Corporate Finance Essay

1146 words - 5 pages

End-of-Chapter
Questions and Problems
We have found that many
students learn better when
they have plenty of
opportunity to practice;
therefore, we provide
extensive end-of-chapter
questions and problems.
The end-of-chapter support
greatly exceeds typical
introductory textbooks. The
questions and problems are
segregated into three
learning levels: Basic,
Intermediate, and
Challenge. All problems are
fully annotated so that
students and instructors can
readily identify particular types. Answers to selected end-of-chapter material appear in Appendix C. See Chapter 6, page 191; Chapter 9, page 305.
New! What’s on the Web?
These end-of-chapter activities show students how to ...view middle of the document...

19. NPV and the Profitability Index If we define the NPV index as the ratio of NPV to cost, what is the relationship between this index and the profitability index?
20. Cash Flow Intuition A project has an initial cost of I, has a required return of R, and pays C annually for N years.
a. Find C in terms of I and N such that the project has a payback period just
equal to its life.
b. Find C in terms of I, N, and R such that this is a profitable project according
to the NPV decision rule.
c. FindCintermsofI,N,andRsuchthattheprojecthasabenefit-costratioof
2.
21. Payback and NPV An investment under consideration has a payback of seven
years and a cost of $320,000. If the required return is 12 percent, what is the
worst-case NPV? The best-case NPV? Explain.
22. Multiple IRRs This problem is useful for testing the ability of financial cal-
culators and computer software. Consider the following cash flows. How many different IRRs are there (hint: search between 20 percent and 70 percent)? When should we take this project?
What’s On 4.1 the Web?
Growth Rates Go to quote.yahoo.com and enter the ticker symbol “IP” for In- ternational Paper. When you get the quote, follow the “Research” link. What is the projected sales growth for International Paper for next year? What is the pro- jected earnings growth rate for next year? For the next five years? How do these earnings growth projections compare to the industry, sector, and S&P 500 index?
4.2 Applying Percentage of Sales Locate the most recent annual financial state- ments for Du Pont at www.dupont.com under the “Investor Center” link. Locate the annual report. Using the growth in sales for the most recent year as the pro- jected sales growth for next year, construct a pro forma income statement and balance sheet.
4.3 Growth Rates You can find the home page for Caterpillar, Inc., at www. caterpillar.com. Go to the web page, select “Cat Stock,” and find the most recent annual report. Using the information from the financial statements, what is the internal growth rate for Caterpillar? What is the sustainable growth rate?

S&P Problems
1. Equity Multiplier Use the balance sheets for Amazon.com (AMZN), Bethle- hem Steel (BS), American Electric Power (AEP), and Pfizer (PFE) to calculate the equity multiplier for each company over the most recent two years. Com- ment on any similarities or differences between the companies...

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