1. The Picture Frame has beginning net fixed assets of $32,681 and ending net fixed assets of $33,127. Depreciation for the year was $5,364. During the year, the company made only one purchase of fixed assets when it bought a dry mount press. It did not sell any fixed assets during the year. How much did the dry mount press cost? $5,810 Net capital spending = $33,127- $32,681 + $5,364 = $5,810 3. A firm has a debt-equity ratio of 1.4 and total assets of $2,500. Its return on equity is 15%. What is the amount of the net income? B. $156.25 Debt/Equity=1.40 Equity / Assets=1/(1.4 + 1) = 0.417 Equity = Assets * 0.417 = 2500*0.417=$1,041.67 Net Income = ROE * Equity = 0.15 * 1,041.67 = $156.25 4. Five years ago, Precision Tool set aside $50,000 in case of a financial emergency. Today, that account has increased in value to $64,397. What will be the value of the account four years from now if it continues to grow at the same annual rate? A. $78,843 First, find the annual rate at which the account in compounding. $64,397=$50,000X(1 + r)5; r=5.19 percent Now, compound at the same rate for four more years. FV=64,397*(1.05194)=$78,843.06 5. Marcia plans on saving $6,000 every year starting one year from now. She expects to earn an annual rate of 11.5 percent on her savings. 40 years from now, she will retire, at which point she will move the money to an account that earns 8% compounded monthly. How much could she withdraw each month after retirement assuming a 25-year withdrawal period? D. $30,927 The future value of her savings is FV=(6,000/.115)*(1.11540 –1)=$4,007,097.66 She then is looking for a monthly annuity payment that has the same present value: N=25*12=300, PV = -4,007,097.66, I/Y=8/12=0.67%, FV=0 CPT PMT=$30,927.43 6. The bonds issued by General Motors bear a 7.5 percent coupon, payable semiannually. The bonds mature in 10 years and have a $1,000 face value.
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