It is the beginning of January. Actual sales for the previous quarter (Q4) and estimated sales for the next five quarters are as follows (in $ million):

You collect 20% of sales in the current quarter and the remainder in the following quarter. You expect to spend 40% of the following quarter's sales on purchases of components from suppliers, and to pay 70% of those purchases in the current quarter and the remainder in the following quarter. Wages and other expenses add up to 30% of each quarter's sales.

You have to pay $4 million in interest and dividends each quarter, and plan to spend $7 million on new machinery in Q3.

Assume that each quarter has 90 days, sales occur evenly throughout the quarter and all other cash flows occur at the end of the quarter.

1. What is your expected net cash flow in Q1 (in $ million)?

2. What is your expected net cash flow in Q2 (in $ million)?

3. What is your expected net cash flow in Q3 (in $ million)?

4. What is your expected net cash flow in Q4 (in $ million)?

You buy a call with a strike price of $100 on stock that you have shorted at $100 (this is a “protective call”). What are the expiration date profits to this position for stock prices of $90, $95, $100, $105, and $110 if the call premium is $6.50? (A negative value should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your call profit and net profit answers to 2 decimal places and round your other answers to the nearest whole number.)

Stock Price Short Profit   Call Payoff Call Profit Net Profit

$90 _________ _________ ________ ________

$95 _________ _________ ________ ________

$100 _________ _________ ________ ________

$105 _________ ________ ________ ________

$110 ________ ________ ________ ________

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Suppose you write 36 call option contracts with a $80 strike. The premium is $4.33. Evaluate your potential gains and losses at option expiration for stock prices of $70, $80, and $90. (Input all amounts as positive values. Do not round intermediate calculations.)

At stock price of $70, the _______ is _______

At stock price of $80, the _______ is _______

At stock price of $90, the _______ is _______

Claire Corporation is planning to issue bonds with a face value of $150,000 and a coupon rate of 8 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Claire uses the effective-interest amortization method and does not use a discount account. Assume an annual market rate of interest of 12 percent.  (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)  

1. Provide the journal entry to record the issuance of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers to nearest whole dollar amount.)

14. The Albany Company has a present capital structure consisting of common stock ($200 million, 10 million shares) and debt ($150 million, 8% coupon rate). The company is planning a major expansion and is undecided between two financing plans.

Plan A: Equity financing. Under this plan, an additional 2.5 million shares of common stock will be sold at $15 per share.

Plan B: Debt financing. Under this plan, $37.5 million of 10% long-term debt will be sold. At what level of operating income (EBIT) will the firm be indifferent between the two plans? Assume a 21% marginal tax rate.

a) $6.75 million d) $30.75 million

Use breakeven EBIT formula

What are the internal control weaknesses in the following company's revenue cycle? And what are the potential impacts of these weaknesses on the organization? And give some suggested specific internal controls?

Customers place orders on the company’s website, via email, or by telephone. Due to a renewed interest in music, this year sales have increased significantly. All sales are on credit, with 17% of credit sales in the last 12 months needing to be written off as uncollectible. This included several large online orders to first-time customers who denied ordering or receiving the merchandise.

Customer orders are picked and sent to the warehouse, where they are placed near the loading dock in alphabetical sequence by customer name. The loading dock is used both for outgoing shipments to customers as well as receiving incoming deliveries. There are ten to twenty incoming deliveries every day, from a large number of sources.

The increased volume of sales orders has resulted in a large number of errors where customers have been sent the wrong items. There have also been delays in shipping as items that supposedly were in stock could not be found in the warehouse. Although a perpetual inventory is maintained, there has been no physical count of inventory for over two years. When an item is missing, the warehouse staff notes the information down in a log book. At the end of the week, the warehouse staff uses the log book to update the inventory records.

The system is configured to prepare the sales invoice only after shipping employees enter the actual quantities sent to a customer, thereby ensuring that customers are billed only for items actually sent and not for anything on back order. Terms of trade are payment within 21 days of invoicing, with a 2% discount offered for payments made within 5 days. Approximately 50% of Strings long standing repeat customers pay within the 5 days.

Problem 20-12 Portfolio consideration and risk aversion [LO20-4]

General Meters is considering two mergers. The first is with Firm A in its own volatile industry, the auto speedometer industry, while the second is a merger with Firm B in an industry that moves in the opposite direction (and will tend to level out performance due to negative correlation).

a. Compute the mean, standard deviation, and coefficient of variation for both investments. (Do not round intermediate calculations.Enter your answers in millions. Round "Coefficient of variation" to 3 decimal places and "Standard deviation" to 2 decimal places.)

b. Assuming investors are risk-averse, which alternative can be expected to bring the higher valuation?

• Merger A

• Merger B

Sarah secured a bank loan of $175,000 for the purchase of a house. The mortgage is to be amortized through monthly payments for a term of 15 years, with an interest rate of 3%/year compounded monthly on the unpaid balance. She plans to sell her house in 10 years. How much will Sarah still owe on her house at that time? (Round your answer to the nearest cent.)
$

A project requires outflows of $150,000 today and $50,000 in one year. It is then expected to generate 9 annual cash inflows of $72,000 starting at the end of year 5. If the project's cost of capital is 15%, what is this project's NPV? Round to the nearest cent.

Your first job out of college will pay you $47,000 in year 1 (exactly one year from today), growing at a rate of 3.9% per year thereafter. You will also receive a one time bonus of $22,000 at the same time as your first salary. You plan to retire in 44 years (you'll receive 44 years of salary). If the applicable discount rate is 5%, what is the present value of these future earnings today? Round to the nearest cent.

what are the main question that an analyst should ask in analyzing the sources and uses of cash in a business? 8marks

Why is it important that US financial institutions and financial markets perform efficiently?

Swindler Ltd has completed a feasibility study costing $22,378 to determine if there is any benefit in purchasing a new asset. The machine will cost $331,976 and an additional $11,128 will need to be spent to have the machine in operational state. Before the machine can be used staff must be trained at a further cost of $8,855.

The project is expected to last for 5 years and the Taxation Office has confirmed this. At the end of the project the machine will be fully depreciated.

Initial advertising costs are expected to $22,297 and additional stock of $71,498 will be needed. Wages will change from $85,000 to $53,864 and Fixed Costs will remain at $37,687.

The new machine is expected to produce sales of $1,549,364 in the first year and will grow by 11% each year of the project. Material costs will be 29% of sales in each year.

You are required to calculate the net cash flow (round to the nearest dollar and DO NOT include $ sign) that would appear in Year 1 of a Capital Budget.  

A company is projected to have a free cash flow of $261 million next year, growing at a 7% rate until the end of year 3. After that, cash flows are expected to grow at a stable rate of 2.0% in perpetuity. The company's cost of capital is 11.7%. The company owes $64 million to lenders and has $33 million in cash. If it has 111 million shares outstanding, what is your estimate for its stock price? Round to one decimal place. (e.g., $4.32 = 4.3)