FIN370 Future Value - 89955

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1. (Future value) Leslie Mosallam, who recently sold her Porsche, placed $ 10,000 in a savings account paying annual compound interest of 6 percent. a. Calculate the amount of money that will accumulate if Leslie leaves the money in the bank for 1, 5, 15 year(s). b. Suppose Leslie moves her money into an account that pays 8 percent or one that pays 10 percent. Rework part (a) using 8 percent and 10 percent. c. What conclusions can you draw about the relationship between interest rates, time, and future sums from the calculations you just did? 2. (Present value) Sarah Wiggum would like to make a single investment and have $2.0 million at the time of her retirement in 35 years. She has found a mutual fund that will earn 4 percent annually. How much will Sarah have to invest today? If Sarah earned an annual return of 14 percent, how soon could she retire? a. If Sarah can earn 4 percent annually for the next 35 years, the amount of money she will have to invest today is $_________________ 3. (Solving for n) How many years will it take for $500 to grow to $991.99 if it’s invested at 6 percent compounded annually? 4. (Solving for i) Lance Murdoc k purchased a wooden statue of a Conquistador for $7,600 to put in his home office 7 years ago. Lance has recently married, and his home office is being converted into a sewing room. His new wife, who has far better taste than Lance, thinks the Conquistador is hideous and must go immediately. Lance decided to sell it on e-Bay and only received %5,200 for it, and so he took a 5. (Future value of an ordinary annuity) What is the future value of $500 per year for 10 years compounded annually at 5 percent? 6. (Present value of an ordinary annuity) What is the present value of $2,500 per year for 8 years discounted back to the present at 10 percent? 7. (Present value of a growing perpetuity) What is the present value of a perpetual stream of cash flows that pays $90,000 at the end of year one and then grows at a rate of 4% per year indefinitely? The rate of interest used to discount the cash flows is 11%. 8. (Present value of complex cash flows) How much do you have to deposit today so that beginning 11 years from now you can withdraw $10,000 a year for the next 5 years (periods 11 through 15) plus an additional amount of $20,000 in the last year (period 15)? Assume an interest rate of 6 percent. 9. (Break-even analysis) The Marvel Mfg. Company is considering whether or not to construct a new robotic production facility. The cost of this new facility is $600, 000 and it is expected to have a six-year life with annual depreciation expense of $100, 000 and no salvage value. Annual sales from the new facility are expected to be 2,000 units with a price of $1,000 per unity. Variable production costs are $600 per unit, and fixed cash expenses are $80,000 per year. a. Find the accounting and the cash break-even units of production b. Will the plant make a profit based on its current expected level of operations c. Will the plant contribute cash flow to the firm at the expected level of operations? 10. (Break-even analysis) Farrington Enterprises runs a number of sporting goods businesses and is currently analyzing a new T-shirt printing business. Specifically, the company is evaluating the feasibility of this business based on its estimates of unit sales, the price per unit, variable cost per unit and fixed costs. The company initial estimates of annual sales and other critical variables are shown below: Unit sales 5,000 Price per unit $12.00 Variable cost per unit $8.00 Fixed cash expense per year $10,000 Depreciation expense $5,000 a. The accounting break-even units of production is ______________units. (Round to the neares interger.) 11. (Financial forecasting) Which of the following accounts would most likely vary directly with the level of firm sales? Cash yes or no Notes payable yes or no Marketable securities yes or no Plant and equipment yes or no Accounts payable yes or no Inventories yes or no Long-term debt yes or no Will this account vary with sales (cash)? yes or no 12. (Corporate income tax) Meyer Inc. has taxable income (earnings before taxes) of $300,000. Calculate Meyer’s federal income tax liability using the tax table shown below. What are the firm’s average and marginal tax Taxable Income Marginal Tax Rate $0-$50,000 15% $50,001-$75,000 25% $75,001-$100, 000 34% $100,001-$335,000 39% $335,000-$10,000,000 34% $10,000,000-$15,000,000 35% $15,000,001-$18,333,333 38% Over $18,333,333 35% The firm’s tax liability for the year is $___________. (Round to the nearest dollar.) 13. (Working with the balance sheet) The Caraway Seed Company grows heirloom tomatoes and sells their seeds. The heirloom tomato plants are preferred by many growers for their superior flavor. At the end of the most recent year the firm had current assets of $50,000 net fixed assets of $250,000, current liabilities of $30,000, and long term debt of $100,000. a. Calculate Caraway’s stockholders equity. b. What is the firm’s net working capital? c. If Caraway’s current liabilities consist of $20,000 in accounts payable and $10,000 in short-term debt (notes payable), what is the firm’s net working capital? 14. (Review of financial statements) A scrambled list of accounts from the income statement and balance sheet of Belmond, Inc. is found below: Inventory $6,540 Common Stock 44,940 Cash 16,560 Operating expenses 1,320 Short-term notes payable 590 Interest expense 940 Depreciation expense 520 Sales 12,810 Accounts receivable 9,620 Accounts payable 4,840 Long-term debt 55,060 Cost of goods sold 5,760 Buildings and equipment 122,190 Accumulated depreciation 34,310 Taxes 1,430 General and administrative expense 880 Retained earnings ? a. How much is the firm’s net working capital? b. Complete an income statement and a balance sheet for Belmond. c. If you were asked to respond to complete parts a. and b. as part of a training exercise, what could you tell your boss about the company’s financial condition based on your answers? 15. (Analyzing the quality of firm earnings) Kabutell, Inc. had net income of $75,000, cash flow from financing activities of $50,000, depreciation expenses of $50,000, and cash flow from operating activities of $575,000. a. Calculate the quality of earnings ratio. What does this ration tell you? b. Kabutell, Inc. reported the following in its annual reports for 2011-2013: ($ million) 2011 2012 2013 Cash Flow from Operations $478 $403 $470 Capital Expenditures (CAPEX) $459 $447 $456 Calculate the average capital acquisitions ratio over the three year period. How would you interpret these results? NOTE: IN CASE IN SOME QUESTIONS, YOU FIND DIFFERENT DATA. JUST CHANGE DATA IN EXCEL, YOU WILL GET CORRECT RESULT.
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