Question: Your job pays you only once a

> Solve for the unknown number of years in each of the following: Present Value Years Interest Rate Future Value $ 625 7% $ 1,284 810 12 4,341 16,500 17 402,662 21,500 8 147,350

> Broslofski Co. maintains a positive retention ratio and keeps its debt–equity ratio constant every year. When sales grow by 20 percent, the firm has a negative projected EFN. What does this tell you about the firm’s sustainable growth rate? Do you know,

> How do financial cash flows and the accounting statement of cash flows differ? Which is more useful for analyzing a company?

> Should lending laws be changed to require lenders to report EARs instead of APRs? Why or why not?

> The Stefani Co. had $198,000 in taxable income. Using the rates from Table 2.3 in the chapter, calculate the company’s income taxes. What is the average tax rate? What is the marginal tax rate?

> The most recent financial statements for Heine, Inc., are shown here: Assets and costs are proportional to sales. Debt and equity are not. A dividend of $3,500 was paid, and the company wishes to maintain a constant payout ratio. Next yearâ€&

> First City Bank pays 7.5 percent simple interest on its savings account balances, whereas Second City Bank pays 7.5 percent interest compounded annually. If you made a $7,000 deposit in each bank, how much more money would you earn from your Second City

> Solve for the unknown interest rate in each of the following: Present Value Years Interest Rate Future Value $ 242 4 $ 345 410 8 927 51,700 16 152,184 18,750 27 538,600

> In the chapter, we used Rosengarten Corporation to demonstrate how to calculate EFN. The ROE for Rosengarten is about 7.3 percent, and the plowback ratio is about 67 percent. If you calculate the sustainable growth rate for Rosengarten, you will find it

> Why do you think most long-term financial planning begins with sales forecasts? Put differently, why are future sales the key input?

> Looking at the accounting statement of cash flows, what does the bottom line number mean? How useful is this number for analyzing a company?

> A financial planning service offers a college savings program. The plan calls for you to make six annual payments of $11,000 each, with the first payment occurring today, your child’s 12th birthday. Beginning on your child’s 18th birthday, the plan will

> You have just won the lottery. You will receive $4,500,000 today, and then receive 40 payments of $1,600,000. These payments will start one year from now and will be paid every six months. A representative from Greenleaf Investments has offered to purcha

> 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 details of the policy are as follows: The purchaser (say, the parent) makes the following six

> 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 $10,000 balance from your current credit card, which charges an annual rate of 18.6 percent, to a

> Suppose two athletes sign 10-year contracts for $80 million. In one case, we’re told that the $80 million will be paid in 10 equal installments. In the other case, we’re told that the $80 million will be paid in 10 installments, but the installments will

> 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: “$1,000 Instant Credit! 17.4

> Two banks in the area offer 30-year, $225,000 mortgages at 5.6 percent and charge a $2,900 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.

> You are looking at a one-year loan of $10,000. The interest rate is quoted as 8 percent plus three points. A point on a loan is simply 1 percent (one percentage point) of the loan amount. Quotes similar to this one are very common with home mortgages. Th

> 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 15.7 percent. You and the lender agree that the interest on

> An All-Pro defensive lineman is in contract negotiations. The team has offered the following salary structure: All salaries are to be paid in a lump sum. The player has asked you as his agent to renegotiate the terms. He wants a $10 million signing bonus

> After deciding to buy a new car, you can either lease the car or purchase it with a three-year loan. The car you wish to buy costs $28,000. The dealer has a leasing arrangement where you pay $2,400 today and $380 per month for the next three years. If yo

> Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with a retirement income of $20,000 per month for 20 years, with the first payment received 30 years and 1 month from now. Second, he

> On September 1, 2013, Susan Chao bought a motorcycle for $34,000. She paid $2,000 down and financed the balance with a five-year loan at an annual percentage rate of 7.2 percent, compounded monthly. She started the monthly payments exactly one month afte

> You have 30 years left until retirement and want to retire with $2.2 million. Your salary is paid annually, and you will receive $83,000 at the end of the current year. Your salary will increase at 3 percent per year, and you can earn a return of 9 perce

> Y3K, Inc., has sales of $3,100, total assets of $1,340, and a debt–equity ratio of 1.20. If its return on equity is 15 percent, what is its net income?

> You have recently won the super jackpot in the Washington State Lottery. On reading the fine print, you discover that you have the following two options: a. You will receive 31 annual payments of $250,000, with the first payment being delivered today. Th

> Tom Adams has received a job offer from a large investment bank as a clerk to an associate banker. His base salary will be $63,000. He will receive his first annual salary payment one year from the day he begins to work. In addition, he will get an immed

> You are saving for the college education of your two children. They are two years apart in age; one will begin college 15 years from today and the other will begin 17 years from today. You estimate your children’s college expenses to be $65,000 per year

> You want to lease a set of golf clubs from Pings Ltd. The lease contract is in the form of 24 equal monthly payments at an APR of 11.2 percent, compounded monthly. Because the clubs cost $2,650 retail, Pings wants the PV of the lease payments to equal $2

> You want to buy a new sports car from Muscle Motors for $64,000. The contract is in the form of a 60-month annuity due at an APR of 6.15 percent. What will your monthly payment be?

> Suppose you are going to receive $16,250 per year for five years. The appropriate interest rate is 7.5 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

> A 5-year annuity of ten $6,175 semiannual payments will begin 9 years from now, with the first payment coming 9.5 years from now. If the discount rate is 11 percent compounded monthly, what is the value of this annuity five years from now? What is the va

> A local finance company quotes an interest rate of 17 percent on one-year loans. So, if you borrow $23,000, the interest for the year will be $3,910.Because you must repay a total of $26,910 in one year, the finance company requires you to pay $26,910y12

> Given an interest rate of 5.6 percent per year, what is the value at Date t = 7 of a perpetual stream of $2,150 annual payments that begins at Date t = 15?

> You have your choice of two investment accounts. Investment A is a 15-year annuity that features end-of-month $1,300 payments and has an interest rate of 7.2 percent compounded monthly. Investment B is an 8 percent continuously compounded lump-sum invest

> For each of the following, compute the present value: Present Value Years Interest Rate Future Value 8 7% $ 13,827 13 15 43,852 17 725,380 26 18 590,710

> A 15-year annuity pays $1,750 per month, and payments are made at the end of each month. If the interest rate is 12 percent compounded monthly for the first seven years, and 6 percent compounded monthly thereafter, what is the present value of the annuit

> What is the present value of $7,500 per year, at a discount rate of 7.1 percent, if the first payment is received 6 years from now and the last payment is received 25 years from now?

> Consider a firm with a contract to sell an asset for $135,000 three years from now. The asset costs $89,000 to produce today. Given a relevant discount rate on this asset of 13 percent per year, will the firm make a profit on this asset? At what rate doe

> You have just purchased a new warehouse. To finance the purchase, you’ve arranged for a 30-year mortgage for 80 percent of the $5,200,000 purchase price. The monthly payment on this loan will be $27,500. 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 $275,000 per year. Thus, in one year you receive $1.275 million. In two years, you get $1.55 million, and so on. If the appropriate interest

> The present value of the following cash flow stream is $7,300 when discounted at 7.1 percent annually. What is the value of the missing cash flow? Year Cash Flow $1.500 2,700 4 2,900

> You need a 30-year, fixed-rate mortgage to buy a new home for $250,000. Your mortgage bank will lend you the money at an APR of 4.5 percent for this 360-month loan. However, you can only afford monthly payments of $950, so you offer to pay off any remain

> You want to borrow $96,000 from your local bank to buy a new sailboat. You can afford to make monthly payments of $1,950, but no more. Assuming monthly compounding, what is the highest APR you can afford on a 60-month loan?

> You’re prepared to make monthly payments of $240, beginning at the end of this month, into an account that pays 10 percent interest compounded monthly. How many payments will you have made when your account balance reaches $35,000?

> What is the relationship between the value of an annuity and the level of interest rates? Suppose you just bought a 15-year annuity of $4,300 per year at the current interest rate of 10 percent per year. What happens to the value of your investment if in

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

> Southern California Publishing Company is trying to decide whether to revise its popular textbook, Financial Psychoanalysis Made Simple. The company has estimated that the revision will cost $135,000. Cash flows from increased sales will be $48,000 the f

> Young Pharmaceuticals is considering a drug project that costs $3.8 million today and is expected to generate end-of-year annual cash flows of $267,000, forever. At what discount rate would Young be indifferent between accepting or rejecting the project?

> You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate of 2.40 percent per year, compounded monthly for the first six months, increasing thereafter to 18 percent compounded monthly. Assuming you transfer the

> Use the sustainable growth rate equations from the previous problem to answer the following questions. I Am Myself, Inc., had total assets of $410,000 and equity of $230,000 at the beginning of the year. At the end of the year, the company had total asse

> Audrey Sanborn has just arranged to purchase a $650,000 vacation home in the Bahamas with a 20 percent down payment. The mortgage has a 5.2 percent APR, compounded monthly, and calls for equal monthly payments over the next 30 years. Her first payment wi

> In the chapter, we discussed one calculation of the sustainable growth rate as: In practice, probably the most commonly used calculation of the sustainable growth rate is ROE x b. This equation is identical to the sustainable growth rate equation presen

> What is the value today of a 15-year annuity that pays $900 a year? The annuity’s first payment occurs six years from today. The annual interest rate is 11 percent for Years 1 through 5, and 13 percent thereafter.

> Based on the results in Problem 27, show that the internal and sustainable growth rates can be calculated as shown in Equations 3.24 and 3.25(mentioned below).(Hint: For the internal growth rate, set EFN equal to zero and solve for g.) Spontaneous li

> What is the present value of an annuity of $5,500 per year, with the first cash flow received three years from today and the last one received 25 years from today? Use a discount rate of 8 percent.

> So-called “same-store sales” are a very important measure for companies as diverse as McDonald’s and Sears. As the name suggests, examining same-store sales means comparing revenues from the same stores or restaurants at two different points in time. Why

> Define the following: S = Previous year’s sales A = Total assets E = Total equity g = Projected growth in sales PM = Profit margin b = Retention (plowback) ratio Assuming that all debt is constant, show that EFN can be written as: Hint

> A prestigious investment bank designed a new security that pays a quarterly dividend of $2.75 in perpetuity. The first dividend occurs one quarter from today. What is the price of the security if the APR is 5.3 percent, compounded quarterly?

> Refer to the corporate marginal tax rate information in Table 2.3(given below): a. Why do you think the marginal tax rate jumps up from 34 percent to 39 percent at a taxable income of $100,001, and then falls back to a 34 percent marginal rate at a taxa

> Mark Weinstein has been working on an advanced technology in laser eye surgery. His technology will be available in the near term. He anticipates his first annual cash flow from the technology to be $215,000, received two years from today. Subsequent ann

> Shinedown, Inc., wishes to maintain a growth rate of 12 percent per year and a debt–equity ratio of .35. Profit margin is 4.9 percent, and the ratio of total assets to sales is constant at .75. Is this growth rate possible? To answer, determine what the

> Redo Problem 23 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.

> You’re trying to choose between two different investments, both of which have up-front costs of $75,000. Investment G returns $125,000 in six years. Investment H returns $185,000 in 10 years. Which of these investments has the higher return?

> You are researching Time Manufacturing and have found the following accounting statement of cash flows for the most recent year. You also know that the company paid $84 million in current taxes and had an interest expense of $41 million. Use

> Redo Problem 21 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.

> For 2015, calculate the cash flow from assets, cash flow to creditors, and cash flow to stockholders.

> What happens to the future value of an annuity if you increase the rate r? What happens to the present value?

> If Wilkinson, Inc., has an equity multiplier of 1.35, total asset turnover of 2.10, and a profit margin of 5.2 percent, what is its ROE?

> Record the following transactions in the general journal, assuming that the company records all vouchers as gross: 201X Voucher no. 15 was prepared for the purchase of $1,200 of merchandise on account from Reel Co.; terms 5/10, n/30. Jan. 7 Voucher

> Complete a trend analysis from the following data of Carter Corporation using 2015 as the base year. (Round to the nearest percent.) 2018 2017 2016 2015 Sales $1,010 $660 $560 $410 Gross Profit 380 290 380 180 Net Income 205 93 62 62

> Prepare a common-size income statement from the following (use net sales as 100%): Net Sales …………………………………………………. $800 Cost of Goods Sold ……………………………………… 200 Gross Profit from Sales ………………………………. 600 Operating Expenses ……………………………….…… 250 Net Income ………

> Complete a vertical analysis of the assets. (Round to the nearest tenth of a percent as needed.) а. Cash b. Accounts Receivable Merchandise Inventory d. Office Equipment Total Assets $ 700 775 C. 850 2,400 $4,725

> Calculate the amount of increase or decrease as well as the percentage of increase or decrease. (Round to the nearest tenth of a percent as needed.) 2016 2015 Amount % a. Accounts Receivable $770 $580 b. Accounts Payable 580 770

> Given the following, calculate net change in cash: Net cash flows from operating activities ……………………… $6,700 Net cash used by investing activities ………………………….. (2,100) Net cash provided by financing activities ……………………… 1,200

> From the following, calculate net cash flows from financing activities: Payments of dividends ……………………………... $ 14,000 Issuance of common stock ……………………………. 6,500 Issuance of long-term note ………………………….. 16,000

> The following accounts showed an increase or a decrease from the comparative balance sheet. Explain which account will be added to net income and which will be subtracted in calculating net cash flows for operating activities using the indirect method.

> From Concept Check 8, record the journal entry for the first semiannual interest payment on October 1. Concept Check 8: Facts: Bond issue: $95,000, 13%, 35-year bonds; selling price of bonds $191,805; market rate 6%. Use the interest method.

> From Concept Check 6, record a journal entry for the first semiannual interest payment on October 1. Concept Check 6: Facts: Bond issue: $150,000, 9%, 13-year bonds; selling price of bonds $129,569; market rate 11%. Use the interest method.

> On June 1, 201X, a telephone expense for $250 was debited to Repair Expense. On June 10, 201X, this error was found. Prepare the corrected journal entry. When would a correcting entry not be needed?

> From Concept Check 4, record the March 31 semiannual payment and amortization of Premium on Bonds Payable. Concept Check 4: Redo Concept Check 2 with the straight-line method, assuming that the bond sells for 104. Concept Check 2: On October 1, Morri

> Redo Concept Check 2 with the straight-line method, assuming that the bond sells for 104. Concept Check 2: On October 1, Morris Co. issued 15, $3,000, 7%, 10-year bonds at 95. Record the journal entry.

> From Concept Check 2, record the March 31 semiannual payment and amortization of the discount. Use the straight-line method. Concept Check 2: On October 1, Morris Co. issued 15, $3,000, 7%, 10-year bonds at 95. Record the journal entry.

> On October 1, Morris Co. issued 15, $3,000, 7%, 10-year bonds at 95. Record the journal entry.

> Journalize the following transactions: a. Set up a bond sinking fund with an initial deposit of $6,200. b. Earned $160 interest on sinking fund balance. c. Sinking fund of $23,000 was used to pay off bondholders in the amount of $23,000.

> Seven months after its closing, Woods Co. discovered that depreciation was understated by $19,000. Provide the journal entry to adjust the prior period error (ignore any tax effects).

> Journalize the following transactions: a. Janson Co. acquired 150 shares of its own $6 par-value common stock at $12 per share. b. Twenty-four of the treasury shares are reissued at $17 per share. c. Nineteen of the treasury shares are reissued at $5 pe

> On July 24, 201X, Flamingo Corporation declared a 2% stock dividend distributable August 18 to stockholders of record on August 8. Currently Flamingo has 6,400 shares of common stock issued and outstanding. The stock has a par value of $11. The current f

> On March 20, 201X, the board of directors of Marshall Corporation declared $5 cash dividend per share on the 14,000 shares issued and outstanding. The dividend will be paid on April 28, 201X, to stockholders of record on March 22, 201X. Record journal en

> From the following, calculate the dividends for common and preferred stock: • 13% fully participating preferred stock. • The board declared a $195,000 dividend. • Preferred stock 3,100 shares, $110 par value; common stock 9,300 shares, $80 par.

> The following trial balance (Figure 3.30) was prepared incorrectly. Figure 3.30: a. Rearrange the accounts in proper order. b. Calculate the total of the trial balance. (Small numbers are used intentionally so that you can do the calculations in your

> Prior to the current year, Joseph Co. owed $14,200 each year for 10 years to holders of cumulative preferred stock. This year Joseph’s pays out $175,000 in dividends to preferred and common. How much did each class of stock receive?

> Leaf Corporation has capital stock of $7,500. Its Retained Earnings account has a $14,900 balance. Cash has a balance of $9,200. What is the total of stockholders’ equity for Leaf Corporation?

> From the following, journalize the (a) sale of assets and (b) loss or gain from liquidation realization. Given: Cash …………………………………………….…………………….. $ 3,500 Other Assets …………………………..…………………………….. 18,000 Liabilities ……………………………..……………………………….. 4,200 Meade,

> From the following capital balances, calculate the profit and loss ratio for each account: Betty Blackstead, Capital …………………………….. $ 500 Artie Juniper, Capital …………………………………….. 700 Ted Plank, Capital ……………………………………….. 1,100

> On May 2, Artie Offerman sold his equity in the partnership to Brian Miller for $5,900. Artie’s capital account had a $4,100 balance. Record the journal entry.

> Using your answer from Concept Check 4, how much more income is to be distributed to the partners (assume each shares equally) after the salary and interest allowances? If net income was $16,700, how much would the partners share in the deficit? Concept

> If the partners in Concept Check 2 have the following agreement, please calculate the total salary and interest allowances: Concept Check 2: John Michael, Nicholas Paschalis, and Dina Marie invested $9,600, $10,500, and $8,700, respectively. At the end