1) Cash and Equivalents are $1,561, Short-Term Investments are $1,052, Accounts

Question

1) Cash and Equivalents are $1,561, Short-Term Investments are $1,052, Accounts Receivables are $3,616, Accounts Payable is $5,173, Short-Term Debt is $288, Inventories are $1,816, Other Current Liabilities are $1,401, and Other Current Assets are $707. What are the Total Current Assets? 1) _______ A) $6,862 B) $5,136 C) $8,752 D) $6,936

2) You intend to buy a vacation home in seven years and plan to have saved $50,000 for a down payment. How much money would you have to place today into an investment that earns 8% per year to have enough for your desired down payment? 2) _______ A) $29,175 B) $25,000 C) $37,065 D) $29,100

3) You gave your little sister two rabbits for Easter three years ago and now she has 84 of the cute little bunnies. What is the average annual rate of increase in the number of rabbits your sister owns? Note: Your parents are not very pleased with you right now.3) _______ A) 247.60% B) 410.00% C) 14.00% D) The TVM equations are designed for currency amounts and cannot be used for non-financial calculations such as this one.

4) You need $32,000 at the end of 6 years. If you can earn 0.625% per month, how much would you need to invest today to meet your objective?4) _______ A) $20,433 B) $18,319 C) $17,600 D) $20,735

5) In two years Rocky plans to enroll at Whatsamatta U., a prestigious university in Frostbite Falls, MN. If the current tuition is $23,500 per year and is expected to increase at a rate of 6% per year, how much will Rocky pay in tuition his first year of school? (His first tuition payment is exactly two years from today.) In his fourth year? (His last tuition payment is exactly 5 years from today) (Rounded to the nearest dollar.) 5) _______ A) $26,405 and $31,448 B) $23,500 and $31,448 C) $23,500 and $29,668 D) $26,405 and $29,668

6) You have just won the Reader's Digest lottery of $5,000 per year for twenty years, with the first payment today followed by nineteen more start-of-the-year cash flows. At an interest rate of 5%, what is the present value of your winnings? 6) _______ A) $62,311.05 B) $100,000.00 C) $65,426.60 D) $47,641.18

7) Your parents have an investment portfolio of $400,000, and they wish to take out cash flows of $50,000 per year as an ordinary annuity. How long will their portfolio last if the portfolio is invested at an annual rate of 4.50%? Use Excel or financial calculator to determine your answer. 7) _______ A) 9.10 years B) 8.00 years C) 9.60 years D) 10.14 years

8) You are saving money for a down payment on a new house. You intend to place $5,000 at the end of each year for three years into an account earning 6% per year. At the end of the fourth year, you will place $10,000 into this account. How much money will be in the account at the end of the fourth year? 8) _______ A) $25,918.00 B) $26,518.17 C) $25,000.00 D) $26,873.08

9) You are paid to teach classes for the university and wonder how much money the university makes from your graduate-level classes. Based on historical data, you determine that your summer classes for the next seven years will generate an average annual revenue of $93,850. If you discount these cash flows at an annual rate of 8.30%, what is the present value of the expected cash flows? 9) _______ A) $483,644.36 B) $656,950.00 C) $845,133.52 D) $523,786.85

10) Suppose you invest $3,500 today, compounded semiannually, with an annual interest rate of 8.50%. What amount of interest will you earn in one year? 10) ______ A) $307.12 B) $313.82 C) $303.82 D) $309.13

Explanation / Answer

Cash and Equivalents are $1,561, Short-Term Investments are $1,052, Accounts Receivables are $3,616, Inventories are $1,816  and Other Current Assets are $707

Hence Total Assets are sum of these assets = $8752 = ANswer 1)

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A2) Present value of the down payment at 8% interest rate = 50,000/(1.08)^7 = $ 29174.52 ~ $ 29175 = ANswer A)

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A3) Average rate of growth of rabbits = (total rabits in end / initial no. of rabbits)^(1/no. of years) - 1= (84 /2)^(1/3) -1 = 247.6027% = 247.60% = ANswer A)

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A4)

Let investment = X

Hence X*(1.00625)^(6*12) = 32,000

Hence X = $ 20432.695 =~ $20,433 = ANswer A)

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A5) Increase in fees = 6% per year..

Hence, Fees 2 years from today (1st year fees) = 23500*1.06^2 = $26405

Hence, Fees 5 years from today (4th year fees) = 23500*1.06^5 = $31448

Hence Answer = A) $26,405 and $31,448

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A6) Present value of winnings = 5000 * (1+1/1.05^1+1/1.05^2+1/1.05^3+...++1/1.05^19)) = 65426.60 = ANswer C)

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A7)

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A8)

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A9)

Present value of expected earnings = 93,850 * (1/1.083^1+1/1.083^2+1/1.083^3+...+1/1.083^7) =$483,644.36 = Answer A

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A10) Investment today = $3,500

Annual interest rate = 8.50%

Hence if compounded semiannually, interest in a year = $3,500 (1+8.50%/2)^2 - $3,500 = $303.82 = ANswer C

Interest rate 4.50% Year Cash flow Present value of cash flow Cumulative present value of cash flow 0 -400000 -400000 -400000 1 50000 47846.89 -352153 2 50000 45786.5 -306367 3 50000 43814.83 -262552 4 50000 41928.07 -220624 5 50000 40122.55 -180501 6 50000 38394.79 -142106 7 50000 36741.42 -105365 8 50000 35159.26 -70205.7 9 50000 33645.22 -36560.5 10 50000 32196.38 -4364.09 11 50000 30809.94 26445.85 10.14165 Break even point 12 50000 29483.19 55929.04 10.14 = Answer D

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