Question: Based on the following information, calculate the

> You are scheduled to receive $20,000 in two years. When you receive it, you will invest it for six more years at 8.4 percent per year. How much will you have in eight years?

> You have just made your first $4,000 contribution to your retirement account. Assuming you earn an 11 percent rate of return and make no additional contributions, what will your account be worth when you retire in 45 years? What if you wait 10 years befo

> Suppose you are still committed to owning a $170,000 Ferrari (see Problem 9). If you believe your mutual fund can achieve a 12 percent annual rate of return and you want to buy the car in 9 years on the day you turn 30, how much must you invest today?

> Your coin collection contains fifty 1952 silver dollars. If your grandparents purchased them for their face value when they were new, how much will your collection be worth when you retire in 2057, assuming they appreciate at a 4.5 percent annual rate?

> You have just received notification that you have won the $1 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you’re around to collect), 80 years from now. What is the present value of you

> In January 2007, the average house price in the United States was $314,600. In January 2000, the average price was $200,300. What was the annual increase in selling price?

> At 7 percent interest, how long does it take to double your money? To quadruple it?

> Assume the total cost of a college education will be $290,000 when your child enters college in 18 years. You presently have $55,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child’s college educat

> Solve for the unknown number of years in each of the following: Present Value Years Interest Rate Future Value $ 560 9% $ 1,284 810 10 4,341 18,400 17 364,518 21,500 15 173,439

> Corporate ownership varies around the world. Historically individuals have owned the majority of shares in public corporations in the United States. In Germany and Japan, however, banks, other large financial institutions, and other companies own most of

> Solve for the unknown interest rate in each of the following: Present Value Years Interest Rate Future Value $ 240 2 297 360 10 1,080 39,000 15 185,382 38,261 30 531,618

> You expect to receive $10,000 at graduation in two years. You plan on investing it at 11 percent until you have $75,000. How long will you wait from now?

> Referring to the TMCC security we discussed at the very beginning of the chapter: a. Based on the $24,099 price, what rate was TMCC paying to borrow money? b. Suppose that, on March 28, 2020, this security’s price is $38,260. If an investor had purchased

> Although appealing to more refined tastes, art as a collectible has not always performed so profitably. During 2003, Sotheby’s sold the Edgar Degas bronze sculpture Petite Danseuse de Quatorze Ans at auction for a price of $10,311,500. Unfortunately for

> In 2008, a gold Morgan dollar minted in 1895 sold for $43,125. For this to have been true, what rate of return did this coin return for the lucky numismatist?

> In 1895, the first U.S. Open Golf Championship was held. The winner’s prize money was $150. In 2007, the winner’s check was $1,260,000. What was the percentage increase per year in the winner’s check over this period? If the winner’s prize increases at t

> You’re trying to save to buy a new $170,000 Ferrari. You have $40,000 today that can be invested at your bank. The bank pays 5.3 percent annual interest on its accounts. How long will it be before you have enough to buy the car?

> What is compounding? What is discounting?

> The basic present value equation has four parts. What are they?

> Take a look back at Example 5.7. Is it deceptive advertising? Is it unethical to advertise a future value like this without a disclaimer? To answer the next five questions, refer to the TMCC security we discussed to open the chapter.

> Why might the revenue and cost figures shown on a standard income statement not be representative of the actual cash inflows and outflows that occurred during a period?

> What happens to a future value if you increase the rate r ? What happens to a present value?

> The most recent financial statements for Live Co. are shown here: Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 30 percent dividend payout ratio. No external equity financing is possible. What is

> The most recent financial statements for Summer Tyme, Inc., are shown here: Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 40 percent dividend payout ratio. As with

> The most recent financial statements for GPS, Inc., are shown here: Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1,400 was paid, and the company wishes to maintain a constant payout ratio. Next yearâ€&#

> The most recent financial statements for Zoso, Inc., are shown here (assuming no income taxes): Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year’s sales are projected to be $7,434.

> In the previous question, assume Phillips pays out half of net income in the form of a cash dividend. Costs and assets vary with sales, but debt and equity do not. Prepare the pro forma statements and determine the external financing needed. Income S

> Consider the following simplified financial statements for the Phillips Corporation (assuming no income taxes): Phillips has predicted a sales increase of 15 percent. It has predicted that every item on the balance sheet will increase by 15 percent as

> In the chapter, we discussed the two versions of the sustainable growth rate formula. Derive the formula ROE × b from the formula given in the chapter, where ROE is based on beginning of period equity. Also, derive the formula ROA × b from the internal g

> Based on the result in Problem 31, show that the internal and sustainable growth rates are as given in the chapter.

> Define the following: S=Previous year’s sales A=Total assets D=Total debt E=Total equity g=Projected growth in sales PM=Profit margin b=Retention (plowback) ratio Show that EFN can be written as follows: EFN=−PM(S)b + (A − PM(S)b)×g

> Would our goal of maximizing the value of the stock be different if we were thinking about financial management in a foreign country? Why or why not?

> Nearside, Inc., wishes to maintain a growth rate of 12 percent per year and a debt–equity ratio of .30. Profit margin is 6.70 percent, and the ratio of total assets to sales is constant at 1.35. Is this growth rate possible? To answer, determine what the

> Redo Problem 27 using sales growth rates of 30 and 35 percent in addition to 20 percent. Illustrate graphically the relationship between EFN and the growth rate, and use this graph to determine the relationship between them. At what growth rate is the EF

> Redo Problem 25 using sales growth rates of 15 and 25 percent in addition to 20 percent. Illustrate graphically the relationship between EFN and the growth rate, and use this graph to determine the relationship between them. At what growth rate is the EF

> In Problem 25, suppose the firm wishes to keep its debt– equity ratio constant. What is EFN now? MOOSE TOURS, INC. 2008 Income Statement Sales $929,000 Costs 723,000 Other expenses 19,000 Earnings before interest and taxes $187,000

> In the previous problem, suppose the firm was operating at only 80 percent capacity in 2008. What is EFN now? MOOSE TOURS, INC. 2008 Income Statement Sales $929,000 Costs 723,000 Other expenses 19,000 Earnings before interest and taxes $187,000 Inter

> The most recent financial statements for Moose Tours, Inc., follow. Sales for 2009 are projected to grow by 20 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, cur

> Calculate the internal growth rate for the company in the previous problem. Now calculate the internal growth rate using ROA × b for both beginning of period and end of period total assets. What do you observe? Data from previous problem: Coheed, Inc.,

> Coheed, Inc., had equity of $135,000 at the beginning of the year. At the end of the year, the company had total assets of $250,000. During the year the company sold no new equity. Net income for the year was $19,000 and dividends were $2,500. What is th

> You’ve collected the following information about St. Pierre, Inc.: Sales=$195,000 Net income=$17,500 Dividends=$9,300 Total debt=$86,000 Total equity=$58,000 What is the sustainable growth rate for St. Pierre, Inc.? If it does grow at this rate, how much

> Based on the following information, calculate the sustainable growth rate for Hendrix Guitars, Inc.: Profit margin=4.8% Total asset turnover=1.25 Total debt ratio=.65 Payout ratio=30%

> Can our goal of maximizing the value of the stock conflict with other goals, such as avoiding unethical or illegal behavior? In particular, do you think subjects like customer and employee safety, the environment, and the general good of society fi t in

> A firm wishes to maintain an internal growth rate of 7 percent and a dividend payout ratio of 25 percent. The current profit margin is 5 percent, and the firm uses no external financing sources. What must total asset turnover be?

> A firm wishes to maintain a growth rate of 11.5 percent and a dividend payout ratio of 30 percent. The ratio of total assets to sales is constant at .60, and profit margin is 6.2 percent. If the firm also wishes to maintain a constant debt–equity ratio,

> McCormac Co. wishes to maintain a growth rate of 12 percent a year, a debt–equity ratio of 1.20, and a dividend payout ratio of 30 percent. The ratio of total assets to sales is constant at .75. What profit margin must the firm achieve?

> For the company in the previous problem, suppose fixed assets are $440,000 and sales are projected to grow to $630,000. How much in new fixed assets are required to support this growth in sales? Assume the company maintains its current operating capacity

> Seaweed Mfg., Inc., is currently operating at only 95 percent of fixed asset capacity. Current sales are $550,000. How fast can sales grow before any new fixed assets are needed?

> Assuming the following ratios are constant, what is the sustainable growth rate? Total asset turnover=2.50 Profit margin=7.8% Equity multiplier=1.80 Payout ratio=60%

> If the Garnett Corp. has a 15 percent ROE and a 25 percent payout ratio, what is its sustainable growth rate?

> If the Baseball Shoppe has an 8 percent ROA and a 20 percent payout ratio, what is its internal growth rate?

> From the previous two questions, prepare a pro forma balance sheet showing EFN, assuming a 15 percent increase in sales, no new external debt or equity financing, and a constant payout ratio. Data from previous two questions HEIR JORDAN CORPORATION I

> A firm’s enterprise value is equal to the market value of its debt and equity, less the firm’s holdings of cash and cash equivalents. This figure is particularly relevant to potential purchasers of the firm. Why?

> What are the four primary disadvantages of the sole proprietorship and partnership forms of business organization? What benefits are there to these types of business organization as opposed to the corporate form?

> The Eastern Shuttle, Inc., is a regional airline providing shuttle service between New York and Washington, D.C. An analysis of the monthly demand for service has revealed the following demand relation: Q = 26,000 - 500P - 250POG + 200IB - 5,000S, where

> The following relations describe monthly demand and supply relations for dry cleaning services in the metropolitan area: QD = 500,000 - 50,000P (Demand) QS = -100,000 + 100,000P (Supply) where Q is quantity measured by the number of items dry cleaned per

> Olympia Natural Resources, Inc., and Yakima Lumber, Ltd., supply cut logs (raw lumber) to lumber and paper mills located in the Cascades Mountain region in the state of Washington. Each company has a different marginal cost of production depending on its

> The demand for housing is often described as being highly cyclical and very sensitive to housing prices and interest rates. Given these characteristics, describe the effect of each of the following in terms of whether it would increase or decrease the qu

> The use of regression analysis for demand estimation can be further illustrated by expanding the Electronic Data Processing (EDP), Inc., example described in the chapter. Assume that the link between units sold and personal selling expenditures described

> To ensure a big fan turnout for a traditional rival, suppose the Arizona State Sun Devils offer one-half off the $16 regular price of reserved seats for a women’s basketball game, and sales jumped from 1,750 to 2,750 tickets. a. Calculate ticket revenues

> Explain how shifting demand and supply curves make market demand estimation difficult.

> “When I go to the grocery store, I find cents-off coupons totally annoying. Why can’t they just cut the price and do away with the clutter?” Discuss this statement and explain why coupon promotions are an effective means of promotion for grocery retailer

> Describe some of the limitations of market experiments.

> Managers often study the profit margin-sales relation over the life cycle of individual products, rather than the more direct profit-sales relation. In addition to the economic reasons for doing so, are there statistical advantages as well?

> In a regression-based estimate of a demand function, the beta coefficient for advertising equals 3.75 with a standard deviation of 1.25 units. What is the range within which there can be 99 percent confidence that the actual parameter for advertising can

> A review of industry wide data for the jelly and jam manufacturing industry suggests the following industry supply function: Q = -59,000,000 + 500,000P - 125,000PL - 500,000PK + 2,000,000W, where Q is cases supplied per year, P is the wholesale price per

> A simple regression TR = a + bQ is not able to explain 19 percent of the variation in total revenue. What is the coefficient of correlation between TR and Q?

> If a regression model estimate of total profit is $50,000 with a standard error of the estimate of $25,000, what is the chance of an actual loss?

> How do linear and log-linear models differ in terms of their assumptions about the nature of demand elasticities?

> “Demand for higher education is highest among the wealthy. This has led to an upward sloping demand curve for college education. The higher the tuition charged, the greater is demand.” Discuss this statement.

> “Rapid innovation in the development, assembly, and delivery of personal computers has led to a sharply downward sloping market demand curve for Dell, Inc.” Discuss this statement.

> Xerox Corporation develops, manufactures, and services document equipment and software solutions worldwide. Assume the company offered $75 off the $1,475 regular price on the Phaser 6360, a durable high-speed colon copier, and Internet sales jumped from

> On weekends during summer months, Eric Cart man rents jet skis at the beach on an hourly basis. Last week, Cart man rented jet skis for 20 hours per day at a rate of $50 per hour. This week, rentals fell to 15 hours per day when Cart man raised the price

> The Creative Publishing Company (CPC) is a coupon book publisher with markets in several southeastern states. CPC coupon books are sold directly to the public, sold through religious and other charitable organizations, or given away as promotional items.

> Identify each of the following statements as true or false and explain why. a. The effect of a $1 change in price is constant, but the elasticity of demand will vary along a linear demand curve b. In practice, price and quantity tend to be individually r

> Kenny McCormick manages a 100-unit apartment building and knows from experience that all units will be occupied if rent is $900 per month. McCormick also knows that, on average, one additional unit will go unoccupied for each $10 increase in the monthly

> Identify each of the following statements as true or false and explain why: a. A parameter is a population characteristic that is estimated by a coefficient derived from a sample of data. b. A one-tail t test is used to indicate whether the independent v

> Business is booming for Consulting Services, Inc. (CSI), a local supplier of computer set-up consulting services. The company can profitably employ technicians as quickly as they can be trained. The average hourly rate billed by CSI for trained technicia

> The Best Buy Company, Inc., is a leading specialty retailer of consumer electronics, personal computers, entertainment software and appliances. The Company operates retail stores and commercial Web sites, the best known of which is bestbuy.com. Recently,

> Demand estimation for brand-name consumer products is made difficult by the fact that managers must rely on proprietary data. There simply is not any publicly available data which can be used to estimate demand elasticities for brand-name orange juice, f

> Alex P. Keaton is an ardent baseball fan. The following table shows the relation between the number of games he attends per month during the season and the total utility he derives from baseball game consumption: a. Construct a table showing Keaton's m

> Prospective car buyers are sometimes confronted by sales representatives who argue that they can offer a vehicle that is “just as good as a BMW, but at one-half the price.” Use the indifference concept to explain why the claims of the sales representativ

> Is an increase in total utility or satisfaction following an increase in income consistent with the law of diminishing marginal utility?

> "The utility derived from consumption is intangible and unobservable. Therefore, the utility concept has no practical value.” Discuss this statement.

> Cornell Pharmaceutical, Inc., and Penn Medical, Ltd., supply generic drugs to treat a wide variety of illnesses. A major product for each company is a generic equivalent of an antibiotic used to treat postoperative infections. Proprietary cost and output

> In the United States, high-wage workers shun public transit and drive cars to work. These same high-income individuals often support massive subsidies for public transit. Use the concept of revealed preference to explain the public demand for transportat

> Individual consumer demand declines for inferior goods as personal income increases because consumers replace them with more desirable alternatives. Is an inverse relation between demand and national income likely for such products?

> An estimated 80% increase in the retail price of cigarettes is necessary to cause a 30% drop in the number of cigarettes sold. Would such a price increase help or hurt tobacco industry profits? What would be the likely effect on industry profits if this

> How is a price-consumption curve related to a demand curve?

> What would an upward-sloping demand curve imply about the marginal utility derived from consumption? Why aren't upward sloping demand curves observed in the real world?

> During the past 40 years the average price of a new single-family home has risen by a factor of ten, making the cost of housing prohibitive for many Americans. Over the same time frame, however, the number of units sold per year has more than doubled. Ar

> Following a price change for Diet Coke, explain how retailers use sales information to learn if Doritos snack chips represent a complement or substitute for Diet Coke.

> Cross-Price Elasticity. B. B. Lean is a catalog retailer of a wide variety of sporting goods and recreational products. Although the market response to the company's spring catalog was generally good, sales of B. B. Lean's $140 deluxe garment bag decline

> Budget Constraints. Holding all else equal, indicate how each of the following changes would affect a budget constraint that limits consumption of goods (Y) and services (X). Explain your answer. a. Deflation that uniformly drops the price of all goods a

> Enchantment Cosmetics, Inc., offers a line of cosmetic and perfume products marketed through leading department stores. Product Manager Erica Kane recently raised the suggested retail price on a popular line of mascara products from $9 to $12 foll

> Demand and supply conditions in the market for unskilled labor are important concerns to business and government decision makers. Consider the case of a federally mandated minimum wage set above the equilibrium, or market clearing, wage level. Some of th

> Elasticity. The demand for personal computers can be characterized by the following point elasticities: price elasticity = -5, cross-price elasticity with software = -4, and income elasticity = 2.5. Indicate whether each of the following statements is tr

> In an effort to reduce excess end-of-the-model-year inventory, Harrison Ford offered a 1% discount off the average price of 4WD Escape Gas-Electric Hybrid SUVs sold during the month of August. Customer response was wildly enthusiastic, with unit sales ri

> Determine whether each of the following statements is true or false. Explain why. a. According to the theory of consumer behavior, more is always better. b. Consumers must understand how much one product is preferred over another in order to rank-order c

> Indicate whether each of the following statements is true or false. Explain why. a. The law of diminishing marginal utility states that as an individual increases consumption of a given product within a set period of time, the utility gained from consump