5440 CHAP 2 PROBS
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Florida Institute of Technology *
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5440
Subject
Finance
Date
Jan 9, 2024
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2
Uploaded by ProfessorGoose3810
HUC
Suho
(durma
)
Chasrer
&
Feobew
—
(29)
The
Shrieves
Corporation
has
$10,000
that
it
plans
to
invest
in
marketable
securities.
It
is
Corporate
After-Tax
choosing
among
AT&T
bonds,
which
yield
7.5%,
state
of
Florida
muni
bonds,
which
yield
Yield
5%
(but
are
not
taxable),
and
AT&T
preferred
stock,
with
a
dividend
yield
of
6%.
The
corporate
tax
rate
is
35%,
and
70%
of
the
dividends
received
are
tax
exempt.
Find
the
after-tax
rates
of
return
on
all
three
securities.
CHALLENGING
PROBLEMS
12-13
sing
Rhodes
Corporation’s
financial
statements
(shown
after
Part
f),
answer
the
ollowing
questions.
What
is
the net
operating
profit
after
taxes
(NOPAT)
for
20162
What
are
the
amounts
of
net
operating
working
capital
for
both
years?
What
are
the
amounts
of
total
net
operating
capital
for
both
years?
.
What
is
the
free
cash
flow
for
2016?
What
is
the
ROIC
for
20167
How
much
of
the
FCF
did
Rhodes
use
for
each
of
the
following
purposes:
after-
tax
interest,
net
debt
repayments,
dividends,
net
stock
repurchases,
and
net
purchases
of
short-term
investments?
(Hint:
Remember
that
a
net
use
can
be
negative.)
//_/—\
(2-12)
Free
Cash
Flows
e
o
TR
(2-13)
Loss
Carryback
and
Carryforward
Rhodes
Corporation:
Income
Statements
for
Year
Ending
December
31
(Millions
of
Dollars)
2016
2015
Sales
$11,000
$10,000
Operating
costs
excluding
depreciation
9,360
8,500
Depreciation
and
amortization
380
360
Earnings
before
interest
and
taxes
$
1,260
$
1,140
Less
interest
120
100
Pre-tax
income
$
1,140
$
1,040
Taxes
(40%)
456
416
Net
income
available
to
common
stockholders
$
684
$
624
Common
dividends
$
220
$
200
Rhodes
Corporation:
Balance
Sheets
as
of
December
31
(Millions
of
Dollars)
2016
2015
Assets
Cash
$
550
$
500
Short-term
investments
110
100
Accounts
receivable
2,750
2,500
Inventories
1,650
ioo
Total
current
assets
$5,060
$4,600
Net
plant
and
equipment
3,850
3,500
Total
assets
$8,910
$8,100
Liabilities
and
Equity
Accounts
payable
$1,100
$1,000
Accruals
550
500
Notes
payable
384
__200
Total
current
liabilities
$2,034
$1,700
Long-term
debt
_1,100
_1,000
Total
liabilities
$3,134
$2,700
Common
stock
4,312
4,400
Retained
earnings
1,464
_1,000
Total
common
equity
$5,776
$5,400
Total
liabilities
and
equity
$8,910
$8,100
The
Bookbinder
Company
has
made
$150,000
before
taxes
during
each
of
the
last
15
years,
and
it
expects
to
make
$150,000
a
year
before
taxes
in
the
future.
However,
in
2016
the
firm
incurred
a
loss
of
$650,000.
The
firm
will
claim
a
tax
credit
at
the
time
it
files
its
2016
income
tax
return,
and
it
will
receive
a
check
from
the
U.S.
Treasury.
Show
how
it
calculates
this
credit,
and
then
indicate
the
firm’s
tax
liability
for
each
of
the
next
5
years.
Assume
a
40%
tax
rate
on
all
income
to
ease
the
calculations.
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O
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O
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_
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