Financial Management andAnalysis
Workbook
Step-by-Step Exercises and Tests to Help You MasterFinancial Management and Analysis
PAMELA P. PETERSON
FRANK J. FABOZZI
WENDY D. HABEGGER
John Wiley & Sons, Inc.
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Financial Management andAnalysis
Workbook
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THE FRANK J. FABOZZI SERIES
Fixed Income Securities, Second Edition by Frank J. FabozziFocus on Value: A Corporate and Investor Guide to Wealth Creation by James L.
Grant and James A. AbateHandbook of Global Fixed Income Calculations by Dragomir KrginManaging a Corporate Bond Portfolio by Leland E. Crabbe and Frank J. FabozziReal Options and Option-Embedded Securities by William T. MooreCapital Budgeting: Theory and Practice by Pamela P. Peterson and Frank J. FabozziThe Exchange-Traded Funds Manual by Gary L. GastineauProfessional Perspectives on Fixed Income Portfolio Management, Volume 3 edited
by Frank J. FabozziInvesting in Emerging Fixed Income Markets edited by Frank J. Fabozzi and
Efstathia PilarinuHandbook of Alternative Assets by Mark J. P. AnsonThe Exchange-Traded Funds Manual by Gary L. GastineauThe Global Money Markets by Frank J. Fabozzi, Steven V. Mann, and
Moorad ChoudhryThe Handbook of Financial Instruments edited by Frank J. FabozziCollateralized Debt Obligations: Structures and Analysis by Laurie S. Goodman
and Frank J. FabozziInterest Rate, Term Structure, and Valuation Modeling edited by Frank J. FabozziInvestment Performance Measurement by Bruce J. FeibelThe Handbook of Equity Style Management edited by T. Daniel Coggin and
Frank J. FabozziThe Theory and Practice of Investment Management edited by Frank J. Fabozzi and
Harry M. MarkowitzFoundations of Economic Value Added: Second Edition by James L. GrantFinancial Management and Analysis: Second Edition by Frank J. Fabozzi and
Pamela P. PetersonMeasuring and Controlling Interest Rate and Credit Risk: Second Edition by
Frank J. Fabozzi, Steven V. Mann, and Moorad ChoudhryProfessional Perspectives on Fixed Income Portfolio Management, Volume 4 edited
by Frank J. FabozziHandbook of European Fixed Income Securities edited by Frank J. Fabozzi and
Moorad ChoudhryCredit Derivatives: Instruments, Applications, and Pricing by Mark J.P. Anson,
Frank J. Fabozzi, Moorad Choudhry, and Ren-Raw ChenHandbook of European Structured Financial Products edited by Frank J. Fabozzi
and Moorad Choudhry
This workbook is the companion, self-study guide to Financial Management andAnalysis: Second Edition.
Please visit www.WileyFinance.com for more information.
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Financial Management andAnalysis
Workbook
Step-by-Step Exercises and Tests to Help You MasterFinancial Management and Analysis
PAMELA P. PETERSON
FRANK J. FABOZZI
WENDY D. HABEGGER
John Wiley & Sons, Inc.
Front Page iii Monday, December 15, 2003 4:55 PM
Copyright 2004 by Frank J. Fabozzi, Pamela P. Peterson, and Wendy Habegger. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New JerseyPublished simultaneously in Canada
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or oth-erwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rose-wood Drive, Danvers, MA 01923, 978-750-8400, fax 978-750-4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Per-missions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008, e-mail: [email protected].
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies con-tained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
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ISBN: 0-471-47761-3
Printed in the United States of America
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v
Contents
PART ONE
Questions and Problems 1
CHAPTER 1Introduction to Financial Management and Analysis 3
CHAPTER 2Securities and Markets 11
CHAPTER 3Financial Institutions and the Cost of Money 17
CHAPTER 4Introduction to Derivatives 25
CHAPTER 5Taxation 35
CHAPTER 6Financial Statements 43
CHAPTER 7Mathematics of Finance 53
CHAPTER 8Principles of Asset Valuation and Investment Returns 65
CHAPTER 9Valuation of Securities and Options 75
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vi Contents
CHAPTER 10Risk and Expected Return 87
CHAPTER 11The Cost of Capital 101
CHAPTER 12Capital Budgeting: Cash Flows 109
CHAPTER 13Capital Budgeting Techniques 117
CHAPTER 14Capital Budgeting and Risk 127
CHAPTER 15Intermediate and Long-Term Debt 139
CHAPTER 16Common Stock 151
CHAPTER 17Preferred Stock 163
CHAPTER 18Capital Structure 173
CHAPTER 19Management of Cash and Marketable Securities 183
CHAPTER 20Management of Receivables and Inventory 193
CHAPTER 21Management of Short-Term Financing 203
CHAPTER 22Financial Ratio Analysis 213
CHAPTER 23Earnings Analysis 227
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Contents vii
CHAPTER 24Cash Flow Analysis 237
CHAPTER 25International Financial Management 245
CHAPTER 26Borrowing via Structured Finance Transactions 257
CHAPTER 27Equipment Leasing 263
CHAPTER 28Project Financing 273
CHAPTER 29Strategy and Financial Planning 279
PART TWO
Solutions 289
CHAPTER 1Introduction to Financial Management and Analysis 291
CHAPTER 2Securities and Markets 295
CHAPTER 3Financial Institutions and the Cost of Money 299
CHAPTER 4Introduction to Derivatives 303
CHAPTER 5Taxation 309
CHAPTER 6Financial Statements 315
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viii Contents
CHAPTER 7Mathematics of Finance 319
CHAPTER 8Principles of Asset Valuation and Investment Returns 325
CHAPTER 9Valuation of Securities and Options 329
CHAPTER 10Risk and Expected Return 335
CHAPTER 11The Cost of Capital 341
CHAPTER 12Capital Budgeting: Cash Flows 345
CHAPTER 13Capital Budgeting Techniques 351
CHAPTER 14Capital Budgeting and Risk 359
CHAPTER 15Intermediate and Long-Term Debt 365
CHAPTER 16Common Stock 371
CHAPTER 17Preferred Stock 377
CHAPTER 18Capital Structure 381
CHAPTER 19Management of Cash and Marketable Securities 385
CHAPTER 20Management of Receivables and Inventory 391
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Contents ix
CHAPTER 21Management of Short-Term Financing 395
CHAPTER 22Financial Ratio Analysis 401
CHAPTER 23Earnings Analysis 407
CHAPTER 24Cash Flow Analysis 413
CHAPTER 25International Financial Management 417
CHAPTER 26Borrowing via Structured Finance Transactions 421
CHAPTER 27Equipment Leasing 425
CHAPTER 28Project Financing 429
CHAPTER 29Strategy and Financial Planning 433
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PART
OneQuestions and Problems
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CHAPTER 1
3
Introduction to FinancialManagement and Analysis
FILL IN THE BLANKS
Refer to Chapter 1, pages 324 in Financial Managementand Analysis.
1. ______________ is the application of economic principlesand concepts to business decisions and problem solving. Itcan be divided into three categories: ______________,______________, and ______________. ______________ isthe management of a firms cash flow to increase share-holder wealth.
2. ______________ and ______________ are decisions madeconcerning financial management. Financial managerscompare potential ______________ and ______________,otherwise known as expected returns. The uncertaintyinherent with these returns is r
