Question: What is the value of an investment

> Jackson Corp. has a profit margin of 5.8 percent, total asset turnover of 1.75, and ROE of 13.85 percent. What is this firm’s debt-equity ratio?

> If Rogers, Inc., has an equity multiplier of 1.43, total asset turnover of 1.87, and a profit margin of 6.05 percent, what is its ROE?

> Bolton Corp. had additions to retained earnings for the year just ended of $435,000. The firm paid out $245,000 in cash dividends, and it has ending total equity of $5.7 million. If the company currently has 175,000 shares of common stock outstanding, wh

> Mobius, Inc., has a total debt ratio of .57. What is its debt-equity ratio? What is its equity multiplier?

> The Top Corporation has ending inventory of $426,287, and cost of goods sold for the year just ended was $4,738,216. What is the inventory turnover? The days’ sales in inventory? How long on average did a unit of inventory sit on the shelf before it was

> Dahlia Corp. has a current accounts receivable balance of $513,260. Credit sales for the year just ended were $4,986,340. What is the receivables turnover? The days’ sales in receivables? How long did it take on average for credit customers to pay off th

> Cage Corp. has current liabilities of $415,000, a quick ratio of .86, inventory turnover of 10.3, and a current ratio of 1.34. What is the cost of goods sold for the company?

> Whipporwill, Inc.’s, net income for the most recent year was $19,382. The tax rate was 21 percent. The firm paid $3,681 in total interest expense and deducted $4,738 in depreciation expense. What was the cash coverage ratio for the year?

> The 2020 balance sheet of Osaka’s Tennis Shop, Inc., showed long-term debt of $2.25 million, and the 2021 balance sheet showed long-term debt of $2.66 million. The 2021 income statement showed an interest expense of $305,000. What was the firm’s cash flo

> In response to complaints about high prices, a grocery chain runs the following advertising campaign: “If you pay your child $1.25 to go buy $50 worth of groceries, then your child makes twice as much on the trip as we do.â€&

> The Mikado Company has a long-term debt ratio of .35 and a current ratio of 1.45. Current liabilities are $1,140, sales are $8,370, profit margin is 8.3 percent, and ROE is 16.5 percent. What is the amount of the firm’s net fixed assets?

> Denver, Inc., has sales of $14.2 million, total assets of $11.3 million, and total debt of $4.9 million. If the profit margin is 5 percent, what is net income? What is ROA? What is ROE?

> A company has net income of $213,700, a profit margin of 7.1 percent, and an accounts receivable balance of $126,385. Assuming 65 percent of sales are on credit, what is the company’s days’ sales in receivables?

> Y3K, Inc., has sales of $5,987, total assets of $2,532, and a debt-equity ratio of .57. If its return on equity is 11 percent, what is its net income?

> Just Dew It Corporation reports the following balance sheet information for 2020 and 2021. Use this information to work. Based on the balance sheets given for Just Dew It, calculate the following financial ratios for each year: a. Current ratio. b. Qui

> Just Dew It Corporation reports the following balance sheet information for 2020 and 2021. Use this information to work. For each account on this company’s balance sheet, show the change in the account during 2021 and note whether thi

> Just Dew It Corporation reports the following balance sheet information for 2020 and 2021. Use this information to work. Prepare the 2021 combined common-size, common-base year balance sheet for Just Dew It.

> Just Dew It Corporation reports the following balance sheet information for 2020 and 2021. Use this information to work. Prepare the 2021 common-base year balance sheet for Just Dew It.

> Just Dew It Corporation reports the following balance sheet information for 2020 and 2021. Use this information to work. Prepare the 2020 and 2021 common-size balance sheets for Just Dew It.

> Specialized ratios are sometimes used in specific industries. For example, the book-to-bill ratio is closely watched for semiconductor manufacturers. A ratio of .93 indicates that for every $100 worth of chips shipped over some period, only $93 worth of

> Kodi Company has a debt-equity ratio of .63. Return on assets is 8.4 percent, and total equity is $645,000. What is the equity multiplier? Return on equity? Net income?

> The market value of the equity of Nina, Inc., is $755,000. The balance sheet shows $63,000 in cash and $220,000 in debt, while the income statement has EBIT of $95,000 and a total of $178,000 in depreciation and amortization. What is the enterprise value

> Dexter, Inc., had a cost of goods sold of $75,318. At the end of the year, the accounts payable balance was $18,452. How long on average did it take the company to pay off its suppliers during the year? What might a large value for this ratio imply?

> SDJ, Inc., has net working capital of $2,630, current liabilities of $5,970, and inventory of $3,860. What is the current ratio? What is the quick ratio?

> Some recent financial statements for Smolira Golf Corp. follow. Use this information to work. What is Tobin’s Q for Smolira Golf? What assumptions are you making about the book value of debt and the market value of debt? What about t

> Some recent financial statements for Smolira Golf Corp. follow. Use this information to work. Smolira Golf Corp. has 15,000 shares of common stock outstanding, and the market price for a share of stock at the end of 2021 was $79. What is the price-ear

> Some recent financial statements for Smolira Golf Corp. follow. Use this information to work. Prepare the 2021 statement of cash flows for Smolira Golf Corp.

> Some recent financial statements for Smolira Golf Corp. follow. Use this information to work. Construct the DuPont identity for Smolira Golf Corp.

> Some recent financial statements for Smolira Golf Corp. follow. Use this information to work. Find the following financial ratios for Smolira Golf Corp. (use year-end figures rather than average values where appropriate): Short-term solvency ratios: a

> Prince Albert Canning PLC had a net loss of £26,382 on sales of £315,650. What was the company’s profit margin? Does the fact that these figures are quoted in a foreign currency make any difference? Why? In dollars, sales were $385,815. What was the net

> Wallace Driving School’s 2020 balance sheet showed net fixed assets of $2.3 million, and the 2021 balance sheet showed net fixed assets of $3.1 million. The company’s 2021 income statement showed a depreciation expense of $327,000. What was net capital s

> Use the following information for Taco Swell, Inc., (assume the tax rate is 21 percent): For 2021, calculate the cash flow from assets, cash flow to creditors, and cash flow to stockholders.

> Use the following information for Taco Swell, Inc., (assume the tax rate is 21 percent): Draw up an income statement and balance sheet for this company for 2020 and 2021.

> What do you think about the state lottery discussed in the chapter advertising a $500,000 prize when the lump sum option is $250,000? Is it deceptive advertising?

> Suppose the firm in Problem 2 paid out $125,000 in cash dividends. What is the addition to retained earnings? Problem 2: Nataro, Inc., has sales of $742,000, costs of $316,000, depreciation expense of $39,000, interest expense of $34,000, and a tax rat

> As you increase the length of time involved, what happens to the present value of an annuity? What happens to the future value?

> There are four pieces to an annuity present value. What are they?

> Suppose the firm in Problem 3 had 75,000 shares of common stock outstanding. What is the earnings per share, or EPS, figure? What is the dividends per share figure? Problem 3: Suppose the firm in Problem 2 paid out $125,000 in cash dividends. What is th

> Nataro, Inc., has sales of $742,000, costs of $316,000, depreciation expense of $39,000, interest expense of $34,000, and a tax rate of 21 percent. What is the net income for this firm?

> Firm A and Firm B have debt-total asset ratios of 60 percent and 35 percent, respectively, and returns on total assets of 4.5 percent and 8 percent, respectively. Which firm has a greater return on equity?

> Bing, Inc., has current assets of $5,400, net fixed assets of $28,100, current liabilities of $4,100, and long-term debt of $10,600. What is the value of the shareholders’ equity account for this firm? How much is net working capital?

> Given the information for Osaka’s Tennis Shop, Inc., in Problems 9 and 10, suppose you also know that the firm’s net capital spending for 2021 was $1.5 million and that the firm reduced its net working capital investment by $55,000. What was the firm’s 2

> The 2020 balance sheet of Dugan, Inc., showed current assets of $5,320 and current liabilities of $2,510. The 2021 balance sheet showed current assets of $5,970 and current liabilities of $3,240. What was the company’s 2021 change in net working capital,

> Timmy Tappan is single and had $189,000 in taxable income. Using the rates from Table 2.3 in the chapter, calculate his income taxes. What is the average tax rate? What is the marginal tax rate?

> Pursell Bank offers you a five-year loan for $100,000 at an annual interest rate of 6.8 percent. What will your annual loan payment be?

> You want to have $75,000 in your savings account 12 years from now, and you’re prepared to make equal annual deposits into the account at the end of each year. If the account pays 6.4 percent interest, what amount must you deposit each year?

> A check-cashing store is in the business of making personal loans to walk-up customers. The store makes only one-week loans at 6.3 percent interest per week. a. What APR must the store report to its customers? What EAR are customers actually paying? b. N

> You have 40 years left until retirement and want to retire with $4.5 million. Your salary is paid annually, and you will receive $60,000 at the end of the current year. Your salary will increase at 3 percent per year, and you can earn an annual return of

> You have just arranged for a $2.55 million mortgage to finance the purchase of a large tract of land. The mortgage has an APR of 5.3 percent, and it calls for monthly payments over the next 30 years. However, the loan has an eight-year balloon payment, m

> Graffiti Advertising, Inc., reported the following financial statements for the last two years. Construct the cash flow identity for the company. Explain what each number means.

> An insurance company is offering a new policy to its customers. Typically, the policy is bought by a parent or grandparent for a child at the child’s birth. The purchaser (say, the parent) makes the following six payments to the insurance company: First

> If you deposit $4,900 at the end of each of the next 20 years into an account paying 10.3 percent interest, how much money will you have in the account in 20 years? How much will you have if you make deposits for 40 years?

> Your Christmas ski vacation was great, but it unfortunately ran a bit over budget. All is not lost: You just received an offer in the mail to transfer your $15,000 balance from your current credit card, which charges an annual rate of 18.6 percent, to a

> You have successfully started and operated a company for the past 10 years. You have decided that it is time to sell your company and spend time on the beaches of Hawaii. A potential buyer is interested in your company, but he does not have the necessary

> This problem illustrates a deceptive way of quoting interest rates called add-on interest. Imagine that you see an advertisement for Crazy Judy’s Stereo City that reads something like this: “$1,500 Instant Credit! 18.4% Simple Interest! Three Years to Pa

> Two banks in the area offer 30-year, $320,000 mortgages at 4.9 percent and charge a $5,500 loan application fee. However, the application fee charged by Insecurity Bank and Trust is refundable if the loan application is denied, whereas that charged by I.

> In the previous problem, suppose that you believe that you will only live in the house for eight years before selling the house and buying another house. This means that in eight years, you will pay off the remaining balance of the original mortgage. Wha

> You are buying a house and will borrow $265,000 on a 30-year fixed-rate mortgage with monthly payments to finance the purchase. Your loan officer has offered you a mortgage with an APR of 4.6 percent. Alternatively, she tells you that you can “buy down”

> The interest rate on a one-year loan is quoted as 13 percent plus 3 points (see the previous problem). What is the EAR? Is your answer affected by the loan amount? Problem 62: You are looking at a one-year loan of $10,000. The interest rate is quoted as

> You are looking at a one-year loan of $10,000. The interest rate is quoted as 9.7 percent plus 2 points. A point on a loan is 1 percent (one percentage point) of the loan amount. Quotes similar to this one are common with home mortgages. The interest rat

> Consider the following abbreviated financial statements for Parrothead Enterprises: a. What is owners’ equity for 2020 and 2021? b. What is the change in net working capital for 2021? c. In 2021, Parrothead Enterprises purchased $2,7

> You are serving on a jury. A plaintiff is suing the city for injuries sustained after a freak street sweeper accident. In the trial, doctors testified that it will be five years before the plaintiff is able to return to work. The jury has already decided

> This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $20,000 for one year. The interest rate is 14.6 percent. You and the lender agree that the interest on

> Your company will generate $55,000 in annual revenue each year for the next seven years from a new information database. If the appropriate discount rate is 8.2 percent, what is the present value of the savings?

> An All-Pro defensive lineman is in contract negotiations. The team has offered the following salary structure: Time ……………………………………………… Salary 0 ………………………………………….. $7,900,000 1 ………………………………………….. $4,500,000 2 ………………………………………….. $5,300,000 3 …………………………………

> After deciding to acquire a new car, you can either lease the car or purchase it on a three-year loan. The car you wish to buy costs $49,000. The dealer has a special leasing arrangement where you pay $5,100 today and $545 per month for the next three ye

> Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $16,000 per month for 25 years, with the first payment received 30 years and 1 month from now. Second, he wo

> Rework Problem 55 assuming that the loan agreement calls for a principal reduction of $11,700 every year instead of equal annual payments. Problem 55: Prepare an amortization schedule for a five-year loan of $58,500. The interest rate is 6 percent per y

> Prepare an amortization schedule for a five-year loan of $58,500. The interest rate is 6 percent per year, and the loan calls for equal annual payments. How much interest is paid in the third year? How much total interest is paid over the life of the loa

> You want to buy a new sports car from Muscle Motors for $64,500. The contract is in the form of a 60-month annuity due at an APR of 5.4 percent. What will your monthly payment be?

> Suppose you are going to receive $14,500 per year for five years. The appropriate interest rate is 7.1 percent. a. What is the present value of the payments if they are in the form of an ordinary annuity? What is the present value if the payments are an

> Martinez Industries had the following operating results for 2021: Sales = $38,072; Cost of goods sold = $27,168; Depreciation expense = $6,759; Interest expense = $3,050; Dividends paid = $2,170. At the beginning of the year, net fixed assets were $22,79

> A five-year annuity of 10 $5,500 semiannual payments will begin 9 years from now, with the first payment coming 9.5 years from now. If the discount rate is 8 percent compounded monthly, what is the value of this annuity five years from now? What is the v

> A local finance company quotes an interest rate of 18.4 percent on one-year loans. So, if you borrow $20,000, the interest for the year will be $3,680. Because you must repay a total of $23,680 in one year, the finance company requires you to pay $23,680

> Given a discount rate of 4.6 percent per year, what is the value at Date t = 7 of a perpetual stream of $7,300 payments with the first payment at Date t = 15?

> If you put up $45,000 today in exchange for a 6.4 percent, 15-year annuity, what will the annual cash flow be?

> You have your choice of two investment accounts. Investment A is a 13-year annuity that features end-of-month $1,600 payments and has an APR of 7.8 percent compounded monthly. Investment B is a 7 percent continuously compounded lump sum investment, also

> A 15-year annuity pays $1,750 per month, and payments are made at the end of each month. If the APR is 9 percent compounded monthly for the first seven years, and APR of 6 percent compounded monthly thereafter, what is the value of the annuity today?

> What is the value today of $5,100 per year, at a discount rate of 7.9 percent, if the first payment is received 6 years from today and the last payment is received 20 years from today?

> Consider a firm with a contract to sell an asset for $175,000 four years from now. The asset costs $104,600 to produce today. Given a relevant discount rate of 11 percent per year, will the firm make a profit on this asset? At what rate does the firm jus

> You have just purchased a new warehouse. To finance the purchase, you’ve arranged for a 30-year mortgage loan for 80 percent of the $2.6 million purchase price. The monthly payment on this loan will be $14,200. What is the APR on this loan? The EAR?

> You just won the TVM Lottery. You will receive $1 million today plus another 10 annual payments that increase by $450,000 per year. Thus, in one year, you receive $1.45 million. In two years, you get $1.9 million, and so on. If the appropriate interest r

> In Problem 17, suppose Raines Umbrella Corp. paid out $128,000 in cash dividends. Is this possible? If net capital spending and net working capital were both zero, and if no new stock was issued during the year, what do you know about the firm’s long-ter

> The present value of the following cash flow stream is $8,200 when discounted at 9 percent annually. What is the value of the missing cash flow? Year ………………………….. Cash Flow 1 …………………………………... $2,100 2 …………………………………….…….. ? 3 …………………………………….. 2,740 4 ……

> You need a 30-year, fixed-rate mortgage to buy a new home for $245,000. Your mortgage bank will lend you the money at an APR of 4.8 percent for this 360-month loan. However, you can afford monthly payments of only $900, so you offer to pay off any remain

> You want to borrow $95,000 from your local bank to buy a new sailboat. You can afford to make monthly payments of $1,850, but no more. Assuming monthly compounding, what is the highest rate you can afford on a 60-month APR loan?

> You’re prepared to make monthly payments of $225, beginning at the end of this month, into an account that pays an APR of 6.5 percent compounded monthly. How many payments will you have made when your account balance reaches $15,000?

> An investment offers $3,850 per year for 15 years, with the first payment occurring one year from now. If the required return is 6 percent, what is the value of the investment? What would the value be if the payments occurred for 40 years? For 75 years?

> What is the relationship between the value of an annuity and the level of interest rates? Suppose you just bought an annuity with 13 annual payments of $10,000 per year at a discount rate of 10 percent per year. What happens to the value of your investme

> Your job pays you only once a year for all the work you did over the previous 12 months. Today, December 31, you just received your salary of $48,000 and you plan to spend all of it. However, you want to start saving for retirement beginning next year. Y

> You have just won the lottery and will receive $1.8 million in one year. You will receive payments for 30 years, and the payments will increase by 2.7 percent per year. If the appropriate discount rate is 5.4 percent, what is the present value of your wi

> You’ve just joined the investment banking firm of Dewey, Cheatum, and Howe. They’ve offered you two different salary arrangements. You can have $90,000 per year for the next two years, or you can have $77,000 per year for the next two years, along with a

> You want to be a millionaire when you retire in 40 years. How much do you have to save each month if you can earn an APR of 10.2 percent? How much do you have to save each month if you wait 10 years before you begin your deposits? 20 years?

> During 2021, Raines Umbrella Corp. had sales of $865,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $535,000, $125,000, and $170,000, respectively. In addition, the company had an interest expense of $90,000

> You have an investment that will pay you .83 percent per month. How much will you have per dollar invested in one year? In two years?

> You are planning to save for retirement over the next 30 years. To do this, you will invest $850 per month in a stock account and $250 per month in a bond account. The return of the stock account is expected to be 11 percent, and the bond account will re

> You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate of 1.25 percent per year, compounded monthly for the first six months, increasing thereafter to 17.8 percent compounded monthly. Assuming you transfer t

> You are looking at an investment that has an effective annual rate of 14.3 percent. What is the effective semiannual return? The effective quarterly return? The effective monthly return?

> Christie, Inc., has identified an investment project with the following cash flows. If the discount rate is 6 percent, what is the future value of these cash flows in Year 4? What is the future value at a discount rate of 13 percent? At 27 percent? Year

> If the appropriate discount rate for the following cash flows is 9.32 percent per year, what is the present value of the cash flows? Year ……………………………………. Cash Flow 1 …………………………………………….. $2,480 2 ……………………………………………………… 0 3 ……………………………………………….. 3,920 4 ……