To purchase a new equipment, you borrow $52,550. An equipmentdealer offers a five-year loan at an interest rate of 5% compoundedannually. If you make only payment at the end of the load period,repaying the principal and interest.
a) What is the number of time periods (N) you should use insolving this problem?
b) What rate of interest (i), per period of time, should be usedin solving this problem?
c) Is the present single amount of money (P) known? (Yes orNo)
d) Which time value factor should be used to solve this problem?Choices are(F/P,i%,N),(P/F,i%,N),(F/A,i%,N),(A/F,i%,N),(P/A,i%,N),(A/P,i%,N)
e) What is the total amount that must be paid back? (round toone decimal place, use 1000 Separator)
f) How much of the total amount repaid represents interest?(round to one decimal place, use 1000 Separator)
To purchase a new equipment, you borrow $52,550. An equipmentdealer offers a five-year loan at an interest rate of 5% compoundedannually. If you make only payment at the end of the load period,repaying the principal and interest.
a) What is the number of time periods (N) you should use insolving this problem?
b) What rate of interest (i), per period of time, should be usedin solving this problem?
c) Is the present single amount of money (P) known? (Yes orNo)
d) Which time value factor should be used to solve this problem?Choices are(F/P,i%,N),(P/F,i%,N),(F/A,i%,N),(A/F,i%,N),(P/A,i%,N),(A/P,i%,N)
e) What is the total amount that must be paid back? (round toone decimal place, use 1000 Separator)
f) How much of the total amount repaid represents interest?(round to one decimal place, use 1000 Separator)
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| Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now experiencing a severe cash shortage. For this reason, it is requesting a $580,000 long-term loan from Gulfport State Bank, $140,000 of which will be used to bolster the Cash account and $440,000 of which will be used to modernize equipment. The companyâs financial statements for the two most recent years follow: |
| Sabin Electronics | ||||
| Comparative Balance Sheet | ||||
| This Year | Last Year | |||
| Assets | ||||
| Current assets: | ||||
| Cash | $ | 100,000 | $ | 230,000 |
| Marketable securities | 0 | 26,000 | ||
| Accounts receivable, net | 581,000 | 380,000 | ||
| Inventory | 1,025,000 | 675,000 | ||
| Prepaid expenses | 26,000 | 30,000 | ||
| Total current assets | 1,732,000 | 1,341,000 | ||
| Plant and equipment, net | 1,759,600 | 1,450,000 | ||
| Total assets | $ | 3,491,600 | $ | 2,791,000 |
| Liabilities and Stockholders Equity | ||||
| Liabilities: | ||||
| Current liabilities | $ | 840,000 | $ | 510,000 |
| Bonds payable, 12% | 650,000 | 650,000 | ||
| Total liabilities | 1,490,000 | 1,160,000 | ||
| Stockholders' equity: | ||||
| Common stock, $15 par | 930,000 | 930,000 | ||
| Retained earnings | 1,071,600 | 701,000 | ||
| Total stockholdersâ equity | 2,001,600 | 1,631,000 | ||
| Total liabilities and equity | $ | 3,491,600 | $ | 2,791,000 |
| Sabin Electronics | ||||
| Comparative Income Statement and Reconciliation | ||||
| This Year | Last Year | |||
| Sales | $ | 5,400,000 | $ | 4,590,000 |
| Cost of goods sold | 3,955,000 | 3,530,000 | ||
| Gross margin | 1,445,000 | 1,060,000 | ||
| Selling and administrative expenses | 669,000 | 564,000 | ||
| Net operating income | 776,000 | 496,000 | ||
| Interest expense | 78,000 | 78,000 | ||
| Net income before taxes | 698,000 | 418,000 | ||
| Income taxes (30%) | 209,400 | 125,400 | ||
| Net income | 488,600 | 292,600 | ||
| Common dividends | 118,000 | 97,000 | ||
| Net income retained | 370,600 | 195,600 | ||
| Beginning retained earnings | 701,000 | 505,400 | ||
| Ending retained earnings | $ | 1,071,600 | $ | 701,000 |
| During the past year, the company introduced several new product lines and raised the selling prices on a number of old product lines in order to improve its profit margin. The company also hired a new sales manager, who has expanded sales into several new territories. Sales terms are 2/10, n/30. All sales are on account. |
| Required: |
| 1. | To assist in approaching the bank about the loan, Paul has asked you to compute the following ratios for both this year and last year: |
| a. | The amount of working capital. |
| b. | The current ratio. (Round your answers to 2 decimal places.) |
| c. | The acid-test ratio. (Round your answers to 2 decimal places.) |
| d. | The average collection period. (The accounts receivable at the beginning of last year totaled $330,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.) |
| e. | The average sale period. (The inventory at the beginning of last year totaled $580,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.) |
| f. | The operating cycle. (Round your intermediate calculations and final answer to 1 decimal place.) |
| g. | The total asset turnover. (The total assets at the beginning of last year were $2,660,000.) (Round your answers to 2 decimal places.) |
| h. | The debt-to-equity ratio. (Round your answers to 3 decimal places.) |
| i. | The times interest earned ratio. (Round your answers to 1 decimal place.) |
| j. | The equity multiplier. (The total stockholdersâ equity at the beginning of last year totaled $1,621,000.) (Round your answers to 2 decimal places.) |
| 2. | For both this year and last year: |
| a. | Present the balance sheet in common-size format. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) |
| b. | Present the income statement in common-size format down through net income. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) |
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