QUESTION 4 Firm ABC has sales of 25 million and net income o

QUESTION 4 Firm ABC has sales of $25 million and net income of $5 million The firm has S50million in assets and $33.3million in equity. What is the firm\'s return on Assets? 05% 1096 15% O 20% QUESTION 5 Which loan will result in the highest effective interest rate paid by the borrower? O 8%, 8-year loan compounded annually 0 896, 8-year loan compounded semi-annually 8%, 8-year loan compounded monthly O 8%, 8-year loan compounded daily QUESTION 6 Jose now has $100. How much would he have after 8 years if he leaves it invested at 5% with annual compounding? $103.38 O S118.10 O $146.93 $147.75

Solution

4. ROA = Net Income/Assets = $5 million/$50 million = 10%

Option \"B\" is correct.

5. r = (1 + i/n)ⁿ - 1

For annual compounding, EAR = 8%

For semi - annual compounding, EAR = (1 + 0.08/2)² - 1 = 1.04² - 1 = 0.0816 or 8.16%

For monthly compounding, EAR = (1 + 0.08/12)¹² - 1 = 1.0067¹² - 1 = 0.08299 or 8.30%

For daily compounding, EAR = (1 + 0.08/365)³⁶⁵ - 1 = 1.00022³⁶⁵ - 1 = 0.08328 or 8.33%

Hence, Daily Compounding has the highest EAR. So, Option \"D\" is correct.

6. FV = PV(1 + r)ⁿ

= $100(1.05)⁸ = $147.75

Option \"D\" is correct.