P5-2.
Future value calculation
LG 2; Basic
Case
A N=
B N=
C N=
D N=
2, I =
3, I =
2, I =
4, I =
12%, PV =
6%, PV =
9%, PV =
3%, PV =
$1, Solve for FV =
$1, Solve for FV =
$1, Solve for FV =
$1, Solve for FV =
1.2544
1.1910
1.1881
1.1259
P4-20. Integrativepro forma statements
LG 5; Challenge
a.
Pro Forma Income Statement
Provincial Imports, Inc.
for the Year Ended December 31, 2013
(percent-of-sales method)
Sales
Less: Cost of goods sold (0.35 sales +
$1,000,000)
Gross profits
Less: Opera
P4-13. Cash budgetscenario analysis
LG 4; Intermediate
a.
Trotter Enterprises, Inc.
Multiple Cash Budgets ($000)
Octob
er
Novem
ber
December
Pessi- Most Optimistic Likely mistic
Total cash
receipts
Pessi- Most Optimistic Likely mistic
Pessi- Most Optimist
P6-10. Bond interest payments before and after taxes
LG 2; Intermediate
a. Yearly interest = [($2,500,000/2500) 0.07] = ($1,000 0.07) = $70.00
b. Total interest expense = $70.00 per bond 2,500 bonds = $175,000
c. Total before tax interest
$175,000
Interes
P6-3.
Personal finance: Real and nominal rates of interest
LG 1; Intermediate
a. 4 shirts
b. $100 + ($100 0.09) = $109
c. $25 + ($25 0 .05) = $26.25
d. The number of polo shirts in one year = $109 $26.25 = 4.1524. He can buy 3.8%
more shirts (4.1524 4 = 0
P3-13. Liquidity management
LG 3; Basic
a.
2009
2010
2011
2012
Current ratio
1.88
1.74
1.79
1.55
Quick ratio
1.22
1.19
1.24
1.14
$7,950
$9,300
$9,900
$9,600
Net working capital
b. The pattern indicates a deteriorating liquidity position. The decline is mo
P4-3.
MACRS depreciation expense, taxes, and cash flow
LG 1, 2; Challenge
a. Depreciation expense = $80,000 0.20 = $16,000 (MACRS depreciation
percentages found
on Table 4.2 in the text.)
b. New taxable income = $430,000 $16,000 = $414,000
Tax liability =
P3-7.
Personal Finance: Balance sheet preparation
LG 1; Basic
a.
Adam and Arin Adams
Balance Sheet
December 31, 2012
Assets
Cash
Checking
Savings
Money market funds
Total Liquid Assets
IBM stock
Retirement funds, IRA
Total Investments
Total Real Estate
20
P3-6.
Income statement preparation
LG 1; Intermediate
Owen Davis Company
Balance Sheet
December 31, 2012
Assets
Current assets:
Cash
Marketable securities
Accounts receivable
Inventories
Total current assets
Gross fixed assets
Land and buildings
Machinery
P3-24. Integrativecomplete ratio analysis
LG 6; Challenge
Sterling Company
Ratio Analysis
Actual
Ratio
Current ratio
Actual
Actual
2010
2011
2012
1.40
Quick ratio
1.00
Inventory turnover
9.52
Average collection
period
Average payment
period
Total asset tu
P6-11. Bond prices and yields
LG 4; Basic
a. 0.97708 $1,000 = $977.08
b. (0.05700 $1,000) $977.08 = $57.000 $977.08 = 0.0583 = 5.83%
c. The bond is selling at a discount to its $1,000 par value.
d. The yield to maturity is higher than the current yield, b
P3-23. Financial statement analysis
LG 6; Intermediate
a.
Zach Industries
Ratio Analysis
Industry
Average
Current ratio
Quick ratio
Inventory turnover
Average collection period
Debt ratio
Times interest earned
Gross profit margin
Net profit margin
Return
P4-11. Cash budgetadvanced
LG 4; Challenge
a.
Xenocore, Inc.
($000)
Sept. Oct.
Forecast Sales
Cash sales (0.20)
Collections
Lag 1 month (0.40)
Lag 2 months (0.40)
Other cash receipts
Total cash receipts
Forecast Purchases
Cash purchases
Payments
Lag 1 mon
P3-8.
A
c
c
o
u
n
t
a.
b.
c.
d.
Impact of net income on a firms balance sheet
LG 1; Basic
Beginning
Value
Marketable
$ 35,000
securities
Retained earnings $1,575,000
Long-term debt $2,700,000
Retained earnings $1,575,000
Buildings
$1,600,000
Retained earn
P7-5.
Personal finance: Common stock valuationzero growth: P0 = D1 rs
LG 4; Basic
a.
b.
c.
P0 = $2.40 0.12 = $20
P0 = $2.40 0.20 = $12
As perceived risk increases, the required rate of return also increases, causing the
stock price to fall.
P6-25. Bond valuationsemiannual interest
LG 6; Intermediate
Bond
Computer
Inputs
Calculator Solution
A
N = 24, I = 4%, PMT = $50, FV = $1,000
$1,152.47
B
N = 40, I = 6%, PMT = $60, FV = $1,000
$1,000.00
C
N = 10, I = 7%, PMT = $30, FV = $500
$ 464.88
D
N
P3-5.
Calculation of EPS and retained earnings
LG 1; Intermediate
a. Earnings per share:
Net profit before taxes
Less: Taxes at 40%
Net profit after tax
Less: Preferred stock dividends
Earnings available to common stockholders
$218,000
87,200
$130,800
32,
P6-23. Personal finance: Bond valuation and yield to maturity
LG 2, 5, 6; Challenge
a. N = 5, I = 12%, PMT = 0.06 $1,000 = $60; FV = $1,000
Solve for PV = $783.71
N = 5, I = 12%, PMT = 0.14 $1,000 = $140; FV = $1,000
Solve for PV = $ 1,072.10
b.
Number of
P6-21. Yield to maturity
LG 6; Intermediate
a. Using a financial calculator, the YTM is 12.685%. The correctness of this number is
proven by putting the YTM in the bond valuation model. This proof is as follows:
N = 15, I = 12.685%, PMT = $120, FV = $1,00
P6-20. Yield to maturity
LG 6; Basic
Bond A is selling at a discount to par.
Bond B is selling at par value.
Bond C is selling at a premium to par.
Bond D is selling at a discount to par.
Bond E is selling at a premium to par.
P6-19. Personal finance: Bond value and timechanging required returns
LG 5; Challenge
a.
Bond
Calculator Inputs
Calculator Solution
(1)
N = 5, I = 8%, PMT = $110, FV = $1,000
$1,119.78
(2)
N = 5, I = 11%, PMT = $110, FV = $1,000
$1,000.00
(3)
N = 5, I = 1