财务管理英文版 第九版 答案 fundamentals of corporate finance 9th edition

SOLUTIONSMANUALFUNDAMENTALSOFCORPORATEFINANCE9THEDITIONROSS,WESTERFIELD,ANDJORDANUPDATED12202008CHAPTER1INTRODUCTIONTOCORPORATEFINANCEANSWERSTOCONCEPTSREVIEWANDCRITICALTHINKINGQUESTIONS1CAPITALBUDGETINGDECIDINGWHETHERTOEXPANDAMANUFACTURINGPLANT,CAPITALSTRUCTUREDECIDINGWHETHERTOISSUENEWEQUITYANDUSETHEPROCEEDSTORETIREOUTSTANDINGDEBT,ANDWORKINGCAPITALMANAGEMENTMODIFYINGTHEFIRMSCREDITCOLLECTIONPOLICYWITHITSCUSTOMERS2DISADVANTAGESUNLIMITEDLIABILITY,LIMITEDLIFE,DIFFICULTYINTRANSFERRINGOWNERSHIP,HARDTORAISECAPITALFUNDSSOMEADVANTAGESSIMPLER,LESSREGULATION,THEOWNERSAREALSOTHEMANAGERS,SOMETIMESPERSONALTAXRATESAREBETTERTHANCORPORATETAXRATES3THEPRIMARYDISADVANTAGEOFTHECORPORATEFORMISTHEDOUBLETAXATIONTOSHAREHOLDERSOFDISTRIBUTEDEARNINGSANDDIVIDENDSSOMEADVANTAGESINCLUDELIMITEDLIABILITY,EASEOFTRANSFERABILITY,ABILITYTORAISECAPITAL,ANDUNLIMITEDLIFE4INRESPONSETOSARBANESOXLEY,SMALLFIRMSHAVEELECTEDTOGODARKBECAUSEOFTHECOSTSOFCOMPLIANCETHECOSTSTOCOMPLYWITHSARBOXCANBESEVERALMILLIONDOLLARS,WHICHCANBEALARGEPERCENTAGEOFASMALLFIRMSPROFITSAMAJORCOSTOFGOINGDARKISLESSACCESSTOCAPITALSINCETHEFIRMISNOLONGERPUBLICLYTRADED,ITCANNOLONGERRAISEMONEYINTHEPUBLICMARKETALTHOUGHTHECOMPANYWILLSTILLHAVEACCESSTOBANKLOANSANDTHEPRIVATEEQUITYMARKET,THECOSTSASSOCIATEDWITHRAISINGFUNDSINTHESEMARKETSAREUSUALLYHIGHERTHANTHECOSTSOFRAISINGFUNDSINTHEPUBLICMARKET5THETREASURERSOFFICEANDTHECONTROLLERSOFFICEARETHETWOPRIMARYORGANIZATIONALGROUPSTHATREPORTDIRECTLYTOTHECHIEFFINANCIALOFFICERTHECONTROLLERSOFFICEHANDLESCOSTANDFINANCIALACCOUNTING,TAXMANAGEMENT,ANDMANAGEMENTINFORMATIONSYSTEMS,WHILETHETREASURERSOFFICEISRESPONSIBLEFORCASHANDCREDITMANAGEMENT,CAPITALBUDGETING,ANDFINANCIALPLANNINGTHEREFORE,THESTUDYOFCORPORATEFINANCEISCONCENTRATEDWITHINTHETREASURYGROUPSFUNCTIONS6TOMAXIMIZETHECURRENTMARKETVALUESHAREPRICEOFTHEEQUITYOFTHEFIRMWHETHERITSPUBLICLYTRADEDORNOT7INTHECORPORATEFORMOFOWNERSHIP,THESHAREHOLDERSARETHEOWNERSOFTHEFIRMTHESHAREHOLDERSELECTTHEDIRECTORSOFTHECORPORATION,WHOINTURNAPPOINTTHEFIRMSMANAGEMENTTHISSEPARATIONOFOWNERSHIPFROMCONTROLINTHECORPORATEFORMOFORGANIZATIONISWHATCAUSESAGENCYPROBLEMSTOEXISTMANAGEMENTMAYACTINITSOWNORSOMEONEELSESBESTINTERESTS,RATHERTHANTHOSEOFTHESHAREHOLDERSIFSUCHEVENTSOCCUR,THEYMAYCONTRADICTTHEGOALOFMAXIMIZINGTHESHAREPRICEOFTHEEQUITYOFTHEFIRM8APRIMARYMARKETTRANSACTION9INAUCTIONMARKETSLIKETHENYSE,BROKERSANDAGENTSMEETATAPHYSICALLOCATIONTHEEXCHANGETOMATCHBUYERSANDSELLERSOFASSETSDEALERMARKETSLIKENASDAQCONSISTOFDEALERSOPERATINGATDISPERSEDLOCALESWHOBUYANDSELLASSETSTHEMSELVES,COMMUNICATINGWITHOTHERDEALERSEITHERELECTRONICALLYORLITERALLYOVERTHECOUNTER10SUCHORGANIZATIONSFREQUENTLYPURSUESOCIALORPOLITICALMISSIONS,SOMANYDIFFERENTGOALSARECONCEIVABLEONEGOALTHATISOFTENCITEDISREVENUEMINIMIZATIONIE,PROVIDEWHATEVERGOODSANDSERVICESAREOFFEREDATTHELOWESTPOSSIBLECOSTTOSOCIETYABETTERAPPROACHMIGHTBETOOBSERVETHATEVENANOTFORPROFITBUSINESSHASEQUITYTHUS,ONEANSWERISTHATTHEAPPROPRIATEGOALISTOMAXIMIZETHEVALUEOFTHEEQUITY11PRESUMABLY,THECURRENTSTOCKVALUEREFLECTSTHERISK,TIMING,ANDMAGNITUDEOFALLFUTURECASHFLOWS,BOTHSHORTTERMANDLONGTERMIFTHISISCORRECT,THENTHESTATEMENTISFALSE12ANARGUMENTCANBEMADEEITHERWAYATTHEONEEXTREME,WECOULDARGUETHATINAMARKETECONOMY,ALLOFTHESETHINGSAREPRICEDTHEREISTHUSANOPTIMALLEVELOF,FOREXAMPLE,ETHICALAND/ORILLEGALBEHAVIOR,ANDTHEFRAMEWORKOFSTOCKVALUATIONEXPLICITLYINCLUDESTHESEATTHEOTHEREXTREME,WECOULDARGUETHATTHESEARENONECONOMICPHENOMENAANDAREBESTHANDLEDTHROUGHTHEPOLITICALPROCESSACLASSICANDHIGHLYRELEVANTTHOUGHTQUESTIONTHATILLUSTRATESTHISDEBATEGOESSOMETHINGLIKETHIS“AFIRMHASESTIMATEDTHATTHECOSTOFIMPROVINGTHESAFETYOFONEOFITSPRODUCTSIS30MILLIONHOWEVER,THEFIRMBELIEVESTHATIMPROVINGTHESAFETYOFTHEPRODUCTWILLONLYSAVE20MILLIONINPRODUCTLIABILITYCLAIMSWHATSHOULDTHEFIRMDO”13THEGOALWILLBETHESAME,BUTTHEBESTCOURSEOFACTIONTOWARDTHATGOALMAYBEDIFFERENTBECAUSEOFDIFFERINGSOCIAL,POLITICAL,ANDECONOMICINSTITUTIONS14THEGOALOFMANAGEMENTSHOULDBETOMAXIMIZETHESHAREPRICEFORTHECURRENTSHAREHOLDERSIFMANAGEMENTBELIEVESTHATITCANIMPROVETHEPROFITABILITYOFTHEFIRMSOTHATTHESHAREPRICEWILLEXCEED35,THENTHEYSHOULDFIGHTTHEOFFERFROMTHEOUTSIDECOMPANYIFMANAGEMENTBELIEVESTHATTHISBIDDEROROTHERUNIDENTIFIEDBIDDERSWILLACTUALLYPAYMORETHAN35PERSHARETOACQUIRETHECOMPANY,THENTHEYSHOULDSTILLFIGHTTHEOFFERHOWEVER,IFTHECURRENTMANAGEMENTCANNOTINCREASETHEVALUEOFTHEFIRMBEYONDTHEBIDPRICE,ANDNOOTHERHIGHERBIDSCOMEIN,THENMANAGEMENTISNOTACTINGINTHEINTERESTSOFTHESHAREHOLDERSBYFIGHTINGTHEOFFERSINCECURRENTMANAGERSOFTENLOSETHEIRJOBSWHENTHECORPORATIONISACQUIRED,POORLYMONITOREDMANAGERSHAVEANINCENTIVETOFIGHTCORPORATETAKEOVERSINSITUATIONSSUCHASTHIS15WEWOULDEXPECTAGENCYPROBLEMSTOBELESSSEVEREINCOUNTRIESWITHARELATIVELYSMALLPERCENTAGEOFINDIVIDUALOWNERSHIPFEWERINDIVIDUALOWNERSSHOULDREDUCETHENUMBEROFDIVERSEOPINIONSCONCERNINGCORPORATEGOALSTHEHIGHPERCENTAGEOFINSTITUTIONALOWNERSHIPMIGHTLEADTOAHIGHERDEGREEOFAGREEMENTBETWEENOWNERSANDMANAGERSONDECISIONSCONCERNINGRISKYPROJECTSINADDITION,INSTITUTIONSMAYBEBETTERABLETOIMPLEMENTEFFECTIVEMONITORINGMECHANISMSONMANAGERSTHANCANINDIVIDUALOWNERS,BASEDONTHEINSTITUTIONSDEEPERRESOURCESANDEXPERIENCESWITHTHEIROWNMANAGEMENTTHEINCREASEININSTITUTIONALOWNERSHIPOFSTOCKINTHEUNITEDSTATESANDTHEGROWINGACTIVISMOFTHESELARGESHAREHOLDERGROUPSMAYLEADTOAREDUCTIONINAGENCYPROBLEMSFORUSCORPORATIONSANDAMOREEFFICIENTMARKETFORCORPORATECONTROL16HOWMUCHISTOOMUCHWHOISWORTHMORE,RAYIRANIORTIGERWOODSTHESIMPLESTANSWERISTHATTHEREISAMARKETFOREXECUTIVESJUSTASTHEREISFORALLTYPESOFLABOREXECUTIVECOMPENSATIONISTHEPRICETHATCLEARSTHEMARKETTHESAMEISTRUEFORATHLETESANDPERFORMERSHAVINGSAIDTHAT,ONEASPECTOFEXECUTIVECOMPENSATIONDESERVESCOMMENTAPRIMARYREASONEXECUTIVECOMPENSATIONHASGROWNSODRAMATICALLYISTHATCOMPANIESHAVEINCREASINGLYMOVEDTOSTOCKBASEDCOMPENSATIONSUCHMOVEMENTISOBVIOUSLYCONSISTENTWITHTHEATTEMPTTOBETTERALIGNSTOCKHOLDERANDMANAGEMENTINTERESTSINRECENTYEARS,STOCKPRICESHAVESOARED,SOMANAGEMENTHASCLEANEDUPITISSOMETIMESARGUEDTHATMUCHOFTHISREWARDISSIMPLYDUETORISINGSTOCKPRICESINGENERAL,NOTMANAGERIALPERFORMANCEPERHAPSINTHEFUTURE,EXECUTIVECOMPENSATIONWILLBEDESIGNEDTOREWARDONLYDIFFERENTIALPERFORMANCE,IE,STOCKPRICEINCREASESINEXCESSOFGENERALMARKETINCREASESCHAPTER2FINANCIALSTATEMENTS,TAXESANDCASHFLOWANSWERSTOCONCEPTSREVIEWANDCRITICALTHINKINGQUESTIONS1LIQUIDITYMEASURESHOWQUICKLYANDEASILYANASSETCANBECONVERTEDTOCASHWITHOUTSIGNIFICANTLOSSINVALUEITSDESIRABLEFORFIRMSTOHAVEHIGHLIQUIDITYSOTHATTHEYHAVEALARGEFACTOROFSAFETYINMEETINGSHORTTERMCREDITORDEMANDSHOWEVER,SINCELIQUIDITYALSOHASANOPPORTUNITYCOSTASSOCIATEDWITHITNAMELYTHATHIGHERRETURNSCANGENERALLYBEFOUNDBYINVESTINGTHECASHINTOPRODUCTIVEASSETSLOWLIQUIDITYLEVELSAREALSODESIRABLETOTHEFIRMITSUPTOTHEFIRMSFINANCIALMANAGEMENTSTAFFTOFINDAREASONABLECOMPROMISEBETWEENTHESEOPPOSINGNEEDS2THERECOGNITIONANDMATCHINGPRINCIPLESINFINANCIALACCOUNTINGCALLFORREVENUES,ANDTHECOSTSASSOCIATEDWITHPRODUCINGTHOSEREVENUES,TOBE“BOOKED”WHENTHEREVENUEPROCESSISESSENTIALLYCOMPLETE,NOTNECESSARILYWHENTHECASHISCOLLECTEDORBILLSAREPAIDNOTETHATTHISWAYISNOTNECESSARILYCORRECTITSTHEWAYACCOUNTANTSHAVECHOSENTODOIT3HISTORICALCOSTSCANBEOBJECTIVELYANDPRECISELYMEASUREDWHEREASMARKETVALUESCANBEDIFFICULTTOESTIMATE,ANDDIFFERENTANALYSTSWOULDCOMEUPWITHDIFFERENTNUMBERSTHUS,THEREISATRADEOFFBETWEENRELEVANCEMARKETVALUESANDOBJECTIVITYBOOKVALUES4DEPRECIATIONISANONCASHDEDUCTIONTHATREFLECTSADJUSTMENTSMADEINASSETBOOKVALUESINACCORDANCEWITHTHEMATCHINGPRINCIPLEINFINANCIALACCOUNTINGINTERESTEXPENSEISACASHOUTLAY,BUTITSAFINANCINGCOST,NOTANOPERATINGCOST5MARKETVALUESCANNEVERBENEGATIVEIMAGINEASHAREOFSTOCKSELLINGFOR20THISWOULDMEANTHATIFYOUPLACEDANORDERFOR100SHARES,YOUWOULDGETTHESTOCKALONGWITHACHECKFOR2,000HOWMANYSHARESDOYOUWANTTOBUYMOREGENERALLY,BECAUSEOFCORPORATEANDINDIVIDUALBANKRUPTCYLAWS,NETWORTHFORAPERSONORACORPORATIONCANNOTBENEGATIVE,IMPLYINGTHATLIABILITIESCANNOTEXCEEDASSETSINMARKETVALUE6FORASUCCESSFULCOMPANYTHATISRAPIDLYEXPANDING,FOREXAMPLE,CAPITALOUTLAYSWILLBELARGE,POSSIBLYLEADINGTONEGATIVECASHFLOWFROMASSETSINGENERAL,WHATMATTERSISWHETHERTHEMONEYISSPENTWISELY,NOTWHETHERCASHFLOWFROMASSETSISPOSITIVEORNEGATIVE7ITSPROBABLYNOTAGOODSIGNFORANESTABLISHEDCOMPANY,BUTITWOULDBEFAIRLYORDINARYFORASTARTUP,SOITDEPENDS8FOREXAMPLE,IFACOMPANYWERETOBECOMEMOREEFFICIENTININVENTORYMANAGEMENT,THEAMOUNTOFINVENTORYNEEDEDWOULDDECLINETHESAMEMIGHTBETRUEIFITBECOMESBETTERATCOLLECTINGITSRECEIVABLESINGENERAL,ANYTHINGTHATLEADSTOADECLINEINENDINGNWCRELATIVETOBEGINNINGWOULDHAVETHISEFFECTNEGATIVENETCAPITALSPENDINGWOULDMEANMORELONGLIVEDASSETSWERELIQUIDATEDTHANPURCHASED9IFACOMPANYRAISESMOREMONEYFROMSELLINGSTOCKTHANITPAYSINDIVIDENDSINAPARTICULARPERIOD,ITSCASHFLOWTOSTOCKHOLDERSWILLBENEGATIVEIFACOMPANYBORROWSMORETHANITPAYSININTEREST,ITSCASHFLOWTOCREDITORSWILLBENEGATIVE10THEADJUSTMENTSDISCUSSEDWEREPURELYACCOUNTINGCHANGESTHEYHADNOCASHFLOWORMARKETVALUECONSEQUENCESUNLESSTHENEWACCOUNTINGINFORMATIONCAUSEDSTOCKHOLDERSTOREVALUETHEDERIVATIVES11ENTERPRISEVALUEISTHETHEORETICALTAKEOVERPRICEINTHEEVENTOFATAKEOVER,ANACQUIRERWOULDHAVETOTAKEONTHECOMPANYSDEBT,BUTWOULDPOCKETITSCASHENTERPRISEVALUEDIFFERSSIGNIFICANTLYFROMSIMPLEMARKETCAPITALIZATIONINSEVERALWAYS,ANDITMAYBEAMOREACCURATEREPRESENTATIONOFAFIRMSVALUEINATAKEOVER,THEVALUEOFAFIRMSDEBTWOULDNEEDTOBEPAIDBYTHEBUYERWHENTAKINGOVERACOMPANYTHISENTERPRISEVALUEPROVIDESAMUCHMOREACCURATETAKEOVERVALUATIONBECAUSEITINCLUDESDEBTINITSVALUECALCULATION12INGENERAL,ITAPPEARSTHATINVESTORSPREFERCOMPANIESTHATHAVEASTEADYEARNINGSSTREAMIFTRUE,THISENCOURAGESCOMPANIESTOMANAGEEARNINGSUNDERGAAP,THEREARENUMEROUSCHOICESFORTHEWAYACOMPANYREPORTSITSFINANCIALSTATEMENTSALTHOUGHNOTTHEREASONFORTHECHOICESUNDERGAAP,ONEOUTCOMEISTHEABILITYOFACOMPANYTOMANAGEEARNINGS,WHICHISNOTANETHICALDECISIONEVENTHOUGHEARNINGSANDCASHFLOWAREOFTENRELATED,EARNINGSMANAGEMENTSHOULDHAVELITTLEEFFECTONCASHFLOWEXCEPTFORTAXIMPLICATIONSIFTHEMARKETIS“FOOLED”ANDPREFERSSTEADYEARNINGS,SHAREHOLDERWEALTHCANBEINCREASED,ATLEASTTEMPORARILYHOWEVER,GIVENTHEQUESTIONABLEETHICSOFTHISPRACTICE,THECOMPANYANDSHAREHOLDERSWILLLOSEVALUEIFTHEPRACTICEISDISCOVEREDSOLUTIONSTOQUESTIONSANDPROBLEMSNOTEALLENDOFCHAPTERPROBLEMSWERESOLVEDUSINGASPREADSHEETMANYPROBLEMSREQUIREMULTIPLESTEPSDUETOSPACEANDREADABILITYCONSTRAINTS,WHENTHESEINTERMEDIATESTEPSAREINCLUDEDINTHISSOLUTIONSMANUAL,ROUNDINGMAYAPPEARTOHAVEOCCURREDHOWEVER,THEFINALANSWERFOREACHPROBLEMISFOUNDWITHOUTROUNDINGDURINGANYSTEPINTHEPROBLEMBASIC1TOFINDOWNERSEQUITY,WEMUSTCONSTRUCTABALANCESHEETASFOLLOWSBALANCESHEETCA5,100CL4,300NFA23,800LTD7,400OETA28,900TLITJUSTHASTOBESURETHEREISSUFFICIENTCASHFLOWTOMAKETHEDIVIDENDPAYMENTSCHANGEINNWCNETCAPITALSPENDINGNETNEWEQUITY0GIVENCASHFLOWFROMASSETSOCFCHANGEINNWCNETCAPITALSPENDINGCASHFLOWFROMASSETS45,0000045,000CASHFLOWTOSTOCKHOLDERSDIVIDENDSNETNEWEQUITY25,000025,000CASHFLOWTOCREDITORSCASHFLOWFROMASSETSCASHFLOWTOSTOCKHOLDERSCASHFLOWTOCREDITORS45,00025,00020,000CASHFLOWTOCREDITORSINTERESTNETNEWLTDNETNEWLTDINTERESTCASHFLOWTOCREDITORS75,00020,00055,00021AINCOMESTATEMENTSALES22,800COSTOFGOODSSOLD16,050DEPRECIATION4,050EBIT2,700INTEREST1,830TAXABLEINCOME870TAXES34296NETINCOME574BOCFEBITDEPRECIATIONTAXES2,7004,0502966,454CCHANGEINNWCNWCENDNWCBEGCAENDCLENDCABEGCLBEG5,9303,1504,8002,7002,7802,100680NETCAPITALSPENDINGNFAENDNFABEGDEPRECIATION16,80013,6504,0507,200CFAOCFCHANGEINNWCNETCAPITALSPENDING6,4546807,2001,426THECASHFLOWFROMASSETSCANBEPOSITIVEORNEGATIVE,SINCEITREPRESENTSWHETHERTHEFIRMRAISEDFUNDSORDISTRIBUTEDFUNDSONANETBASISINTHISPROBLEM,EVENTHOUGHNETINCOMEANDOCFAREPOSITIVE,THEFIRMINVESTEDHEAVILYINBOTHFIXEDASSETSANDNETWORKINGCAPITALITHADTORAISEANET1,426INFUNDSFROMITSSTOCKHOLDERSANDCREDITORSTOMAKETHESEINVESTMENTSDCASHFLOWTOCREDITORSINTERESTNETNEWLTD1,83001,830CASHFLOWTOSTOCKHOLDERSCASHFLOWFROMASSETSCASHFLOWTOCREDITORS1,4261,8303,256WECANALSOCALCULATETHECASHFLOWTOSTOCKHOLDERSASCASHFLOWTOSTOCKHOLDERSDIVIDENDSNETNEWEQUITYSOLVINGFORNETNEWEQUITY,WEGETNETNEWEQUITY1,3003,2564,556THEFIRMHADPOSITIVEEARNINGSINANACCOUNTINGSENSENI0ANDHADPOSITIVECASHFLOWFROMOPERATIONSTHEFIRMINVESTED680INNEWNETWORKINGCAPITALAND7,200INNEWFIXEDASSETSTHEFIRMHADTORAISE1,426FROMITSSTAKEHOLDERSTOSUPPORTTHISNEWINVESTMENTITACCOMPLISHEDTHISBYRAISING4,556INTHEFORMOFNEWEQUITYAFTERPAYINGOUT1,300OFTHISINTHEFORMOFDIVIDENDSTOSHAREHOLDERSAND1,830INTHEFORMOFINTERESTTOCREDITORS,1,426WASLEFTTOMEETTHEFIRMSCASHFLOWNEEDSFORINVESTMENT22ATOTALASSETS20086532,6913,344TOTALLIABILITIES20082611,4221,683OWNERSEQUITY20083,3441,6831,661TOTALASSETS20097073,2403,947TOTALLIABILITIES20092931,5121,805OWNERSEQUITY20093,9471,8052,142BNWC2008CA08CL08653261392NWC2009CA09CL09707293414CHANGEINNWCNWC09NWC0841439222CWECANCALCULATENETCAPITALSPENDINGASNETCAPITALSPENDINGNETFIXEDASSETS2009NETFIXEDASSETS2008DEPRECIATIONNETCAPITALSPENDING3,2402,6917381,287SO,THECOMPANYHADANETCAPITALSPENDINGCASHFLOWOF1,287WEALSOKNOWTHATNETCAPITALSPENDINGISNETCAPITALSPENDINGFIXEDASSETSBOUGHTFIXEDASSETSSOLD1,2871,350FIXEDASSETSSOLDFIXEDASSETSSOLD1,3501,28763TOCALCULATETHECASHFLOWFROMASSETS,WEMUSTFIRSTCALCULATETHEOPERATINGCASHFLOWTHEINCOMESTATEMENTISINCOMESTATEMENTSALES8,28000COSTS3,86100DEPRECIATIONEXPENSE73800EBIT3,68100INTERESTEXPENSE21100EBT3,47000TAXES351,21550NETINCOME2,25650SO,THEOPERATINGCASHFLOWISOCFEBITDEPRECIATIONTAXES3,6817381,214503,20450ANDTHECASHFLOWFROMASSETSISCASHFLOWFROMASSETSOCFCHANGEINNWCNETCAPITALSPENDING3,20450221,2871,89550DNETNEWBORROWINGLTD09LTD081,5121,42290CASHFLOWTOCREDITORSINTERESTNETNEWLTD21190121NETNEWBORROWING90DEBTISSUEDDEBTRETIREDDEBTRETIRED27090180CHALLENGE23NETCAPITALSPENDINGNFAENDNFABEGDEPRECIATIONNFAENDNFABEGDEPRECIATIONADBEGADBEGNFAENDNFABEGADENDADBEGNFAENDADENDNFABEGADBEGFAENDFABEG24ATHETAXBUBBLECAUSESAVERAGETAXRATESTOCATCHUPTOMARGINALTAXRATES,THUSELIMINATINGTHETAXADVANTAGEOFLOWMARGINALRATESFORHIGHINCOMECORPORATIONSBTAXES01550,00002525,00003425,000039235,000113,900AVERAGETAXRATE113,900/335,00034THEMARGINALTAXRATEONTHENEXTDOLLAROFINCOMEIS34PERCENTFORCORPORATETAXABLEINCOMELEVELSOF335,000TO10MILLION,AVERAGETAXRATESAREEQUALTOMARGINALTAXRATESTAXES03410,000,0000355,000,0000383,333,3336,416,667AVERAGETAXRATE6,416,667/18,333,33435THEMARGINALTAXRATEONTHENEXTDOLLAROFINCOMEIS35PERCENTFORCORPORATETAXABLEINCOMELEVELSOVER18,333,334,AVERAGETAXRATESAREAGAINEQUALTOMARGINALTAXRATESCTAXES034200,00068,00068,00001550,00002525,00003425,000X100,000X100,00068,00022,250X45,750/100,000X457525BALANCESHEETASOFDEC31,2008CASH3,792ACCOUNTSPAYABLE3,984ACCOUNTSRECEIVABLE5,021NOTESPAYABLE732INVENTORY8,927CURRENTLIABILITIES4,716CURRENTASSETS17,740LONGTERMDEBT12,700NETFIXEDASSETS31,805OWNERSEQUITY32,129TOTALASSETS49,545TOTALLIABTHEREFORE,ASSUMINGCURRENTLIABILITYLEVELSREMAINUNCHANGED,LIQUIDITYHASPOTENTIALLYDECREASED3ACURRENTRATIOOF050MEANSTHATTHEFIRMHASTWICEASMUCHINCURRENTLIABILITIESASITDOESINCURRENTASSETSTHEFIRMPOTENTIALLYHASPOORLIQUIDITYIFPRESSEDBYITSSHORTTERMCREDITORSANDSUPPLIERSFORIMMEDIATEPAYMENT,THEFIRMMIGHTHAVEADIFFICULTTIMEMEETINGITSOBLIGATIONSACURRENTRATIOOF150MEANSTHEFIRMHAS50MORECURRENTASSETSTHANITDOESCURRENTLIABILITIESTHISPROBABLYREPRESENTSANIMPROVEMENTINLIQUIDITYSHORTTERMOBLIGATIONSCANGENERALLYBEMETCOMPLETELYWITHASAFETYFACTORBUILTINACURRENTRATIOOF150,HOWEVER,MIGHTBEEXCESSIVEANYEXCESSFUNDSSITTINGINCURRENTASSETSGENERALLYEARNLITTLEORNORETURNTHESEEXCESSFUNDSMIGHTBEPUTTOBETTERUSEBYINVESTINGINPRODUCTIVELONGTERMASSETSORDISTRIBUTINGTHEFUNDSTOSHAREHOLDERS4AQUICKRATIOPROVIDESAMEASUREOFTHESHORTTERMLIQUIDITYOFTHEFIRM,AFTE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