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Question 1

Use the data from the following financial statements to answer question 1:

Partial Income Statement Year Ending 2011

Sales Revenue	$350,000
COGS	$140,000
Fixed Costs	$ 43,000
SG&A Expenses	$ 28,000
Depreciation	$ 46,000
Partial Balance Sheet 12/31/2010
Assets: Cash $ 16,000		Liabilities: Notes Payable	$ 14,000
Accounts Rec. $ 28,000		Accounts Payable	$ 19,000
Inventories $ 48,000 Fixed Assets $368,000 Acc. Depreciation $142,000		Long-Term Debt Owners Equity: Retained Earnings	$190,000 $ ???????
Intangible Assets $ 82,000		Common Stock	$130,000
Partial Balance Sheet 12/31/2011
Assets: Cash $ 26,000		Liabilities: Notes Payable	$ 12,000
Accounts Rec. $ 19,000		Accounts Payable	$ 24,000
Inventories $ 53,000 Fixed Assets $448,000 Acc. Depreciation $ ???????		Long-Term Debt Owners Equity: Retained Earnings	$162,000 $ ??????
Intangible Assets $ 82,000		Common Stock	$180,000

Complete the partial income statement if the company paid interest expense of $18,000 for 2011 and had an overall tax rate of 40% for 2011.

What are the net fixed assets for the years 2010 and 2011?

Question 2

Your dreams of becoming rich have just come true. You have won the State of Tranquilitys Lottery. The State offers you two payment plans for the $5,000,000 advertised jackpot. You can take annual payments of $250,000 for the next twenty years or $2,867,480 today.

If your investment rate over the next twenty years is 8%, which payoff will you choose?

If your investment rate over the next twenty years is 5%, which payoff will you choose?

At what investment rate will the annuity stream of $250,000 be the same as the lump sum payment of $2,867,480?

Question 3

Using Yahoo! Finance (http://finance.yahoo.com/) and ticker symbol PEP, find PepsiCos historical dividend payment and current price. Historical dividends are available in the historical price section. Use these payments to find the annual dividend growth rate. (If you have a quarterly pattern be sure to annualize this quarterly growth rate.) Now, find the required rate of return for this stock, assuming that the future dividend growth rate will remain the same and the company has an infinite horizon. Does this return seem reasonable for PepsiCo?

Question 4

Royal Seattle Investment Club has $100,000 to invest in the equity market. Frasier advocates investing the funds in KSEA Radio with a beta of 1.3 and an expected return of 16%. Niles advocates investing the funds in Northwest Medical with a beta of 1.1 and an expected return of 14%. The club is split 50/50 on the two stocks. You are the deciding vote, and you cannot pick a split of $50,000 for each stock. Before you vote, you look up the current risk-free rate (the 1 year

U.S. Treasury bill with a yield of 3.75%). Which stock do you select?

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