Exam 1 Notes
The controller, rather than the treasurer, is typically responsible for which one of the following functions?
Processing cost reports
Deciding which long-term investment a firm should make is a ______ decision.
capital budgeting
Determining the number of shares of stock to issue is an example of a ______ decision.
capital structure
The cash flow that is available for distribution to a corporation's creditors and stockholders is called the:
cash flow from assets.
Cullen invested $5,000 five years ago and earns 6 percent annual interest. By leaving his interest earnings in her account, he increases the amount of interest he earns each year. His investment is best described as benefitting from:
compounding
A business that is a legal entity separate from the owners, yet treated as a legal person, is called a(n):
corporation.
Agency problems are most likely to be associated with:
corporations.
According to the statement of cash flows, an increase in interest expense will ______ the cash flow from ______ activities.
decrease; operating
Assuming a firm earns taxable income, an increase in ______ will cause the cash flow from assets to increase.
depreciation expense
Corporate bylaws:
determine how a corporation regulates itself.
Andrew just calculated the present value of a $15,000 bonus he will receive next year. The interest rate he used in his calculation is referred to as the:
discount rate.
The process of determining the present value of future cash flows in order to know their value today is referred to as:
discounted cash flow valuation.
Cash flow to stockholders is defined as:
dividend payments less net new equity raised.
A firm's ______ is the firm's mix of short-term assets and short-term liabilities
net working capital
The entire repayment of a(n) _____ loan is calculated by computing one single future value.
pure discount
A sole proprietorship:
requires the owner to be personally responsible for all of the company's debts.
A common-size income statement is an accounting statement that expresses all of a firm's expenses as a percentage of:
sales.
Financial managers should primarily focus on the interests of:
shareholders
Ultimately, the ______ control(s) the corporation.
shareholders
Ratios that measure a firm's liquidity are known as ______ ratios.
short-term solvency
A firm owned by a single person who has unlimited liability for the firm's debt is called a:
sole proprietorship.
Dominic's Custom Draperies has a fixed asset turnover rate of 1.13 and a total asset turnover rate of .94. Its competitor, Window Fashions, has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .91. Both companies have similar operations. Based on this information, Dominic's must be _____ than Window Fashions.
utilizing its total assets more efficiently
Usually, the treasurer of a corporation reports directly to the:
vice president of finance
You just won the $107.5 million Ultimate Lotto jackpot. Your winnings will be paid as $4,300,000 per year for the next 25 years. If the appropriate interest rate is 7.6 percent, what is the value of your windfall?
$47,514,359.15 PV = $4,300,000[(1 − 1/1.076^25)/.076] = $47,514,359.15
A preferred stock pays an annual dividend of $5.20. What is one share of this stock worth today if the rate of return is 10.44 percent?
$49.81 PV = $5.20/.1044PV = $49.81
Sweets by Lakshmi has sales of $56,000, net income of $3,360, retained earnings of $2,800, and a retention ratio of 80 percent. Assume the net profit margin and the payout ratio are constant and sales increase by 7 percent. What is the pro forma retained earnings?
$5,676 Pro forma retained earnings = $2,800 + ($3,360)(.80)(1.07) Pro forma retained earnings = $5,676
At the beginning of the year, Nothing More Corporation had a long-term debt balance of $37,429. During the year, the company repaid a long-term loan in the amount of $10,139. The company paid $3,855 in interest during the year, and opened a new long-term loan for $8,945. What was the cash flow to creditors during the year?
$5049 Cash flow to creditors = $10,139 + 3,855 − 8,945 = $5,049
A scholarship will pay you $150 at the end of each month for four years while you attend college. At a discount rate of 3.7 percent, what are these payments worth to you on the day you enter college?
$6,682.99 PVA = $150({1 − [1/(1 + .037/12)^(4)(12)]}/(.037/12)) PVA = $6,682.99
The Distribution Point plans to save $2,000 a month for the next 3 years for future emergencies. The interest rate is 4.5 percent compounded monthly. The first monthly deposit will be made today. What would today's deposit amount have to be if the firm opted for one lump sum deposit that would yield the same amount of savings as the monthly deposits after 3 years?
$67,485.97 PVADue = $2,000({1 − [1/(1 + .045/12)^(3)(12)]}/(.045/12))[1 + (.045/12)] PVADue = $67,485.97
The Primus Corporation began the year with $7,226 in its long-term debt account and ended the year with $8,802 in long-term debt. The company paid $939 in interest during the year and issued $2,310 in new long-term debt. How much in long-term debt must the company have paid off during the year?
$734 Net new borrowing = $8,802 − 7,226 = $1,576 Debt retired = $2,310 − 1,576 = $734
Barre Dance has sales of $30,600, costs of $15,350, addition to retained earnings of $4,221, dividends paid of $469, interest expense of $1,300, and a tax rate of 21 percent. What is the amount of the depreciation expense?
$8,013.29 Net income = $4,221 + 469 Net income = $4,690 EBT = $4,690/(1 − .21) EBT = $5,936.71 EBIT = $5,936.71 + 1,300 EBIT = $7,236.71 Depreciation = $30,600 − 15,350 − 7,236.71 Depreciation = $8,013.29
Cain Developers desires a sustainable growth rate of 12.7 percent while maintaining a constant dividend payout ratio of 25 percent and a net profit margin of 12 percent. The company has a capital intensity ratio of .95. What equity multiplier is required to achieve the company's desired rate of growth?
1.19 .127 = [ROE(1 − .25)]/{1 − [ROE(1 − .25)]} ROE = .1503, or 15.03%.1503 = .12(1/.95)EM EM = 1.19
What is the equity multiplier for 2021? #17 Ch 3
1.67 times Equity multiplier = $7,420/($3,190 + 1,240) = 1.67 times total assets/(common stock+retained earnings)
What is the sustainable growth rate for a firm with a total asset turnover of 1.46 percent, a net profit margin of 8 percent, an equity multiplier of 1.2, and a dividend payout ratio of 32 percent?
10.53% ROE = .08(1.46)(1.20) ROE = .14016 Retention ratio = 1 − .32 Retention ratio = .68 Sustainable growth rate = [.14016(.68)]/{1 − [.14016(.68)]} Sustainable growth rate = .1053, or 10.53%
Lee Sun's has sales of $4,250, total assets of $3,950, and a profit margin of 6 percent. The firm has a total debt ratio of 42 percent. What is the return on equity?
11.13 % Net income = $4,250 × .06 = $255.00 Total debt ratio = .42 = ($3,950 - Total equity)/$3,950 Total equity = $2,291.00 Return on equity = $255.00/$2,291.00 = .1113, or 11.13%
A firm has sales of $1,150, net income of $219, net fixed assets of $530, and current assets of $286. The firm has $94 in inventory. What is the common-size balance sheet value of inventory?
11.52% Total assets = $530 + 286 = $816 Common-size value of inventory = $94/$816 = .1152, or 11.52%
You're trying to save to buy a new $68,000 sports car. Currently, you have saved $36,840 which is invested at 4.9 percent annually compounded interest. How many years will it be before you purchase the car, assuming the price of the car remains constant?
12.81 years $68,000 = $36,840(1.049^t) t= 12.81 years
Your credit card company charges you 1.15 percent interest per month. What is the APR?
13.80% APR = .0115(12) APR = .1380, or 13.80%
Mashburn Roasters has sales of $807,200, total assets of $768,100, and a net profit margin of 6.68 percent. The firm has a total debt ratio of 54 percent. What is the return on equity?
15.26% ROE = [.0668($807,200)]/[$768,100(1 − .54)]ROE = .1526, or 15.26%
Okafor Design has equity of $168,500, total assets of $195,000, net income of $63,000, and dividends of $37,800. What is the sustainable growth rate?
17.59% ROE = $63,000/$168,500 ROE = .3739, or 37.39% Retention ratio = ($63,000 − 37,800)/$63,000 Retention ratio = .40, or 40% Sustainable growth rate = [.3739(.40)]/{1 − [.3739(.40)]} Sustainable growth rate = .1759, or 17.59%
Nielsen's has annual sales of $352,400 and a net profit margin of 5.2 percent. The firm has beginning owners' equity of $136,400 and ending owners' equity of $139,900. The firm neither sold nor repurchased shares during the year. What is the firm's retention ratio?
19.10% Net income = .052($352,400) Net income = $18,324.80 Retention ratio = ($139,900 − 136,400)/$18,324.80 Retention ratio = .1910, or 19.10%
What is the return on equity for 2021? #1 Ch 3
20.77% Return on equity = $758/($2,920 + 730) = 20.77% net income/(common stock+retained earnings)
You expect to receive $3,000 upon your graduation and will invest your windfall at an interest rate of .41 percent per quarter until the account is worth $4,675. How many years do you have to wait until you reach your target account value?
27.11 years $4,675 = $3,000(1.0041)^t t = 108.42 quarters Years to wait = 108.42/4 = 27.11 years
Jupiter Explorers has $5,800 in sales. The profit margin is 4 percent. There are 5,000 shares of stock outstanding, with a price of $1.70 per share. What is the company's price-earnings ratio?
36.64 times Earnings per share = ($5,800 × .04)/5,000 = $.04640 Price-earnings ratio = $1.70/$.04640 = 36.64 times
If A7X Company has an ROA of 7 percent and a payout ratio of 24 percent, what is its internal growth rate?
5.62% We need to calculate the retention ratio to calculate the internal growth rate. The retention ratio is: b = 1 − .24 b = .76 Now we can use the internal growth rate equation to get: Internal growth rate = (ROA × b)/[1 − (ROA × b)] Internal growth rate = [.07(.76)]/[1 − .07(.76)] Internal growth rate = .0562, or 5.62%
One of your customers has just made a purchase in the amount of $12,000. You have agreed to payments of $290 per month and will charge a monthly interest rate of .84 percent. How many months will it take for the account to be paid off?
51.06 months $12,000 = $290[(1 − 1/1.0084^t)/.0084] t = 51.06 months
Twenty-one years ago, Marisol set aside $5,000 in case of a financial emergency. Today, that account has increased in value to $18,250. What annually compounded rate of interest is her account earning?
6.36% $18,250 = $5,000[(1 + r)^21] r = .0636, or 6.36%
Mr. Rich arranged for a mortgage loan for 65 percent of the $2.5 million purchase price of a home. The monthly payment will be $10,400 and the mortgage term is 30 years. What is the EAR on this loan?
6.82% Loan amount = $2,500,000(.65) Loan amount = $1,625,000 PVA = $1,625,000 = $10,400[(1 − {1/[1 + (r/12)]^(30)(12)})/(r/12)] r = .0662, or 6.62% EAR = (1 + .0662/12)^12 − 1 EAR = .0682, or 6.82%
Campos Restaurant Supply has a return on assets of 9 percent, a return on equity of 11.3 percent, and a payout ratio of 22 percent. What is its internal growth rate?
7.55% Internal growth rate = [.09(1 − .22)]/[1 − .09(1 − .22)] Internal growth rate = .0755, or 7.55%
The Floor Store wants to maintain a growth rate of 5 percent without incurring any additional equity financing. The firm maintains a constant debt-equity ratio of .55, a total asset turnover ratio of 1.30, and a net profit margin of 9 percent. What must the dividend payout ratio be?
73.74% ROE = .09(1.30)(1.55) ROE = .18135, or 18.135% Sustainable growth rate = .18135b/(1 − .18135b) = .05 b = .2626 Payout ratio = 1 − .2626 Payout ratio = .7374, or 73.74%
On the statement of cash flows, which one of the following is considered a financing activity?
Dividends paid
Which of the following questions are appropriate to address during the financial planning process? I. Should the firm merge with a competitor? II. Should additional shares of stock be sold? III. Should a particular division be sold? IV. Should a new product be introduced?
I, II, III, and IV
Which of the following questions should be considered when developing a corporation's financial plan? I. How much net working capital will be needed? II. Will additional fixed assets be required? III. Will dividends be paid to shareholders? IV. How much new debt must be obtained?
I, II, III, and IV
Which one of the following is a source of cash for a tax-exempt firm?
Increase in common stock
Eunchae invested $2,000 six years ago at 4.5 percent interest. She spends all of her interest earnings immediately so she only receives interest on her initial $2,000 investment. Which type of interest is she earning?
Simple interest
Which of the following parties are not considered stakeholders of a firm?
competitors
The actual interest rate on a loan that is compounded monthly but expressed as an annual rate is referred to as the _____ rate.
effective annual
An ordinary annuity is best defined as:
equal payments paid at the end of regular intervals over a stated time period.
A firm owned by two or more people who each have unlimited liability for all of the firm's debts is called a:
general partnership
A general partner:
is personally responsible for 100 percent of the debts of the partnership
A limited liability company:
is taxed similarly to a partnership.
The Sarbanes-Oxley Act of 2002 holds a public company's ______ responsible for the accuracy of the company's financial statements.
managers
A limited partnership:
must have at least one general partner.
A perpetuity is defined as:
unending equal payments paid at equal time intervals.
Your local pawn shop lends money at an annual rate of 24 percent compounded weekly. What is the effective annual rate being charged on these loans?
27.05% EAR = (1 + .24/52)^52 − 1 EAR = .2705, or 27.05%
Johnson Furniture has $27,600 in net fixed assets and is operating at 96 percent of capacity. Sales are $36,200 currently. What is the required increase in fixed assets if sales are projected to increase by 14 percent?
$2,605 Full-capacity sales = $36,200/.96 Full-capacity sales = $37,708.33 Required increase in fixed assets = ($27,600/$37,708.33)($36,200)(1.14) − $27,600 Required increase in fixed assets = $2,605
Assuming an interest rate of 4.9 percent, what is the value of the following cash flows four years from today? Year Cash Flow 1 $2,875 2 $3,940 3 $5,760 4 $7,825
$21,521.49 FV = $2,875(1.049)^3 + $3,940(1.049)^2 + $5,760(1.049) + $7,825 = $21,521.49
You will receive $15,000 in two years when you graduate. You plan to invest this at an annual interest rate of 6.5 percent, compounded annually. How much money will you have 8 years from now?
$21,887.13 FV = $15,000(1.065^(8 − 2)) FV = $21,887.13
The winner of the first annual Tom Morris Golf Invitational won $170 in the competition which was held in 1912. In 2015, the winner received $1,590,000. If the winner's purse continues to increase at the same interest rate, how much will the winner receive in 2046?
$24,919,359.46 $1,590,000 = $170 × (1 + r)^103 r = .0928, or 9.28% FV = $1,590,000(1.0928)^31 = $24,919,359.46
You need to have $32,000 in 7 years. You can earn an annual interest rate of 3 percent for the first 4 years, and 3.6 percent for the next 3 years. How much do you have to deposit today?
$25,569.48 PV = $32,000/1.036^3 = $28,778.67 PV = $28,778.67/1.030^4 = $25,569.48
Thakur Industries has sales of $465,000, interest paid of $2,450, costs of 150,000, and depreciation of $20,400. What is the operating cash flow if the tax rate is 21 percent?
$253,649 EBIT = $465,000 − 150,000 − 20,400 EBIT = $294,600 Tax = ($294,600 − 2,450)(.21) Tax = $61,352 OCF = $294,600 + 20,400 − 61,352 OCF = $253,649
Your grandparents put $11,200 into an account so that you would have spending money in college. You put the money into an account that will earn an APR of 4.39 percent compounded monthly. If you expect that you will be in college for 4 years, how much can you withdraw each month?
$254.84 $11,200 = C{1 − 1/[1 + (.0439/12)]^48}/(.0439/12) C = $254.84
Thornton, Incorporated, had taxable income of $131,582 for the year. The company's marginal tax rate was 34 percent and its average tax rate was 21 percent. How much did the company have to pay in taxes for the year?
$27,632 Taxes = $131,582(.21) = $27,632
Last year's simplified financial statements for Adeyemi Cycles are shown below. Assume there are no income taxes. The firm is forecasting a sales increase of 11 percent. Assets and expenses are proportional to sales, but debt and equity are not. The firm does not plan to pay dividends. How much external financing will Adeyemi need to support its growth? #18 Ch 4
$27,749 Projected total assets = ($423,000)(1.11) Projected total assets = $469,530 Projected owners' equity = $253,800 + [($84,600 − 67,680)(1.11)] Projected owners' equity = $272,581.20 EFN = $469,530 − 169,200 − 272,581.20 EFN = $27,749
You are going to deposit $2,800 in an account that pays .54 percent interest per quarter. How much will you have in 8 years?
$3,326.61 FV = $2,800 × 1.0054^32 = $3,326.61
Assume a firm with sales of $28,400 is currently operating at 98 percent of capacity. The firm currently has fixed assets of $16,900 and total assets of $24,600. Next year, sales are projected to increase to $35,000. What is the projected addition to fixed assets?
$3,511 Current maximum capacity = $28,400/.98 Current maximum capacity = $28,979.59 Required addition to fixed assets = ($16,900/$28,979.59)($35,000) − $16,900 Required addition to fixed assets = $3,511
You are examining a company's balance sheet and find that it has total assets of $20,061, a cash balance of $2,019, inventory of $4,689, current liabilities of $5,381, and accounts receivable of $2,545. What is the company's net working capital?
$3,872 NWC = Current assets − Current liabilities NWC = ($2,019 + 2,545 + 4,689) − 5,381 NWC = $3,872
A company has net working capital of $1,834. If all its current assets were liquidated, the company would receive $5,767. What are the company's current liabilities?
$3,933 - NWC = Current assets − Current liabilities $1,834 = $5,767 − CL CL = $3,933
Thanh invested $12,500 in an account that pays 5.75 percent simple interest. How much more could she have earned over a 13-year period if the interest had compounded annually?
$4,012 FVSimple = $12,500 + ($12,500)(.0575)(13) FVSimple = $21,844 FVCompound = $12,500(1.0575^13) FVCompound = $25,856 Difference = $25,856 − 21,844 Difference = $4,012
Five years from today, you plan to invest $2,500 for 7 additional years at 8.4 percent compounded annually. How much will you have in your account 12 years from today?
$4,396.88 FV = $2,500 × 1.084^7 = $4,396.88
What is the future value of $3,048 invested for 8 years at 5.7 percent compounded annually?
$4,749.14 FV = $3,048 × 1.057^8 = $4,749.14
Kerch Company had beginning net fixed assets of $216,526, ending net fixed assets of $211,694, and depreciation of $40,447. During the year, the company sold fixed assets with a book value of $7,990. How much did the company purchase in new fixed assets?
$43,605 Net capital spending = $211,694 − 216,526 + 40,447 = $35,615 Fixed assets bought = $35,615 + 7,990 = $43,605
Travis International has a one-time expense of $1.13 million that must be paid two years from today. The firm can earn 4.3 percent, compounded monthly on its savings. How much must the firm save each month to fund this expense if the firm starts investing equal amounts each month starting at the end of this month?
$45,172.02 FVA = $1.13 million = C({[1 + (.043/12)]^(2)(12) − 1}/(.043/12)) C = $45,172.02
You are going to deposit $19,500 today. You will earn an annual rate of 3.5 percent for 12 years, and then earn an annual rate of 2.9 percent for 15 years. How much will you have in your account in 27 years?
$45,242.80 FV = $19,500 × 1.035^12 = $29,465.84 FV = $29,465.84 × 1.029^15 = $45,242.80
What is the fixed asset turnover for 2021? #3 Ch 3
2.81 times Fixed asset turnover = $10,850/$3,860 = 2.81 times net sales/net fixed assets
What is the present value of $13,100 to be received 3 years from today if the discount rate is 5 percent?
$11,316.27 PV = $13,100/1.05^3 = $11,316.27
Which capital intensity ratio indicates the smallest need for fixed assets per dollar of sales?
.07 (smallest number)
The book value of a firm is:
based on historical transactions.
What were the total dividends paid for 2021? #13 Ch 3
$1,257 million Retention ratio = ($860 million - 610 million)/$1,507 million = .166 (retained earnings 2021- retained earnings 2020)/net income Dividends paid = (1 - .166) × $1,507 million = $1,257 million net income
Navarrete Incorporated has net income of $62,300, a tax rate of 21 percent, and a net profit margin of 6.7 percent. Total assets are $1,100,500 and current assets are $328,200. How many dollars of sales are being generated from every dollar of net fixed assets?
$1.20 Fixed asset turnover = ($62,300/.067)/($1,100,500 − 328,200) Fixed asset turnover = $1.20 For every $1 in net fixed assets, the firm generates $1.20 in sales.
Thunder Bolt has sales of $137,000, net income of $14,000, total assets of $98,000, and total equity of $45,000. The firm paid $7,560 in dividends and maintains a constant dividend payout ratio. Currently, the firm is operating at full capacity. All costs and assets vary directly with sales. The firm does not want to obtain any additional external equity. At the sustainable rate of growth, how much new total debt must the firm acquire?
$8,852 Dividend payout ratio = $7,560/$14,000 Dividend payout ratio = .54 Retention ratio = 1 − .54 Retention ratio = .46 Sustainable growth rate = [($14,000/$45,000)(.46)]/{1 − [($14,000/$45,000)(.46)]} Sustainable growth rate = .167012 Projected total assets = $98,000(1.167012) Projected total assets = $114,367.22 Current debt = $98,000 − 45,000 Current debt = $53,000 Projected equity = $45,000 + ($14,000)(1.167012)(.46) Projected equity = $52,515.56
What is the future value of $1,575 deposited at the end of each year for 25 years? Assume an interest rate of 6.3 percent compounded annually.
$90,152.04 FVA = $1,575[(1.063^25 − 1)/.063] FVA = $90,152.04
Franklin's has sales of $416,000, a price-earnings ratio of 18, and a net profit margin of 3.7 percent. There are 12,000 shares of stock outstanding. What is the price-sales ratio?
.67 EPS = [.037($416,000)]/12,000EPS = $1.28Price-sales ratio = [18($1.28)]/($416,000/12,000)Price-sales ratio = .67
The most recent census for a city indicated that there were 857,382 residents. The population of the city is expected to increase at an annual rate of 3.1 percent each year for the next 7 years. What will the population be at that time?
1,061,659 FV = 857,382 × 1.031^7= 1,061,659
You have just leased a car that has monthly payments of $385 for the next 5 years with the first payment due today. If the APR is 7.32 percent compounded monthly, what is the value of the payments today?
$19,413.51 #18 Ch 6
Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 50 percent dividend payout ratio. As with every other firm in its industry, next year's sales are projected to increase by exactly 25 percent. What is the external financing needed? #12 Ch 4
$1,813.12 The payout ratio is 50 percent, so dividends will be: Dividends = (expression error)($1,058.75) Dividends = $529.38 The addition to retained earnings is: Addition to retained earnings = $1,058.75 − 529.38 Addition to retained earnings = $529.38 So the EFN is: EFN = Total assets − Total liabilities and equity EFN = $12,750.00 − 10,936.88 EFN = $1,813.12
A firm has net working capital of $420, net fixed assets of $2,166, sales of $5,300, and current liabilities of $730. How many dollars worth of sales are generated from every $1 in total assets?
$1.60 Current assets = $420 + 730 = $1,150 Total asset turnover = $5,300/($1,150 + 2,166) = 1.60 Sales generated by $1 in total assets = $1 × 1.60 = $1.60
You Save Bank has a unique account. If you deposit $7,000 today, the bank will pay you an annual interest rate of 3 percent for 4 years, 3.6 percent for 3 years, and 4.3 percent for 7 years. How much will you have in your account in 14 years?
$11,762.95 FV = $7,000 × 1.030^4 = $7,878.56 FV = $7,878.56 × 1.036^3 = $8,760.45 FV = $8,760.45 × 1.043^7 = $11,762.95
Tip Top Hats has $1,320 of cash, inventory of $10,200, net fixed assets of $33,600, accounts payable of $3,650, accounts receivable of $3,780, and long-term debt of $18,100. All costs, net working capital, and fixed assets vary directly with sales. Sales are projected to increase by 4.8 percent annually. What is the pro forma net working capital for next year?
$12,209 Pro forma net working capital = ($1,320 + 3,780 + 10,200 − 3,650)(1.048) Pro forma net working capital = $12,209
Mo will receive a perpetuity of $14,000 per year forever, while Curly will receive the same annual payment for the next 50 years. If the interest rate is 5.8 percent, how much more are Mo's payments worth?
$14,401.80 PV = $14,000/.058 = $241,379.31 PV = $14,000[(1 − 1/1.0580^50)/.0580] = $226,977.51 Difference = $241,379.31 − 226,977.51 = $14,401.80
At the beginning of the year, Vendors, Incorporated, had owners' equity of $51,605. During the year, net income was $7,725 and the company paid dividends of $5,105. The company also repurchased $9,655 in equity. What was the cash flow to stockholders for the year?
$14,760 Cash flow to stockholders = $5,105 + 9,655 = $14,760
Assume your mother invested a lump sum 28 years ago at 4.05 percent interest, compounded annually. Today, she gave you the proceeds of that investment, totaling $48,613.24. How much did your mother originally invest?
$15,994.70 PV = $48,613.24/1.0405^28 PV = $15,994.70
For the past year, Kayla, Incorporated, has sales of $45,797, interest expense of $3,620, cost of goods sold of $16,134, selling and administrative expense of $11,481, and depreciation of $5,980. If the tax rate is 21 percent, what is the operating cash flow?
$16,380 EBIT = $45,797 − 16,134 − 11,481 − 5,980 = $12,202 EBT = $12,202 − 3,620 = $8,582 Taxes = $8,582(.21) = $1,802 OCF = $12,202 + 5,980 − 1,802 = $16,380
Sai purchased a car today at a price of $8,500. He paid $600 down in cash and financed the balance for 48 months at 5.4 percent per year compounded monthly. What is the amount of each monthly loan payment?
$183.37 PVA = ($8,500 − 600) = C [(1 − {1/[1 +(.054/12)]^48})/(.054/12)] C = $183.37
Rocky Top has a capital intensity ratio of .87 at full capacity. Currently, total assets are $48,900 and current sales are $53,600. At what level of capacity is the firm currently operating?
95.36% Total capacity sales = $48,900/.87 Total capacity sales = $56,206.90 Current capacity utilization = $53,600/$56,206.90 Current capacity utilization = .9536, or 95.36%
Which one of the following statements related to the cash flow to creditors must be correct?
A positive cash flow to creditors represents a net cash outflow from the firm.
Which one of the following accounts is the most liquid?
Accounts Receivable
Which one of the following statements is correct?
An increase in the depreciation expense will not affect the cash coverage ratio.
Which one of the following is a current liability?
An invoice payable to a supplier in 45 days
Which one of the following actions will increase the present value of an amount to be received sometime in the future?
Decrease in the interest rate
The value of which one of the following is excluded from the firm's book value, but is included in the market value?
Employees' collective experience level
Which one of the following describes a noncash item?
Expenses that do not consume cash
Which one of the following is excluded from the cash flow from assets?
Interest expense
Which one of the following best states the primary goal of financial management?
Maximize the current value per share
Which one of the following grants an individual the right to vote on behalf of a shareholder?
Proxy
Which one of the following is correct in relation to pro forma statements?
The addition to retained earnings is equal to net income less cash dividends.
Which one of these statements related to growing annuities and perpetuities is correct?
The present value of a growing perpetuity will decrease if the discount rate is increased.
Tobin's Q relates the market value of a firm's assets to which one of the following?
Today's cost to duplicate those assets
Nielsen Paint had interest expense of $38,400, depreciation of $28,100, and taxes of $19,600 for the year. At the start of the year, the firm had total assets of $879,400 and current assets of $289,600. By year's end total assets had increased to $911,900 while current assets decreased to $279,300. What is the amount of the cash flow from investment activity for the year?
−$70,900 Cash flow from investment activity = ($879,400 − 289,600) − $28,100 − ($911,900 − 279,300)Cash flow from investment activity = −$70,900
Zeng Systems is currently operating at full capacity. The firm, has sales of $47,000, current assets of $5,100, current liabilities of $6,200, net fixed assets of $51,500, and a net profit margin of 5 percent. The firm has no long-term debt and does not plan on acquiring any. The firm does not pay any dividends. Sales are expected to increase by 3 percent next year. If all assets, short-term liabilities, and costs vary directly with sales, how much additional equity financing is required for next year?
−$908.50 Projected assets = ($5,100 + 51,500)(1.03) Projected assets = $58,298 Projected liabilities = $6,200(1.03) Projected liabilities = $6,386 Current equity = $5,100 + 51,500 − 6,200 Current equity = $50,400 Projected increase in retained earnings = $47,000(.05)(1.03) Projected increase in retained earnings = $2,420.50 Equity funding needed = $58,298 − 6,386 − 50,400 − 2,420.50 Equity funding needed= −$908.50
