Mock Exam 1

What is the EAR of 14.9 percent compounded continuously?

=EXP(14.9%)-1

Suppose the first comic book of a classic series was sold in 1954. In 2017, the estimated price for this comic book was $310,000, which is an annual return of 22 percent. Or this to be true, what was the original price of the comic book in 1954?

A=P(1+r/100)^n where A=future value, P=present value, r=rate of interest, n=time period. [2017-1954=63 years] 310000=P(1.22)^63 310000/(1.22)^63=P P=$1.12(Approx).

Beach Wear has current liabilities of $350,000, a quick ratio of 1.65, inventory turnover of 4.7, and a current ratio of 2.9. What is the cost of goods sold?

CA = current ratio * current liablities CA = 2.9 * 350000 CA = 1015000 QR = (CA - Inventory) / CL 1.65 = (1015000 - Inventory) / 350000 Inventory = 437500 Cost of goods sold = IT * T Cost of goods sold = 3.2 * 4375000 Cost of goods sold = 1400000

Duke's Garage has cash of $68, accounts receivable of $142, accounts payable of $235, and inventory of $318. What is the value of the Current ratio?

Current Ratio= Current Assets/ Current Liabilities CA: cash 68+ AR 142+ inv. 318= 528 CL: 235 Current Ratio= 528/235= 2.25

The River Side Stop has a current market value of $26,400 and owes its creditors $31,300. What is the market value of the shareholders' equity?

Current- Creditors = 4,900 *equity cannot be negative, therefore the answer is $0

You invested $6,500 at 6 percent simple interest. How much more could you have earned over a 10-year period if the interest had compounded annually?

Interest benefit = P×(1+r)^n-P×(1+n×r) P is payment r is interest rate per period n is number of periods = $6,500×(1+6%)^10-$6,500×(1+10×6%) = $11,640.51-$10,400 = $1,240.51

Lawn Care, Inc. has sales of $367,400, costs of $183,600, depreciation of $48,600, interest of $39,200, and a tax rate of 25 percent. The firm has total assets of $422,100, long-term debt of $102,000, net fixed assets of $264,500, and net working capital of $22,300. What is the return on equity?

EBIT system to determine NI Net income = $72,000 Current assets = Total assets - net fixed assets Current assets = 422,100 - 264,500 Current assets = $157,600 Net working capital = Current assets - current liabilities 22,300 = 157,600 - Current liabilities Current liabilities = $135,300 Total liabilities = Total long term debt + current liabilities Total liabilities = $102,000 + $135,300 Total liabilities = $237,300 Shareholders equity = Total assets - total liabilities Shareholders equity = $422,100 - $237,300 Shareholders equity = $184,800 Return on equity = ( $72,000 / $184,800) * 100

Net New Borrowing

Ending Long Term Debt - Beginning Long Term Debt

Towne Station is saving money to build a new loading platform. Three years ago, they set aside $23,000 for this purpose. Today, that account is worth $31,406. What rate of interest is Towne Station earning on this investment?

FV = $31406 PV = $23000 N= 3 years We have FV = PV*(1+r)^n (1+r)^3 = $31406/$23000 (1+r)^3 = 1.3655 By trial and error, we get i= 10.94%.

Lani's generated net income of $911, depreciation expense was $47, and dividends paid were $25. Accounts payable increased by $15, accounts receivable increased by $28, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity?

N.I. 911 + dep. 47 + Payables 15- 28 AR+ 14 Net Cash Flow from Operating Activity= 959 (Dividends not operating activity)

Addition to retained earnings

Net Income - Dividends

Net income

Net income = sales - costs - depreciation - interest - tax (EBIT System)

Porter's Corner has sales of $4,650, net income of $490, total assets of $5,820, and total debt of $2,760. Assets and costs are proportional to sales. Debt and equity are not. No dividends or taxes are paid. Next year's sales are projected to be $5,487. What is the amount of the external financing needed?

Net income as% of sales = 490/4650*100 = 10.54% Total assets as% of sales = 5820/4650 = 1.2516129 Next year assets value = 5487*1.2516129 =$ 6868 Increase in assets value = 6868-5820 = $1048 Net income of next year = 5487*490/4750 = $578.2 This will also be retained income of next year External financing needed = increase in fixed assets - increase in laiblities - retained income = 1048-0-578.2 = $ 469.80

Assume a project has cash flows of -$54,300, $18,200, $37,300, and $14,300 for Years 0 to 3, respectively. What is the profitability index given a required return of 12.6 percent?

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period) =18200/1.126+37300/1.126^2+14300/1.126^3 =$55599.30339 PI=Present value of inflows/Present value of outflows =$55599.30339/$54300 =1.02(Approx).

Return on Assets

Profit Margin * Asset Turnover

Duke's Garage has cash of $68, accounts receivable of $142, accounts payable of $235, and inventory of $318. What is the value of the quick ratio?

Quick Ratio= CA- inv/ CL cash 68+ AR 142= 210 CL: 235 Quick Ratio= .89 (Do not include inv in the equation or else QR will be negative, and wrong).

TJ's has annual sales of $813,200, total debt of $171,000, total equity of $396,000, and a profit margin of 5.78 percent. What is the return on assets?

ROA= Profit / Total Assets *100 Where Profit= Sales * Profit Margin Total Asset = Debt + Equity ROA= 8.29%

Robotics desires a sustainable growth rate of 12.7 percent while maintaining a constant dividend payout ratio of 25 percent and a profit margin of 12 percent. The company has a capital intensity ratio of 0.95. What equity multiplier is required to achieve the company's desired rate of growth?

Sustainable growth rate = ROE×Retention ratio÷(1-ROE×Retention ratio) 12.7% = ROE×75%÷(1- ROE×75%) 12.7%-9.525%×ROE = ROE×75% ROE = 15.03% ROE = Profit Margin (Profit/Sales)×Total Asset Turnover (Sales/Assets)×Equity Multiplier (Assets/Equity) 15.03% = 12%×(1/0.95)×Equity multiplier Equity multiplier = 1.19

You would like to provide $125,000 a year forever for your heirs. How much money must you deposit today to fund this goal if you can earn a guaranteed 4.5 percent rate of return?

The amount needed to deposited today =Annual cash flows/Interest rate The amount needed to deposited today =125000/4.5% The amount needed to deposited today =2777777.78

Bonner Automotive has shareholders' equity of $218,700. The firm owes a total of $141,000 of which 40 percent is payable within the next year. The firm has net fixed assets of $209,800. What is the amount of the net working capital?

To determine NWC: Current Debt= Debt x % given Total Assets= Total Equity + Total Debt Current Assets= Total Assets- Fixed Assets NWC= Current Assets- Current Debt

Four years ago, Ship Express purchased a mailing machine at a cost of $218,000. This equipment is currently valued at $97,400 on today's balance sheet but could actually be sold for $92,900. This is the only fixed asset the firm owns. Net working capital is $41,300 and long-term debt is $102,800. What is the book value of shareholders' equity?

Total Equity = NWC + (Book Value of Fixed Assets - Long term debt)

NWC

current assets - current liabilities

current assets

total assets - fixed assets Where fixed assets are long-term assets