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Various Finance Questions

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1- What should you consider when comparing fixed assets turnover of one firm to others? In other words, can you simply compare the ratios and explore the differences or should we strive to learn more before conducting such an analysis?

2 - Class, do you think it is easier to manipulate ratios that come from the balance sheet or from the income statement? Please support your view.

3 - Do you think the percentage of sales method may be more or less accurate in predicting the company's likely balance sheet?

4 - Carter Corporation 's sale to increase from $5 millions in 2004 to $6 millions in 2005, or by 20%. It's assets totaled $3 millions at the end of 2004. Carter is at full capacity, so it's assets must grow the same rate as projected sales.
At the end of 2004, current liabilities were $1 millions, consisting of $250,000 of notes payables, and $250,000 of accruals. The after-tax profit margin is forecasted to be 5%, and the forecasted payout ratio is 70%.

*Use the AFN formula to forecast Carter's additional funds need for the coming year.

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1-What should you consider when comparing fixed assets turnover of one firm to others? In other words, can you simply compare the ratios and explore the differences or should we strive to learn more before conducting such an analysis?

When comparing fixed assets turnover of one firm to others, we should strive to learn more about the business type of each firm as well as the industry's fixed assets turnover. We cannot just simply compare the ratios and explore the differences because each firm might have different amount of investment in fixed assets and might be different in size. Furthermore, a potential problem exists when interpreting the fixed assets turnover ratio. As the fixed assets reflect the historical costs of the assets, the inflation will cause the value of many fixed assets in the past to be understated. Therefore, if we compare an old firm which had acquired its fixed assets years ago at low prices with a new firm which had acquired its fixed assets only recently, we would find ...

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This solution is comprised of a detailed explanation and calculation to answer the requirement of various finance questions.

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Answers to Various Financial Questions

Jenny just married Tim. Jenny remains to work as a cashier for a restaurant, and her monthly income has averaged $2,840 a month over the past year. Tim is working as a computer programmer and earns $3,000 a month. Their shared monthly income let them to live comfortably. Yet they have been unable to save any money for urgent situation.
According to Tim, "It's hard to believe, but we don't even have a savings account because we spend almost everything we make." Every month, they deposit each of their paychecks in separate checking accounts. Tim pays the rent and makes the car payment. Pam buys the groceries and pays the utilities. They use the money left over to purchase new clothes and the other "necessities" for enjoying life.
In an effort to make wise use of credit, the Turner have examined various sources that could serve their current and future financial needs. In the assessment process, they compared the APR along with various fees and potential charges.
Tim and Jenny are also learning about various actions that might be useful if they encounter credit troubles. Their discussions with friends and money management advisers provided expanded knowledge of credit counseling and bankruptcy alternatives.
Life Situation Financial Data
Recently Married
Pam, 26
Josh, 28
Renting an Apartment Monthly income $5,840
Living expenses $3,900
Assets $13,500
Liabilities $4,800
Emergency fund $1,000

Q1. What is the minimum amount that the Turner should have in an emergency fund? What actions might be taken to increase the amount in this fund?

1. Lucy lacks cash to pay for a $720 dishwasher. She could buy it from the store on credit by making 12 monthly payments of $65. The total cost would then be $780. Instead, Lucy decides to deposit $60 a month in the bank until she has saved enough money to pay cash for the dishwasher. One year later, she has saved $770.40—$720 in deposits plus interest. When she goes back to the store, she finds the dishwasher now costs $849.60. Its price has gone up 18 percent, the current rate of inflation.
From the financial standpoint, was postponing her purchase a good trade-off for Lucy?

Yes ___
No ___

2. Malou is trying to decide whether she can afford a loan she needs in order to go to chiropractic school. Right now Malou is living at home and works in a shoe store, earning a gross income of $3250 per month. Her employer deducts a total of $150 for taxes from her monthly pay. Malou also pays $100 on credit card debt each month. The loan she needs for chiropractic school will cost an additional $140 per month.
Calculate her debt payments-to-income ratio without college loan. Remember to convert your answer to a percentage!
Make sure to include zeros and the period in your answer.
Round your answer to 2 decimal places. i.e. 16.55, 12.32
Your Answer: ______

3. Sally is trying to decide whether she can afford a loan she needs in order to go to chiropractic school. Right now Sally is living at home and works in a shoe store, earning a gross income of $2990 per month. Her employer deducts a total of $200 for taxes from her monthly pay. Sally also pays $100 on credit card debt each month. The loan she needs for chiropractic school will cost an additional $100 per month.
Calculate her debt payments-to-income ratio with college loan. Don't forget to convert your answer to a percentage.
Make sure to include zeros and the period in your answer.
Round your answer to 2 decimal places. i.e. 20.12, 31.89
Your Answer: ________
4. A few years ago, Josh purchased a home for $137000. Today the home is worth $158000. His remaining mortgage balance is $57000.
Assuming Josh can borrow up to 76 percent of the market value of his home, what is the maximum amount he can borrow?
Round your answer to the nearest whole number.
Your Answer: __________

5. What would be the net annual cost of the following checking account?
Monthly fee : $11.55
Processing fee: $0.64 per check
Checks written: Average of 78 a month
Round your answer to the nearest whole number.
Your Answer:_______

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