1.You deposit $3,000 at the end of each quarter into an account that pays 7% int
ID: 2717892 • Letter: 1
Question
1.You deposit $3,000 at the end of each quarter into an account that pays 7% interest compounded monthly. How much will be in the account after 5 years?
2.The income statement for the Lowell Factory, Inc. for the last year had: Sales = $200,000; Cost of Goods Sold = $84,000; Selling, General and Administrative Expense = $18,000; Depreciation = $14,600; and interest expense = 6,477. The company raised $5,000 in new equity and reduced its long-term debt by $16,000. Its tax rate is 35 percent and the retention ratio is 0.6, what was the cash flow to stockholders?
Explanation / Answer
1) Future value of the investment can be calculated as follows
=FV(7%/12,5*4,3000,0,0) = $63,444.31
Here 7% is the interest rate which is entered as 7%/12, since it is compounded monthly
5*4 is the no. of installments made
3000 is the net installment made each quarter
0,0 is present value and end of period investments respectively.
2) First calculate Net income, then operating cash flow, financing cash flow.
All calculations are made in the below table
Dividends paid = (1-0.6)*net income = 0.4 * 49999.95 = 19,999.98
Cash Flow to Common Stockholders = Dividends Paid - (Ending Common Stock - Beginning Common Stock)
= 19999.98 - (5000) = $14,999.98
Amount Sales 200,000.00 + COGS 84,000.00 - Gross Profit 116,000.00 = SG&A 18,000.00 - Depreciation 14,600.00 - EBIT 83,400.00 = Interest 6,477.00 - PBT 76,923.00 = Tax @ 35% 26,923.05 - Net Income 49,999.95 =Related Questions
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