Question

1)Consider the following DATA for Mighty Dogs Inc,: Total assets=$33,000, Long-term assets = $21,000, Long Term debt=$19,000, and short term debt=$8000. What is the amount of current assets? (units in dollars)

2)Given the following information for a firm, calaculate its depreciation expense:

sales=$52,000

cost of goods sold=$27,000

interest expense= $2,000

net income= $8,000

tax rate= 20%

3)The NPV of a 4-year project is $7000. What is its equivalent annuity cost? Assume a discount rate of 12%. (express units of dollars)

Answer 1

1.current assets = total assets - long term assets

=>$33,000 - 21,000

=>$12,000.

2.calcualtion of depreciation:

sales	52,000
less: cost of goods sold	(27,000)
Earnings before tax depreciation interest	25,000

now,

income before tax = net income / (1 -tax rate)

=>$8,000 /(1- 0.20)

=>$8,000 / 0.80

=>$10,000.

income before tax and interest = income before tax + interest =>10,000 + 2,000

=>$12,000.

depreciation = earnings before interest tax depreciation - income before tax and interest

=>25,000 - 12,000

=>$13,000.

so depreciation expense = $13,000.

3.equivalent annuity cost = NPV / relevant present value of annuity factor.

here,

NPV = $7,000

Present value of annuity factor = [1-(1+r)^(-n)]/r

here,

r = 12%=>0.12

n = 4 years.

=>[1-(1.12)^(-4)]/0.12

=>0.63551808/0.12

=>5.295984

now,

equivalent annuity cost = $7,000 / 5.295984

=>$1,321.76.