1. Vindaloo Corporation reported retained earnings of $400 on its year-end 2002 balance sheet. During 2003, the company reported a loss of $40 in net income, and it paid out a dividend of $60. What will retained earnings be for Vindaloo's 2003 year-end balance sheet?
2. A firm has an ROA of 8%, sales of $100, and total assets of $75. What is its profit margin?.
3. Gven the following information: profit margin = 10%; sales = $100; retention ratio = 40%; assets = $200; equity multiplier = 2.0. If the firm maintains a constant debt-equity ratio and no new equity is used, what is the maximum sustainable growth rate (SGR)? (Assume a constant profit margin.)
Hint: In short form, Sustainable growth rate = (ROE x Retention Ratio) / (1- ROE x Retention Ratio)
4. If your brother-in-law invests in the stock market and doubles his money in a single year while the market, on average, earned a return of only about 15%, is your brother-in-law's performance a violation of market efficiency?
5. Iggie's Used Cars will sell you a 2002 Suzuki Aerio for $3,000 with no money down. You agree to make weekly payments of $40 for two years, beginning one week after you buy the car. What is the EAR of this loan?
6. The Rebus Co. is trying to decide between the following two mutually exclusive projects:
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Cash Flows
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Year
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Project I
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Project II
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0
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-$18,000
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-$12,000
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1
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$8,500
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$6,500
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2
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$9,000
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$6,000
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3
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$9,500
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$7,000
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The only requirement the company has is that any project that is accepted must produce a minimum rate of return of 11%.
Calculate payback period, discounted payback period, IRR and NPV, as well as any other measures which would be helpful.
Fill in the following table with your results:
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Year
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Project I
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Project II
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Payback (yrs.)
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Discounted Payback (yrs.)
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IRR
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NPV
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What should the company do and why?