Maple Leaf Production manufactures truck tires. The following information is available for the last operating period.

• Maple Leaf produced and sold 95,000 tires for $38 each. Budgeted production was 100,000 tires.
• Standard variable costs per tire follow.

• Fixed production overhead costs:

Monthly budget $2,350,000

• Fixed overhead is applied at the rate of $23.50 per tire.
• Actual production costs:

Required:
a. Prepare a cost variance analysis for each variable cost for Maple Leaf Productions.
b. Prepare a fixed overhead cost variance analysis.
c. (Appendix) Prepare the journal entries to record the activity for the last period using standard costing. Assume that all variances are closed to cost of goods sold at the end of the operating period.

Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows:

*Common costs allocated on the basis of machine-hours.

†Common costs allocated on the basis of sales dollars.

Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company’s total general factory overhead or total Purchasing Department expenses.

Required:

What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?

The cash flows for three independent projects are found below.

Year 0 (Initial investment) Project A $(45,000) Project B $(120,000) Project C $(460,000)

Year 1 $12,000    $ 30,000 $ 220,000

Year 2 $14,000 $ 30,000 $ 220,000

Year 3 $ 19,000 $ 30,000 $   220,000

Year 4 $ 27,000 $ 30,000 -

Year 5   

a. Calculate the IRR for each of the projects. b. If the discount rate for all the three projects is 16 percent, which projects or projects would you want to undertake? c. What is the net present value of each projects where the appropriate discount rate is 16 percent? a. The IRR of project A is.

Excel Online Structured Activity: Recapitalization

Currently, Forever Flowers Inc. has a capital structure consisting of 20% debt and 80% equity. Forever's debt currently has an 9% yield to maturity. The risk-free rate (r_RF) is 6%, and the market risk premium (r_M - r_RF) is 8%. Using the CAPM, Forever estimates that its cost of equity is currently 12%. The company has a 40% tax rate. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations.

What is Forever's current WACC? Round your answer to two decimal places.

____________%

What is the current beta on Forever's common stock? Round your answer to two decimal places.

_____________

What would Forever's beta be if the company had no debt in its capital structure? (That is, what is Forever's unlevered beta, b_U?) Round your answer to two decimal places.

____________

Forever's financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead with the proposed change, the yield to maturity on the company's bonds would rise to 9.5%. The proposed change will have no effect on the company's tax rate.

What would be the company's new cost of equity if it adopted the proposed change in capital structure? Round your answer to two decimal places.

___________%

What would be the company's new WACC if it adopted the proposed change in capital structure? Round your answer to two decimal places.

________%

Based on your answer to part e, would you advise Forever to adopt the proposed change in capital structure?

A. Yes

B. No

You want to buy your dream house. You currently have $15,000 saved and you need to have a 10% down payment plus an additional 5% of the loan amount for closing costs. The price of the house is $1,005,879. You can earn 7.5% per year in a savings account per year. How long will it be before you have enough money for the down payment and closing costs? __________________

Given your current credit, you secure a 15-year fixed rate mortgage at 3.12%. Calculate your monthly mortgage payment; you must pay the home loan on the 1st of each month. Payment: ___________________

Now, consider the possibility of being able to make one additional mortgage payment per year for each of the 15 years. How much will you save in interest payments? ________________

Which of the following statements is true?

1. We can use NPV to evaluate two mutually exclusive repeated projects

2. To make an investment decision based on IRR, we do not need to know the appropriate discount rate

3. We can use profitability index to evaluate mutually exclusive project

4. For a given project, NPV and Discounted Payback Period will reach the same decision if the targeted time is infinity

5. When comparing two mutually exclusive projects using IRR, we should always pick the one with a higher IRR

1. As a stockholder in Randolph Corporation, you receive its annual report. In the financial statements, Randolph has reported that the after-tax (net) income is $300 million. With 150 million shares of common stock outstanding, Randolph announced to distribute $100 million of dividends to its shareholders. The stock is now sold for $20 per share.   

a. Assume that Randolph Corporation does not have any outstanding debt. The current share price reflects the fair value of the Corporation.

i. Find the market value of Randolph Corporation before the ex-dividend date,

ii. Find the market value of Randolph Corporation after the ex-dividend date,

iii. Find the price per share of Randolph Corporation after the ex-dividend date,

iv. Calculate the value of investor’s wealth who holds 4,000 shares of Randolph Corporation before the ex-dividend date,

v. Calculate the dividend income of an investor who holds 4,000 shares of Randolph Corporation until the ex-dividend date,

vi. Calculate the value of shareholding on the ex-dividend date of an investor who holds 4,000 shares of Randolph Corporation.

b. Based on your answers in part C to answer the following question.
Does it matter for the investor to sell his shares before the ex-dividend date or to hold his shares until the ex-dividend date which enables him to receive dividend? Assume the dividend is paid on the ex-dividend date.

2. You are considering the purchase of a stock that is currently selling at $64 per share. You expect the stock to pay $4.5 in dividends next year.

a. If dividends are expected to grow at a constant rate of 3 percent per year, what is your expected rate of return on this stock?

b. If dividends are expected to grow at a constant rate of 5 percent per year, what is your expected rate of return on this stock?

c. What do your answers to part (a) and part (b) indicate about the impact of dividend growth rates on expected rate of returns on stocks?

vvv3. You are considering the purchase of a stock that is currently selling at $64 per share. You expect the stock to pay $4.5 in dividends next year.

a. If dividends are expected to grow at a constant rate of 3 percent per year, what is your expected rate of return on this stock?

b. If dividends are expected to grow at a constant rate of 5 percent per year, what is your expected rate of return on this stock?

c. What do your answers to part (a) and part (b) indicate about the impact of dividend growth rates on expected rate of returns on stocks?

3. How do corporate stocks differ from bonds? Explain.

4. Icy Candy announces a 1 for 8 bonus issues. Icing Candy shares are trading at $9.00 before the bonus issue.

a. Calculate the theoretical price of Icing Candy’s shares immediately after the bonus issue.

b. Casper has 1,000 shares in Icy Candy before Icing Candy announced the 1 for 8 bonus issue.

i. How many bonus shares will Casper entitle to?

ii. Find the value of Casper’s stockholding in Icy Candy before and after the bonus issue.

5. Eason plans to open a do-it-yourself dog bathing center in Petland. The bathing equipment will cost $50,000.

Eason expects the after-tax cash inflows to be $15,000 annually for 8 years, after which he plans to scrap the equipment.

a. Find the project’s payback period.

b. What is the project’s discounted payback period if the required rate of return is 10%?

c. What is the project’s net present value (NPV) if the required rate of return is 10%?

d. What is the project’s Profitability Index (PI) if the required rate of return is 20%? Should the project be accepted according to the rule of PI?

6. Your firm is considering the launch of a new product, the KPOP11. The upfront development cost is $1,000,000., and you expect to earn a cash flow of $300,000. per year for the next five years.

a. Draw the Net Present Value (NPV) profile for the new project KPOP11 for discount rates ranging from 0%, 5%. 10%, 15% to 20%.

b. Determine the range of discount rates showing that the project is acceptable. (N.B. NPV values at vertical axis whilst the discount rates at horizontal axis)    

7. Consider the following two bonds:

a. If both bonds had a required return of 8%, what would the bonds’ prices be (Bond A and Bond B respectively)?

b. With reference to your answers in (a), are these two bonds (Bond A and Bond B respectively) selling at a discount, premium, or par?

c. If the required return on the two bonds (Bond A and Bond B respectively) rose to 10%, what would the bonds’ prices be?

d. What do your answers in part (a) and part (c) indicate about the relation between the required rates of return and prices (present values) of bonds?   

Assume the following:  This is a large conglomerate company with over 30 divisions and over 24,000 employees, but the company might be in financial trouble. Company divisions are so different that EVERY type of benefit / retirement plan is available to all employees.

Scenario 1

Married individual with young children at entry level position

Scenario 2

Mid-level manager with grown children seeking a long career and a comfortable retirement

Scenario 3

Top executive nearing retirement and hired to solve financial difficulties.

ADVISE each of your three clients on the­­­ following:

Compensation

Equity Options

Deferred Compensation (both qualified and nonqualified plans are available)

Health and Disability

Life Insurance

Fringe Benefits

Suppose you purchase a 20-year treasury bond with a 6% annual coupon ten years ago at par. Today the bond's yield to maturity has risen to 8% (EAR).

- If you hold this bond to maturity, the internal rate of return you will earn on your investment will be closest to:

A) 5.0%.

B) 5.6%.

C) 6.0%.

D) 8.0%.

E)  9.0%

- If you sell this bond now, the internal rate of return you will earn on your investment will be closest to:

A) 5.0%.

B) 4.9%.

C) 6.0%.

D) 8.0%.

E)  7.9%

- Consider a bond that pays annually an 8% coupon with 20 years to maturity. The amount that the price of the bond will change if its yield to maturity increases from 5% to 7% is closest to:

A) -$270.

B) -$225.

C) -$310.

D) -$250.

E) -$800

Why real estate investors believe that ethical behavior is essential to the profitability and sustainability of their investments?

What are the main sources of income for a Real Estate Investor and/or Broker?

You are considering a new product launch. The project will cost $4,500,000, have a five-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 750 units per year; price per unit will be $15,500, variable cost per unit will be $12,200, and fixed costs will be $850,000 per year. The required return on the project is 11 percent, and the relevant tax rate is 25 percent. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within ±12 percent. 1. What are the upper and lower bounds for these projections? What are NPVs for the base-case, the best-case and worst-case scenarios?(20 Points)2. What is the accounting break-even level of output for this project (ignoring taxes)? (5 Points)3. What is the cash break-even level of output for this project (ignoring taxes)? (5 Points)4. What is the financial break-even level of output for this project (ignoring taxes)? (5 Points)5. What is the degree of operating leverage under each scenario?(5 Points)

Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Strickler's sales last year were $2,955,000 (all on credit), and its net profit margin was 7%. Its inventory turnover was 5 times during the year, and its DSO was 36 days. Its annual cost of goods sold was $1,750,000. The firm had fixed assets totaling $540,000. Strickler's payables deferral period is 41 days. Assume a 365-day year. Do not round intermediate calculations.

1. Calculate Strickler's cash conversion cycle. Round your answer to two decimal places.

     days =

2. Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Round your answers to two decimal places.

   Total assets turnover:  ×

   ROA:   % =

3. Suppose Strickler's managers believe the annual inventory turnover can be raised to 9 times without affecting sale or profit margins. What would Strickler's cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9 for the year? Round your answers to two decimal places.

   Cash conversion cycle:   days =

   Total assets turnover:    ×

   ROA:    % =

Pybus, Inc. is considering issuing bonds that will mature in 21 years with an annual coupon rate of 11 percent. Their par value will be ​$1000​, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds​ and, if it​ does, the yield to maturity on similar AA bonds is 7.5 percent. ​ However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A​ rating, the yield to maturity on similar A bonds is 8.5 percent. What will be the price of these bonds if they receive either an A or a AA​ rating?

In time 0, an investor takes a calendar spread by selling two-year European call option and buying three-year European call option. These two options have the same strike price of $80 and are for the same stock that pays no dividends. The two-year option sells for $5 and the three-year option sells for $7. Two years later, the stock price turns out to be $90. The risk-free rate is 2% per annum. What is the minimum of the profit from this strategy? (We assume that we sell the longer-term option in year two).