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Accrual income versus cash flow for a period Thomas Book Sales, Inc., supplies textbooks to college and university bookstores. The books are shipped with a proviso that they must be paid for within 30 days but can be returned for a full refund credit within 90 days. In 2014, Thomas shipped and billed book titles totaling $760,000. Collections, net of return credits, during the year totaled $690,000. The company spent $300,000 acquiring the books that it shipped.
a. Using accrual accounting and the preceding values, show the firm’s net profit for the past year.
b. Using cash accounting and the preceding values, show the firm’s net cash flow for the past year.
c. Which of these statements is more useful to the financial manager? Why?
Consider an annual coupon bond with a face value of $100, 15 years to maturity, and a price of $88. The coupon rate on the bond is 5%. If you can reinvest coupons at a rate of 3.5% per annum, then how much money do you have if you hold the bond to ma..
A stock has an expected return of 16.1 percent, the risk-free rate is 6.45 percent, and the market risk premium is 7.2 percent. What must the beta of this stock be?
A 4.85 percent coupon municipal bond has 22 years left to maturity and has a price quote of 103.70. The bond can be called in eight years. The call premium is one year of coupon payments. Compute the bond’s current yield. Compute the Yield to Maturit..
The December 31, 2013, balance sheet of Schism, Inc., showed $120,000 in the common stock account and $2,120,000 in the additional paid-in surplus account. The December 31, 2014, balance sheet showed $135,000 and $2,380,000 in the same two accounts, ..
There is a callable preferred stock at 110 par in 9 years, paying $4 annually and having a yield of 6%. Compute its price, if it is called. In case the issuing firm decides to not call it, what would its price be?
Assume semi-annual coupon payments. Calculate the price of this bond if the YTM is 9.47%
A stock has had returns of -26 percent, 6 percent, 34 percent, -5 percent, 28 percent, and 19 percent over the last six years. What are the arithmetic and geometric returns for the stock?
You are purchasing a house for $95,000. The lender requires a 10% down payment, and will finance the rest with a 30 year fixed rate mortgage with monthly payments at 9 7/8% (interest rate is 9.875) with two discount points charged. Calculate the bal..
A bank makes a loan of $200,000 and will receive payments of $1,911.30 each month for 15 years. How much (in dollars) would the bank have to charge in points (or, an origination fee) if it were concerned about the credit quality of the borrower and r..
Assume you are a trader with Deutsche Bank. From the quote screen on your computer terminal, you notice that Dresdner Bank is quoting €0.7627/$1.00 and Credit Suisse is offering SF1.1806/$1.00. You learn that UBS is making a direct market between the..
Fama’s Llamas has a weighted average cost of capital of 10.1 percent. The company’s cost of equity is 13 percent, and its pretax cost of debt is 8.1 percent. The tax rate is 40 percent. What is the company’s target debt−equity ratio?
A bond has 3 years to maturity, 8% coupon, 7% yield and pays annually. Suppose yield decreases by 15 basis points, calculate the duration of your bond.
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