Work Problems with steps

If you invest $100 for 5 years at 10% interest compounded annually, which of the following will be the formula for the future value of your investment? (Ch. 4)

$161.05 FV = 100 x (1+0.10)^5

If a firm's current assets are $100 and its current liabilities are $80, then its net working capital is (Ch. 2):

$20 100-80 = 20

If you invest $100 at 10% compounded annually, how much money will you have at the end of 3 years? (Ch. 4)

a. $133.10 FV = 100(1+0.10)^3 $133.10 = 100(1+0.10)^3

The future value of a $100 investment in 4 years compounded at 8% per year equals __________. (Ch. 4)

a. $136.05 FV=100(1+0.08)^4

If you invest $500 for one year at a rate of 8% per year, how much interest will you earn? (Ch. 4)

a. $40 $500 x 0.08 = $40

If the Federal marginal tax bracket is 34%, the state marginal tax bracket is 5%, and the local marginal tax bracket is 1%, how much money will a corporation keep if it makes another $1,000,000 in taxable income? (Ch. 2)

a. $600,000 (1 - 0.34 - 0.05 - 0.01) x $1mil = $600,000

You invest $500 at 10% interest per annum. At the end of 2 years with simple interest you will have ______ and with compound interest you will have _______. (Ch. 4)

a. $600; $605. Simple interest formula: 1. 500(0.10)=$50 per year 2. Times two years = $100 total. 3. Adding the original principal yields $600 With compound interest: 1. Total is $500(1.10)^2=$605. 2. The FV will always be higher with compound interest

If interest paid is $100 and net new borrowing is $150, then cash flow to creditors equals (Ch. 2):

a. ($50) - its negative $100 - 150 = (50)

If the interest rate is 10% per year and there are 10 years, what is the present value discount factor? (Ch. 4)

a. 0.3855 Take 1/(1+0.10)^10

What is the debt-equity ratio for a company with $3.5 million in total assets and $1.4 million in equity? (Ch. 3)

a. 1.5 - Total Debt = Assets - Equity --> ($3.5m - 1.4m)/$1.4m = 1.50

Suppose we invest $100 now and receive $259.37 in 10 years. What rate of interest will we achieve? (Ch. 4)

a. 10.0% (259.37/100)^1/10 - 1 = 10

If a company's balance sheet shows $400 in cash, $100 in inventory, and $200 in current liabilities, its cash ratio is _____. (Ch. 3)

a. 2.0 - Cash ratio = 400/200

A firm had operating profit (EBIT) of $300,000 on sales of $500,000. Interest expense was $125,000 and taxes were $60,000. The company has a times interest earned ratio of ______. (Ch. 3)

a. 2.40 - TIE ratio = $300,000/$125,000 = 2.40

AC Motors has net income of $51,750, total assets of $523,400, total debt of $267,000, total sales of $491,300. What is the return on equity? (Ch. 3)

a. 20.18% - ROE = NI/Equity - Equity = Assets - Debt --> $51,750/(523,400 - 267,000) = 20.18%

Alder Inc. has net income of $403,000, operating earnings of $640,000, sales of $1.23 million, and total assets of $1.48 million. What is the return on assets? (Ch. 3)

a. 27.23% $403,000/$1.48m = 27.23%

How long it will take $40 to grow to $240 at an interest rate of 6.53% compounded annually? (Ch. 4)

a. 28.33 years $40 = $240/1.653^t

BC Toys has total equity of $584,000. There are 35,000 shares outstanding at market price of $54 per share. What is the market-to-book ratio? (Ch. 3)

a. 3.24 times --> $54/ ($584,000/35,000) = 3.24 times

AD Corporation had net income of $300,000 and paid out $125,000 in cash dividends to stockholders. The firm's retention ratio is __%. (Round the percent to the nearest whole number) (Ch. 3)

a. 58 - Retention Ratio = addition to retained earnings/net income = (net income-dividends)/Net Income = ($300,000-$125,000)/$300,000 = .58 or 58%

Alpha Manufacturing has interest expense of $12 million, total assets of $184 million, sales of $176 million, long-term debt of $16.4 million, and net income of $15 million. How will interest expense be recorded in the common-size income statement? (Ch. 3)

a. 6.82% --> $12m/$176m = 6.82%

Alpha Manufacturing has cost of goods sold of $90 million and a net income of $9.6 million on total sales of $120 million. Total assets are $150 million. A common-size income statement will show cost of goods sold of 75% and a net profit of _____%. (Ch. 3)

a. 8 - Net Profit = 9.6/120 = 8%

BC Corporation had net income of $3.5 million and paid out $700,000 in cash dividends to stockholders. Their retention ratio is ____%. (Ch. 3)

a. 80 - Retention Ratio = (3.5m-0.7k)/3.5 = 80