1. Calculate the ratios indicated in the blue cells. Then indicate whether Abco's financial categories are better or worse than the industry. ASSETS $ LIABILITIES & STOCKHOLDER EQUITY Accounts Payable 600,000 400,000 $ Cash Accounts Receivable Notes Payable S 1,400,000 S $ 1,600,000 2,000,000 Inventory Total Current Assets Total Current Liabilities $ 4,000,000 $ 2,000,000 Net Fxed Assets $ 18,000,000 L-T Debt Total Liabilities Stockholder Equity $ $ $ 6,500,000 8,500,000 13,500,000 Total Assets $ 22,000,000 Total Liabilities & SE $ 22,000,000 Abco Industry Average 1.2 Current Ratio Total Asset T/O 1.1 Debt Ratio 0.51 Income Statement Sales $ 33,000,000 COGS $ 22,000,000 Other Expenses $ 2,200,000 Depreciation $ 1,000,000 EBIT $ 7,800,000 Interest $ 1,000,000 Taxable income $ 6,800,000 Taxes (409) $ 2,040,000 Net Income $ 4,760,000 Dividends $ 1,000,000 Retained Earnings $ 3,760,000 NPM 6.15% ROE 18.8596 Consider the following categories and indicate whether Abco Corporation is better or worse than the industry average. Enter an X in the correct cell. Better Worse Liquidity Asset Management Debt Management Profitability 2. Which of the following will increase the present value of a current lump sum to be received in 15 years? Indicate your answer by circling the correct letter. 2. Higher interest rate b. Lower interest rate c. Decreasing the time period d. Assuming an annuity due 3. The following questions assume that you will retire in 40 years. Round your answers to the nearest dollar and clearly indicate a, b, c in your answers. a. You currently have $200,000 in an account carning 8.0 percent per year over the next 40 years, how much will you have in the account after 40 years? b. In a separate retirement account, you currently have $200,000 and plan to add $12,000 per year at the end of each of the next 40 years. If the investment account earns a return of 6 percent per year over the next 40 years, how much will you have in this account at the end of the 40 years? c. When you retire, you will transfer the sum of the balances (your answers to part a and b) of your two investment funds into a single retirement account that will earn 4.25%. How much can you withdraw at the end of each year if you will live for another 25 years? 4. Consider Projects Alpha and Omega. The cost of capital for the projects is 10.00% ALPHA OMEGA ($1,350,000) ($1,000,000) 400,000 300,000 400,000 300,000 400,000 300,000 400,000 300,000 400,000 300.000 a. Calculate the NPV and IRR for both projects. ALPHA OMEGA NPV IRR b. If the projects are mutually exclusive, which project(s) would you accept? Why
