USA: +1(669)289-8683 
Sign in
1. Determine the size of the M1 money supply using the following information.
A. Currency plus traveler’s checks $25 million
B. Negotiable CDs $10 million
C. Demand deposits $13 million
D. Other checkable deposits $12 million
M0-Physical cash and coin M1 – All of M0 plus demand deposits, traveler’s checks M2 – All of M1 plus savings deposits, money market shares
3. Determine the size of the demand deposits component of the M1 money supply using the following information. Demand deposit = M1 – currency-traveler`s checks- other checkable deposits- small time deposits A. Currency $350 million
B. Traveler’s checks $10 million
C. Other checkable deposits $200 million
D. Small time deposits $100 million
E. M1 money supply $800 million
2. Assume a bank has $5 million in deposits and $1 million in vault cash. If the bank holds $1 million in excess reserves and the required reserves ratio is 8 percent, what level of deposits are being held?
a. If the required reserves ratio is 8 percent, what dollar amount of deposits can the bank have = b. If the bank holds $65 million in deposits and currently holds bank reserves such that excess reserves are zero, what required reserves ratio is implied =
5. The Friendly National Bank holds $50 million in reserves at its Federal Reserve District Bank. The required reserves ratio is 12 percent.
a. If the bank has $600 million in deposits, what amount of vault cash would be needed for the bank to be in compliance with the required reserves ratio?
b. If the bank holds $10 million in vault cash, determine the required reserves ratio that would be needed for the bank to avoid a reserves deficit.
1. Assume that Banc One receives a primary deposit of $1 million. The bank must keep reserves of 20 percent against its deposits. Prepare a simple balance sheet of assets and liabilities for Banc One immediately after the deposit is received.
5. A thirty-year U.S. Treasury bond has a 4.0 percent interest rate. In contrast, a ten-year Treasury bond has an interest rate of 2.5 percent. A maturity risk premium is estimated to be 0.2 percentage points for the longer maturity bond. Investors expect inflation to average 1.5 percentage points over the next ten years.
a.
Estimate the expected real rate of return on the ten-year U. S. Treasury bond.
b.
If the real rate of return is expected to be the same for the thirty-year bond as for the ten-year bond, estimate the average annual inflation rate expected by investors over the life of the thirty-year bond.
6. You are considering an investment in a one-year government debt security with a yield of 5 percent or a highly liquid corporate debt security with a yield of 6.5 percent. The expected inflation rate for the next year is expected to be 2.5 percent.
a. What would be your real rate earned on either of the two investment?
b. What would be the default risk premium on the corporate debt security?
4. You are planning to invest $2,500 today for three years at a nominal interest rate of 9 percent with annual compounding.
a.What would be the future value of your investment?
b.Now assume that inflation is expected to be 3 percent per year over the same three-year period. What would be the investment’s future value in terms of purchasing power?
c.What would be the investment’s future value in terms of purchasing power if inflation occurs at a 9 percent annual rate?
1. Compute the annual interest payments ad principal amount for a Treasury Inflation-Protected Security with a par value of $1,000 and a 3 percent interest rate if inflation is at 4 percent in year one, 5 percent in year two, and 6 percent in year three.
23. The Joseph Company has a stock issue that pays a fixed dividend of $3.00 per share annually. Investors believe the nominal risk-free rate is 4 percent and that this stock should have a risk premium of 6 percent. What should be the value of this stock?
1.
In late 2010, you purchased the common stock of a company that has reported significant earnings increases in nearly every quarter since your purchase. The price of the stock increased from $12 a share at the time of the purchase to a current level of $45. Notwithstanding the success of the company, competitors are gaining much strength. Further, your analysis indicates that the stock may be overpriced based on your projection of future earnings growth. Your analysis, however, was the same one year ago and the earnings have continued to increase. Actions that you might take range from an outright sale of the stock (and the payment of capital gains tax) to doing nothing a continuing to hold the shares. You reflect on these choices as well another action that could be taken. Describe the various actions tat you might take and their implications.
Problem 3: Use your knowledge of balance sheets to fill in the missing amounts:
|
ASSETS |
|||||||
|
CASH |
ACCOUNTS RECEIVABLE |
$ |
50,000 |
||||
|
80,00 |
|||||||
|
INVENTORY |
100,000 |
||||||
| TOTAL |
CURRENT |
||||||
|
GROSS PLANT AND EQUIPMENT |
|||||||
| LESS: ACCUMULATED |
DEPRECIATION |
1 |
30,000 |
||||
|
NET PLANT AND EQUIPMENT |
600,000 |
||||||
|
TOTAL ASSETS |
|
LIABILITIES |
||||
|
ACCOUNTS PAYABLE |
$12,000 |
|||
|
NOPTES PAYABLE |
||||
|
TOTAL CURRENT LIABILITIES |
||||
| LONG-TERM |
DEBT |
|||
|
TOTAL LIABILITIES |
||||
|
COMMON STOCK($ 1 PAR, 100,000 SHARES) |
||||
|
PAID-IN CAPITAL |
250,000 |
|||
|
RETAINED EARNINGS |
200,000 |
|||
| TOTAL STOCKHOLDERS’ |
EQUITY |
|||
| TOTAL |
LIABILITIES AND EQUITY |
$830,000 |
Problem 6: Use the following information to construct an income statement:
|
INTEREST |
25,000 |
|||
|
SALES |
950,000 |
|||
|
INCOME TAX RATE |
25% |
|||
| SELLING AND |
MARKETING |
160,000 |
||
|
GENERAL AND ADMINISTRATIVE EXPENSE |
||||
|
GROSS PROFIT |
550,000 |
|||
|
COST OF GOODS SOLD |
400,000 |
Problem 3: The Dayco’s Manufacturing Company had the following financial statement results for last year. Net sales were $1.2 million with net income of $
90,000
. Total assets at year end amounted to $
900,000
.
A.
Calculate Dayco’s asset turnover ratio and its profit margin.
B.
Show how the two ratios in Part (a) can be used to determine Dayco’s rate of return on assets.
C.
Dayco’s operates industry average ratios are these: Return on assets: 11 percent; Asset turnover: 2.5 times; Net profit margin: 3.6 percent. Compare Dayco’s performance against the industry averages.
Problem 6: Following are financial statements for the Genatron Manufacturing Corporation for
2012
and
2011
.
GENATRON MANUFACTURING CORPORATION
|
BALANCE SHEET |
||||
| $ |
40,000 |
$50,000 |
||
|
ACCTS. RECIEVABLE |
260,000 |
|||
|
500,000 |
450,000 |
|||
|
800,000 |
700,000 |
|||
|
FIXED ASSETS, NET |
300,000 |
|||
|
$1,200,000 |
$1,000,000 |
|||
|
ACCTS. PAYABLE |
$1 |
70,000 |
$ |
130,000 |
|
BANK LOAN |
||||
|
ACCRUALS |
||||
|
330,000 |
270,000 |
|||
|
LONG-TERM DEBT , |
12% |
|||
|
COMMON STOCK, $10 PAR |
||||
|
CAPITAL SURPLUS |
||||
|
120,000 |
||||
|
TOTAL LIABILITIES & EQUITY |
|
INCOME STATEMENT |
|||
|
NET SALES |
$1,500,000 |
$1,300,000 |
|
| 7
80,000 |
|||
|
520,000 |
|||
|
EXPENSES; GENERAL & ADMIN |
150,000 |
||
|
53,000 |
|||
|
57,000 |
45,000 |
||
|
EARNING BEFORE TAXES |
190,000 |
155,000 |
|
|
INCOME TAXES |
76,000 |
62,000 |
|
|
NET INCOME |
$114,000 |
$93,000 |
a. Apply Du Pont analysis to both the 2012 and 2011 financial statements’ data.
b.
Explain how financial performance differed between 2012 and 2011.
Problem 1: Find the NVP and PI of a project that cost $1,500 and returns $800 in year one and $850 in year two. Assume the project’s cost of capital is 8 percent.
Problem 1: AQ&Q has EBIT of $2 million, total assets of $10 million, stockholders’s equity of $4 million, and pretax interest expense of 10 percent.
a. What is AQ&Q’s indifference level of EBIT?
b. Given its current situation, might it benefit from increasing or decreasing its use of debt? Explain.
c.
Suppose we are told AQ&Q’s average tax rate is 40 percent. How does this affect your answers to (a) and (b)?
Problem 4: Faulkner’s Fine Fries, Inc. (FFF), is thinking about reducing its debt burden. Given the following capital structure information and an expected EBIT of $50 million (plus or minus 10 percent) next year, should FFF change their capital structure?
|
PROPOSED |
|||
|
$750 MILLION |
|||
|
450 MILLION |
300 MILLION |
||
|
COMMON STOCK PRICE |
$30 |
||
|
NUMBER OF SHARES |
10,000,000 |
15,000,000 |
|
|
INTEREST RATE |
