Week 9

Problem 2 Financial Analysis and PlanningDatabase systems is considering expansion into a new product line. Assets to support expansion will cost $380,000. It is estimated that database can generate $1,410,000 in annual sales, with a 8 percent profit margin. What would net income and return on assets (investments) be for the yearProblem 8Easter egg and Poultry Company has $2,000,000 in assets and $1,400,000 of debt. It reports net income of $200,000a.       What is the firm’s return on assets?b.      What is its return on stockholders’ equity?c.       If the firm has an asset turnover ratio of 2.5 times, what is the profit margin (return on sales)?Problem 22The balance sheet for stud clothiers is shown below. Sales for the year were $2,400,000 with 90 percent of sales sold on credit.Assets                                                                  Liabilities and EquityCash                            $60,000                           Accounts payable              $220,000Accounts receivable 240,000                           Accrued taxes                      30,000Inventory                    350,000                           Bonds payable (long term) 150,000Plant and equipment410, 000                          Common stock                      80,000Total assets $1,060,000                                   Paid in capital                        200,000Retained earnings                 380,000Total liabilities and equity $1,060,000Compute the followinga.       Current ratiob.      Quick ratioc.       Debt to total assets ratiod.      Asset turnovere.      Average collection periodChapter 9 the Time Value of MoneyProblem 2. What is the present value ofa.       $7,900 in 10 years at 11 percentb.      $16,600 in 5 years at 9 percentc.       $26,000 in 14 years at 6 percentProblem 5If you invest $9,000 today, how much will you have?a.       In 2 years at 9 percentb.      In 7 years at 12 percentc.       In 25 years at 14 percentd.      In 25 years at 14 percent (compounded semiannuallyChapter 10Problem 3Exodus Limousine Company has $1,000 par value bonds outstanding at 10 percent interest. The bonds will mature in 50 years. Compute the current price of the bonds if the percent yield to maturity isa.       5 percentb.      15 percentChapter 12Problem 3Assume a firm has earnings before depreciation and taxes of $200,000 and no depreciation. It is in a 40 percent tax bracketa.       Compute its cash flowb.      Assume it has $200,000 in depreciation. Recompute its cash flowc.       How large a cash flow benefit did the depreciation provide?Problem 6Assume a $250,000 investment and the following cash flows for two productsYear       Product X             Product Y1              $90,000               $50,0002               90,000                 80,0003                60,000                60,0004               20,000                  70,000Problem 11You buy a new piece of equipment for $16,230 and you receive a cash inflow of $2,500 per year for 12 years. What is the internal rate of return?Problem 18The Pan American Bottling Co. is considering the purchase of a new machine that would increase the speed of bottling and save money. The net cost of this machine is $60,000. The annual cash flows have the following projections.Year        Cash Flow1              $23,0002               26,0003               29,0004               15,0005                8,000a.       If the cost of capital is 13 percent, what is the net present value of selecting a new machineb.      What is the internal rate of return?Should the project be accepted? Why?