Budgeting Practices Due Oct.

14, 2020

Name: Ester Intan Sukma

Quiz# 1

1. Use the following information for U.S. Corporation.

For 2016, calculate the cash flow from assets, cash flow to creditors, and cash flow to
stockholders. (Assume the tax rate is 34%.)
Budgeting Practices Due Oct. 14, 2020

Answer:
The first we calculate Operating Cash flow statement:
Earnings before interest and taxes (EBIT) $694
Depreciation $65
Taxes (34%) ($212)
Operating Cash flow $547

Net Capital Spending:

Ending net fixed assets $1,709
Beginning net fixed assets ($1,644)
Depreciation $65
Net capital Spending $130

Net working Capital at the 2016

Total Current Assets $1,403
Total Current Liabilities ($389)
$1,014
Net working Capital at the 2015
Total Current Assets $1,112
Total Current Liabilities ($428)
$684.

Change in NWC:
Ending NWC-Beginning NWC
=$1,014 - $684
= $330

Cash flow from Assets

Operating Cash flow $547
Net Capital Spending ($130)
Change in NWC ($330)
Cash flow from assets $87

*$70 is interest to creditors.

Long-term debt 2016-2015
= $454 - $408
=$46

So, Cash flow to creditors.

Interest Paid $70
Net new borrowing ($46)
Cash Flow to creditors $24
Budgeting Practices Due Oct. 14, 2020

Net cash flow to Stockholders.

*103 is dividend for stockholders
*40 Is net new equity was raised from 2015 to 2016
Dividends paid $103
Net new equity raised ($40)
Cash flow to Stockholders $63

Cash flow from Assets = $87

Cash flow to creditors and stockholders is = $24+ $63 = $87
Budgeting Practices Due Oct. 14, 2020

2. Suppose you will receive $100 one year from today and that the appropriate discount rate
is 8%. What is the value of the cash flow today?

PV = FV / (1+r)n
= $100 / (1+0.08)1
= $100 / 1.08
= $92.59

3. Suppose you have $500 to invest and you believe that you can earn 8% per year over the
next 15 years.
a. How much would you have at the end of 15 years using compound interest?
b. How much would you have using simple interest?
Answer:
a). 15 N, 8 I/Y -500 PV, 0 PMT, CPT
FV 1586.08

FVFn,1 = (1+i)n
500 = (1.08)15
= 1586.08

b). Year 1 $500 x 8% = 40

Year 1 $500 x 8% = 40
Year 1 $500 x 8% = 40
Year 1 $500 x 8% = 40
Year 1 $500 x 8% = 40
Year 1 $500 x 8% = 40
Year 1 $500 x 8% = 40
Year 1 $500 x 8% = 40
Year 1 $500 x 8% = 40
Year 1 $500 x 8% = 40
Year 1 $500 x 8% = 40
Year 1 $500 x 8% = 40
Year 1 $500 x 8% = 40
Year 1 $500 x 8% = 40
Year 1 $500 x 8% = 40
600
Or:
500+ 15(500)(.08) =1,100.
Budgeting Practices Due Oct. 14, 2020

4. If you deposit $100 in one year, $200 in two years and $300 in three years,
a. How much will you have in three years at 7 percent interest?
b. How much will you have in five years if you don’t add additional amounts? (Assume
that the interest rate is 7 percent p.a.)
Answer:
Year 1 CF: 2N; -100 PV, 7 I/Y; CPT FV = 114,49
Year 2 CF: 1N; -200 PV; 7 I/Y; CPT FV = 214,00
Year 3 CF: 0N; -300 PV; 7 I/Y; CPT FV = 300,00
a). Total FV(3) = 628,49
b). Total FV (5) = 628,49 x (1.07)2 = 719,56

5. Suppose you win a lottery that pays you $100 for three years. Your first payment will be
occurred in the 5th year from today. It means that you will receive $100 in 5 th, 6th, and 7th
year from today. What is the value of the cash flow today? Let’s assume the interest rate
is 10%.

PV = 0.75132 x 100 = $75.132

6. What is the future value of $6,200 invested for 23 years at 9.25 percent compounded
annually? 
PV: -6200
N: 23
I/Y: 9.25
PV= $47,433.47

7. You want to have $25,000 saved 6 years from now to buy a house. How much do you
have to deposit today to reach this goal if you can earn 5 percent on your savings? Today's
deposit is the only deposit you will make to this savings account. 
PV = FV / (1+r)n
= 25000 / (1+0.5)6
= 25000 / 1.34
= 18655.38
Budgeting Practices Due Oct. 14, 2020

8. You have some property for sale and have received two offers. The first offer is for
$89,500 today in cash. The second offer is the payment of $35,000 today and an
additional $70,000 two years from today. If the applicable discount rate is 11.5 percent,
which offer should you accept and why?
Answer: You should accept the second offer because it has larger net present value.
Present value of $70,000 = $70,000 / (1.115)2 = $56,305
Present values of the offer = $56,305 + $35,000 = $91,305
As the offer is more in value today from the option one which stands at $89,500
so the better option is $91,305.

9. You are considering two investment projects. The terms of the two projects are equivalent
with the exception of the interest rates. Project A offers a rate of 7.75 percent,
compounded daily. Project B offers a rate of 8 percent, compounded semi-annually.
Which project should you select and why? (Hint: Use EAR.)
Answer:
EARA = [1+(0.0775/365)]365 – 1 = 8.06 percent
EARB = [1+(0.08/2)]2 – 1 = 8.16 percent.
So, I will choose Project A, because it’s effective annual rate.