Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
61
6) Alden Corp. has the following balances as of December 31, 2019:
Total Assets
$110,000
Total Liabilities
67,000
Total Equity
43,000
Calculate the debt to equity ratio. (Round your answer to two decimal points.)
A) 0.64
B) 0.92
C) 1.56
D) 2.56
7) The debt to equity ratio of four companies is given below.
Debt to equity ratio
Lewis, Inc.
1.30
Jackson, Inc.
1.50
Jones Corp.
0.88
Roberts Corp.
0.92
Which of the following companies has the greatest financial risk?
A) Lewis, Inc.
B) Jackson, Inc.
C) Jones Corp.
D) Roberts Corp.
62
8) The debt to equity ratio of four companies is given below.
Debt to equity ratio
Lewis, Inc.
1.30
Jackson, Inc.
1.50
Jones Corp.
0.88
Roberts Corp.
0.92
Based on the debt to equity ratio, which of the following companies has the least financial risk?
A) Lewis, Inc.
B) Jackson, Inc.
C) Jones Corp.
D) Roberts Corp.
9) What does the debt to equity ratio show, and how is it calculated?
Learning Objective 12-7
1) The fact that invested cash earns interest over time is called the time value of money.
2) The time value of money is used to determine the market price of a bond.
63
3) Simple interest means that interest is calculated on the principal and on all previously earned interest.
4) A stream of unequal cash payments made at equal time intervals is called an annuity.
5) Compound interest means that interest is calculated only on the principal amount.
6) A stream of equal cash payments made at equal time intervals is called a(n) ________.
A) present value
B) annuity
C) compound interest
D) future value
64
7) If $30,000 is invested for one year at an annual interest rate of 13%, it will grow in value to ________.
A) $33,900
B) $36,208
C) $3900
D) $32,308
8) What is the difference between simple interest and compound interest?
9) What is the only difference between present value and future value?
10) The process for calculating present values is often called present valuing cash flows.
11) Compute the present value of $46,000, invested for six years at 8%.
Present value of $1:
5%
6%
7%
8%
9%
3
0.864
0.840
0.816
0.794
0.772
4
0.823
0.792
0.763
0.735
0.708
5
0.784
0.747
0.713
0.681
0.650
6
0.746
0.705
0.666
0.630
0.596
7
0.711
0.665
0.623
0.583
0.547
A) $36,647
B) $25,300
C) $32,660
D) $28,980
12) An investment today of $8,424 at 6% will yield $2,000 per year for the next five years because interest
is being earned on principal that is left invested each year. The following tables are available:
Present value of $1:
4%
5%
6%
7%
8%
5
0.822
0.784
0.747
0.713
0.681
6
0.790
0.746
0.705
0.666
0.630
7
0.760
0.711
0.665
0.623
0.583
8
0.731
0.677
0.627
0.582
0.540
9
0.703
0.645
0.592
0.544
0.500
10
0.676
0.614
0.558
0.508
0.463
Present value of ordinary annuity of $1:
4%
5%
6%
7%
8%
5
4.452
4.329
4.212
4.100
3.993
6
5.242
5.076
4.917
4.767
4.623
7
6.002
5.786
5.582
5.389
5.206
8
6.733
6.463
6.210
5.971
5.747
9
7.435
7.108
6.802
6.515
6.247
10
8.111
7.722
7.360
7.024
6.710
13) Compute the present value of an ordinary annuity that pays $13,000 per year for 15 years at 10%.
Present value of ordinary annuity of $1:
7%
8%
9%
10%
12%
11
7.499
7.139
6.805
6.495
5.938
12
7.943
7.536
7.161
6.814
6.194
13
8.358
7.904
7.487
7.103
6.424
14
8.745
8.244
7.786
7.367
6.628
15
9.108
8.559
8.061
7.606
6.811
A) $98,878
B) $99,745
C) $97,578
D) $100,178
14) The face value of a bond is $71,000, its stated rate is 7%, and the term of the bond is five years. The
bond pays interest semiannually. At the time of issue, the market rate is 8%. Determine the present value
of the bonds at issuance.
Present value of $1:
4%
5%
6%
7%
8%
5
0.822
0.784
0.747
0.713
0.681
6
0.790
0.746
0.705
0.666
0.630
7
0.760
0.711
0.665
0.623
0.583
8
0.731
0.677
0.627
0.582
0.540
9
0.703
0.645
0.592
0.544
0.500
10
0.676
0.614
0.558
0.508
0.463
Present value of ordinary annuity of $1:
4%
5%
6%
7%
8%
5
4.452
4.329
4.212
4.100
3.993
6
5.242
5.076
4.917
4.767
4.623
7
6.002
5.786
5.582
5.389
5.206
8
6.733
6.463
6.210
5.971
5.747
9
7.435
7.108
6.802
6.515
6.247
10
8.111
7.722
7.360
7.024
6.710
A) $50,844
B) $20,156
C) $68,152
D) $71,000
15) The face value is $82,000, the stated rate is 10%, and the term of the bond is eight years. The bond pays
interest semiannually. At the time of issue, the market rate is 8%. What is the present value of the bond at
the issue date?
Present value of $1:
4%
5%
6%
7%
8%
15
0.555
0.481
0.417
0.362
0.315
16
0.534
0.458
0.394
0.339
0.292
17
0.513
0.436
0.371
0.317
0.270
18
0.494
0.416
0.350
0.296
0.250
19
0.475
0.396
0.331
0.277
0.232
Present value of ordinary annuity of $1:
4%
5%
6%
7%
8%
15
11.118
10.380
9.712
9.108
8.559
16
11.652
10.838
10.106
9.447
8.851
17
12.166
11.274
10.477
9.763
9.122
18
12.659
11.690
10.828
10.059
9.372
19
13.134
12.085
11.158
10.336
9.604
A) $91,561
B) $47,773
C) $43,673
D) $84,788
