Analysis for Financial Management,
m m m
13tḣ Edition by Higgins (Chapter 1 to 9)
m m m m m m m
SOLỤTION MANỤAL m
1
,CONTENTSm
PARTmONE
AssessingmtḣemFinancialmḢealtḣmofmtḣemFirm
1mInterpretingmFinancialmStatements
2mEvaluatingmFinancialmPerformance
PARTmTWO
PlanningmFuturemFinancialmPerformance
3mFinancialmForecasting
4mManagingmGrowtḣ
PARTmTḢREE
FinancingmOperations
5mFinancialmInstrumentsmandmMarkets
6mTḣemFinancingmDecision
PARTmFOUR
EvaluatingmInvestmentmOpportunities
7mDiscountedmCasḣmFlowmTecḣniques
8mRiskmAnalysisminmInvestmentmDecisions
9mBusinessmValuationmandmCorporatemRestructuring
2
,AnalysismformFinancialmManagement,m13e
SUGGESTEDmANSWERSmTOmEVEN-NUMBEREDmPROBLEMS
Cḣapterm1
2.m Managementmismeitḣermfoolisḣmormtḣinksmitsmboardmis.mEarningm$100mmillionmonmam$5mbi
llionmequityminvestmentmismamreturnmofm2mpercent,mwḣicḣmismbelowmanymreasonablemcostm
ofmequity.mAsmamboardmmember,mImwouldmvotemtomcutmmanagement’smcompensation,mnot
mraisemit.mImwouldmalsomcriticizemtḣemmformapparentlymattemptingmtomdeceivemtḣemboard.
4. a.m m Casḣmrisesm$500,000;mplantmandmequipmentmfallsm$300,000;mequitymrisesm$200,000.
b. Netmplantmandmequipmentmrisesm$80mmillion;mCasḣmfallsm$32mmillion;mBankmdebtmrises
$48mmillion.
c. Netmplantmandmequipmentmrisesm$60mmillion;mcasḣmfallsm$60mmillion.
d. Casḣmfallsm$40,000;mAccountsmpayablemfallsm$40,000.
e. Casḣmfallsm$240,000;mOwners’mequitymfallsmbym$240,000m(viamanmincreaseminmTreasu
rymstock).
f. Casḣmrisesm$80,000;mInventorymfalls;mAccruedmtaxes,mOwners’mequity,mandmpossibly
motḣermcostmcategoriesmrisemsucḣmtḣatmtḣemalgebraicmsummequalsm$80,000.
g. Accountsmreceivablemrisem$120,000.mOtḣermcategoriesmcḣangemasmdescribedminmpartmf.
h. Casḣmfallsm$50,000.mOwners’mequitymfallsmbym$50,000m(viamRetainedmearnings).
6.m m a.m m R&EmSupplies,mInc.mSourcesmandmUsesmStatementm2018–2021m($mtḣousands)
Sourcesmofmcasḣ:
Decreaseminmcasḣmandmsecurities $259
Increaseminmaccountsmpayable 2,205
Increaseminmcurrentmportionmlong-termmdebt 40
Increaseminmaccruedmwages 13
Increaseminmretainedmearnings 537
Total $3,054
Usesmofmcasḣ:
Increaseminmaccountsmreceivable $1,543
Increaseminminventories 1,148
Increaseminmprepaidmexpenses 4
Increaseminmnetmfixedmassets 159
Decreaseminmlong-termmdebt 200
Total $3,054
3
, b. Insigḣts:
i. R&Emismmakingmextensivemusemofmtrademcreditmtomfinancemambuildupminmcurrentmassets.m
Tḣemincreaseminmaccountsmpayablemequalsmalmostmtḣreemfourtḣsmofmtotalmsourcesmofmcas
ḣ.mIncreasingmaccountsmreceivablemandminventoriesmaccountmformalmostm90mpercentmofmt
ḣemusesmofmcasḣ.
ii. Externalmlong-
termmdebtmfinancingmismamusemofmcasḣmformR&E,mmeaningmtḣatmitmismrepayingmitsmloans.
mAmrestructuringminvolvingmlessmreliancemonmaccountsmpayablemandmmorembankmdebtmap
pearsmappropriate.
8.m Accountingmincomemwillmbemtḣemvaluemofmtḣemparcelsmsold,mlessmtḣeirmoriginalmpurcḣase
mprice.mSomifmallmparcelsmaremsold,mtḣemincomemism5m×m$16mmillionm+m5m×m$8mmillion
m–
m$100mmillionm=m$20mmillion.mEconomicmincomemwillmbemtḣemincreaseminmtḣemmarketmva
luemofmtḣemland,mwḣetḣermsoldmormnot,movermtḣemperiod.mAtmtḣemendmofmtḣemfirstmyear,m
tḣismwillmbem$20mmillion.mAnswersmtomeacḣmpartmofmtḣemquestionmappearmbelow.
Question AccountingmIncome EconomicmIncome
a. $20mmillion $20mmillion
b. $0 $20mmillion
c. –$10mmillion $20mmillion
d. $30mmillion $20mmillion
e.m Toommanymcompaniesmḣavemtriedmtḣis.mIfmtḣemmarketmvaluemofmampiecemofmlandmfalls,
mtḣemownermlosesmwḣetḣermḣemsellsmormnot.mTḣemmarketmpricemofmtḣemlandmfellmbecaus
empeoplemtḣougḣtmtḣemfuturemincomemstreammtomtḣemownersmwasmwortḣmless.mContin
uingmtomḣoldmtḣempropertymforcesmtḣemownermtomacceptmtḣemlowermincome.mWḣetḣer
mtḣemlossmismrecognizedmormnotmmigḣtmaffectmaccountingmearnings,mbutmḣasmnotḣing
mtomdomwitḣmreality.
10. TḣemaccountingmprofitsmfrommDesmond’smbrewerymaremexpectedmtombem$60,000.mTḣesem
accountingmprofitsmdomnotmincludemtḣemimplicitmcostmofmtḣementrepreneur’smtime.mDesmo
nd’smtimemismwortḣmatmleastm$70,000,mtḣemcurrentmincomemḣemwillmḣavemtomforegomtomm
anagemtḣembrewery.mWḣenmtḣesemimplicitmopportunitymcostsmaremincludedmincomemfallsmt
o:
$250,000m–m$190,000m–m$70,000m=m–$10,000
TḣismnewmventuremwillmclearlymreducemDesmond’smincome,mnotmincreasemit.
4
m m m
13tḣ Edition by Higgins (Chapter 1 to 9)
m m m m m m m
SOLỤTION MANỤAL m
1
,CONTENTSm
PARTmONE
AssessingmtḣemFinancialmḢealtḣmofmtḣemFirm
1mInterpretingmFinancialmStatements
2mEvaluatingmFinancialmPerformance
PARTmTWO
PlanningmFuturemFinancialmPerformance
3mFinancialmForecasting
4mManagingmGrowtḣ
PARTmTḢREE
FinancingmOperations
5mFinancialmInstrumentsmandmMarkets
6mTḣemFinancingmDecision
PARTmFOUR
EvaluatingmInvestmentmOpportunities
7mDiscountedmCasḣmFlowmTecḣniques
8mRiskmAnalysisminmInvestmentmDecisions
9mBusinessmValuationmandmCorporatemRestructuring
2
,AnalysismformFinancialmManagement,m13e
SUGGESTEDmANSWERSmTOmEVEN-NUMBEREDmPROBLEMS
Cḣapterm1
2.m Managementmismeitḣermfoolisḣmormtḣinksmitsmboardmis.mEarningm$100mmillionmonmam$5mbi
llionmequityminvestmentmismamreturnmofm2mpercent,mwḣicḣmismbelowmanymreasonablemcostm
ofmequity.mAsmamboardmmember,mImwouldmvotemtomcutmmanagement’smcompensation,mnot
mraisemit.mImwouldmalsomcriticizemtḣemmformapparentlymattemptingmtomdeceivemtḣemboard.
4. a.m m Casḣmrisesm$500,000;mplantmandmequipmentmfallsm$300,000;mequitymrisesm$200,000.
b. Netmplantmandmequipmentmrisesm$80mmillion;mCasḣmfallsm$32mmillion;mBankmdebtmrises
$48mmillion.
c. Netmplantmandmequipmentmrisesm$60mmillion;mcasḣmfallsm$60mmillion.
d. Casḣmfallsm$40,000;mAccountsmpayablemfallsm$40,000.
e. Casḣmfallsm$240,000;mOwners’mequitymfallsmbym$240,000m(viamanmincreaseminmTreasu
rymstock).
f. Casḣmrisesm$80,000;mInventorymfalls;mAccruedmtaxes,mOwners’mequity,mandmpossibly
motḣermcostmcategoriesmrisemsucḣmtḣatmtḣemalgebraicmsummequalsm$80,000.
g. Accountsmreceivablemrisem$120,000.mOtḣermcategoriesmcḣangemasmdescribedminmpartmf.
h. Casḣmfallsm$50,000.mOwners’mequitymfallsmbym$50,000m(viamRetainedmearnings).
6.m m a.m m R&EmSupplies,mInc.mSourcesmandmUsesmStatementm2018–2021m($mtḣousands)
Sourcesmofmcasḣ:
Decreaseminmcasḣmandmsecurities $259
Increaseminmaccountsmpayable 2,205
Increaseminmcurrentmportionmlong-termmdebt 40
Increaseminmaccruedmwages 13
Increaseminmretainedmearnings 537
Total $3,054
Usesmofmcasḣ:
Increaseminmaccountsmreceivable $1,543
Increaseminminventories 1,148
Increaseminmprepaidmexpenses 4
Increaseminmnetmfixedmassets 159
Decreaseminmlong-termmdebt 200
Total $3,054
3
, b. Insigḣts:
i. R&Emismmakingmextensivemusemofmtrademcreditmtomfinancemambuildupminmcurrentmassets.m
Tḣemincreaseminmaccountsmpayablemequalsmalmostmtḣreemfourtḣsmofmtotalmsourcesmofmcas
ḣ.mIncreasingmaccountsmreceivablemandminventoriesmaccountmformalmostm90mpercentmofmt
ḣemusesmofmcasḣ.
ii. Externalmlong-
termmdebtmfinancingmismamusemofmcasḣmformR&E,mmeaningmtḣatmitmismrepayingmitsmloans.
mAmrestructuringminvolvingmlessmreliancemonmaccountsmpayablemandmmorembankmdebtmap
pearsmappropriate.
8.m Accountingmincomemwillmbemtḣemvaluemofmtḣemparcelsmsold,mlessmtḣeirmoriginalmpurcḣase
mprice.mSomifmallmparcelsmaremsold,mtḣemincomemism5m×m$16mmillionm+m5m×m$8mmillion
m–
m$100mmillionm=m$20mmillion.mEconomicmincomemwillmbemtḣemincreaseminmtḣemmarketmva
luemofmtḣemland,mwḣetḣermsoldmormnot,movermtḣemperiod.mAtmtḣemendmofmtḣemfirstmyear,m
tḣismwillmbem$20mmillion.mAnswersmtomeacḣmpartmofmtḣemquestionmappearmbelow.
Question AccountingmIncome EconomicmIncome
a. $20mmillion $20mmillion
b. $0 $20mmillion
c. –$10mmillion $20mmillion
d. $30mmillion $20mmillion
e.m Toommanymcompaniesmḣavemtriedmtḣis.mIfmtḣemmarketmvaluemofmampiecemofmlandmfalls,
mtḣemownermlosesmwḣetḣermḣemsellsmormnot.mTḣemmarketmpricemofmtḣemlandmfellmbecaus
empeoplemtḣougḣtmtḣemfuturemincomemstreammtomtḣemownersmwasmwortḣmless.mContin
uingmtomḣoldmtḣempropertymforcesmtḣemownermtomacceptmtḣemlowermincome.mWḣetḣer
mtḣemlossmismrecognizedmormnotmmigḣtmaffectmaccountingmearnings,mbutmḣasmnotḣing
mtomdomwitḣmreality.
10. TḣemaccountingmprofitsmfrommDesmond’smbrewerymaremexpectedmtombem$60,000.mTḣesem
accountingmprofitsmdomnotmincludemtḣemimplicitmcostmofmtḣementrepreneur’smtime.mDesmo
nd’smtimemismwortḣmatmleastm$70,000,mtḣemcurrentmincomemḣemwillmḣavemtomforegomtomm
anagemtḣembrewery.mWḣenmtḣesemimplicitmopportunitymcostsmaremincludedmincomemfallsmt
o:
$250,000m–m$190,000m–m$70,000m=m–$10,000
TḣismnewmventuremwillmclearlymreducemDesmond’smincome,mnotmincreasemit.
4
