Problem 1. Prepare a Pro Forma Income Statement
Net Sales =2,938 COGS=1,598 SG&A=475 Depreciation=45 Interest Exp=32 Tax=15%
Net Sales
Cost Of Goods Sold
Gross Profit
Selling & Admin Exp
Depreciation
Interest Exp
Income Before Taxes
Income Taxes
Net Profit
Problem 2. In a fixed cash budget, cash flow estimates are made for a single set of sales estimates,
a. Whereas a variable budget involves the preparation of several cash flow estimates, with each estimate corresponding to a different set of sales estimates.
b. Whereas a variable budget involves the preparation of one cash flow estimate, with each estimate corresponding to a different set of sales estimates.
c. Whereas a variable budget involves the preparation of several cash flow estimates, with each estimate corresponding to only one set of sales estimates.
Problem 3. A cash budget can also be used to determine the amount of excess cash on hand that will not be needed to finance future operations.
a.This excess cash cannot be invested in securities or other profitable alternatives.
b.This excess cash can then be invested in securities or other profitable alternatives.
c.There is never an excess cash to be invested in securities or other profitable alternatives.
Problem 4. (Time disparity ranking problem) The State Spartan Corporation is considering two mutually exclusive projects. The cash flows associated with those projects are as follows:
YEAR PROJECT A PROJECT B
0 -$50,000 -$50,000
1 15,625 0
2 15,625 0
3 15,625 0
4 15,625 0
5 15,625 $100,000
The required rate of return on these projects is 10 percent.
a. What is each project's payback period?
b. What is each project's net present value?
Problem 5. To buy a new house you take out a 25 year mortgage for $300,000. What will your monthly interest rate payments be if the interest rate on your mortgage is 8 percent?
rate (i) =
number of periods (n)=
present value (PV) = $300,000
future value (FV) = $0
type (0 = at end of period) = 0
monthly mortgage payment =
Problem 6. A cash budget is usually thought of as a means of planning for future financing needs. Why would a cash budget also be important for a firm that had excess cash on hand?
Problem 7. Weighted Average Cost of Capital NPd=
a. the market price of the debt, plus flotation costs
b. the market price of the debt, less flotation costs
c. the market price of the debt, equal to flotation costs
Problem 8. kd =
a. the market price of the debt, plus flotation costs
b. After-tax cost of the debt (After-tax required rate of return on debt)
c. before-tax cost of the debt (before-tax required rate of return on debt)
Problem 9. kps =
a. the cost of internally generated common funds
b. After-tax cost of the debt (After-tax required rate of return on debt)
c. before-tax cost of the debt (before-tax required rate of return on debt)
d. the cost of preferred stock.
Problem 10. Cost of preferred stock) Your firm is planning to issue preferred stock. The stock sells for $115; however, if new stock is issued, the company would receive only $98. The par value of the stock is $100 and the dividend rate is 14 percent. What is the cost of capital for the stock to your firm?
Problem 11. (Cost of internal equity) Pathos Co.'s common stock is currently selling for $21.50. Dividends paid last year were $.70. Flotation costs on issuing stock will be 10 percent of market price. The dividends and earnings per share are projected to have an annual growth rate of 15 percent. What is the cost of internal common equity for Pathos?