Question 1  (Analyzing the cash flow Statement) Goggle, Inc. is an Internet firm that has experienced a period of very rapid growth in revenues over the period 2007-2010. The cash flow statements for Goggle, Inc. spanning the period are below. Choose the best answer for the following question using the information found in these statements:

 

 

 

 

 

 

 

 

Describe Goggle’s main source of financing in the financial markets over the period.

 

                       

 

o   Google’s main source of financing in the financial markets over the period was the issuance of common stock for the amount of $985 million.

 

                       

 

o   Google’s main source of financing in the financial markets over the period was the issuance of debt for the amount of $10 million.

 

                       

 

o   Google’s main source of financing in the financial markets over the period was the issuance of common stock for the amount of $8,034.

 

 

 

o   Google’s main source of financing in the financial markets over the period was the issuance of debt for the amount of $985 million.

 

 

 

Question 2 :  (Analyzing the cash flow Statement) Goggle, Inc. is an Internet firm that has experienced a period of very rapid growth in revenues over the period 2007-2010. The cash flow statements for Goggle, Inc. spanning the period are below.

 

 

 

Based solely on the cash flow statements for 2007 through 2010, select the best choice below, that describes the major activities of Goggle’s management team over the period.

 

 

 

 

                       

 

o   Googles management team has been investing heavily in working capital and financing them with the issuance of stocks and internally generated funds.

 

 

 

o   Google’s management team has been investing heavily in capital expenditures and financing them with the issuance of stocks and internally generated funds.

 

 

 

o   Google’s management team has been spending heavily in paying cash dividends and financing them with the issuance of stocks and internally generated funds.

 

 

 

o   Google’s management team has been investing heavily in capital expenditures and financing them with the issuance of debt and internally generated funds.

 

 

 

Question 3: (Analyzing the cash flow Statement) Goggle, Inc. is an Internet firm that has experienced a period of very rapid growth in revenues over the period 2007-2010. The cash flow statements for Goggle, Inc. spanning the period are below. Choose the best answer for the following question using the information found in these statements:

 

 

 

 

How much did Goggle invest in new capital expenditures over the period? (Round to the nearest integer.)

 

                       

 

o   The amount that Google invested in new capital expenditures over the period is $15,930 million.

 

 

 

o   The amount that Google invested in new capital expenditures over the period is $14,710 million.

 

 

 

o   The amount that Google invested in new capital expenditures over the period is $16,290 million.

 

 

 

o   The amount that Google invested in new capital expenditures over the period is $11,030 million.

 

Question 4: (Analyzing the cash flow Statement) Goggle, Inc. is an Internet firm that has experienced a period of very rapid growth in revenues over the period 2007-2010. The cash flow statements for Goggle, Inc. spanning the period are below. Choose the best answer for the following question using the information found in these statements:

 

 

 

 

 

 

 

 

What years did Goggle generate positive cash flow from its operations?

 

                       

 

o   Goggle has generated positive cash flow from its operations during the years 2007, 2008, and 2010.

 

 

 

o   Goggle has generated positive cash flow from its operations during the years 2008, 2009, and 2010.

 

 

 

o   Goggle has generated positive cash flow from its operations during the years 2007, 2008, 2009, and 2010.

 

 

 

o   Goggle has generated positive cash flow from its operations during the years 2007, 2009, and 2010.

 

 

 

Question 5 (Calculating rates of return) The common stock of Placo Enterprises had a market price of $8.34 on the day you purchased it just one year ago. During the past year, the stock had paid a dividend of $0.54 and closed at a price of $10.47. What rate of return did you earn on your investment in Placo’s stock? (Round to two decimal places.)

 

 

 

 

 

Question 6: (Annuity interest rate) Your parents just called and would like some advice from you. An insurance agent just called them and offered them the opportunity to purchase an annuity for $14,217.56 that will pay them $2,500 per year for 15 years. They do not have the slightest idea what return they would be making on their investment of $14,217.56. What rate of return would they be earning? (Round to two decimal places.)

 

 

 

Question 7   (DuPont analysis) Dearborn Supplies has total sales of $200 million, assets of $109 million, a return on equity of 30 percent, and a net profit margin of 7.6 percent. What is the firm’s debt ratio?

 

 

 

Question 8  (Present value) Ronen Consulting has just realized an accounting error that has resulted in an unfunded liability of $380,000 due in 28 years. In other words, they will need $380,000 in 28 years. Toni Flanders, the company’s CEO, is scrambling to discount the liability to the present to assist in valuing the firm’s stock. If the appropriate discount rate is 9 percent, what is the present value of the liability?

 

 

 

Question 9 (Review of financial statements) Prepare a balance sheet and income statement for the Warner Company from the scrambled list of items found here in order to answer the question below. The statements do not need to be submitted, only your response to the question.

 

 

 

Financial Statement

 

 

 

 

 

 

What can you say about the firm’s financial condition based on the prepared financial statements?

 

 

 

Question 10: (Cost of debt) Sincere Stationery Corporation needs to raise $531,000 to improve its manufacturing plant. It has decide to issue a $1,000 par value bond with an annual coupon rate of 10.1 percent with interest paid semiannually and a 15-year maturity. Investors require a rate of return of 7.7 percent.

 

 

 

a.       Compute the market value of the bonds.

 

b.      How many bonds will the firm have to issue to receive the needed funds?

 

c.       What is the firm’s after-tax cost of debt if the firm’s tax rate is 34 percent?

 

 

 

Question 11: (Individual or component costs of capital) Compute the cost of capital for the firm for the following:

 

 

 

a.       A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.8 percent. Interest payments are $54.00 and are paid semiannually. The bonds have a current market value of $1,130 and will mature in 10 years. The firm’s marginal tax rate is 34 percent.

 

 

 

b.      A new common stock issue that paid a $1.77 dividend last year. The firm’s dividends are expected to continue to grow at 7.4 percent per year, forever. The price of the firm’s common stock is now $27.61.

 

 

 

c.       A preferred stock that sells for $141, pays a dividend of 9.5 percent, and has a $100 par value.

 

 

 

d.      A bond selling to yield 11.4 percent where the firm’s tax rate is 34 percent.

 

 

 

Question 12: (Weighted average cost of capital) The target capital structure for Jowers Manufacturing is 52 percent common stock, 12 percent preferred stock, and 36 percent debt. If the cost of common equity for the firm is 20.8 percent, the cost of preferred stock is 12.5 percent, and the before-tax cost of debt is 10.4 percent, what is Jowers’ cost of capital? The firm’s tax rate is 34 percent.

 

 

 

 

 

Question 13: (Individual or component costs of capital) Your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital. To help in this, compute the cost of capital for the firm for the following:

 

 

 

a.       A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 11.9 percent that is paid semiannually. The bond is currently setting for a price of $1,129 and will mature in 10 years. The firm’s tax rate is 34 percent. If the firm’s bonds are not frequently traded, how would you go about determining a cost of debt for this company?

 

 

 

b.      A new common stock issue that paid a $1.74 dividend last year. The par value of the stock is $16, and the firm’s dividends per share have grown at a rate of 8.7 percent per year. This growth rate is expected to continue into the foreseeable future. The price of this stock is now $27.88.

 

 

 

c.       A preferred stock paying a 9.3 percent dividend on a $120 par value. The preferred shares are currently setting for $153.18.

 

 

 

d.      A bond setting to yield 13.9 percent for the purchaser of the bond. The borrowing firm faces a tax rate of 34 percent.