Chapter 10

1. This year, FCF, Inc., has earnings before interest and taxes of $10 million, depreciation expenses of $1 million, capital expenditures of $1.5 million, and has increased its net working capital by $500,000. If its tax rate is 35%, what is its free cash flow?

10. You are evaluating the stock price of Kroger, a grocery store chain. It has forward earnings per share of $3. You notice that its competitor Safeway has a P/E ratio of 13. What is a good estimate of Kroger’s stock price?

Chapter 15

1. You are finalizing a bank loan for $200,000 for your small business and the closing fees payable to the bank are 2% of the loan. After paying the fees, what will be the net amount of funds from the loan available to your business?

9. Your firm successfully issued new debt last year, but the debt carries covenants. Specifically, you can only pay dividends out of earnings made after the debt issue and you must maintain a minimum quick

(acid-test) ratio ( ( current assets − inventory ) / current liabilities ) ( ( current assets − inventory ) / current liabilities )

of 1:1. Your net income this year was $70 million. Your cash is $10 million, your receivables are $8 million, and your inventory is $5 million. You have current liabilities of $19 million. What is the maximum dividend you could pay this year and still comply with your covenants?

13. You own a bond with a face value of $10,000 and a conversion ratio of 450. What is the conversion price?