Question

Homework Assignment

Complete the following graded homework assignment. Show the details of your calculation and work in youranswer to the problems.

Problems (pp. 5657)

o 2-29 Gross and Net Profit Margin

o 2-30 Current and Quick Ratios

o 2-31 Change in Accounts Receivable and Inventory

o 2-36 Debt Ratios

o 2-42 ROE DuPont Analysis

o 2-43 ROE

Problem 3-10 (p. 82)

Problems (pp. 132135)

o 4-3 FV of Single Amount

o 4-4 PV of Single Amount

o 4-11 PV and FV of an Annuity

o 4-12 PV and FV of an Uneven Cash Flow Stream

o 4-27 PV of Ordinary Annuity

Submit your assignment to the Dropbox located on the silver tab at the top of this page.

2. 29. In fiscal year 2011, Starbucks Corporation (SBUX) had revenue of $11.70 billion, gross profit of $6.75 billion, and net income of $1.25 billion. Peets Coffee and Tea (PEET) had revenue of $372 million, gross profit of $72.7 million, and net income of $17.8 million.

a. Compare the gross margins for Starbucks and Peets.

b. Compare the net profit margins for Starbucks and Peets.

c. Which firm was more profitable in 2011?

2. 30. In mid-2012, Apple had cash and short-term investments of $27.65 billion, accounts receivable of $14.30 billion, current assets of $51.94 billion, and current liabilities of $33.06 billion.

a. What was Apples current ratio?

b. What was Apples quick ratio?

c. What was Apples cash ratio?

d. In mid-2012, Dell had a cash ratio of 0.67, a quick ratio of 1.11 and a current ratio of 1.35.

What can you say about the asset liquidity of Apple relative to Dell?

2.31. See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.

a. How did Mydecos accounts receivable days change over this period?

b. How did Mydecos inventory days change over this period?

c. Based on your analysis, has Mydeco improved its management of its working capital during this time period?

2. 36. You are analyzing the leverage of two firms and you note the following (all values in millions of dollars):

Debt Book Equity Market Equity EBIT Interest Expense

Firm A 500 300 400 100 50

Firm B 80 35 40 8 7

a. What is the market debt-to-equity ratio of each firm?

b. What is the book debt-to-equity ratio of each firm?

C. What is the EBIT/interest coverage ratio of each firm?

d. Which firm may have more difficulty meeting its debt obligations? Explain

2.42. For fiscal year 2011, Starbucks Corporation (SBUX) had total revenues of $11.70 billion, net

income of $1.25 billion, total assets of $7.36 billion, and total shareholders equity of $4.38 billion.

a. Calculate the Starbucks ROE directly, and using the DuPont Identity.

b. Comparing with the data for Peets in Problem 41, use the DuPont Identity to understand

the difference between the two firms ROEs.

2.43. Consider a retailing firm with a net profit margin of 3.5%, a total asset turnover of 1.8, total

assets of $44 million, and a book value of equity of $18 million.

a. What is the firms current ROE?

b. If the firm increased its net profit margin to 4%, what would be its ROE?

c. If, in addition, the firm increased its revenues by 20% (while maintaining this higher profit

margin and without changing its assets or liabilities), what would be its ROE?

3. 10. Your firm has identified three potential investment projects. The projects and their cash flows

are shown here:

Project Cash Flow Today ($) Cash Flow in One Year ($)

A -10 20

B 5 5

C 20 -10

Suppose all cash flows are certain and the risk-free interest rate is 10%.

a. What is the NPV of each project?

b. If the firm can choose only one of these projects, which should it choose?

c. If the firm can choose any two of these projects, which should it choose?

4. 3. Calculate the future value of $2000 in

a. Five years at an interest rate of 5% per year.

Ten years at an interest rate of 5% per year.

c. Five years at an interest rate of 10% per year.

d. Why is the amount of interest earned in part (a) less than half the amount of interest earned

in part (b)?

4.4. What is the present value of $10,000 received

a. Twelve years from today when the interest rate is 4% per year?

b. Twenty years from today when the interest rate is 8% per year?

c. Six years from today when the interest rate is 2% per year?

4. 11. Suppose you receive $100 at the end of each year for the next three years.

a. If the interest rate is 8%, what is the present value of these cash flows?

b. What is the future value in three years of the present value you computed in (a)?

c. Suppose you deposit the cash flows in a bank account that pays 8% interest per year. What

is the balance in the account at the end of each of the next three years (after your deposit is

made)? How does the final bank balance compare with your answer in (b)?

Both prob (c ) & (b) mean same thing. Hence the final bank balance will be same in both cases.

4.12. You have just received a windfall from an investment you made in a friends business. He will be

paying you $10,000 at the end of this year, $20,000 at the end of the following year, and $30,000

at the end of the year after that (three years from today). The interest rate is 3.5% per year.

a. What is the present value of your windfall?

b. What is the future value of your windfall in three years (on the date of the last payment)?

4. 27 Your oldest daughter is about to start kindergarten at a private school. Tuition is $10,000 per

year, payable at the beginning of the school year. You expect to keep your daughter in private

school through high school. You expect tuition to increase at a rate of 5% per year over the 13

years of her schooling. What is the present value of the tuition payments if the interest rate is 5%

per year? How much would you need to have in the bank now to fund all 13 years of tuition?

We split the solution in two parts :-

a. Initial payment of $10000 in Y1

b. Growing annuity of $10000 with g= 5% for next 12 yrs

We also have Interest rate r=5% which is same as g. So we wont be able to use growing annuity formula.

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