Southern New Hampshire University The Benmar Sales Company Questions

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Please see attached for the list of all the questions. There are total of 15 questions that need to be answered.

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Question 1:
The Benmar sales company had a gross profit margin (gross profits / sales) of 35% and sales of 8.7
million last year. 71% of the firm’s sales are on credit, and the remainder are cash sales. Benmar’s
currents assets equal 1.2 million, its current liabilities equal $302,300, and it has $104,600 in cash
plus marketable securities.
a. If Benmar’s accounts receivable equal $562,800, what is its average collection period?
b. If Benmar’s reduces its average collection period to 20 days, what will be its new level of
accounts receivable?
c. Benmar’s inventory turnover ratio is 9.3 times. What is the level Benmar’s inventories?
Question 2
The annual sales for Salco, Inc. were $4.44 million last year. The firm’s end-of-year balance sheet was as
follows:
Current assets:
$496,000 liabilities
$993,000
Net Fixed assets:
1,490,000 Owners equity
$993,000
Total Assets:
$1,986,000 Total
$1,986,000
Salco’s income statement is a follows:
Sales:
$4,440,000
Less: Cost of goods sold
(3,492,000)
Gross Profit:
$948,000
Less: Operating expenses:
(501,000)
Net operating income:
$447,000
Less: Interest expense:
(110,000)
Earnings before taxes:
$337,000
Less: Taxes (35%)
(117,950)
Net Income:
$219,050
A. Calculate Salco’s total asset turnover, operating profit margin, and operating return on assets.
B. Salco plans to renovate one of its plants and the renovation will require an added investment in
plant and equipment of $1.07 million. The firm will maintain its present debt ratio of 50% when
financing the new investment and expects sales to remain constant. The operation profit
margin will rise to 13.3%. What will be the new operating return on assets ratio (i.e., net
operating income / total assets) for Salco after the plant’s renovation?
C. Given that the plant renovation in part (b) occurs and Salco’s interest expense rises by $52,000
per year, what will be the return earned on the common stockholder’s investment? Compare
this rate of return with that earned before the renovation. Based on this comparison, did the
renovation have a favorable effect on the profitability of the firm?
Question 3
On August 1, 2007 the Dell Computer Corporation’s stock closed trading at $27.76 per share while Apple
Corporation’s shares closed at $133.64. Does this mean that because Apple’s stock price is roughly four
times that of Dell’s, Apple is the more valuable company? Interpret the prices for these two firms using
the following information.
(Most recent 12 months)
Net Income ($ millions)
Dell 2007
Apple 2007
$3,572
$3,130
Shares outstanding (millions)
2,300
869.16
Earnings per share ($)
$1.55
$3.60
Price per share (8/1/07)
$27.76
$133.64
17.91
37.11
$4,129
$9,984
Book value per share ($)
$1.80
$11.49
Market-to-book ratio
15.42
11.63
Price-to-earnings ratio (PE ratio)
Book value of common equity ($ millions)
It appears that Apple enjoys a (Lower or higher) price per share when compared to its 2007 earnings but
a (higher or lower) price when compared to the book of value of the firm’s equity. The (higher or lower)
market-to-book ratio for Apple reflects that fact that Apple has used a great deal (more or less) equity
and (less or more) debt to finance its operations. ***Which answers in the () is correct?
Question 4
What is the future value of $480 per year for 10 years compounded annually at 10%?
Question 5
What is the present value of $3,500 per year for 8 years discounted back to the present at 10%
Question 6
You are graduating from college at the end of this semester and after reading the The Business of Life
box in this chapter, you have decided to invest $5,200 at the end of each year into a Roth IRA for the
next 46 years. If you earn 9 percent compounded annually on your investment, how much will you have
when you retire in 46 years? How much will you have if you wait 10 years before beginning to save and
only make 36 payments into your retirement account?
How much will you have when you retire in 46 years (round to the nearest cent)
Question 7
Mr. Bill S. Preston, Esq., purchased a new house for $110,000. He paid $30,000
upfront and agreed to pay the rest over the next 10 years in 10 equal annual payments that include
principal payments plus 14 percent compound interest on the unpaid balance. What will these equal
payments be?
MR. Bill S. Preston, Esq., purchased a new house for $110,000 and paid $30,000 upfront. How much
does he need to borrow to purchase the house? (Round to the nearest dollar)
Question 8
To pay for your child’s education, you wish to have accumulated $19,000 at the end of 12
years. To do this, you plan to deposit an equal amount into the bank at the end of each year. If the bank
is willing to pay 7 percent compounded annually, how much must you deposit each year to obtain your
goal?
The amount of money you must deposit each year in order to obtain your goal is $ (round to the nearest
cent)
Question 9
How long will it take to pay off a loan of $48,000 at an annual rate of 11 percent compounded
monthly if you make monthly payments of $800?
Use five decimal places for the monthly percentage rate in your calculations.
The number of years it takes to pay off the loan is _______ years (round to one decimal place)
Question 10
Your folks just called and would like some advice from you. An insurance agent just called them and
offered them the opportunity to purchase an annuity for $31,828.24 that will pay them $4,000 per year
for 15 years. They don’t have the slightest idea what return they would be making on their investment
of $31,828.24. What rate of return would they be earning?
The annual rate of return your folks would be earning on their investment is ____ % (round to two
decimal places).
Question 11
On December 31, Beth Klemkosky bought a yacht for $90,000. She paid $20,000 down and agreed to
pay the balance in 10 equal annual installments that include both the principal and 6 percent interest on
the declining balance. How big will the annual payments be?
a.
On December 31, Beth Klemkosky bought a yacht for $90,000 and paid $20,000 down, how much
does she need to borrow to purchase the yacht $_________ (round to the nearest dollar)
Question 12
The state lottery’s million-dollar payout provides for $1.4 million to be paid in 20 installments of
$70,000 per payment. The first $70,000 payment is made immediately, and the 19 remaining
$70,000 payments occur at the end of each of the next 19 years. If 9 percent is the discount rate, what is
the present value of this stream of cash flows? If 18 percent is the discount rate, what is the present
value of the cash flows?
If 9% is the discount rate, the present value of the annuity due is $ _____________ (round to the
nearest cent)
Question 13
Lisa Simpson wants to have $1,400,000 in 45 years by making equal annual end-of-the-year deposits
into a tax-deferred account paying 11.50 percent annually. What must Lisa’s annual deposit be?
The amount of Lisa’s annual deposit must be $_______________ (round to the nearest cent)
Question 14
What is the present value of a perpetual stream of cash flows that pays $7,000 at the end of year one
and the annual cash flows grow at a rate of 2% per year indefinitely, if the appropriate discount rate is 8
%?
What if the appropriate discount rate is 6%?
If the appropriate discount rate is 8%, the present value of the growing perpetuity is $_______ (round to
the nearest cent)
Question 15
You are given three investment alternatives to analyze. The cash flows from these three investments are
as follows:
End of year
A
B
C
1
$2,000
$2,000
$5,000
2
$3,000
$2,000
$5,000
3
$4,000
$2,000
$(5,000)
4
$($5,000)
$2,000
$(5,000)
5
$5,000
$5,000
$15,000
What is the present value of each of these three investments if the appropriate discount rate is 8%?
What is the present value of investment A at an annual discount rate of 8% $________ (round to the
nearest cent)

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gross profit margin

current liabilities

net operating income

credit sales

average collection period

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