Thank you in advance! Organize your answers. 1. You have graduated from Duke Uni

Question

Thank you in advance! Organize your answers. 1. You have graduated from Duke University and are working hard in your field. You have just become a parent and are driving your twins home from the hospital. Your little girl Sissy and son Bubba are fast asleep in the back of the car. Evaluating your children, you realize that Bubba is a true Duketonian while Sissy is slated to attend a vocational school in Cambridge called MIT. In eighteen years when they start their four year higher education, Duke will cost S65,000 a year and MIT will cost $80,000. You want to save for their higher education so you resolve to put $5,000 a year away for eighteen years. Arriving home, Grandma listens to your plans and explains that Uncle Thaddeus and Aunt Edwina will help you pay for the kids' education if you name Bubba and Sissy after them. Accepting this requirement, you call your Aunt and Uncle and explain. They say that they will cover the funding shortfall with a one-time contribution made immediately. The effective interest for calculations is 8%. How much do your Aunt and Uncle have to contribute? 2. Calculate the Ratios from page s 98-9 of your text for the following firms: A Co B Com Sales Gross Profit Interest cx EBIT Net income Cash Accounts Reccivable (nct Invent Total Current Assets 94,000 56,000 1,000 45,000 38,000 12,000 112,000 65,000 189,000 500,000 754,000 198,000 12,000 14,000 60,000 46,000 16,000 160,000 85,000 261,000 1,500,000 1,761,000 600 750,000 Plant and Total Asscts liabilities Liabilities 54,000 ul Calculate the ratios form Which company is doing better? Cite ratios, etc. to support your answer. You can discuss multiple areas where the advantage lies with one of the two companies a. pages 98-9 through Asset Activity Ratios for the above companies. b.

Explanation / Answer

1)As a parent's I'm planning to contribute 5000 for 18 yrs for 4yrs higher education study for twins.

Pmt=5000,n=18, I/y=8%

Therefore,Fv=187251

Then we will calculate how much we require before 4yrs,

N=4, I/y=8%,pmt=80000+65000=145000

Fv=0,therefore pv=480258.

Fund shortfall =480258-187251

=293007

So ,Aunty and uncle have to contribute one time=

Fv=293007,pmt=0,n=18yrs ,I/y =8%

Pv =$73325(one time contribution).

2)Asset activity ratio helps in determining whether company management is doing good enough job of generating cash and revenue from it's resources.

Total asset turnover ratio=total sales/total asset

Co A=94000/754000=.1247

Cool=198000/1761000=.11244

CO A is managing good than Co B

Inventory turnover ratio: cost of good sold/avg inventory.

Cost of good sold=sales - gross profit.

Co A, Cogs =94000-6000=88000

Co b,Cogs=198000-112000=86000

Therefore, inventory turnover ratio=

A =88000/65000=1.35

B=86000/85000=1.01178

b) profitability ratio=net income/sales

A=38000/94000=.40426(better)

B=46000/198000=.23232

Interest coverage ratio=EBIT/int exp

A=45000/1000=45(better to pay out debt)

B=60000/14000=4.28.

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