Answer all the following questions. must show all your work. If you use Excel to solve the problems, submit the actual spreadsheet. Do not cut and paste your spreadsheet into Word.
| HIT IT FAR GOLF CORPORATION
2020 and 2021 Balance Sheets |
|||||
| Assets | Liabilities and Owners’ Equity | ||||
| 2020 | 2021 | 2020 | 2021 | ||
| Current assets | Current liabilities | ||||
| Cash | $12,157 | $14,105 | Accounts payable | $46,382 | $49,276 |
| Accounts receivable | $29,382 | $32,815 | Notes payable | $18,246 | $19,784 |
| Inventory | $54,632 | $57,204 | Total | $64,628 | $69,060 |
| Total | $96,171 | $104,124 | Long-term debt | $49,000 | $45,000 |
| Owners’ equity | |||||
| Fixed assets | Common stock & paid-in surplus | $50,000 | $50,000 | ||
| Net plant & equipment | $367,241 | $375,830 | Accumulated retained earnings | $299,784 | $315,894 |
| Total | $349,784 | $365,894 | |||
| Total assets | $463,412 | $479,954 | Total liabilities and owners’ equity | $463,412 | $479,954 |
1. Prepare the 2020 and 2021 common-size balance sheets for Hit it Far Golf.
2. Based on the balance sheets given for Hit it Far Golf, calculate the following financial ratios for each year:
a Current ratio.
b Quick ratio.
c Cash ratio.
d NWC to total assets ratio
e Debt-equity ratio and equity multiplier.
f Total debt ratio and long-term debt ratio.
3. Your investment adviser offers you two different investments. Plan A is an annual perpetuity of $35,000 per year. Plan B is an annuity for 15 years and an annual payment of $47,000. Both plans will make their first payment one year from today. At what discount rate would you be indifferent between these two plans?
4. It’s your birthday and you’ve decided that you should start saving for retirement. Your goal is to work 35 years and spend 25 years in retirement. You would like to have $300,000 a year in income during your retirement years. Assume that the interest rate is 7% and that you will not take your first withdraw until one year after you retire.
a. If you start saving one year from today, how much do you need to save each year in equal amounts?
b. Suppose you just inherited a large sum of money and you’ve decided to make one large deposit today. How much do you need to deposit to reach your goal?
c. Suppose your employer will contribute $1,500 to the account each year as part of a profit-sharing plan. You will also receive $50,000/year from a trust 20 years from now. How much do you need to save each year to reach you goal?
5. A 25-year bond was issued 7 years ago. The bond has a coupon rate of 7% matures and is selling for 98.50% of its par value. Assume that interest is paid semiannually. Find the yield to maturity for the bond.
6. After deciding to buy a new car, you can either lease the car or purchase it on a four-year loan. The car you wish to buy costs $38,000. The dealer has a special leasing arrangement where you pay $3,800 today and $350 per month for the next four years. If you purchase the car, you will pay it off in monthly payments over the next four years at an APR of 6.5 percent. You believe you will be able to sell the car for $26,500 in four years.
a. Should you buy or lease the car?
b. What break-even resale price in four years would make you indifferent between buying and leasing?
c. Construct a loan amortization table for the car loan.
