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
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)?
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
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
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
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?
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
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?
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
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?