Admitting New Partners Who Buy an Interest and Contribute Assets

The capital accounts of Trent Henry and Tim Chou have balances of $162,500 and $117,200, respectively. LeAnne Gilbert and Becky Clarke are to be admitted to the partnership. Gilbert buys one-fifth of Henry’s interest for $37,400 and one-fourth of Chou’s interest for $25,800. Clarke contributes $39,700 cash to the partnership, for which she is to receive an ownership equity of $39,700.

a1. Journalize the entry to record the admission of Gilbert. For a compound transaction, if an amount box does not require an entry, leave it blank.

a2. Journalize the entry to record the admission of Clarke.

b. What are the capital balances of each partner after the admission of the new partners?

If Wild Widgets, Inc., were an all-equity company, it would have a beta of .90. The company has a target debt-equity ratio of .60. The expected return on the market portfolio is 11 percent and Treasury bills currently yield 3.3 percent. The company has one bond issue outstanding that matures in 26 years, a par value of $2,000, and a coupon rate of 6 percent. The bond currently sells for $2,130. The corporate tax rate is 24 percent. a. What is the company’s cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company’s cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the company’s weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Con-Agra is one of the world’s largest packaged foods companies. Take a look at it (google it): CAG (NYSE). What does the beta tell you about Con-Agra?

1. What is beta, how is it calculated, why is it relevant (or where it is not)?
2. How relevant do you feel it is with respect to Con-Agra? What does it tell you about Con-Agra?
3. Would your answer be different if the question was not about Con-Agra but instead, was about Lyft (LYFT) (NASDAQ)?

Fairfax Pizza is considering buying a new oven. The new oven would be purchased today for 14,000 dollars. It would be depreciated straight-line to 1,600 dollars over 2 years. In 2 years, the oven would be sold for an after-tax cash flow of 2,300 dollars. Without the new oven, costs are expected to be 14,000 dollars in 1 year and 17,900 in 2 years. With the new oven, costs are expected to be 3,800 dollars in 1 year and 14,300 in 2 years. If the tax rate is 50 percent and the cost of capital is 11.49 percent, what is the net present value of the new oven project?

A Malaysian firm has to choose between two new machines.

Machine A would cost $80,000 and is expected to have an economic life of four years. It should generate $50,000 of revenue each year, and incur costs of $22,000 a year.

Machine B will cost $100,000 and is expected to have an economic life of five years. It is anticipated that it will produce annual revenue of $51,000 and attract costs of

$22,000 a year.

If the firm requires a return of 10% on their investment and the company tax rate is 30%, which machine should be chosen?

White Mountain Technology is evaluating a project that would require the purchase of a piece of equipment for 660,000 dollars today. During year 1, the project is expected to have relevant revenue of 925,600 dollars, relevant costs of 291,800 dollars, and relevant depreciation of 93,700 dollars. White Mountain Technology would need to borrow 660,000 today for the equipment and would need to make an interest payment of 29,800 dollars to the bank in 1 year. Relevant operating cash flow for the project in year 1 is expected to be 345,495 dollars. What is the tax rate expected to be in year 1? Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098.

A project has an initial cost of $45,925, expected net cash inflows of $14,000 per year for 9 years, and a cost of capital of 13%. What is the project's payback period? Round your answer to two decimal places.

What prevents Nike's subcontractors from entering the U.S. market to compete with them?

Midland Petroleum is holding a stockholders’ meeting next month. Ms. Ramsey is the president of the company and has the support of the existing board of directors. All 13 members of the board are up for reelection. Mr. Clark is a dissident stockholder. He controls proxies for 42,001 shares. Ms. Ramsey and her friends on the board control 66,001 shares. Other stockholders, whose loyalties are unknown, will be voting the remaining 20,998 shares. The company uses cumulative voting.

a) How many directors can Mr. Clark be sure of electing?

b) How many directors can Ms. Ramsey and her friends be sure of electing?

c-1) How many directors could Mr. Clark elect if he obtains all the proxies for the uncommitted votes?

c-2) Will he control the board?

d) If eleven directors were to be elected, and Ms. Ramsey and her friends had 70,001 shares and Mr. Clark had 48,001 shares plus half the uncommitted votes, how many directors could Mr. Clark elect? Assume the same number of total shares as the original question.