Problem #1 Suppose you want to purchase a million dollar home in twenty five yea

ID: 2381685 • Letter: P

Question

Problem #1

Suppose you want to purchase a million dollar home in twenty five years

How much money should you invest each year at 10% to purchase the house in cash?

Problem #2

Decision making. Suppose that a person has the following options:

a. Placing $ 10,000 in a saving account paying 6% compounded semiannually or

b. investing in a business such that the value of the investment after 8 years is 16,000. Which is a better investment?

Problem #3

Corleone Olive Oil Company had the following account balances at August 31, 2011

Hint: Calculate net income and ratios

Accounts Payable

Accounts Receivable

Accumulated depreciation

Cash

Cost of Goods Sold

Equipment

Inventory

Owner's Equity

Rent expense

Sales revenue

Wages payable

Bumber of common shares

Required: Calculate the following ratios:

1. Earnings per share

2. Debt to equity

3. Current ratio

4. Quick ratio

5. Return on Equity

Multiple Choice Questions:

1. Which of the following is used to measure the company's ability to create profit by using it's assets?

a. Profit margin

b. asset turnover

c. return on asset

d. none of the above

2. Common sizing refers to

a. the analyzing technique used to see the amounts of expenses to revenues

b. the analyzing technique used to see the amounts of balance sheet accounts relative to total assets

c. the analyzing technique used to compare how revenue, expenses or balance sheet accounts have changes over the prior year

d. all of the above

e. a and b only

3. The definition of book value is

a. also the carrying value

b. the historical cost less the accumulated depreciation

c. the value at which an asset appears on the balance sheet

d. all of the above

4. Which of the following is NOT a type of bond?

a. Callable bond

b. Convertible bond

c. Changeable bond

d. Serial bond

5. Net income will result if gross profit exceeds

a. Cost of goods sold plus operating expenses

b. Cost of goods sold

c. purchases

d. operating expenses

6. _______ stock has a higher claim on assets and dividends than common stock.

a. Favored

b. Preferred

c. ?

d ?

do not have the choices for (c) or (d)

Explanation / Answer

Solution 1: let annual savings be x

x*1.1^19 + x*1.1^18 + x*1.1^17 + x*1.1^16.....x*1.1^0 = 1000000

x= $17459.63

money should you invest each year =$17459.63

Solution 2