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