Topperton Company has developed a new industrial product. An outlay of $8 million is required for equipment to produce the new product, and additional net working capital of $400,000 is required to support production and marketing. In addition, a one-time $400,000 (before-tax) expense will be incurred the year that the equipment is placed into service. The equipment will be depreciated on a straight-line basis to a zero book value over 6 years. Although the depreciable life is 6 years, the project is expected to have a productive life of 8 years, and it is estimated that the equipment can be sold for $1 million at that time. Revenues minus expenses are expected to be $3 million per year. The cost of capital for this project is 14%, and the relevant tax rate is 30%. What is the NPV of the new product?

$2,956,923

$3,326,891

$3,002,696

None of these

You are 40 now and at age 60 you wish to buy a 20 year annuity that makes monthly payments of $3,500 which earns a rate of 1% per

month.

a. You have $15,000 to invest now to save up and buy that annuity. Would annual interest rate would you need to earn to achieve

your goal?

b.How many periods will it take money to double at rate of 10% per period (rounded to the nearest period)?

Consider a T-Bill with a rate of return of 2% and the following risky secuirties:

Security A: E(r) = .14 Variance = .07

Security B: E(r) = .11 Variance = .05

Security C: E(r) = .09 Variance = .02

Security D: E(r) = .13 Variance = .06

The investors must develop a complete portfolio by combing the risk-free asset with one of the securities mentioned above. The security the investor should chose as part of his complete portfolio to achieve the best CAL would

a) Security A

b) Security B

c) Security C

d) Security D

Over the past 5 years Truman Incorporated has been maintaining its total debt ratio in the range of 60%-70%. (Support your answers with a framework of any capital structure theories we discussed in class):

a) Give at least three reasons why Truman might be using debt financing, instead of using equity financing only?

b) Truman Inc. has been maintaining debt levels in a range of 60%-70% over the past 5 years. Why is Truman not using equity only? Alternatively, why does not Truman increase its leverage beyond 70%, for example?

c) As an external consultant to Truman – what would you recommend to Truman’s CEO as “best practices” in their project financing needs for the next 4-5 years? (You may bullet-point you suggestions/ideas. List at least 5 suggestions).

in 300 words, Consider this statement. Government should implement a policy that sees the tax levied on smokeable forms of cannabis be priced higher/taxed heavier than edibles or other non-smokeable forms. is this a reasonable policy? Why or why not?

A stock pays an annual dividend of $8.4 in one year time. The dividend is expected to increase by 7% per year (roughly the inflation rate) forever. The price of the stock is $73 per share. At what cost of capital is this stock priced?

Select one:

a. The cost of capital is 18.51%

b. The cost of capital is 19.51%

c. The cost of capital is 17.51%

d. The cost of capital is 19.01%

You are the CFO of an all-equity financed firm. Now, you are evaluating a capital restructuring plan to issue some debt and use the proceeds to repurchase some shares. How will the earnings per share (EPS) change with respective to the leverage change? In what circumstances, increasing leverage will be beneficial for shareholders? In what circumstances, increasing leverage will hurt shareholders?

Consider the information below which shows the rates at which firm X and firm Y are able to borrow in the fixed- and variable-rate debt markets. Prepare a fully labelled diagram to show the construction and cash flows of the direct interest rate swap. In your diagram, show which firm will initially borrow fixed-rate debt and which firm will borrow variable-rate debt. Assume the comparative advantage net differential is to be shared equally between the companies.

This will be a direct swap without an intermediary.

LIBOR rate 1.90800%

Assume a barley producer wishes to develop a hedging strategy for the sale of 100,000 tonnes of Eastern Australian Feed Barley. Using current information about future prices from the ASX explain some of the strategies available to the producer and how the use of futures can mitigate against risk.

Current spot price $358

Futures price $292 JAN 20

$296 March 2020

Marilyn Terrill is the senior auditor for the audit of Uden Supply Company for the year ended December 31, 20X4. In planning the audit, Marilyn is attempting to develop expectations for planning analytical procedures based on the financial information for prior years and her knowledge of the business and the industry, including these:

1. Based on economic conditions, she believes that the increase in sales for the current year should approximate the historical trend.

2. Based on her knowledge of industry trends, she believes that the gross profit percentage for 20X4 should be about 2 percent less than the percentage for 20X3.

3. Based on her knowledge of regulations, she is aware that the effective tax rate for the company for 20X4 has been reduced by 5 percent from that in 20X3.

4. Based on a review of the general ledger, she determined that average depreciable assets have increased by 10 percent. Purchases of equipment occurred relatively evenly throughout the year.

5. Based on her knowledge of economic conditions, she is aware that the effective interest rate on the company’s line of credit for 20X4 was approximately 12 percent. The average outstanding balance of the line of credit is $3,500,000. This line of credit is the company’s only interest-bearing debt.

6. Based on her discussions with management the advertising and sales commission percentages are expected to stay the same. Based on her knowledge of the industry, she believes that the amount of other expenses should be consistent with the trends from prior years.

Comparative income statement information for Uden Supply Company is presented in the below table.

UDEN SUPPLY COMPANY

Comparative Income Statements

Years Ended December 20X1, 20X2, and 20X3

(Thousands)

20X1 Audited 20X2 Audited 20X3 Audited 20X4 Expected

Sales 12,300 13,100 13,900

Cost of goods sold 8,490 9,050 9,620

Gross profit 3,810 4,050 4,280

Sales commissions 860 920 970

Advertising 246 260 280

Salaries 1,121 1,154 1,187

Payroll taxes 196 201 206

Employee benefits 179 184 189

Rent 72 75 78

Depreciation 72 75 78

Supplies 38 41 44

Utilities 33 36 39

Legal and Accounting 46 49 52

Miscellaneous 24 27 30

Interest Expense 354 372 384

Net income before taxes 569 656 743

Income taxes 128 148 167

Net income 441 508 576

Required:

b. Determine the expected amounts for 20X4 for each of the income statement items. (Round gross profit ratio and income taxes ratio to nearest four decimal places. Round other ratios to nearest two decimal places. Round all other intermediate computations to the nearest whole value. Enter your answers in thousands.)

c. Uden’s unaudited financial statements for the current year show a 30.79 percent gross profit rate. Assuming that this represents a misstatement from the amount that you developed as an expectation, calculate the estimated effect of this misstatement on net income before taxes for 20X4. (Enter your answers in thousands.)

Find the present value of an annuity due that pays $3000 at the beginning of each quarter for the next 9 years. Assume that money is worth 6.6%, compounded quarterly. (Round your answer to the nearest cent.)

Sanders Co. includes one coupon in each bag of cat food it sells. In return for 4 coupons, customers receive a teddy bear that the company purchases for $1.20 each. Sanders's experience indicates that 60 percent of the coupons will be redeemed. During 2018, 100,000 bags of cat food were sold, 12,000 teddy bears were purchased, and 50,000 coupons were redeemed. During 2019, 120,000 bags of cat food were sold, 16,000 teddy bears were purchased, and 60,000 coupons were redeemed.

1. Calculate the premium liability at the end of 2018. Show your workings.

2. Calculate the actual number of teddy bears given to customers in 2019. Show your workings.

3. Why do companies want to offer premium to customers? Explain the accounting principle and treatment for consideration payable.

4. A clerical staff has tried to calculate the premium expense to be shown in the income statement for 2018. He said that the figure of actual number of coupons redeemed in year 2018 is required in order to calculate the premium expense for 2018. Do you agree with him? Why? Also, he argued that the figure of sales volume of cat food in 2018 is not required to calculate the premium expense for 2018. Do you agree with him? Why? (No need to show any calculation)

5. The clerical staff also said that the sales volume of cat food in 2018 is not relevant for him to calculate the premium liability at 31 Dec 2018. Do you agree with him? Explain the reasons. (No need to show any calculation)

6. If cash with an amount of less than $1.2 is received from customer for each teddy bear given, explain how this would affect the premium expense in 2018? (No need to show any calculation)

7. If cash with an amount of less than $1.2 is received from customer for each teddy bear given, explain how this would affect the premium liability at the end of 2018? (No need to show any calculation)
8. The clerical staff argued that if the sales volume of cat food in 2018 is recorded wrongly, it would not have any effect on the accurateness of the premium liability at the end of 2019, because premium liability at the end of 2019 is related to sales volume of cat food in 2019, but not related to the sales volume of cat food in 2018. Do you agree with him? Explain the reasons. (No need to show any calculation)

An ounce of gold currently costs 5100 shekels in Tel Aviv and $1,450 in Dollars. The shekel inflation rate is 13%, and the dollar inflation rate is 2.5%. You are considering opening a semiconductor plant in Israel. Setting up manufacturing will cost 25,000,000 shekels today and 25,000,000 shekels 2 years from today. You will receive payments of 40,000,000 shekels one, two and three years from today. Your US dollar cost of equity is 11%. Assume that there is no arbitrage in any markets there are no taxes, and that this project is 100% equity financial.

a. What should the exchange rate between dollars and shekels be today?

b. What should the exchange rate one, two and three year from today? Please us exact formula not the approximate formula.

c. That the NPV of this project to US shareholders who demand payment in US dollar?

Start Me Up Inc. manufactures a caffeinated energy drink that sells for $5.00 each. The results for its first year of operations appear in the table below:

Required:

1. Compute the operating income for the first year under full costing.

2. Compute the operating income for the first year under variable costing.

(For all requirements, do not round intermediate calculations.)

Assume that you are a Financial Manager of Starbucks Coffee, Inc., a multi-national corporation. You are in charge of determining the impact of exchange rate changes on the firm. Changes in currency exchange affect both the balance sheet and the income statement. The balance sheet impact occurs when the value of international assets are translated to U.S. dollars. The values of those assets change as the exchange rate changes. The value of costs, revenue, and profit also are impacted on the income statement because of exchange rate risk. Consider that Starbucks has the following investments in coffee bean production and processing:

Table One:

            The expense of all the labor, production, and beans will require the following foreign currency amounts during the current year:

                        Table Two:

            Starbucks Coffee has also invested in store facilities to sell coffee products. The countries and the value of the investments are as follows:

                        Table Three:

            The “Net Profit” from these countries during the current year is as follows:

                        Table Four:

            The current spot exchange rates per one U.S. dollar are as follows:

                                    Table Five:

            As the Financial Manager for Starbucks, your task is to determine the following:

2) Convert the “Net Profit” generated in Canada, Japan, and the United Kingdom shown

                        in Table Four above to U.S. dollars to calculate the total profits realized by Starbucks,

                        Inc. during the current year in U.S. dollars.

a. Starbuck’s “Return on Investment” (ROI) can be calculated using the following formula

Net Profit in U.S. dollars from Question #2 above/Total Investment for Production and Store Facilities in Tables One and Three above

=      ROI

                                  What is Starbuck’s “Return on Investment” for the current year?