1.
A firm has common stock of $87, paid-in surplus of $240, total liabilities of $395, current assets of $360, and fixed assets of $570. What is the amount of the shareholders’ equity?
2. Recently, the owner of Martha’s Wares encountered severe legal problems and is trying to sell her business. The company built a building at a cost of $1,270,000 that is currently appraised at $1,470,000. The equipment originally cost $750,000 and is currently valued at $497,000. The inventory is valued on the balance sheet at $440,000 but has a market value of only one-half of that amount. The owner expects to collect 98 percent of the $240,200 in accounts receivable. The firm has $10,800 in cash and owes a total of $1,470,000. The legal problems are personal and unrelated to the actual business. What is the market value of this firm?
3.
The tax rates are as shown.
| Taxable Income | Tax Rate |
| $0 – 50,000 | 15% |
| 50,001 – 75,000 | 25% |
| 75,001 – 100,000 | 34% |
| 100,001 – 335,000 | 39% |
What is the average tax rate for a firm with taxable income of $130,513?
4. Your firm has net income of $351 on total sales of $1,440. Costs are $790 and depreciation is $110. The tax rate is 35 percent. The firm does not have interest expenses. What is the operating cash flow?
5. At the beginning of the year, long-term debt of a firm is $276 and total debt is $323. At the end of the year, long-term debt is $253 and total debt is $333. The interest paid is $19. What is the amount of the cash flow to creditors?
6. A firm has sales of $1,050, net income of $209, net fixed assets of $510, and current assets of $266. The firm has $84 in inventory. What is the common-size statement value of inventory?
7. Mario’s Home Systems has sales of $2,880, costs of goods sold of $2,220, inventory of $516, and accounts receivable of $436. How many days, on average, does it take Mario’s to sell its inventory?
| 8. Use the following information to answer this question. |
| Windswept, Inc. 2010 Income Statement ($ in millions) | |
| Net sales | $ 9,850 |
| Less: Cost of goods sold | 8,090 |
| Less: Depreciation | 485 |
| Earnings before interest and taxes | $ 1,275 |
| Less: Interest paid | 118 |
| Taxable Income | $ 1,157 |
| Less: Taxes | 405 |
| Net income | $ 752 |
| Windswept, Inc. 2009 and 2010 Balance Sheets ($ in millions) | |||||
| 2009 | 2010 | 2009 | 2010 | ||
| Cash | $ 290 | $ 320 | Accounts payable | $ 1,630 | $ 1,885 |
| Accounts rec. | 1,120 | 1,020 | Long-term debt | 1,180 | 1,340 |
| Inventory | 2,000 | 1,775 | Common stock | $ 3,500 | $ 3,080 |
| Total | $ 3,410 | $ 3,115 | Retained earnings | 670 | 920 |
| Net fixed assets | 3,570 | 4,110 | |||
| Total assets | $ 6,980 | $ 7,225 | Total liab. & equity | $ 6,980 | $ 7,225 |
What is the days’ sales in receivables? (use 2010 values)
| 9. Use the following information to answer this question. |
| Windswept, Inc. 2010 Income Statement ($ in millions) | |
| Net sales | $ 9,450 |
| Less: Cost of goods sold | 7,500 |
| Less: Depreciation | 375 |
| Earnings before interest and taxes | $ 1,575 |
| Less: Interest paid | 93 |
| Taxable Income | $ 1,482 |
| Less: Taxes | 519 |
| Net income | $ 963 |
| Windswept, Inc. 2009 and 2010 Balance Sheets ($ in millions) | |||||
| 2009 | 2010 | 2009 | 2010 | ||
| Cash | $ 190 | $ 220 | Accounts payable | $ 1,270 | $ 1,467 |
| Accounts rec. | 900 | 800 | Long-term debt | 1,030 | 1,263 |
| Inventory | 1,660 | 1,610 | Common stock | $ 3,250 | $ 2,940 |
| Total | $ 2,750 | $ 2,630 | Retained earnings | 500 | 750 |
| Net fixed assets | 3,300 | 3,790 | |||
| Total assets | $ 6,050 | $ 6,420 | Total liab. & equity | $ 6,050 | $ 6,420 |
| What is the equity multiplier for 2010? |
| 10. Use the following information to answer this question. |
| Windswept, Inc. 2010 Income Statement ($ in millions) | |
| Net sales | $ 10,000 |
| Less: Cost of goods sold | 7,950 |
| Less: Depreciation | 410 |
| Earnings before interest and taxes | $ 1,640 |
| Less: Interest paid | 100 |
| Taxable Income | $ 1,540 |
| Less: Taxes | 539 |
| Net income | $ 1,001 |
| Windswept, Inc. 2009 and 2010 Balance Sheets ($ in millions) | |||||
| 2009 | 2010 | 2009 | 2010 | ||
| Cash | $ 270 | $ 300 | Accounts payable | $ 1,630 | $ 1,812 |
| Accounts rec. | 1,110 | 1,010 | Long-term debt | 1,070 | 1,383 |
| Inventory | 1,780 | 1,755 | Common stock | $ 3,360 | $ 3,030 |
| Total | $ 3,160 | $ 3,065 | Retained earnings | 650 | 900 |
| Net fixed assets | 3,550 | 4,060 | |||
| Total assets | $ 6,710 | $ 7,125 | Total liab. & equity | $ 6,710 | $ 7,125 |
| What is the cash coverage ratio for 2010? |
| Use the following information to answer this question. |
| Windswept, Inc. 2010 Income Statement ($ in millions) | |
| Net sales | $ 8,900 |
| Less: Cost of goods sold | 7,440 |
| Less: Depreciation | 415 |
| Earnings before interest and taxes | $ 1,045 |
| Less: Interest paid | 86 |
| Taxable Income | $ 959 |
| Less: Taxes | 336 |
| Net income | $ 623 |
| Windswept, Inc. 2009 and 2010 Balance Sheets ($ in millions) | |||||
| 2009 | 2010 | 2009 | 2010 | ||
| Cash | $ 170 | $ 205 | Accounts payable | $ 1,240 | $ 1,440 |
| Accounts rec. | 960 | 860 | Long-term debt | 1,020 | 1,285 |
| Inventory | 1,560 | 1,580 | Common stock | $ 3,250 | $ 2,920 |
| Total | $ 2,690 | $ 2,645 | Retained earnings | 480 | 730 |
| Net fixed assets | 3,300 | 3,730 | |||
| Total assets | $ 5,990 | $ 6,375 | Total liab. & equity | $ 5,990 | $ 6,375 |
| What is the return on equity for 2010? |
12. Beatrice invests $1,460 in an account that pays 5 percent simple interest. How much more could she have earned over a 6-year period if the interest had compounded annually?
13. What is the future value of $3,078 invested for 8 years at 6.0 percent compounded annually?
14. What is the present value of $13,150 to be received 4 years from today if the discount rate is 5 percent?
15. Two years ago, you invested $3,450.00. Today, it is worth $4,200.00. What rate of interest did you earn?
16. Bob bought some land costing $16,340. Today, that same land is valued at $46,717. How long has Bob owned this land if the price of land has been increasing at 4 percent per year?
17. Your parents are giving you $180 a month for 6 years while you are in college. At a 6 percent discount rate, what are these payments worth to you when you first start college?
18. You are scheduled to receive annual payments of $11,200 for each of the next 20 years. Your discount rate is 11 percent. What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each year?
19. Your car dealer is willing to lease you a new car for $469 a month for 60 months. Payments are due on the first day of each month starting with the day you sign the lease contract. If your cost of money is 5.7 percent, what is the current value of the lease?
20. Your credit card company charges you 1.01 percent per month. What is the annual percentage rate on your account?
21. You are paying an effective annual rate of 15.60 percent on your credit card. The interest is compounded monthly. What is the annual percentage rate on your account?
22. Wine and Roses, Inc. offers a 8.0 percent coupon bond with semiannual payments and a yield to maturity of 8.78 percent. The bonds mature in 5 years. What is the market price of a $1,000 face value bond?
23. A bond that pays interest annually yields a rate of return of 9.25 percent. The inflation rate for the same period is 4 percent. What is the real rate of return on this bond?
24. A zero coupon bond with a face value of $1,000 is issued with an initial price of $640.66. The bond matures in 22 years. What is the implicit interest, in dollars, for the first year of the bond’s life? Use semiannual compounding.
25. The MerryWeather Firm wants to raise $25 million to expand its business. To accomplish this, the firm plans to sell 20-year, $1,000 face value zero-coupon bonds. The bonds will be priced to yield 7 percent. What is the minimum number of bonds the firm must sell to raise the $25 million it needs? Use annual compounding.
26. Michael’s, Inc. just paid $2.15 to its shareholders as the annual dividend. Simultaneously, the company announced that future dividends will be increasing by 4.70 percent. If you require a rate of return of 8.9 percent, how much are you willing to pay today to purchase one share of Michael’s stock?
27. Leslie’s Unique Clothing Stores offers a common stock that pays an annual dividend of $2.20 a share. The company has promised to maintain a constant dividend. How much are you willing to pay for one share of this stock if you want to earn a 10.30 percent return on your equity investments?
28. Shares of common stock of the Samson Co. offer an expected total return of 21.2 percent. The dividend is increasing at a constant 5.8 percent per year. The dividend yield must be:
29. Weisbro and Sons common stock sells for $51 a share and pays an annual dividend that increases by 4.0 percent annually. The market rate of return on this stock is 9.70 percent. What is the amount of the last dividend paid by Weisbro and Sons?
30. The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 20 percent a year for the next 4 years and then decreasing the growth rate to 5 percent per year. The company just paid its annual dividend in the amount of $2.00 per share. What is the current value of one share of this stock if the required rate of return is 7.50 percent?