# Finance questions

See the attached file.

P4-2 Future value calculation Without referring to tables or to the preprogrammed function on your financial calculator, use the basic formula for future value along with the given interest rate, i, and the number of periods, n, to calculate the future value interest factor in each of the cases shown in the following table.

Compare the calculated value to the value in Appendix Table A-1.

Appendix Table A-1

Future Value Interest Factors for One Dollar Compounded at i Percent for n Periods:

n

FVIFi,n = (1 + i )

Case Interest rate, I Number of periods, n

A 12% 2

B 6 3

C 9 2

D 3 4

P4-3 Future value tables Use the future value interest factors in Appendix Table A-1 in each of the cases shown in the table on the facing page to estimate, to the nearest year, how long it would take an initial deposit, assuming no withdrawals,

a. To double.

b. To quadruple.

Case Interest rate

A 7%

B 40

C 20

D 10

Appendix Table A-1

Future Value Interest Factors for One Dollar Compounded at i Percent for n Periods:

n

FVIFi,n = (1 + i )

P12-4 Breakeven analysis Barry Carter is considering opening a music store. He wants to estimate the number of CDs he must sell to break even. The CDs will be sold for $13.98 each, variable operating costs are $10.48 per CD, and annual fixed operating costs are $73,500.

a. Find the operating breakeven point in number of CDs.

b. Calculate the total operating costs at the breakeven volume found in part a.

c. If Barry estimates that at a minimum he can sell 2,000 CDs per month, should he go into the music business?

d. How much EBIT will Barry realize if he sells the minimum 2,000 CDs per month noted in part c?

P12-19 EBIT-EPS and capital structure Data-Check is considering two capital structures. The key information is shown in the following table. Assume a 40% tax rate.

Source of capital Structure A Structure B

Long-term debt $100,000 at 16% coupon rate $200,000 at 17% coupon rate

Common stock 4,000 shares 2,000 shares

a. Calculate two EBIT-EPS coordinates for each of the structures by selecting any two EBIT values and finding their associated EPS values.

b. Plot the two capital structures on a set of EBIT-EPS axes.

c. Indicate over what EBIT range, if any, each structure is preferred.

d. Discuss the leverage and risk aspects of each structure.

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#### Solution Summary

The solution explains some finance questions relating to future value calculations and tables, break even, EBIT, EPS and capital structure