Question
a. Compute the future value of $2,000 compounded annually for 10 years at 6 percent.
b. Compute the future value of $2,000 compounded annually for 10 years at 11 percent.
c. Compute the future value of $2,000 compounded annually for 15 years at 6

Question
An investor purchasing a British consol is entitled to receive annual payments from the British
government forever.
What is the price of a consol that pays $220 annually if the next payment occurs one year from today?
The market interest rate is

Question
Find the EAR in each of the following cases
Solution
For discrete compounding, to find the EAR, we use the equation:
EAR = [1 + (APR / m)]m 1
EAR = [1 + (.100/ 4)]4 1 = .1038, or 10.38%
EAR = [1 + (.190 / 12)]12 1 = .2075, or 20.75%
EAR = [1 + (.

Question
Ranney, Inc., has sales of $48,000, costs of $21,200, depreciation expense of $1,900, and interest
expense of $1,200.
If the tax rate is 35 percent, what is the operating cash flow, or OCF?
Solution
To calculate OCF, we first need the income stat

Question
For each of the following, compute the present value
Present Value
$
Years
Interest Rate
14
8%
Future value
$ 15,551
5
14
52,557
30
15
887,073
35
8
551,164
Solution
To find the PV of a lump sum, we use:
PV = FV / (1 + r)t
0
PV
$1
PV = $15,551 / (

Question
Gordon Driving Schools 2011 balance sheet showed net fixed assets of $3.8 million, and the 2012
balance sheet showed net fixed assets of $4.1 million. The companys 2012 income statement showed
a depreciation expense of $415,000.
What was Gordon's

Question
If Jares, Inc., has an equity multiplier of 1.51, total asset turnover of 1.30, and a profit margin of 6.1
percent, what is its ROE?
Solution
ROE = (PM)(TAT)(EM)
ROE = (.061)(1.30)(1.51) = .1197, or 11.97%

Question
Firm A and Firm B have debttotal asset ratios of 31 percent and 21 percent and returns on total assets
of 7 percent and 13 percent, respectively.
What is the return on equity for Firm A and Firm B?
Solution
Since ROE = NI / E, we can substitute t

Question
Travis, Inc., has sales of $405,000, costs of $193,000, depreciation expense of $58,000, interest
expense of $39,000, and a tax rate of 40 percent.
What is the net income for the firm?
Suppose the company paid out $48,000 in cash dividends. What

Question
Nuber Company has a debtequity ratio of .72. Return on assets is 8.5 percent, and total equity is
$905,000.
What is the equity multiplier?
What is the return on equity?
What is the net income?
Solution
The equity multiplier is:
EM = 1 + D/E
EM =

Question
The Locker Co. had $293,000 in taxable income. Use the rates from Table 2.3.
Calculate the companys income taxes.
What is the average tax rate?
What is the marginal tax rate?
Solution
Taxes = .15($50,000) + .25($25,000) + .34($25,000) + .39($293,

Question
In addition to common-size financial statements, commonbase year financial statements are often used.
Commonbase year financial statements are constructed by dividing the current year account value by
the base year account value. Thus, the result

Question
First City Bank pays 7 percent simple interest on its savings account balances, whereas Second City
Bank pays 7 percent interest compounded annually.
If you made a $56,000 deposit in each bank, how much more money would you earn from your Second

Question
Solve for the unknown interest rate in each of the following
Present Value
$
Years
Interest Rate
Future Value
%
140
3
$
160
260
17
625
29,000
18
107,503
28,261
20
193,610
Solution
We can use either the FV or the PV formula. Both will give the sam

Question
The Perpetual Life Insurance Co. is trying to sell you an investment policy that will pay you and your
heirs $12,500 per year forever.
If the required return on this investment is 4.7 percent, how much will you pay for the policy?
Suppose the Per

Question
The Le Bleu Company has a ratio of long-term debt to long-term debt plus equity of .25 and a current ratio
of 1.50. Current liabilities are $900, sales are $6,230, profit margin is 8.1 percent, and ROE is 18.6
percent. What is the amount of the f

Question
Investment X offers to pay you $4,500 per year for nine years, whereas Investment Y offers to pay you
$6,600 per year for five years.
Calculate the present value for Investments X and Y if the discount rate is 6 percent.
Calculate the present val

Question
Although appealing to more refined tastes, art as a collectible has not always performed so profitably.
During 2010, an auction house sold a painting, at auction for a price of $1,180,000. Unfortunately for the
previous owner, he had purchased it

Question
Solve for the unknown number of years in each of the following
Present Value
$
630
Years
Interest Rate Future Value
8%
$
1,496
880
12
2,496
19,100
18
392,101
22,200
14
403,794
Solution
We can use either the FV or the PV formula. Both will give th

Question
Y3K, Inc., has sales of $6,209, total assets of $2,825, and a debtequity ratio of 1.10. If its return on
equity is 11 percent, what is its net income?
Solution
This is a multi-step problem involving several ratios. The ratios given are all part o

Question
A company has net income of $182,000, a profit margin of 7.6 percent, and an accounts receivable
balance of $121,370. Assuming 75 percent of sales are on credit, what is the companys days sales in
receivables?
Solution
This is a multi-step proble

Question
Cheryl Colby, CFO of Charming Florist Ltd., has created the firms pro forma balance sheet for the next
fiscal year. Sales are projected to grow by 20 percent to $420 million. Current assets, fixed assets, and
short-term debt are 20 percent, 70 pe

Question
Find the APR, or stated rate, in each of the following cases
Solution
Here, we are given the EAR and need to find the APR. Using the equation for discrete compounding:
EAR = [1 + (APR / m)]m 1
We can now solve for the APR. Doing so, we get:
APR =

Question
Titan Inc.s net income for the most recent year was $15,585. The tax rate was 40 percent. The firm paid
$3,846 in total interest expense and deducted $2,525 in depreciation expense. What was Titans cash
coverage ratio for the year?
Solution
This

Question
An investment offers $5,400 per year for 10 years, with the first payment occurring one year from now.
If the required return is 5 percent, what is the value of the investment?
What would the value be if the payments occurred for 35 years?
What w

Question
Ritter Corporations accountants prepared the following financial statements for year-end 2012:
a. What is the change in cash during 2012?
b. Determine the change in net working capital in 2012.
c. Determine the cash flow generated by the firms as

Question
Bishop, Inc., has current assets of $5,000, net fixed assets of $23,800, current liabilities of $4,000, and
long-term debt of $8,900.
What is the value of the shareholders' equity account for this firm?
How much is net working capital?
Solution
T

Question
During 2012, Raines Umbrella Corp. had sales of $720,000. Cost of goods sold, administrative and
selling expenses, and depreciation expenses were $500,000, $90,000, and $85,000, respectively. In
addition, the company had an interest expense of $9

Question
Huang, Inc., is obligated to pay its creditors $7,700 very soon.
a. What is the market value of the shareholders equity if assets have a market value of $11,000?
b. What is the market value of the shareholders equity if assets equal $7,100?
Solut

Question
During 2012, Raines Umbrella Corp. had sales of $710,000. Cost of goods sold, administrative and
selling expenses, and depreciation expenses were $500,000, $125,000, and $170,000, respectively. In
addition, the company had an interest expense of

Question
The Stancil Corporation provided the following current information:
Proceeds from long-term borrowing
Proceeds from the sale of common stock
Purchases of fixed assets
Purchases of inventories
Payment of dividends
$ 17,100
4,100
21,100
2,000
14,60