Question: Carlyle Chemicals is evaluating a new chemical

> You’ve just bought a new flat-screen TV for $3,000, and the store you bought it from offers to let you finance the entire purchase at an annual rate of 14 percent compounded monthly. If you take the financing and make monthly payments of $100, how long w

> You plan to buy some property in Florida five years from today. To do this, you estimate that you will need $20,000 at that time. You would like to accumulate these funds by making equal annual deposits in your savings account, which pays 12 percent annu

> What is the present value of the following annuities? a. $2,500 a year for 10 years discounted back to the present at 7 percent b. $70 a year for 3 years discounted back to the present at 3 percent c. $280 a year for 7 years discounted back to the presen

> You’ve been offered a loan of $30,000, which you will have to repay in five equal annual payments of $10,000, with the first payment to be received one year from now. What interest rate will you be paying if you take that loan?

> On December 31, Beth Klemkosky bought a yacht for $50,000. She paid $10,000 down and agreed to pay the balance in 10 equal annual installments that include both principal and 10 percent interest on the declining balance. How big will the annual payments

> The Minot Kit Aircraft Company of Minot, North Dakota, uses a plasma cutter to fabricate metal aircraft parts for its plane kits. The company currently is using a used cutter it purchased four years ago. The cutter has a remaining $80,000 book value that

> Your folks would like some advice from you. An insurance agent just called and offered them the opportunity to purchase an annuity for $21,074.25 that will pay them $3,000 per year for 20 years. They don’t have the slightest idea what return they would b

> What is the present value of a 10-year annuity that pays $1,000 annually, given a 10 percent discount rate?

> Alex Karev has taken out a $200,000 loan with an annual rate of 8 percent compounded monthly to pay off hospital bills from his wife Izzy’s illness. If the most Alex can afford to pay is $1,500 per month, how long will it take for him to pay off the loan

> How long will it take to pay off a loan of $50,000 at an annual rate of 10 percent compounded monthly if you make monthly payments of $600?

> The Knutson Corporation needs to save $15 million to retire a $15 million mortgage that matures in 10 years. To retire this mortgage, the company plans to put a fixed amount into an account at the end of each year for 10 years. The Knutson Corporation ex

> Suppose that you are in the fall of your senior year and are faced with the choice of either getting a job when you graduate or going to law school. Of course, your choice is not purely financial. However, to make an informed decision you would like to k

> What is the future value of each of the following streams of payments? a. $500 a year for 10 years compounded annually at 5 percent b. $100 a year for 5 years compounded annually at 10 percent c. $35 a year for 7 years compounded annually at 7 percent d.

> Having just inherited a large sum of money, you are trying to determine how much you should save for retirement and how much you can spend now. For retirement, you will deposit today (January 1, 2016) a lump sum in a bank account paying 10 percent compou

> Milhouse, 22, is about to begin his career as a rocket scientist for a NASA contractor. Being a rocket scientist, Milhouse knows that he should begin saving for retirement immediately. Part of his inspiration came from reading an article on Social Securi

> Baryla Inc. manufactures high-quality decorator lamps in a plant located in eastern Tennessee. Last year the firm had sales of $100 million and a gross profit margin of 40 percent. a. How much inventory can Baryla hold and maintain an inventory turnover

> Madrano’s Wholesale Fruit Company, located in McAllen, Texas, is considering the purchase of a new fleet of trucks to be used in the delivery of fruits and vegetables grown in the Rio Grande Valley of Texas. If the company goes through with the purchase,

> In 2016, the Allen Corporation had sales of $65 million, total assets of $42 million, and total liabilities of $20 million. The interest rate on the company’s debt is 6 percent, and its tax rate is 35 percent. The operating profit margin is 12 percent.

> The Karson Transport Company currently has net operating income of $500,000 and pays interest expense of $200,000. The company plans to borrow $1 million on which the firm will pay 10 percent interest. The borrowed money will be used to finance an invest

> The liabilities and stockholders’ equity for Campbell Industries are as follows: a. What fraction of the firm’s assets does the firm finance using debt (liabilities)? b. If Campbell were to purchase a new warehouse f

> The King Carpet Company has $3,000,000 in cash and a total of $12,000,000 in current assets. The firm’s current liabilities equal $6,000,000, so the firm’s current ratio equals 2. The company’s managers want to reduce the firm’s cash holdings down to $1,

> Apex Fabricating, Inc., manufactures fenders and other after-market body panels for older automobiles. At the close of last year, the firm had $10,381,800 in current assets and $4,152,720 in current liabilities. The company’s managers want to increase it

> The S&H Construction Company expects its sales next year to total $15,000,000. In addition, the firm pays taxes at 35 percent and will owe $300,000 in interest expense. Based on last year’s operations, the firm’s management predicts that its cost of go

> Use the common-size financial statements prepared for Study Problem 4–1 to respond to your boss’s request that you write up your assessment of the firm’s financial condition. Specifically, write up a brief narrative that responds to the following: a. How

> Last year the Rondoelea Products Company had $140 million in annual sales and a net profit margin of 10 percent. In addition, Rondoelea’s average tax rate was 30 percent. If Rondoelea had $40 million of debt outstanding with an average interest rate of 1

> Bryley, Inc., had a net profit margin of 5 percent last year and an equity multiplier of 3.0. If its total assets are $100 million and its sales are $150 million, what is the firm’s return on equity?

> Dearborn Supplies has total sales of $200 million, assets of $100 million, a return on equity of 30 percent, and a net profit margin of 7.5 percent. What is the firm’s debt ratio?

> Bangers, Inc., is a start-up manufacturer of Australian-style frozen veggie pies located in San Antonio, Texas. The company is five years old and recently installed the manufacturing capacity to quadruple its unit sales. To jump start the demand for its

> Triangular Chemicals has total assets of $100 million, a return on equity of 40 percent, a net profit margin of 5 percent, and an equity multiplier of 2.5. How much are the firm’s sales?

> Garwryk, Inc., which is financed with debt and equity, presently has a debt ratio of 80 percent. What is the firm’s equity multiplier? If the firm increased its use of debt financing, would this increase or decrease its equity multiplier? Explain.

> In early 2016, typical terms on a payday loan involved a $15 charge for a two-week payday loan of $100. Assuming there are 26 fourteen-day periods in a year, what is the effective annual rate on such a loan?

> Payday loans issued by banks are often referred to as direct deposit advances. In 2016, the average charge was $10 for a $100 direct deposit advance, and it was due in 10 days. What is the effective annual rate on this type of loan?

> Based on effective interest rates, would you prefer to deposit your money in Springfield National Bank, which pays 8.0 percent interest compounded annually or in Burns National Bank, which pays 7.8 percent interest compounded monthly?

> Your grandmother asks for your help in choosing a certificate of deposit (CD) from a bank with a one year maturity and a fixed interest rate. The first certificate of deposit, CD #1, pays 4.95 percent APR compounded daily, and the second certificate of d

> You have a choice of borrowing money from a finance company at 24 percent compounded monthly or from a bank at 26 percent compounded annually. Which alternative is the more attractive?

> The National Semiconductor Corporation (NSM) develops and manufactures semiconductors for electronic systems. The firm’s products are used in a variety of applications, including LED lighting, high-speed communications, renewable energy

> In 20 years, you would like to have $250,000 to buy a vacation home. If you have only $30,000, at what rate must it be compounded annually for it to grow to $250,000 in 20 years? Use a spreadsheet to calculate your answer.

> If you invest $900 in a bank where it will earn 8 percent compounded annually, how much will it be worth at the end of seven years? Use a spreadsheet to calculate your answer.

> After you reported your findings to Carlyle Chemicals’ management (see Study Problem 12–28), the CFO suggested that the company could purchase raw materials in advance for future delivery. This would involve paying for the raw materials today and taking

> A financial planner just offered you a new investment product that would require an initial investment on your part of $35,000 and that would be worth $250,000 in 25 years. What annual rate of interest would you earn if you invested in this product?

> In March 1963, Ironman was introduced in issue 39 of the comic book Tales of Suspense. The original price for that issue was 12 cents. By March 2016, 53 years later, the value of this comic book, given the condition it’s in, had risen to $10,000. What an

> The last two years of financial statements for Pamplin, Inc., are as follows: a. Compute the following ratios for both 2015 and 2016. b. Compare Pamplin’s financial ratios to the industry norms listed above, and assess each of the

> Much to your surprise, you were selected to appear on the TV show The Price Is Right. As a result of your prowess in identifying how many rolls of toilet paper a typical American family keeps on hand, you win the opportunity to choose one of the followin

> You are offered $100,000 today or $300,000 in 13 years. Assuming that you can earn 11 percent on your money, which should you choose?

> You’ve run out of money for college, and your college roommate has an idea for you. He offers to lend you $15,000, for which you will repay him $37,313 at the end of five years. If you took this loan, what interest rate would you be paying on it?

> Carson Electronics’ management has long viewed BGT Electronics as an industry leader and uses this firm as a model firm for analyzing its own performance. The balance sheets and income statements for the two firms are as follows: a.

> Approximately how many years would it take for an investment to grow by sevenfold if it was invested at 10 percent compounded semiannually?

> Approximately how many years would it take for an investment to grow fourfold if it was invested at 16 percent compounded semiannually?

> An insurance agent just offered you a new insurance product that will provide you with $2,376.50 in 10 years from now if you invest $700 today. What annual rate of interest would you earn if you invested in this product?

> If you were offered $1,079.50 in 10 years from now in return for an investment of $500 currently, what annual rate of interest would you earn if you took the offer?

> Springfield Learning sold zero-coupon bonds (bonds that don’t pay any interest—instead, the bondholder gets just one payment, coming when the bond matures, from the issuer) and received $900 for each bond that will pay $20,000 when it matures in 30 years

> Seven years ago Lance Murdock purchased a wooden statue of a Conquistador for $7,600 to put in his home office. Lance recently married, and his home office was converted to a sewing room. His new wife, who has far better taste than Lance, thought the Con

> Last year Triangular Resources earned $5 million in net operating income and had an operating profit margin of 20 percent. If the firm’s total asset turnover ratio was 1.5, what was the firm’s investment in total assets?

> The most recent balance sheet of Raconteurs, Inc., is as follows: a. Calculate Raconteurs’ current ratio and acid-test (quick) ratio. b. Benchmark ratios for the current and acid-test (quick) ratios are 1.50 and 1.20, respectively. W

> You are considering investing in a security that will pay you $1,000 in 30 years. a. If the appropriate discount rate is 10 percent, what is the present value of this investment? b. Assume these securities sell for $365, in return for which you receive $

> The Mitchell Electric Company had net income of $750,000, cash flow from financing activities of $150,000, a depreciation expense of $50,000, and cash flow from operating activities of $575,000. a. Calculate the firm’s quality of earnin

> The cash flow statements for retailing giant BigBox, Inc., spanning the period 2013–2016 are as follows: Answer the following questions using the information found in these statements: a. Does BigBox generate positive cash flow from

> Google, Inc. (GOOG), is one of the most successful internet firms, and it experienced very rapid growth in revenues from 2011 through 2014. The cash flow statements for Google, Inc., spanning the period are as follows: Answer the following questions u

> Prepare a balance sheet and income statement for TNT, Inc., from the following scrambled list of items: a. Prepare an income statement for TNT. b. Prepare a balance sheet for TNT. c. What can you say about the firm’s financial conditi

> On July 25, 2011, the average price of a gallon of gasoline was $3.70. Just five years later the price of that same gallon of gas was $2.14. What was the rate of inflation (deflation) in the price of a gallon of gas over the period?

> Following is a scrambled list of accounts from the income statement and balance sheet of Belmond, Inc.: a. What is the firm’s net working capital? b. Complete an income statement and a balance sheet for Belmond. c. If you were asked t

> If you deposit $10,000 today into an account earning an 11 percent annual rate of return, in the third year how much interest will you earn? How much of the total is simple interest, and how much results from compounding of interest?

> If you deposit $3,500 today into an account earning an 11 percent annual rate of return, what will your account be worth in 35 years (assuming no further deposits)? In 40 years?

> You have just introduced “must-have” headphones for the iPod. Sales of the new product are expected to be 10,000 units this year and to increase by 15 percent per year in the future. What are expected sales during each of the next three years? Graph this

> A new finance book sold 15,000 copies following the first year of its release, and its sales were expected to increase by 20 percent per year. What sales are expected during Years 2, 3, and 4? Graph this sales trend and explain.

> Your grandmother just gave you $6,000. You’d like to see how much it might grow if you invest it. a. Calculate the future value of $6,000, given that it will be invested for five years at an annual interest rate of 6 percent. b. Recalculate part a using

> You just received a $5,000 bonus. a. Calculate the future value of $5,000, given that it will be held in the bank for five years and earn an annual interest rate of 6 percent. b. Recalculate part a using a compounding period that is (1) semiannual and (2

> Calculate the amount of money that will be in each of the following accounts at the end of the given deposit period: Annual Compounding Periods per Year (m) Amount Compounding Periods (years) Account Holder Deposited Interest Rate Theodore Logan III

> Hollywood sound company Merry Sountracks, Inc., is a successful sound and editing firm. Last year the firm earned $4 million in taxable income (earnings before taxes). Use the corporate tax rates found in the chapter to calculate the firm’s tax liability

> You are hoping to buy a house in the future and recently received an inheritance of $20,000. You intend to use your inheritance as a down payment on your house. a. If you put your inheritance in an account that earns a 7 percent interest rate compounded

> If the price of a gallon of regular gasoline is $2.49 and the anticipated rate of inflation in energy prices is such that this cost of gasoline is expected to rise by 5 percent per year, what is the expected price per gallon in 10 years?

> Microwave Oven Programming, Inc., is considering the construction of a new plant. The plant will have an initial cash outlay of $7 million (CF0 = -$7 million) and will produce cash flows of $3 million at the end of Year 1, $4 million at the end of Year 2

> Leslie Mosallam, who recently sold her Porsche, placed $10,000 in a savings account paying annual compound interest of 6 percent. a. Calculate the amount of money that will accumulate if Leslie leaves the money in the bank for 1, 5, and 15 years. b. Supp

> GMT Transport Company ended the year with record sales of $18 million. The firm’s cost of goods sold totaled $10.8 million while its operating expenses (including depreciation) totaled $4 million. GMT paid $1.5 million in interest expense and had an inco

> Who really owns a corporation, and how does that impact the goal of the firm?

> List the three main forms of business organization, and describe their advantages and disadvantages. If you were to consider starting up a lawn-care business for the summer, what type of business organization might you use?

> In very basic terms, describe how profits and cash flow are different.

> According to Principle 2, how should investors decide where to invest their money?

> Explain the three types of business decisions that a financial manager faces.

> In Regardless of Your Major: Defined Benefit vs. Defined Contribution Retirement Plans on page 20, two types of pension plans are discussed. Describe each. Which type is now the dominant type in use?

> What are the limitations of the use of forward contracts to construct a hedge against price risk? How does a futures exchange control for these limitations?

> Describe how forward contracts can be used to hedge the risk of fluctuating commodity prices for firms that must purchase these commodities in the future.

> Mark McNibble is CFO for McNabb Fabrications, Inc. Mark is considering a new project that involves the introduction of a new product. McNabb is in the 34 percent marginal tax bracket has a 15 percent required rate of return or discount rate for new inves

> What is a forward contract, and how does it typically differ from an exchange traded futures contract?

> Finance for Life: Do You Need Life Insurance? on page 638 discussed factors involved in the decision to purchase life insurance. What are some commonsense guidelines that can be used to answer the question of whether you need life insurance?

> Firms regularly use insurance as a means of managing their risk exposure. What are some of the types of risks that are typically transferred to insurance companies through the use of insurance contracts?

> What was the risk management policy followed by the Chesapeake Energy Corporation (CHK) with respect to the price of the oil and gas it needed for its future production prior to 2011?

> A firm’s cash flows are risky for a number of reasons. Identify and discuss five sources of risk or volatility in firm cash flows.

> Define the term risk management.

> Chemical plants rely on crude oil as the base material for the manufacture of a whole host of products. How might such a firm hedge the risk of a price increase in the cost of crude oil spanning the next 12 months of its operations?

> What is a swap contract? How are swap contracts used to hedge interest rate risk?

> Define a call option, and contrast it with a put option.

> In Regardless of Your Major: Welcome to a Risky World on page 634, the need to engage in risk management was linked to the day-to-day activities of firm employees from multiple functional areas, including operations, marketing, and accounting. What are t

> The Shome Corporation is considering a new project that involves the introduction of a new product. The firm in in the 34 percent marginal tax bracket and has a 15 percent required rate of return or discount rate for new investments. This project is expe

> The forward rate for the Indian currency, the rupee, is not quoted in the New York exchange market. If you were exposed to exchange risk in rupees, how could you cover your position?

> What steps can a firm take to reduce foreign exchange rate risk? Indicate at least two different techniques.

> Define exchange rate risk and political risk.

> What are the markets and mechanics involved in engaging in simple arbitrage?

> Referring back to Finance for Life: International Investing on page 620, why is the diversification that international investing provides to individual investors of value?

> Referring back to Regardless of Your Major: Working in a Flat World on page 608, why do businesses operate internationally, and what different types of businesses tend to operate in the international environment? Why are the techniques and strategies ava