Problem 1: Endowment losses. An American university endowment has experienced severe losses over the past year. The value of the university's endowment is $1B as of today (t=0). The interest rate (i.e. the expected annual investment return on the endowment) is r = 7%. (a) What amount can the university spend from the endowment at t=1 if it would like the amount spent to grow by g=4% per year from then on and has no other resources than the endowment? (b) The planned spending is, however, much larger. Back when things looked better, the university set up plans to spend $40M at t=1, with future spending growing by 4% per year. What is the PV of the planned spending? How large is the shortfall between the PV of the planned spending and the value of the endowment? (c) The university president approaches the university's business school for innovative ideas for how to cover the shortfall to avoid having to cut spending. The business school 1 suggests that the university sets up a campus in Abu Dhabi and negotiates the following deal: Abu Dhabi will pay the university $200M today (t=0) for the right to name the campus after the famed university for the next 12 years (i.e. up to t=12) and have classes taught by professors from the university. The new campus would be ready to open two years from now (t=2). At the end of each of the following 10 years (t=3, 4, 5, 6, ...,12) Abu Dhabi would pay the university $24M (Abu Dhabi would also cover the cost of hiring extra faculty and travel cost for US faculty to go teach on the new campus, so the $24M is the university's per year profit). The deal would end at t=12. What is the PV of the deal with Abu Dhabi? Is it sufficient to cover the shortfall? (d) The university president is impressed with the PV calculations but would also like to know exactly how the endowment will develop over the years, assuming the deal with Abu Dhabi is accepted. At t=0 after the initial payment from Abu Dhabi, the value of the endowment is $1.2B. What is the value of the endowment at t=1 (after interest is received and after paying for the university's t=1 spending)? What is the value of the endowment at t=12 (after interest is received, after the last payment from Abu Dhabi and after paying for the university's t=12 spending)? At what time will the endowment equal zero if the deal with Abu Dhabi is not accepted (please report the time at which the endowment rest goes negative)? Hint: Do not bother with Excel functions here, just calculate the value of the endowment in a spreadsheet year by year for the different cases.

1. Consider a bond with a $1,000 face value, five years to maturity, and $80 annual coupon interest payments. The bond currently sells at $1,000. The bond’s yield is expected to decline to 7% at the end of three years. Interest income is assumed to be invested at 7.5%.

1. Calculate the bond’s price change over the 3-year holding period.
2. Calculate the total value of the coupon interest payments plus the interest on the coupon payments at the end of the 3-year holding period.
3. Calculate the bond’s realized 3-year holding period return.

Please discuss the 4 elements of the life cycle of a business venture and please provide an example of a company or business which you consider to be in each of the 4 elements and why you believe that each is in the respective life cycle. You may use multiple businesses.

You are buying a house and the mortgage company offers to let you pay a​ "point"

​(1.0 %

of the total amount of the​ loan) to reduce your APR from

6.46 %

to

6.21 %

on your

$ 403 comma 000

​,

30

​-year

mortgage with monthly payments. If you plan to be in the house for at least five​ years, should you do​ it? ​(Note: Be careful not to round any intermediate steps less than six decimal​ places.)

The monthly mortgage payment at 6.46% APR is:

The monthly mortgage payment at 6.21% APR is:

The lower interest rate on the mortgage results in monthly savings of:

The PV of the monthly savings is:

The balance of the mortgage at the end of five years at 6.46% APR is:

The balance of the mortgage at the end of five years at 6.21% APR is:

The principle reduction due to the lower interest rate is:

The PV of the principle reduction is:

The net benefit or cost is:

The net benefit is (positive or negative); therefore, you (should or should not) pay the point.

As an investor what are factors of Risk and Return.

Find the final amount in the following retirement​ account, in which the rate of return on the account and the regular contribution change over time.

​$614 per month invested at 4​%, compounded​ monthly, for 4​years; then $716per month invested at 7%,

compounded​ monthly, for 4 years. What is the amount in the account after 8

​years?

2. A contractor has a contract to remove and replace the existing landscape and
sidewalks around an office building. The work includes demolition of the
existing landscaping and sidewalks, importing fill and grading around the
office building, constructing new concrete sidewalks, and new landscaping.
The contractor uses the cost codes in Figure 2-6. The original estimate for the
demolition was $30,000 and a $5,000 change order has been approved to
remove some unexpected debris found during the demolition. The
demolition work has been completed at a cost of $33,562. The original
estimate for the fill and grading was $17,500 and a $2,000 change order for
importing additional fill to replace the debris has been approved. The fill and
grading costs to date are $17,264 and the cost to complete has been
estimated at $2,236. The original budget for the labor to pour the concrete
was $19,200 and no changes have been made. The concrete labor has been
subcontracted out for $19,200, for which the contractor has received a bill
for $15,200. The original budget for the concrete for the sidewalks was
$9,900 and no changes have been made. The contractor has spent $7,425 for
concrete and estimates that $1,950 of concrete will be needed to complete
the project. The original estimate for the landscaping was $37,500 and no
changes have been made. The landscape work has been subcontracted out for
$37,500. The landscaping work has yet to start and no bills have been
received. Determine the total estimated cost at completion for the project
and the variance for each cost code.

6. Create a spreadsheet to solve Problem 2.

"A borrower is interested in comparing the monthly payments on two otherwise equivalent 30 year FRMs. Both loans are for $100,000 and have a 3.35% interest rate. Loan 1 is fully amortizing, where as Loan 2 has negative amortization with a $120,000 balloon payment due at the end of the life of the loan. How much higher is the monthly payment on loan 1 versus loan 2? (Hint: calculate both payments and take the difference. Only the future values of the loans are different. Round your answer to two decimal places.)"

Focus and observe the events from 2012 – 2013 in Dell’s MBO. What financial and non-financial factors lead to Michael Dell’s MBO victory in Sept. 12, 2013?

Tax Savings and Costing (The Case of Transfer Pricing)

Please prepare a report answering the listed questions. You may Excel to create spreadsheets and copy the answers to this document.

Hansen, Kotter, and Zales is a law firm that contains one service department (Research & Document) and two production departments (Litigation and Consulting). The firm employs a job-order costing system to accumulate costs chargeable to each client. The firm uses actual costing to assign overhead. General overhead costs can be allocated based on either direct attorney hours or the number of employees, depending on managers’ choice. At the end of the year, the records revealed the actual general overhead costs are $720,000. At the end of the year, the records revealed the following costs and operating data for all cases handled during the year:

*** 50% of Research & Department's service is provided to litigation department and the other 50% to consulting department.

Part I Cost Allocation

1. (1.5 point) Compute the overhead allocation rates for general overhead based on different cost drivers. What are the overhead costs assigned to each department, using different cost drivers?

Overhead allocation based on direct attorney hours

                             Research and development |      Litigation      |       Consulting       | Total

Direct attorney hours                     3,000                              8,000                        5,000                 16,000

Percentage of total                        18.75%                           50%                        31.25%

Allocated overhead cost                 $135,000                   $360,000                  $225,000

Overhead allocation based on number of employees

                             Research and development |      Litigation      |       Consulting       | Total

Number of employees                       10                                    8                               6                        24

Percentage of total                        41.67%*                        33.33%                     25%

Allocated overhead cost                 $300,000                   $240,000                  $180,000

*rounded answer but to calculate allocated overhead cost I used (10/24)*720,000 so I would get an exact answer, I just rounded 299,999.999999 to 300,000

2. (1.5 point) Compare the total costs of each production department after departmental cost allocation, using attorney hours and the number of employees as cost driver, respectively. Does the choice of cost driver affect the total costs of each production department?

Overhead cost of production departments using different cost drivers

Based on attorney hours

                                                Litigation                     |            Consulting

Allocated costs                            $360,000                                   $225,000

Research & Development              +67,500                                     +67,500

Total Overhead Costs                     $427,500                                   $292,500

Based on number of employees

                                                Litigation                     |            Consulting

Allocated costs                            $240,000                                   $180,000

Research & Development             +150,000                                  +150,000

Total Overhead Costs                     $390,000                                   $330,000

To answer your question simply: yes, choice of cost driver does affect the costs of each production department.

• Litigation has a total overhead cost of $427,500 when allocating based on attorney hours and has a total overhead cost of $390,000 when allocating based on number of employees.
• Consulting has a total overhead cost of $292,500 when allocating based on attorney hours and has a total overhead cost of $330,000 when allocating base on number of employees.

Assume that the company uses attorney hours to allocate general overhead costs. For litigation department, the costs charged to each case are made up of four elements:

• Direct attorney costs (charged at $50 per hour)
• Direct materials and supplies used
• General overheads are applied by direct attorney hours
• Costs allocated from the service department is assigned to cases by direct attorney hours incurred within the department

The information on one of its cases during this period is given as follows:                                                              

                                                                        Case 618

Direct attorney-hours                                    150           

Direct Materials and supplies                   $5000           

c. (1.5 point) What are the total costs accumulated for Case 618? The company charged the client $30,000 for the service, what is the profit the company earned?

d. (0.5 point) Suppose the firm’s annual revenue is 2 million dollars. The corporate tax rate is 35%. How much taxes shall the company pay? Does the choice of cost driver affect the total taxes due?

Journalizing and Posting Transactions and Adjustments D. Roulstone opened Roulstone Roofing Service on April 1. Transactions for April follow.

Using the following accounts: Cash; Accounts Receivable; Supplies; Prepaid Insurance; Trucks; Accumulated Depreciation-Trucks; Equipment; Accumulated Depreciation-Equipment; Accounts Payable; Unearned Roofing Fees; Common Stock; Roofing Fees Earned; Fuel Expense; Advertising Expense; Wages Expense; Insurance Expense; Supplies Expense; Depreciation Expense-Trucks; and Depreciation Expense-Equipment.

b. Record these transactions for April using journal entries.

Post the above journal entries from part b. to their T-accounts.

Enter transactions in the T-accounts in the order they appear, using the first available answer box on the appropriate side of the T-account.

• Record insurance expense for April.
• Supplies still available on April 30 was $200.
• Record depreciation expense of $125 for truck for April.
• Record depreciation expense of $35 for equipment for April.
• One-fourth of roofing fee received April 5, was earned by April 30.