This exam is closed book with one double-sided sheet of formulas/definitions allowed. It is to be your individual work O the questions.

You must show all your work for full credit; showing your work will also ease getting partial credit. I have shown the m Please, notice the color coding, which indicates which cells require your input or calculation. Of course forget to name the tabs to identify the questions/problems they are related to.

Please rename the file, putting your last name and first initial in the title of your file, e.g., DoeJ_Fin320_Fall_2013 Mid Good luck and all the best!

Grading Sheet Problem Problem 1 Problem 2 Problem 3 Problem 4 Qualitative Questions Total Percentage Your points Maximum Points 3 10 8 10 2 15 8.5 15 9.5 10 31 60 51.67%

30.00% 80.00% 13.33% 56.67% 95.00%

Color Coding

is to be your individual work ONLY. You are not allowed to consult with anyone in answering

getting partial credit. I have shown the maximum points for each problem.

or calculation. Of course you may add additional cells and even tabs. If you create additional tabs, do not

, e.g., DoeJ_Fin320_Fall_2013 Midterm

Color Coding Numbers calculated or entered by a student Numbers calculated automatically Answers/Final results

Score (filled by professor)

Color Coding Numbers calculated or entered by a student Numbers calculated automatically Answers/Final results

Score (filled by professor)

Company's sales in January 2013 were $ 20,000 with 50% of sales being on credit and 50% cash. The company a from previous months' sales. The company spent $15,000 to manufacture the products sold. It depreciated its exis that month. The income tax rate is 35%. a) What is the company's Net Income? b) Please fill in the blank cells in the Balance Sheet statement below

Sales Percentage of credit sales Cash collected from earlier sales Cost of Goods Sold Depreciation Income Tax Rate a) What is the company's Net Income? Item Revenues Cost of Goods Sold Depreciation EBIT Taxes Net Income

$20,000.00 50% $12,000.00 $15,000.00 $1,000.00 35%

Amount $20,000.00 ($15,000.00) ($1,000.00) ($16,000.00) $0.00

b) Please fill in the blank cells in the January 31 Balance Sheet statement below Balance Sheet 31-Dec-12 Cash AR Finished Goods inventory Raw Materials inventory Gross Fixed Assets - Accumulated Depreciation Net Fixed Assets Total Assets A/P Accrued Interest Short-term debt $ $ $ $ $ $ $ $ $ $ $ 5,000 12,000 2,000 1,000 50,000 (16,000) 34,000 54,000 4,000 -

Long-Term Debt Equity Total Equity and Liabilities

$ $ $

50,000 54,000

on credit and 50% cash. The company also collected $ 12,000 cash the products sold. It depreciated its existing equipment by $1,000 in

Score 3

Score 0

et 31-Jan-13 Cash AR Finished Goods inventory Raw Materials inventory Gross Fixed Assets - Accumulated Depreciation Net Fixed Assets Total Assets A/P Accrued Interest Short-term debt

$ $ $ $ $ $ $ $ $

2,000 1,000 50,000 (17,000) 33,000 36,000 4,000 -

Long-Term Debt Equity Total Equity and Liabilities

4,000

Color Coding Numbers Given Numbers Calculated automatically Student's Calculations/Results Score (filled by professor)

Maximum Score 5

Maximum Score 5

You deposit $1,000 on your savings account with APR 5.2%. The bank tells you that they use monthly compounding. a) what is the effective annual rate (EAR), i.e., the rate after compounding?

b) How much money do you expect to have on your account in 30 years? c) How much extra value would you get, if the bank used weekly compounding for the same APR? Assume 52 weeks per year. Deposit APR Holding period Number of compounding periods with monthly compounding Number of compounding periods with weekly compounding ($1,000) 5.20% 30 years 12 per year

52 per year

a) what is the effective annual rate (EAR)? Rate per period EAR with monthly compounding 0.004333333 5.33%

b) How much money do you expect to have on your account in 30 years? FV $4,575.85

) How much extra value would you get, if the bank used weekly compounding for the same APR? Assume 52 week 0.00100 EAR with weekly compounding 5.335% FV with weekly compounding $14,919.20 Extra value $10,343.34

Color Coding Numbers calculated or entered by a student Numbers calculated automatically Answers/Final results Score (filled by professor)

APR?

Score

Maximum Score

e APR? Assume 52 weeks per year.

You want to buy a car of your dreams in the near future and you will need $30,000 for the down payment. Right n have only $15,000, which you invest into a security that generates a 12% annual rate of return.

a) How long do you have to wait, before you buy the car? Please show your calculations using both precise and approximate results. Don't forget to indicate the measurement units. b) How would your answer in a) change, if 12% were not the actual rate of return, but APR compounded weekly? don't forget to indicate the measurement units? c) Imagine that you would like to be able to make the down payment in exactly 5 years. What rate of return shoul investment have for you to achieve this goal?

Money you have Money you need Annual Return

$15,000.00 $30,000.00 12.00%

a) How long do you have to wait, before you buy the car? Please show your calculations using both precise and appr results. Don't forget to indicate the measurement units. Waiting time (precise) Approximate (72 rule) 111607.14 years years years 6.12 6.12 6

b) How would your answer in a) change, if 12% were not the actual rate, but APR compounded weekly? Again, don to indicate the measurement units? Compounding frequency Actual rate Waiting time (precise) Approximate (72 rule) 52 per year 12.73% years years years

c) Imagine that you would like to be able to make the down payment in exactly 5 years. What rate of return should y investment have for you to achieve this goal? Waiting time 5

Rate of return

per year per year

Color Coding

0,000 for the down payment. Right now you ual rate of return.

alculations using both precise and

turn, but APR compounded weekly? Again,

y 5 years. What rate of return should your

ulations using both precise and approximate

Score

Maximum Score 2 5

R compounded weekly? Again, don't forget

5 years. What rate of return should your

Color Coding Numbers calculated or entered by a student Numbers calculated automatically Answers/Final results Score (filled by professor)

Your rich aunt wants to help you to pay for your studies and is about to create a trust in your name. You anticipa education-related expenses will be $ 15,000 every year for three years starting from one year from now (i.e., you exactly in one year).

a) If the fund is going to generate 12% annual return, how much money should you ask your aunt to put into trus will be accumulating interest on money remaining in the trust until the last withdrawal three years from now will

b) Instead of the sum found in part a) your aunt decided to put into trust $ 40,000 today. After she deposited the learn that your tuition will be $15,500 every year. Will you have enough money to finance your education? If you you decide to use "extra money" (in excess of what is necessary for education) to go to Hawaii right now. How m you spend for Hawaiian trip in order to keep enough money to finance your education? If you don't have enough ask your uncle to lend you money for three years at 12% effective annual rate. How much do you ask him for?

c) If you postpone your trip until your graduation three years from now how much money will you have for the t much you will have to pay back to your uncle?

Rate Time CF

12% PV $0.00 $7,500.00 $11,957.91 $10,676.70 -13392.86

0 1 $ (15,000.00) 2 $ (15,000.00) 3 $ (15,000.00)

a) If the fund is going to generate 12% annual return, how much money should you ask your aunt to put into trust no will be accumulating interest on money remaining in the trust until the last withdrawal three years from now will be To Put in Trust $30,134.61

b) Instead of the sum found in part a) your aunt decided to put into trust $ 40,000 today. After she deposited the mo learn that your tuition will be $15,500 every year. Will you have enough money to finance your education? If you ha you decide to use "extra money" (in excess of what is necessary for education) to go to Hawaii right now. How much you spend for Hawaiian trip in order to keep enough money to finance your education? If you don't have enough, yo ask your uncle to lend you money for three years at 12% effective annual rate. How much do you ask him for?

Invested in Trust Time

$ 40,000.00 CF PV

0 1 $ (15,500.00) 2 $ (15,500.00) 3 $ (15,500.00) Money for the trip now Ask uncle for $37,228.38 0.40

$0.00 $13,839.29 $12,356.51 $11,032.59

c) If you postpone your trip until your graduation three years from now how much money will you have for the trip o you will have to pay back to your uncle? Money now (same as in b) $ 37,228.38

Money for the trip in three years

Color Coding

a trust in your name. You anticipate that your from one year from now (i.e., your next tuition is

d you ask your aunt to put into trust now? Trust hdrawal three years from now will be made

000 today. After she deposited the money, you y to finance your education? If you have enough, to go to Hawaii right now. How much money can ucation? If you don't have enough, you have to How much do you ask him for?

uch money will you have for the trip or how

ou ask your aunt to put into trust now? Trust awal three years from now will be made

Score

Maximum Score 4.5 5

today. After she deposited the money, you finance your education? If you have enough, go to Hawaii right now. How much money can tion? If you don't have enough, you have to w much do you ask him for? 4 5

money will you have for the trip or how much 0 5

Color Coding Numbers calculated or entered by a student Numbers calculated automatically Answers/Final results Score (filled by professor)

What is finance? How do you understand the separation of consumption and investment decisions?

Answer: Finance is the study of how people allocate scarece resources over time. The difference between comsumption and investment decisions, is that consumption is the action of receieving money emediatly after while investment is plaing your money into something that will eventually grow and make money apon itself.

Score 4.5

What is the accrual principle of accounting?

Answer: The accural principle of accounting is a methodology used to measure business transactions. Under this principle income and expenses are recognized as they occur, rather than the period in which the cash flows related to them occur.

Maximum Score 5