During 2018, Raines Umbrella Corp. had sales of $718,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $447,000, $95,500, and $141,000, respectively. In addition, the company had an interest expense of $70,800 and a tax rate of 22 percent. (Ignore any tax loss carryforward provisions and assume interest expense is fully tax deductible.)

  

a.	What is the company’s net income/loss for 2018? (Do not round intermediate calculations. Enter your answer as a positive value.)
b.	What is the company's operating cash flow? (Do not round intermediate calculations.)

The Financial Industry Regulatory Authority(FINRA) explanation and history?

National Association of Securities Dealers(NASD) explanation and history?

Consider the following two projects, and assume a company's cost of capital is 15 percent. Find the IRR and NPV of each project. Which projects add value to the company? If the company can choose only a single project, which project should it choose? Please show through excel sheets and equations.

	Year 1	Year 2	Year 3	Year 4
Project 1	-$40	$130	$19	$26
Project 2	-$80	$36	$36	$36

For each of the scenarios below, explain the shift(s) in:

 Demand :

 Supply :

 Federal Funds Rate (FFR) :

 Money Supply (MS) :

a) The Fed increases reserve requirements.

b) The Fed conducts an open market purchase.

c) The Fed lowers the discount rate below the current equilibrium federal funds rate.

d) The Fed reduces reserve requirements and sterilizes this by conducting an open market sale of securities. (The term “sterilize” means to leave the Federal Funds Rate (FFR) unchanged)

Assume that the 1-year zero-coupon bond is sold at $89.78 and the yields to maturity for the coupon bonds selling at market prices equal to their face values are 11% and 13% for 1-year and 1.5-year issues respectively. Coupons are paid every 6 months and face values are $100 for all the bonds.

(a) Calculate the spot rate curve (s_0.5, s₁, s_1.5).

(Keep your answer in decimal format 4 decimal places, e.g. 0.1234. Do not give in percent format e.g. 12.34%.)

     s_0.5:     s₁:      s_1.5 :

(b) Compute the quasi-modified duration for each of these bonds. (Keep 2 decimal places, e.g. xx.12.)

     Zero-coupon bond:

11% coupon bond:  

    13% coupon bond:  

(c)  Determine the current price of an 14% coupon bond with face value $100 and 18 months to maturity. (Keep 2 decimal places, e.g. xx.12.)

What are the 10 principles of financial management and their definitions?

Discuss the advantages and disadvantages of ETFs (Exchange Traded Funds) to the banking industry.

Question 1

A local government board hired you to recommend which of the two possible sites should be chosen for a new recycling facility. Location A is much closer to the city center, and thus the average hauling distance would only be 2 miles, while Location B being outside of the city would result in an average hauling distance of 5 miles. Public funds will have to be used to pay for the leasing cost of the site, which would be $50,000 a year for Location A and $10,000 a year for Location B, as well as for the hauling cost which is $200 per mile for each trip. Assuming 3,000 trips will be made per year, which location should be chosen based on the overall cost?

Question 2 :

Metal ABC produces sheets of metal. Its fixed cost in year 2019 is $1,000,000. The variable cost is $400 per sheet. a. Find the break-even quantity assuming the selling price is $500 per sheet. b. Find the price and quantity that will result in maximum profit, assuming the demand function is ? = $10,000 − 6?. How much profit will be made using the profit-maximizing price and quantity values?

Question 3 :

A package delivery company is contemplating building a new shipping center. The most recent shipping center, 10,000 square feet large, was built in 2005, at a cost of $500,000. The new shipping center will be 15,000 square feet large. Using the power-sizing cost-estimating model, estimate the cost of building a new shipping center now, using the assumptions below to construct a weighted cost index value for 2005 and for today. Use 0.90 for the cost-capacity factor. The dollar cost of building a shipping center can be broken down into the cost of labor (20%), materials (35%), and equipment (45%). The cost index for labor is 120 in 2005, and 150 today. The cost index for materials is 180 in 2005 and 170 today. The cost index for equipment is 140 in 2005 and 200 today.

Question 4 Milana just deposited $10,000 in her account. Assuming the annual interest rate is 8%, how many years will it take before her account balance reaches $23,000? (Please make sure you use the time value of money Excel functions)

My dream car costs $15,000

A) Calculate the monthly payments on your dream car if the annual interest rate is 4%, and the term of the loan is 5 years.

B) Calculate how much you would have to save every month to purchase your dream car in 5 years if your savings account pays 7% APR. Due to inflation, the cost of the car will increase by .5% per year over the next 5 years. (i.e. calculate the new 'F' value before the monthly payments A).

Advanced Time Value of Money Problems

Question 2 (2nd mortgage problem)

You are considering the purchase of a $500,000 home. You plan to take a 30-year fixed mortgage after making a 20% downpayment to avoid PMI. Payments are to be made monthly (at the end of the month) and the APR is 8%.

1. What is the monthly payment?

2. During what month does the principal portion first exceed the interest portion? Are you surprised by your answer?

3. How long does it take to pay off your mortgage if you pay an additional $300 towards principal each payment?

4. How long does it take to pay off your mortgage if you pay an additional amount each month equal to the current month’s principal?

Ida Sidha Karya Company is a family-owned company located on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $910. Selected data for the company’s operations last year follow:

Units in beginning inventory		0
Units produced		300
Units sold		270
Units in ending inventory		30
Variable costs per unit:
Direct materials	$	140
Direct labor	$	350
Variable manufacturing overhead	$	35
Variable selling and administrative	$	15
Fixed costs:
Fixed manufacturing overhead	$	69,000
Fixed selling and administrative	$	26,000

The absorption costing income statement prepared by the company’s accountant for last year appears below:

Sales	$	245,700
Cost of goods sold		203,850
Gross margin		41,850
Selling and administrative expense		30,050
Net operating income	$	11,800

1. Under absorption costing, how much fixed manufacturing overhead cost is included in the company's inventory at the end of last year?

2. What is the amount of the difference in net operating income between the two costing methods?

3. Prepare an income statement for last year using variable costing.

• Fixed manufacturing overhead
• Fixed selling and administrative expenses
• Sales
• Units in beginning inventory
• Units in ending inventory
• Units produced
• Units sold
• Variable cost of goods sold
• Variable selling and administrative expenses

Question 5 [45]

Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The

company sells the lamps both for cash and on credit. Company management is

contemplating relaxing its existing credit standards in order to boost sales and profits.

The company provided you with the following information relating to this lamp:

 The current selling price is R150.00 per unit.

 Total sales for 2018 were 80 000 units.

The variable cost per unit is R80.00.

 The total fixed cost is R1 200 000.

 Current credit terms are 30 days from date of purchase.

 Current bad debts are 1% of sales.

 Owing to tough business conditions the company is considering relaxing its current credit

standards and in doing so, anticipates the following to happen as a result:

o An expected increase of 8% in current total sales

o An increase in the average collection period to 40 days

o An expected increase of 2% in bad debts

 The company’s opportunity cost of tying up funds in trade receivables is 15%.

 A trading year consists of 365 days.

Required

Show all calculations rounded off to the closest rand or nearest whole number.

Use the information provided by Gentronics in order to determine the impact of the proposed

relaxation in credit standards on profits.

Question 5 [45]

Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The

company sells the lamps both for cash and on credit. Company management is

contemplating relaxing its existing credit standards in order to boost sales and profits.

The company provided you with the following information relating to this lamp:

 The current selling price is R150.00 per unit.

 Total sales for 2018 were 80 000 units.

The variable cost per unit is R80.00.

 The total fixed cost is R1 200 000.

 Current credit terms are 30 days from date of purchase.

 Current bad debts are 1% of sales.

 Owing to tough business conditions the company is considering relaxing its current credit

standards and in doing so, anticipates the following to happen as a result:

o An expected increase of 8% in current total sales

o An increase in the average collection period to 40 days

o An expected increase of 2% in bad debts

 The company’s opportunity cost of tying up funds in trade receivables is 15%.

 A trading year consists of 365 days.

Required

Show all calculations rounded off to the closest rand or nearest whole number.

Use the information provided by Gentronics in order to determine the impact of the proposed

relaxation in credit standards on profits.

Question 5 [45]

Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The

company sells the lamps both for cash and on credit. Company management is

contemplating relaxing its existing credit standards in order to boost sales and profits.

The company provided you with the following information relating to this lamp:

 The current selling price is R150.00 per unit.

 Total sales for 2018 were 80 000 units.

The variable cost per unit is R80.00.

 The total fixed cost is R1 200 000.

 Current credit terms are 30 days from date of purchase.

 Current bad debts are 1% of sales.

 Owing to tough business conditions the company is considering relaxing its current credit

standards and in doing so, anticipates the following to happen as a result:

o An expected increase of 8% in current total sales

o An increase in the average collection period to 40 days

o An expected increase of 2% in bad debts

 The company’s opportunity cost of tying up funds in trade receivables is 15%.

 A trading year consists of 365 days.

Required

Show all calculations rounded off to the closest rand or nearest whole number.

Use the information provided by Gentronics in order to determine the impact of the proposed

relaxation in credit standards on profits.

Question 5 [45]

Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The

company sells the lamps both for cash and on credit. Company management is

contemplating relaxing its existing credit standards in order to boost sales and profits.

The company provided you with the following information relating to this lamp:

 The current selling price is R150.00 per unit.

 Total sales for 2018 were 80 000 units.

The variable cost per unit is R80.00.

 The total fixed cost is R1 200 000.

 Current credit terms are 30 days from date of purchase.

 Current bad debts are 1% of sales.

 Owing to tough business conditions the company is considering relaxing its current credit

standards and in doing so, anticipates the following to happen as a result:

o An expected increase of 8% in current total sales

o An increase in the average collection period to 40 days

o An expected increase of 2% in bad debts

 The company’s opportunity cost of tying up funds in trade receivables is 15%.

 A trading year consists of 365 days.

Required

Show all calculations rounded off to the closest rand or nearest whole number.

Use the information provided by Gentronics in order to determine the impact of the proposed

relaxation in credit standards on profits.

Question 5 [45]

Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The

company sells the lamps both for cash and on credit. Company management is

contemplating relaxing its existing credit standards in order to boost sales and profits.

The company provided you with the following information relating to this lamp:

 The current selling price is R150.00 per unit.

 Total sales for 2018 were 80 000 units.

The variable cost per unit is R80.00.

 The total fixed cost is R1 200 000.

 Current credit terms are 30 days from date of purchase.

 Current bad debts are 1% of sales.

 Owing to tough business conditions the company is considering relaxing its current credit

standards and in doing so, anticipates the following to happen as a result:

o An expected increase of 8% in current total sales

o An increase in the average collection period to 40 days

o An expected increase of 2% in bad debts

 The company’s opportunity cost of tying up funds in trade receivables is 15%.

 A trading year consists of 365 days.

Required

Show all calculations rounded off to the closest rand or nearest whole number.

Use the information provided by Gentronics in order to determine the impact of the proposed

relaxation in credit standards on profits.

Question 5 [45]

Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The

company sells the lamps both for cash and on credit. Company management is

contemplating relaxing its existing credit standards in order to boost sales and profits.

The company provided you with the following information relating to this lamp:

 The current selling price is R150.00 per unit.

 Total sales for 2018 were 80 000 units.

The variable cost per unit is R80.00.

 The total fixed cost is R1 200 000.

 Current credit terms are 30 days from date of purchase.

 Current bad debts are 1% of sales.

 Owing to tough business conditions the company is considering relaxing its current credit

standards and in doing so, anticipates the following to happen as a result:

o An expected increase of 8% in current total sales

o An increase in the average collection period to 40 days

o An expected increase of 2% in bad debts

 The company’s opportunity cost of tying up funds in trade receivables is 15%.

 A trading year consists of 365 days.

Required

Show all calculations rounded off to the closest rand or nearest whole number.

Use the information provided by Gentronics in order to determine the impact of the proposed

relaxation in credit standards on profits.

Question 5 [45]

Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The

company sells the lamps both for cash and on credit. Company management is

contemplating relaxing its existing credit standards in order to boost sales and profits.

The company provided you with the following information relating to this lamp:

 The current selling price is R150.00 per unit.

 Total sales for 2018 were 80 000 units.

The variable cost per unit is R80.00.

 The total fixed cost is R1 200 000.

 Current credit terms are 30 days from date of purchase.

 Current bad debts are 1% of sales.

 Owing to tough business conditions the company is considering relaxing its current credit

standards and in doing so, anticipates the following to happen as a result:

o An expected increase of 8% in current total sales

o An increase in the average collection period to 40 days

o An expected increase of 2% in bad debts

 The company’s opportunity cost of tying up funds in trade receivables is 15%.

 A trading year consists of 365 days.

Required

Show all calculations rounded off to the closest rand or nearest whole number.

Use the information provided by Gentronics in order to determine the impact of the proposed

relaxation in credit standards on profits.

Question 5 [45]

Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The

company sells the lamps both for cash and on credit. Company management is

contemplating relaxing its existing credit standards in order to boost sales and profits.

The company provided you with the following information relating to this lamp:

 The current selling price is R150.00 per unit.

 Total sales for 2018 were 80 000 units.

The variable cost per unit is R80.00.

 The total fixed cost is R1 200 000.

 Current credit terms are 30 days from date of purchase.

 Current bad debts are 1% of sales.

 Owing to tough business conditions the company is considering relaxing its current credit

standards and in doing so, anticipates the following to happen as a result:

o An expected increase of 8% in current total sales

o An increase in the average collection period to 40 days

o An expected increase of 2% in bad debts

 The company’s opportunity cost of tying up funds in trade receivables is 15%.

 A trading year consists of 365 days.

Required

Show all calculations rounded off to the closest rand or nearest whole number.

Use the information provided by Gentronics in order to determine the impact of the proposed

relaxation in credit standards on profits.

Advanced Time Value of Money Problems

Your child was just born and you are planning for his/her college education. Based on your wonderful experience in Financial Economics you decide to send your child to Hofstra University as well. You anticipate the annual tuition to be $60,000 per year for the four years of college. You plan on making equal deposits on your child’s birthday every year starting today, the day of your child’s birth. No deposits will be made after starting college. The first tuition payment is due in exactly 18 years from today (the day your child turns 18 – no deposit required, i.e. last deposit is on 17th birthday). Assume the annual expected return on your investments is 10% over this period.

1. (i) Calculate the annual deposit.

2. (ii) Calculate the amount needed if only equal annual deposits are made on birthday’s 5-10 inclusive.

3. (iii) Calculate the amount needed if two equal annual deposits are made on birthday’s 5 and 13.

4. (iv) Answer part (i), now assume tuition rises 10% per year.

5. (v) Answer part (i) assuming first deposit will be made on your child’s 1st birthday. All other information is the same. What is the annual tuition payment? How does it compare to part (i)? Is your answer surprising?

You have decided to place $920 in equal deposits every month at the beginning of the month into a savings account earning 3.21 percent per year, compounded monthly for the next 5 years. The first deposit is made today. How much money will be in the account at the end of that time period?