Daisy\'s Donuts has an operating profit of $210,000. Interest expense for the ye
ID: 1175112 • Letter: D
Question
Daisy's Donuts has an operating profit of $210,000. Interest expense for the year was $30,000; preferred dividends paid were $24,700; and common dividends paid were $36,000. The tax was $59,300. The firm has 16,000 shares of common stock outstanding. What was the increase in retained earnings for the year?
A. $10,000
B. $75,000
C. No change
D. $60,000
Hector decides to try his luck at Powerball where the projected winnings are $12,000,000. If he wins, he can choose the annuity option (to be paid over 20 years) or a lump sum settlement that he can invest at 8% interest. How much must the lump sum option be to make the lump sum option equal to the annuity option (rounded)?
A. $1,130,668
B. $1,200,000
C. $1,743,620
D. $2,574,578
Explanation / Answer
A) OPERATING PROFIT = 210000 B) ANNUITY VALUE = 12000000(1.16777)
LESS: INTERST EXP = - 30000 = 1130668
TOTAL 180000
LESS TAX PAID - 59300
TOTAL 120700
LESS DIVIDEND PAID = -60700
TOTAL RETAINED E 60000
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