Question: If you borrow $9,725 and are

> The Norman Automatic Mailer Machine Company is planning to expand production because of the increased volume of mailouts. The increased mailout capacity will cost $2,000,000. The expansion can be financed either by bonds at an interest rate of 12 percent

> Sinclair Manufacturing and Boswell Brothers Inc. are both involved in the production of brick for the homebuilding industry. Their financial information is as follows: a. If you combine Sinclair's capital structure with Boswell's operating plan, what is

> Firms in Japan often employ both high operating and financial leverage because of the use of modern technology and close borrower-lender relationships. Assume the Mitaka Company has a sales volume of 125,000 units at a price of $25 per unit; variable cos

> Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $120,000. The separate capital structures for Sterling and Royal are shown below: a. Compute earnings per share for both firms.

> Compute the stock price for Cain if it sells at 18 times earnings per share and EBIT is $40,000.

> Cain Auto Supplies and Able Auto Parts are competitors in the aftermarket for auto supplies. The separate capital structures for Cain and Able are presented below. a. Compute earnings per share if earnings before interest and taxes are $10,000, $15,000,

> U.S. Steal has the following income statement data: a. Compute DOL based on the formula below (see page 128 for an example): b. Confirm that your answer to part a is correct by recomputing DOL using formula 5–3 on page 129. There may

> International Data Systems information on revenue and costs is only relevant up to a sales volume of 100,000 units. After 100,000 units, the market becomes saturated and the price per unit falls from $4.00 to $3.80. Also, there are cost overruns at a pro

> United Snack Company sells 50-pound bags of peanuts to university dormitories for $10 a bag. The fixed costs of this operation are $80,000, while the variable costs of peanuts are $.10 per pound. a. What is the break-even point in bags? b. Calculate the

> Mo & Chris's Delicious Burgers, Inc., sells food to Military Cafeterias for $15 a box. The fixed costs of this operation are $80,000, while the variable cost per box is $10. a. What is the break-even point in boxes? b. Calculate the profit or loss on 15,

> Bronco Truck Parts expects to sell the following number of units at the prices indicated under three different scenarios in the economy. The probability of each outcome is indicated. What is the expected value of the total sales projection? Probabili

> The Harding Company manufactures skates. The company's income statement for 2010 is as follows: Given this income statement, compute the following: a. Degree of operating leverage. b. Degree of financial leverage. c. Degree of combined leverage. d. Brea

> The Sterling Tire Company's income statement for 2010 is as follows: Given this income statement, compute the following: a. Degree of operating leverage. b. Degree of financial leverage. c. Degree of combined leverage. d. Break-even point in units.

> Boise Timber co. computes its break-even point strictly on the basis of cash expenditures related to fixed costs. Its total fixed costs are $6,000,000, but 25 percent of this value is represented by depreciation. Its contribution margin (price minus vari

> Air Purifier, Inc., computes its break-even point strictly on the basis of cash expenditures related to fixed costs. Its total fixed costs are $2,400,000, but 15 percent of this value is represented by depreciation. Its contribution margin (price minus v

> Calloway Cab Company determines its break-even strictly on the basis of cash expenditures related to fixed costs. Its total fixed costs are $400,000, but 20 percent of this value is represented by depreciation. Its contribution margin (price minus variab

> Jay Linoleum Company has fixed costs of $70,000. Its product currently sells for $4 per unit and has variable costs per unit of $2.60. Mr. Thomas, the head of manufacturing, proposes to buy new equipment that will cost $300,000 and drive up fixed costs t

> Eaton Tool Company has fixed costs of $200,000, sells its units for $56, and has variable costs of $31 per unit. a. Compute the break-even point. b. Ms. Eaton comes up with a new plan to cut fixed costs to $150,000. However, more labor will now be requi

> Draw two break-even graphs—one for a conservative firm using labor-intensive production and another for a capital-intensive firm. Assuming these companies compete within the same industry and have identical sales, explain the impact of changes in sales v

> Therapeutic Systems sells its products for $8 per unit. It has the following costs: Separate the expenses between fixed and variable costs per unit. Using this information and the sales price per unit of $8 compute the break-even point. $120,000 $1.

> The Hartnett Corporation manufactures baseball bats with Pudge Rodriguez's autograph stamped on them. Each bat sells for $13 and has a variable cost of $8. There are $20,000 in fixed costs involved in the production process. a. Compute the break-even p

> The Alliance Corp. expects to sell the following number of units of copper cables at the prices indicated, under three different scenarios in the economy. The probability of each outcome is indicated. What is the expected value of the total sales project

> Shock Electronics sells portable heaters for $25 per unit, and the variable cost to produce them is $17. Mr. Amps estimates that the fixed costs are $96,000. a. Compute the break-even point in units. b. Fill in the table below (in dollars) to illustr

> Explain how the collections and purchases schedules are related to the borrowing needs of the corporation.

> What conditions would help make a percent-of-sales forecast almost as accurate as pro forma financial statements and cash budgets?

> Explain the relationship between inventory turnover and purchasing needs.

> Rapid corporate growth in sales and profits can cause financing problems. Elaborate on this statement.

> With inflation, what are the implications of using LIFO and FIFO inventory methods? How do they affect the cost of goods sold?

> What are the basic benefits and purposes of developing pro forma statements and a cash budget?

> Discuss the advantage and disadvantage of level production schedules in firms with cyclical sales.

> In Problem 1 if there had been no increase in sales and all other facts were the same, what would Philip’s ending cash balance be? What lesson do the examples in Problems 1 and 2 illustrate?

> Philip Morris is excited because sales for his clothing company are expected to double from $500,000 to $1,000,000 next year. Philip notes that net assets (Assets Liabilities) will remain at 50 percent of Sales. His clothing firm will enjoy a 9 percent r

> Galehouse Gas Stations Inc., expects sales to increase from $1,500,000 to $1,700,000 next year. Mr. Galehouse believes that net assets (Assets Liabilities) will represent 70% of sales. His firm has a 10 percent return on sales and pays 40% of profits out

> Conn Man's Shops, Inc., a national clothing chain, had sales of $300 million last year. The business has a steady net profit margin of 8 percent and a dividend payout ratio of 25 percent. The balance sheet for the end of last year is shown below. The fi

> The Manning Company has financial statements as shown below, which are representative of the company's historical average. The firm is expecting a 20 percent increase in sales next year, and management is concerned about the company's need for external f

> Owen's Electronics has 9 operating plants in seven southwestern states. Sales for last year were $100 million, and the balance sheet at year-end is similar in percentage of sales to that of previous years (and this will continue in the future). All asset

> Archer Electronics Company's actual sales and purchases for April and May are shown here along with forecasted sales and purchases for June through September. The company makes 10 percent of its sales for cash and 90 percent on credit. Of the credit sal

> Harry's Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January thr

> Lansing Auto Parts, Inc., has projected sales of $25,000 in October, $35,000 in November, and $30,000 in December. Of the company's sales, 20 percent are paid for by cash and 80 percent are sold on credit. The credit sales are collected one month after s

> What is a deferred annuity?

> If, as an investor, you had a choice of daily, monthly, or quarterly compounding, which would you choose? Why?

> Adjust the annual formula for a future value of a single amount at 12 percent for 10 years to a semiannual compounding formula. What are the interest factors (FVIF) before and after? Why are they different?

> Does inflation have anything to do with making a dollar today worth more than a dollar tomorrow?

> How is the present value of a single sum (Appendix B) related to the present value of an annuity (Appendix D)?

> How is the future value (Appendix A) related to the present value of a single sum (Appendix B)?

> List five different financial applications of the time value of money.

> Why does money have a time value?

> The Volt Battery Company has forecast its sales in units as follows: Volt Battery always keeps an ending inventory equal to 120 percent of the next month's expected sales. The ending inventory for December (January's beginning inventory) is 960 units, w

> Tom Busby owes $20,000 now. A lender will carry the debt for four more years at 8 percent interest. That is, in this particular case, the amount owed will go up by 8 percent per year for four years. The lender then will require Busby to pay off the loan

> Dr. Oats, a nutrition professor, invests $80,000 in a piece of land that is expected to increase in value by 14 percent per year for the next five years. She will then take the proceeds and provide herself with a 10-year annuity. Assuming a 14 percent in

> Alex Bell has just retired from the telephone company. His total pension funds have an accumulated value of $200,000, and his life expectancy is 16 more years. His pension fund manager assumes he can earn a 12 percent return on his assets. What will be h

> Franklin Templeton has just invested $8,760 for her son (age one). This money will be used for his son’s education 17 years from now. He calculates that he will need $60,000 by the time the boy goes to school. What rate of return will Mr. Templeton need

> Beverly Hills started a paper route on January 1, 2004. Every three months, she deposits $300 in her bank account, which earns 8 percent annually but is compounded quarterly. On December 31, 2007, she used the entire balance in her bank account to invest

> You need $23,956 at the end of nine years, and your only investment outlet is an 7 percent long-term certificate of deposit (compounded annually). With the certificate of deposit, you make an initial investment at the beginning of the first year. a. What

> Related to the discussion in problem 27, what is the present value of a 10-year annuity of $3,000 per period in which payments come at the beginning of each period? The interest rate is 12 percent.

> As stated in the chapter, annuity payments are assumed to come at the end of each payment period (termed an ordinary annuity). However, an exception occurs when the annuity payments come at the beginning of each period (termed an annuity due). To find th

> Determine the amount of money in a savings account at the end of five years, given an initial deposit of $3,000 and a 8 percent annual interest rate when interest is compounded (a) annually, (b) semiannually, and (c) quarterly.

> The Boswell Corporation forecasts its sales in units for the next four months as follows: Boswell maintains an ending inventory for each month in the amount of one and one-half times the expected sales in the following month. The ending inventory for Fe

> Cousin Bertha invested $100,000 10 years ago at 12 percent, compounded quarterly. How much has she accumulated?

> Barney Smith invests in a stock that will pay dividends of $3.00 at the end of the first year; $3.30 at the end of the second year; and $3.60 at the end of the third year. Also, he believes that at the end of the third year he will be able to sell the st

> If you owe $30,000 payable at the end of five years, what amount should your creditor accept in payment immediately if she could earn 11 percent on her money?

> At a growth (interest) rate of 8 percent annually, how long will it take for a sum to double? To triple? Select the year that is closest to the correct answer.

> Christy Reed has been depositing $1,500 in her savings account every December since 2001. Her account earns 6 percent compounded annually. How much will she have in December 2010? (Assume that a deposit is made in December of 2010. Make sure to count the

> Bruce Sutter invests $2,000 in a mint condition Nolan Ryan baseball card. He expects the card to increase in value 20 percent a year for the next five years. After that, he anticipates a 15 percent annual increase for the next three years. What is the pr

> Rita Gonzales won the $60 million lottery. She is to receive $1 million a year for the next 50 years plus an additional lump sum payment of $10 million after 50 years. The discount rate is 10 percent. What is the current value of her winnings?

> The Western Sweepstakes has just informed you that you have won $1 million. The amount is to be paid out at the rate of $50,000 a year for the next 20 years. With a discount rate of 12 percent, what is the present value of your winnings?

> General Mills will receive $27,500 per year for the next 10 years as a payment for a weapon he invented. If a 12 percent rate is applied, should he be willing to sell out his future rights now for $160,000?

> Sherwin Williams will receive $18,000 a year for the next 25 years as a result of a picture he has painted. If a discount rate of 10 percent is applied, should he be willing to sell out his future rights now for $160,000?

> The Denver Corporation has forecast the following sales for the first seven months of the year: Monthly material purchases are set equal to 30 percent of forecasted sales for the next month. Of the total material costs, 40 percent are paid in the month

> John Longwaite will receive $100,000 in 50 years. His friends are very jealous of him. If the funds are discounted back at a rate of 14 percent, what is the present value of his future “pot of gold”?

> Mrs. Crawford will receive $6,500 a year for the next 14 years from her trust. If a 8 percent interest rate is applied, what is the current value of the future payments?

> You invest a single amount of $12,000 for 5 years at 10 percent. At the end of 5 years you take the proceeds and invest them for 12 years at 15 percent. How much will you have after 17 years?

> If you invest $8,000 per period for the following number of periods, how much would you have? a. 7 years at 9 percent. b. 40 years at 11 percent.

> How much would you have to invest today to receive: a. $12,000 in 6 years at 12 percent? b. $15,000 in 15 years at 8 percent? c. $5,000 each year for 10 years at 8 percent? d. $40,000 each year for 40 years at 5 percent?

> You are going to receive $200,000 in 50 years. What is the difference in present value between using a discount rate of 15 percent versus 5 percent?

> In Problem 7, if you had to wait until 12 years to get the $100,000, would your answer change? All other factors remain the same. Data from Problem 7: Your uncle offers you a choice of $100,000 in 10 years or $45,000 today. If money is discounted at 8 p

> Your uncle offers you a choice of $100,000 in 10 years or $45,000 today. If money is discounted at 8 percent, which should you choose?

> Your aunt offers you a choice of $20,000 in 50 years or $45 today. If money is discounted at 13 percent, which should you choose?

> If you invest $12,000 today, how much will you have: a. In 6 years at 7 percent? b. In 15 years at 12 percent? c. In 25 years at 10 percent? d. In 25 years at 10 percent (compounded semiannually)?

> Ultravision, Inc., anticipates sales of $240,000 from January through April. Materials will represent 50 percent of sales and because of level production, material purchases will be equal for each month during the four months of January, February, March,

> The difficult part of solving a problem of this nature is to know what to do with the information contained within a story problem. Therefore, this problem will be easier to complete if you rely on Chapter 4 for the format of all required schedules. The

> You will receive $4,000 three years from now. The discount rate is 10 percent. a. What is the value of your investment two years from now? Multiply $4,000 × .909 (one year’s discount rate at 10 percent). b. What is the value of your investment one year f

> a. What is the present value of $100,000 to be received after 40 years with an 18 percent discount rate? b. Would the present value of the funds in part a be enough to buy a $125 concert ticket?

> What is the present value of: a. $8,000 in 10 years at 6 percent? b. $16,000 in 5 years at 12 percent? c. $25,000 in 15 years at 8 percent?

> You invest $2,500 a year for three years at 8 percent. a. What is the value of your investment after one year? Multiply $2,500 × 1.08. b. What is the value of your investment after two years? Multiply your answer to part a by 1.08. c. What is the value

> Brittany (from problem 46) is now 18 years old (five years have passed), and she wants to get married instead of going to college. Your parents have accumulated the necessary funds for her education. Instead of her schooling, your parents are paying $10,

> Your younger sister, Brittany, will start college in five years. She has just informed your parents that she wants to go to Eastern State U., which will cost $30,000 per year for four years (cost assumed to come at the end of each year). Anticipating Bri

> You are chairperson of the investment fund for the Continental Soccer League. You are asked to set up a fund of semiannual payments to be compounded semiannually to accumulate a sum of $200,000 after 10 years at an 8 percent annual rate (20 payments). Th

> Jim Thorpe borrows $70,000 toward the purchase of a home at 12 percent interest. His mortgage is for 30 years. a. How much will his annual payments be? (Although home payments are usually on a monthly basis, we shall do our analysis on an annual basis fo

> If your aunt borrows $50,000 from the bank at 10 percent interest over the eight-year life of the loan, what equal annual payments must be made to discharge the loan, plus pay the bank its required rate of interest (round to the nearest dollar)? How much

> Kay Mart has purchased an annuity to begin payment at the end of 2113 (the date of the first payment). Assume it is now the beginning of 2011. The annuity is for $12,000 per year and is designed to last eight years. If the discount rate for the calculati

> Watt's Lighting Stores made the following sales projection for the next six months. All sales are credit sales. Sales in January and February were $33,000 and $32,000, respectively. Experience has shown that of total sales, 10 percent are uncollectible,

> Kelly Greene has a contract in which she will receive the following payments for the next five years: $3,000, $4,000, $5,000, $6,000, and $7,000. She will then receive an annuity of $9,000 a year from the end of the sixth through the end of the 15th year

> Rusty Steele will receive the following payments at the end of the next three years: $4,000, $7,000, and $9,000. Then from the end of the fourth year through the end of the tenth year, he will receive an annuity of $10,000. At a discount rate of 10 perce

> You wish to retire in 20 years, at which time you want to have accumulated enough money to receive an annual annuity of $12,000 for 25 years after retirement. During the period before retirement you can earn 8 percent annually, while after retirement you

> C. D. Rom has just given an insurance company $30,000. In return, he will receive an annuity of $3,200 for 20 years. At what rate of return must the insurance company invest this $30,000 in order to make the annual payments? Interpolate.

> On January 1, 2008, Mr. Dow bought 100 shares of stock at $12 per share. On December 31, 2010, he sold the stock for $18 per share. What is his annual rate of return? Interpolate to find the answer.

> Your grandfather has offered you a choice of one of the three following alternatives: $5,000 now; $1,000 a year for eight years; or $12,000 at the end of eight years. Assuming you could earn 11 percent annually, which alternative should you choose? If yo

> Mr. Flint retired as president of Color Title Company but is currently on a consulting contract for $45,000 per year for the next 10 years. a. If Mr. Flint’s opportunity cost (potential return) is 10 percent, what is the present value of his consulting c

> What is an asset-backed public offering?