FIN 500 Midterm

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1) (Working with the income statement)
At the end of its third year of​ operations, the Sandifer Manufacturing Co. had
$4,592,000 in​ revenues, $3,323,000 in cost of goods​ sold, $447,000
in operating expenses which included depreciation expense of $156,000​,
and a tax liability equal to 34 percent of the​ firm's taxable income. What is the net
income of the firm for the​ year?
Complete the income statement for Sandifer Manufacturing​ Co.:
​(Round to the
nearest​ dollar.)
Revenues = $
Les
s:
Cost of Goods
Sold =
$
Equals: Gross Profit = $

Les
s:
Operating
Expenses =
$
Equals:
Net Operating
Income =
$
Les
s:
Interest
Expense =
$ 0
Equals:
Earnings before
Taxes =
$
Les
s:
Income Taxes
=
$
Equals: Net Income = $
Enter any number in the edit fields and then continue to the next question.

2)
Balance
2013
Sheet
Cash and
$490
marketable
securities
Accounts
5,970
receivable
Inventories 9,480

Current
15,940
assets
Net
property
16,960
plant and
equipment
Total
$32,900
assets
Accounts
$7,150
payable
​Short-term
6,840
debt

Current
$13,990
liabilities
​Long-term
6,980
liabilities
Total
20,970
liabilities
Total​
11,930
owners'
equity
Total
32,900
liabilities
and​
owners'
equity

Income
2013
Statement
Revenues $29,960
Cost of goods
sold (19,950)
Gross profit $10,010
Operating
(7,950)
expenses
Net operating
income $2,060
Interest expense (870)

Earnings before
$1,190
taxes
Taxes (433)
Net income $757

The balance sheet and income statement for Carver​ Enterprises, Inc. are
found​here:
.
a. Prepare a​ common-size balance sheet for Carver Enterprises.
b. Prepare a​ common-size income statement for Carver Enterprises.
a. Prepare a​ common-size balance sheet for Carver Enterprises.
Complete the​ common-size balance sheet​ below:
​(Round to one decimal​ place.)
Common-
2013
Size

Balance
Sheet
Cash and
$ 490 %
marketabl
e
securities
Accounts
5,970
receivable
Inventorie
9,480
s
Current
assets
$ 15,94
0
%

Net
property
16,96
0
plant and
equipmen
t
Total
assets
$ 32,90
0
%
Accounts
$ 7,150 %
payable
Short-ter
6,840
m debt
Current
liabilities
$ 13,99
0
%

Long-ter
6,980
m
liabilities
Total
liabilities
$ 20,97
0
%
Total
owners’
equity
11,93
0
Total
liabilities
and
owners’
equity
$ 32,90
0
%
b. Prepare a​ common-size income statement for Carver Enterprises.

Complete the​ common-size income statement​ below:
​(Round to one decimal​
place.)
Common-Size Income
2013
Statement
Revenues $ 29,960 %
Cost of goods sold (19,950)
Gross profit $ 10,010 %
Operating expenses (7,950)
Net operating income $ 2,060 %
Interest expense (870)

Earnings before taxes $ 1,190 %
Taxes (433)
Net income $ 757 %
3) (Present-Value Comparison) Much to your​ surprise, you were selected to appear on
the TV show​ "The Price is​ Right." As a result of your prowess in identifying how many
rolls of toilet paper a typical American family keeps on​ hand, you win the opportunity
to choose one of the​ following: 2,000 today, 9,000 in 9 years, or $ 32,000
in 24 years. Assuming that you can earn 12 percent on your​ money, which should you​
choose?
If you are offered $9,000 in 9 years and you can earn 12
percent on your​ money, what is the present value of
​$9,000​?

​$
​(Round to the nearest​ cent.)
If you are offered 32,000 in 24 years and you can earn
12percent on your​ money, what is the present value of
​$32,000​?
​$
​(Round to the nearest​ cent.)
Which offer should you​ choose?
​(Select the best choice​ below.)
A.Choose
​$32,000.00 in 24 in 24 years because its present value is the highest.
B.Choose
$2,000.00 today because its present value is the highest.

C.Choose
​9,000.00 in 9 years in because its present value is the highest.
4)( Future value of an ordinary annuity) You are graduating from college at
the end of this semester and after reading the The Business of Life box in this​
chapter, you have decided to invest 4,100 at the end of each year into a Roth IRA for
the next 41 years. If you earn 6 percent compounded annually on your​ investment,
how much will you have when you retire in 41 years? How much will you have if you
wait 10 years before beginning to save and only make 31 payments into your
retirement​ account?
How much will you have when you retire in
41 years?
​$
​(Round to the nearest​ cent.)
How much will you have if you wait 10 years before beginning to save and only make
31payments into your retirement​ account?
​$
​(Round to the nearest​ cent.)

5) ( Annuity Payments) Mr. Bill S.​ Preston, Esq., purchased a new house for 130,000.
He paid $30,000 upfront and agreed to pay the rest over the next 10 years in 10 equal
annual payments that include principal payments plus 13 percent compound interest
on the unpaid balance. What will these equal payments​ be?
a. Mr. Bill S.​ Preston, Esq., purchased a new house for 130,000 and paid
​$30,000 upfront. How much does he need to borrow to purchase the​ house?
​$
​(Round to the nearest​ dollar.)
b. If Bill agrees to pay the loan over the next 10 years in 10 equal​ end-of-year
payments plus 13
percent compound interest on the unpaid​ balance, what will these equal payments​
be?
​$
​ (Round to the nearest​ cent.)
6) ( Annuity Payments) Lisa Simpson wants to have 1,100,000 in 50 years by making
equal annual​end-of-the-year deposits into a​ tax-deferred account paying 8.00 percent
annually. What must​ Lisa's annual deposit​ be?The amount of​ Lisa's annual deposit
must be

​$
7) (Calculating rates of​ return) The​ S&P stock index represents a portfolio
comprised of 500 large publicly traded companies. On December​ 24, 2007, the index
had a value of​ 1,410 and on December​ 24, 2008, the index was approximately 929. If
the average dividend paid on the stocks in the index is approximately 4.5 percent of
the value of the index at the beginning of the​ year, what is the rate of return earned on
the​ S&P index? What is your assessment of the relative riskiness of investing in a
single stock such as Google compared to investing in the​ S&P index​ (recall from
Chapter 2 that you can purchase mutual funds that mimic the returns of the​ index)?
The rate of return earned on the​ S&P 500 is_____ ​(Round to two decimal​ places.)
What is your assessment of the relative riskiness of investing in a single​ stock, such
as​ Google, compared to investing in the​ S&P index? ​ (Select the best choice​ below.)
A.
In​ general, investing in a single stock is riskier than investing in the​ S&P index.
B.
In​ general, investing in a single stock has the same relative riskiness as investing in
the​ S&P index.
C.

There is not enough information given to answer this question.
D.
In​ general, investing in the​ S&P index is riskier than investing in a single stock
8) James Fromholtz is considering whether to invest in a newly formed investment
fund. The​ fund's investment objective is to acquire home mortgage securities at what
it hopes will be bargain prices. The fund sponsor has suggested to James that the​
fund's performance will hinge on how the national economy performs in the coming
year. ​ Specifically, he suggested the following possible​ outcomes
State of Economy Probability Fund
Returns
Rapid expansion and recovery 5%
100%
Modest growth 35% 40%
Continued recession 55% 10%
Falls into depression 5% -100%

Based on these potential​ outcomes, what is your estimate of the expected rate of
return from this investment​ opportunity?Would you be interested in making such an​
investment? Note that you lose all your money in one year if the economy collapses
into the worst state or you double your money if the economy enters into a rapid
expansion.