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# Finance questions

5. The agency problem can seriously restrain the economic success of a company. What avenues are available to shareholders to bring their goals and those of management into alignment?

6. What is the corporate tax paid by a firm with taxable income of \$300,000, given the following tax tables.\$0 - \$50,000 15%\$50,000 - \$75,000 25%\$75,000 - \$100,000 34%\$100,000- \$335,000 39%

7. A firm is planning to lower its ACP by ten days next year. Receivables are currently \$15M on credit sales of \$120M Credit sales are expected to grow by 20% next year. Calculate next year's ending receivables balance (make calculations using ending balances and a 360 day year).

8. The following information is available in general and about investments in stocks J and K. The market return (kM) = 9% The risk free rate (kRF) = 5% Stock J's beta = 0.8 Expected constant growth rate for Stock J = 6% Investment in Stock J = \$80,000 Stock K's beta = 1.4 Expected constant growth rate for Stock K = 7% Investment in Stock K = \$120,000 a. What are the expected returns on Stock J and Stock K individually? b. What is the expected return on the portfolio? c. If Stock K just paid a dividend of \$2.50, what is Stock K's intrinsic value?

9. Baxter Inc. is in a fast growing industry, but doesn't seem to be able to match its competitors' growth rates. Selected financial information for Baxter is as follows (\$000): Baxter Sales \$20,000 EAT \$ 1,000 Total Assets \$10,000 Equity \$ 8,000 Annual dividend \$ 700 Research has revealed that the average firm in Baxter's industry pays out 10% of its earnings in dividends, earns 4 cents after tax on every sales dollar, has an equity multiplier of 3.0 and a total asset turnover of 1.9. a. Use a sustainable growth rate analysis in the following table to determine the source(s) of Baxter's growth problems. gs = Retention Ratio x Return on Sales x Total Asset Turnover x Equity Multiplier Industry Baxter b. What negatives might be associated with fixing the problems revealed by the analysis?

10. Assume the following partially completed financial plan (\$000): Income Statement Balance Sheet Next Year This Year Next Year Revenue \$5,000 Total assets \$1,000 \$2,000 Operating expenses 4,000 Liabilities & equity: EBIT 1,000 Current liabilities \$ 576 \$ 200 Interest (8%) ? Long-term debt 100 ? EBT ? Equity 324 ? Taxes(40%) ? Earnings after tax ? Total liabilities & equity \$1,000 \$2,000 The firm pays 8% interest on all of its debt and is subject to a 40% tax rate. Complete the plan.

#### Solution Summary

The solution explains some questions in finance relating to agency, corporate tax, AR collection, stock investments, asset turnover, plan

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