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 for an income statement, and then fill in the known values. Then divide $6 million net income by 1 â€“ T = 0.6 to find the pretax income. The difference between EBIT and taxable income must be the interest expense. Use this procedure to work some of the other problems.)
(25) 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.
(26) Statement of Retained Earnings
In its most recent financial statements, DelCastillo Inc. reported $70 million of net income and $900 million of retained earnings. The previous retained earnings were $855 million. How much in dividends did the firm pay to shareholders during the year?
(32) Debt Ratio
Vigo Vacations has $200 million in total assets, $5 million in notes payable, and $25 million in longterm debt. What is the debt ratio?
(34) Price/Earnings Ratio
Reno Revolvers has an EPS of $1.50, a cash flow per share of $3.00, and a price/cash flow ratio of 8.0. What is its P/E ratio?
(35) 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?
(38) Profit Margin and Debt 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 liabilitiestoassets ratio. Suppose half its liabilities are in the form of debt. Calculate the debttoassets ratio.
(39) Current and Quick Ratios
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 payable and use them to increase inventory. How much can Nelson?s shortterm debt (notes payable) increase without pushing its current ratio below 2.0? What will be the firm?s quick ratio after Nelson has raised the maximum amount of shortterm funds?
(310) TimesInterestEarned Ratio
The Morris Corporation has $600,000 of debt outstanding, and it pays an interest rate of 8% annually. Morris?s annual sales are $3 million, its average tax rate is 40%, and its net profit 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?s TIE ratio?
(46) Future Value: Ordinary Annuity versus Annuity Due
What is the future value of a 7%, 5year ordinary annuity that pays $300 each year? If this were an annuity due, what would its future value be?
(410) Present and Future, Values of Single Cash, Flows for Different, Interest Rates
What is the future value of a 7%, 5year ordinary annuity that pays $300 each year? If this were 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
(414) Uneven Cash Flow Stream
a. Find the present values of the following cash flow streams. The appropriate interest rate is 8%. (Hint: It is fairly easy to work this problem dealing with the individual cash flows. However, if you have a financial calculator, read the section of the manual that describes how to enter cash flows such as the ones in this problem. This will take a little time, but the investment will pay huge dividends throughout the course. Note that, 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 procedures described 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?
(425) Repaying a Loan
While Mary Corens was a student at the University of Tennessee, she borrowed $12,000 in student loans at an annual interest rate of 9%. If Mary repays $1,500 per year, then how long (to the nearest year) will it take her to repay the loan?
(426) Reaching a Financial Goal
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 pays 12% annual interest. Your last deposit will be less than $1,250 if less is needed to round out to $10,000. How many years will it take you to reach your $10,000 goal, and how large will the last deposit be?
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