1. Determine the size of the M1 money supply using the following information.A. Currency plus traveler s checks $25 millionB. Negotiable CDs $10 millionC. Demand deposits $13 millionD. Other checkable deposits $12 millionM0-Physical cash and coin M1 All of M0 plus demand deposits traveler s checks M2 All of M1 plus savings deposits money market shares3. Determine the size of the demand deposits component of the M1 money supply using the following information. Demand deposit = M1 currency-traveler`s checks- other checkable deposits- small time deposits A. Currency $350 millionB. Traveler s checks $10 millionC. Other checkable deposits $200 millionD. Small time deposits $100 millionE. M1 money supply $800 million2. Assume a bank has $5 million in deposits and $1 million in vault cash. If the bank holds $1 million in excess reserves and the required reserves ratio is 8 percent what level of deposits are being held?a. If the required reserves ratio is 8 percent what dollar amount of deposits can the bank have = b. If the bank holds $65 million in deposits and currently holds bank reserves such that excess reserves are zero what required reserves ratio is implied =5. The Friendly National Bank holds $50 million in reserves at its Federal Reserve District Bank. The required reserves ratio is 12 percent.a. If the bank has $600 million in deposits what amount of vault cash would be needed for the bank to be in compliance with the required reserves ratio?b. If the bank holds $10 million in vault cash determine the required reserves ratio that would be needed for the bank to avoid a reserves de cit.1. Assume that Banc One receives a primary deposit of $1 million. The bank must keep reserves of 20 percent against its deposits. Prepare a simple balance sheet of assets and liabilities for Banc One immediately after the deposit is received.5. A thirty-year U.S. Treasury bond has a 4.0 percent interest rate. In contrast a ten-year Treasury bond has an interest rate of 2.5 percent. A maturity risk premium is estimated to be 0.2 percentage points for the longer maturity bond. Investors expect inflation to average 1.5 percentage points over the next ten years.a. Estimate the expected real rate of return on the ten-year U. S. Treasury bond.b. If the real rate of return is expected to be the same for the thirty-year bond as for the ten-year bond estimate the average annual inflation rate expected by investors over the life of the thirty-year bond.6. You are considering an investment in a one-year government debt security with a yield of 5 percent or a highly liquid corporate debt security with a yield of 6.5 percent. The expected inflation rate for the next year is expected to be 2.5 percent.a. What would be your real rate earned on either of the two investment?b. What would be the default risk premium on the corporate debt security?4. You are planning to invest $2500 today for three years at a nominal interest rate of 9 percent with annual compounding.a.What would be the future value of your investment?b.Now assume that inflation is expected to be 3 percent per year over the same three-year period. What would be the investment s future value in terms of purchasing power?c.What would be the investment s future value in terms of purchasing power if inflation occurs at a 9 percent annual rate?1. Compute the annual interest payments ad principal amount for a Treasury Inflation-Protected Security with a par value of $1000 and a 3 percent interest rate if inflation is at 4 percent in year one 5 percent in year two and 6 percent in year three.23. The Joseph Company has a stock issue that pays a fixed dividend of $3.00 per share annually. Investors believe the nominal risk-free rate is 4 percent and that this stock should have a risk premium of 6 percent. What should be the value of this stock?1. In late 2010 you purchased the common stock of a company that has reported significant earnings increases in nearly every quarter since your purchase. The price of the stock increased from $12 a share at the time of the purchase to a current level of $45. Notwithstanding the success of the company competitors are gaining much strength. Further your analysis indicates that the stock may be overpriced based on your projection of future earnings growth. Your analysis however was the same one year ago and the earnings have continued to increase. Actions that you might take range from an outright sale of the stock (and the payment of capital gains tax) to doing nothing a continuing to hold the shares. You reflect on these choices as well another action that could be taken. Describe the various actions tat you might take and their implications.Problem 3: Use your knowledge of balance sheets to fill in the missing amounts:ASSETSCASH ACCOUNTS RECEIVABLE$50000ACCOUNTS RECEIVABLE80000INVENTORY100000TOTAL CURRENT ASSETSGROSS PLANT AND EQUIPMENTLESS: ACCUMULATED DEPRECIATION130000NET PLANT AND EQUIPMENT600000TOTAL ASSETSLIABILITIESACCOUNTS PAYABLE$12000NOPTES PAYABLE50000TOTAL CURRENT LIABILITIESLONG-TERM DEBTTOTAL LIABILITIESCOMMON STOCK($ 1 PAR 100000 SHARES)PAID-IN CAPITAL250000RETAINED EARNINGS200000TOTAL STOCKHOLDERS EQUITYTOTAL LIABILITIES AND EQUITY$830000Problem 6: Use the following information to construct an income statement:INTEREST25000SALES950000INCOME TAX RATE25%SELLING AND MARKETING EXPENSES160000GENERAL AND ADMINISTRATIVE EXPENSE200000GROSS PROFIT550000DEPRECIATION30000COST OF GOODS SOLD400000Problem 3: The Dayco s Manufacturing Company had the following financial statement results for last year. Net sales were $1.2 million with net income of $90000. Total assets at year end amounted to $900000.A. Calculate Dayco s asset turnover ratio and its profit margin.B. Show how the two ratios in Part (a) can be used to determine Dayco s rate of return on assets.C. Dayco s operates industry average ratios are these: Return on assets: 11 percent; Asset turnover: 2.5 times; Net profit margin: 3.6 percent. Compare Dayco s performance against the industry averages.Problem 6: Following are financial statements for the Genatron Manufacturing Corporation for 2012 and 2011.GENATRON MANUFACTURING CORPORATIONBALANCE SHEET20122011ASSETSCASH$40000$50000ACCTS. RECIEVABLE260000200000INVENTORY500000450000TOTAL CURRENT ASSETS800000700000FIXED ASSETS NET400000300000TOTAL ASSETS$1200000$1000000LIABILITIES AND EQUITYACCTS. PAYABLE$170000$130000BANK LOAN9000090000ACCRUALS7000050000TOTAL CURRENT LIABILITIES330000270000LONG-TERM DEBT 12%400000300000COMMON STOCK $10 PAR300000300000CAPITAL SURPLUS5000050000RETAINED EARNINGS1200008000TOTAL LIABILITIES & EQUITY$1200000$1000000INCOME STATEMENT20122011NET SALES$1500000$1300000COST OF GOODS SOLD900000780000GROSS PROFIT600000520000EXPENSES; GENERAL & ADMIN150000150000MARKETING150000130000DEPRECIATION5300040000INTEREST5700045000EARNING BEFORE TAXES190000155000INCOME TAXES7600062000NET INCOME$114000$93000a. Apply Du Pont analysis to both the 2012 and 2011 financial statements data.b. Explain how financial performance differed between 2012 and 2011.Problem 1: Find the NVP and PI of a project that cost $1500 and returns $800 in year one and $850 in year two. Assume the project s cost of capital is 8 percent.Problem 1: AQ&Q has EBIT of $2 million total assets of $10 million stockholders s equity of $4 million and pretax interest expense of 10 percent.a. What is AQ&Q s indifference level of EBIT?b. Given its current situation might it benefit from increasing or decreasing its use of debt? Explain.c. Suppose we are told AQ&Q s average tax rate is 40 percent. How does this affect your answers to (a) and (b)?Problem 4: Faulkner s Fine Fries Inc. (FFF) is thinking about reducing its debt burden. Given the following capital structure information and an expected EBIT of $50 million (plus or minus 10 percent) next year should FFF change their capital structure?CURRENTPROPOSEDTOTAL ASSETS$750 MILLION$750 MILLIONDEBT450 MILLION300 MILLIONEQUITY300 MILLION450 MILLIONCOMMON STOCK PRICE$30$30NUMBER OF SHARES1000000015000000INTEREST RATE12%12%
