ANSWER KEY OF PV/FV QUIZ 1. When the amount earned on a deposit has become part of the principal at the end of a specified time period the concept is called Compound interest 2. The future value of $200 received today and deposited at 8 percent for three years is $252 SOLUTION: FV = 200 (1+.08) 3 = 200 (1.259) =252 3. The present value of $100 to be received 10 years from today, assuming an opportunity cost of 9 percent, is $42 PV = 100 (1 /1+.09)10 = 100 (1/2.3674) =100 (.4224) =42.24 OR 42 4. The present value of a $25,000 perpetuity at a 14 percent discount rate is $178,571. 25,000/.14 = $178,571 5. Bill plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 20 years. If Bill can earn 12 percent on his contributions, how much will he have at the end of the twentieth year? $19,292 FV ord. Annuity = PV ( 1+r) = $ 2,000 (1.12) 20 = $2,000 (9.6463) = $19,292.60 or $19,292 6. Bill plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 20 years. If Bill can earn 12 percent on his contributions, how much will he have at the end of the twentieth year? $12,093 7. $100 is received at the beginning of year 1, $200 is received at the beginning of year 2, and $300 is received at the beginning of year 3. If these cash flows are deposited at 12 percent, their combined future value at the end of year 3 is ( round off to nearest 4 digit) $784 FV =100 (1+.12) 1 +200 (1+.12) 2 +300 (1+.12) 3 = 100 (1.12) + 200 (1.2544) + 300 (1.4049) = 112 +250.88 +421.47 =784.35 OR $784 8. The present value of $1,000 received at the end of year 1, $1,200 received at the end of year 2, and $1,300 received at the end of year 3, assuming an opportunity cost of 7 percent, is ( round off to nearest 4 digit) $3,043 PV = [ (1 ,000) (1÷ (1+0.07) -1 ] + [(1,200) (1÷( 1+0.07) -2 ] +[(1,300) (1÷ (1 +0.10)-3 ] 1,000 (0.9346 ) + 1,200 ( .8734) +1,300 (.8163) = 934.60 +1,048 + 1,061.19 =$3,043.79 OR $ 3,043 9. Tan Cakiong Firm deposits money in a bank that pays a 8% nominal interest rate and compounds interest semiannually. Compute the Effective interest rate or the true interest rate which sometimes is called as annual percentage rate or APR. 8.66% Effective interest = .08 (1 + .08/06) = .08 (2.333) = 18.66% 10. Discount rate is sometimes called as: REQUIRED RATE OF RETURN 1. The following are the information provided by the accounting department of San Juan Corporation : Cash P10,000 Accounts Receivable 30,000 Inventory 80,000 Prepaid Insurance 6,000 Long –Term Assets 200,000 Accounts Payable 30,000 Notes payable due in 10 months 25,000 Wages Payable 5,000 Long-term liabilities 70,000 SJC Stockholders (owner’s) Equity 196,000. Based on the information above, The company's current ratio is Formula: Current Ratio: CA/CL Cash Accounts Receivable Inventory Prepaid Insurance Total CA Current Ratio: Current Ratio: 10,000 30,000 80,000 6,000 126,000 Accounts Payable Notes Payable Wages Payable 30,000 25,000 5,000 Total CL 60,000 126,000 60,000 2.1 Or 2.1:1 2. The following are the information provided by the accounting department of San Juan Corporation : Cash P10,000 Accounts Receivable 30,000 Inventory 80,000 Prepaid Insurance 6,000 Long –Term Assets 200,000 Accounts Payable 30,000 Notes payable due in 10 months 25,000 Wages Payable 5,000 Long-term liabilities 70,000 SJC Stockholders (owner’s) Equity 196,000. Based on the information above, The company's quick ratio is Formula: Quick Ratio: (CA-Inventory-Expense)/(CL) Accounts Receivable 30,000 Accounts Payable 30,000 Cash 10,000 Notes Payable 25,000 Wages Payable 5,000 Total 40,000 Total CL 60,000 Quick Ratio: Quick Ratio: 40,000 60,000 0.67 or 0.7:1 3. For its most recent year a Danger Company had the following information: Sales on credit of $ 830,000 Cost of Sales of $525,000 Accounts Receivable at the beginning of the year were $80,000 and its Inventory was $100,000 Accounts Receivable at the end of the year were $86,000 and its Inventory was $110,000. Based on the data provided, the inventory turnover ratio for the year was Formula: Inventory Turnover Ratio: COGS/(Average Inventory/2) 525,000 = 525,000 (100,000+110,000)/2 105,000 Inventory Turnover Ratio: 5.0 4. For its most recent year a Danger Company had the following information: Sales on credit of $ 830,000 Cost of Sales of $525,000 Accounts Receivable at the beginning of the year were $80,000 and its Inventory was $100,000 Accounts Receivable at the end of the year were $86,000 and its Inventory was $110,000 Based on the data provided : The accounts receivable turnover ratio for the year was Formula: Accounts Receivable Turnover Ratio : Net Sales/(Average AR/2) 830,000 = 830,000 (80,000+86,000)/2 83,000 Accounts Receivable Turnover Ratio: 10.0 5. For its most recent year a Danger Company had the following information: Sales on credit of $ 830,000 Cost of Sales of $525,000 Accounts Receivable at the beginning of the year were $80,000 and its Inventory was $100,000 Accounts Receivable at the end of the year were $86,000 and its Inventory was $110,000 Based on the data provided : On average how many days of sales were in Accounts Receivable during the year? 365 ARTR = 365 10 = 36.5 OR 37 days 6. For its most recent year a Danger Company had the following information: Sales on credit of $ 830,000 Cost of Sales of $525,000 Accounts Receivable at the beginning of the year were $80,000 and its Inventory was $100,000 Accounts Receivable at the end of the year were $86,000 and its Inventory was $110,000 On average how many days of sales were in Inventory during the year? 365 = 365 ITR 5 = 73 Days 7. Suppose company XYZ paid $1 million in dividends to its preferred shareholders last year, none of which were special dividends. The company has 5 million shares outstanding, so the DPS for company XYZ is ? Formula: Dividend Per Share: Total Dividend/Shares Outstanding DPS: 1,000,000 5,000,000 0.20 per share 8. Say your business is in the technology industry, and the average ROA is 14.50%. Your business, ABC Company, has a net income of $10,000. Your total assets equal $65,000. Formula: Return on Assets: Net Income/ Total Assets ROA: 10,000 65,000 ROA: 0.1538 or 15.38% 9. The last year sales of Kuala Firm was $265 million, including cash sales of $25 million. If its average collection period was 36 days, its ending accounts receivable balance is closest to . (Assume a 365-day year.) Solution: 265,000,000-25,000,000 = 240,000,000 365 365 = 657,534.247 x 36 days =24,671,232.9 or 23.67M 10. The CAB Reverse International reports net profits of $100,000. This figure includes interest expense of $12,000 and income taxes of $28,000. When these two expenses are added back, the EBIT of the company is $140,000. The total assets figure for the company is $4,000,000. Return on total assets is _______. 140,00 4,000,000 = 0.035 OR 3.5% 11. The cost of goods sold was $240,000. Beginning and ending merchandising inventory balances were $20,000 and $30,000, respectively. The merchandise inventory turnover was: 240,000 (20,000+30,000/2) = 240,000 25,000 = 9.6 times 12. How do we describe the process of adjusting the value of an asset by recognizing that it is consumed in a way that does not completely eliminate the resource? DEPRECIATION 13. Net sales were $360,000. The cost of goods sold was $180,000. Operating expenses were $120,000. The ending balance of the Accounts Receivable account was $20,000. The merchandise turnover ratio was 12.75. The profit margin percentage was: 16.67% 14. Gross profit (gross margin) is equal to _____. REVENUE MINUS THE COST OF GOODS SOLD 15. What is the process of allocating the cost of intangible assets over its estimated life? AMORTIZATION