308 midterm 1
Suppose that the NASDAQ Composite index hit a level of 4,698 in February of 2000. In February of 1994 it was at a level of 2,100. What was the annual average compound growth rate over the period?
=RATE(6,,-2100,4698) =14.36%
Price Earnings (PE) =
Market Price of Common Stock/ Earning per Share
Return on Common Equity =
Net Income/ Common Equity
Earning per Share (EPS) =
Net Income/ Number of Shares Outstanding
Net Profit Margin =
Net Income/ Sales
Return on Equity =
Net Income/ Total Equity
Operating Profit Margin =
Operating Profit/ Sales
Net Income/Total Assets =
Profit Margin x Total Asset Turnover
Net Income/ Common Equity =
Profit Margin x Total Asset Turnover x Equity Multiplier
Receivable Turnover =
Sales / Accounts Receivable
Fixed Asset Turnover =
Sales/Net Fixed Assets
Total Asset Turnover =
Sales/Total Assets
Debt Ratio =
Total Debt/Total Assets
Market - to - book Ratio =
market value per share/book value per share
How much would you need to deposit in a bank account today in order to have $500 in 3 years if the account has a nominal interest rate of 7% and compounds interest monthly?
=PV(7%/12,3*12,,-500) =$13,580.16
Quick Ratio =
(Current Assets - Inventories) / Current Liabilities
Cash Coverage Ratio =
(EBIT + Depreciation) / Interest
total liabilities/total assets =
1 - (1/Equity Multiplier)
For the following mixed stream of cash flows, determine the future value at the end of the final year if deposits are made into an account paying annual interest of 10%, assuming no withdrawals are made during the period. Remember that the cash flows occur at the end of the year. That is, $10,000 would be deposited into an account at the end of year 1, $9,100 would be deposited at the end of year 2, etc. YearCash Flow Stream 1 10,000 2 9,100 3 6,900
= FV(10%,2,,-10000)+FV(10%,1,,-9100)+6900 = $29,010.00
Debt to Equity Ratio =
= total liabilities / total equity
You deposit $100 in a bank and keep it there for 7-years without withdrawing any funds. Interest in the account is compounded semiannually (twice per year) at the annual nominal rate of 10%. In the final compounding interval, what is the dollar amount of interest that is earned from earlier interest (rather than off of the original principal)?
=(FV(10%/2,13,,-100)-100)*0.05 =4.43
Suppose you invest $14,800 in an investment that pays 5% interest and will mature in 4 years. Once the investment matures, you will reinvest the proceeds (including the initial $14,800) for one more year at a rate of 4%. How much money will you have at the end of the 5th year?
=(FV(5%,4,,-14800)*(1+4%)) =$ 18,709.07
Determine the present value of each of the following perpetuities. Perpetuities AnnualAmount DiscountRate(%) A. 22,000 7 B. 73,000 13 C. 64,000 16 The present value of perpetuity A is __________.
=22000/0.07 =314285.7143
The present value of perpetuity C is ___________.
=64000/0.16 =400000
The present value of perpetuity B is __________.
=73000/0.13 =561538.4615
You have a savings account that pays 3.4% interest compounded quarterly, but you are considering transferring your funds into a savings account that pays 3.1% interest compounded monthly. What is the difference in the effective interest rate of the two accounts?
=EFFECT(3.4%,4)-EFFECT(3.1%,12) =0.30%
What is the future value of $992,000 if it earns an interest rate of 10% for 20 years? Round your answer to two decimal places.
=FV(10%,20,,-992000) =$6,673,679.95
What is the future value of $883,000 if it earns an interest rate of 17% for 6 years?
=FV(17%,6,,-883000) =$2,265,039.99
On August 15 you used your credit card to purchase one item: a 72 inch television costing $3,886. You made no other purchases and your card had a balance of $0 before you bought the TV. You did not pay off the balance within the 30 day deadline so you now owe VISA interest. VISA calculates interest on the daily balance (with daily compounding) from the date of purchase. The annual rate charged by VISA is 19%. If you pay off the debt (including interest) after 31 days how much will have to pay? Round to one decimal place.
=FV(19%/365,31,,-3886) =$3,949.20
What is the future value of $419,000 if it earns an interest rate of 3.5% for 16 years?
=FV(3.5%,16,,-419000) =$726,540.15
You have $600 in an account which pays 5.0% compounded annually. If you invest your money for 17 years, then how many dollars of interest will you earn by the end of the term?
=FV(5%,17,,-600)-600 = $ 775.21
Calculate the future value of an ordinary annuity that pays $14,000 annually for five years assuming a 5% interest rate. Round to two decimal places. [An ordinary annuity simply means that the payment comes at the end of the period. This is the same as we have done in the previous TVM material.]
=FV(5%,5,-14000) =$77,358.84
Sabrina deposits $200 in an account at the end of each year for 2 years. If the account pays 7% interest annually, how much money will be in Sabrina's account at the end of the 2 years? [To be clear, she only makes 2 deposits, and the second earns no interest by the end of the investment period.]
=FV(7%,1,,-200)+200 =$414.00
What is the future value of $500 if it earns a nominal interest rate of 7% for 3 years, with monthly compounding periods?
=FV(7%/12,36,,-500) =$616.46
What is the future value of a $250 deposit if it earns a nominal interest rate of 9% for 21 years, with quarterly compounding periods?
=FV(9%/4,21*4,,-250) =$616.46
In February of 2000 the NASDAQ Composite index peaked at a level of 4,698 (just before the Tech Bubble popped). In February of 2006 it was at a level of 2,012. The NASDAQ index has historically grown at an average annual rate of 9.5%. If the index continues to grow at its historic rate, then how many years will it take for the index to grow from its Feb 2006 level back to the Feb 2000 level?
=NPER(9.5%,,-2012,4698) =4.43
In the following case, the mixed end-of-period cash flow stream has an annuity embedded within it. Calculate the present value of the cash flow stream, assuming a 10% discount rate. The payment for year 1 is received at the end of year 1, or one year from today. Year. Cash Flow 1 $8,000 2 $4,000 3 $2,000 4 $2,000 5 $2,000 6 $2,000 7 $5,000 Present Value ($) =
=NPV(0.1,8000,4000,2000,2000,2000,2000,5000) =$18,383.75
Wally, president of Wally's Burgers, is considering franchising. He has a potential franchise agreement that would allow him to receive 13 end-of-year payments starting one year from now. The first two payments would be $27,000 and $23,000 in one and two years respectively, and then $19,000 per year after that for 11 years. If Wally assumes a discount rate of 10.7%, what is the present value of this stream of cash flows?
=NPV(0.107,27000,23000,19000,19000,19000,19000,19000,19000,19000,19000,19000,19000,19000) =$140,696.68
Find the present value of the following stream of cash flows using a discount rate of 9%. The cash flows are received at the end of each year. YearCash Flow Stream 1 $7,000 2 $3,000 3 $6,000
=NPV(9%,7000,3000,6000) =$13,580.16
What will be the amount of the annual, end-of-year payment required to pay off a $20,000 loan over 15 years if the interest rate is 10%?
=PMT(0.1,15,-20000) =$1,836.11
What will be the payment on a $108,000 loan at 6.9% interest that is paid monthly for 6 years (72 payments)?
=PMT(6.9%/12,72,-108000) =$1,836.11
Ethan sells his car to Seamus. Seamus promises to pay Ethan $950 at the end of each year for 10 years. What is the present value of Seamus's promised payments if the interest rate is 8%?
=PV(0.08,10,-950) =$6,374.58
Suppose you have been offered a contract in which you will receive $9,400 in 13 years. You can earn 5% annually on your savings, so that is the opportunity cost of delaying payment. What is the contract worth to you in today's dollars? (i.e. what is the PV?) Round to two decimal places.
=PV(5%,13,,-9400) =$4,985.02
Average Collection Period =
Accounts Receivable/Average Sales per Day
Inventory Turnover =
COGS /inventories
Current Ratio =
Current Assets/ Current Liabilities
Times Interest Earned =
EBIT/ interest expense
Gross Profit Margin =
Gross Profit/Sales
