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1. A firm has shareholders' equity of $200,000. The firm owes a total of $125,000 of which 30 percent is payable within the next year. The firm net fixed assets of $230,000. What is the amount of the net working capital? 2. Thompson Rental paid $70 in dividends and $450 in interest expense. The addition to retained earnings is $400 and net new equity is $550. The tax rate is 21 percent. Sales are $16,900 and depreciation is $650. What are the earnings before interest and taxes? 3. Discuss the difference between book values and market values and explain which one is more important to the financial manager and why. 4. The Trunk Co. purchased new machinery three years ago for $5 million. The machinery can be sold today for $3 million. The Widget Co's current balance sheet shows net fixed assets of $2,800,000, current liabilities of $1,475,000, and net working capital of $725,000. If all the current assets were liquidated today, the company would receive $1.8 million in cash. The book value of the Widget Co.s assets today isand the market value of those assets is 5. Al's Sport Store has sales of $900,000, costs of goods sold of $600,000, inventory of $200,000, and accounts receivable of $75,000. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit? 6. The Purple Martin has annual sales of $750,000, total debt of $210,000, total equity of $385,000, and a net profit margin of 6.80 percent. What is the return on assets? 7. What is the amount of dividends paid in 2011? Galaxy Interiors 2011 Income Statement $ in millions) Net sales Cost of goods sold Depreciation Earnings before interest and taxes Interest paid Taxable Income Less: Taxes Net income $21,415 16,408 1.611 3,396 1,282 $2,114 740 1,374 Galaxy Interiors 2010 and 2011 Balance Sheets (S in millions 2010 2011 2010 2011 $ 668 $ 297 Accounts payable S1,694 $ 1532 Cash Accounts receivable Inventory Total Net fixed assets 1,611 1,527 Notes payable 3848 2.942 Total S 6.122 4.771 Long-term debt 4194 $ 1.532 9,800 10,650 7,500 7,000 Retained earnings2.1222696 523.616 521.878 Tota liab. & equity $23,616 521.878 17489 1710 Common stock Total assets 8. The Home Supply Co. has a current accounts receivable balance of $380,000. Credit sales for the year just ended were $1,430,000. How many days on average did it take for credit customers to pay off their accounts during this past year? 9. You invested $5,000 in an account that pays 5 percent simple interest. How much more could you have earned over a 5-year period if the interest had compounded annually 10. You would like to give your daughter $100,000 towards her college education 15 years from now. How much money must you set aside today for this purpose if you can earn 6 percent on your investments? 11. On your tenth birthday, you received $500 which you invested at 4.5 percent interest, compounded annually. Your investment is now worth $711. How old are you today? 12. Your older sister deposited $5,000 today at 5.00 percent interest per year for 5 years. You would like to have just as much money at the end of the next 5 years as your sister will have. However, you can only earn 4.00 percent interest per year. How much more money must you deposit today than your sister did if you are to have the same amount at the end of the 5 years? 13. You just won the grand prize in a national writing contest! As your prize, you will receive $1,000 a month for ten years. If you can earn 6 percent interest per year on your money, what is this prize worth to you today? 14. You are borrowing $30,000 to buy a car. The terms of the loan call for monthly payments for 5 years at 4.8 percent interest. What is the amount of each payment? 15. Kingston Development Corp. purchased a piece of property for $2.79 million. The firm paid a down payment of 15 percent in cash and financed the balance. The loan terms require monthly payments for 15 years at an annual percentage rate of 7.75 percent, compounded monthly. What is the amount of each mortgage payment? 16. Your parents have made you two offers. The first offer includes annual gifts of $10,000, $11,000, and $12,000 at the end of each of the next three years respectively. The other offer is the payment of one lump sum amount today. You are trying to decide which offer to accept given the fact that your discount rate is 8 percent. What is the minimum amount that you will accept today if you are to select the lump sum offer? You would like to establish a trust fund that will provide $100,000 a year forever your heirs. The trust fund is going to be invested very conservatively so the expected rate of return is only 5.00 percent per year. How much money must you deposit today to fund this gift for your heirs? 18. You grandfather won a lottery years ago. The value of his winnings at the time was $50,000. He invested this money such that it will provide annual payments of $2,500 a year to his heirs forever. What is the rate of return? 19. You are paying an effective annual rate of 12.68 percent on your credit card. The interest is compounded monthly. What is the annual percentage rate on this account? xplain the difference between the effective annual rate (EAR) and the annual percentage rate (APR). Of the two, which one has the greater importance and why

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