Fresh Juice Corp has an operating profit of $1,200 produced from $9,800 in sales

Question

Fresh Juice Corp has an operating profit of $1,200 produced from $9,800 in sales. If Fresh Juice has no interest expense and currently pays 35% of its operating profits in taxes and $200 per year in preferred dividends, then what is Fresh Juice’s net profit margin?
A. 4.29%
B. 5.92%
C. 7.96%
D. 10.20%

You are going to receive $80 at the end of each year for the next 12 years. If you invest each of those amounts at 12%, then what amount of money will you have at the end of the 12th year?
A. $115.20
B. $960.00
C. $969.60
D. 1,930.65

Determine the length of time required to double the value of an investment, given the following rates of return. With a 4% rate of return, the length of time required to double the value of an investment is
A. 1 year
B. 7.27 years
C. 17.7 years
D. 27.5 years

Explanation / Answer

Q1: Net profit = 1200*(1-0.35) = 780

Net Profit after preferred dividends = 780 -200 = 580

net profit margin = 580/9800 = 0.0592 = 5.92% (Option C)

Q2: This is an example of finding the future value of an annuity. This is obtained by using FV formula in excel as in =FV(rate,nper,pmt) where rate =12%=0.12, nper =12 years =12 and pmt =80

So Future value = FV(0,.12,12,80) = 1930.65 (Option D)

Q3 Given PV = 1, FV = 2(Double the PV), , r= 4%,n = ?

FV = PV*(1+r)^n

2=1*(1.04)^n

2=1.04^n

Taking log on both sides,log 2 = nlog 1.04

n = log2/log 1.04 = 17.7 years

Answer = 17.7 years (Option C)

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