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Present Value, Future Value, ROA, ROE

7. The Bluebird Company has a \$10,000 liability it must pay three years from today. The company is opening a savings account so that the entire amount will be available when this debt needs to be paid. The plan is to make an initial deposit today and then deposit an additional \$2,500 a year for the next three years, starting one year from today. The account pays a 3% rate of return. How much does the Bluebird Company need to deposit today?
\$1,867.74
\$2,079.89
\$3,108.09
\$4,276.34
\$4,642.28

8. The government has imposed a fine on the Not-So-Legal Company. The fine calls for annual payments of \$100,000, \$250,000, and \$250,000, respectively over the next three years. The first payment is due one year from today. The government plans to invest the funds until the final payment is collected and then donate the entire amount, including investment earnings, to a national health center. The government will earn 3.5% on the funds held. How much will the national health center receive three years from today?
\$613,590.00
\$614,622.50
\$615,872.50
\$616,006.00
\$619,050.05

9. A firm has net working capital of \$400, net fixed assets of \$2,400, sales of \$6,000, and current liabilities of \$800. How many dollars worth of sales are generated from every \$1 in total assets?
\$1.33
\$1.67
\$1.88
\$2.33
\$2.50

10. Lee Sun's has sales of \$3,000, total assets of \$2,500, and a profit margin of 5%. The firm has a total debt ratio of 40%. What is the return on equity?
6%
8%
10%
12%
15%

Solution Preview

Note: the abbreviations have the following meanings

PVIF= Present Value Interest Factor
PVIFA= Present Value Interest Factor for an Annuity

They can be read from tables or calculated using the following equations
PVIF( n, r%)= =1/(1+r%)^n
PVIFA( n, r%)= =[1-1/(1+r%)^n]/r%

"7. The Bluebird Company has a \$10,000 liability it must pay three years from today.
The company is opening a savings account so that the entire amount will be available when this debt needs to be paid. The plan is to make an initial deposit today and then deposit an additional \$2,500 a year for the next three years, starting one year from today. The account pays a 3% rate of return. How much does the Bluebird Company need to deposit today? (Points: ...

Solution Summary

Answers multiple choice questions on Present Value, Future Value, return on assets, return on equity

\$2.19