# Various Financial Management Problems

1. An investor expects the value of a 1,000 dollar investment to double within 8 years. What is the expected annual rate of growth in the investment

2. A firm has a total sebt of 600,000 and equity of 400,000. What is the debt/net worth ratio and the debt to total assets ratio for the firm? please show the calculations

3. in brief, what happens to the value of money if prices in general fall?

4. What is the future value of a 10,000 investment after 18 years if the anual rate of interest is 8%? show calculations

5. A bond has a prinicipal amount of 1,000 an annual interest payment of 100 dollars and a maturity of 10 years. Whats the bondsvalue of price if comparable debt yields 12 percent

6. a firm has preffered stock outstanding that has 40 dollars of an annual dividend, a 1000 par value and no ,maturity. if comparable yields are 9 percent, what should be the price of the prefered stock.

7. your broker recomends that you purchase good mills stock at 30 dollars. the stock pays a 2.20 annual dividend that is expected to grow annually at 8 percent. (the same rate of growth is expected for its per share earnings) if you want to earn 15 percent on your funds, should you purchase this stock. show calculations

8. indentify three advantages of establishing a corporation rather than a sole proprietorship

9. what are the main functions of break even analysis

10. jeniffer wants to buy a new car four years from now that will cost 15,000. in order to meet this goal, how much money must she save annually, the funds earn an intrest of 6 %

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#### Solution Preview

1 An investor expects the value of a 1,000 dollar investment to double within 8 years. What is the expected annual rate of growth in the investment

You can use the rule of 72 which says that the period for doubling an amount is 72/r where r is the interest rate. If we know the period, then r is 72/period. Here period is 8 years, so the interest rate is 72/8=9%.

If you wish to do exact calculation, then 1,000 grows to 2,000 in 8 years. Use the compound interest formula 2,000=1,000*(1+r/100)^8. Solving this for r will give 9.05%.

2. A firm has a total sebt of 600,000 and equity of 400,000. What is the debt/net worth ratio and the debt to total assets ratio for the firm? please show the calculations

Networth is the total equity in a firm. Debt/Networth ratio is total debt divided by total equity of the firm.

Debt/Networth = 600,000/400,000 = 1.5

The fundamental accounting equation is

Assets = Liabilities + Owners Equity.

We are given that Liabilities ( these are nothing but the total debt - what the firm owes to others) are 600,000 and equity is 400,000. The total assets are 600,000+400,000=1,000,000

Debt/Total Assets = 600,000/10,000,000 = 0.6

3. in brief, what happens to the value of money if prices in general fall?

If the prices fall, the value of money rises. This is because we can buy more quantity for the same amount or buy the same quantity at a lower amount. A fall in prices, increases the value of money.

4. What is the future value of a 10,000 investment after 18 years if the anual rate of interest is 8%? show calculations

The future value can be found using the compound interest formula. The formula is

Future Value=Present Value * (1+r/100)^n

where r is the rate of interest and n ...

#### Solution Summary

The solution has various problems relating to annual rate of return, debt ratio, breakeven analysis