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 – T = 0.6 to find the pre-tax income. The difference between EBIT and taxable income must be the interest expense. Use this procedure to work some of the other problems.)

(2-5) 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.

(2-6) Statement of Retained Earnings

In its most recent financial statements, Del-Castillo 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?

(3-2) Debt Ratio

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

(3-4) 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?

(3-5) 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?

(3-8) 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 liabilities-to-assets ratio. Suppose half its liabilities are in the form of debt. Calculate the debt-to-assets ratio.

(3-9) 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 short-term 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 short-term funds?

(3-10) Times-Interest-Earned 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?

(4-6) Future Value: Ordinary Annuity versus Annuity Due

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

(4-10) 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 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

(4-14) 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?

(4-25) 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?

(4-26) 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?

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 – T = 0.6 to find the pre-tax income. The difference between EBIT and taxable income must be the interest expense. Use this procedure to work some of the other problems.)

(2-5) 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.

(2-6) Statement of Retained Earnings

In its most recent financial statements, Del-Castillo 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?

(3-2) Debt Ratio

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

(3-4) 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?

(3-5) 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?

(3-8) 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 liabilities-to-assets ratio. Suppose half its liabilities are in the form of debt. Calculate the debt-to-assets ratio.

(3-9) 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 short-term 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 short-term funds?

(3-10) Times-Interest-Earned 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?

(4-6) Future Value: Ordinary Annuity versus Annuity Due

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

(4-10) 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 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

(4-14) 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?

(4-25) 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?

(4-26) 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?