Introduction to Finance
Numerical Exercises
S. No. Problems
1 Given the following data for Gary and Co (Millions of Dollars):
Balance Sheet Dec 31 200X
Cash $45 Accounts Payables $45 Marketable Securities 33 Notes Payables 45 Receivables 66 Other Current liabilities 21 Inventory 159 Total Current liabilities $111 Total Current Assets 303
Long term debt 24 Total liabilities $135 Net Fixed Assets 147 Common Stock 114 Total Assets $450 Retained Earnings 201 Total stockholders’ equity 315 Total liabilities and equity 450
Income Statement Year 200X Net sales $795 Cost of goods sold 660 Gross profit 135 Selling expenses 73.5 Depreciation 12 EBIT 49.5 Interest expense 4.5 EBT 45 Taxes (40% 18 Net Income 27
Calculate the following ratios:
Ratio Industry Average Current ratio Times interest earned DSO Inventory Turnover Sales/Total Assets Profit margin on sales Return on Total Assets Return on Common Equity
2 Given the compressed version of balance sheet and income statement, estimate the amount of external financing needed to increase sales by 20% next year. (use percentage of sales method)
(Dividend payout is 50%)
Balance Sheet (End of the Year) Assets $2,000Debt $1000 Equity $1000 & nbsp; Total $2000 &nbs p; $2000
Income Statement
Sales $1000 &nb sp; Costs &nb sp;800 Net Income 200
3 A firm has outstanding receivables of $125,000. Its credit terms are net 30. If during the past three months credit sales are $100,000, $105,000, and $60,000, how many days of sales are outstanding as receivables?
4 Given the following data, develop weekly cash budget. Minimum cash required is $50 and the beginning cash balance is $100.
Week 1 Week 2 Week 3
Cash Receipts $1,000 $1,100 $900
Cash Disbursements &nbs p; (850) (1450) (1000)
5 Given the following data:
Days inventory = 103 days, Days receivables = 41 days, and Days payables = 81 days
Calculate the cash conversion cycle and operating cycle.
6 Calculate the cost of trade credit given terms of 3/20 net 60.
7 A firm issues $1,000,000 of commercial paper with a maturity of 60 days and a discount rate of 5%. The paper is sold through a dealer who charges 0.25%. What is the effective cost of issuing the commercial paper?
8. Given the following data: Year 0 1 2 3 4 Cash Flow 100 50 40 40 15 Calculate the payback period and the NPV (Discount rate is 15%)
9. The Friedman inc. has developed the following cash flows for two projects: Year Cash Flow A Cash Flow B 0 -10,000 -10,000 1 500 5000 2 500 6000 3 8,000 500 4 5,000 500 Calculate the NPV and the IRR for the projects. The discount rate is 9% If the projects are independent projects would you accept them?
10. Given the cash flows for two projects: Year Project X Project Y 0 (100) (100) 1 20 70 2 60 40 3 80 30 Calculate the NPV and IRR for the projects. The discount rate (cost of capital) is 10% Which project(s) would you accept if the projects are independent projects Which project would you accept if they are mutually exclusive projects
SOLUTION PREVIEW
8. Given the following data: Year 0 1 2 3 4 Cash Flow 100 50 40 40
15 Calculate the payback period and the NPV (Discount rate is 15%)
|
Year
|
Cash flow
|
Cumulative cash flow
|
|
0
|
-100
|
|
|
1
|
50
|
50
|
|
2
|
40
|
90
|
