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The Allen Corporation

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The Allen Corporation had sales in 2013 of $67 million, total assets of $42 million, and total liabilities of $24 million. The interest rate on the company’s debt is 5.9

percent, and its tax rate is 35 percent. The operating profit margin is 13percent.

A.Compute the firm’s 2013 net operating income and net income.

B. Calculate the firm’s operating return on assets and return on equity. (Hint: You can assume that interest must be paid on all of the firm’s liabilities.)

 
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Lease versus Purchase Decision Cost of Purchasing

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W11WORKSHEETWorksheet for Calculating the Maximum Monthly Mortgage Payment and Mortgage Size for Which You Can Qualify
 Method 1 Determine Your Maximum Monthly Mortgage Payment Using the 
 Ability to Pay, PITI Ratio.    
 a.Monthly income (annual income divided by 12)  
 b.Times 0.28: Percentage of PITI (Principal, interest, taxes, and insurance) to your 
 monthly gross income that lenders will lend in the form of a mortgage loan 
 (multiply line a by 0.28)x 0.28=$0 
 c.Less: Estimated monthly real estate tax and insurance payments–  
 d.Equals: Your maximum monthly mortgage payment using the 28% of PITI ratio=$0 
 To Determine the Maximum Mortgage Loan Level Using the Maximum Monthly 
 Mortgage Payments as Determined Using the PITI Ratio (line d): 
 Step 1: Monthly mortgage payment for a $10,000 mortgage with a ____ year 
 maturity and a ____% interest rate (using Table 8.1)=  
 Step 2: Maximum mortgage level = maximum monthly mortgage payment (line d) 
 divided by the monthly mortgage payment on a $10,000, ____%, ____year 
 mortgage (step 1 above) times $10,000 = (line d/step 1) x $10,000=  
  
 Method 2 Determine Your Maximum Monthly Mortgage Payment Using the 
 Ability to Pay, PITI Plus oth Fixed Monthly Payments, Ratio.    
 e.Monthly income (annual income divided by 12)  
 f.Times 0.36: Percentage of PITI + current monthly fixed payments to your 
 monthly gross income that lenders will lend in the form of a mortgage loan 
 (multiply line a by 0.36)x 0.36=$0 
 g.Less: Current nonmortgage debt payments on debt that will take over 
 10 months to pay off and other monhtly legal obligations such as child support 
 and allimony payments–  
 h.Less: Estimated monthly real estate tax and insurance payments–  
 i.Equals: Your maximum monthly mortgage payment using the 36% of PITI + other fixed 
 Monthly payments ratio (line f  – g – h)=$0 
 To Determine the Maximum Mortgage Loan Using the PITI Plus Other Fixed Monthly 
 Payments Ratio (line i): 
 Step 1: Monthly mortgage payment for a $10,000 mortgage with a ____ year 
 maturity and a ____% interest rate (using Table 8.1)=  
 Step 2: Maximum mortgage level = maximum monthly mortgage payment (line d) 
 divided by the monthly mortgage payment on a $10,000, ____%, ____year 
 mortgage (step 1 above) times $10,000 = (line i/step 1) x $10,000=  
  
 Method 3 Determine Your Maximum Mortgage Level Using the “80% of the 
 Appraised Value of the House” Rule.    
 j.Funds availble for the down payment and closing costs  
 k.Less: Closing costs–  
 l.Equals: Funds available for the down payment=$0 
 m.Times 4: Maximum mortgage level using the “80% of the appraised value of the 
 house” rule (the 20% down, line l, times 4 equals the 80% you can borrow)x 4=$0 
  
 Conclusion: Maximum Mortgage Level for Which You Will Qualify 
 (the lowest of the amounts using method 1, method 2, or method 3) =  
 
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Lease versus Purchase Decision Cost of Purchasing

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W9WORKSHEETWorksheet for the Lease versus Purchase Decision
   Cost of Purchasing  
  
 a.Agreed-upon purchase price 
 b.Down payment 
 c.Total loan payments (monthly loan payment  x ___ no. months) 
 d.Opportunity cost of down payment [line b x  
  (1 + foregone rate of return (number of years))] 
 e.Less: Expected market value of the car ar the end of the loan 
 f.Total cost of purchasing$0
  
   Cost of Leasing  
  
 g.Down payment (capitalized cost reduction) + security deposit 
 h.Total lease payments (monthly lease payment  x ___ no. months) 
 i.Opportunity cost of total initial payment [line g x 
  (1 + foregone rate of return(number of years))] 
 j.Any end-of-lease charges (e.g., excess mileage), if applicable 
 k.Less: Refund of security deposit 
 l.Total cost of leasing$0
   
     $0
      
 
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value of a bond

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Calculate the value of a bond that matures in 16years and has a $1,000par value. The annual coupon interest rate is 12percent and the market’s required yield to maturity on a comparable-risk bond is 9percent.

The value of the bond is?

 
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