1 Problems: All data and time lines (if applicable) must be present at the time of answering these questions.

If possible, would add an explanation or solve the problems in excel spreadsheet so I can see the how you computed the answers. 1. ABC Corporation has sales of $6,500,000 in the past year, with operating expenses of $ 1,250,000 and cost of goods sold of $2,150,000. Depreciation expense of $525,000, Interest expenses amounted to $425,000, and $250,000 in common stock dividends were received. Common stock, which has been purchased ten months earlier for $750,000, was sold for $1,050,000. Prepare the income statement for the ABC Corporation. (10 points)

Net Income: $ _______________ Cash Flows: _______________________

2. ABC Corporation has sales of $4,000, assets of $2,000, a debt ratio of 30 percent, and an ROE of 15 percent. XYZ Corporation has the same sales, assets, and net income, but its ROE is 25 percent. What is XYZ's debt ratio? (Hint: Begin by looking at the Du Pont equation.)

Debt Ratio: ___________ 3. You are trying to plan for retirement in 10 years, and currently you have $250,000 in savings account and $300,000 in stocks. In addition you have plans on adding to your savings by depositing $10,000 per year in your savings account at the end of each of the next five years and then $15,000 per year at the end of each year for the final five years until retirement. Assume your savings account returns 5 percent compounded annually while your investment in stock returns 11 percent compounded annually, how much will you have at the end of 10 years. If you expect to live for 20 years after you retire, and at retirement you deposit all of your savings in a bank account paying 5 percent, how much can you withdraw each year after retirement to end up with a zero balance at the end of 20 years. Total Value (10years): $ ______________ Withdrawal: $_______________

4. A young couple is planning for the education of their two children. They plan to invest the same amount of money at the end of each of the next 16 years, i.e., the first contribution will be made at the end of the year and the final contribution will be made at the time the oldest child enters college. The money will be invested in securities that are certain to earn a return of 8 percent each year. The oldest child will begin college in 16 years and the second child will begin college in 18 years. The parents anticipate college costs of $25,000 a year (per child). These costs must be paid at the end of each year. If each child takes four years to complete their college degrees, then how much money must the couple save each year? Annual Savings (Contribution): $_____________

5. You intend to purchase a 15-year, $1,000 face value bond that pays interest of $65 every 6 months. If your nominal annual required rate of return is 11 percent with semiannual compounding, how much should you be willing to pay for this bond? Bond value: ____________

6. ABC Corporation has outstanding bonds with an annual 11 percent coupon. Interest is paid semiannually. The bonds have a par value of $1,000 and a price of $1,200. The bonds will mature in 15 years. What is the yield to maturity on the bonds? Yield to maturity: __________