Question 1: Molteni Motors Inc. recently reported $6 million of net income. Its EBIT was $13 million, and its tax rate was 40%. What was its interest expense? (Hint:Write out the headings for an income statement, and then fill in the known values. Then divide $6 million net income by 1-T = 0.6 to find the pre-tax income. The difference between EBIT and taxable income must be the interest expense. Use this procedure to work some of the other problems.)
Question 2: Kendall Corners Inc. recently reported net income of $3.1 million and depreciation of $500,000. What was its net cash flow? Assume it had no amortization expense.
Question 3: In its most recent financial statements, Del-Castillo Inc. reported $70 million of net income and $900 million of retained earnings. The previous retained earnings were $855 million. How much in dividends did the firm pay to shareholders during the year?
Question 4: Vigo Vacations has $200 million in total assets, $5 million in notes payable, and $25 million in long-term debt. What is the debt ratio?
Question 5: Reno Revolvers has an EPS of $1.50, a cash flow per share of $3.00, and a price/cash flow ratio of 8.0. What is its P/E ratio?
Question 6: Needham Pharmaceuticals has a profit margin of 3% and an equity multiplier of 2.0. Its sales are $100 million and it has total assets of $50 million. What is its ROE?
Question 7: Assume you are given the following relationships for the Haslam Corporation:
Sales/total assets 1.2
Return on assets (ROA) 4%
Return on equity (ROE) 7%
Calculate Haslam's profit margin and liabilities-to-assets ratio. Suppose half its liabilities are in the form of debt. Calculate the debt-to-assets ratio.
Question 8: The Nelson Company has $1,312,500 in current assets and $525,000 in current liabilities. Its initial inventory level is $375,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 2.0? What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds?
Question 9: The Morris Corporation has $600,000 of debt outstanding, and it pays an interest rate of 8% annually. Morris's annual sales are $3 million, its average tax rate is 40%, and its net profit margin on sales is 3%. If the company does not maintain a TIE ratio of at least 5 to 1, then its bank will refuse to renew the loan and bankruptcy will result. What is Morris's TIE ratio?
Question 10: What is the future value of a 7%, 5-year ordinary annuity that pays $300 each year? If this were an annuity due, what would its future value be?
Question 11: Use both the TVM equations and a financial calculator to find the following values. See the Hint for Problem 4-9.
a. An initial $500 compounded for 10 years at 6%
b. An initial $500 compounded for 10 years at 12%
c. The present value of $500 due in 10 years at a 6% discount rate
d. The present value of $500 due in 10 years at a 12% discount rate
Question 12: a. Find the present values of the following cash flow streams. The appropriate interest rate is 8%. (Hint: It is fairly easy to work this problem dealing with the individual cash flows. However, if you have a financial calculator, read the section of the manual that describes how to enter cash flows such as the ones in this problem. This will take a little time, but the investment will pay huge dividends throughout the course. Note that, when working with the calculator's cash flow register, you must enter CF0 = 0. Note also that it is quite easy to work the problem withExcel.
b. What is the value of each cash flow stream at a 0% interest rate?
Question 13: Find the interest rate (or rates of return) in each of the following situations.
a. Youborrow$700 and promise to pay back $749 at the end of 1 year.
b. Youlend$700 and receive a promise to be paid $749 at the end of 1 year.
c. You borrow $85,000 and promise to pay back $201,229 at the end of 10 years.
d. You borrow $9,000 and promise to make payments of $2,684.80 at the end of each of the next 5 years.
Question 14: While Mary Corens was a student at the University of Tennessee, she borrowed $12,000 in student loans at an annual interest rate of 9%. If Mary repays $1,500 per year, then how long (to the nearest year) will it take her to repay the loan?
Question 15: You need to accumulate $10,000. To do so, you plan to make deposits of $1,250 per year-with the first payment being made a year from today-into a bank account that pays 12% annual interest. Your last deposit will be less than $1,250 if less is needed to round out to $10,000. How many years will it take you to reach your $10,000 goal, and how large will the last deposit be?