Financial management

Which one of the following is a use of cash?

Decrease in accounts payable

Which one of these is most apt to be a fixed cost?

office salaries

John and Jen will receive $20,000 from their trust fund in 9.25 years. Their discount rate is 3 percent per quarter (note there are 3 months in one quarter). How much would they be willing to sell the trust fund for today? Round your answer to two decimal places. Note that there are four compounding periods in one year.

$20000*(1+3%)(-9.25*4) since there are 4 compounding periods in each year. PV = $6,699.66

A firm has sales of $4,760, costs of $2,560, interest paid of $171, and depreciation of $477. The tax rate is 30 percent. What is the cash coverage ratio and what does it mean?

$4,760 - $2,560 - $477 = $1,723 Cash coverage ratio = ($1,723 + $477) / $171 = 12.87 The firm's operations generated $12.87 in cash for every $1 it paid in interest.

If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?

.5

Duane and Thad plan on retiring 27 years from today and plan to have the same amount saved at that time. In preparation for this, Duane is depositing $15,000 today at an annual interest rate of 5.2 percent. How will Thad's deposit amount vary from Duane's if Thad also makes a deposit today but earns an annual interest rate of 6.2 percent?

3381.39 less

Griffin's Goat Farm, Inc., has sales of $796,000, costs of $327,000, depreciation expense of $42,000, interest expense of $34,000, and a tax rate of 21 percent. What is the net income for this firm?

796,000-327,000-42,000-34,000=393,000 393,000x .21=82,530 393,000-82,530=31,470 31,470

What is the present value of $45,000 to be received 50 years from today if the discount rate is 8 percent?

959.46

Steven recently won $1 in the scratch-n-play lotto. His banker, Marianne, promises to pay him 1% per month if he will invest his money in her bank for 13.5 years. Part A: How much interest will Steven have earned after one year? Note that there are 12 compounding periods in one year. Part B: How much money will Steven have in the bank after 13.5 years? Round your answer to two decimals but don't include the dollar sign. Part C: Given that Steven earns 1% per month, how many years (not months) would Steven have to wait until he had $600 in the bank account? Round your answer to two decimals.

A. (1.01)12 = $1.1268 12.68%. B.(1.01)13.5*12 = $5.01 C.(1.01)T*12 = $600 for T 53.57 years.

Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $6 million. The machinery can be sold to the Romulans today for $5.1 million. Klingon's current balance sheet shows net fixed assets of $3.4 million, current liabilities of $895,000, and net working capital of $235,000. If the current assets and current liabilities were liquidated today, the company would receive a total of $1.15 million cash. a.What is the book value of Klingon's total assets today? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) b.What is the sum of the market value of NWC and the market value of fixed assets? (Enter your answer in dollars, not millions of dollars

A. 235,000+895,000=1,130,000(current asset) Fixed asset: 3.4 million 3.4 mill+1.13 mill=4.53 mill Total Asset= 4,530,000 B. Current asset: 1.15 mill Fixed asset: 5.1 mill Total asset: 1.15 mill+5.1 mill=6.25 mill

You are given the following information for Thrice Corp.: Decrease in inventory$375 Decrease in accounts payable 220 Increase in notes payable 290 Increase in accounts receivable 270 a. Did cash go up or down? By how much? b. Classify each event as a source or use of cash.

A. Change in cash = Sources − UsesChange in cash = $375 − 220 + 290 − 270 Change in cash = $175 B. A decrease in inventory is a source of cash A decrease in accounts payable is a use of cash Increase in notes payable is a source of cash Increase in accounts receivable is a use of cash

Griffin's Goat Farm, Inc., has sales of $796,000, costs of $327,000, depreciation expense of $42,000, interest expense of $34,000, a tax rate of 21 percent, and paid out $95,000 in cash dividends. The common stock outstanding is 80,000 shares. a. What is the earnings per share figure? 2 decimal places, 32.16 b.What is the dividends per share figure? 2 decimal places

A. EPS = Net income/Shares = $310,470/80,000 = $3.88 per share B.DPS = Dividends/Shares = $95,000/80,000 = $1.19 per share

You have just made your first $5,500 contribution to your retirement account. Assume you earn a return of 10 percent per year and make no additional contributions. a.What will your account be worth when you retire in 45 years? b.What if you wait 10 years before contributing?

A. FV = $5,500(1.10)45 FV = $400,897.66 A. FV = $5,500(1.10)35 FV = $154,563.40

Wims, Inc., has current assets of $4,900, net fixed assets of $27,300, current liabilities of $4,100, and long-term debt of $10,200. a. What is the value of the shareholders' equity account for this firm? (Do not round intermediate calculations.) b.How much is net working capital?

A.(4,900+27,300)- (4,100+10,200) = $17,900 Owners' equity = 17,900 B.NWC = CA - CL = $4,900 - 4,100 = $800

During 2018, Raines Umbrella Corp. had sales of $705,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $445,000, $95,000, and $140,000, respectively. In addition, the company had an interest expense of $70,000 and a tax rate of 25 percent. (Ignore any tax loss carryforward provisions and assume interest expense is fully deductible.) a.What is the company's net income (loss) for 2018? b.What is the company's operating cash flow?

A.705,000-445,000-95,000-140,000-70,000=-45,000 Neg numbers=0 in taxes NET Loss: -45,000 B.705,000-445,000-95,000-140,000=$25,000 25,000+ 140,000 − 0 = $165,000 OCF: 165,000

DTO, Inc., has sales of $16.7 million, total assets of $12.9 million, and total debt of $5.7 million. Assume the profit margin is 5 percent. a.What is net income? b.What is ROA? c.What is ROE?

A.Net income = .05($16,700,000) Net income = $835,000 B.ROA = $835,000/$12,900,000 ROA = .0647, or 6.47% C.TE = $12,900,000 − 5,700,000 TE = $7,200,000 ROE = $835,000/$7,200,000 ROE = .1160, or 11.60%

Twist Corp. has a current accounts receivable balance of $537,810. Credit sales for the year just ended were $5,473,640. a.What is the receivables turnover? b.What is the days' sales in receivables? Use 365 days a year. c.How long did it take on average for credit customers to pay off their accounts during the past year? Use 365 days a year.

A.Receivables turnover = $5,473,640/$537,810 Receivables turnover = 10.18 times B. Days' sales in receivables = 365/10.18Days' sales in receivables = 35.86 days C. On average, the company's customers paid off their accounts in 35.86 days.

Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date?

Balance Sheet

Al's has a price-earnings ratio of 18.5. Ben's also has a price-earnings ratio of 18.5. Which one of the following statements must be true if Al's has a higher PEG ratio than Ben's?

Ben is increasing its earning at a faster rate than Al's.

The 2017 balance sheet of Kerber's Tennis Shop, Inc., showed long-term debt of $1.87 million, and the 2018 balance sheet showed long-term debt of $2.21 million. The 2018 income statement showed an interest expense of $255,000. During 2018, Kerber's Tennis Shop, Inc., realized the following: Cash flow to creditors-$85,000 Cash flow to stockholders$170,000 Suppose you also know that the firm's net capital spending for 2018 was $1,250,000, and that the firm reduced its net working capital investment by $45,000. What was the firm's 2018 operating cash flow, or OCF? Hint: use the cash flow identity to solve for OCF. If you don't know what that is, review the text and lectures.

Cash flow from assets= Cash flow to creditors + Cash flow to stockholders Cash flow from assets= -$85,000 + 170,000 = $85,000 Cash flow from assets= $85,000 = OCF - Change in NWC - Net capital spending Cash flow from assets= $85,000 = OCF - (-$45,000) - 1,250,000 Operating cash flow= $85,000 - 45,000 + 1,250,000 Operating cash flow= $1,290,000 Answer:1,290,000

The 2017 balance sheet of Kerber's Tennis Shop, Inc., showed long-term debt of $1.87 million, and the 2018 balance sheet showed long-term debt of $2.21 million. The 2018 income statement showed an interest expense of $255,000. What was the firm's cash flow to creditors during 2018?

Cash flow to creditors = $255,000 - ($2,210,000 - 1,870,000) Cash flow to creditors = -$85,000

The 2017 balance sheet of Kerber's Tennis Shop, Inc., showed $650,000 in the common stock account and $3.98 million in the additional paid-in surplus account. The 2018 balance sheet showed $805,000 and $4.2 million in the same two accounts, respectively. If the company paid out $545,000 in cash dividends during 2018, what was the cash flow to stockholders for the year?

Cash flow to stockholders = $545,000 - [($805,000 + 4,200,000) - ($650,000 + 3,980,000)] Cash flow to stockholders = $170,000

The 2017 balance sheet of Dream, Inc., showed current assets of $4,810 and current liabilities of $2,230. The 2018 balance sheet showed current assets of $5,360 and current liabilities of $2,970. What was the company's 2018 change in net working capital, or NWC?

Change in NWC = ($5,360 - 2,970) - ($4,810 - 2,230) Change in NWC = $2,390 - 2,580 Change in NWC = -$190

A firm has net working capital of $580, net fixed assets of $2,326, sales of $6,900, and current liabilities of $890. How many dollars worth of sales are generated from every $1 in total assets? Hint: Which ratio links total assets and sales?

Current assets = $580 + $890 = $1,470 Total asset turnover = $6,900 / ($1,470 + $2,326) = 1.82

Queen, Inc., has a total debt ratio of .46. a.What is its debt-equity ratio? b.What is its equity multiplier?

Debt-equity ratio = TD/TE = .46/.54 = .85 Equity multiplier = 1 + D/E = 1.85

Your firm has net income of $301 on total sales of $1,220. Your firm's fixed and variable costs are $680 and depreciation is $110. The tax rate is 30 percent, and total liabilities are $1,000. The firm does not have interest expenses. What is the operating cash flow? Note: This is not the same as cash flow from operations from the Statement of Cash Flows.

EBIT = $1,220 - $680 - $110 = $430 (Sales - Costs - Depreciation) Taxes = 0.30 × $430 = $129 (Tax rate × EBIT) OCF = $430 + $110 - $129 = $411 (EBIT + Depreciation - Taxes) $411

Jack Corp. has a profit margin of 6.4 percent, total asset turnover of 1.77, and ROE of 15.84 percent. What is this firm's debt-equity ratio?

EM = .1584/(.064)(1.77) EM = 1.40 - 1= .40 DE=.40

Your coin collection contains fifty 1952 silver dollars. If your grandparents purchased them for their face value when they were new, how much will your collection be worth when you retire in 2067, assuming they appreciate at an annual rate of 4.3 percent?

FV = $50(1.043)115 FV = $6,333.82

For each of the following, compute the future value

FV=PV(1+interest rate%)^years

Which one of the following statements concerning net working capital is correct?

NWC may be a negative value

Nan and Neal are twins. Nan invests $5,000 at 7 percent at age 25. Neal invests $5,000 at 7 percent at age 30. Both investments compound interest annually. Both twins retire at age 60 and neither adds nor withdraws funds prior to retirement. Which statement is correct?

Nan will have more money than Neal at any age.

6 random formulas

a. Current ratio= Current assets/Current liabilities b. Quick ratio= (Current assets - Inventory)/Current liabilities Quick ratio c. Cash ratio= Cash/Current liabilities d. NWC ratio= NWC/Total assets NWC ratio e. Debt-equity ratio= Total debt/Total equity Debt-equity ratio Equity multiplier= 1 + D/E Equity multiplier f. Total debt ratio= (Total assets - Total equity)/Total assets Long-term debt ratio= Long-term debt/(Long-term debt + Total equity) Long-term debt ratio

Which one of the following statements is correct?

an increase in the depreciation expense will not affect the cash coverage ratio

Solve for the unknown number of years in each of the following

caculate Ln(FV/PV)/Ln(1+Interest%)

Logano Driving School's 2017 balance sheet showed net fixed assets of $2.4 million, and the 2018 balance sheet showed net fixed assets of $3.3 million. The company's 2018 income statement showed a depreciation expense of $319,000. What was net capital spending for 2018?

Net capital spending = $3,300,000 - 2,400,000 + 319,000=1,219,000 Net capital spending = $1,219,000

Y3K, Inc., has sales of $6,183, total assets of $2,974, and a debt-equity ratio of .57. If its return on equity is 11 percent, what is its net income?

PM = [(.11)($2,974)]/[(1 + .57)($6,183)] PM = .0337 .0337($6,183) Net income = $208.37

You have just received notification that you have won the $2 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you're around to collect), 80 years from now. What is the present value of your windfall if the appropriate discount rate is 8.4 percent?

PV = $2,000,000/(1.084)80 PV = $3,152.73

Imprudential, Inc., has an unfunded pension liability of $415 million that must be paid in 20 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 5.2 percent, what is the present value of this liability?

PV = $415,000,000/(1.052)^20 PV = $150,568,214.49

For each of the following, compute the present value

PV=FV/(1+interest rate%)^years (interest% ex: 9%=.09)

If Roten Rooters, Inc., has an equity multiplier of 1.27, total asset turnover of 2.10, and a profit margin of 6.1 percent, what is its ROE?

ROE = (.061)(2.10)(1.27) ROE = .1627, or 16.27%

Prepare a 2018 balance sheet for Rogers Corp. based on the following information: Cash = $127,000; Patents and copyrights = $660,000; Accounts payable = $210,000; Accounts receivable = $115,000; Tangible net fixed assets = $1,610,000; Inventory = $286,000; Notes payable = $155,000; Accumulated retained earnings = $1,368,000; Long-term debt = $830,000. (Be sure to list the accounts in order of their liquidity. Do not round intermediate calculations.)

Total liabilities and owners equity is: TL & OE = CL + LTD + Common stock + Retained earnings Solving for this equation for equity gives us: Common stock = $2,798,000 − 1,195,000 − 1,368,000 = $235,000

The cash flow that is available for distribution to a corporation's creditors and stockholders is called the:

cash flow from assets

You recently purchased a grocery store. At the time of the purchase, the store's market value and its book value were equal. The purchase included the building, fixtures, and inventory. Which one of the following is most apt to cause the market value of this store to be less than its book value?

contruction of a new restricted access highway located between the store and the surrounding residential area.

Sam just opened a savings account paying 3.5 percent interest, compounded annually. After four years, the savings account will be worth $5,000. Assume there are no additional deposits or withdrawals. Given this, Sam:

could have deposited less money today and had 5,000 in 4 years if the account paid a higher rate of interest

On the statement of cash flows, which one of the following is considered an operating activity?

decrease in accounts payable

Which one of the following will increase the cash flow from assets, all else equal?

decrease in the change in NWC

Phillippe invested $1,000 ten years ago and expected to have $1,800 today He has neither added nor withdrawn any money since his initial investment. All interest was reinvested and compounded annually. As it turns out, he only has $1,680 in his account today. Which one of the following must be true?

he earned a lower interest rate than he expected

Your grandmother has promised to give you $10,000 when you graduate from college. If you speed up your graduation by one year and graduate two years from now rather than the expected three years, the present value of this gift will:

increase

An increase in the interest expense for a firm with a taxable income of $123,000 will:

increase the cash from from assets

Net capital spending:

is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense.

In 1895, the first U.S. Open Golf Championship was held. The winner's prize money was $150. In 2016, the winner's check was $1,800,000. What was the percentage increase per year in the winner's check over this period? If the winner's prize increases at the same rate, what will it be in 2040?

r = ($1,800,000/$150)1/121 - 1 r = .0807, or 8.07% FV = $1,800,000(1.0807)24 FV = $11,597,551.40

Although appealing to more refined tastes, art as a collectible has not always performed so profitably. During 2003, Sotheby's sold the Edgar Degas bronze sculpture Petite Danseuse de Quatorze Ans at auction for a price of $10,311,500. Unfortunately for the previous owner, he had purchased it in 1999 at a price of $12,377,500. What was his annual rate of return on this sculpture?

r = ($10,311,500/$12,377,500)^1/4 then - 1 r = -.0446, or -4.46%

Assume the total cost of a college education will be $345,000 when your child enters college in 18 years. You presently have $73,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child's college education?

r = (FV/PV)1/t - 1 r = ($345,000/$73,000)1/18 - 1 r = .0901, or 9.01%

Which one of the following will decrease the value of a firm's net working capital?

selling inventory at a loss

At 6.1 percent interest, how long does it take to double your money? At 6.1 percent interest, how long does it take to quadruple it?

t = ln2/ln1.061 = 11.71 years 11.71*2=23.42

Which one of the following must be true if a firm had a negative cash flow from assets?

the firm utilized money from an outside firm.

RJ's has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .97. Sam's has a fixed asset turnover rate of 1.31 and a total asset turnover rate of .94. Both companies have similar operations. Based on this information, RJ's must be doing which one of the following?

utilizing its total assets more efficiently than Sam's