Assignment 1 Questions - Corporate Finance PDF

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Download Assignment 1 Questions - Corporate Finance PDF

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Kindly answer the below questions while showing all your calculation steps.

1. SDJ, Inc., has net working capital of $2,710, current liabilities of $3,950, and inventory of $3,420. What is the current ratio? (Round your answer to 2 decimal places. (e.g., 32.16)) Current ratio = current assets / current liabilities Current assets = NWC + current liabilities 2710 + 3950 = 6660 So, = 6660 / 3950 = 1.69 is current ratio

What is the quick ratio? (Round your answer to 2 decimal places. (e.g., 32.16)) Quick ratio = (current assets – inventory) / current liabilities = (6660 – 3420) / 3950 = 0.82 is quick ratio

2. You are given the following information for Shinoda Corp.: Decrease in inventory $430 Decrease in accounts 165 payable Increase in notes payable 150 Increase in accounts 180 receivable

1. Did cash go up or down? By how much? 430 – 165 + 150 – 180 = $235

Cash increased by $235 2. Classify each event as a source or use of cash.    

Source of cash Source of cash Use of cash Use of cash

Decrease in inventory Increase in notes payable Decrease in accounts payable Increase in accounts receivable

3. For each of the following, compute the future value (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)):

Present Value Years $

2,250 8,752 76,355 183,796

11 7 14 8

Interest Rate 13% $ 9 $ 12 $ 6 $

Future Value 8630.69 15,999 373,155.46 292,942.90

Future value = Present Value x (1 + R)n

4. Assume the total cost of a college education will be $300,000 when your child enters college in 18 years. You presently have $65,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child’s college education? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Future value and Present value formula both can be used, so using Future value: Future value = Present Value x (1 + R)n Need to find r = (FV / PV) 1 / t - 1 = (300000 / 65000) 1 / 18 -1 = 0.0887 or 8.87% is the annual rate of interest

Annual rate of 8.87 % interest 5. You expect to receive $15,000 at graduation in two years. You plan on investing it at 11 percent until you have $85,000. How long will you wait from now? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Future value = Present Value x (1 + R)n Finding n = In (FV / PV) / In(1 +r) N = (85000 / 15000) / In(1.11) = 16.62 years but we will not receive money for another 2 years so: 16.62 + 2 = 18.62 years

Number of years

18.62 years

6. Wainright Co. has identified an investment project with the following cash flows. Year 1 2 3 4

Cash Flow $ 720 930 1,190 1,275

If the discount rate is 10 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Year

CF

Rate

PV

1

720

1.1

654.55

2

930

1.1

768.60

3

1190

1.1

894.06

4

1275

1.1

870.84

Total

3,188.05

What is the present value at 18 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Year

CF

Rate

PV

1

720

1.18

610.17

2

930

1.18

667.91

3

1190

1.18

724.27

4

1275

1.18

657.63

Total

2,659.98

What is the present value at 24 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Year

CF

Rate

PV

1

720

1.24

580.65

2

930

1.24

604.84

3

1190

1.24

624.14

4

1275

1.24

539.29

Total

2,348.92

7. If you deposit $5,000 at the end of each of the next 20 years into an account paying 10.8 percent interest, how much money will you have in the account in 20 years? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) FV annuity = Annuity x [(1+r)n – 1 / r] = 5000 x [(1 + 0.108)20 – 1 / 0.108] = 5000 x 62.7472 = $313,736 in 20 years

Future value

$ 313,736

How much will you have if you make deposits for 40 years? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) FV annuity = Annuity x [(1+r)n – 1 / r] = 5000 x [(1 + 0.108)40 – 1 / 0.108] = 5000 x 550.7132 = $2,753,566 in 40 years

Future value

$ 2,753,566...