Question: A life insurance company offers loans to

> Prepare a statement of cash flows (using the indirect method) for the Midland Manufacturing Corporation for the year ending December 2016, based on the following comparative balance sheets. Midland Manufacturing Corporation Comparative Balance Sheet

> Last year, Blue Lake Mines, Inc., had earnings after tax of $650,000. Included in its expenses were depreciation of $400,000 and deferred taxes of $100,000. The company also purchased new capital equipment for $300,000 last year. Calculate Blue Lake’s af

> Explain the difference between deterministic and probabilistic financial planning models.

> Illustrate how the statement of cash flows can be used as a financial planning technique.

> What is a cash budget? What are the usual steps involved in preparing a cash budget?

> Explain what is meant by interest rate risk.

> What is the percentage of sales forecasting method? What are some of the limitations financial analysts should be aware of in applying this method?

> What are pro forma financial statements?

> What are deferred taxes, and how do they come into being?

> Determine the monthly rate of interest that will yield an effective annual rate of interest of 12 percent.

> The Sooner Equipment Company has total assets of $100 million. Of this total, $40 million was financed with common equity and $60 million with debt (both long term and short term). Its average accounts receivable balance is $20 million, and this represen

> You have decided to start planning for your retirement by analyzing different retirement plans. The plan offered by IRA Managers requires you to deposit $5,000 at the beginning of each of the next 30 years. The retirement plan guarantees a 10 percent ann

> Bobbi Proctor does not want to “gamble” on Social Security taking care of her in retirement. Hence she wants to begin to plan now for retirement. She has enlisted the services of Hackney Financial Planning to assist her in meeting her goals. Proctor has

> Garrett Erdle has just turned 26 years of age. Although Garrett currently has a negative net worth, he expects to pay off all of his financial obligations within four years and then to embark on an aggressive plan to save for retirement. He wishes to be

> Crab State Bank has offered you a $1,000,000 five-year loan at an interest rate of 11.25 percent, requiring equal annual end-of-year payments that include both principal and interest on the unpaid balance. Develop an amortization schedule for this loan.

> Torbet Fish Packing Company wants to accumulate enough money over the next 10 years to pay for the expected replacement of its digitalized, automated scaling machine. The new machine is expected to cost $200,000 in 10 years. Torbet currently has $10,000

> Ted Gardiner has just turned 30 years old. He has currently accumulated $35,000 toward his planned retirement at age 60. He wants to accumulate enough money over the next 30 years to provide for a 20-year retirement annuity of $100,000 at the beginning o

> Explain why bondholders often prefer a sinking fund provision in a bond issue.

> Frank Chang is planning for the day when his child, Laura, will go to college. Laura has just turned eight and plans to enter college on her 18th birthday. She will need $25,000 at the beginning of each year in school. Frank plans to give Laura a Mercede

> Your son, Charlie, has just turned 15. Charlie plans to go to college to study electronics on his 18th birthday. College is expected to cost Charlie $15,000, $16,000, $17,000, and $18,000 for each of his four years in school. You want these funds to be a

> Suppose today is July 1, 2014, and you deposit $2,000 into an account today. Then you deposit $1,000 into the same account on each July 1, beginning in 2015 and continuing until the last $1,000 deposit is made on July 1, 2020. Also, assume that you withd

> Tarheel Furniture Company is planning to establish a wholly owned subsidiary to manufacture upholstery fabrics. Tarheel expects to earn $1 million after taxes on the venture during the first year. The president of Tarheel wants to know what the subsidiar

> Steven White is considering taking early retirement, having saved $400,000. White desires to determine how many years the savings will last if $40,000 per year is withdrawn at the end of each year. White feels the savings can earn 10 percent per year. Ho

> You are currently 30 years of age. You intend to retire at age 60 and you want to be able to receive a 20-year, $100,000 beginning-of-year annuity with the first payment to be received on your 60th birthday. You would like to save enough money over the n

> You have just had your 30th birthday. You have two children. One will go to college 10 years from now and require four beginning-of-year payments for college expenses of $10,000, $11,000, $12,000, and $13,000. The second child will go to college 15 years

> IRA Investments develops retirement programs for individuals. You are 30 years old and plan to retire on your 60th birthday. You want to establish a plan with IRA that will require a series of equal, annual, end-of-year deposits into the retirement accou

> How much must you deposit at the end of each quarter in an account that pays a nominal interest rate of 20 percent, compounded quarterly, if at the end of five years you want $10,000 in the account? (Hint: In working with the compound interest tables whe

> James Street’s son, Harold, is 10 years old today. Harold, a studious young fellow, is already making plans to go to college on his 18th birthday, and his father wants to start putting money away now for that purpose. Street estimates that Harold will ne

> An investment offers the following year-end cash flows: End of Year…………………….Cash Flow 1………………………………………$20,000 2……………………………………...$30,000 3……………………………………….$15,000 Using a 15 percent interest rate, convert this series of irregular cash flows to an equi

> In what ways is preferred stock similar to long-term debt? In what ways is it similar to common stock?

> An investment of $100,000 is expected to generate cash inflows of $60,000 in one year and $79,350 in two years. Calculate the expected rate of return on this investment to the nearest whole percent

> An investment requires an outlay of $100,000 today. Cash inflows from the investment are expected to be $40,000 per year at the end of years 4, 5, 6, 7, and 8. If you require a 20 percent rate of return on this type of investment, should the investment b

> Using the data in the following table for a number of firms in the same industry, do the following: a. Compute the total asset turnover, the net profit margin, the equity multiplier, and the return on equity for each firm. b. Evaluate each firmâ

> Determine the value at the end of three years of a $10,000 investment (today) in a bank certificate of deposit (CD) that pays a nominal annual interest rate of 8 percent, compounded: a. Semiannually b. Quarterly c. Monthly

> You deposit $10,000 at the end of each of the next four years into an account that pays 12 percent annually. What is the account balance at the end of 10 years?

> You deposit $4,500 per year at the end of each of the next 25 years into an account that pays 10 percent compounded annually. How much could you withdraw at the end of each of the 20 years following your last deposit? (The 25th and last deposit is made a

> Upon retirement, your goal is to spend five years traveling around the world. To travel in the style to which you are accustomed will require $250,000 per year at the beginning of each year. If you plan to retire in 30 years, what are the equal, annual,

> Mitchell Investments has offered you the following investment opportunity: $6,000 at the end of each year for the first 5 years, plus $3,000 at the end of each year from years 6 through 10, plus $2,000 at the end of each year from years 11 through 20.

> Construct a loan amortization schedule for a 3-year, 11 percent loan of $30,000. The loan requires three equal, end-of-year payments

> Strikler, Inc., has issued a $10 million, 10-year bond issue. The bonds require Strikler to establish a sinking fund and make 10 equal, end-of-year deposits into the fund. These deposits will earn 8 percent annually, and the sinking fund should have enou

> Your mother is planning to retire this year. Her firm has offered her a lump-sum retirement payment of $50,000 or a $6,000 lifetime annuity—whichever she chooses. Your mother is in reasonably good health and expects to live for at least 15 more years. Wh

> Under what conditions will a bond’s current yield be equal to its yield-to-maturity?

> Your parents have discovered a $1,000 bond at the bottom of their safe-deposit box. The bond was given to you by your late great-aunt Hilda on your second birthday. The bond pays interest at a rate of 5 percent per annum, compounded annually. Interest ac

> Williams Oil Company had a return on stockholders’ equity of 18 percent during 2016. Its total asset turnover was 1.0 times, and its equity multiplier was 2.0 times. Calculate the company’s net profit margin.

> You are considering investing in a bond that matures 20 years from now. It pays an annual end-of-year coupon rate of interest of 8.75 percent, or $87.50 per year. The bond currently sells for $919. Your marginal income tax rate (applied to interest payme

> An investment promises to pay $6,000 at the end of each year for the next five years and $4,000 at the end of each year for years 6 through 10. a. If you require a 12 percent rate of return on an investment of this sort, what is the maximum amount you wo

> You decide to purchase a building for $30,000 by paying $5,000 down and assuming a mortgage of $25,000. The bank offers you a 15-year mortgage requiring annual end-of-year payments of $3,188 each. The bank also requires you to pay a 3 percent loan origin

> Your great-uncle Claude is 82 years old. Over the years, he has accumulated savings of $80,000. He estimates that he will live another 10 years at the most and wants to spend his savings by then. (If he lives longer than that, he figures you will be happ

> Two investment opportunities are open to you: Investment 1 and Investment 2. Each has an initial cost of $10,000. Assuming that you desire a 10 percent return on your initial investment, compute the net present value of the two alternatives options and e

> What would you be willing to pay for a $1,000 bond paying $70 interest at the end of each year and maturing in 25 years if you wanted the bond to yield the following rates of return? a. 5 percent b. 7 percent c. 12 percent (Note: At maturity, the bo

> Susan Robinson is planning for her retirement. She is 30 years old today and would like to have $600,000 when she turns 55. She estimates that she will be able to earn a 9 percent rate of return on her retirement investments over time; she wants to set a

> A firm purchases 100 acres of land for $200,000 and agrees to remit 20 equal annual end-of-year installments of $41,067 each. What is the true annual interest rate on this loan?

> How does the yield-to-maturity on a bond differ from the coupon yield or current yield?

> Explain what is meant by reinvestment rate risk.

> Mr. Jones bought a building for $60,000, payable on the following terms: a $10,000 down payment and 25 equal annual installment payments to include principal and interest of 10 percent per annum. Calculate the amount of the installment payments. How much

> What is the present value of $800 to be received at the end of eight years, assuming the following annual interest rate? a. 4 percent, discounted annually b. 8 percent, discounted annually c. 20 percent, discounted quarterly d. 0 percent

> A leading broker has advertised money multiplier certificates that will triple your money in nine years; that is, if you buy one for $333.33 today, it will pay you $1,000 at the end of nine years. What rate of return will you earn on these money multipli

> Determine the present value, discounted at 6 percent per year of $50,000 to be received five years from today if the interest rate is compounded: a. Semiannually b. Quarterly

> The Mutual Assurance and Life Company is offering an insurance policy under either of the following two terms: a. Make a series of twelve $1,200 payments at the beginning of each of the next 12 years (the first payment being made today). b. Make a sing

> The Lancer Leasing Company has agreed to lease a hydraulic trencher to the Chavez Excavation Company for $20,000 a year over the next eight years. Lease payments are to be made at the beginning of each year. Assuming that Lancer invests these payments at

> If you require a 9 percent return on your investments, which would you prefer? a. $5,000 today b. $15,000 five years from today c. $1,000 per year for 15 years

> How much will $1,000 deposited in a savings account earning a compound annual interest rate of 6 percent be worth at the end of the following number of years? a. 3 years b. 5 years c. 10 years

> Assume that you are 30 years old today and expect to retire when you reach age 65. If you were to retire today, you would like a fixed (pretax) income of $60,000 per year (in addition to Social Security) for a period of 15 years (your approximate life ex

> What is the relationship between the concepts of net present value and shareholder wealth maximization?

> Clovis Industries had sales in 2016 of $40 million, 20 percent of which were cash. If Clovis normally carries 45 days of credit sales in accounts receivable, what are its average accounts receivable balances? (Assume a 365-day year.)

> Describe the relationship between the coupon rate and the required rate of return that will result in a bond selling at a. A discount b. Par value c. A premium

> Evaluate the following statement: “The development of powerful, inexpensive microcomputers has made the hand calculator as obsolete as the slide rule.”

> Explain how to determine the present value of an uneven cash flow stream.

> Give an example of a perpetuity. How does a perpetuity differ from an annuity?

> A savings account advertises that “interest is compounded continuously and paid quarterly.” What does this mean?

> November 21, 1980, was the day of a tragic fire in the MGM Grand Hotel in Las Vegas. At the time of the fire, the hotel had only $30 million of liability insurance. One month after the fire, the hotel bought an extra $170 million of liability coverage fo

> Describe how to set up a loan amortization schedule.

> Explain how future value of an annuity interest factors can be used to solve a sinking fund problem.

> If the required rate of return increases, what is the impact on the following? a. A present value of an annuity b. A future value of an annuity

> What is the difference between an ordinary annuity and an annuity due? Give examples of each.

> Pacific Fixtures lists the following accounts as part of its balance sheet. Total assets………………………………………………………………$10,000,000 Accounts payable………………………...……………………………...$ 2,000,000 Notes payable (8%)…………….…………...……………………………...1,000,000 Bonds (10%)………………………

> What is the relationship between present value and future value?

> What is the primary difference between the book value and the market value of an asset?

> Murphy’s Brewhouse was a rapidly expanding chain of home-brew bars. The beer was not very good, but hopes were high when the company went public three years ago, because of founder/owner Kevin Murphy’s promotional skills. At the time the company went pub

> Disney Enterprises issued 7.55% senior debentures (bonds) on July 15, 1993, with a 100-year maturity (that is, due on July 15, 2093). Suppose an investor purchased one of these bonds on July 15, 2003 for $1,050. a. Determine the yield-to-maturity (neare

> Hexcel has a 7 percent coupon rate bond issue outstanding that matures in 2017. The Wall Street Journal reports a bond price of $582.50. These bonds are convertible into common stock. Why do you think a company would issue this type of bond?

> The bonds of Columbia Gas paid no interest in 1993 because the firm had declared bankruptcy. One issue of these bonds, the 8¼ percent coupon bonds due in 1996, was selling at 109 percent of par value, or for approximately $1,090. Why would someone pay $1

> Zip Boys has outstanding zero coupon bonds maturing in 2018. a. How would you compute the yield-to-maturity on bonds like these? b. How do bondholders get a return when they buy these bonds?

> How much would you have to pay for a U.S. government bond ($1,000 maturity value) scheduled to mature in November 2017 and quoted at 147:27 “asked”? The coupon rate on the bond is 9⅞ percent.

> Explain the Rule of 72. How can it be used in finance applications?

> The “asked” discount on a six-month Treasury bill was recently quoted as 3.02 percent. Approximately how much would you have to pay to buy one of these Treasury bills ($10,000 maturity value)?

> Vanity Press, Inc., has annual credit sales of $1.6 million and a gross profit margin of 35 percent. a. If the firm wishes to maintain an average collection period of 50 days, what level of accounts receivable should it carry? (Assume a 365-day year.)

> Define the following: a. The market value of an asset b. Market equilibrium

> Data from a poll of working women conducted in 2016 by Gallup led to the following estimates: Approximately 48% of working women are actively looking for a different job and 60% of working women rate greater work-life balance and well-being as a very imp

> Consider the population that consists of all people who purchased season tickets for home games of the New York Yankees. a. Give an example of a question about this population that could be answered by collecting data and using the data to estimate a po

> The article “Display of health risk behaviors on mySpace by adolescents” (Archives of Pediatrics and Adolescent Medicine [2009]: 27–34) describes a study of 500 publically accessible MySpace Web profiles posted by 18-yearolds. The content of each profile

> Are people willing to eat blemished produce? An article that described the result of a survey of 2025 adult Americans was titled “eight in ten americans Say appearance is at Least Somewhat important when Shopping for fresh Produce” (www .theharrispoll.co

> Should advertisers worry about people with digital video recorders (DVRs) fast-forwarding through their TV commercials? Recent studies by MillwardBrown and Innerscope Research indicate that when people are fast-forwarding through commercials they are act

> Can moving their hands help children learn math? This question was investigated by the authors of the paper “gesturing gives children new ideas about math” (Psychological Science [2009]: 267–272). A s

> Refer to the instructions prior to Exercise 7.25. “Spending on favorite Drinks” is the title of a graph that appeared as part of the USA Snapshot series in the newspaper USA TODAY (November 4, 2016). This graph summari

> In a study of whether taking a garlic supplement reduces the risk of getting a cold, 146 participants were assigned to either a garlic supplement group or to a group that did not take a garlic supplement (“garlic for the common cold,&ac

> An article in USA TODAY (October 19, 2010) described a study to investigate how young children learn. Sixty-four toddlers age 18 months participated in the study. The toddlers were allowed to play in a lab equipped with toys and which had a robot that wa

> Refer to the instructions prior to this exercise. The concept of a “phantom smoker” was introduced in the paper “i Smoke but i am not a Smoker: Phantom Smokers and the Discrepancy between Self-identit

> Researchers at the Medical College of Wisconsin studied 2121 children between the ages of 1 and 4 (Milwaukee Journal Sentinel, November 26, 2005). For each child in the study, a measure of iron deficiency and the length of time the child was bottle-fed w

> Common Sense Media surveyed 1000 teens and 1000 parents of teens to learn about how teens are using social networking sites such as Facebook and MySpace (“teens Show, tell too much online,” San Francisco Chronicle, aug