General Mills, Inc., the largest manufacturer of packaged foods, reported the following in its annual report for the year ending May 29, 2011 (in millions): Short-term borrowing Long-term debt Stockholders' equity $1,342.6 $5,542.5 $6,616.2 a. The short term borrowing and long-term debt are carried on the balance sheet at approximately their market value. The firm's 644.8 million shares traded at $36.50 per share when the annual report was released. From these numbers, calculate General Mills's enterprise market value (the market value of the firm). b. Hewlett-Packard, the computer equipment manufacturer and systems consultant, had 2,126 million shares outstanding in May 2011, trading at $41 per share. Its most recent quarterly report listed the following (in millions): Investment in interest-bearing debt securities and deposits Short-term borrowings Long-term debt Stockholders' equity Calculate the enterprise market value of Hewlett-Packard. Explain your answer. $12,700 $8,406 $14,512 $41,795 c. Define stock market efficiency. Does market efficiency imply that prices are unpredictable?

General Mills, Inc., the largest manufacturer of packaged foods, reported the following in its annual report for the year ending May 29, 2011 (in millions): Short-term borrowing Long-term debt Stockholders' equity $1,342.6 $5,542.5 $6,616.2 a. The short term borrowing and long-term debt are carried on the balance sheet at approximately their market value. The firm's 644.8 million shares traded at $36.50 per share when the annual report was released. From these numbers, calculate General Mills's enterprise market value (the market value of the firm). b. Hewlett-Packard, the computer equipment manufacturer and systems consultant, had 2,126 million shares outstanding in May 2011, trading at $41 per share. Its most recent quarterly report listed the following (in millions): Investment in interest-bearing debt securities and deposits Short-term borrowings Long-term debt Stockholders' equity Calculate the enterprise market value of Hewlett-Packard. Explain your answer. $12,700 $8,406 $14,512 $41,795 c. Define stock market efficiency. Does market efficiency imply that prices are unpredictable?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A company issues $1.1 million of new stock and pays $201,000 in cash dividends during the year. In addition, the company took advantage of falling interest rates to borrow $1.51 million in a new bond issue and paid off existing bonds with a face value of $2.05 million. The company bought 501 of another company's $1,010 bonds at a $101,000 premium. The net cash flow provided by financing activities is: A) An outflow of $201,000. B) An inflow of $359,000. C) An inflow of $540,000. D) An outflow of $101,000
Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 970,000 shares of common stock were outstanding. The interest rate on the bond payable was 12 % , the income tax rate was 40%, and the dividend per share of common stock was $0.75 last year and $0.40 this year. The market value of the company's common stock at the end of this year was $26.50. All of the company's sales are on account. Assets Current assets: Cash Accounts receivable, net Inventory Prepaid expenses Total current assets. Property and equipment: Land Buildings and equipment, net Total property and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Notes payable, short term liabilities Total current Long-term liabilities: Bonds payable Total liabilities Stockholders' equity: Common stock Weller Corporation…
Ava’s SpinBall Corp. lists fixed assets of $31 million on its balance sheet. The firm’s fixed assets have recently been appraised at $54 million. Ava’s SpinBall Corp.’s balance sheet also lists current assets at $24 million. Current assets were appraised at $44 million. Current liabilities’ book and market values stand at $6 million, and the firm’s book and market values of long-term debt are $26 million. Calculate the book and market values of the firm’s stockholders’ equity. Construct the book value and market value balance sheets for Ava’s SpinBall Corp. (Enter your answers in millions of dollars.) BOOK VALUE MARKET VALUE (in millions of dollars) Assets Current assets Fixed assets Total $0 $0 Liabilities and Equity Current liabilities Long-term debt Stockholders' equity Total $0 $0
The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 14%, its before-tax cost of debt is 10%, and its marginal tax rate is 25%. Assume that the firm's long-term debt sells at par value. The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1,183. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Cash Assets Accounts receivable Inventories Liabilities And Equity $ 120 Accounts payable and accruals $ 10 53 240 360 Short-term debt Long-term debt 1,130 30 Plant and equipment, net Total assets 2,160 $2,880 Common equity Total liabilities and equity 1,687 $2,880 Calculate Paulson's WACC using market-value weights. Do not round intermediate calculations. Round your answer to two decimal places. %
CEG Capital Inc. is a large holding company that uses long-term debt extensively to fund its operations. At December 31, the company reported total assets of $100 million, total debt of $55 million, and total equity of $45 million. In January, the company issued $11 billion in long-term bonds to investors at par value. This was the largest debt issuance in the company’s history, and it significantly increased the company’s ratio of total debt to total equity. Five days after the debt issuance, CEG filed legal documents to prepare for an additional $50 billion long-term bond issue. As a result of this filing, the price of the $11 billion in bonds that the company issued earlier in the week dropped to 94 because of the increased risk associated with the company’s debt. The investors in the original $11 billion bond issuance were not informed of the company’s plans to issue additional debt so quickly after the initial bond issue.Did CEG Capital act unethically by not disclosing to initial…
In 2016, the Allen corporation had sales of $63 million, total assets of $44 million, and total liabilities of $15 million. The interest rate on the company’s debt is 5.7 percent, and it’s tax rate is 35 percent. The operating profit margin is 14 percent. A. Compute the firm’s 2016 net operating income and net income The firm’s 2016 net operating income is Round to two decimal places.
Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 600,000 shares of common stock were outstanding. The interest rate on the bond payable was 10%, the income tax rate was 40%, and the dividend per share of common stock was $0.75 last year and $0.40 this year. The market value of the company’s common stock at the end of this year was $22. All of the company’s sales are on account. Weller CorporationComparative Balance Sheet(dollars in thousands) This Year Last Year Assets Current assets: Cash $ 1,230 $ 1,310 Accounts receivable, net 10,500 7,900 Inventory 12,500 12,200 Prepaid expenses 770 550 Total current assets 25,000 21,960 Property and equipment: Land 9,100 9,100 Buildings and equipment, net 49,348 37,336 Total property and equipment 58,448 46,436 Total assets $ 83,448 $ 68,396…
Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 600,000 shares of common stock were outstanding. The interest rate on the bond payable was 10%, the income tax rate was 40%, and the dividend per share of common stock was $0.75 last year and $0.40 this year. The market value of the company’s common stock at the end of this year was $20. All of the company’s sales are on account. Weller CorporationComparative Balance Sheet(dollars in thousands) This Year Last Year Assets Current assets: Cash $ 1,230 $ 1,350 Accounts receivable, net 10,900 6,900 Inventory 13,600 10,800 Prepaid expenses 670 620 Total current assets 26,400 19,670 Property and equipment: Land 9,200 9,200 Buildings and equipment, net 48,992 41,286 Total property and equipment 58,192 50,486 Total assets $ 84,592 $ 70,156…
The table below shows a book balance sheet for the Wishing Well Motel chain. The company's long-term debt is secured by its real estate assets, but it also uses short-term bank loans as a permanent source of financing. It pays 13% interest on the bank debt and 11% interest on the secured debt. Wishing Well has 10 million shares of stock outstanding, trading at $85 per share. The expected return on Wishing Well's common stock is 18%. (Table figures in $ millions.) $ 130 $ 270 Bank loan Cash and marketable securities 170 Accounts payable Accounts receivable 290 $ 440 Inventory Current liabilities 50 $ 2,400 470 Current assets Long-term debt Equity 2,150 Real estate 400 120 Other assets $ 2,990 $ 2,990 Total Total Calculate Wishing Well's WACC. Assume that the book and market values of Wishing Well's debt are the same. The marginal tax rate is 21%. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) Weighted-average cost of capital
Café Creations Incorporated has net cash flow from financing activities for the last year of $25 million. The company paid $15 million in dividends last year. During the year, the change in notes payable on the balance sheet was a decrease of $40 million, and change in common and preferred stock was an increase of $50 million. The end of year balance for long-term debt was $40 million. What was their beginning of year balance for long-term debt? Multiple Choice $20 million $30 million $40 million $10 million
Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 940,000 shares of common stock were outstanding. The interest rate on the bond payable was 12%, the income tax rate was 40%, and the dividend per share of common stock was $0.75 last year and $0.40 this year. The market value of the company’s common stock at the end of this year was $25. All of the company’s sales are on account. Weller CorporationComparative Balance Sheet(dollars in thousands) This Year Last Year Assets Current assets: Cash $ 5,304 $ 5,350 Accounts receivable, net 15,800 10,450 Inventory 10,400 8,760 Prepaid expenses 1,940 2,380 Total current assets 33,444 26,940 Property and equipment: Land 7,400 7,400 Buildings and equipment, net 20,600 20,400 Total property and equipment 28,000 27,800 Total assets $ 61,444 $ 54,740…
Binomial Tree Farm's financing includes $5 million of bank loans. Its common equity is shown in Binomial's Annual Report at $6.67 million. It has 500,000 shares of common stock outstanding, which trade on the Wichita Stock Exchange at $18 per share. What debt ratio should Binomial use to calculate its company cost of capital or asset beta? Note: Enter your answer as a percent rounded to 2 decimal places. Debt ratio %

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