1. Examine the functions and operations of investment banks in the
U.S. economy by answering each of the following questions:
(a) Describe two financial services provided by investment banks.
(b) Identify two types of securities that investment bank
syndicates sell high, globally. (c) Does it pay to search for the
best available investment bank or should a firm stay loyal to a
given investment bank? Explain? (d) Could the U.S. government
reduce its regulatory constraints on investment banks in a way that
that would help firms and the economy? Explain.
2. Explain how it could help a firm to: (a) buy back some of its
common stock; (b) increase its use of internal financing relative
to external financing; (c) replace some equity financing with debt
financing; (d) take a public firm private; and (e) pay down some of
the firm's debt?
3. Calculate the break-even point (Q), for a firm whose: (a) total
fixed cost (TFC) = $100,000, product price per unit of output
(P) = $8.00, and average variable cost (AVC) = $4.00.
(b) TFC = $600,000, P = $20,000, and AVC = $10,000.
4. How much will a 15% increase in sales increase a firm's net
operating income (NOI) and increase its net income (NI), if:
(a) its degree of operating leverage (DOL) = 3.0, and its degree
of financial leverage (DFL) = 4.0? (b) its DOL = 2.0 and DFL = 2.5?
5. (a) How do business managers determine that acquiring a given
working capital asset would help their company financially?
(b) Identify a working capital asset that is particularly time
consuming to manage, and explain why. (c) Would a current ratio < 1
for a company help its managers identify a financial management
6. Explain what financial problems, if any, may be created by each of
the following company practices: (a) The company doesn’t offer
credit to its customers or accept credit card payments for its
retail sales. (b) The company has a high percentage of bad debts on
its accounts receivable. (c) The company is late in paying some of
its suppliers. (d) Many customers are complaining about substantial
product quality defects. (e) The company has a substantial backlog
7. Describe a business practice that would help a company manage each
of the following financial risks: (a) interest rate risk;
(b) liquidity risk; and (c) credit risk.
8. (a) Describe three potential causes of errors in preparing
projected (i.e., pro forma) financial statements for a company for
the next three years. (b) Describe two unethical practices of some
financial managers in preparing financial statements that could
hurt them and their company.
9. (a) Explain why financial planning is an important part of business
planning. (b) Describe one way that financial ratio analysis of
projected financial statements could be efficiently used by
managers for financial planning.
10. Use the following data from a firm's pro forma (i.e., projected or
forecasted) financial statements to calculate the following
profitability ratios for the firm, assuming that all stocks are
common stocks: (a) net profit margin; (b) return on total assets;
(c) return on equity; (d) price-earnings ratio.
Sales $ 500 million
Net income 30 million
Total Assets 1000 million
Stockholders' Equity 750 million
Number of Common Stock Shares 10 million
Price per share of common stock $75.00
|Due By (Pacific Time)||11/05/2014 05:00 pm|
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