Week 9

 

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Problem 2 Financial Analysis and Planning

 

Database systems is considering expansion into a new product line. Assets to support expansion will cost $380,000. It is estimated that database can generate $1,410,000 in annual sales, with a 8 percent profit margin. What would net income and return on assets (investments) be for the year

 

Problem 8

 

Easter egg and Poultry Company has $2,000,000 in assets and $1,400,000 of debt. It reports net income of $200,000

 

a.       What is the firm’s return on assets?

 

b.      What is its return on stockholders’ equity?

 

c.       If the firm has an asset turnover ratio of 2.5 times, what is the profit margin (return on sales)?

 

Problem 22

 

The balance sheet for stud clothiers is shown below. Sales for the year were $2,400,000 with 90 percent of sales sold on credit.

 

Assets                                                                  Liabilities and Equity

 

Cash                            $60,000                           Accounts payable              $220,000

 

Accounts receivable 240,000                           Accrued taxes                      30,000

 

Inventory                    350,000                           Bonds payable (long term) 150,000

 

Plant and equipment410, 000                          Common stock                      80,000

 

 Total assets $1,060,000                                   Paid in capital                        200,000

 

                                                                              Retained earnings                 380,000

 

                                                                             Total liabilities and equity $1,060,000

 

Compute the following

 

a.       Current ratio

 

b.      Quick ratio

 

c.       Debt to total assets ratio

 

d.      Asset turnover

 

e.      Average collection period

 

 

 

Chapter 9 the Time Value of Money

 

 Problem 2. What is the present value of

 

a.       $7,900 in 10 years at 11 percent

 

b.      $16,600 in 5 years at 9 percent

 

c.       $26,000 in 14 years at 6 percent

 

Problem 5

 

If you invest $9,000 today, how much will you have?

 

a.       In 2 years at 9 percent

 

b.      In 7 years at 12 percent

 

c.       In 25 years at 14 percent

 

d.      In 25 years at 14 percent (compounded semiannually

 

Chapter 10

 

Problem 3

 

 Exodus Limousine Company has $1,000 par value bonds outstanding at 10 percent interest. The bonds will mature in 50 years. Compute the current price of the bonds if the percent yield to maturity is

 

a.       5 percent

 

b.      15 percent

 

Chapter 12

 

Problem 3

 

Assume a firm has earnings before depreciation and taxes of $200,000 and no depreciation. It is in a 40 percent tax bracket

 

a.       Compute its cash flow

 

b.      Assume it has $200,000 in depreciation. Recompute its cash flow

 

c.       How large a cash flow benefit did the depreciation provide?

 

Problem 6

 

Assume a $250,000 investment and the following cash flows for two products

 

Year       Product X             Product Y

 

1              $90,000               $50,000

 

2               90,000                 80,000

 

3                60,000                60,000

 

4               20,000                  70,000

 

 

 

Problem 11

 

You buy a new piece of equipment for $16,230 and you receive a cash inflow of $2,500 per year for 12 years. What is the internal rate of return?

 

Problem 18

 

The Pan American Bottling Co. is considering the purchase of a new machine that would increase the speed of bottling and save money. The net cost of this machine is $60,000. The annual cash flows have the following projections.

 

Year        Cash Flow

 

1              $23,000

 

2               26,000

 

3               29,000

 

4               15,000

 

5                8,000

 

a.       If the cost of capital is 13 percent, what is the net present value of selecting a new machine

 

b.      What is the internal rate of return?

Should the project be accepted? Why?                                   

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