Worked Problems

The practice questions in D2L will sometimes have worked answers created by students. Links to these pages are given as feedback in the individual questions. If you are looking for questions that still needs answers, search for the answerneeded tag.

Accounting

accounting: Suppose you purchase a small truck

by woodsjamwoodsjam 21 Jul 2015 15:52

Suppose you purchase a small truck for $21500 by taking out a loan of $10200, making an additional investment in the business of $1800 and paying for the rest out of cash on hand. What is the change in fixed assets you would see on the balance sheet? Please be careful about sign convention

Accounting: Tax with parentheses

by woodsjamwoodsjam 08 Jun 2015 15:48

If you see ($24,200) in the tax part of the income statement what does it mean?

Accounting: What is your owner equity?

by woodsjamwoodsjam 08 Jun 2015 15:47

If your current assets are $50 and your fixed assets are $100 and you have no other assets. What is your owner equity if you have only $20 in total liabilities?

Accounting: The Small Truck

by woodsjamwoodsjam 08 Jun 2015 15:46

"Suppose you purchase a small truck for $22900 by taking out a loan of $14700, making an additional investment in the business of $3000 and paying for the rest out of cash on hand. What is the change in fixed assets you would see on the balance sheet? Please be careful about sign convention."

Accounting:Where would you find depreciation?

by woodsjamwoodsjam 08 Jun 2015 15:45

Where would you find depreciation?

Accounting:Which are current assets?

by woodsjamwoodsjam 08 Jun 2015 15:45

Which of the following are current assets?

Accounting:Connection between income statement and cash flow

by woodsjamwoodsjam 08 Jun 2015 15:44

In general, how are the income statement and cash flow statement connected?

Accounting:Hiring Employees

by woodsjamwoodsjam 08 Jun 2015 15:44

How would hiring two new employees show up on your company's accounting documents?

Accounting:Where would you find net income

by woodsjamwoodsjam 08 Jun 2015 15:43

Where would you find net income?

Accounting Ratios

Ratios: If you have interest expenses of

by woodsjamwoodsjam 21 Jul 2015 16:15

If you have interest expenses of $10,000, Times Interest Earned Ratio of 10 and and Return on Assets of 20%, what are your total assets?

Ratios: When would you be willing to lend

by woodsjamwoodsjam 21 Jul 2015 16:13

When would you be willing to lend to a firm with a high debt ratio but a high times interest earned ratio?

Ratios: Suppose your debt ratio is

by woodsjamwoodsjam 21 Jul 2015 16:12

Suppose your debt ratio is 0.4 and you have $600000 in owner equity. What are your total assets?

Ratios: Which is larger the quick or current ratio?

by woodsjamwoodsjam 21 Jul 2015 16:11

Which is larger the quick or current ratio?

Ratios: Average Price

by woodsjamwoodsjam 21 Jul 2015 16:09

Consider a firm with 1,000 common shares, $1,000 in the common stock account, $20,000 in the paid-in capital account, and $100,000 in retained earnings and $20,000 in the preferred stock account.

Ratios: Which will not change the quick ratio

by woodsjamwoodsjam 21 Jul 2015 16:08

Assuming that current assets equal current liabilities, which of the following will not affect the quick ratio?

Ratios: Which of these looks odd?

by woodsjamwoodsjam 21 Jul 2015 16:07

Which of these looks odd?

Ratios:What is one of the downsides of a high current ratio?

by woodsjamwoodsjam 21 Jul 2015 16:05

What is one of the downsides of a high current ratio?

Time Value of Money

TVM: Which of the following sequences

by woodsjamwoodsjam 21 Jul 2015 16:42

Which of the following sequences has the highest present worth?

TVM: Suppose you have the cash flow

by woodsjamwoodsjam 21 Jul 2015 16:39

Suppose you have the cash flow sequence shown below. Choose the elements below to form the factor notation of the present value.

TVM: How much would you have to deposit now

by woodsjamwoodsjam 21 Jul 2015 16:37

How much would you have to deposit now into an account that earns 3% per month to fund a $100 withdrawal in month 24?

TVM:Which of the following assets

by woodsjamwoodsjam 21 Jul 2015 16:35

Which of the following assets has a higher present worth?

TVM: n which of these circumstances would

by woodsjamwoodsjam 21 Jul 2015 16:32

In which of these circumstances would the present worth increase when the interest rate increases?

TVM: How would you show this in factor notation?

by woodsjamwoodsjam 21 Jul 2015 16:30

How would you show the present value of a sequence that gives you $5 in time period one and continues to give you $5 until time period 20?

TVM: Suppose you have decided to do some savings.

by woodsjamwoodsjam 21 Jul 2015 16:28

Suppose you have decided to do some savings. You will deposit $700 this year into an account that earns 2% per year and increase the amount deposited each year by 20% in every year that follows. How much will you have in the account after 26 years?

TVM: What is the present worth of

by woodsjamwoodsjam 21 Jul 2015 16:27

What is the present worth of a cash flow that gives you $7 in every time period from 1 to 26 when the interest rate is zero?

Loans

Loans: Payment interest only

by woodsjamwoodsjam 23 Jul 2015 14:50

What are the monthly payments on a $150000 interest only 20-year mortgage at an interest rate of 9%?

Loans:Loan payment?

by woodsjamwoodsjam 23 Jul 2015 14:49

What is the monthly payment on a $5,000 loan that is 18% per year, compounded weekly. Assume 52 weeks per year and that you will make 35 payments.

Loans:Which of these represents the lowest effective interest rate?

by woodsjamwoodsjam 23 Jul 2015 14:48

Which of these represents the lowest effective interest rate?

Loans:What is the interest expense

by woodsjamwoodsjam 23 Jul 2015 14:46

What is the interest expense in the 200th payment on a 30-year, $100,000 mortgage at 6%?

Loans:What happens to interest expense as you make more payments on a loan?

by woodsjamwoodsjam 23 Jul 2015 14:45

What happens to interest expense, relative to payments, on a fully amortizing loan, as you make more payments?

Loans:What is the effective monthly interest rate

by woodsjamwoodsjam 23 Jul 2015 14:43

What is the effective monthly interest rate on a $30000, ten year loan at 7% per year compounded monthly, when you make your payments semi-annually?

Loans:When you see the phrase

by woodsjamwoodsjam 23 Jul 2015 14:28

When you see the phrase, "effective interest rate", you should think …

Loans:What is the norm for US Mortgages?

by woodsjamwoodsjam 23 Jul 2015 14:27

What is the historical norm for US mortgages. At least, the norm since the end of WWII and before the craziness of 2008

Present Worth

PW: Smallest acceptable benefit

by woodsjamwoodsjam 23 Jul 2015 19:43

If you have an asset that costs $50 in year zero and face a MARR of 15%, what is the smallest benefit you could receive in period 15 and still find the investment acceptable?

PW: Which of the following is possible

by woodsjamwoodsjam 23 Jul 2015 19:42

Which of the following is possible when using the present worth criteria?

PW: 3 Year Payback

by woodsjamwoodsjam 23 Jul 2015 19:40

Which of these assets would be allowable under a three-year simple payback rule? Assets are shown with period zero first and subsequent cash flows following. So, -2,3,3 would indicate a $2 cost in period zero and benefits of three in both periods one and two.

PW: Pick One

by woodsjamwoodsjam 23 Jul 2015 19:37

Suppose you have the choice of three assets:

PW:Pay an Extra Dollar

by woodsjamwoodsjam 23 Jul 2015 19:34

Suppose you have a MARR of 10% and there is an asset that you can buy for $10 that pays $20 in time period seven. Would you pay an extra dollar now to get the $20 in time period six rather than seven?

PW:Which Assets

by woodsjamwoodsjam 23 Jul 2015 19:31

If you have assets with present worth of:

PW:Which Asset

by woodsjamwoodsjam 23 Jul 2015 19:29

If you have assets with present worth of:

PW:Which is an example of a exclusive choice problem

by woodsjamwoodsjam 23 Jul 2015 19:28

Which is an example of a exclusive choice problem?

Annual Worth

AW: Four Asset Types

by woodsjamwoodsjam 25 Jul 2015 17:32

Suppose you have a choice of four asset types that you will use to provide 24 years of service:

AW: Which Asset Has Highest Annual Worth

by woodsjamwoodsjam 25 Jul 2015 17:28

Which has a highest annual worth when the MARR is 10%?

AW: What is the annual worth?

by woodsjamwoodsjam 25 Jul 2015 17:27

What is the annual worth of an asset that lasts 7 periods and yields a positive cash flow of $5 in each of the periods from one through 7 when the interest rate is 2%?

AW: What is the AW

by woodsjamwoodsjam 25 Jul 2015 17:26

What is the annual worth of an asset that has a present worth of 190 and that lasts 7 years when the MARR is 10%?

AW: Suppose you have the following assets

by woodsjamwoodsjam 25 Jul 2015 17:25

Suppose you have the following assets:

AW: Not Really AW

by woodsjamwoodsjam 25 Jul 2015 17:24

Suppose you have two assets. Asset A earns you $10 per period for periods 1 through 3. Asset B earns you $9 per period for periods 1 through 20.

AW: Suppose you have two assets but

by woodsjamwoodsjam 25 Jul 2015 17:22

Suppose you have two assets. Asset A earns you $10 per period for periods 1 through 3. Asset B earns you $9 per period for periods 1 through 20.

AW: Suppose you have two assets

by woodsjamwoodsjam 25 Jul 2015 17:21

Suppose you have two assets. Asset A has an annual worth of $15 and last three years. Asset B has an annual worth of $10 and lasts five years. Which asset would you choose?

Internal Rate of Return

IRR: Choice 3

by woodsjamwoodsjam 27 Jul 2015 15:16

Given the IRRs and incremental IRRs shown, which asset would you chose if the MARR is 25%. Assume the assets are ordered from smallest initial investment to largest.

IRR: What is the incremental IRR

by woodsjamwoodsjam 27 Jul 2015 15:13

What is the incremental IRR of these two series?

IRR: Suppose you have a loan

by woodsjamwoodsjam 27 Jul 2015 15:12

Suppose you have an asset that you know is a simple loan. What happens as the MARR increases?

IRR: Which of these assets are loans?

by woodsjamwoodsjam 27 Jul 2015 15:10

Which of these assets are loans?

IRR: Choice 2

by woodsjamwoodsjam 27 Jul 2015 15:08

Given the IRRs and incremental IRRs shown, which asset would you chose if the MARR is 10%. Assume the assets are ordered from smallest initial investment to largest.

IRR: Choice 1

by woodsjamwoodsjam 27 Jul 2015 15:06

IRR: Which root do you tell the client

by woodsjamwoodsjam 27 Jul 2015 15:04

The figure shows that the function has roots at 11%, 42% and 100%.

IRR: What is the IRR

by woodsjamwoodsjam 27 Jul 2015 14:56

What is the internal rate of return on an asset that gains you $ 7 and costs you $15 in period 2 ?

Taxes and Depreciation

Taxes: roller coaster

by woodsjamwoodsjam 28 Jul 2015 14:30

What is the MACRS asset class of a roller coaster at an amusement park?

Taxes: Negative Gains Tax

by woodsjamwoodsjam 28 Jul 2015 14:28

Under what circumstances would you have a negative gains tax, i.e., when would the government pay you on the sale of an asset?

Taxes: Combined Tax Rate

by woodsjamwoodsjam 28 Jul 2015 14:27

If you face a federal corporate tax rate of 35% and a combined tax rate of 58%, what is the implicit state tax rate?

Taxes: Suppose that you have a tortilla machine

by woodsjamwoodsjam 28 Jul 2015 14:26

Suppose that you have a tortilla machine, a three-year asset, which has a book value of $5550 upon sale. What is the gains tax in the year of sale, using the proper sign convention, if you sell it for $3140 when you face a combined 50% tax rate.

Taxes: What is the cost basis and service date?

by woodsjamwoodsjam 28 Jul 2015 14:25

Suppose you purchase a skid mounted brewery for $120,000 on Feb 15th and have it delivered for additional $5,000 on Feb 18th. Your electricians and plumbers finish installing it, at a total cost of $5,000, on March 1st and the first time you use it is on March 15th.

Taxes: Barge at Sale

by woodsjamwoodsjam 28 Jul 2015 14:24

Suppose you purchase a $10,000 barge — a 10-year asset. Under the MACRS what is depreciation on the barge in year 5 if you sell it on January 15th of that year?

Taxes: Book value on Barge

by woodsjamwoodsjam 28 Jul 2015 14:23

Suppose you purchase a $10,000 barge — a 10-year asset. Under the MACRS what is the book value of the barge in the 2nd year you own it?

Taxes: Depreciation on Barge

by woodsjamwoodsjam 28 Jul 2015 14:22

Suppose you purchase a $10,000 barge — a 10-year asset. Under the MACRS what is the depreciation on the barge in the 2nd year you own it?

Income and Cashflow Statements

Cashflow: Which Present Worth

by woodsjamwoodsjam 29 Jul 2015 14:28

Suppose you have a net cash flow for a project of -10K in the first year and 20K in the second and net income of 3K and 5K respectively. Given a MARR of 5%, what is the relevant present worth?

Cashflow: Buy and Sell Car

by woodsjamwoodsjam 29 Jul 2015 14:27

Fill in the income and cashflow statement for the following scenario. Please be careful the spreadsheet is a little fragile.

Cashflow: Year zero car

by woodsjamwoodsjam 29 Jul 2015 14:25

Suppose you have a firm that faces a 50% combined tax rate and that you purchase an $18,000 car, a five-year asset, in year zero. What is your change in net cash flow in year zero?

Cashflow: Year one car

by woodsjamwoodsjam 29 Jul 2015 14:23

Suppose you have a firm that faces a 50% combined tax rate and that you purchase an $18,000 car, a five-year asset, in year zero. What is your change in net cash flow in year one?

Cashflow: Income vs Cash Flow

by woodsjamwoodsjam 29 Jul 2015 14:22

Suppose you face a MARR of 10% and have a two year planning horizon, i.e., you only consider years zero and one.

Cashflow: Take out a loan

by woodsjamwoodsjam 29 Jul 2015 14:20

Suppose you take out a $20000 loan in time period zero at 6%. You will make a single payment on the loan in time period one. When you face a 50% tax rate, what is the change in net cash in time period one?

Cashflow: Average accounts receivable

by woodsjamwoodsjam 29 Jul 2015 14:19

Suppose that your average accounts receivable was 10k in year zero. In year one this increased to 15k and then decreased to 10k in year three.

Cashflow: When making cash flow estimates

by woodsjamwoodsjam 29 Jul 2015 14:17

When making cash flow estimates one of the things you may notice about your semi-detailed estimates is that …

Single Period Choice

Single: Which Problem

by woodsjamwoodsjam 30 Jul 2015 17:39

In the following scenario what kind of single-period problem should you be trying to solve?

Single: Constant AC

by woodsjamwoodsjam 30 Jul 2015 17:37

If your average total cost is constant then …

Single: What are Sales

by woodsjamwoodsjam 30 Jul 2015 17:36

Suppose your firm has a break-even point in sales on one of your product lines of $700000. Variable expenses are 70% of sales. If you lost $30,000 on the product line last year, sales must have been …

Single: Three Shifts

by woodsjamwoodsjam 30 Jul 2015 17:34

Suppose you have the following information about the costs of running three shifts in a day:

Single: Stooges 2

by woodsjamwoodsjam 30 Jul 2015 17:33

Consider the case where you have available to you four equally productive workers. Since each has been on the job for a different amount of time, they earn different daily wages:

Single: Stooges 1

by woodsjamwoodsjam 30 Jul 2015 17:31

Consider the case where you have available to you four equally productive workers. Since each has been on the job for a different amount of time, they earn different daily wages:

Single: What is the incremental cost

by woodsjamwoodsjam 30 Jul 2015 17:30

Suppose you currently run one shift at your plant. You have $1,000 per day in administrative overhead and the daily wages and materials cost of operating the shift are $30,000.

Single: Face a Cost Function

by woodsjamwoodsjam 30 Jul 2015 17:29

Suppose you face a cost function where the fixed costs are $50 and the average variable costs are $6.

New Environments

NewEnvironments:Suppose you have an asset that costs

by woodsjamwoodsjam 03 Aug 2015 18:06

Suppose you have an asset that costs $15 in time period zero and has an IRR of 12%. With a retained earning rate of 5% on your remaining $7, what is the highest loan rate that would support investing in this asset?

NewEnvironments: Which of the following scenarios

by woodsjamwoodsjam 03 Aug 2015 18:04

Which of the following scenarios have the potential to cause problems for the increasing cost of funds algorithm with indivisible assets?

NewEnvironments: Three divisible assets

by woodsjamwoodsjam 03 Aug 2015 18:03

Suppose you have three divisible assets, A, B and C with internal rates of return 2%, 5% and 10% respectively and initial costs of $1, $3, $3.

NewEnvironments: Home Improvement

by woodsjamwoodsjam 03 Aug 2015 18:02

Suppose I am pondering the following home improvements:

NewEnvironments:Suppose you have three divisible assets

by woodsjamwoodsjam 03 Aug 2015 17:57

Suppose you have three divisible assets, A, B and C with internal rates of return 2%, 5% and 10% respectively and initial costs of $1, $3, $5.

NewEnvironments:Suppose you have three indivisible assets

by woodsjamwoodsjam 03 Aug 2015 17:55

Suppose you have three indivisible assets, A, B and C with internal rates of return 2%, 5% and 10% respectively and initial costs of $1, $3, $5.

NewEnvironments: Suppose you have four indivisible investments

by woodsjamwoodsjam 03 Aug 2015 17:54

Suppose you have four indivisible investments that each have an initial cost of $2 and internal rates of return of 5%, 10%, 12% and 15%.

NewEnvironments:Suppose you have $2 retained earnings remaining

by woodsjamwoodsjam 03 Aug 2015 17:51

Suppose you have $2 retained earnings remaining at 5% and access to lending at 10%. You are faced with an indivisible asset with an IRR of 7% and an initial cost of $5. Do you invest?

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