Question: Torbet Fish Packing Company wants to accumulate

> Describe and discuss the saving-investment cycle.

> Armbrust Corporation is the maker of fine fitness equipment. Armbrust’s bank has been pressuring the firm to improve its liquidity. Which of the following actions proposed by the CFO do you believe will actually achieve this objective? Why or why not? a

> The Southwick Company has the following balance sheet ($000): Financial Ratios Current ratio…………………â&#128

> Fill in the balance sheet for the Jamestown Company based on the following data (assume a 365-day year): Sales = $3,650,000 Total asset turnover = 4× Current ratio = 3:1 Quick ratio = 2:1 Current liabilities to net worth = 30% Average c

> How can inflation affect the comparability of financial ratios between firms?

> The balance sheet and income statement of Eastland Products, Inc., are as follows: Income Statement for Year Ended December 31, 2016 (in Millions of Dollars) Sales…………&acir

> Sun Minerals, Inc., is considering issuing additional long-term debt to finance an expansion. Currently, the company has $50 million in 10 percent debt outstanding. Its after-tax net income is $12 million, and the company is in the 40 percent tax bracket

> Hoffman Paper Company, a profitable distributor of stationery and office supplies, has an agreement with its banks that allows Hoffman to borrow money on a short-term basis to finance its inventories and accounts receivable. The agreement states that Hof

> The stock of Jenkins Corporation, a major steel producer, is currently selling for $50 per share. The book value per share is $125. In contrast, the price per share of Dataquest’s stock is $40, compared to a book value per share of $10. Dataquest, a lead

> Palmer Chocolates, a maker of chocolates that specializes in Easter candy, had the following inventories over the past year: Month……………………………………………Inventory Amount January……………….………...………………………$25,000,000 February………………..……….………………………60,000,000 March………

> Which would you rather receive: the proceeds from a 2-year investment paying 5 percent simple interest per year, or from one paying 5 percent compound interest? Why?

> Keystone Resources has a net profit margin of 8 percent and earnings after taxes of $2 million. Its current balance sheet is as follows: a. Calculate Keystone’s return on stockholders’ equity. b. Industry average ra

> If a company sells additional common stock and uses the proceeds to increase its inventory level and to increase its cash balances, what is the near-term (immediate) impact (increase, decrease, no change) of this transaction on the following ratios? a.

> Given the following data for Profiteers, Inc., and the corresponding industry averages, perform a trend analysis of the return on investment and the return on stockholders’ equity. Plot the data and discuss any trends that are apparent.

> Using the following data for Jackson Products Company, answer Parts a through g: Income Statement for the Year Ended December 31, 2016 Net sales (all on credit) …………â

> Describe the basic features of each of the following types of bonds: a. Floating rate bonds b. Original issue deep discount bonds c. Zero coupon bonds d. Extendable notes (put bonds)

> What specific effects can the use of alternative accounting procedures have on the validity of comparative financial analyses?

> What are the three most important determinants of a firm’s return on stockholders’ equity?

> What factors limit the use of the fixed-asset turnover ratio in comparative analyses?

> What problems may be indicated by an inventory turnover ratio that is substantially above or below the industry average?

> What problems may be indicated by an average collection period that is substantially above or below the industry average?

> What is the major limitation of the current ratio as a measure of a firm’s liquidity? How may this limitation be overcome?

> Gulf Controls, Inc., has a net profit margin of 10 percent and earnings after taxes of $600,000. Its current balance sheet follows: a. Calculate Gulf’s return on stockholders’ equity. b. The industry average ratios

> What are the primary limitations of ratio analysis as a technique of financial statement analysis?

> Appalachian Registers, Inc. (ARI) has current sales of $50 million. Sales are expected to grow to $75 million next year. ARI currently has accounts receivable of $10 million, inventories of $15 million, and net fixed assets of $20 million. These assets a

> Berea Resources is planning a $75 million capital expenditure program for the coming year. Next year, Berea expects to report to the IRS earnings of $40 million after interest and taxes. The company presently has 20 million shares of common stock issued

> In the Industrial Supply Company example (Table 4.4), it was assumed that the company’s fixed assets were being used at nearly full capacity and that net fixed assets would have to increase proportionately as sales increased. Alternativ

> Explain how a bond can be classified as a fixed-income security when the yield to-maturity can fluctuate significantly over time, depending on the market price of the bond.

> Baldwin Products Company anticipates reaching a sales level of $6 million in one year. The company expects earnings after taxes during the next year to equal $400,000. During the past several years, the company has been paying $50,000 in dividends to its

> The Podrasky Corporation is considering a $200 million expansion (capital expenditure) program next year. The company wants to know approximately how much additional financing (if any) will be required if it decides to go through with the expansion progr

> Prepare a cash budget for Elmwood Manufacturing Company for the first three months of 2017 based on the following information: The company has found that approximately 40 percent of sales are collected during the month the sale is made and the remainin

> Prepare a cash budget for Atlas Products, Inc., for the first quarter of 2017, based on the following information: The budgeting section of the corporate finance department of Atlas Products has received the following sales estimates from the marketing d

> Consider the Industrial Supply Company example (Table 4.4) again. Assume that the company plans to maintain its dividend payments at the same level in 2017 as in 2016. Also assume that all of the additional financing needed is in the form of short-term n

> The Jamesway Printing Corporation has current assets of $3.0 million. Of this total, $1.0 million is inventory, $0.5 million is cash, $1.0 million is accounts receivable, and the balance is marketable securities. Jamesway has $1.5 million in current liab

> 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.

> 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

> A life insurance company offers loans to its policyholders against the cash value of their policies at a (nominal) annual interest rate of 8 percent, compounded quarterly. Determine the effective annual percentage interest rate on these loans.

> 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