Question

11. In the 5-Stage DuPont ROE formula, which of the following is considered a utilization ratio:

a. NI / EBT or the tax burden ratio

b. EBT / EBIT or the interest burden ratio

c. EBIT / Sales or the operating margin

d. Sales / TA or total asset turnover ratio

e. TA / SE or the leverage ratio

12. During lecture and on the lecture slides, we evaluated Vulcan Materials’ operating margin over a full 10 year business cycle. Because Vulcan Materials’ operating margin ________ when economic conditions deteriorate (e.g. during the housing crisis), Vulcan Material’s would best be categorized as a ________.

a. decreases ; cyclical company

b. increases ; cyclical company

c. decreases ; non-cyclical company

d. increases ; non-cyclical company

e. increases ; counter-cyclical company

13. You owe your credit company $25,000 and plan to make no payments on your credit card for 1.0 year. Due to your current credit score, your credit card company charges you an APR of 30.0%. If, however, you took measures to increase your credit score by 100points, your credit card company would instantaneously adjust your APR by 5.0%. How much would you save over 1.0 year if you took actions to increase your credit score?

a. $1,525

b. $1,603

c. $1,677

d. $8,622

e. $8,717

14. You are the beneficiary of a trust set up by your grandparents. You will receive a total of 60 after tax cash flows ($1,000 each) beginning six years from now (T=6) when you turn age 25. These payments are intended to help cover your living expenses over the course of your expected lifetime. Assume the appropriate discount rate is 6.0% per annum. What is the present value of the 60 payments?

a. $11,372

b. $11,393

c. $12,077

d. $12,098

e. $16,667

15. You have $1000 in a savings account today (T=0). Approximately how much longer would it take for your investment to double (i.e. to become worth $2000) if you earned 4.0% on your savings as opposed to 12.0% at the end of every calendar year? Hint: Think Rule of 72.

a. 6 years

b. 8 years

c. 12 years

d. 16 years

e. 18 years

Answer 1

11. Option D ---Sales / TA or total asset turnover ratio

Because it determines how much resources a business is utilising to generate revenue.Hemce the formula will be Total revenue divide by total assets or asset turnover.

12. More information needed for this question. Data of Vulcun materials over last 10 years is not provided to analyse the data and answer the question.

13. Option B --$1603

Total interest for 1 year with APR 30% is $8622.22

And Interest for 5% adjustment .,i.e 25% APR is $7018.29

Hence the saving is =$8622.22-$7018.29=$1603.93

14. Option B-$11,393

Step 1: First we need to calculate PV factor for 60 years @ 6%

Since all paymets are uniform, we take annuity of PV factor. The formula for calculating PV annuity is [1-(1+r)-n]/r Hence the Annuity factor will be [ 1-(1+.06)-60]/.06 Resolving the formula = 16.161428 Multiplying PV annuity with Period payment .ie., 1000 gives =1000*16.161428= $16161.43 So, The amount we calculated is after 6 years, Hence we need to calculate the PV of $16161.43 The PV factor 6 years @ 6%p.a is .705 Hence, the PV of the amount received =$16161.43*0.705=$11393.81 15. Option D-16 Years Years Initial Rate for 11 months Last month rate Interest of 11 months Interest for 1 month Total interest Total amount 1 1000 4% 12% 36.666667 10 46.66667 1046.667 2 1046.667 4% 12% 38.377778 10.46667 48.84444 1095.511 3 1095.511 4% 12% 40.168741 10.95511 51.12385 1146.635 4 1146.635 4% 12% 42.043282 11.46635 53.50963 1200.145 5 1200.145 4% 12% 44.005302 12.00145 56.00675 1256.151 6 1256.151 4% 12% 46.058883 12.56151 58.6204 1314.772 7 1314.772 4% 12% 48.208297 13.14772 61.35601 1376.128 8 1376.128 4% 12% 50.458018 13.76128 64.2193 1440.347 9 1440.347 4% 12% 52.812725 14.40347 67.2162 1507.563 10 1507.563 4% 12% 55.277319 15.07563 70.35295 1577.916 11 1577.916 4% 12% 57.856927 15.77916 73.63609 1651.552 12 1651.552 4% 12% 60.556917 16.51552 77.07244 1728.625 13 1728.625 4% 12% 63.382907 17.28625 80.66915 1809.294 14 1809.294 4% 12% 66.340776 18.09294 84.43371 1893.728 15 1893.728 4% 12% 69.436678 18.93728 88.37395 1982.102 16 1982.102 4% 12% 72.677057 19.82102 92.49807 2074.6 17 2074.6 4% 12% 76.068653 20.746 96.81465 2171.414