Reference no: EM131372856

1. Income Statement

Molteni Motors Inc. recently reported $6 million of net income. Its EBIT was $13 million,and its tax rate was 40%. What was its interest expense? (Hint: Write out the headings foran income statement, and then fill in the known values. Then divide $6 million netincome by 1 - T = 0.6 to find the pre-tax income. The difference between EBIT andtaxable income must be the interest expense. Use this procedure to work some of theother problems.)

2. Net Cash Flow

Kendall Corners Inc. recently reported net income of $3.1 million and depreciation of$500,000. What was its net cash flow? Assume it had no amortization expense.

3. Statement of Retained Earnings

In its most recent financial statements, Del-Castillo Inc. reported $70 million of netincome and $900 million of retained earnings. The previous retained earnings were $855million. How much in dividends did the firm pay to shareholders during the year?

4. Debt Ratio

Vigo Vacations has $200 million in total assets, $5 million in notes payable, and $25million in long-term debt. What is the debt ratio?

5. Price/Earnings Ratio

Reno Revolvers has an EPS of $1.50, a cash flow per share of $3.00, and a price/cash flowratio of 8.0. What is its P/E ratio?

6. ROE

Needham Pharmaceuticals has a profit margin of 3% and an equity multiplier of 2.0.Its sales are $100 million and it has total assets of $50 million. What is its ROE?

7. Profit Margin andDebt Ratio

Assume you are given the following relationships for the Haslam Corporation:
Sales/total assets 1.2
Return on assets (ROA) 4%
Return on equity (ROE) 7%

Calculate Haslam's profit margin and liabilities-to-assets ratio. Suppose half its liabilitiesare in the form of debt. Calculate the debt-to-assets ratio.

8. Current and QuickRatios

The Nelson Company has $1,312,500 in current assets and $525,000 in current liabilities.Its initial inventory level is $375,000, and it will raise funds as additional notes payableand use them to increase inventory. How much can Nelson's short-term debt (notespayable) increase without pushing its current ratio below 2.0? What will be the firm'squick ratio after Nelson has raised the maximum amount of short-term funds?

9. Times-Interest-Earned Ratio

The Morris Corporation has $600,000 of debt outstanding, and it pays an interest rate of8% annually. Morris's annual sales are $3 million, its average tax rate is 40%, and its netprofit margin on sales is 3%. If the company does not maintain a TIE ratio of at least 5 to 1,then its bank will refuse to renew the loan and bankruptcy will result. What is Morris'sTIE ratio?

10. Future Value:Ordinary Annuityversus Annuity Due

What is the future value of a 7%, 5-year ordinary annuity that pays $300 each year? If thiswere an annuity due, what would its future value be?

11. Present and Future, Values of Single Cash, Flows for Different, Interest Rates

What is the future value of a 7%, 5-year ordinary annuity that pays $300 each year? If thiswere an annuity due, what would its future value be?

Use both the TVM equations and a financial calculator to find the following values.

a. An initial $500 compounded for 10 years at 6%
b. An initial $500 compounded for 10 years at 12%
c. The present value of $500 due in 10 years at a 6% discount rate
d. The present value of $500 due in 10 years at a 12% discount rate

12. Uneven Cash FlowStream

a. Find the present values of the following cash flow streams. The appropriate interestrate is 8%. (Hint: It is fairly easy to work this problem dealing with the individualcash flows. However, if you have a financial calculator, read the section of the manualthat describes how to enter cash flows such as the ones in this problem. This will takea little time, but the investment will pay huge dividends throughout the course. Notethat, when working with the calculator's cash flow register, you must enter CF0 = 0.Note also that it is quite easy to work the problem with Excel, using proceduresdescribed in the Chapter 4 Tool Kit.)

Year Cash Stream A Cash Stream B
1 $100 $300
2 400 400
3 400 400
4 400 400
5 300 100

b. What is the value of each cash flow stream at a 0% interest rate?

13. Repaying a Loan

While Mary Corens was a student at the University of Tennessee, she borrowed $12,000in student loans at an annual interest rate of 9%. If Mary repays $1,500 per year, then howlong (to the nearest year) will it take her to repay the loan?

14. Reaching a FinancialGoal

You need to accumulate $10,000. To do so, you plan to make deposits of $1,250 per year-with the first payment being made a year from today-into a bank account that pays12% annual interest. Your last deposit will be less than $1,250 if less is needed to roundout to $10,000. How many years will it take you to reach your $10,000 goal, and howlarge will the last deposit be?