Accounting Midterm 987

Accounting Midterm 987

Question1

Joicehassaved$5,000thatwillbeadownpayment onanewcarthatcanbepurchasedfor$38,000.

Theloantofinance thiswillhavearateof7.125% APRcompoundedmonthly. Whatwillthemonthlypaymentsona thecarbeiftheloanisfor4years??

b Howlongwouldittaketopayofftheloanifshewouldpay$1,000 monthly?

Joicehasbeenoffered aleaseforthiscarwithpaymentsof$600amonthfor5years. Therewouldnotbeanydownpayment.Ashappenswithleases, shewouldessentiallyreceive thefullvalueofthecartodayandshewouldreturn

c thecartothedealerattheendofthelease(essentiallypayingoutthevalueofthecaratthattime). Thevalueofthiscarin5years, withnodamageorexcessivemileage, isexpectedtobe$12,000. WhatAPRwithmonthlycompoundingwouldshebepaying?

Solution

Tony has decided to make a $500 monthly investmentin a retirement fund.The three funds in which he is interestedall pay2.00% APR but with different compounding frequencies.. How much will Tony accumulate in 30 years for each of the threeinvestmentalternatives?

a Interest of 2.00% APR compoundedweekly (52 times per year)b Interest of 2.00% APR compoundedmonthly (12 times per year)

c Interest of 2.00% APR compoundedannually (1 time per year)

Solution

Peter has won $250,000 in a lottery that he is goingto invest. He has narrowed down his search to three funds that eachhave different stated rates.How much will Peteraccumulate in 30 years for each of the three investmentalternatives?

a 6.15% APR with monthlyb 0.50% monthlyPIR

c 6.25% EAR

Solution

Question 4

Jackson is consideringwhether to invest monthly, quarterly or annually in a fund that earns7% APR with monthlycompounding. How much will Jackson accumulate in 30 years for each of the three investmentalternatives shown below?Assume that months are equal in length and that there is no initial deposit in year0.

Years	30
APR	7.00%	Monthly Compounding

Solution

Question5

Cheapskateusedcardealer offersthefollowing automobilefinance opportunity.Monthly paymentsontheloanare3%oftheloanamountfor36months.Theloanamountisafteranydownpayment. Inadditiontheloanwillrequire a$1,500upfrontloanprocessingfeethatisnotincluded intheloan.

a Foraloanof$20,000, whatistheAPRwithmonthly compoundingwithouttheupfrontfee?

b Foraloanof$20,000, whatistheAPRwithmonthly compoundingwiththeinclusion oftheupfrontfee?

Solution

Question 6

Michael has developed a financial retirement strategy.His plan is to invest in somewhat risky stocks for 15 yearsand thenmove everythingto low risk bonds for the retirementyearsas described below.

Michael presently has $250,000 in a retirementaccount that will be invested in a stock fund that has historicallyearned12% annually (EAR) with no dividends. The plan is to add an additional $25,000to the fund at the beginning of each of theupcoming 15 years.

When he retires, he will reinvestthe stock fund in a tax?free municipal bonds and live on the coupons only that have acoupon rate of 2.5% paid semi?annually. (the bonds will be donated to charity upon his death).

How much will Michael receive semi?annually during retirement?

Solution

Question7

Maxisstartinganewcompanywithaninvestmentof$500,000.Heexpectssalestogrowarithmeticallyby$100,000 ayearforfiveyears, withsalesinyear1being$100,000,year2$200,000, etc..Thenforyears6?10salesareforecasttogrowgeometricallyatarateof30%peryear(year6salesgrow30%overyear5,year730%overyear6,etc.)

Attheendofeachyear,foryears1?10,Maxexpects profitstobealleast10%ofthesaleseachyearandhewillinvest10%ofprofitsinafundthatearns6%APRcompoundedmonthly.

a What willbethevalue oftheinvested fundsinyear10?b Didthe10yearsofprofits coverherinitial investment?

Solution

Question8

TheMarketing,Inc.hascollected thefollowingdataforthepastyear.Prepareaformalincomestatementthat containstherelevantsubtotals.Showvalues inwholedollars (nocents).Assumethatnotaxesaredueonassetpurchasesorsales.

Data Block	Beginningofyear	During Year	End ofyear
CashOnHand	$330,500
QuantitySold		45,200
QuantityProduced		38,000
SalesPrice		$54.00
Costperunittoproduce		$24.50
StaffExpenses		$424,600
FacilityExpenses		$387,200
AssetSale		$1,575,300
AssetPurchase		$2,204,000
Taxrate		20%
Inventory	$57,000		$24,000
AccountsReceivable	$74,000		$38,000
AccountsPayable	$68,000		$62,000
Depreciation		$48,000
InterestPaidonLoan		$46,000
LoanPrinciplepayment		$125,000
Dividends		$128,000

Solution

Question 9

Prepareacashflowstatement usingthefollowing data. Assume thatnotaxesaredueonassetpurchasesorsales.Prepareaformalcashflowstatementthatcontains therelevantsubtotals. Showvaluesinwholedollars (nocents).

Data Block	Beginning of year	During Year	End of year
Cash	$630,600
Net Income	$1,200,000
Staff Expenses		$724,600
Facility Expenses		$887,200
Asset Sale		$156,530
AssetPurchase		$1,240,400
Tax rate		22.5%
Inventory	$87,000		$84,000
Accounts Receivable	$73,000		$78,000
AccountsPayable	$78,000		$75,000
Depreciation		$89,500
Interest Paid on Loan		$76,000
Loan Principle payment		$50,000
Dividends Paid		$200,000

Solution

Score

Question10

Nina and Noah have started a small business that seems to be thriving. Friends have suggested that they should consider legally organizing as something other than the present proprietorship.They are asking for your advice via email (you do not know them). Compose up to five questions and state the purpose of each question that could be used to collect information about Nina and Noah and their business that is relevant to making a recommendation on how they should legally organize their business.

Answer below using approximately 50 words per question)

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