FIN 3331 Assignment
Emily Smith just received a promotion at work
that increased her annual salary to $42,000. She is eligible to participate in
her employer’s 401(k) retirement plan to which the employer matches, dollar for
dollar, workers’ contributions up to 5% of salary. However, Emily wants to buy
a new $25,000 car in 3 years, and she wants to have enough money to make a
$10,000 down payment on the car and finance the balance. Fortunately, she
expects a sizable bonus this year that she hopes will cover that down payment
in 3 years.
A wedding is also in her plans. Emily and her
boyfriend, Paul, have set a wedding date two years in the future, after he
finishes medical school. In addition, Emily and Paul want to buy a home of
their own in 5 years. This might be possible because two years later, Emily
will be eligible to access a trust fund left to her as an inheritance by her
late grandfather. Her trust fund has $80,000 invested at an interest rate of
Emily’s participation in her employer’s 401(k) plan using the time value of
money concepts by calculating the actual annual return on her own
contributions. She will contribute $1,000 per year to her 401(k) for 25 years
and the employer will match dollar for dollar. Assume that her 401(k) earns 6%
per year for 25 years and all contributions are made at the end of each year.
the amount of money that Emily needs to set aside from her bonus this year to
cover the down payment on a new car, assuming she can earn 4% on her savings.
What if she could earn 10% on her savings?
will be the value of Emily’s trust fund in 36 years, assuming she takes
possession of $20,000 in 2 years for her wedding, and leaves the remaining
amount of money untouched where it is currently invested?
at least two conditions that Emily and Paul could take to accumulate more for
that Emily and Paul purchase a $200,000 home in 5 years and make $40,000 down
payment immediately. Find the monthly mortgage payment assuming that the
remaining balance is financed at a 3% fixed rate for 15 years. What if its mortgage
term is 30 years?
can you conclude about the relationship between the mortgage term and the
amount of the monthly payment? From Question 5, is the monthly payment with the
30-year term half as large as the monthly payment with the 15-year term?
Use the following information to answer the following questions.
ABC, Inc. Income Statement (in thousands)
of goods sold
profit on sales 60,000
income (EBIT) 4,000
before tax 3,000
income available to common stockholders $1,950
of shares outstanding
price per share
ABC, Inc. Balance Sheet (in thousands)
current assets 28,500
fixed assets 70,000
fixed assets 43,500
Liabilities and Equity
current liabilities 31,350
stock (par value and paid in capital) 2,000
stockholders' equity 32,400
liabilities and equity $72,000
Industry Average Ratios
Current ratio 1.1
Quick ratio 0.60
Sales Outstanding (DSO) 25
Fixed assets turnover 5.8
Total asset turnover 2.95
Liabilities-to-assets ratio 65%
Net profit margin 1.3%
Return on equity 7.32%
Calculate current ratio and acid test ratio for
Calculate DSO, fixed assets turnover, and total
asset turnover for the firm.
Calculate liabilities-to-assets ratio and
times-interest-earned ratio for the firm.
Calculate net profit margin and return on equity
for the firm.
Evaluate the performance of the firm in the
explain the firm’s strength or weakness in each area, you must support your
arguments through the evaluative reasoning process by providing reasons,
methods, criteria, or assumptions behind the claims made.
Deductive reasoning starts with a general
principle and deduces that it applies to a specific case. Deductive reasoning
moves with exacting precision from the assumed truth of a set of premises to a
conclusion which cannot be false if those premises are true. Explain the
deductive reasoning process applied to analyze the firm’s performance.