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Financial management: theory & practice, 14th edition solutions manual and test bank by eugene f. Brigham michael c. Ehrhardt
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2-1 a. Theannual report is a report issued annually by a corporation to itsstockholders. It contains basicfinancial statements, as well as management’s opinion of the past year’soperations and the firm’s future prospects. A firm’s balance sheet is a statement of the firm’s financial positionat a specific point in time. Itspecifically lists the firm’s assets on the left-hand side of the balancesheet, while the right-hand side shows its liabilities and equity, or theclaims against these assets. An incomestatement is a statement summarizing the firm’s revenues and expenses over anaccounting period. Net sales are shownat the top of each statement, after which various costs, including incometaxes, are subtracted to obtain the net income available to commonstockholders. The bottom of thestatement reports earnings and dividends per share.
b. Common Stockholders’ Equity (Net Worth) isthe capital supplied by common stockholders--capital stock, paid-in capital,retained earnings, and, occasionally, certain reserves. Paid-in capital is the difference between thestock’s par value and what stockholders paid when they bought newly issuedshares. Retained earnings is the portionof the firm’s earnings that have been saved rather than paid out as dividends.

Highlighting business assessment and its importance to financial choices, Brigham/Ehrhardt’s Financial Management: Theory And Practice 16 th edition, PDF,(MindTap Course List) guarantees you see the trees and the forest.This tested author group equips you with a comprehensive understanding of crucial theoretical principles together with useful tools to make great and reliable. Financial management brigham and ehrhardt 12 ed on 3:42 PM, No Comments. pdf Test Banks and Solution Manuals!!!!! Zimmerer 2nd edition. IM536 B Financial Management.pdf. pdf Spring 2008 - MBAM614.13 - Finance - Augus Harjoto Financial Management: Theory and Practice, by Brigham and Ehrhardt, 12th edition. Publisher: South. Financial Management: Theory & Practice 15th Edition by Eugene F. Brigham; Michael C. Ehrhardt and Publisher Cengage Learning. Save up to 80% by choosing the eTextbook option for ISBN: 902,. The print version of this textbook is ISBN: 006,.

c. The statement of stockholders’ equity showshow much of the firm’s earnings were retained in the business rather than paidout in dividends. It also shows the resulting balance of the retained earningsaccount and the stockholders’ equity account. Note that retained earningsrepresents a claim against assets, not assets per se. Firms retain earnings primarily to expand thebusiness, not to accumulate cash in a bank account. The statement of cash flows reports theimpact of a firm’s operating, investing, and financing activities on cash flowsover an accounting period.
d. Depreciation is a non-cash charge againsttangible assets, such as buildings or machines. It is taken for the purpose of showing an asset’s estimated dollar costof the capital equipment used up in the production process. Amortization is a non-cash charge againstintangible assets, such as goodwill. EBITDA is earnings before interest, taxes, depreciation, andamortization.
e. Operating current assets are the currentassets used to support operations, such as cash, accounts receivable, andinventory. It does not includeshort-term investments. Operatingcurrent liabilities are the current liabilities that are a natural consequenceof the firm’s operations, such as accounts payable and accruals. It does not include notes payable or anyother short-term debt that charges interest. Net operating working capital is operating current assets minusoperating current liabilities. Total netoperating capital is sum of net operating working capital and operatinglong-term assets, such as net plant and equipment. Operating capital also is equal to the netamount of capital raised from investors. This is the amount of interest-bearing debt plus preferred stock pluscommon equity minus short-term investments.
f. Accounting profit is a firm’s net income asreported on its income statement. Netcash flow, as opposed to accounting net income, is the sum of net income plusnon-cash adjustments. NOPAT, netoperating profit after taxes, is the amount of profit a company would generateif it had no debt and no financial assets. Free cash flow is the cash flow actually available for distribution toinvestors after the company has made all investments in fixed assets andworking capital necessary to sustain ongoing operations. Return on investedcapital is equal to NOPAT divided by total net operating capital. It shows therate of return that is generated by assets.
g. Market value added is the difference betweenthe market value of the firm (i.e., the sum of the market value of commonequity, the market value of debt, and the market value of preferred stock) andthe book value of the firm’s common equity, debt, and preferred stock. If the book values of debt and preferredstock are equal to their market values, then MVA is also equal to the differencebetween the market value of equity and the amount of equity capital thatinvestors supplied. Economic value addedrepresents the residual income that remains after the cost of all capital,including equity capital, has been deducted.
h. A progressive tax means the higher one’sincome, the larger the percentage paid in taxes. Taxable income is defined as gross incomeless a set of exemptions and deductions which are spelled out in theinstructions to the tax forms individuals must file. Marginal tax rate is defined as the tax rateon the last unit of income. Average taxrate is calculated by taking the total amount of tax paid divided by taxableincome.
i. Capital gain (loss) is the profit (loss)from the sale of a capital asset for more (less) than its purchase price. Ordinary corporate operating losses can becarried backward for 2 years or forward for 20 years to offset taxable incomein a given year.
j. Improper accumulation is the retention ofearnings by a business for the purpose of enabling stockholders to avoidpersonal income taxes on dividends. An Scorporation is a small corporation which, under Subchapter S of the InternalRevenue Code, elects to be taxed as a proprietorship or a partnership yetretains limited liability and other benefits of the corporate form of organization.
2-2 The four financial statements contained inmost annual reports are the balance sheet, income statement, statement of stockholders’equity, and statement of cash flows.
2-3 No, because the $20 million of retainedearnings doesn’t mean the company has $20 million in cash. The retained earnings figure represents cumulativeamount of net income that the firm has not paid out as dividends during itsentire history. Thus, most of the reinvested earnings were probably spent on thefirm’s operating assets, such as buildings and equipment.
2-5 Operating capital is the amount ofinterest bearing debt, preferred stock, and common equity used to acquire thecompany’s net operating assets. Withoutthis capital a firm cannot exist, as there is no source of funds with which tofinance operations.
2-6 NOPAT is the amount of net income acompany would generate if it had no debt and held no financial assets. NOPAT is a better measure of the performanceof a company’s operations because debt lowers income. In order to get a true reflection of acompany’s operating performance, one would want to take out debt to get aclearer picture of the situation.
2-7 Free cash flow is the cash flow actuallyavailable for distribution to investors after the company has made all theinvestments in fixed assets and working capital necessary to sustain ongoingoperations. It is the most importantmeasure of cash flows because it shows the exact amount available to allinvestors.
2-8 If the business were organized as apartnership or a proprietorship, its income could be taken out by the ownerswithout being subject to double taxation. Also, if you expected to have losses for a few years while the companywas getting started, if you were notincorporated, and if you had outside income, the business losses could be usedto offset your other income and reduce your total tax bill. These factors would lead you to not incorporate the business. An alternative would be to organize as an SCorporation, if requirements are met.


SOLUTIONS TO END-OF-CHAPTER PROBLEMS

2-1 Corporate yield = 9%; T = 35.5%
= 9%(0.645) = 5.76%.
2-2 Corporate bond yields 8%. Municipal bond yields 6%.
2-3 NI = $6,000,000; EBIT = $13,000,000; T = 40%; Interest = ?
Need to setup an income statement and work from the bottom up.
EBIT $13,000,000
EBT $10,000,000 EBT =
NI $6,000,000
Interest =EBIT – EBT = $13,000,000 – $10,000,000 = $3,000,000.

CHAPTER2—FINANCIAL STATEMENTS, CASH FLOW, AND TAXES
TRUE/FALSE
1. The annual report contains four basicfinancial statements: the income statement, balance sheet, statement of cashflows, and statement of stockholders' equity.
ANS: T PTS: 1 DIF: Difficulty: Easy
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Annual report KEY: Bloom’s: Knowledge
2. The primary reason the annual report isimportant in finance is that it is used by investors when they formexpectations about the firm's future earnings and dividends, and the riskinessof those cash flows.
ANS: T PTS: 1 DIF: Difficulty: Easy
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Annual report and expectations KEY: Bloom’s:Knowledge
3. Consider the balance sheet of WilkesIndustries as shown below. Because Wilkes has $800,000 of retained earnings,the company would be able to pay cash to buy an asset with a cost of $200,000.
Cash
Accounts payable
Inventory
Accruals
Accounts receivable
Total CL
Total CA
Debt
Net fixed assets
Common stock

Retained earnings
Total assets
Total L & E

ANS: F PTS: 1 DIF: Difficulty: Easy
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Retained earnings versus cash KEY: Bloom’s:Knowledge
4. On the balance sheet, total assets mustalways equal total liabilities and equity.
ANS: T PTS: 1 DIF: Difficulty: Easy
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Balance sheet KEY: Bloom’s: Knowledge
5. Assets other than cash are expected toproduce cash over time, but the amount of cash they eventually produce could behigher or lower than the values at which these assets are carried on the books.
ANS: T PTS: 1 DIF: Difficulty: Easy
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Balance sheet: non-cash assets KEY: Bloom’s:Knowledge
6. The income statement shows the differencebetween a firm's income and its costs¾i.e., its profits¾during aspecified period of time. However, not all reported income comes in the form orcash, and reported costs likewise may not correctly reflect cash outlays. Therefore,there may be a substantial difference between a firm's reported profits and itsactual cash flow for the same period.
ANS: T PTS: 1 DIF: Difficulty: Easy
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Income statement KEY: Bloom’s:Knowledge
7. Net operating working capital is equal tooperating current assets minus operating current liabilities.
ANS: T PTS: 1 DIF: Difficulty: Easy
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Net operating working capital KEY: Bloom’s:Knowledge
8. Total net operating capital is equal to netfixed assets.
ANS: F PTS: 1 DIF: Difficulty: Easy
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Total net operating capital KEY: Bloom’s: Knowledge
9. Net operating profit after taxes (NOPAT) isthe amount of net income a company would generate from its operations if it hadno interest income or interest expense.
ANS: T PTS: 1 DIF: Difficulty: Easy
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Net operating profit after taxes (NOPAT)

10. The fact that 70% of the interest income received by acorporation is excluded from its taxable income encourages firms to use moredebt financing than they would in the absence of this tax law provision.
ANS: F PTS: 1 DIF: Difficulty: Easy
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Federal income taxes: interest income

11. If the tax laws were changed so that $0.50 out of every $1.00 ofinterest paid by a corporation was allowed as a tax-deductible expense,this would probably encourage companies to use more debt financing than theypresently do, other things held constant.
ANS: F PTS: 1 DIF: Difficulty: Easy

Financial Management

STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Federal income taxes: interest expense

12. The interest and dividends paid by a corporation areconsidered to be deductible operating expenses, hence they decrease the firm'stax liability.
ANS: F PTS: 1 DIF: Difficulty: Easy
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Federal income taxes: interest expense anddividends

13. The balance sheet is a financial statement that measures the flowof funds into and out of various accounts over time, while the income statementmeasures the firm's financial position at a point in time.
ANS: F PTS: 1 DIF: Difficulty: Easy
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Financial statements KEY: Bloom’s:Knowledge
14. Its retained earnings is the actual cash that the firm hasgenerated through operations less the cash that has been paid out tostockholders as dividends. Retained earnings are kept in cash or near cashaccounts and, thus, these cash accounts, when added together, will always beequal to the firm's total retained earnings.
ANS: F PTS: 1 DIF: Difficulty: Moderate
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Retained earnings KEY: Bloom’s:Comprehension
15. The retained earnings account on the balance sheet does notrepresent cash. Rather, it represents part of stockholders' claims against thefirm's existing assets. This implies that retained earnings are in fact stockholders'reinvested earnings.
ANS: T PTS: 1 DIF: Difficulty: Moderate
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Retained earnings KEY: Bloom’s:Comprehension
16. In accounting, emphasis is placed on determining net income inaccordance with generally accepted accounting principles. In finance, theprimary emphasis is also on net income because that is what investors use tovalue the firm. However, a secondary financial consideration is cash flow, becausecash is needed to operate the business.
ANS: F PTS: 1 DIF: Difficulty: Moderate
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Cash flow and net income KEY: Bloom’s: Comprehension
17. To estimate the cash flow from operations, depreciation must beadded back to net income because it is a non-cash charge that has been deductedfrom revenue.
ANS: T PTS: 1 DIF: Difficulty: Moderate
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Statement of cash flows KEY: Bloom’s: Comprehension
18. The current cash flow from existing assets is highly relevant tothe investor. However, since the value of the firm depends primarily upon itsgrowth opportunities, profit projections from those opportunities are the onlyrelevant future flows with which investors are concerned.
ANS: F PTS: 1 DIF: Difficulty: Moderate
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Future cash flows KEY: Bloom’s:Comprehension
19. Interest paid by a corporation is a tax deduction for the payingcorporation, but dividends paid are not deductible. This treatment, otherthings held constant, tends to encourage the use of debt financing bycorporations.
ANS: T PTS: 1 DIF: Difficulty: Moderate
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Federal income taxes: interest expense anddividends

20. The time dimension is important in financial statement analysis.The balance sheet shows the firm's financial position at a given point in time,the income statement shows results over a period of time, and the statement ofcash flows reflects changes in the firm's accounts over that period oftime.
ANS: T PTS: 1 DIF: Difficulty: Moderate
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Financial stmts: time dimension KEY: Bloom’s:Comprehension
MULTIPLECHOICE
21. Which of the following statements is CORRECT?
The statement of cash needs tells us how much cash the firm will require during some future period, generally a month or a year.
The four most important financial statements provided in the annual report are the balance sheet, income statement, cash budget, and the statement of stockholders' equity.
The balance sheet gives us a picture of the firm's financial position at a point in time.
The income statement gives us a picture of the firm's financial position at a point in time.
The statement of cash flows tells us how much cash the firm has in the form of currency and demand deposits.

OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Financial statements KEY: Bloom’s:Comprehension

22. Which of the following statements is CORRECT?
A typical industrial company's balance sheet lists the firm's assets that will be converted to cash first, and then goes on down to list the firm's longest lived assets last.
The balance sheet for a given year, say 2012, is designed to give us an idea of what happened to the firm during that year.
The balance sheet for a given year, say 2012, tells us how much money the company earned during that year.
The difference between the total assets reported on the balance sheet and the debts reported on this statement tells us the current market value of the stockholders' equity, assuming the statements are prepared in accordance with generally accepted accounting principles (GAAP).
For most companies, the market value of the stock equals the book value of the stock as reported on the balance sheet.

OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Balance sheet KEY: Bloom’s: Comprehension

23. Other things held constant, which of the following actions would increasethe amount of cash on a company's balance sheet?
The company purchases a new piece of equipment.
The company repurchases common stock.
The company pays a dividend.
The company issues new common stock.
The company gives customers more time to pay their bills.

OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Balance sheet KEY: Bloom’s: Comprehension

24. Which of the following items is NOT included incurrent assets?
Short-term, highly liquid, marketable securities.
Accounts receivable.
Inventory.
Bonds.
Cash.

OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Current assets KEY: Bloom’s: Comprehension

25. Which of the following items cannot be found on a firm'sbalance sheet under current liabilities?
Accrued payroll taxes.
Accounts payable.
Short-term notes payable to the bank.
Accrued wages.
Cost of goods sold.

OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Current liabilities KEY: Bloom’s:Comprehension

26. Which of the following statements is CORRECT?

Fundamentals Of Financial Management Bri…

The income statement for a given year, say 2012, is designed to give us an idea of how much the firm earned during that year.
The focal point of the income statement is the cash account, because that account cannot be manipulated by 'accounting tricks.'
The reported income of two otherwise identical firms cannot be manipulated by different accounting procedures provided the firms follow Generally Accepted Accounting Principles (GAAP).
The reported income of two otherwise identical firms must be identical if the firms are publicly owned, provided they follow procedures that are permitted by the Securities and Exchange Commission (SEC).
If a firm follows Generally Accepted Accounting Principles (GAAP), then its reported net income will be identical to its reported net cash flow.

OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Income statement KEY: Bloom’s:Comprehension

27. Below are the year-end balance sheets for Wolken Enterprises:
Assets:
2012
$ 200,000
Accounts receivable
700,000
2,000,000
Total current assets
$2,270,000
6,000,000
Total assets
$7,870,000

Liabilities and equity:

$1,400,000
Notes payable
1,800,000
$3,000,000
Long-term debt
2,400,000
3,000,000
Retained earnings
580,000
$3,664,000
Total liabilities and equity
$7,870,000
Wolken has never paida dividend on its common stock, and it issued $2,400,000 of 10-yearnon-callable, long-term debt in 2012. As of the end of 2013, none of theprincipal on this debt had been repaid. Assume that the company's sales in 2012and 2013 were the same. Which of the following statements must be CORRECT?
Wolken increased its short-term bank debt in 2013.
Wolken issued long-term debt in 2013.
Wolken issued new common stock in 2013.
Wolken repurchased some common stock in 2013.
Wolken had negative net income in 2013.

OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Balance sheet KEY: Bloom’s: Analysis

28. On its 2012 balance sheet, Barngrover Books showed $510 million ofretained earnings, and exactly that same amount was shown the following year in2013. Assuming that no earnings restatements were issued, which of thefollowing statements is CORRECT?
Dividends could have been paid in 2013, but they would have had to equal the earnings for the year.
If the company lost money in 2013, they must have paid dividends.
The company must have had zero net income in 2013.
The company must have paid out half of its earnings as dividends.
The company must have paid no dividends in 2013.

OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: DISC: Financial statements, analysis,forecasting, and cash flows
LOC: TBA TOP: Balance sheet KEY: Bloom’s: Analysis

Book Description

Publication Date: January 28, 2013 ISBN-10: 1111972206 ISBN-13: 978-1111972202 Edition: 14
Any suggestions for copywriter or provide generic description of the product to be used for the Internet or non-channel specific applications. NOTE: If you have a book only version for this product, it is imperative that you provide a description that does not include any references to package elements. Striking a balance between solid financial theory and practical applications, Brigham/Ehrhardt's FINANCIAL MANAGEMENT: THEORY AND PRACTICE, 14e gives readers a thorough understanding of the essential concepts they need to develop and implement effective financial strategies. The book begins with a presentation of corporate finance fundamentals before progressing to discussions of specific techniques that are used to maximize the value of a firm. It also thoroughly explores the recent financial and economic crises and the role of finance in the business world and in readers' personal lives. With its relevant and engaging presentation, cutting-edge coverage, and numerous examples, FINANCIAL MANAGEMENT help readers become First in Finance.
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Book Preface

For many companies, the decision would have been an easy “yes.” However, Ben & Jerry’s Homemade Inc. has always taken pride in doing things differently. Its profits had been declining, but in 1995 the company was offered an opportunity to sell its premium ice cream in the lucrative Japanese market. However, Ben & Jerry’s turned down the business because the Japanese firm that would have distributed their product had failed to develop a reputation for promoting social causes! Robert Holland Jr., Ben & Jerry’s CEO at the time, commented that, “The only reason to take the opportunity was to make money.” Clearly, Holland, who resigned from the company in late1996, thought there was more to running a business than just making money.

The company’s cofounders, Ben Cohen and Jerry Greenfield, opened the first Ben & Jerry’s ice cream shop in 1978 in a vacant Vermont gas station with just $12,000 of capital plus a commitment to run the business in a manner consistent with their underlying values. Even though it is more expensive, the company only buys milk and cream from small local farms in Vermont. In addition, 7.5 percent of the company’s before-tax income is donated to charity, and each of the company’s 750 employees receives three free pints of ice cream each day.

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Many argue that Ben & Jerry’s philosophy and commitment to social causes compromises its ability to make money. For example, in a recent article in Fortune magazine, Alex Taylor III commented that, “Operating a business is tough enough. Once you add social goals to the demands of serving customers, making a profit, and returning value to shareholders, you tie yourself up in knots.”

Ben & Jerry’s financial performance has had its ups and downs. While the company’s stock grew by leaps and bounds through the early 1990s, problems began to arise in 1993. These problems included increased competition in the premium ice cream market, along with a leveling off of sales in that market, plus their own inefficiencies and sloppy, haphazard product development strategy.

The company lost money for the first time in 1994, and as a result, Ben Cohen stepped down as CEO. Bob Holland, a former consultant for McKinsey & Co. with a reputation as a turnaround specialist, was tapped as Cohen’s replacement. The company’s stock price rebounded in 1995, as the market responded positively to the steps made by Holland to right the company. The stock price, however, floundered toward the end of 1996, following Holland’s resignation.

Over the last few years, Ben & Jerry’s has had a new resurgence. Holland’s replacement, Perry Odak, has done a number of things to improve the company’s financial performance, and its reputation among Wall Street’s analysts and institutional investors has benefited. Odak quickly brought in a new management team to rework the company’s production and sales operations, and he aggressively opened new stores and franchises both in the United States and abroad.

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