Solutions for Analysis for Financial Management, 13th
%hb %hb %hb %hb %hb %hb
Edition by Robert C. Higgins, Jennifer Koski, Todd
% h b %hb %hb %hb %hb %hb %hb %hb
Mitton %hb
TEST BANK!!! %hb
,Analysis for Financial Management, 13e
SUGGESTED ANSWERS TO EVEN-NUMBERED PROBLEMS
Chapter 1
2. Management is either foolish or thinks its board is. Earning $100 million on a $5 billion
equity investment is a return of 2 percent, which is below any reasonable cost of equity.
As a board member, I would vote to cut management’s compensation, not raise it. I
would also criticize them for apparently attempting to deceive the board.
4. a. Cash rises $500,000; plant and equipment falls $300,000; equity rises $200,000.
b. Net plant and equipment rises $80 million; Cash falls $32 million; Bank debt rises
$48 million.
c. Net plant and equipment rises $60 million; cash falls $60 million.
d. Cash falls $40,000; Accounts payable falls $40,000.
e. Cash falls $240,000; Owners’ equity falls by $240,000 (via an increase in Treasury
stock).
f. Cash rises $80,000; Inventory falls; Accrued taxes, Owners’ equity, and possibly
other cost categories rise such that the algebraic sum equals $80,000.
g. Accounts receivable rise $120,000. Other categories change as described in part f.
h. Cash falls $50,000. Owners’ equity falls by $50,000 (via Retained earnings).
6. a. R&E Supplies, Inc. Sources and Uses Statement 2018–2021 ($ thousands)
Sources of cash:
Decrease in cash and securities $259
Increase in accounts payable 2,205
Increase in current portion long-term debt 40
Increase in accrued wages 13
Increase in retained earnings 537
Total $3,054
Uses of cash:
Increase in accounts receivable $1,543
Increase in inventories 1,148
Increase in prepaid expenses 4
Increase in net fixed assets 159
Decrease in long-term debt 200
Total $3,054
,b. Insights:
i. R&E %hbis %hbmaking %hbextensive %hbuse %hbof %hbtrade %hbcredit %hbto %hbfinance %hba %hbbuildup %hbin
%hbcurrent %hbassets. %hbThe %hbincrease %hbin %hbaccounts %hbpayable %hbequals %hbalmost %hbthree
%hbfourths %hbof %hbtotal %hbsources %hbof %hbcash. %hbIncreasing %hbaccounts %hbreceivable %hband
%hbinventories %hbaccount %hbfor %hbalmost %hb90 %hbpercent %hbof %hbthe %hbuses %hbof %hbcash.
ii. External %hblong-term %hbdebt %hbfinancing %hbis %hba %hbuse %hbof %hbcash %hbfor %hbR&E, %hbmeaning
%hbthat %hbit %hbis %hbrepaying %hbits %hbloans. %hbA %hbrestructuring %hbinvolving %hbless %hbreliance
%hbon %hbaccounts %hbpayable %hband %hbmore %hbbank %hbdebt %hbappears %hbappropriate.
8. %hbAccounting %hbincome %hbwill %hbbe %hbthe %hbvalue %hbof %hbthe %hbparcels %hbsold, %hbless %hbtheir
%hboriginal %hbpurchase %hbprice. %hbSo %hbif %hball %hbparcels %hbare %hbsold, %hbthe %hbincome %hbis %hb5
%hb× %hb$16 %hbmillion %hb+ %hb5 %hb× %hb$8 %hbmillion %hb– %hb$100 %hbmillion %hb= %hb$20 %hbmillion.
%hbEconomic %hbincome %hbwill %hbbe %hbthe %hbincrease %hbin %hbthe %hbmarket %hbvalue %hbof %hbthe
%hbland, %hbwhether %hbsold %hbor %hbnot, %hbover %hbthe %hbperiod. %hbAt %hbthe %hbend %hbof %hbthe
%hbfirst %hbyear, %hbthis %hbwill %hbbe %hb$20 %hbmillion. %hbAnswers %hbto %hbeach %hbpart %hbof %hbthe
%hbquestion %hbappear %hbbelow.
Question Accounting % h b Income Economic % h b Income
a. $20 %hbmillion $20 %hbmillion
b. $0 $20 %hbmillion
c. –$10 %hbmillion $20 %hbmillion
d. $30 %hbmillion $20 %hbmillion
e. % h b Too %hbmany %hbcompanies %hbhave %hbtried %hbthis. %hbIf %hbthe %hbmarket %hbvalue %hbof %hba
%hbpiece %hbof %hbland %hbfalls, %hbthe %hbowner %hbloses %hbwhether %hbhe %hbsells %hbor %hbnot. %hbThe
%hbmarket %hbprice %hbof %hbthe %hbland %hbfell %hbbecause %hbpeople %hbthought %hbthe %hbfuture
%hbincome %hbstream %hbto %hbthe %hbowners %hbwas %hbworth %hbless. %hbContinuing %hbto %hbhold
%hbthe %hbproperty %hbforces %hbthe %hbowner %hbto %hbaccept %hbthe %hblower %hbincome.
%hbWhether %hbthe %hbloss %hbis %hbrecognized %hbor %hbnot %hbmight %hbaffect %hbaccounting
%hbearnings, %hbbut %hbhas %hbnothing %hbto %hbdo %hbwith %hbreality.
10. The %hbaccounting %hbprofits %hbfrom %hbDesmond’s %hbbrewery %hbare %hbexpected %hbto %hbbe
%hb$60,000. %hbThese %hbaccounting %hbprofits %hbdo %hbnot %hbinclude %hbthe %hbimplicit %hbcost
%hbof %hbthe %hbentrepreneur’s %hbtime. %hbDesmond’s %hbtime %hbis %hbworth %hbat %hbleast %hb$70,000,
%hbthe %hbcurrent %hbincome %hbhe %hbwill %hbhave %hbto %hbforego %hbto %hbmanage %hbthe %hbbrewery.
%hbWhen %hbthese %hbimplicit %hbopportunity %hbcosts %hbare %hbincluded %hbincome %hbfalls %hbto:
$250,000 %hb– %hb$190,000 %hb– %hb$70,000 %hb= %hb–$10,000
This %hbnew %hbventure %hbwill %hbclearly %hbreduce %hbDesmond’s %hbincome, %hbnot %hbincrease %hbit.
, 12. a.
Company A B C
End-of-year
cash %hbbalance $150 %hbmillion $30 %hbmillion $120 %hbmillion
b. It appears %hbthat %hbcompany %hbC %hbretired %hbmore %hbdebt %hbthan %hbit %hbissued,
%hb
%hbrepurchased %hbmore %hbstock %hbthan %hbit %hbissued, %hbor %hbsome %hbcombination %hbof
%hbthe %hbtwo.
c. I’d %hbprefer %hbto %hbown %hbcompany %hbA. %hbA %hbappears %hbto %hbbe %hba %hbgrowing %hbcompany
%hbas %hbevidenced %hbby %hbthe %hbsizable %hbnet %hbcash %hbused %hbin %hbinvesting %hbactivities,
%hband %hbits %hbnegative %hbnet %hbcash %hbflow %hbfrom %hboperations %hbmay %hbwell %hbbe %hbdue
%hbto %hbincreasing %hbaccounts %hbreceivable %hband %hbinventories %hbthat %hbnaturally
%hbaccompany %hbsales %hbgrowth. %hbCompany %hbB %hbappears %hbnot %hbto %hbbe %hbgrowing,
%hbso %hbits %hbnegative %hbnet %hbcash %hbflows %hbfrom %hboperations %hbare %hbprobably %hbdue
%hbto %hblosses %hbor %hbto %hbincreasing %hbreceivables %hband %hbinventories %hbrelative %hbto
%hbsales, %hba %hbtrend %hbdenoting %hbpoor %hbmanagement %hbof %hbcurrent %hbassets.
d. I %hbdon’t %hbthink %hbthere %hbis %hbnecessarily %hbany %hbcause %hbfor %hbconcern. %hbIt
%hbappears %hbcompany %hbC %hbis %hba %hbmature, %hbslow-growth %hbcompany %hbthat %hbis
%hbreturning %hbits %hbunneeded %hboperating %hbcash %hbflows %hbto %hbinvestors %hbin %hbthe
%hbform %hbof %hbdebt %hbrepayment, %hbshare %hbrepurchase, %hbdividends, %hbor %hbsome
%hbcombination %hbof %hbthese. %hbThis %hbis %hba %hbperfectly %hbviable %hbstrategy %hbin %hbthe
%hbabsence %hbof %hbattractive %hbinvestment %hbopportunities.
14. %hbSee % h b suggested % h b solutions % h b to % h b Excel % h b problems % h b at % h b McGraw-Hill’s
% h b Connect % h b or % h b at %hbwww.mhhe.com/Higgins13e.
%hb %hb %hb %hb %hb %hb
Edition by Robert C. Higgins, Jennifer Koski, Todd
% h b %hb %hb %hb %hb %hb %hb %hb
Mitton %hb
TEST BANK!!! %hb
,Analysis for Financial Management, 13e
SUGGESTED ANSWERS TO EVEN-NUMBERED PROBLEMS
Chapter 1
2. Management is either foolish or thinks its board is. Earning $100 million on a $5 billion
equity investment is a return of 2 percent, which is below any reasonable cost of equity.
As a board member, I would vote to cut management’s compensation, not raise it. I
would also criticize them for apparently attempting to deceive the board.
4. a. Cash rises $500,000; plant and equipment falls $300,000; equity rises $200,000.
b. Net plant and equipment rises $80 million; Cash falls $32 million; Bank debt rises
$48 million.
c. Net plant and equipment rises $60 million; cash falls $60 million.
d. Cash falls $40,000; Accounts payable falls $40,000.
e. Cash falls $240,000; Owners’ equity falls by $240,000 (via an increase in Treasury
stock).
f. Cash rises $80,000; Inventory falls; Accrued taxes, Owners’ equity, and possibly
other cost categories rise such that the algebraic sum equals $80,000.
g. Accounts receivable rise $120,000. Other categories change as described in part f.
h. Cash falls $50,000. Owners’ equity falls by $50,000 (via Retained earnings).
6. a. R&E Supplies, Inc. Sources and Uses Statement 2018–2021 ($ thousands)
Sources of cash:
Decrease in cash and securities $259
Increase in accounts payable 2,205
Increase in current portion long-term debt 40
Increase in accrued wages 13
Increase in retained earnings 537
Total $3,054
Uses of cash:
Increase in accounts receivable $1,543
Increase in inventories 1,148
Increase in prepaid expenses 4
Increase in net fixed assets 159
Decrease in long-term debt 200
Total $3,054
,b. Insights:
i. R&E %hbis %hbmaking %hbextensive %hbuse %hbof %hbtrade %hbcredit %hbto %hbfinance %hba %hbbuildup %hbin
%hbcurrent %hbassets. %hbThe %hbincrease %hbin %hbaccounts %hbpayable %hbequals %hbalmost %hbthree
%hbfourths %hbof %hbtotal %hbsources %hbof %hbcash. %hbIncreasing %hbaccounts %hbreceivable %hband
%hbinventories %hbaccount %hbfor %hbalmost %hb90 %hbpercent %hbof %hbthe %hbuses %hbof %hbcash.
ii. External %hblong-term %hbdebt %hbfinancing %hbis %hba %hbuse %hbof %hbcash %hbfor %hbR&E, %hbmeaning
%hbthat %hbit %hbis %hbrepaying %hbits %hbloans. %hbA %hbrestructuring %hbinvolving %hbless %hbreliance
%hbon %hbaccounts %hbpayable %hband %hbmore %hbbank %hbdebt %hbappears %hbappropriate.
8. %hbAccounting %hbincome %hbwill %hbbe %hbthe %hbvalue %hbof %hbthe %hbparcels %hbsold, %hbless %hbtheir
%hboriginal %hbpurchase %hbprice. %hbSo %hbif %hball %hbparcels %hbare %hbsold, %hbthe %hbincome %hbis %hb5
%hb× %hb$16 %hbmillion %hb+ %hb5 %hb× %hb$8 %hbmillion %hb– %hb$100 %hbmillion %hb= %hb$20 %hbmillion.
%hbEconomic %hbincome %hbwill %hbbe %hbthe %hbincrease %hbin %hbthe %hbmarket %hbvalue %hbof %hbthe
%hbland, %hbwhether %hbsold %hbor %hbnot, %hbover %hbthe %hbperiod. %hbAt %hbthe %hbend %hbof %hbthe
%hbfirst %hbyear, %hbthis %hbwill %hbbe %hb$20 %hbmillion. %hbAnswers %hbto %hbeach %hbpart %hbof %hbthe
%hbquestion %hbappear %hbbelow.
Question Accounting % h b Income Economic % h b Income
a. $20 %hbmillion $20 %hbmillion
b. $0 $20 %hbmillion
c. –$10 %hbmillion $20 %hbmillion
d. $30 %hbmillion $20 %hbmillion
e. % h b Too %hbmany %hbcompanies %hbhave %hbtried %hbthis. %hbIf %hbthe %hbmarket %hbvalue %hbof %hba
%hbpiece %hbof %hbland %hbfalls, %hbthe %hbowner %hbloses %hbwhether %hbhe %hbsells %hbor %hbnot. %hbThe
%hbmarket %hbprice %hbof %hbthe %hbland %hbfell %hbbecause %hbpeople %hbthought %hbthe %hbfuture
%hbincome %hbstream %hbto %hbthe %hbowners %hbwas %hbworth %hbless. %hbContinuing %hbto %hbhold
%hbthe %hbproperty %hbforces %hbthe %hbowner %hbto %hbaccept %hbthe %hblower %hbincome.
%hbWhether %hbthe %hbloss %hbis %hbrecognized %hbor %hbnot %hbmight %hbaffect %hbaccounting
%hbearnings, %hbbut %hbhas %hbnothing %hbto %hbdo %hbwith %hbreality.
10. The %hbaccounting %hbprofits %hbfrom %hbDesmond’s %hbbrewery %hbare %hbexpected %hbto %hbbe
%hb$60,000. %hbThese %hbaccounting %hbprofits %hbdo %hbnot %hbinclude %hbthe %hbimplicit %hbcost
%hbof %hbthe %hbentrepreneur’s %hbtime. %hbDesmond’s %hbtime %hbis %hbworth %hbat %hbleast %hb$70,000,
%hbthe %hbcurrent %hbincome %hbhe %hbwill %hbhave %hbto %hbforego %hbto %hbmanage %hbthe %hbbrewery.
%hbWhen %hbthese %hbimplicit %hbopportunity %hbcosts %hbare %hbincluded %hbincome %hbfalls %hbto:
$250,000 %hb– %hb$190,000 %hb– %hb$70,000 %hb= %hb–$10,000
This %hbnew %hbventure %hbwill %hbclearly %hbreduce %hbDesmond’s %hbincome, %hbnot %hbincrease %hbit.
, 12. a.
Company A B C
End-of-year
cash %hbbalance $150 %hbmillion $30 %hbmillion $120 %hbmillion
b. It appears %hbthat %hbcompany %hbC %hbretired %hbmore %hbdebt %hbthan %hbit %hbissued,
%hb
%hbrepurchased %hbmore %hbstock %hbthan %hbit %hbissued, %hbor %hbsome %hbcombination %hbof
%hbthe %hbtwo.
c. I’d %hbprefer %hbto %hbown %hbcompany %hbA. %hbA %hbappears %hbto %hbbe %hba %hbgrowing %hbcompany
%hbas %hbevidenced %hbby %hbthe %hbsizable %hbnet %hbcash %hbused %hbin %hbinvesting %hbactivities,
%hband %hbits %hbnegative %hbnet %hbcash %hbflow %hbfrom %hboperations %hbmay %hbwell %hbbe %hbdue
%hbto %hbincreasing %hbaccounts %hbreceivable %hband %hbinventories %hbthat %hbnaturally
%hbaccompany %hbsales %hbgrowth. %hbCompany %hbB %hbappears %hbnot %hbto %hbbe %hbgrowing,
%hbso %hbits %hbnegative %hbnet %hbcash %hbflows %hbfrom %hboperations %hbare %hbprobably %hbdue
%hbto %hblosses %hbor %hbto %hbincreasing %hbreceivables %hband %hbinventories %hbrelative %hbto
%hbsales, %hba %hbtrend %hbdenoting %hbpoor %hbmanagement %hbof %hbcurrent %hbassets.
d. I %hbdon’t %hbthink %hbthere %hbis %hbnecessarily %hbany %hbcause %hbfor %hbconcern. %hbIt
%hbappears %hbcompany %hbC %hbis %hba %hbmature, %hbslow-growth %hbcompany %hbthat %hbis
%hbreturning %hbits %hbunneeded %hboperating %hbcash %hbflows %hbto %hbinvestors %hbin %hbthe
%hbform %hbof %hbdebt %hbrepayment, %hbshare %hbrepurchase, %hbdividends, %hbor %hbsome
%hbcombination %hbof %hbthese. %hbThis %hbis %hba %hbperfectly %hbviable %hbstrategy %hbin %hbthe
%hbabsence %hbof %hbattractive %hbinvestment %hbopportunities.
14. %hbSee % h b suggested % h b solutions % h b to % h b Excel % h b problems % h b at % h b McGraw-Hill’s
% h b Connect % h b or % h b at %hbwww.mhhe.com/Higgins13e.
