Exam 1_ practice set

# Exam 1_ practice set - Your childs orthodontist offers you...

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Your childs orthodontist offers you two alternative payment plans. The first plan requires a \$4,000 immediate up-front payment. The second plan requires you to make monthly payments of \$137.41, payable at the end of each month for 3 years. What nominal two alternative payment plans. The first plan requires a \$4,000 immediate up-front payment. The second plan requires you to make monthly payments of \$137.41, payable at the end of each month for 3 years. What nominal annual interest rate is built into the monthly payment plan? Here is the answer: The trick is to recognize that you either pay upfront OR make payments, so they are opposite in signs. N36 PV-\$4,000 PMT\$137.41 FV\$0 I/MO1.20%Monthly annuity, so interest must be calculated on monthly basis Wells Water Systems recently reported \$8,250 of sales, \$4,500 of operating costs other than depreciation, and \$950 of depreciation. The company had no amortization charges, it had \$3,250 of outstanding bonds that carry a 6.75% interest rate, and its federal-plus- state income tax rate was 35%. In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to spend \$750 to buy new fixed assets and to invest \$250 in net operating working capital. How much free cash flow did Wells generate? Bonds\$3,250.00 Interest rate6.75% Tax rate35% Required addition to net operating working capital\$250.00

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Required capital expenditures (fixed assets)\$750.00 Sales\$8,250.00 Operating costs excluding depr'n\$4,500.00 Depreciation\$950.00 Operating income (EBIT)\$2,800.00 FCF = \$1,770.00 ² new firm is developing its business plan. It will require \$565,000 of assets, and it projects \$452,800 of sales and \$354,300 of operating costs for the first year.
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## This note was uploaded on 09/05/2011 for the course FIN 101 taught by Professor Salazar during the Spring '11 term at Collin College.

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Exam 1_ practice set - Your childs orthodontist offers you...

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