Question

The following balance sheet and income statement should be used for
questions #1

through #6:

Kuipers, Inc.

2001 Income Statement

(OMR in millions)

Net sales 9,625

Less: Cost of goods sold 5,225

Less: Depreciation 1,890

Earnings before interest and taxes 2,510

Less: Interest paid 850

Taxable income 1,660

Less: Taxes 581

Net income 1,079

Addition to retained earnings 679

Dividends paid 400

Kuipers, Inc.

12/31/00 and 12/31/01 Balance Sheet

(in OMR, in millions)

2000 2001 2000 2001

Cash 1,455 260 Accounts payable 1,150 2,863

Accounts rec. 2,460 3,975 Notes payable 2,600 1,628

Inventory 1,405 885 Total 3,750 4,491

Total 5,320 5,120 Long-term debt 7,000 7,600

Net fixed assets 19,300 21,720 Common stock 5,500 5,700

Retained earnings 8,370 9,049

Total assets 24,620 26,840 Total liabilities 24,62
26,840

1. (2 points) What is the firm’s operating cash flow for
2001?

2. (2 points) What is the firm’s net capital spending for
2001?

3. (2 points) What is the firm’s change in net working capital for
2001?

4. (2 points) What is the firm’s cash flow from assets for
2001?

5. (2 points) What is the firm’s cash flow to creditors for
2001?

6. (2 points) What is the firm’s cash flow to stockholders for
2001?

7. (2 points) Granny puts OMR 65,000 into a bank account earning
3%. You can’t withdraw the money until the balance has tripled. How
long will you have to leave the money in the account?

8. (2 points) In 1889, Vincent Van Gogh’s painting, “Sunflowers”,
sold for OMR 200. One hundred years later it sold for OMR 30
million. Had the painting been purchased by your great-grandfather
and passed on to you, how much total interest was earned from this
investment? How much of this was interest on interest?

9. (2 points) An insurance company promises to pay Hana OMR 2.25
million on her 50th birthday in return for a one-time payment of
OMR 520,000 today. (Hana just turned 30.) At what rate of interest
would Hana be indifferent between accepting the company’s offer and
investing the premium on her own?

10. (2 points) An account was opened with an investment of OMR
1,000 five years ago. The ending balance in the account is OMR
1,750. If interest was compounded daily, what rate was earned on
the account?

11. (2 points) You work for a furniture store. You normally sell a
living room set for OMR 2,500 and finance the full purchase price
for 12 monthly payments at 24% APR compounded monthly. You are
planning to run a zero-interest financing sale during which you
will finance the set over 12 months at 0% interest. How much do you
need to charge for the bedroom set during the sale in order to earn
your usual combined return on the sale and the financing?

12. (2.5 points) You are planning to borrow OMR 4,500. You can
repay the loan in 40 monthly payments of OMR 132.75 each or 36
monthly payments of OMR 145.20 each. You decide to take the
40-month loan. During each of the first 36 months you make the loan
payment and place the difference between the two payments (OMR
12.45) into an investment account earning 10% APR. Beginning with
the 37th payment you will withdraw money from the investment
account to make your payments. How much money will remain in the
investment account after your loan is repaid?

13. (2 points) What would your payment be on a 20-year, OMR 150,000
loan at 14% interest compounded monthly assuming the payments are
made semi-annually?

14. (2.5 points) When you were born, your dear Aunt Muna promised
to deposit OMR 700 into a savings account bearing a 5% compounded
annual rate on each birthday, beginning with your first. You have
just turned 21 and want the money. However, it turns out that dear
(forgetful) Aunt Muna made no deposits on your fifth and eleventh
birthdays. How much is in the account right now?

15. (2 points) You have found your dream home. The selling price is
OMR 220,000; you will put OMR 30,000 down and obtain a 30-year
fixed-rate mortgage at 7.5% APR compounded monthly for the balance.
Assume that monthly payments begin in one month. What will each
payment be?

16. (2 points) You are comparing two annuities with equal present
values and a discount rate of 10.25 percent. One annuity pays OMR
4,000 at the end of each year for the next 20 years. How much does
the second annuity pay each year if it pays on the first day of
each year for 20 years?

17. (2 points) Your firm needs to borrow OMR 110,000. The loan
calls for weekly payments of OMR 400 at an interest rate of 6.5
percent compounded weekly. The first payment is due today. What is
the time period of this loan in years?

18. (2 points) Your father invested a lump sum 25 years ago at 8.25
percent interest compounded monthly. Today, he gave you the
proceeds of that investment which totalled OMR 58,785. How much did
your father originally invest?

19. (2 points) You expect to receive OMR 11,500 at graduation in 3
years. You plan on investing this money at 10 percent compounded
monthly until you have OMR 75,000. How many years from now will it
be until this occurs?

20. (2 points) Issa recently found out that he can reduce his
mortgage interest rate from 12 percent to 8 percent. The value of
homes in their neighbourhood has been increasing at the rate of 7.5
percent annually. If Issa was to refinance their house with OMR
2,500 in closing costs in addition to the mortgage balance of OMR
125,000 over a period of time to coincide with his chosen
retirement age in 22 years, what would the monthly payment be for
principal and interest (hint: closing costs are going to be added
to the mortgage)?

21. (2 points) Khalid wants to pay one-half of the college costs
for his daughter, Ahlam. She will be attending a private college
with annual costs of OMR 28,000 today. Ahlam is 10 years old and
will be starting college in eight years. If these costs are
expected to increase annually by 8 percent, how much will Khalid
need to provide for her first year of college?

22. (2 points) You invest OMR 600 in a mutual fund for two years.
The mutual fund earned 25% in the first year and lost 10% in the
second year. How much is your mutual fund worth at the end of the
second year?

Answer #1

22) Value after 2 years = PV x (1 + R1) x (1 + R2) = 600 x (1 + 25%) x (1 - 10%) = 675

21) Cost after 8 years = PV x (1 + r)^n = 28,000 x (1 + 8%)^8 = 51,826.05

Khalid would need to provide sum = 50% x 51,826.05 = 25,913.02

19) No. of years can be calculated on a calculator using N function

PV = -11,500, FV = 75,000, I/Y = 10%/12, PMT = 0

=> Compute N = 226 months or 18.8 years

From today, it will take 21.8 years to achieve that value.

18) Original Investment = FV / (1 + r)^n = 58,785 / (1 + 8.25%/12)^(25 x 12) = 7,526.61

1. For the next 6 years, you pan to make equal quarterly
deposits of $600.00 into an account paying 8% compounded quarterly.
How much will be the total you have at the end of the time?
2. How much money will you have to deposit now if you wish to
have $5,000 at the end of 8 years. Interest is to be at the rate of
6% compounded semiannually?
3. In the California “Million Dollar Lottery” a winner is paid...

Do not round intermediate calculations. Final
dollar answers should be rounded to two decimal places. Final
interest rate answers should be rounded to 4 decimal places if
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Using your answer from abovr, what fraction of the 241st payment
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