Solutions for Analysis for Financial Management, 13th
$df $df $df $df $df $df
Edition by Robert C. Higgins, Jennifer Koski, Todd Mitton
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TEST BANK!!! $df
TestBanksAdept
,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
TestBanksAdept
,b. Insights:
i. R&E $dfis $dfmaking $dfextensive $dfuse $dfof $dftrade $dfcredit $dfto $dffinance $dfa $dfbuildup $dfin $dfcurrent
$dfassets. $dfThe $dfincrease $dfin $dfaccounts $dfpayable $dfequals $dfalmost $dfthree $dffourths $dfof
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$dfaccount $dffor $dfalmost $df90 $dfpercent $dfof $dfthe $dfuses $dfof $dfcash.
ii. External $dflong-term $dfdebt $dffinancing $dfis $dfa $dfuse $dfof $dfcash $dffor $dfR&E, $dfmeaning $dfthat $dfit
$dfis $dfrepaying $dfits $dfloans. $dfA $dfrestructuring $dfinvolving $dfless $dfreliance $df on $dfaccounts
$dfpayable $dfand $dfmore $dfbank $dfdebt $dfappears $dfappropriate.
8. Accounting $dfincome $dfwill $dfbe $dfthe $dfvalue $dfof $dfthe $dfparcels $dfsold, $dfless $dftheir
$df
$dforiginal $dfpurchase $dfprice. $dfSo $dfif $dfall $dfparcels $dfare $dfsold, $dfthe $dfincome $dfis $df5 $df ×
$df$16 $dfmillion $df+ $df5 $df× $df$8 $dfmillion $df– $df$100 $dfmillion $df= $df$20 $dfmillion. $dfEconomic
$dfincome $dfwill $dfbe $dfthe $dfincrease $dfin $dfthe $dfmarket $dfvalue $dfof $dfthe $dfland, $dfwhether $dfsold
$dfor $dfnot, $dfover $dfthe $dfperiod. $dfAt $dfthe $dfend $dfof $dfthe $dffirst $dfyear, $dfthis $dfwill $dfbe $df$20
$dfmillion. $dfAnswers $dfto $dfeach $dfpart $dfof $dfthe $dfquestion $dfappear $dfbelow.
Question Accounting $ d f Income Economic $ d f Income
a. $20 $dfmillion $20 $dfmillion
b. $0 $20 $dfmillion
c. –$10 $dfmillion $20 $dfmillion
d. $30 $dfmillion $20 $dfmillion
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$dfthe $dfland $dffell $dfbecause $dfpeople $dfthought $dfthe $dffuture $dfincome $dfstream $dfto $dfthe
$dfowners $dfwas $dfworth $dfless. $dfContinuing $dfto $dfhold $dfthe $dfproperty $dfforces $dfthe
$dfowner $dfto $dfaccept $dfthe $dflower $dfincome. $dfWhether $dfthe $dfloss $dfis $dfrecognized $dfor
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$dfincome $dfhe $dfwill $dfhave $dfto $dfforego $dfto $dfmanage $dfthe $dfbrewery. $df When $dfthese
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This $dfnew $dfventure $dfwill $dfclearly $dfreduce $dfDesmond’s $dfincome, $dfnot $dfincrease $dfit.
TestBanksAdept
, 12. a.
Company A B C
End-of-year
cash $dfbalance $150 $dfmillion $30 $dfmillion $120 $dfmillion
b. It $dfappears $dfthat $dfcompany $dfC $dfretired $dfmore $dfdebt $dfthan $dfit $dfissued, $dfrepurchased
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$dfnegative $dfnet $dfcash $dfflow $dffrom $dfoperations $dfmay $dfwell $dfbe $dfdue $dfto $dfincreasing
$dfaccounts $dfreceivable $dfand $dfinventories $dfthat $dfnaturally $dfaccompany $dfsales
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$dfreceivables $dfand $dfinventories $dfrelative $dfto $dfsales, $dfa $dftrend $dfdenoting $dfpoor
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14. $dfSee $ d f suggested $ d f solutions $ d f to $ d f Excel $ d f problems $ d f at $ d f McGraw-Hill’s
$ d f Connect $ d f or $ d f at $dfwww.mhhe.com/Higgins13e.
TestBanksAdept
$df $df $df $df $df $df
Edition by Robert C. Higgins, Jennifer Koski, Todd Mitton
$ d f $df $df $df $df $df $df $df $df
TEST BANK!!! $df
TestBanksAdept
,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
TestBanksAdept
,b. Insights:
i. R&E $dfis $dfmaking $dfextensive $dfuse $dfof $dftrade $dfcredit $dfto $dffinance $dfa $dfbuildup $dfin $dfcurrent
$dfassets. $dfThe $dfincrease $dfin $dfaccounts $dfpayable $dfequals $dfalmost $dfthree $dffourths $dfof
$dftotal $dfsources $df of $dfcash. $dfIncreasing $dfaccounts $dfreceivable $dfand $dfinventories
$dfaccount $dffor $dfalmost $df90 $dfpercent $dfof $dfthe $dfuses $dfof $dfcash.
ii. External $dflong-term $dfdebt $dffinancing $dfis $dfa $dfuse $dfof $dfcash $dffor $dfR&E, $dfmeaning $dfthat $dfit
$dfis $dfrepaying $dfits $dfloans. $dfA $dfrestructuring $dfinvolving $dfless $dfreliance $df on $dfaccounts
$dfpayable $dfand $dfmore $dfbank $dfdebt $dfappears $dfappropriate.
8. Accounting $dfincome $dfwill $dfbe $dfthe $dfvalue $dfof $dfthe $dfparcels $dfsold, $dfless $dftheir
$df
$dforiginal $dfpurchase $dfprice. $dfSo $dfif $dfall $dfparcels $dfare $dfsold, $dfthe $dfincome $dfis $df5 $df ×
$df$16 $dfmillion $df+ $df5 $df× $df$8 $dfmillion $df– $df$100 $dfmillion $df= $df$20 $dfmillion. $dfEconomic
$dfincome $dfwill $dfbe $dfthe $dfincrease $dfin $dfthe $dfmarket $dfvalue $dfof $dfthe $dfland, $dfwhether $dfsold
$dfor $dfnot, $dfover $dfthe $dfperiod. $dfAt $dfthe $dfend $dfof $dfthe $dffirst $dfyear, $dfthis $dfwill $dfbe $df$20
$dfmillion. $dfAnswers $dfto $dfeach $dfpart $dfof $dfthe $dfquestion $dfappear $dfbelow.
Question Accounting $ d f Income Economic $ d f Income
a. $20 $dfmillion $20 $dfmillion
b. $0 $20 $dfmillion
c. –$10 $dfmillion $20 $dfmillion
d. $30 $dfmillion $20 $dfmillion
e. $ d f Too $dfmany $dfcompanies $dfhave $dftried $dfthis. $dfIf $dfthe $dfmarket $dfvalue $dfof $dfa $dfpiece $dfof
$dfland $dffalls, $dfthe $dfowner $dfloses $dfwhether $dfhe $dfsells $dfor $dfnot. $dfThe $dfmarket $dfprice $dfof
$dfthe $dfland $dffell $dfbecause $dfpeople $dfthought $dfthe $dffuture $dfincome $dfstream $dfto $dfthe
$dfowners $dfwas $dfworth $dfless. $dfContinuing $dfto $dfhold $dfthe $dfproperty $dfforces $dfthe
$dfowner $dfto $dfaccept $dfthe $dflower $dfincome. $dfWhether $dfthe $dfloss $dfis $dfrecognized $dfor
$dfnot $dfmight $dfaffect $dfaccounting $dfearnings, $dfbut $dfhas $dfnothing $dfto $dfdo $dfwith
$dfreality.
10. The $dfaccounting $dfprofits $dffrom $dfDesmond’s $dfbrewery $dfare $dfexpected $dfto $dfbe
$df$60,000. $dfThese $dfaccounting $dfprofits $dfdo $dfnot $dfinclude $dfthe $dfimplicit $dfcost $dfof $dfthe
$dfentrepreneur’s $dftime. $dfDesmond’s $dftime $dfis $dfworth $dfat $dfleast $df$70,000, $dfthe $dfcurrent
$dfincome $dfhe $dfwill $dfhave $dfto $dfforego $dfto $dfmanage $dfthe $dfbrewery. $df When $dfthese
$dfimplicit $dfopportunity $dfcosts $dfare $dfincluded $dfincome $dffalls $dfto:
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This $dfnew $dfventure $dfwill $dfclearly $dfreduce $dfDesmond’s $dfincome, $dfnot $dfincrease $dfit.
TestBanksAdept
, 12. a.
Company A B C
End-of-year
cash $dfbalance $150 $dfmillion $30 $dfmillion $120 $dfmillion
b. It $dfappears $dfthat $dfcompany $dfC $dfretired $dfmore $dfdebt $dfthan $dfit $dfissued, $dfrepurchased
$dfmore $dfstock $dfthan $dfit $dfissued, $dfor $dfsome $dfcombination $dfof $dfthe $dftwo.
c. I’d $dfprefer $dfto $dfown $dfcompany $dfA. $dfA $dfappears $dfto $dfbe $dfa $dfgrowing $dfcompany $dfas
$dfevidenced $dfby $dfthe $dfsizable $dfnet $dfcash $dfused $dfin $dfinvesting $dfactivities, $dfand $dfits
$dfnegative $dfnet $dfcash $dfflow $dffrom $dfoperations $dfmay $dfwell $dfbe $dfdue $dfto $dfincreasing
$dfaccounts $dfreceivable $dfand $dfinventories $dfthat $dfnaturally $dfaccompany $dfsales
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$dfcash $dfflows $dffrom $dfoperations $dfare $dfprobably $dfdue $dfto $dflosses $dfor $dfto $dfincreasing
$dfreceivables $dfand $dfinventories $dfrelative $dfto $dfsales, $dfa $dftrend $dfdenoting $dfpoor
$dfmanagement $dfof $dfcurrent $dfassets.
d. I $dfdon’t $dfthink $dfthere $dfis $dfnecessarily $dfany $dfcause $dffor $dfconcern. $dfIt $dfappears
$dfcompany $dfC $dfis $dfa $dfmature, $dfslow-growth $dfcompany $dfthat $dfis $dfreturning $dfits
$dfunneeded $dfoperating $dfcash $dfflows $dfto $dfinvestors $dfin $dfthe $dfform $dfof $dfdebt
$dfrepayment, $df share $dfrepurchase, $dfdividends, $dfor $dfsome $dfcombination $dfof $dfthese.
$dfThis $dfis $dfa $dfperfectly $dfviable $dfstrategy $dfin $dfthe $dfabsence $dfof $dfattractive $dfinvestment
$dfopportunities.
14. $dfSee $ d f suggested $ d f solutions $ d f to $ d f Excel $ d f problems $ d f at $ d f McGraw-Hill’s
$ d f Connect $ d f or $ d f at $dfwww.mhhe.com/Higgins13e.
TestBanksAdept
