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Finance
Name a natural conflict between a principal and an agent. How could this conflict be reduced?
Employees at the Jackson Hole Corporation typically take 45 minutes for lunch when the allocated time is only 30 minutes. Employees are encouraged to eat at the company cafeteria located in the
Richards’ Tree Farm Grows Up 1. Major financial management decisions involve capital budgeting, capital structure, and working capital management. Give an example of each that relates to
What is the difference between a current asset and a long-term asset? What is the difference between a current liability and a long-term liability? What is the difference between a debtor’s claim
Why do financial notes accompany the annual report? Give an example of a financial note from an annual report.
From the balance sheet accounts listed below:a. Construct a balance sheet for 2010 and 2011.b. List all the working capital accounts.c. Find the net working capital for the years ending 2010 and
From the income statement accounts on the next page:a. Produce the income statement for the yearb. Produce the operating cash flow for the yearIncome Statement AccountsFor the Year Ending 2011Cost of
From the following balance sheet accounts:a. Construct a balance sheet for 2010 and 2011b. List all the working capital accountsc. Find the net working capital for the years ending 2010 and 2011d.
From the following income statement accounts a. Produce the income statement for the yearb. Produce the operating cash flow for the yearIncome Statement Accounts for the Year Ending 2011Cost of Goods
Find the operating cash flow for the year for Harper Brothers Incorporated if they had sales revenue of $300,000,000, cost of goods sold of $140,000,000, sales and administrative costs of
Find the operating cash flow for the year for Robinson and Sons if they had sales revenue of $80,000,000, cost of goods sold of $35,000,000, sales and administrative costs of $6,400,000, depreciation
Complete the partial income statement if the company paid interest expense of $18,000 for 2011 and had an overall tax rate of 40% for2011.
Complete the balancesheet
Complete the statement of retained earnings for 2011 and determine the dividends paid lastyear.
What are the net fixed assets for the years 2010 and2011?
Find the cash flow from assets for 2011 and break it down into its three parts: operating cash flow, capital spending, and change in net workingcapital.
Find the cash flow to creditors for 2011 by parts and total, with the parts being interest income paid and increases inborrowing.
Verify the cash flow identity: cash flow from assets = cash flow to creditors + cash flow toowners.
Provide the following amounts for PepsiCo:a. Net income b. Depreciation (see cash flow statement)c. Cash flow from operating activities d. Cash flow from investing activitiese. Cash flow from
Provide the following amounts for Pfizer:a. Net income b. Depreciation (see cash flow statement)c. Cash flow from operating activities d. Cash flow from investing activities e. Cash flow from
1. Look at Vermont Heritage’s sales revenue, EBIT, and net income over the three-year period. Would you classify it as a growing, diminishing, or a stable company?2. Look at Vermont Heritage’s
Chuck Enterprises has current assets of $300,000, and total assets of $750,000. It also has current liabilities of $125,000, common equity of $250,000, and retained earnings of $85,000. How much
The Top Class Company had revenues of $925,000in 2011. Its operating expenses (excluding depreciation) amounted to $325,000, depreciation charges were $125,000, and interest costs totaled $55,000. If
The West Hanover Clay Co. had, at the beginning of the fiscal year, November 1, 2010, retained earnings of $425,000. During the year ended October 31, 2011, the company generated net income after
D.K. Imports Incorporated reported the following information at its last annual meeting:Cash and cash equivalents = $1,225,000; Accounts payables = $3,200,000Inventory = $625,000; Accounts
The Mid-American Farm Products Corporation provided the following financial information for the quarter ending September 30, 2011:Depreciation and amortization - $75,000 Net Income - $225,000Increase
Fill in the future values for the following tablea. Using the future value formula, FV = PV Ã (1+r)n.b. Using the time value of money keys or function from a calculator orspreadsheet.
Dixie Bank offers a certificate of deposit with an option to select your own investment period. Jonathan has $7,000 for his CD investment. If the bank is offering a 6% interest rate, how much will
Jose has $4,000 to invest for a two year period. He is looking at four different investment choices. What will be the value of his investment at the end of two years for each of the following
Grand Opening Bank is offering a one-time investment opportunity for its new customers. A customer opening a new checking account can buy a special savings bond for $100 today which the bank will
Jackson Enterprises just purchased some land for $230,000. The land was purchased for a future beach front property development project that will include rental cabins, lodge, and recreational
Fill in the present value for the following tablea. Using the present value formula, PV = FV Ã [1/(1+r)n].b. Using the time value of money keys or function from a calculator
When they are first born, Grandma gives every grandchild a $2,500 savings bond that matures in eighteen years. What is the present value of each of these savings bonds if the current discount rate
Marty has been offered an injury settlement of $10,000 payable in three years. He wants to know what the present value of the injury settlement is if his opportunity cost is 5%. (The opportunity
The State of Confusion wants to change the current retirement policy for state employees. To do so, however, the state must pay the current pension fund members the present value of their promised
Two rival football fans have made the following wager: if their college football team wins the conference title outright, the other fan will donate $1,000 to the winning school. Both schools have had
Prestigious University is offering a new admission and tuition payment plan for all alumni. On the birth of a child, parents can guarantee admission to Prestigious University if they pay the first
Fill in the interest rate for the following tablea. Using the interest rate formula, r = (FV/PV)1/n 1b. Using the time value of money keys or function from a calculator orspreadsheet.
Keiko is looking at the following investment choices and wants to know what interest rate each choice produces.a. Invest $400 and receive $786.86 in ten years.b. Invest $3,000 and receive $10,927.45
Two mutual fund managers, Martha and David, have been bragging about whose fund is the top performer? Martha states that investors bought shares in her mutual fund ten years ago for $21.00 and those
In 1972, Bob purchased a new Datsun 240Z for $3,000. Datsun later changed its name to Nissan, and the 1972 240Z became a classic. Bob kept his car in excellent condition and in 2002 could sell the
A famous disease control scientist is trying to determine the potential infected population of the new West Columbia flu. Two weeks ago, the first patient showed up with the disease. Four days later,
Fill in the number of periods for the following table.a. Using the waiting period formula, n = ln(FV/PV) / ln(1+r).b. Using the time value of money keys or function from a calculator orspreadsheet.
Jamal is waiting to be a millionaire. He wants to know how long he must wait ifa. He invests $24,465.28 at 16% todayb. He invests $47,101.95 at 13% todayc. He invests $115,967.84 at 9% todayd. He
Jeff, a local traffic engineer, has designed a new pedestrian footbridge. The bridge has been designed to handle 200 pedestrians daily. Once the bridge reaches 1,000 pedestrians daily, however, it
Susan Norman seeks your financial advice. She wants to know how long it will take for her to become a millionaire. She tells you that she has $1,330 today and wants to invest it in an aggressive
Upstate University currently has a 6,000 car parking capacity for faculty, staff, and students. This year the university issued 4,356 parking passes. Parking passes have been growing at a rate of 6%
Approximately how long will it take to double your money if you get 5.5%, 7.5%, or 9.5% annual return on your investment? Verify the approximate doubling period with the time value of money equation.
Kant Miss Company is promising its investors that it will double their money every three years. Is this promise too good to be true? What annual rate is Kant Miss promising? If you invested $250 now
In the chapter text, we dealt exclusively with a single lump sum, but often we may be looking at several lump-sum values simultaneously. Let’s consider the retirement plan of a couple. Currently,
1. Because of inflation, Jake expects the price at which he can sell the trees to increase by 3% per year. What price does he expect to receive if he keeps the trees until they reach 8 feet or 10
Joanna’s dad is looking to deposit a sum of money immediately into an account that pays an annual interest rate of 9% so that her first year college tuition costs are provided for. Currently the
Bank A offers to pay you lump sum of $20,000 after 5 years, if you deposit $9,500 with them today. Bank B, on the other hand, says that they will pay you a lump sum of $22,000 after 5 years, if you
You have decided that you will sell off your house, which is currently valued at $300,000 when it appreciates in value to $450,000. If houses are appreciating at an average annual rate of 4.5% in
Your arch nemesis, who happens to be an accounting major, makes the following remark, “You finance types think you know it all.well, let’s see if you can tell me, without using a financial
What effect on the future value of an annuity does increasing the interest rate have? Does a change from 4% to 6% have the same dollar impact as a change from 6% to 8%?
What effect on the present value of an annuity does increasing the interest rate have? Does a decrease from 7% to 5% have the same dollar impact as a decrease from 5% to 3%?
If you increase the number of payments on an amortized loan, does the payment increase or decrease? Why or why not?
If you won the lottery and had the choice of the lump-sum payoff or the annuity payoff, what factors would you consider besides the implied interest rate (indifference interest rate) in selecting the
Given the following cash inflow at the end of each year, what is the future value of this cash flow at 6%, 9%, and 15% interest rates at the end of the seventh year?Year 1 ...... $15,000Year 2
Fill in the missing future values in the following table for an ordinaryannuity.
A speculator has purchased land along the southern Oregon coast. He has taken out a ten-year loan with annual payments of $7,200. The loan rate is 6%. At the end of ten years, he believes that he can
Jack and Jill are saving for a rainy day and decide to put $50 away in their local bank every year for the next twenty-five years. The local Up-the-Hill Bank will pay them 7% on their account.a. If
You are a new employee with the Metropolis Daily Planet. The Planet offers three different retirement plans for you to choose from. Plan 1 starts the first day of work and puts $1,000 away in your
Given the following cash inflow, what is the present value of this cash flow at 5%, 10%, and 25% discount rates? Year 1: ..... $3,000Year 2: ..... $5,000Years 3 through 7: . $0Year 8: .... $25,000
Fill in the missing present values in the following table for an ordinaryannuity.
Fill in the missing annuity in the following table for an ordinary annuitystream.
County Ranch Insurance Company wants to offer a guaranteed annuity in units of $500, payable at the end of each year for twenty-five years. The company has a strong investment record and can
A smooth used-car salesman who smiles considerably is offering you a great deal on a “preowned” car. He says, “For only six annual payments of $2,500, this beautiful 1998 Honda Civic can be
Reginald is about to lease an apartment for the year. The landlord wants the lease payments paid at the start of the month. The twelve monthly payments are $1,300 per month. The landlord says he will
Mauer Mining Company leases a special drilling press with annual payments of $150,000. The contract calls for rent payments at the beginning of each year for a minimum of six years. Mauer Mining can
The Canadian Government has once again decided to issue a consol (a bond with a never-ending interest payment and no maturity date). The bond will pay $50 in interest each year (at the end of the
The Stack has just written and recorded the single greatest rock song ever made. The boys in the band believe that the royalties from this song will pay the band a handsome $200,000 every year
Ponzi may choose to pay off the loan early if interest rates change during the next ten years. Determine the ending balance of the loan each year under the three different payment plans.Chuck Ponzi
Loan Consolidated Incorporated (LCI) is offering a special one-time package to reduce Custom Autos’ outstanding bills to one easy-to-handle payment plan. LCI will pay off the current outstanding
Fill in the missing waiting periods (years) or number of payments in the following table for an ordinary annuitystream.
Tony is offering two repayment plans to Phil for a long overdue loan. Offer 1 is a visit from an enforcer and the debt due in full at once. Offer 2 is to pay back $3,900 per year at 20% interest rate
Your grandfather will sell you a beach front property for $72,500. He says the price is firm whenever you can pay him cash. You know that your finances will only allow you to save $5,000 a year and
Fill in the missing annual interest rates in the following table for an ordinary annuitystream.
Fill in the missing annual interest rates in the following table for an annuity-duestream.
What are you getting in terms of interest rate if you are willing to pay $15,000 today for an annual stream of payments of $2,000 for the next twenty years? Next forty years? Next one hundred years?
A local government is about to run a lottery but does not want to be involved in the payoff if a winner picks an annuity payoff. The government contracts with a trust to pay the lump-sum payout to
A lottery ticket states that you will receive $250 every year for the next ten years.a. What is the value of the winning lottery ticket in present value if the discount rate is 6%, and it is an
Your dreams of becoming rich have just come true. You have won the State of Tranquility’s Lottery. The State offers you two payment plans for the$5,000,000 advertised jackpot. You can take annual
Each holiday season, Michael received a U.S. savings bond from his grandmother. Michael has eventually received twelve savings bonds. The bonds vary in their rates of interest and their face value.
1. Rose could probably borrow the money to purchase the shares outright because the shares would serve as collateral and dividends would cover a good part of the loan payments. The interest rate is
Julie has just been accepted into Harvard and her father is debating whether he should make monthly lease payments of $5,000 at the beginning of each month, on her flashy apartment or to prepay the
If Mary deposits $4000 a year for three years, starting a year from today, followed by 3 annual deposits of $5000, into an account that earns 8% per year, how much money will she have accumulated in
Jane Bryant has just purchased some equipment for her beauty salon. She plans to pay the following amounts at the end of the next five years: $8,250, $8,500, $8,750, $9,000, and $10,500. If she uses
The Corner Bar & Grill is in the process of taking a five-year loan of $50,000 with First Community Bank.The bank offers the restaurant owner his choice of three payment options:1) Pay all of the
Let’s say that the restaurant owner in Problem 4 above decides to go with the amortized loan option and after having paid 2 payments decides to pay off the balance. Using an amortization schedule
What does the term risk-free interest mean, and why do we usually use the U.S. Treasury bill yield as the risk-free rate?
On average, which factor do you think contributes more to the nominal risk-free rate, inflation or the real rate? How would you prove your opinion?
In the following table, fill in the periodic rates and the effective annualrates.
You have a savings account in which you leave the funds for one year without adding or withdrawing from the account. What would you rather have: a daily compounded rate of 0.045%, a weekly compounded
What is the effective annual rate of a mortgage rate that is advertised at 7.75% (APR) over the next twenty years and paid with monthly payments?
What is the effective rate of a monthly car loan that is advertised at 9.5% (APR)?
Let’s follow up with Sam Hinds, the dentist, from Chapter 4 and his remodeling project (Problem 12). The cost of the equipment for the project is $18,000, and the purchase will be financed with a
Cooley Landscaping needs to borrow $30,000 for a new front-end dirt loader. The bank is willing to loan the money at 8.5% interest for the next ten years with annual, semiannual, quarterly, or
Matt Johnson delivers newspapers and is putting away $15.00 every month from his paper route collections. Matt is eight years old and will use the money when he goes to college in ten years. What
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