1. Calculate the following:
a. Receivables Turnover and the Average Collection Period;
b. Inventory Turnover and Days' Inventory on Hand;
c. Payables Turnover and Days' Payables (use purchases rather than cost of goods sold);
d. Profit Margin;
e. Return on Assets; and
f. Return on Equity;
2. Calculate the following:
a. Equity Multiplier;
b. Dividend Payout Ratio and Retention Rate;
c. Internal Growth Rate;
d. Sustainable Growth Rate;
e. Cash provided by operating activities under GAAP; and
f. Operating cash flow for the unlevered firm.
3. A "deferred annuity" investment offers annual payments of $8,000, with the first payment occurring six years from today. Your required rate of return is eight percent. What is the most that you would pay for this investment today
a. if there were twelve annual payments?
b. if there were twenty-four annual payments?
c. If the annual payments continued forever?
4. Investment One offers to pay you $15,300 per year for ten years, while Investment Two offers to pay you $21,600 per year for six years. Which of these investments offers the higher present value (show the present values)
a. if your required rate of return is six percent?
b. If your required rate of return is thirteen percent?
c. At what required rate of return would these two investments have the same present value?
5. You are planning on retiring in forty years and wish to have $3,600,000 at that time. You will make your first payment in one year and then increase your payments by 2.36 percent annually thereafter. If you invest in a fund paying an annual percentage rate (APR) of twelve percent, compounded semiannually, what is the amount of the first payment necessary to reach your objective.
6. You have just retired and reached your objective (see above) of accumulating $3,600,000 in your retirement fund. You expect to live for another twenty-five years (exactly) and wish to leave $2,000,000 to Illinois Tech when you are gone. What is the most that you could withdraw from this fund at the end of each quarter and still leave the money to IIT? The fund is expected to return six percent per annum, compounded monthly?
7. You have been following a company, Kannabis for Kyds, Inc., that is about to go public this afternoon. You are fairly certain that the company is unlikely to pay any dividends for the first seven years of its operations. At the end of the eighth year, you foresee receiving $0.50 per share as a dividend. You forecast that the ninth year's dividend will be $1.00 per share, the tenth year's dividend will be $1.50 per share and after that dividends will grow at an annual rate of four percent forever. What would you pay for a share of this stock today if you wished to earn eighteen percent per annum on your investment?
8. On June 30, 2017, you closed on your new condominium and obtained a $320,000 twenty-five year mortgage at an APR of 4.2%. The first monthly payment was due at that time (June 30, 2017), and then monthly thereafter (this is an "annuity in advance" or an "annuity due").
a. What was the amount of your required monthly payment?
b. Assuming that you made all payments exactly when due, how much interest would you have paid on the mortgage in the year ending December 31, 2017?
c. How much interest would you pay in 2018 if you made all of your scheduled payments exactly when due?
d. If the interest rate were to increase to 4.5% after sixty payments, what would be the amount of your new monthly payment? (the life of the mortgage would be unchanged).
9. You are the fore person of a jury charged with determining the amount of damages to pay to a plaintiff who was injured at work due to her employer's negligence. Because of her injuries, she lost the previous two years' salaries ($3,000 per month for the first year and $3,200 per month for the most recent year) and is expected to lose $3,400 per month for the next three years, after which she would be retired.
a. What is the amount of the award you would recommend she receive if the interest rate used to determine the award is 8.4%, compounded monthly?
b. What is the amount of the award you would recommend she receive if the interest rate used to determine the award is 4.16%, compounded weekly?
10. You are considering buying semiannual payment bonds with a face value of $40,000 and a coupon rate of eight percent. The bonds mature in twenty-five years. How much would you pay for these bonds if
a. you required an APR of twelve percent compounded semiannually?
b. you required an APR of four percent compounded semiannually?
c. you required an APR of eight percent compounded semiannually?
Attachment:- supplemental information.rar