On January 1, 2015 IBM leases an equipment from Omaha Inc. for an annual lease rental of $20,000. The lease term is five years and the lessor's interest rate implicit in the lease is 8%. The lessee's incremental borrowing rate is 8.25%. The useful life of the equipment is five years and its estimated residual value equals its removal cost. Annuity tables indicate that the present value of an annual lease rental of $1 (at 8% rate) is $3.993. The fair value of leased equipment equals the present value of rentals. (Assume the lease is capitalized.) Required: Prepare IBM’s accounting entries for 2015. Compute and illustrate the effect on the income statement for the year ended December 31, 2015, and for the balance sheet as of December 31, 2015. Construct a table showing payments of interest and principal made every year for the five-year lease term. Construct a table showing expenses charged to the income statement for the five-year lease term if the equipment is purchased. Show a column for (1) amortization, (2) interest, and (3) total expenses. In one paragraph, discuss the income and cash flow implications from this capital lease.

Six years from today you need $10,000. You plan to deposit $1,600 annually, with the first payment to be made a year from today, in an account that pays a 6% effective annual rate. Your last deposit, which will occur at the end of Year 6, will be for less than $1,600 if less is needed to reach $10,000. How large will your last payment be? Do not round intermediate calculations. Round your answer to the nearest cent.

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Manchester Inc. must purchase $10,000,000 worth of service equipment and is weighing the merits of leasing the equipment or purchasing. The company has a zero tax rate due to tax loss carry-forwards, and is considering a 5-year, bank loan to finance the equipment. The loan has an interest rate of 8% and would be amortized over 5 years, with 5 end-of-year payments. Manchester can also lease the equipment for 5 end-of-year payments of $2,300,000 each. How much larger or smaller is the bank loan payment than the lease payment?

Equipment associated with manufacturing small railcars had a first cost of $210,000 with an expected salvage value of $30,000 at the end of its 5-year life. The revenue was $650,000 in year 2, with operating expenses of $98,000. If the company’s effective tax rate was 37%, what would be the difference in taxes paid in year 2 if the depreciation method were straight line instead of Modified Accelerated Cost Recovery System (MACRS)? The MACRS depreciation rate for year 2 is 32%.

The difference in taxes paid is determined to be_____ $ .

Kiko​ Peleh's Puts. Kiko Peleh writes a put option on Japanese yen with a strike price of $ 0.008000 divided by yen ​(yen 125.00 divided by $​) at a premium of 0.0080 cents per yen and with an expiration date six month from now. The option is for ​¥12,500,000. What is​ Kiko's profit or loss at maturity if the ending spot rates are yen 110 divided by $​, yen 115 divided by $​, yen 120 divided by $​, yen 125 divided by $​, yen 130 divided by $​, yen 135 divided by $​, and yen 140 divided by $.

Suppose you observe the following situation:

Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? What is the risk-free rate?
Shows all the step and formula. Don't round off until you get the answer.

2. Fascination Tool and Die began development for a new factory in the area around San Francisco, California. However, recent events have caused the city to shut down all construction, and withdraw building permits. Fascination has already invested $150,000 in the San Francisco building, but Dallas, Texas has offered the company an incentive to bring their factory there, instead. In Dallas, the factory would cost $8 million to build. In San Francisco, the company will incur $1.2 million in additional building costs, and will experience a 1-year delay before they are able to begin selling the product, which will mean only nine years of sales instead of ten. In Dallas, the city is also offering a $500,000 one-time up front cash incentive to convince companies to make the move. The factory in either location will build components for companies in California, so shipping them from Texas will be more costly. If the company abandons the San Francisco deal, they believe they would be able to recoup $340,000 by selling the partially finished building and land to a used car dealership. In Dallas, they will need to purchase land for $750,000 to build on. Regardless of which deal they choose, they believe the salvage value of the factory will decline rapidly, but they should be able to recoup $100,000 at the end of year 10 in either case, after which time, the product line will be obsolete, and no further production will be worthwhile. Over the 10 year period, however, either factory will be able to build 60,000 units per year. The selling price per unit is expected to be $140 each, and production costs at either plant are estimated at $36 per unit. The machinery, which initially cost $3 million, will be depreciated over 7 years, using the straightline method. Delivery cost per unit from Dallas will be $18 per unit more than from San Francisco. However, Fascination is convinced that the delays to construction will cause the company to miss the entire first year of production, while Dallas has smoothed the permitting process to allow speedy construction and eliminate that delay. The company anticipates that either project will require an additional $5 million in working capital to be committed for the life of the project, but that working capital can be recovered after the project is ended. The company's tax rate is 24%.

Given this scenario, determine and map out the relevant cash flows for capital budgeting. Then use Excel to build your spreadsheet for the 10-year calculations, and after developing your estimates of each year's cash flow under the two scenarios, use the NPV method to determine what decision the company should make regarding the factory. Assume a 9% cost of capital. Explain your answer, and turn in the spreadsheet detailing your calculations.

• Five years ago Dynamic Systems issued a 15-year bond with a $1,000 par value and a 7 percent coupon rate. Interest is paid semiannually. Today the going interest rate is 10 percent, and it is ex- pected to remain at this level for many years in the future. Compute the (a) current yield and (b) capital gains yield that the bond will gener- ate in the fifth year (Year 5) of its life.

A multi-national-corporation has receivables in a foreign currency. Circle on the correct answer for each question.

(1) [ Long or Short ] in the foreign currency forward contract.
(2) [ Long or Short ] in the foreign currency futures contract.
(3) [ Borrow or Lend ] denominate in the foreign currency.

(4) [ Long or Short ] in the foreign currency [ Call or Put] option.

Why as a Finance Major do you have to understand corporate finance? why should every finance student know this course?

Find the duration of a 8.4% coupon bond making semiannually coupon payments if it has three years until maturity and has a yield to maturity of 6.0%. What is the duration if the yield to maturity is 11.0%? Note: The face value of the bond is $100. (Do not round intermediate calculations. Round your answers to 4 decimal places.)

Exercise 4.34. Suppose that you sell for $15 a call option with a strike price of $49, sell for $7 a call option with a strike price of $59, and buy for $10 each two call options with a strike price of $54. Assume a zero rate of interest.

(a) What is the maximum profit possible on the exercise date?

(b) What is the maximum loss possible on the exercise date?

(c) What is the maximum stock price at the exercise date that will result in you breaking even?

Ans: _____________________

1. You just graduated from Notre Dame de Namur University (2020) and accepted a job with Facebook in their Finance department. Your salary is $50,000 per year. You are considering investing $500 per month in your company’s 401K and given your risk profile your targeted rate of return is 4.5 percent. What will be the value of your 401K in 35 years (2055)?

Additional 2 bonus points...

Joe, a colleague of yours decided to wait for five years to begin setting aside $500 per month until 2055. His risk profile is like yours, 4.5%. How much will Joe have in 30 years (2055)?

And...”what’s the moral of this story>?

Ans: _______________________

The moral is: _____________________