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Formula Sheet
TI 83 Calculator Hints
Calculator Hints for most calculators (10B, BAII, 83, 17B, etc)
Here is help with Time Value of Money:
Calculator links
Simple and useful instructions for most calculators
Very nice videos explaining use of the Texas Instruments BA II Plus Professional
Note, that your calculator is probably set to 12 payments per year and 2 decimal places. You need to change this to 1 payment per year and at least 4 decimal places. Be able to solve all of the chapter examples and end of chapter problems. A key part of learning time value of money is recognizing problems. Below are audio solutions (courtesy of Dr. Ron Best) to typical problems from this chapter. After you find you have missed the answers to several problems, you should watch the Hints on Solving Time Value of Money Problems.
Simple:
More Complex:
- a. Audio solution to: If you wish to accumulate $197,000 in 5 years, how much must you deposit today in an account that pays a quoted annual interest rate of 13% with semi-annual compounding of interest?
- b. Audio solution to: If you wish to accumulate $197,000 in 5 years, how much must you deposit today in an account that pays a quoted annual interest rate of 13% with semi-annual compounding of interest?
- c. Audio solution to: What will $153,000 grow to be in 13 years if it is invested today in an account with a quoted annual interest rate of 10% with monthly compounding of interest?
- d. Audio solution to: How many years will it take for $197,000 to grow to be $554,000 if it is invested in an account with a quoted annual interest rate of 8% with monthly compounding of interest?
- e. Audio solution to: At what quoted annual interest rate must $134,000 be invested so that it will grow to be $459,000 in 15 years if interest is compounded weekly?
- f. Audio solution to: You are offered an investment with a quoted annual interest rate of 13% with quarterly compounding of interest. What is your effective annual interest rate?
- g. Audio solution to: You are offered an annuity that will pay $24,000 per year for 11 years (the first payment will occur one year from today). If you feel that the appropriate discount rate is 13%, what is the annuity worth to you today?
- h. Audio solution to: If you deposit $16,000 per year for 12 years (each deposit is made at the end of each year) in an account that pays an annual interest rate of 14%, what will your account be worth at the end of 12 years?
- i. Audio solution to: You plan to borrow $389,000 now and repay it in 25 equal annual installments (payments will be made at the end of each year). If the annual interest rate is 14%, how much will your annual payments be?
- j. Audio solution to: You are told that if you invest $11,000 per year for 23 years (all payments made at the end of each year) you will have accumulated $366,000 at the end of the period. What annual rate of return is the investment offering?
- k. Audio solution to: You are offered an annuity that will pay $17,000 per year for 7 years (the first payment will be made today). If you feel that the appropriate discount rate is 11%, what is the annuity worth to you today?
- l. Audio solution to: If you deposit $15,000 per year for 9 years (each deposit is made at the beginning of each year) in an account that pays an annual interest rate of 8%, what will your account be worth at the end of 9 years?
- m. Audio solution to: You plan to accumulate $450,000 over a period of 12 years by making equal annual deposits in an account that pays an annual interest rate of 9% (assume all payments will occur at the beginning of each year). What amount must you deposit each year to reach your goal?
- n. Audio solution to: You are told that if you invest $11,100 per year for 19 years (all payments made at the beginning of each year) you will have accumulated $375,000 at the end of the period. What annual rate of return is the investment offering?
- o. Audio solution to: You plan to buy a car that has a total "drive-out" cost of $25,700. You will make a down payment of $3,598. The remainder of the car’s cost will be financed over a period of 5 years. You will repay the loan by making equal monthly payments. Your quoted annual interest rate is 8% with monthly compounding of interest. (The first payment will be due one month after the purchase date.) What will your monthly payment be?
- p. Audio solution to: You are considering leasing a car. You notice an ad that says you can lease the car you want for $477.00 per month. The lease term is 60 months with the first payment due at inception of the lease. You must also make an additional down payment of $2,370. The ad also says that the residual value of the vehicle is $20,430. After much research, you have concluded that you could buy the car for a total "driveout" price of $33,800. What is the quoted annual interest rate you will pay with the lease?
- q. Audio solution to: You are valuing an investment that will pay you $12,000 the first year, $14,000 the second year, $17,000 the third year, $19,000 the fourth year, $23,000 the fifth year, and $29,000 the sixth year (all payments are at the end of each year). What it the value of the investment to you now is the appropriate annual discount rate is 11.00%?
- r. Audio solution to: You are valuing an investment that will pay you $27,000 per year for the first ten years, $35,000 per year for the next ten years, and $48,000 per year the following ten years (all payments are at the end of each year). If the appropriate annual discount rate is 9.00%, what is the value of the investment to you today?
- s. Audio solution to: John and Peggy recently bought a house. They financed the house with a $125,000, 30-year mortgage with a nominal interest rate of 7 percent. Mortgage payments are made at the end of each month. What total dollar amount of their mortgage payments during the first three years will go towards repayment of principal?
- t. Audio solution to: You are valuing an investment that will pay you $26,000 per year for the first 9 years, $34,000 per year for the next 11 years, and $47,000 per year the following 14 years (all payments are at the end of each year). Another similar risk investment alternative is an account with a quoted annual interest rate of 9.00% with monthly compounding of interest. What is the value in today's dollars of the set of cash flows you have been offered?
- u. Audio solution to: You have just won the Georgia Lottery with a jackpot of $40,000,000. Your winnings will be paid to you in 26 equal annual installments with the first payment made immediately. If you feel the appropriate annual discount rate is 8%, what is the present value of the stream of payments you will receive?
- v. Audio solution to: You have just won the Georgia Lottery with a jackpot of $11,000,000. Your winnings will be paid to you in 26 equal annual installments with the first payment made immediately. If you had the money now, you could invest it in an account with a quoted annual interest rate of 9% with monthly compounding of interest. What is the present value of the stream of payments you will receive?
- w. Audio solution to: You are planning for retirement 34 years from now. You plan to invest $4,200 per year for the first 7 years, $6,900 per year for the next 11 years, and $14,500 per year for the following 16 years (assume all cash flows occur at the end of each year). If you believe you will earn an effective annual rate of return of 9.7%, what will your retirement investment be worth 34 years from now?
- x. Audio solution to: You plan to retire 33 years from now. You expect that you will live 27 years after retiring. You want to have enough money upon reaching retirement age to withdraw $180,000 from the account at the beginning of each year you expect to live, and yet still have $2,500,000 left in the account at the time of your expected death (60 years from now). You plan to accumulate the retirement fund by making equal annual deposits at the end of each year for the next 33 years. You expect that you will be able to earn 12% per year on your deposits. However, you only expect to earn 6% per year on your investment after you retire since you will choose to place the money in less risky investments. What equal annual deposits must you make each year to reach your retirement goal?
Here is help with Financial Statements
Note, many account names in financial statements vary by company (Income Statement = Profit and Loss Statement = Statement of Income = Statement of Operations), thus part of learning this chapter is learning potential accout names. When solving problems for this chapter, use the internet to look up terms with which you are unfamiliar. This is especially applicable when solving the scrambled income statement/balance sheet problems. There is a Balance Sheet Video located at; http://www.westga.edu/~chodges/video/efs3rd3_1/intro.htm, an income Statement and Statement of Cash Flows Video located at; http://www.westga.edu/~chodges/video/efs3rd3_2/intro.htm, and a Using Financial Statements for Finance Video located at; http://www.westga.edu/~chodges/video/efs3rd3_3/intro.htm.
Since the main focus is the on the format of statements, the most complex quiz problems require you to unscrambled and solve for missing numbers in the income statement and balance sheet. To solve these big problems, you must be able to solve smaller segments of the statements. Here are audio solutions that focus on the smaller components:
a. Audio solution to:In its recent income statement, Smith Software Inc. reported $26 million of net income, and in its year-end balance sheet, Smith reported $353 million of retained earnings. The previous year, its balance sheet showed $339 million of retained earnings. What were the total dividends paid to shareholders during the most recent year? (Answers are in $ millions.)
b. Audio solution to:In its recent income statement, Smith Software Inc. reported paying $10 million in dividends to common shareholders, and in its year-end balance sheet, Smith reported $365 million of retained earnings. The previous year, its balance sheet showed $354 million of retained earnings. What was the firm's net income during the most recent year? (Answers are in $ millions.)
c. Audio solution to:Cox Corporation recently reported an EBITDA of $66 million and $8 million of net income. The company has $11 million interest expense and the corporate tax rate is 40.0% percent. What was the company's depreciation and amortization expense? (Answers are in $ millions.)
d. Audio solution to:Brooks Sisters' operating income (EBIT) is $140 million. The company's tax rate is 40.0%, and its operating cash flow is $115.3 million. The company's interest expense is $28 million. What is the company's net cash flow? (Assume that depreciation is the only non-cash item in the firm's financial statements.) (Answers are in $ millions.)
Here is help with Financial Statement Analysis
If you feel the need, watch the videos on Liquidity and Asset Management Ratios and on Leverage, Profitability, and Market Ratios. Most people do not feel the need. Watch the Common Size Analysis and Limitations of Ratio Analysis.video.
Here are audio solutions, created by Dr. Ronald Best, to several types of ratio problems:
a. Audio Solution to:TCBW last year had an average collection period (days sales outstanding) of 35 days based on accounts receivable of $460,000. All of the firm's sales are made on credit. The firm expects sales this year to be the same as last year. However, the company has begun a new credit policy that should lower the average collection period to 28 days. If the new average collection period is attained, what will the firm's accounts receivable balance equal?
b. Audio Solution to:The RRR Company has a target current ratio of 3.2. Presently, the current ratio is 4.4 based on current assets of $6,556,000. If RRR expands its inventory using short-term liabilities (maturities less than one year), how much additional funding can it obtain before its target current ratio is reached?
c. Audio Solution to:AAA's inventory turnover ratio is 22.30 based on sales of $25,200,000. The firm's current ratio equals 10.21 with current liabilities equal to $290,000. If the firm's cash and marketable securities equal $732,342, what is the firm's days sales outstanding?
d. Audio Solution to:U KNO, Inc. uses only debt and common equity funds to finance its assets. This past year the firm's return on total assets was 19%. The firm financed 39% percent of its assets using equity. What was the firm's return on common equity?
e. Audio Solution to:Last year YYY Company had a 5.00% net profit margin based on $21,000,000 in sales and $14,000,000 of total assets. During the coming year, the president has set a goal of attaining a 8% return on total assets. If YYY finances 56% of its assets by borrowing, what will its return on common equity be next year if the return on assets goal is achieved?
f. Audio Solution to:The RRR Company has a target current ratio of 3.6. Presently, the current ratio is 4.5 based on current assets of $8,505,000. If RRR expands its fixed assets using short-term liabilities (maturities less than one year), how much additional funding can it obtain before its target current ratio is reached?
g. Audio Solution to:AAA's inventory turnover ratio is 22.30 based on sales of $25,200,000. The firm's current ratio equals 10.21 with current liabilities equal to $290,000. What is the firm's quick ratio?
h. Audio Solution to: Use the information below to calculate the firm's return on common equity. (State your answer as a percentage with two decimal places.) Net profit margin = 11.88%; Debt ratio = 44.29%; Fixed asset turnover = 7.54; Total asset turnover = 3.50 ; Inventory turnover = 22.3.
i. Audio Solution to:U KNO, Inc. uses only debt and common equity funds to finance its assets. This past year the firm's return on total assets was 19%. The firm financed 30% percent of its assets using debt. What was the firm's return on common equity?
j. Audio Solution to:Last year YYY Company had a 7.00% net profit margin based on $24,000,000 in sales and $13,000,000 of total assets. During the coming year, the president has set a goal of attaining a 14% return on total assets. How much must firm sales equal, other things being the same, for the goal to be achieved?
k. Audio Solution to:Russell Securities has $267 million in total assets and its corporate tax rate is 40%. The company recently reported that its basic earning power (BEP) ratio was 50% and its return on assets (ROA) was 13%. What was the company's interest expense? (Answers are in millions.)
l. Audio Solution to:You are given the following information: Stockholders' equity = $205 million; price/earnings ratio = 43; shares outstanding = 11,080,000; and market/book ratio =6.75. Calculate the market price of a share of the company's stock.
m. Audio Solution to:Strack Houseware Supplies Inc. has $866 million in total assets. The other side of its balance sheet consists of $95.26 million in current liabilities, $251.14 million in long-term debt, and $519.60 million in common equity. The company has 16,100,000 shares of common stock outstanding, and its stock price is $59 per share. What is Strack's market-to-book ratio?
n. Audio Solution to:Moss Motors has $108 million in assets, and its tax rate is 40%. The company's basic earning power (BEP) ratio is 42%, and its return on assets (ROA) is 11%. What is Moss' times-interest-earned (TIE) ratio?
o. Audio Solution to:The Wilson Corporation has the following relationships: Sales/Total assets = 3;Return on assets (ROA) = 15%; Return on equity (ROE) = 17%. What is Wilson's profit margin?
p. Audio Solution to:Cleveland Corporation has 13,240,000 shares of common stock outstanding, its net income is $241 million, and its P/E is 15.1. What is the company's stock price?
q. Audio Solution to:Peterson Packaging Corp. has $2,072 million in total assets. The company's basic earning power (BEP) ratio is 13%, and its times-interest-earned ratio is 4.32. Peterson's depreciation and amortization expense totals $73 million. It has $55 million in lease payments and $39 million must go towards principal payments on outstanding loans and long-term debt. What is Peterson's EBITDA coverage ratio?
r. Audio Solution to:The Wilson Corporation has the following relationships: Sales/Total assets = 5; Return on total assets (ROA) = 13%; Return on common equity (ROE) = 16%. What is Wilson's debt ratio?
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