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Chapter 1 - 副本 - 副本

Chapter 1 - 副本 - 副本


1.Fritz and Frieda went to business school together 10 years ago . They have just been hired by a midsized corporation that wants to bring in new financal managers.Fritz studied finance, with an emphasis on financial markets and institutions.Frieda majored in accounting and became a CPA 5 years ago . Who is more suited to be treasurer and who controller ? Briefly explain.Fritz would more likely be the treasurer and Frieda the controller . The treasurer raises money from the financial markerts and requires a background in financial institutions . The controller requires a background in accunting.2.What is an agency problem ? Give two or three examples of decisions by managers that lead to agency costs.Agency problems arise when managers and shareholders have different objectives . Managers may empire-build with excessive investment and growth. Managers may be unduly risk-averse, or they may try to take excessive salaries or perquisites.3.Individual investors can buy bonds and stocks directly, or they can put their money in a mutual fund or a defined-contribution pension fund . What are the advantages of the second strategy ?Answer: Efficient diversification and proffessional managerment.Pension funds offer an additional advantage, because investment returns are not taxed until withdrawn from the fund.4.What are the key difference between a mutual fund and a bank or an insurance company ?Answer: Mutual funds pool investor savings and invest in portfolios of traded securities. Financial institutions such as banks or insurance companies raise money in special ways , for example , by accepting deposits or selling insurance policies. They not only invest in securities but also lend dircetly to business . They provide various other financial.5.Which of the functions described in this section require financial markets ? Explain briefly.Answer: Liquidity , risk reduction by investment in diversified portfolios of securities (through a mutual fund , for example), information provided by trading.6.Rhonda and Reggie Hotspur are working hard to save for their childrens’college educations. They don’t need more cash for current consumption but will face big tuition bills in 2020. Should they therefore aviod investing in stocks that pay generous current cash dividends ? Explain briefly.Answer: Rhonda and Reggie need not avoid high-dividend stocks.They can reinvest the dividends and keep reinvesting until it’s time to pay the tuition bills .(They will have to pay taxs on the dividends , however, which could affect their investment strategy.7.Investing $100,000 in additional raw materials today-mostly in palladium-should allow Cryogenic Concepts to increase production and earn an additional $112,000 next year . Palladium is traded in commodity markets . The CFO has studied the history of returns on investmentin palladium and believes that investors in that precious metal can reasonably expect a 15 percent return. Is Cryogenic’s investment in palladium a good idea ? Why or Why not? Answer: It is not a good investment if the opportunity cost of capital is 15 percent. The investment offers only a 12 percent return.

8..Suppose

that Pepsi borrows

$500 million by issuing new long-term bonds. It places $100 million of the proceeds in the bank and uses $400 million to buy new machinery. What items of the balance sheet would change ? Would shareholders’ equity change?Cash and

equivalents would increase by $100 million . Property, plant, and equipment would increase by $400 million .Long-term debt would increase by $500 million . Shareholders’ equity would not increase: assets and liabilities have increase equally, leaving shareholders’ equity unchanged.9..In the 1970s .the computer industry was dominated by IBMand was growing rapidly .In the 1980s,many new competitors entered the market ,and computer prices fell. Computer makers in the last decade ,including IBM,strggled with thinning profit margins and intense competition .How has IBM’s market–value balance sheet changed over time ?Have assets in place become proportionately more or less important ?Do you think this progression is unique to the computer industry ?IBM’s forecast future profitability has fallen .Thus the value of future investment opportunities has fallen relative to the value of assets in place .This happens in all growth industries sooner of later ,as competition increases and profitable new investment opportunities shrink 10..what is the basic difference between sensitivity analysis and scenario analysis ?both calculate how NPV depends on input assumptions .sensitivity analysis changes inputs one at a time ,whereas scenario analysis changes several variables at once .the changes should add up to a consistent scenario for the project as a whole .11.what is the basic difference between sensitivity analysis and break-even analysis?Break-even analysis finds the level of sales or revenue at which NPV =0.sensitivity analysis changes these and other input variables to optimistic and pessimistic values and recalculates NPV.12.an investor is currently fully invested in gold mining stocks .which action would do more to reduce potfolio risk :diversification into siver mining stocks or intoautomotive stocks ?why ?The gold mining stock’s returns are more highly correlated with the silver mining company than with a car company .as a result ,the automotive firm will offer a greater diveasification benefit .the power of diversification is lowest when rates of return are highly correlated .performing well of poorly in tandem .shifting the portfolio from one such firm to another has little impact on overall risk .. 13.Jo Ann Cox’s boss has pointed
out that Geothermal proposes to finance its expansion entiely by borrowing at interest rate of 8 percent. He argues that this is therefore the appropiate discount rate for the project’s cash flows.Is he right?Jo Ann’s boss is wrong. The ability to borrow at 8 percent dose not mean that the cost of capital is 8 percent. The firm could not finance a stand-alone project with 8 percent debt. This analysis ignores the side effects of the borrowing ,for example ,that at the higher indebtedness of the firm the equity will be riskier and ,therefore ,the euqityholders will demand a higher rate of return on their investment.14.A company in a 35 percent tax bracket can buy a bond yielding 10 percent or apreferred stock of the same firm that is priced to yield 8 percent . Which will provide the higher after-tax yield?the corporation’s after-tax yield on the bonds is 10%-(.35*10%)=6.5%.The after-tax yield on the preferred is 8%-[.34*(.30*8%)]=7.16%.the preferred stock provides the higher after-tax rate despite its lower before-tax rate .15.Would you expect the price of a 10-year floating-rate bond to be more or less senstive to changes in interest rates than the price of a 10-year maturity fixedrate bond?Because the coupon on floating-rate debt adjusts periodically to current market conditions ,the bondholder is less vulnerable to changes in market yields .the coupon rate qaid by the bond is not locked in for as long a period of time .Therefore ,prices of folaters should be less

sensitive to changes in market interst rates .16.Suppose Heinz is considering two issues of 20-year maturity coupon bondas; one issue will be callable, the other not. For a given coupon rate ,will the callable or noncallable bong sell at the higher price? If the bonds are both to be sold to the public at face value, which bond must have the higher coupon rate?the callable bond will sell at a lower price ,Investors will not pay as much for the callable bond since they know that the firm may call it away from then if ininterest rates fall .Thus theyknow that their capital gains potential is limited ,which makes the bond less valuable .If both bonds are to sell at face value ,the callable bond must pay a higher coupon rate as compensation to the investor for the firm’s right to call the bond .



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