Mandaue Foam (MF) is a leading company in the furniture and fixture industry in the country. It has obtained substantial loans from finance companies and commercial banks. The interest rate on the loans is tied to market interest rates and is adjusted every six (6) months. MF has a credit line with a bank in case it suddenly needs to obtain funds for a temporary period. It previously purchased Treasury securities that it could sell if it experiences any liquidity problems. If the economy continues to be strong, MF may need to increase its production capacity by about 50% over the next few years to satisfy demand. It is concerned about a possible slowing of the economy because of the potential actions of Bangko Sentral ng Pilipinas (BSP) to reduce inflation. It needs funding to cover payments for supplies. It is also considering issuing stock or bonds to raise funds in the next year. The prevailing commercial paper rate on paper issued by large publicly traded firms is lower than the rate MF would pay when using a line of credit.

Questions:

1. 1. Do you think that MF could issue commercial paper at the prevailing market rate?
2. 2. Should MF obtain funds to cover payments for supplies by selling its holdings of Treasury securities or by using its credit line? Which alternative has a lower cost? Explain.

You are trying to assess the cost of capital for a small commercial aircraft manufacturer called Jetstream Inc. Unfortunately, Jetstream is a private company so you can not estimate its equity beta using its stock returns. You have, however, collected some information on comparable firms that are publicly traded (see the table below). Assume that Jetstream targets a stable debt to enterprise value ratio (D/(D+E)) of 10% and that its cost of debt is 3.95%.

All firms face a marginal tax rate of 21%, the market risk premium (?[?_?]−?_?) is 5%, and the risk-free rate (?_?) is 3.5%. Additionally, assume that corporate taxes are the only market imperfection.

1. Using the CAPM calculate the cost of equity for each competing firm. Then, using the Modigliani and Miller formula calculate the unlevered cost of capital for each competing firm. Tabulate your results in a table similar to the one above.
2. Assume that the unlevered cost of capital of Jetstream Inc. is equal to the average unlevered cost of capital of the competing firms, what is Jetstream’s cost of equity? C) What is Jetstream’s WACC?

Compute, Disaggregate, and Interpret ROE and RNOA
Headquartered in Calgary, Alberta, Husky Energy Inc. is a publicly traded, integrated energy company. Selected fiscal year balance sheet and income statement information for Husky Energy follow (Canadian $ millions).

a. Compute the 2018 return on equity (ROE) and the 2018 return on net operating assets (RNOA).
Note: Round percentages to two decimal places (for example, enter 6.66% for 6.6555%).

2018 Return on equity: Answer%
2018 Return on net operating assets: Answer%

b. Disaggregate RNOA into net operating profit margin (NOPM) and net operating asset turnover (NOAT).
Note: For NOPM and RNOA, round percentages to two decimal places (for example, enter 6.66% for 6.6555%).
Note: For NOAT, round amount to three decimal places (for example, enter 6.776 for 6.77555).

c. Compute the percentage of RNOA to ROE, and compute Husky’s nonoperating return for 2018.
Note: Round percentages to two decimal places (for example, enter 6.66% for 6.6555%).
Percentage of RNOA to ROE: Answer%
Nonoperating return: Answer%

On 31 December 2018, The Hiya Magazine company reported the composition of their source of capital as presented in the following table:

The company is in 25% marginal tax rate and its dividend grows by 5% yearly. Currently, company preference shares and common shares are traded at $115 and $23, respectively.

Ques tion:

1. How does capital structure of the company affect its cost of capital? (4%)

2. Calculate the after-tax cost of capital of the bank loan! (3%)

3. Calculate the after-tax cost of capital of the company bonds! (3%)

4. Calculate the cost of capital of company preferred shares! (3%)

5. Calculate the cost of capital of company common shares! (3%)

6. Calculate the company weighted average of cost of capital (WACC)! (5%)

7. How does company use the WACC for? (4%)

Exercise 9-13 Revenue and Spending Variances [LO9-3]

Lavage Rapide is a Canadian company that owns and operates a large automatic car wash facility near Montreal. The following table provides data concerning the company’s costs:

For example, electricity costs are $1,100 per month plus $0.07 per car washed. The company expects to wash 8,400 cars in August and to collect an average of $6.40 per car washed.

The actual operating results for August are as follows:

Required:

Calculate the company's revenue and spending variances for August. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Exercise 9-13 Revenue and Spending Variances [LO9-3]

Lavage Rapide is a Canadian company that owns and operates a large automatic car wash facility near Montreal. The following table provides data concerning the company’s costs:

For example, electricity costs are $1,000 per month plus $0.09 per car washed. The company expects to wash 8,500 cars in August and to collect an average of $6.10 per car washed.

The actual operating results for August are as follows:

Required:

Calculate the company's revenue and spending variances for August. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

A bank wants to know if the enrollment for new savings accounts has improved at various branches after offering a free iPhone X to customers. Use the data from "iphoneX" sheet in excel

Run the appropriate statistical test with α=0.05. Which of the following are correct? More than one answer is possible.

Assume a variable cost of $10 per table and an average spending of $60 per table.With the daily deal ($60 for $30 coupon), Groupon provides Mr. Chang with a revenue of $17 pertable. The analysis provided in the New York Timesblog indicated that Mr. Chang makes money($7 per table) through the daily deal (rather than incurring advertising expense).

Question 3:After some negotiations Mr. Chang receives the following alternative offers:1. A Groupon deal with a revenue of $22 per table.2. A Savored deal in which the total revenue when reserving xtables isr(x) = 400 + 17·(x−10).This deal has the condition that at least 10 tables need to be reserved for Savored customers.3. A Savored deal in which the total revenue per table is $18 is the number of reserved tables issmaller than 30 and $25 if the number of reserved tables is at least 30.

Q3:
In July 2005, Nasir Jamal started business and completed following transactions. Prepare General Journal entries for each business transaction.

July 1 He deposited Rs. 165,000 cash in a business bank account.(use cash as title)
July 2 Purchased equipment for Rs. 55,000 from ABC Co. paid Rs.20,000 andbalance will be paid after three month.
July 7 Paid rent for three months Rs. 1500
July 12 Purchase goods on credit from Khan & Co. Rs. 1200
July 17 Paid salaries to staff Rs. 2500
July 20 Paid to Khan &Co.Rs. 700
July 23 Paid insurance Rs. 400
July 27 Nasir withdrew Rs. 1500 cash from the business for personal use.

Required
Prepaid General Journal .

Q No.4
For each of the following items, give an example of a business transaction that has the described effect on the accounting equation:

a. Increase an asset and increase a liability.
b. Increase one asset and decrease another asset.
c. Decrease an asset and decrease owner's equity.
d. Decrease an asset and decrease a liability.
e. Increase an asset and increase owner's equity

No.5
Compute the missing amount in the accounting equation for each entity:

Assets Liability Owners Equity

Company A Rs. ? Rs.61,800 Rs.34,400

Company B 65,900 ? 34,400

Company C 81,700 79,800 ?