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BUSI 530 Week 2 Homework 2 Solutions NEW
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Question 1
Construct a balance sheet for Sophie’s Sofas given
the following data. (Be sure to list the assets and
liabilities in order of their liquidity.)
Question 2
Using Table 3.7, calculate the marginal and
average tax rates for a single taxpayer with the
following incomes: (Do not round intermediate
calculations. Round "Average tax rate" to 2
decimal places.)

Question 3
The year¬ end 2010 balance sheet of Brandex Inc.
listed common stock and other paid¬in capital at
$2,200,000 and retained earnings at $4,500,000.
The next year, retained earnings were listed at
$4,800,000. The firm’s net income in 2011 was
$1,010,000. There were no stock repurchases
during the year. What were the dividends paid by
the firm in 2011?
Question 4
You have set up your tax preparation firm as an
incorporated business. You took $75,500 from the
firm as your salary. The firm’s taxable income for
the year (net of your salary) was $19,000. Assume
you pay personal taxes as an unmarried taxpayer.
Use the tax rates presented in Table 3¬5 and Table
3¬7.
Question 5
The founder of Alchemy Products, Inc., discovered
a way to turn lead into gold and patented this new
technology. He then formed a corporation and
invested $2,000,000 in setting up a production
plant. He believes that he could sell his patent for
$50 million

Question 6
Sheryl’s Shipping had sales last year of $14,500.
The cost of goods sold was $7,400, general and
administrative expenses were $1,900, interest
expenses were $1,400, and depreciation was
$1,900. The firm’s tax rate is 35%
Question 7
Ponzi Products produced 96 chain letter kits this
quarter, resulting in a total cash outlay of $10 per
unit. It will sell 48 of the kits next quarter at a
price of $11, and the other 48 kits in two quarters
at a price of $12. It takes a full quarter for it to
collect its bills from its customers. (Ignore possible
sales in earlier or later quarters and assume all
positive cash flow is distributed as expenses or
earnings to shareholders.)
Question 8
During the last year of operations, accounts
receivable increased by $9,200, accounts payable
increased by $4,200, and inventories decreased by
$1,200. What is the total impact of these changes
on the difference between profits and cash flow?
(Input the amount as a positive value.)

Question 9
Butterfly Tractors had $17.00 million in sales last
year. Cost of goods sold was $8.60 million,
depreciation expense was $2.60 million, interest
payment on outstanding debt was $1.60 million,
and the firm’s tax rate was 35%.
Question 10
Candy Canes, Inc., spends $172,000 to buy sugar
and peppermint in April. It produces its candy and
sells it to distributors in May for $230,000, but it
does not receive payment until June. For each
month, find the firm’s sales, net income, and net
cash flow. (Leave no cells blank ¬ be certain to
enter "0" wherever required. Negative amounts
should be indicated by a minus sign. Omit the "$"
sign in your responses.)
Question 11
The table below contains data on Fincorp, Inc., the
balance sheet items correspond to values at
year¬end of 2010 and 2011, while the income
statement items correspond to revenues or
expenses during the year ending in either 2010 or
2011. All values are in thousands of dollars.

Question 12
The table below contains data on Fincorp, Inc., the
balance sheet items correspond to values at
year¬end of 2010 and 2011, while the income
statement items correspond to revenues or
expenses during the year ending in either 2010 or
2011. All values are in thousands of dollars
Question 13
Here are simplified financial statements of Phone
Corporation from a recent year:
Question 14
Here are simplified financial statements of Phone
Corporation from a recent year
Question 15
Consider the following information:
Question 16
Chik’s Chickens has average accounts receivable of
$5,833. Sales for the year were $9,300. What is its
average collection period? (Use 365 days in a year.
Do not round intermediate calculations. Round
your answer to 2 decimal places.)

Question 17
Salad Daze maintains an inventory of produce
worth $380. Its total bill for produce over the
course of the year was $71,000. How old on
average is the lettuce it serves its customers? (Use
365 days in a year. Do not round intermediate
calculations. Round your answer to 2 decimal
places.)
Question 18
Assume a firm’s inventory level of $20,000
represents 20 days' sales. What is the inventory
turnover ratio? (Use 365 days in a year. Do not
round intermediate calculations. Round your
answer to 2 decimal places.)
Question 19
Lever Age pays a(n) 10% rate of interest on $9.0
million of outstanding debt with face value $9.0
million. The firm’s EBIT was $3.0 million.
Question 20
Keller Cosmetics maintains an operating profit
margin of 5.9% and asset turnover ratio of 3.9
Question 21

Torrid Romance Publishers has total receivables
of $2,980, which represents 20 days’ sales. Total
assets are $74,500. The firm’s operating profit
margin is 5.0%. Find the firm’s asset turnover
ratio and ROA. (Use 365 days in a year. Do not
answers to 2 decimal places.)
Question 22
A firm has a long¬termdebt¬equity ratio of 0.4.
Shareholders’ equity is $1.06 million. Current
assets are $260,000, and the current ratio is 2.0.
The only current liabilities are notes payable.
What is the total debt ratio? (Round your answer
to 2 decimal places.)
Question 23
A firm has a debt¬to¬equity ratio of 0.62 and a
market¬to¬book ratio of 2.0. What is the ratio of
the book value of debt to the market value of
equity? (Round your answer to 2 decimal places.)
Question 24
In the past year, TVG had revenues of $2.99
million, cost of goods sold of $2.49 million, and
depreciation expense of $89,300. The firm has a

single issue of debt outstanding with book value of
$1.11 million on which it pays an interest rate of
10%. What is the firm’s times interest earned
ratio? (Round your answer to 2 decimal places.)

recent
Question 1
Compute the present value of a $300 cash flow for
the following combinations of discount rates and
times: (Do not round intermediate calculations.
Round your answers to 2 decimal places.)
Question 2
Compute the future value of a $190 cash flow for
the same combinations of rates and times: (Do not
Question 3

In 1880 five aboriginal trackers were each
promised the equivalent of 100 Australian dollars
for helping to capture the notorious outlaw Ned
Kelley. In 1995 the granddaughters of two of the
trackers claimed that this reward had not been
paid. The prime minister stated that if this was
true, the government would be happy to pay the
$100. However, the granddaughters also claimed
that they were entitled to compound interest.
Question 4
a¬1. Calculate the present value of an annual
payment of $1,050 you would received for 12
years if the interest rate is 3%. (Do not round
intermediate calculations. Round your answer to 2
decimal places.)
a¬2. Calculate the present value of an annual
payment of $850 you would received for 17 years
if the interest rate is 3%. (Do not round
decimal places.)
a¬3. Which option would you prefer?
b¬1. Calculate the present value of an annual

decimal places.)
b¬2. Calculate the present value of an annual
payment of $850 you would received for 17 years
if the interest rate is 12%. (Do not round
decimal places.)
b¬3. Which option would you prefer?
Question 5
Find the annual interest rate. (Do not round
intermediate calculations. Round your answers to
2
Question 6
If you earn 5.00% per year on your bank account,
how long will it take an account with $100 to
double to $200? Use the log formula. (Do not
Question 7
Investments in the stock market have increased at
an average compound rate of about 5% since
1903. It is now 2012.

Question 8
In mid¬2010 a pound of apples cost $1.42, while
oranges cost $1.26. Ten years earlier the price of
apples was only $1.00 a pound and that of oranges
was $.78 a pound.
Question 9
a. If you take out an $8,200 car loan that calls for
60 monthly payments starting after 1 month at an
APR of 12%, what is your monthly payment? (Do
not round intermediate calculations. Round your
b. What is the effective annual interest rate on the
loan? (Do not round intermediate calculations.
Round your answer to 2 decimal places.)
Question 10
Professor’s Annuity Corp. offers a lifetime annuity
to retiring professors. For a payment of $83,000 at
age 65, the firm will pay the retiring professor
$675 a month until death
Question 11

You can buy property today for $2.5 million and
sell it in 4 years for $3.5 million. (You earn no
rental income on the property.)
Question 12
A factory costs $450,000. You forecast that it will
produce cash inflows of $105,000 in year 1,
$165,000 in year 2, and $270,000 in year 3. The
discount rate is 11%
Question 13
If the interest rate this year is 8.4% and the
interest rate next year will be 10.4%, what is the
future value of $1 after 2 years? What is the
present value of a payment of $1 to be received in
2 years? (Do not round intermediate calculations.
Question 14
A 10¬year Treasury bond is issued with face value
of $1,000, paying interest of $72 per year. If
market yields increase shortly after the T¬bond is
issued, what is the bond’s coupon rate? (Round
your answer to 1 decimal place.)
Question 15

A 10¬year Circular File bond pays interest of $55
annually and sells for $984. What are its coupon
rate and yield to maturity? (Do not round
intermediate calculations. Round "Coupon rate" to
1 decimal place and "Yield to maturity" to 2
decimal places.)
Question 16
A bond has 16 years until maturity, a coupon rate
of 6.8%, and sells for $1,106.
Question 17
General Matter’s outstanding bond issue has a
coupon rate of 10.6%, and it sells at a yield to
maturity of 8.70%. The firm wishes to issue
additional bonds to the public at face value. What
coupon rate must the new bonds offer in order to
sell at face value? (Round your answer to 2
decimal places.)
Question 18
Refer the table below:
Question 19

One bond has a coupon rate of 5.8%, another a
coupon rate of 8.4%. Both bonds have 9¬year
maturities and sell at a yield to maturity of 7%
Question 20
Sure Tea Co. has issued 4.6% annual coupon bonds
that are now selling at a yield to maturity of 6.5%
and current yield of 5.8492%. What is the
remaining maturity of these bonds? (Do not round
decimal places.)
Question 21
Consider three bonds with 6.4% coupon rates, all
selling at face value. The short¬term bond has a
maturity of 4 years, the intermediate¬term bond
has maturity 8 years, and the long¬term bond has
maturity 30 years.
Question 22
A 2¬year maturity bond with face value of $1,000
makes annual coupon payments of $96 and is
selling at face value. What will be the rate of return
on the bond if its yield to maturity at the end of the
year is (Do not round intermediate calculations.

Question 23
A bond’s credit rating provides a guide to its risk.
Long¬term bonds rated Aa currently offer yields to
maturity of 4.5%. A¬rated bonds sell at yields of
4.8%. Assume a 10¬year bond with a coupon rate
of 4% is downgraded by Moody’s from Aa to A
rating
Question 24
Favored stock will pay a dividend this year of
$2.64 per share. Its dividend yield is 8%. At what
price is the stock selling? (Do not round
intermediate calculations.)
Question 25
Preferred Products has issued preferred stock
with an $6.27 annual dividend that will be paid in
perpetuity
Question 26
Waterworks has a dividend yield of 10.50%. If its
dividend is expected to grow at a constant rate of
7.50%, what must be the expected rate of return
on the company’s stock? (Do not round
decimal places.)

Question 27
Steady As She Goes, Inc., will pay a year¬end
dividend of $3.10 per share. Investors expect the
dividend to grow at a rate of 5% indefinitely
Question 28
Integrated Potato Chips paid a $2.80 per share
dividend yesterday. You expect the dividend to
grow steadily at a rate of 4% per year.
Question 29
Arts and Crafts, Inc., will pay a dividend of $3 per
share in 1 year. It sells at $50 a share and firms in
the same industry provide an expected rate of
return of 12%. What must be the expected growth
rate of the company’s dividends? (Do not round
Question 30
Horse and Buggy Inc. is in a declining industry.
Sales, earnings, and dividends are all shrinking at
a rate of 10% per year.
Question 31

You expect a share of stock to pay dividends of
$1.80, $1.95, and $2.60 in each of the next 3 years.
You believe the stock will sell for $30 at the end of
the third year.
Question 32
No¬Growth Industries pays out all of its earnings
as dividends. It will pay its next $3 per share
dividend in a year. The discount rate is 12%
Question 33
Assume that market and book values are equal for
current assets, current liabilities, and debt and
other long¬ term liabilities
Question 34
Grandiose Growth has a dividend growth rate of
20%. The discount rate is 10%. The end¬of¬year
dividend will be $2 per share
Question 35
Computer Corp. reinvests 60% of its earnings in
the firm. The stock sells for $55, and the next
dividend will be $3.30 per share. The discount rate
is 10%. What is the rate of return on the
company’s reinvested funds? (Do not round

decimal places.)

BUSI 530 Week 4 Homework 4 (Solutions, 3 Sets)
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NEW
Question 1
The following are the cash flows of two projects:
Question 2
Question 3
Question 4

Question 5
A project that costs $3,300 to install will provide
annual cash flows of $830 for each of the next 6
years.
Question 6
A project that costs $2,400 to install will provide
annual cash flows of $590 for the next 5 years. The
firm accepts projects with payback periods of less
than 5 years
Question 7
Consider projects A and B:
Question 8
a. Calculate the net present value of the following
project for discount rates of 0, 50, and 100%:
(Leave no cells blank ¬ be certain to enter "0"
wherever required. Do not round intermediate
calculations. Round your answers to 2 decimal
places.)
Question 9

A precision lathe costs $14,000 and will cost
$24,000 a year to operate and maintain. If the
discount rate is 12% and the lathe will last for 3
years, what is the equivalent annual cost of the
tool? (Do not round intermediate calculations.
Question 10
A new project will generate sales of $73.6 million,
costs of $41.6 million, and depreciation expense of
$9.6 million in the coming year. The firm’s tax rate
is 30%.
Question 11
Canyon Tours showed the following components of
working capital last year:
Question 12
Tubby Toys estimates that its new line of rubber
ducks will generate sales of $6.7 million, operating
costs of $3.7 million, and a depreciation expense of
$0.7 million. Assume the tax rate is 40%.
Question 13
The owner of a bicycle repair shop forecasts
revenues of $180,000 a year. Variable costs will be

$55,000, and rental costs for the shop are $35,000
a year. Depreciation on the repair tools will be
$15,000. Prepare an income statement for the
shop based on these estimates. The tax rate is
30%. (Input all amounts as positive values.)
Question 14
The owner of a bicycle repair shop forecasts
revenues of $188,000 a year. Variable costs will be
$57,000, and rental costs for the shop are $37,000
a year. Depreciation on the repair tools will be
$17,000. The tax rate is 40%.
Question 15
A house painting business had revenues of
$17,600 and expenses of $10,600. There were no
depreciation expenses. However, the business
reported the following changes in working capital:
Question 16
Talia’s Tutus bought a new sewing machine for
$85,000 that will be depreciated using the MACRS
Question 17
The only capital investment required for a small
project is investment in inventory. Profits this year

were $9,400, and inventory increased from $5,300
to $7,600. What was the cash flow from the
project?
Question 18
Quick Computing installed its previous generation
of computer chip manufacturing equipment 3
years ago. Some of that older equipment will
become unnecessary when the company goes into
production of its new product. The obsolete
equipment, which originally cost $42.5 million, has
been depreciated straight¬line over an assumed
tax life of 5 years, but it can be sold now for $18.5
million. The firm’s tax rate is 30%. What is the
after¬tax cash flow from the sale of the
equipment? (Enter your answer in millions
rounded to 2 decimal places.)
Question 19
Bottoms Up Diaper Service is considering the
purchase of a new industrial washer. It can
purchase the washer for $8,500 and sell its old
washer for $4,500. The new washer will last for 5
years and save $2,200 a year in expenses. The
opportunity cost of capital is 14%, and the firm’s
tax rate is 30%. What is the equivalent annual cost
of the washer, if the firm uses straight¬line

depreciation? (Do not round intermediate
places.)
Question 20
Johnny’s Lunches is considering purchasing a new,
energy¬efficient grill. The grill will cost $38,000
and will be depreciated according to the 3¬year
MACRS schedule. It will be sold for scrap metal
after 3 years for $9,500. The grill will have no
effect on revenues but will save Johnny’s $19,000
per year in energy expenses. The tax rate is 30%.
Use MACRS depreciation schedule.
Question 21
Revenues generated by a new fad product are
forecast as follows:
Question 22
Blooper Industries must replace its magnoosium
purification system. Quick & Dirty Systems sells a
relatively cheap purification system for $25
million. The system will last 5 years. Do¬It¬Right
sells a sturdier but more expensive system for $28
million; it will last for 7 years. Both systems entail
$3 million in operating costs; both will be

depreciated straight¬line to a final value of zero
over their useful lives; neither will have any
salvage value at the end of its life. The firm’s tax
rate is 40%, and the discount rate is 16%.
Question 23
The following table presents sales forecasts for
Golden Gelt Giftware. The unit price is $40. The
unit cost of the giftware is $20.
Question 24
In a slow year, Deutsche Burgers will produce 2.0
million hamburgers at a total cost of $3.6 million.
In a good year, it can produce 4.5 million
hamburgers at a total cost of $5.1 million. What
are the variable and fixed costs of hamburger
production? (Enter your answers in dollars not in
millions. Round "Variable cost" to 2 decimal
places.)
Question 25
In a slow year, Deutsche Burgers will produce 5
million hamburgers at a total cost of $5.2 million.
In a good year, it can produce 10 million
hamburgers at a total cost of $6.2 million
Question 26

A project currently generates sales of $11.5
million, variable costs equal to 40% of sales, and
fixed costs of $3.5 million. The firm’s tax rate is
35%.
Question 27
A project currently generates sales of $11.5
million, variable costs equal to 40% of sales, and
fixed costs of $2.2 million. The firm’s tax rate is
40%.
Question 28
Emperor’s Clothes Fashions can invest $6 million
in a new plant for producing invisible makeup. The
plant has an expected life of 5 years, and expected
sales are 7 million jars of makeup a year. Fixed
costs are $1.8 million a year, and variable costs are
$2.5 per jar. The product will be priced at $3.4 per
jar. The plant will be depreciated straight¬line
over 5 years to a salvage value of zero. The
opportunity cost of capital is 12%, and the tax rate
is 40%
Question 29
The most likely outcomes for a particular project
are estimated as follows:

Question 30
Dime a Dozen Diamonds makes synthetic
diamonds by treating carbon. Each diamond can
be sold for $120. The materials cost for a standard
diamond is $60. The fixed costs incurred each year
for factory upkeep and administrative expenses
are $211,000. The machinery costs $2.0 million
and is depreciated straight¬line over 10 years to a
salvage value of zero
Question 31
Modern Artifacts can produce keepsakes that will
be sold for $50 each. Nondepreciation fixed costs
are $1,500 per year and variable costs are $30 per
unit.
Question 32
A silver mine can yield 16,000 ounces of silver at a
variable cost of $34 per ounce. The fixed costs of
operating the mine are $56,000 per year. In half
the years, silver can be sold for $50 per ounce; in
the other years, silver can be sold for only $25 per
ounce. Ignore taxes
Question 33

An auto plant that costs $170 million to build can
produce a line of flexfuel cars that will produce
cash flows with a present value of $230 million if
the line is successful but only $100 million if it is
unsuccessful. You believe that the probability of
success is only about 50%. You learn whether the
line is successful immediately after building the
plant
Question 34
Hit or Miss Sports is introducing a new product
this year. If its see¬at¬night soccer balls are a hit,
the firm expects to be able to sell 54,000 units a
year at a price of $60 each. If the new product is a
bust, only 34,000 units can be sold at a price of
$55. The variable cost of each ball is $30, and fixed
costs are zero. The cost of the manufacturing
equipment is $6.9 million, and the project life is
estimated at 10 years. The firm will use
straight¬line depreciation over the 10-year life of
the project. The firm’s tax rate is 35%, and the
discount rate is 10%.
Question 35
Hit or Miss Sports is introducing a new product
this year. If its see¬at¬night soccer balls are a hit,
the firm expects to be able to sell 54,000 units a

year at a price of $60 each. If the new product is a
bust, only 34,000 units can be sold at a price of
$55. The variable cost of each ball is $30, and fixed
costs are zero. The cost of the manufacturing
equipment is $6.9 million, and the project life is
estimated at 10 years. The firm will use
straight¬line depreciation over the 10-year life of
the project. The firm’s tax rate is 35%, and the
Hit or Miss Sports can expand production if the
project is successful. By paying its workers
overtime, it can increase production by 29,000
units; the variable cost of each ball will be higher,
however, equal to $35 per unit. By how much does
this option to expand production increase the NPV
of the project? (Assume the probability the
see¬at¬night soccer balls will be a hit is 50%). (Do
answer to the nearest dollar amount.)
Question 36

BUSI 530 Week 5 Homework 5 Solutions 3 Sets
NEW
530/busi-530-week-5-homework-5-
solutions,3-sets-recent
NEW
1. Problem 11¬1 Rate of Return (LO2)
A stock is selling today for $50 per share. At the
end of the year, it pays a dividend of $2 per share
and sells for $56.
2. Problem 11¬3 Real versus Nominal Returns
(LO2)
You purchase 100 shares of stock for $40 a share.
The stock pays a $2 per share dividend at

year¬end. What is the rate of return on your
investment for the end¬of¬year stock prices listed
below? What is your real (inflation¬adjusted) rate
of return? Assume an inflation rate of 3%. (Leave
no cells blank ¬ be certain to enter "0" wherever
required. Negative values should be indicated by a
minus sign. Do not round intermediate
calculations. Round your "Real Rate of Return"
3. Problem 11¬9 Risk Premiums (LO1)
Here are stock market and Treasury bill
percentage returns between 2006 and 2010:
4. Problem 11¬17 Scenario Analysis (LO2)
Consider the following scenario analysis:
5. Problem 11-¬18 Portfolio Analysis (LO3)
You received credit for this question in a previous
attempt
Scenario Recession Normal economy Boom
Rate of Return Probability Stocks Bonds .20 −9%
+20%
.50 +21 +8 .30 +31 +8
6. Problem 11¬22 Risk and Return (LO2, 4)

A stock will provide a rate of return of either
−21% or +32%.
7. Problem 12¬7 CAPM and Expected Return (LO2)
The risk¬free rate is 7% and the expected rate of
return on the market portfolio is 11%.
8. Problem 12¬12 CAPM and Cost of Capital (LO3)
attempt
The Treasury bill rate is 6% and the market risk
premium is 7%.
9. Problem 12¬19 CAPM and Valuation (LO3)
You are considering the purchase of real estate
that will provide perpetual income that should
average $65,000 per year. How much will you pay
for the property if you believe its market risk is
the same as the market portfolio’s? The T¬bill rate
is 5%, and the expected market return is 8.0%.
10. Problem 12¬22 CAPM and Expected Return
(LO2)

Stock A has a beta of .5, and investors expect it to
return 10%. Stock B has a beta of 1.5, and
investors expect it to return 16%. Use the CAPM to
find the expected rate of return and the market
risk premium on the market. (Do not round
1 decimal place.)
11. Problem 12¬29 CAPM (LO2)
We Do Bankruptcies is a law firm that specializes
in providing advice to firms in financial distress. It
prospers in recessions when other firms are
struggling. Consequently, its beta is negative, −.1.
12. Problem 13 - ¬1 Cost of Debt (LO2)
Micro Spinoffs, Inc., issued 20¬year debt a year ago
at par value with a coupon rate of 5%, paid
annually. Today, the debt is selling at $1,050. If the
firm’s tax bracket is 40%, what is its after¬tax cost
of debt? (Do not round intermediate calculations.
13. Problem 13¬-2 Cost of Preferred Stock (LO2)
Micro Spinoffs has preferred stock outstanding.
The stock pays a dividend of $7 per share, and the

stock sells for $50. What is the return on preferred
stock?
14. Problem 13¬-3 Calculating WACC (LO3)
Micro Spinoffs, Inc., issued 20¬year debt a year ago
at par value with a coupon rate of 5%, paid
annually. Today, the debt is selling at $1,250. The
firm’s tax bracket is 40%.
Micro Spinoffs also has preferred stock
outstanding. The stock pays a dividend of $12 per
share, and the stock sells for $50.
Micro Spinoffs’s cost of equity is 26%. What is its
WACC if equity is 50%, preferred stock is 20%, and
debt is 30% of total capital? (Do not round
decimal places.)
15. Problem 13¬-5 Calculating WACC (LO3)
Reactive Industries has the following capital
structure. Its corporate tax rate is 40%.
16. Problem 13¬-14 Cost of Equity (LO2)
Bunkhouse Electronics is a recently incorporated
firm that makes electronic entertainment systems.

Its earnings and dividends have been growing at a
rate of 30%, and the current dividend yield is 3%.
Its beta is 1.4, the market risk premium is 6%, and
the risk¬free rate is 5%.
17. Problem 13¬-16 Capital Structure (LO1)
Examine the following book¬value balance sheet
for University Products, Inc. The preferred stock
currently sells for $12 per share and the common
stock for $16 per share. There are 4 million
common shares outstanding.
18. Problem 13-¬17 Calculating WACC (LO3)
Examine the following book¬value balance sheet
for University Products, Inc. The preferred stock
currently sells for $15 per share and the common
stock for $20 per share.

BUSI 530 Week 6 Connect Exam 3 Solutions NEW
530/busi-530-week-6-connect-exam-3-
solutions-recent
BUSI 530 Week 6 Connect Exam 3 (Solutions) NEW
Compute the present value of a $260 cash flow for
the following combinations of discount rates and
times: (Do not round intermediate calculations.
Compute the future value of a $280 cash flow for
the same combinations of rates and times: (Do not
In 1880 five aboriginal trackers were each
promised the equivalent of 100 Australian dollars
for helping to capture the notorious outlaw Ned
Kelley. In 2002 the granddaughters of two of the

trackers claimed that this reward had not been
paid. The prime minister stated that if this was
true, the government would be happy to pay the
$100. However, the granddaughters also claimed
that they were entitled to compound interest.
a-1. Calculate the present value of an annual
decimal places.)
a-2. Calculate the present value of an annual
decimal places.)
a-3. Which option would you prefer?
b-1. Calculate the present value of an annual
decimal places.)
b-2. Calculate the present value of an annual

decimal places.)
b-3. Which option would you prefer?
Find the annual interest rate. (Do not round
2 decimal places.)
If you earn 4.50% per year on your bank account,
how long will it take an account with $100 to
double to $200? Use the log formula. (Do not
If you take out an $8,600 car loan that calls for 48
monthly payments starting after 1 month at an
APR of 6%, what is your monthly payment? (Do
Professor’s Annuity Corp. offers a lifetime annuity
to retiring professors. For a payment of $78,000 at
age 65, the firm will pay the retiring professor
$550 a month until death.
You can buy property today for $3.8 million and
sell it in 4 years for $4.8 million. (You earn no
rental income on the property.)

A factory costs $450,000. You forecast that it will
produce cash inflows of $110,000 in year 1,
$170,000 in year 2, and $280,000 in year 3. The
If the interest rate this year is 7.8% and the
interest rate next year will be 9.8%, what is the
future value of $1 after 2 years? What is the
present value of a payment of $1 to be received in
2 years? (Do not round intermediate calculations.
A 20-year Treasury bond is issued with face value
of $1,000, paying interest of $52 per year. If
market yields increase shortly after the T-bond is
issued, what is the bond’s coupon rate? (Round
your answer to 1 decimal place.)
A 6-year Circular File bond pays interest of $80
annually and sells for $986. What are its coupon
rate and yield to maturity? (Do not round
intermediate calculations. Round "Coupon rate" to
1 decimal place and "Yield to maturity" to 2
decimal places.)
A bond has 8 years until maturity, a coupon rate of
5%, and sells for $1,065.

General Matter’s outstanding bond issue has a
coupon rate of 11.2%, and it sells at a yield to
maturity of 9.00%. The firm wishes to issue
additional bonds to the public at face value. What
coupon rate must the new bonds offer in order to
sell at face value? (Round your answer to 2
decimal places.)
What is the current yield of the 4.375% 2040
maturity bond? (Do not round intermediate
places.)
One bond has a coupon rate of 5.6%, another a
coupon rate of 8.3%. Both bonds have 6-year
maturities and sell at a yield to maturity of 7%.
Sure Tea Co. has issued 7.2% annual coupon bonds
that are now selling at a yield to maturity of 10%
and current yield of 9.9987%. What is the
remaining maturity of these bonds? (Do not round
decimal places.)
Consider three bonds with 6.2% coupon rates, all
selling at face value. The short-term bond has a
maturity of 4 years, the intermediate-term bond
has maturity 8 years, and the long-term bond has
maturity 30 years.

A 2-year maturity bond with face value of $1,000
makes annual coupon payments of $106 and is
selling at face value. What will be the rate of return
on the bond if its yield to maturity at the end of the
year is (Do not round intermediate calculations.
A bond’s credit rating provides a guide to its risk.
Long-term bonds rated Aa currently offer yields to
maturity of 7.2%. A-rated bonds sell at yields of
7.5%. Assume a 10-year bond with a coupon rate
of 6.7% is downgraded by Moody’s from Aa to A
rating.
Favored stock will pay a dividend this year of
$2.16 per share. Its dividend yield is 9%. At what
price is the stock selling? (Do not round
Preferred Products has issued preferred stock
with an $7.26 annual dividend that will be paid in
perpetuity.
Waterworks has a dividend yield of 6.50%. If its
dividend is expected to grow at a constant rate of
3.50%, what must be the expected rate of return
on the company’s stock? (Do not round
decimal places.)

Steady As She Goes, Inc., will pay a year-end
dividend of $3.70 per share. Investors expect the
dividend to grow at a rate of 5% indefinitely.
Integrated Potato Chips paid a $1.20 per share
dividend yesterday. You expect the dividend to
grow steadily at a rate of 6% per year.
Arts and Crafts, Inc., will pay a dividend of $7 per
share in 1 year. It sells at $70 a share and firms in
the same industry provide an expected rate of
return of 14%. What must be the expected growth
rate of the company’s dividends? (Do not round
You expect a share of stock to pay dividends of
$2.00, $2.05, and $2.40 in each of the next 3 years.
You believe the stock will sell for $32 at the end of
the third year.
No-Growth Industries pays out all of its earnings as
dividends. It will pay its next $6 per share
dividend in a year. The discount rate is 21%.
Assume that market and book values are equal for
current assets, current liabilities, and debt and
other long-term liabilities.

Grandiose Growth has a dividend growth rate of
20%. The discount rate is 10%. The end-of-year
dividend will be $2 per share.

recent
Question 1
Shares in Raven Products are selling for $60 per
share. There are 1 million shares outstanding.
What will be the share price in each of the
following situations? Ignore taxes. (Do not round
Question 2
The stock of Payout Corp. will go ex¬dividend
tomorrow. The dividend will be $0.55 per share,
and there are 16,000 shares of stock outstanding.

The market-value balance sheet for Payout is
shown on the following table. Ignore taxes.
Question 3
Good Values, Inc., is all¬equity¬financed. The total
market value of the firm currently is $240,000,
and there are 3,000 shares outstanding. Good
Values plans to repurchase $24,000 worth of stock.
Ignore taxes.
Question 4
Investors require an after¬tax rate of return of
13% on their stock investments. Assume that the
tax rate on dividends is 30% while capital gains
escape taxation. A firm will pay a $3 per share
dividend 1 year from now, after which it is
expected to sell at a price of $22.
Question 5
The expected pretax return on three stocks is
divided between dividends and capital gains in the
following way:
Question 6
Find the sustainable and internal growth rates for
a firm with the following ratios: asset turnover =

1.60; profit margin = 5%; payout ratio = 40%;
equity/assets = 0.40. (Do not round intermediate
calculations. Round your answers to 2 decimal
places.)
Question 7
Here are the abbreviated financial statements for
Planners Peanuts:
Question 8
Here are the abbreviated financial statements for
Planners Peanuts:
Question 9
ABC company financial manager believes that
sales in 2012 could rise by as much as 20% or by
as little as 5%.
Question 10
The following tables contain financial statements
for Dynastatics Corporation. Although the
company has not been growing, it now plans to
expand and will increase net fixed assets (that is,
assets net of depreciation) by $3,800,000 per year
for the next 5 years and forecasts that the ratio of
revenues to total assets will remain at 1.50. Annual

depreciation is 10% of net fixed assets at the end
of 2012. Fixed costs are expected to remain at
$69,000 and variable costs at 80% of revenue. The
company’s policy is to pay out two¬thirds of net
income as dividends and to maintain a book debt
ratio of 25% of total capital.
Question 11
Plank’s Plants had net income of $6,000 on sales of
$70,000 last year. The firm paid a dividend of
$600. Total assets were $300,000, of which
$150,000 was financed by debt.
Question 12

recent
Question 1
Income statement data:
Sales
Cost of goods sold
Balance sheet data:
Inventory
Accounts receivable
Accounts payable

attempt
$ 6,700 5,900
$ 660
280
440
Calculate the accounts receivable period, accounts
payable period, inventory period, and cash
conversion cycle for the above firm:(Use 365 days
in a year. Do not round intermediate calculations.
Round your answers to 1 decimal place.)
Question 2
A firm sells its $1,010,000 receivables to a factor
for $969,600. The average collection period is 1
month. What is the effective annual rate on this
arrangement? (Round your intermediate
calculations to 4 decimal places. Round your
Question 3
A firm is considering several policy changes to
increase sales. It will increase the variety of goods
it keeps in inventory, but this will increase
inventory by $11,000. It will offer more liberal
sales terms, but this will result in average

receivables increasing to $66,000. These actions
are expected to increase sales to $810,000 per
year, and cost of goods will remain at 70% of sales.
Because of the firm’s increased purchases for its
own production needs, average payables will
increase to $36,000. What effect will these changes
have on the firm’s cash conversion cycle? (Use 365
days in a year. Do not round intermediate
places.)
Question 4
Complete the statement of sources and uses of
cash from the following entries:
Question 5
Here is a forecast of sales by National Bromide for
the first 4 months of 2012 (figures in thousands of
dollars):
Question 6
Paymore Products places orders for goods equal to
80% of its sales forecast in the next quarter. What
will be orders in each quarter of the year if the
sales forecasts for the next five quarters are as
follows:

Question 7
75% of its sales forecast in the next quarter. The
follows:
Question 8
follows:
Question 9
follows:
Question 10
follows:
Sales forecast $500 $490 $460 $510 $510

The firm pays for its goods with a 1¬month delay.
Therefore, on average, two-fourths of purchases
are paid for in the quarter that they are purchased,
and two¬fourths are paid in the following quarter.
Paymore’s customers pay their bills with a
2¬month delay. Therefore, on average,
two¬fourths of sales are collected in the quarter
that they are sold, and two¬fourths are collected in
the following quarter. Assume that sales in the last
quarter of the previous year were $460.
Paymore’slabor and administrative expenses are
$62 per quarter and that interest on long¬term
debt is $40 per quarter.
Suppose that Paymore’s cash balance at the start
of the first quarter is $19 and its minimum
acceptable cash balance is $40. Work out the
short¬term financing requirements for the firm in
the coming year. The firm pays no dividends.
(Negative amounts should be indicated by a minus
sign. Do not round intermediate calculations.)
Question 11

follows:
Sales forecast $510 $500 $470 $520 $520
The firm pays for its goods with a 1¬month delay.
Therefore, on average, three-fourths of purchases
are paid for in the quarter that they are purchased,
and one¬fourth are paid in the following quarter.
Paymore’s customers pay their bills with a
2¬month delay. Therefore, on average,
two¬fourths of sales are collected in the quarter
that they are sold, and two¬fourth are collected in
the following quarter. Assume that sales in the last
quarter of the previous year were $470.
Paymore’slabor and administrative expenses are
$70 per quarter and that interest on long¬term
debt is $42 per quarter.
Suppose that cash balance at the start of the first
quarter is $40 and its minimum acceptable cash
balance is $50.
Now assume that Paymore can borrow up to $100
from a line of credit at an interest rate of 2% per
quarter. Prepare a short¬term financing plan.
Refer Spreadsheet 19.3 (Negative amounts should

be indicated by a minus sign. Leave no cells blank
¬ be certain to enter "0" wherever required. Do
Question 12
Recalculate Dynamic Mattress’s financing plan
(Spreadsheet 19.3) assuming that the firm wishes
to maintain a minimum cash balance of $25
million instead of $20 million. Assume the firm can
convince the bank to extend its line of credit to $65
million. (Negative amounts should be indicated by
a minus sign. Leave no cells blank be certain to
enter "0" wherever required. Do not round
intermediate calculations. Enter your answers in
millions rounded to 2 decimal places.)
Question 13
Company X sells on a 1/20, net 90, basis. Customer
Y buys goods with an invoice of $2,500.
Question 14
a¬1. A firm currently offers terms of sale of 3/15,
net 30. Calculate the effective annual rate. (Use
365 days in a year. Do not round intermediate

places.)
a¬2. Calculate the effective annual rate if the terms
are changed to 4/15, net 30. (Use 365 days in a
year. Do not round intermediate calculations.
a¬3. What effect will part (a¬2) have on the
implicit interest rate charged to customers that
pass up the cash discount?
b¬1. Calculate the effective annual rate if the
terms are changed to 3/25, net 30. (Use 365 days
in a year. Do not round intermediate calculations.
b¬2. What effect will this have on the implicit
interest rate charged to customers that pass up the
cash discount?
c¬1. Calculate the effective annual rate if the terms
are changed to 3/15, net 20. (Use 365 days in a
year. Do not round intermediate calculations.
c¬2. What effect will this have on the implicit
interest rate charged to customers that pass up the
cash discount?

Question 14
On January 25, Coot Company has $320,000
deposited with a local bank. On January 27, the
company writes and mails checks of $27,000 and
$67,000 to suppliers. At the end of the month,
Coot’s financial manager deposits a $52,000 check
received from a customer in the morning mail and
picks up the end¬of¬ month account summary
from the bank. The manager notes that only the
$27,000 payment of the 27th has cleared the bank.
What is the company’s ledger balance and
available balance with its bank?
Question 16
General Products writes checks that average
$29,000 daily. These checks take an average of 6
days to clear. It receives payments that average
$31,000 daily. It takes 3 days before these checks
are available to the firm.
Question 17
Anne Teak, the financial manager of a furniture
manufacturer, is considering operating a lock¬box
system. She forecasts that 600 payments a day will
be made to lock boxes with an average payment
size of $2,000. The bank’s charge for operating the

lock boxes is $.40 a check. The interest rate is
.013% per day.
Question 18
A firm offers terms of 3/15, net 45. Currently,
two¬thirds of all customers take advantage of the
trade discount; the remainder pay bills at the due
date.
Question 19
Microbiotics currently sells all of its frozen
dinners cash on delivery but believes it can
increase sales by offering supermarkets 1 month
of free credit. The price per carton is $90, and the
cost per carton is $60. The unit sales will increase
from 1,040 cartons to 1,100 per month.
Question 20
Locust Software sells computer training packages
to its business customers at a price of $103. The
cost of production (in present value terms) is $97.
Locust sells its packages on terms of net 30 and
estimates that about 5% of all orders will be
uncollectible. An order comes in for 30 units. The
interest rate is 3% per month.
Question 21

The Branding Iron Company sells its irons for $210
apiece wholesale. Production cost is $200 per iron.
There is a 15% chance that a prospective customer
will go bankrupt within the next half¬year. The
customer orders 1,000 irons and asks for 6
months’ credit. Assume an 9% per year discount
rate, no chance of a repeat order, and that the
customer will pay either in full or not at all.
Question 22
A firm currently makes only cash sales. It
estimates that allowing trade credit on terms of
net 30 would increase monthly sales from 120 to
130 units per month. The price per unit is $101,
and the cost (in present value terms) is $70. The
interest rate is 1% per month.
Question 23
Sherman’s Sherbet currently takes about 5 days to
collect and deposit checks from customers. A
lock¬box system could reduce this time to 3 days.
Collections average $40,000 daily. The interest
rate is .02% per day.
Question 24

The financial manager of JAC Cosmetics is
considering opening a lock box in Pittsburgh.
Checks cleared through the lock box will amount
to $450,000 per month. The lock box will make
cash available to the company 2 days earlier.
Question 25

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