will be $5,000,000. If the company
follows a residual dividend policy, what will be its payout ratio?
 dividends = net income – ( target equity ratio* capital budget)
= 5000000 – (10000000 * 30%) = 2000000
Payout ratio = 2000000/5000000 = 40%

3.2. A company expects to have net income of $3,000,000 during the next year. Its
target, and current, capital structure is 30 percent debt and 70 percent common equity.
The Director of the company has determined that the optimal capital budget for next year
is $2 million. If the company uses the residual dividend model to determine next year’s
dividend payout, what is the expected dividend payout ratio?
 dividends = net income – ( target equity ratio* capital budget)
= 3000000 – (2000000 * 70%) = 1600000
Expected dividend payout ratio = 1600000/3000000 =53.33%

3.3. Emergency Medical’s stock trades at $100 a share. The company is contemplating a
5-for-2 stock split. Assuming that the stock split will have no effect on the market value
of its equity, what will be the company’s stock price following the stock split?
= Price per share / 5 /2
= 100/2.5 = 40
Problem:
3.1. Redwood Systems follows a strict residual dividend policy. The company estimates
that its capital expenditures this year will be $40 million, its net income will be $30
million, and its target capital structure is 60 percent equity and 40 percent debt.
a. What is Redwood Systems’s payout ratio?
 dividend = net income – ( target capital structure ratio * capotal expenditure)
= 30 – (40* 60%)
=6
Payout ratio = dividend/ netincome = 20%
b. How much external equity must Redwood Systems seek if its target capital structure is
20 percent debt and 80 percent equity

equity need = capital expend * 80% = 32

dividend = 30*20% = 6
retain earnings = 30 – 6 = 24
external equity = 32 -24 = 8
Chapter 4 + 5
Short answer:
1. A firm has $5,000,000 of inventory on average and annual sales of $30,000,000.
Assume there are 365 days per year. What is the firm’s inventory conversion period?
Inventory conversion = inventory on average / (sales/365)
= 5000000/ ( 30000000/365) = 60.83
2. A company has an average accounts payable balance of $850,000 and its annual cost
of goods sold is $8,750,000. Assume there are 365 days per year. What is the payables
deferral period?

Payables deferral period = account payable balance/ cost of goods sold/365

= 850000/ 8750000/365
= 35.46 days

3. A company has $5 million in inventory and $2 million in accounts receivable. Its

average daily sales are $100,000. The company’s payables deferral period (accounts
payable divided by daily purchases) is 30 days. What is the length of the company’s cash
conversion cycle?
= inventory conversion period + account receivable – payable deferral period
= 5000000/100000+ 2000000/100000 – 30
= 40

4. A company has an average accounts receivable balance of $1,250,000. Its annual sales
are $12,000,000. Assume there are 365 days in a year. What is the Receivables
collection period?

= receivable / sales per days

= 1250000 / 12000000/365 = 38
Problem:
1. Hayes Hypermarket sells on terms of 2/15, net 50. Total sales for the year are
$5,000,000; 30% of the customers pay on the 15th day and take discounts, while the other
70% pay, on average, 60 days after their purchases. Calculation is based on a 365-day
year.
a. What is the days’ sales outstanding?
DSO = 0.3 * 15 + 0.7 * 60 = 46.5
b. What is the average amount of receivables?
= 5000000/365 = 13698 sales per day
 average amount of receivables = Sales per day*Days sales outstanding
Average amount = 13698.6 * 46.5 = 636984.9
c. What is the norminal percentage cost of trade credit to customers who take the
discount?
cost of free trade credit = [(365) / (payment days - discount days)] * (Percentage of
customers not taking discount)
= 365/60-15x30%=2.43
d. What is the norminal percentage cost of trade credit to customers who do not take the
discount and pay in 60 days?

 cost of costly trade credit = [(discount %) / (100 - discount %)] x [(365) / (payment days -
discount days)]
= 2%/100-2% x 365/
e. What is the norminal percentage cost of trade credit to customers who do not take the
discount and pay in 50 days?

= 365/ (50-15)*30% =
2. ABC is deciding whether to pursue a restricted or relaxed current asset investment
policy. ABC’s annual sales are expected to total $7 million, its fixed assets turnover ratio
equals 5.0, and its debt and common equity are each 50% of total assets. EBIT is
$300,000, the interest rate on the firm’s debt is 10%, and the firm’s tax rate is 40%. If the
company follows a restricted policy, its total assets turnover will be 2.5. Under a relaxed
policy, its total assets turnover will be 2.2.
a. If the firm adopts a restricted policy, how much will it save in interest expense (relative
to what it would be if ABC were to adopt a relaxed policy)?
b. What is the difference in the projected ROEs between the restricted and relaxed
policies?
Giải
Câu a

Total Assets = Sales / Total Assets Turnover

Under the restricted policy, Total Assets = $7,000,000 / 2.5 =
$2,800,000, and under the relaxed policy, Total Assets =
$7,000,000 / 2.2 = $3,181,818.18
Since the firm's debt is 50% of total assets, we can calculate
the debt:
Debt (Restricted) = 50% of $2,800,000 = $1,400,000
Debt (Relaxed) = 50% of $3,181,818.18 = $1,590,909.09
Interest expense is the product of the interest rate and the
amount of debt:
Interest Expense (Restricted) = 10% of $1,400,000= $140,000
Interest Expense (Relaxed) = 10% of $1,590,909.09=
$159,090.9
The difference in interest expense is:
$159,090.9- $140,000= $19,090.9
Therefore, the interest expense under a restricted policy
would be $19,090.9 lower than under a relaxed policy.

Câu b.
(Restricted) Ebt = EBIT – I = $300,000 - $140,000 = 160,000
(Relaxed) Ebt = EBIT – I = $300,000 - $159,090.9 = 140,090.9
Net income (Restricted) = 160,000*(1-40%) = 96,000

Net income (Relaxed) = 140,090.9 * (1-40%) = 84054.54

Roe (Restricted)= 96,000 /1,400,000

Roe ( (Relaxed) = 84054.54 /1,590,909.09

Chapter 6
Short answer:
6.1. A Company expects to have sales of $1,000 in April, $1,300 in May, and $1,500 in
June. If 40 percent of sales are for cash, 40 percent are credit sales paid in the month
following the sale, and 20 percent are credit sales paid 2 months following the sale, what
are the cash receipts from sales in June?
= 40%*1500 + 40%* 1300+20%*1000 = 1320
Problem:
6.1. Inman Industries has $2.5 million in sales and $0.8 million in fixed assets. Currently,
the company’s fixed assets are operating at 75 percent of capacity.
a. What level of sales could Inman Industries have obtained if it had been operating at
full capacity?
b. What is Inman’s target fixed assets/sales ratio?
c. If Inman’s sales increase 50 percent, how large of an increase in fixed assets would the
company need in order to meet its target fixed assets/sales ratio?

6.2. ABC recently reported sales of $200 million, and net income equal to $10 million.
The company has $80 million in total assets. Over the next year, the company is
forecasting a 20 percent increase in sales. Since the company is at full capacity, its assets
must increase in proportion to sales. The company also estimates that if sales increase 20
percent, spontaneous liabilities will increase by $3 million. If the company’s sales
increase, its profit margin will remain at its current level. The company’s dividend
payout ratio is 40 percent. Based on the AFN formula, determine:
a. (0.75 point) Required asset increase.
b. (0.75 point) Increased in Retained earnings.
c. (0.50 point) Additional capital the company must raise in order to support the 20
percent increase in sales.
6.3. Carlsbad Corporation’s sales are expected to increase from $5 million in 2018 to $8
million in 2019, or by 20%. Its assets totaled $3 million at the end of 2018. Carlsbad is at
full capacity, so its assets must grow in proportion to projected sales. At the end of 2018,
current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of
notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be
3%, and the forecasted retention ratio is 30%.
a. Use the AFN equation to forecast the additional funds Carlsbad will need for the
coming year.
b. What additional funds would be needed if the company’s year-end 2018 assets had
been $4 million? Assume that all other numbers are the same.

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1.D
2.A
3.A
4.D
5.A
6.B
- formula: dividend payout ratio = total dividend / netincome
dividend payout ratio = 1 – retention ratio ( tỷ lệ giữ lại)
dividend payout ratio = dividend per share / earnings per share

7. C ( vì khi để working capital tăng thì current asset tăng và nợ ngắn hạn giảm , câu C là
khi bán on credit thì AR tăng  current assets tăng )

8. D
9. D ( chương 4 phần credit policy)
10. D ( cash , cash evalution, account receivable, inventory , marketable security)
11. B
12. C
13. invest increase by 50% and other input does not change
+ investment after increase : 1500
Formula : IRR  NPV=0
-1500 + (-2685/(1+irr)^1) + 2520/(1+irr)^2 + 2390/(1+irr)^3 + 2135/(1+irr)^4 =0
 IRR= 25.97%
Đáp án D

14. investment increase 25% and wacc increase 25%

+ neww invesmet : 1250
+ new wacc : 12.5%
Formula : NPV = -1250 + (-1077/(1+12.5%) + (-1119/(1+12.5%)^2) +
(1213/(1+12.5%)^3) + (1343/(1+12.5%)^4 = -1401.12
Chọn B

15.

Operating income : 1500000

Interest : 250000
Eps old 12.5
Neticome old : 1250000
Number ouststanding : eps = neticome / number of shares outstanding
12.5 = 1250000/ number
 number = 100000
Operating income new: 2000000
Net income new = 2000000- 250000 = 1750000
Eps = 17.5
 chọn C

16. tương tự 15 chọn A

Operating income: 1.500.000
Interest: 250.000
EPS: 12.50
Operating income new: 1.750.000
EPS=NI/Number of share outstanding
12.50=1.500.000-250.000/x
=> x=100000
Net income new = 1.750.000 – 250.000=1500000
17

Net income : 4500000

Capital budget : 5000000
Target capital structure : 70 percent debt and 30 percent equity

Dividend = 4500000 – (5000000* 30%) = 3000000

Payout = dividend / net income = 3000000/4500000 = 0.667 = 66,7%
Chọn D

18. average payable : 850000

Annual cost of goods sold : 8750000
Công thức trong vở silde

Payable deferral period = average account payable /annual cost of goods sold /365
= 850000/ 8750000/365
 = 35.46
Đáp án C

Câu 19 :

Credit term 2/8 net 45

Pay after 58 days
Cost of costly trade credit = (2%/ 100% -2%)*(365/58-8) = 14.89%
 Chọn C
20A
Free trade credit = 365/ days credit is outstanding – discount period x % not take discount
730,000= 365/ 30-15 x % not take discount
 % not take discount = 30,000 => A
21 22A
Rs=rRF + RPm x Bl
14% = 5% + 6% x bl
 Bl = 1.5
23C
= 0.75/(1+11%) x 6
24B
25A 3%
EBIT is usually the same thing as:
A. Funds provided by operations.
B. Earnings before taxes.
C. Net income.
D. Operating profit
When financial disaster is looming, management may borrow to invest in projects
having a negative expected NPV because:
A. The firm's beta is now negative.
B. Taxes are no longer a concern.
C. The interest tax shield will cover the loan costs.
D. The lender bears all the risk.
Which of the following is not commonly regarded as being a credit policy
variable?
A. Credit period.
B. Collection policy.
C. Cash discounts.
D. All of the statements above are credit policy variables.
ABC Co. is trying to establish its optimal capital structure. Its current capital
structure consists of 25% debt and 75% equity. The risk-free rate, rRF, is 5%; the
market risk premium, RPM, is 6%; and the firm’s tax rate is 40%. Currently,
ABC’s cost of equity (Rs) is 14%. How much is ABC’s Beta leverage?
A. 1.50
B. 1.55
C. 1.60
D. 1.66
Rs = rRF + RPm x bl
14%=5% + 6% x bl
 Bl = 1.5
Question 11 of 25 0.25 Points
Which of the following statements is most correct?
A. Trade credit is provided to a business only when purchases are made.
B. Commercial paper is a form of short-term financing that is primarily used by
large, financially stable companies.
C. Short-term debt, while often cheaper than long-term debt, exposes a firm to the
potential problems associated with rolling over loans.
D. All of the statements above are correct
PRT Co produces motorcycle batteries. PRT turns out 1,800 batteries a day at
a cost of $7 per battery for materials and labor. It takes the firm 20 days to
convert raw materials into a battery. PRT allows its customers 40 days in
which to pay for the batteries, and the firm generally pays its suppliers in 30
days. What is the length of PRT’s cash conversion cycle & What amount of
working capital must it finance?
A. 30 days & $ 377.000
B. 30 days & $ 378.000
C. 32 days & $ 277.000
D. 32 days & $ 278.000
CCC = inventory + receivable – payable = 20 + 40 – 30 = 30 days
Net working capital = current assets – ( payable + accrual ) = 1,800 x 30 x 7= 378
Business risk is concerned with the operations of the firm. Which of the
following is not associated with (or not a part of) business risk?
A. Demand variability.
B. Sales price variability.
C. The extent to which operating costs are fixed.
D. The ability to change prices as costs change.
Investors may prefer lower dividends to higher dividends because:
A. The low dividends are more predictable.
B. Capital gains may be taxed less heavily than dividends.
C. Of the "bird in the hand" logic.
D. Low dividends indicate heavy investment for the future.
The theory that investors prefer a high payout is ………
A. Tax preference
B. Dividends are irrelevant
C. Bird-in-the-hand
D. None is correct

Which of the following is typically part of the cash budget?

A. Payments materials.
B. Payment for plant construction.
C. Cumulative cash.
D. All of the above statements are correct.
Helena Furnishings wants to sharply reduce its cash conversion cycle. Which
of the following steps would reduce its cash conversion cycle?
A. The company increases its average inventory without increasing its sales.
B. The company reduces its DSO.
C. The company starts paying its bills sooner, which reduces its average accounts
payable without reducing its sales.
D. Statements a and b are correct.
Which of the following items should a company explicitly include in its
monthly cash budget?
A. Its monthly depreciation expense.
B. Its cash proceeds from selling one of its divisions.
C. Interest paid on its bank loans.
D. All of the statements above are correct.
Wildthing Amusement Company’s total assets fluctuate between $320,000 and
$410,000, while its fixed assets remain constant at $260,000. If the firm follows
a maturity matching financing policy, what is the likely level of its long-term
financing?
A. $260,000
B. $350,000
C. $410,000
D. $320,000

If a firm uses an aggressive financing policy.

A. it increases return and increases risk.
B. it increases return and decreases risk.
C. it decreases return and increases risk.
D. it decreases return and decreases risk.
Texas Products Inc. has a division that makes burlap bags for the citrus
industry. The division has fixed costs of $10,000 per month, and it expects to
sell 42,000 bags per month. If the variable cost per bag is $2.00, What price
must the division charge in order to break even?
A. $2.27
B. $2.26
C. $2.25
D. $2.24
Qbe = F/P-V
42000=10000/P-2
 P=2,24
Based on Hamada equation to calculate the unlevered beta (bU) for firm XYZ
with the following data: levered beta (bL) = 1.25, Income tax rate = 40%,
Debt/Assets = 0.42.
A. 0.87
B. 0.89
C. 0.78
D. 0.98
The stock in your portfolio was selling for $40 per share yesterday, but has
today declared a three for two split. Which of the following statements seems
to be true?
 A. There will be two-thirds as many shares outstanding, and they will sell for
$60.00 each.
B. There will be four times as many shares outstanding, and they will sell for
$160.00 each.
C. There will be 50 percent more shares outstanding, and they will sell for $26.67
each.
D. There will be one-and-one-half times as many shares outstanding, and they will
sell for $60.00 each.
Spartan Sporting Goods has $5 million in inventory and $2 million in
accounts receivable. Its average daily sales are $100,000. The company’s
payables deferral period (accounts payable divided by daily purchases) is 30
days. What is the length of the company’s cash conversion cycle?
A. 100 days
B. 60 days
C. 50 days
D. 40 days
A firm is offered trade credit terms of 3/15, net 45 days. The firm does not
take the discount, and it pays after 67 days. What is the nominal annual cost
of not taking the discount? (Assume a 365-day year.)
A. 21.71%
B. 22.07%
C. 22.95%
D. 23.48%
A firm is offered trade credit terms of 3/15, net 30 days. The firm does not
take the discount, and it pays after 50 days. What is the effective annual cost
of not taking this discount? (Assume a 365-day year.)
A. 44.30%
B. 32.25%
C. 30.00%
D. 37.39%
Effective = (1+3%/1-3%)^365/50-15 -1=37,39%
Firm CNC with the following data: levered beta (bL) = 1.25, Income tax rate =
40%, Equity/Assets = 1.00, rRF = 5%, RPM = 4%. What would be the cost of
equity for firm CNC?
A. 11.50%
B. 11.00%
C. 10.00%
D. 10.50%
Rs = rRF + RPm x bl
After the payment of a 25% stock dividend, an investor has 500 shares of
stock and $400 total value. How many shares and value did the investor have
prior to the stock dividend?
A. 375 shares of stock and $375 total value
B. 400 shares of stock and $400 total value
C. 400 shares of stock and $500 total value
D. 625 shares of stock and $400 total value
PRT Co produces motorcycle batteries. PRT turns out 1,800 batteries a day at
a cost of $7 per battery for materials and labor. It takes the firm 20 days to
convert raw materials into a battery. PRT allows its customers 40 days in
which to pay for the batteries, and the firm generally pays its suppliers in 30
days. If PRT has a technical problem that cause to increase its inventory
conversion period to 22 days and to decrease its daily production to 1,500
batteries, and then the cost of materials and labor to decrease to $6. Other
factors do not affect. What is the length of PRT’s cash conversion cycle &
what amount of working capital must it finance?
A. 30 days & $ 377.000
B. 30 days & $ 378.000
C. 32 days & $ 277.000
D. 32 days & $ 288.000

LUX Co buys $8.8 million of materials (net of discounts) on terms of 3/6, net
60; and it currently pays after 6 days and takes discounts. LUX plans to
expand, which will require additional financing. If the company could get the
funds from a bank at a rate of 21.2%, interest paid monthly, based on a 365-
day year, what would be the effective cost of the bank loan?
A. 32.93%
B. 32.39%
C. 23.93%
D. 23.39%
Based on data in the textbook, Chapter 12: Cash Flow Estimation and Risk
Analysis, What factors have the greatest influence on NPV under sensitive
analysis method?
A. Variable cost unit
B. Unit sold
C. Fixed cost
D. Sales price
Which of the following techniques may be more appropriate to analyze projects
with interrelated variables?
A. Sensitivity analysis
B. Scenario analysis
C. Break-even analysis
D. DOL analysis