Vito’s Tavern had $262,000 in 2019 taxable income. What is the taxable income? During the year, Vito’s Tavern had gross sales of $1,200,000. Costs of Goods sold was $672,000, selling and administrative expenses were $212,000. Vito Tech also had notes payable (liability) of $750,000 at an interest rate of 3%. Depreciation was $110,000 and the company is in a 35% tax bracket. What is Vito Tech’s net income and operating cash flow?
October 13, 2020
Essayheroes
1. Vito’s Tavern had $262,000 in 2019 taxable income. What is the taxable income? (5 Points)
2. During the year, Vito’s Tavern had gross sales of $1,200,000. Costs of Goods sold was $672,000, selling and administrative expenses were $212,000. Vito Tech also had notes payable (liability) of $750,000 at an interest rate of 3%. Depreciation was $110,000 and the company is in a 35% tax bracket. What is Vito Tech’s net income and operating cash flow? (10 Points)
3. The most recent financial statements for Vito’s Tavern are as follows:
Income Statement
Sales $55,000
Costs $40,000
Taxable Income $15,000
Taxes (28%) $4,200
NI $10,800
Balance Sheet
Current Assets $40,000 Long-Term Debt $60,000
Fixed Assets $100,000 Equity $75,000
Total $140,000 Total $135,000
Assets and costs are proportional to sales. Beakman maintains a 10% dividend payout ratio and a constant debt-equity ratio. What is the maximum increase in sales that can be sustained assuming no new equity is issued? (10 Points)
4. If Vito’s Tavern has a ROE of 10% and a payout ratio of 7%, what is its sustainable growth rate? (8 Points)
5. PNC Bank pays 5% simple interest on its savings account balances, whereas First Niagara Bank pays 5% interest compounded annually. If you made a deposit of $20,000 in each bank, how much money would you earn from both bank accounts at the end of 10 years? (10 Points)
6. Compute future value for the following: (6 Points)
Present Value
|
Years
|
Interest Rate
|
Future Value
|
|
|
|
|
$7,552
|
10
|
15%
|
|
$94,000
|
18
|
12%
|
|
$250,000
|
5
|
7%
|
|
7. Compute Present Value for the following: (6 Points)
Present Value
|
Years
|
Interest Rate
|
Future Value
|
|
|
|
|
|
10
|
10%
|
$17,345
|
|
20
|
12%
|
$1,753,300
|
|
40
|
8%
|
$5,135,000
|
8. Suppose you would like to buy your dream house in 10 years. You estimate that you will need $50,000 for the down payment. If you believe your mutual fund can achieve 7% annual rate of return and you want to have the down payment for the house in 10 years, how much do you have to invest today? (5 Points)
9. You have just made a one-time $5,000 contribution to your retirement account. Assuming you earn 15% per year and make no additional contributions. What will your account be worth when you retire in 40 years? (5 Points)
10. You receive $5,000 per year for the next 20 years from your Grandmother’s trust. If a 7% interest rate is applied, what is the present value of the future payment? (5 Points)
11. If you deposit $5,000 per year for the next 20 years into an account paying 10%, how much money will you have in the account in after the 20 years? Suppose you decide to invest this $5,000 per year in the same account earning 10% for 40 years rather than 20, how much will you have in the account after 40 years? (10 Points)
12. Smith Company has the opportunity to invest in two projects. The cash flow for each project is as follows. (10 Points)
Year
|
Cash Flow (A)
|
Cash Flow (B)
|
0
|
$ (50,000.00)
|
$ (60,000.00)
|
1
|
$ 17,000.00
|
$ 14,000.00
|
2
|
$ 22,000.00
|
$ 15,000.00
|
3
|
$ 16,000.00
|
$ 25,000.00
|
4
|
$ 10,000.00
|
$ 275,000.00
|
Part 1: Assuming Smith Company has a 3 year payback cut off for investing in projects, based on the payback method, which project/projects should the company choose? Show your work on how you came up with the answer.
Part 2: Utilizing a Net Present Value methodology, which project should Smith choose assuming a discount interest rate of 10%? Show your work on how you came up with the answer.
Part 3: Utilizing an Internal Rate of Return methodology, which project should Smith Choose? Show your work on how you came up with the answer.
Part 4: What is one pro and one con of each of the above methods?
13. You are considering investing in a company that cultivates stone for sale to landscaping companies. Use the following information: (10 Points)
Sales price per ton of stone = $35
Variable costs per tone= $6.95
Fixed costs per year = $390,000
Depreciation per year = $100,000
Tax rate = 35%
The discount rate for the company is 13%. The initial investment in equipment is $750,000 and the projects economic life is 10 years. Assume the equipment is depreciated on a straight line basis over the projects life.
a.What is the accounting break-even level for the project?
b.What is the financial break-even level for the project?
