Questions and Answers of Essentials Corporate Finance

If the appropriate discount rate for the following cash flows is 4.78 percent per year, what is the present value of the cash flows?Year ..........................Cash Flow1
If the appropriate discount rate for the following cash flows is 8.15 percent, what is the present value of the cash flows?Year ................Cash Flow1 .......................$1,2002
Beginning three months from now, you want to be able to withdraw $2,500 each quarter from your bank account to cover college expenses over the next 4 years. If the account pays .47 percent interest
In the previous problem, suppose you make $6,000 annual deposits into the same retirement account. How large will your account balance be in 35 years?Previous ProblemYou are to make monthly deposits
You are to make monthly deposits of $500 into a retirement account that earns an APR of 9.5 percent compounded monthly. If your first deposit will be made one month from now, how large will your
Maybepay Life Insurance Co. is selling a perpetual annuity contract that pays $2,750 monthly. The contract currently sells for $400,000. What is the monthly return on this investment vehicle? What is
One of your customers is delinquent on his accounts payable balance. You’ve mutually agreed to a repayment schedule of $400 per month. You will charge 1.4 percent per month interest on the overdue
You want to buy a new sports coupe for $78,500, and the finance office at the dealership has quoted you a loan with an APR of 4.9 percent for 60 months to buy the car. What will your monthly payments
Ricky Ripov’s Pawn Shop charges an interest rate of 12.1 percent per month on loans to its customers. Like all lenders, Ricky must report an APR to consumers. What rate should the shop report? What
An investment will pay you $100,000 in 9 years. If the appropriate discount rate is 5.5 percent compounded daily, what is the present value?
At 5.3 percent interest, how long does it take to double your money? To quadruple it?
Bello, Inc., has a total debt ratio of .43. What is its debt-equity ratio? What is its equity multiplier?
During the year, Belyk Paving Co. had sales of $2,275,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,285,000, $535,000, and $420,000, respectively. In
Streamsong Credit Bank is offering 4.7 percent compounded daily on its savings accounts. If you deposit $4,750 today, how much will you have in the account in 5 years? In 10 years? In 20 years?
Vandermark Credit Corp. wants to earn an effective annual return on its consumer loans of 13.9 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required
First National Bank charges 14.3 percent compounded monthly on its business loans. First United Bank charges 14.7 percent compounded semiannually. As a potential borrower, which bank would you go to
Find the APR, or stated rate, in each of the following cases. Stated Rate (APR) Number of Times Compounded Effective Rate (EAR) Semiannually Monthly Weekly 15.3% 8.7 9.4 Daily 14.9
Find the EAR in each of the following cases. Effective Rate (EAR) Stated Rate (APR) Number of Times Compounded 10.2% Quarterly Monthly Daily Semiannually 18.0 13.5 9.5
In the previous problem, suppose Larry’s told you the policy costs $645,000. At what interest rate would this be a fair deal?Previous ProblemLarry’s Life Insurance Co. is trying to sell you an
Larry’s Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $25,000 per year forever. If the required return on this investment is 4 percent, how much
If you deposit $5,000 at the end of each year for the next 20 years into an account paying 10.1 percent interest, how much money will you have in the account in 20 years? How much will you have if
For each of the following annuities, calculate the future value. Annual Payment Years Interest Rate $2,100 10 8% 6,500 40 1,100 30 5,000 10
For each of the following annuities, calculate the annuity payment. Years Future Value Interest Rate 21,800 1,500,000 8 5% 40 25 520,000 13 98,700
For each of the following annuities, calculate the present value. Years Annuity Payment Interest Rate $ 1,560 5% 10 1,280 20,000 18 53,200 28 14
For each of the following annuities, calculate the annual cash flow. Years Present Value Interest Rate $ 15,000 11% 21,400 145,300 15 325,000
An investment offers $6,125 per year for 15 years, with the first payment occurring one year from now. If the required return is 8 percent, what is the value of the investment? What would the value
Wells, Inc., has identified an investment project with the following cash flows. If the discount rate is 8 percent, what is the future value of these cash flows in Year 4? What is the future value
Investment X offers to pay you $3,100 per year for 9 years, whereas Investment Y offers to pay you $4,800 per year for 5 years. Which of these cash flow streams has the higher present value if the
Fox Co. has identified an investment project with the following cash flows. If the discount rate is 10 percent, what is the present value of these cash flows? What is the present value at 18
You have $20,000 you want to invest for the next 40 years. You are offered an investment plan that will pay you 6 percent per year for the next 20 years and 10 percent per year for the last 20 years.
You have decided that you want to be a millionaire when you retire in 45 years. If you can earn an annual return of 11.4 percent, how much do you have to invest today? What if you can earn 5.7
You need $85,000 in 10 years. If you can earn .78 percent per month, how much will you have to deposit today?
You can earn .31 percent per month at your bank. If you deposit $1,800, how long must you wait until your account has grown to $3,100?
You have $5,800 to deposit. Regency Bank offers 12 percent per year compounded monthly (1 percent per month), while King Bank offers 12 percent but will only compound annually. How much will your
You expect to receive $30,000 at graduation in two years. You plan on investing it at 7 percent until you have $125,000. How long will you wait from now? (Better than the situation in Question 9, but
You are scheduled to receive $10,000 in two years. When you receive it, you will invest it for six more years at 7.5 percent per year. How much will you have in eight years?
You have just made your first $5,000 contribution to your individual retirement account. Assuming you earn an annual rate of return of 10.2 percent and make no additional contributions, what will
Suppose you are still committed to owning a $175,000 Ferrari (see Question 9). If you believe your mutual fund can achieve an annual return of 11.2 percent, and you want to buy the car in 10 years on
Refer back to the Series EE savings bonds we discussed at the very beginning of the chaptera. Assuming you purchased a $50 face value bond, what rate of return would you earn if you held the
In 2018, an Action Comics No. 1, featuring the first appearance of Superman, was sold at auction for $573,600. The comic book was originally sold in 1938 for $.10. What was the annual increase in the
In 1895, the first U.S. Open Golf Championship was held. The winner’s prize money was $150. In 2018, the winner’s check was $2,160,000. What was the annual percentage increase in the winner’s
Your coin collection contains fifty 1952 silver dollars. If your grandparents purchased them for their face value when they were new, how much will your collection be worth when you retire in 2063,
You have just received notification that you have won the $1 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you’re around to
Imprudential, Inc., has an unfunded pension liability of $645 million that must be paid in 25 years. To assess the value of the firm’s stock, financial analysts want to discount this liability back
The TMCC security is bought and sold on the New York Stock Exchange. If you looked at the price today, do you think the price would exceed the $24,099 original price? Why? If you looked in 2022, do
You’re trying to save to buy a new $175,000 Ferrari. You have $35,000 today that can be invested at your bank. The bank pays 2.9 percent annual interest on its accounts. How long will it be before
In 2018, one of the first copper pennies struck at the Philadelphia mint in 1793 was sold for $300,000. What was the rate of return on this investment?
Assume the total cost of a college education will be $235,000 when your child enters college in 18 years. You presently have $53,000 to invest. What annual rate of interest must you earn on your
Solve for the unknown number of years in each of the following: Years Future Value Present Value Interest Rate $ 195 2,105 2$ 8% 873 3,500 11 47,800 326,500 38,650 15 213,380
Solve for the unknown interest rate in each of the following: Years Present Value Interest Rate Future Value $ 1,381 2$ 715 905 12 1,718 15,000 26 141,832 312,815 70,300 15
For each of the following, compute the present value: Years Present Value Interest Rate Future Value $ 19,415 15 7% 11 47,382 13 10 312,176 629,381 25 13
For each of the following, compute the future value: Present Value Years Interest Rate Future Value $ 2,960 13% 7,846 16 85,381 19 221,614 26 5
First City Bank pays 7 percent simple interest on its savings account balances, whereas Second City Bank pays 7 percent interest compounded annually. If you made a deposit of $7,900 in each bank, how
Hershey Co. reported the following income statement and balance sheet (in millions) for 2017. Construct the expanded DuPont identity similar to Figure 3.1. What is the company?s return on
Best Buy reported the following numbers (in millions) for the years ending January 28, 2017, and February 3, 2018. What are the internal and sustainable growth rates? What are the internal and
High Flyer, Inc., wishes to maintain a growth rate of 12 percent per year and a debt-equity ratio of .25. The profit margin is 5 percent, and total asset turnover is constant at 1.20. Is this growth
You’ve collected the following information about Gandalf, Inc.:Sales = $295,000Net income = $18,400Dividends = $9,100Total debt = $68,000Total equity = $94,000What is the
Based on the following information, calculate the sustainable growth rate for Groot, Inc.:Profit margin =7.1%Total asset turnover =1.90Total debt ratio =.45Payout ratio =20%What
A firm wishes to maintain an internal growth rate of 5.3 percent and a dividend payout ratio of 40 percent. The current profit margin is 6.8 percent and the firm uses no external financing sources.
Abercrombie & Fitch and American Eagle Outfitters (AEO) reported the following numbers (in millions except for the share price) for fiscal year 2018. Calculate the earnings per share,
Jasmine Manufacturing wishes to maintain a sustainable growth rate of 7 percent a year, a debt-equity ratio of .65, and a dividend payout ratio of 25 percent. The ratio of total assets to sales is
After calculating the ratios for Smolira Golf, you have uncovered the following industry ratios for 2019: How is Smolira Golf performing based on these ratios? Some recent financial statements for
Smolira Golf has 10,000 shares of common stock outstanding, and the market price for a share of stock at the end of 2019 was $73. What is the price-earnings ratio? What is the price-sales ratio? What
Construct the DuPont identity for Smolira Golf. Some recent financial statements for Smolira Golf, Inc., follow. SMOLIRA GOLF, INC. Balance Sheets as of December 31, 2018 and 2019 2018 2019 2018
Find the following financial ratios for Smolira Golf (use year-end figures rather than average values where appropriate): Short-term solvency ratios a.?Current ratio ________________ b.?Quick ratio
Prince Albert Canning PLC had a net loss of £32,415 on sales of £515,380. What was the company’s profit margin? Does the fact that these figures are quoted in a foreign currency make any
A fire has destroyed a large percentage of the financial records of the Inferno Company. You have the task of piecing together information in order to release a financial report. You have found the
For the most recent year, Camargo, Inc., had sales of $534,000, cost of goods sold of $241,680, depreciation expense of $60,400, and additions to retained earnings of $72,800. The firm currently has
Delectable Parsnip, Inc.’s, net income for the most recent year was $8,417. The tax rate was 21 percent. The firm paid $4,632 in total interest expense and deducted $5,105 in depreciation expense.
The Moraine Company has net income of $158,230. There are currently 28.45 days’ sales in receivables. Total assets are $804,320, total receivables are $155,218, and the debt-equity ratio is .25.
In response to complaints about high prices, a grocery chain runs the following advertising campaign: “If you pay your child $2 to go buy $50 worth of groceries, then your child makes twice as much
The Plainfield Company has a long-term debt ratio (i.e., the ratio of long-term debt to long-term debt plus equity) of .35 and a current ratio of 1.25. Current liabilities are $2,510, sales are
Y3K, Inc., has sales of $12,840, total assets of $4,730, and a debt-equity ratio of .25. If its return on equity is 14 percent, what is its net income?
The market value of the equity of Skipper, Inc., is $745,000. The balance sheet shows $46,000 in cash and $235,000 in debt, while the income statement has EBIT of $96,700 and a total of $144,000 in
PXG Co. has total assets of $8.42 million and a total asset turnover of 1.5 times. If the return on assets is 8.3 percent, what is its profit margin?
Wilson, Inc., has a current stock price of $64. For the past year, the company had net income of $9.1 million, total equity of $24.7 million, sales of $49.6 million, and 4.9 million shares of stock
Barrett, Inc., has a total debt ratio of .65, total debt of $353,000, and net income of $20,750. What is the company’s return on equity?
Kaleb’s Karate Supply had a profit margin of 6.7 percent, sales of $14.2 million, and total assets of $6.75 million. What was total asset turnover? If management set a goal of increasing total
For Minnie?s Manufacturing in Problem 20, what is the sustainable growth rate? Problem 20 The most recent financial statements for Minnie?s Manufacturing Co. are shown here: Assets and costs are
The most recent financial statements for Minnie?s Manufacturing Co. are shown here: Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 40 percent
Borland, Inc., has a profit margin of 5.6 percent on sales of $13.6 million. If the firm has debt of $6.4 million and total assets of $9.8 million, what is the firm’s ROA?
The Taylor Company has an ROA of 7.6 percent, a profit margin of 5.2 percent, and an ROE of 14 percent. What is the company’s total asset turnover? What is the equity multiplier?
Suppose that the Bethesda Mining Company had sales of $2,751,332 and net income of $86,432 for the year ending December 31, 2019. Calculate the DuPont identity. Bethesda Mining Company reports the
Based on the balance sheets given for Bethesda Mining, calculate the following financial ratios for each year:a. Current ratiob. Quick ratioc. Cash ratiod. Debt-equity ratio and equity
Prepare the 2018 and 2019 common-size balance sheets for Bethesda Mining. Bethesda Mining Company reports the following balance sheet information for 2018 and 2019. BETHESDA MINING COMPANY Balance
Assuming the following ratios are constant, what is the sustainable growth rate?Total asset turnover =2.95Profit margin =5.9%Equity multiplier =1.31Payout ratio =40%
Based on the following information, calculate the sustainable growth rate for Northern Lights Co.:Profit margin = 6.7%Capital intensity ratio = .45Debt–equity
If the Crash Davis Driving School has an ROE of 14.6 percent and a payout ratio of 20 percent, what is its sustainable growth rate?
If Levine, Inc., has an ROA of 7.8 percent and a payout ratio of 25 percent, what is its internal growth rate?
Pickler Company has a debt-equity ratio of .65. Return on assets is 7.2 percent, and total equity is $815,000. What is the equity multiplier? Return on equity? Net income?
For the past year, Hawkeye, Inc., had a cost of goods sold of $95,318. At the end of the year, the accounts payable balance was $22,816. How long, on average, did it take the company to pay off its
Specialized ratios are sometimes used in specific industries. For example, the so-called book-to-bill ratio is closely watched for semiconductor manufacturers. A ratio of .93 indicates that for every
Croc Gator Removal has a profit margin of 6.4 percent, total asset turnover of 1.73, and ROE of 14.3 percent. What is this firm’s debt-equity ratio?
If jPhone, Inc., has an equity multiplier of 1.67, total asset turnover of 1.45, and a profit margin of 5.9 percent, what is its ROE?
Dove, Inc., had additions to retained earnings for the year just ended of $486,000. The firm paid out $175,000 in cash dividends, and it has ending total equity of $6.825 million. If the company
A7X Corporation has ending inventory of $625,817, and cost of goods sold for the year just ended was $9,758,345. What is the inventory turnover? The days’ sales in inventory? How long, on average,
Trout Lumber Yard has a current accounts receivable balance of $527,164. Credit sales for the year just ended were $6,787,626. What is the receivables turnover? The days’ sales in receivables? How
Wims, Inc., has sales of $15.2 million, total assets of $9.8 million, and total debt of $3.7 million. If the profit margin is 6 percent, what is net income? What is ROA? What is ROE?
SDJ, Inc., has net working capital of $2,135, current liabilities of $5,320, and inventory of $2,470. What is the current ratio? What is the quick ratio?
Graffiti Advertising, Inc., reported the following financial statements for the last two years. Construct the cash flow identity for the company. Explain what each number means.? 2019 Income

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