Suppose you are the following data on prices and quantities transacted:

If the economy produced all three (and only these three) goods, compute the nominal GDP in both periods and real GDP at 2006 prices. What is the rate of inflation in 2007, as measured by the change in the GDP deflator?

Suppose a CPI is constructed using weights corresponding to quantities produced in 2006. What is the rate inflation measured by the CPI?

Using: Free cash flow to equity (FCFE) approach

Wellington Industries is considering an acquisition of Orator Telecom Inc. Wellington Industries estimates that acquiring Orator will result in incremental value for the firm. The analysts involved in the deal have collected the following information from the projected financial statements of the target company.

Orator is a publicly traded company, and its market-determined pre-merger beta is 1.00. You also have the following information about the company and the projected statements. • Orator currently has a $24.00 million market value of equity and $15.60 million in debt.
• The risk-free rate is 5% with a 7.10% market risk premium, and the Capital Asset Pricing Model produces a pre-merger required rate of return on equity r sL sL of 12.10%.
• Orator’s cost of debt is 7.00% at a tax rate of 30%.
• The projections assume that the company will have a post-horizon growth rate of 5.00%.
• Current total net operating capital is $104.0 million, and the sum of existing debt and debt required to maintain a constant capital structure at the time of acquisition is $30 million. • The firm has no nonoperating assets, such as marketable securities.

With the given information, use the free cash flow to equity (FCFE) approach to calculate the following values involved in the merger analysis. (Note: Round your answer to two decimal places.)

Value FCFE horizon value: ___ (Choices are: 93.79, 119.05, 106.20, 87.85)

Value of FCFE: _____ (Choices are: 89.39, 79.99, 74.99, 28.75)

The estimated value of Orator’s operations after the merger is _(more/less)___ than the market value of Orator’s equity. This means that the wealth of Orator’s shareholders will _(increase/decrease)_____if it merges with Wellington rather than remaining as a stand-alone corporation.

True or False: Like the corporate valuation model, the FCFE model can be applied only when the capital structure is constant. (True/ False)

Williams-Santana, Inc., is a manufacturer of high-tech industrial parts that was started in 2006 by two talented engineers with little business training. In 2018, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2018 before any adjusting entries or closing entries were prepared. The income tax rate is 40% for all years.

Required: Prepare any journal entry necessary as a direct result of the change or error correction as well as any adjusting entry for 2018 related to the situation described. Any tax effects should be adjusted for through Income tax payable or Refund-income tax...

1. Effective January 1, 2018, the company changed the salvage values used in calculating depreciation for its office building. The building cost $604,000 on December 29, 2007, and has been depreciated on a straight-line basis assuming a useful life of 40 years and a salvage value of $120,000. Declining real estate values in the area indicate that the salvage value will be no more than $30,000.

2. At the beginning of 2016, the company purchased a machine at a cost of $680,000. Its useful life was estimated to be ten years with no salvage value. The machine has been depreciated by the double-declining balance method. Its book value on December 31, 2017, was $435,200. On January 1, 2018, the company changed to the straight-line method. 3.Warranty expense is determined each year as 1% of sales. Actual payment experience of recent years indicates that 0.70% is a better indication of the actual cost. Management effects the change in 2018. Credit sales for 2018 are $3,600,000; in 2017 they were $3,300,000.

Net Present Value Method—Annuity

Jones Excavation Company is planning an investment of $434,200 for a bulldozer. The bulldozer is expected to operate for 2,000 hours per year for six years. Customers will be charged $140 per hour for bulldozer work. The bulldozer operator costs $27 per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $20,000. The bulldozer uses fuel that is expected to cost $35 per hour of bulldozer operation.

a. Determine the equal annual net cash flows from operating the bulldozer.

b. Determine the net present value of the investment, assuming that the desired rate of return is 20%. Use the present value of an annuity of $1 table above. Round to the nearest dollar. If required, use the minus sign to indicate a negative net present value.

c. Should Jones invest in the bulldozer, based on this analysis?
, because the bulldozer cost is   the present value of the cash flows at the minimum desired rate of return of 20%.

d. Determine the number of operating hours such that the present value of cash flows equals the amount to be invested. Round interim calculations and final answer to the nearest whole number.
hours

Assume that the common stock of Luther Industries is currently traded for 47 per share. The stock pays no dividends. A 3-month European call option on Luther with a strike price of £45 is currently traded for £7.45. The risk-free rate interest rate is 2% per year. Assume that you own common stock of Luther Industries, but you are concerned about a decline in its stock price in the near future.

a) Should you simply sell your holding? Why or why not?

b) Evaluate hedging the downside risk with options. What type of option should you use? Be specific, and show this strategy at maturity in a position diagram.

c) Suppose that put options on Luther Industries are not traded, but you want to have one. How could you achieve it? (Hint: design a strategy that uses a combination of financial securities)

d) Suppose that put options on Luther Industries stocks are traded. What noarbitrage price should a 3-month European put option on Luther Industries with an exercise price of £45 sell for?

e) What is the minimum profit of your portfolio after you purchase this put option?

it is July 2006 and you expect to receive ZAR 1 000 000 in October 2006 from a customer. While you believe that the $ will weaken in the next 3 months, you do not want to take chances, and therefore wish to hedge against the risk of a strengthening $. You gather the following information about the foreign currency and futures markets.

spot exchange rate                                                       $1.7640 per ZAR

Forecast spot rate in October                                        $1.7400 per ZAR

Contract size                                                                   ZAR 62500

Quoted spot buying price for October futures                $1.7310 par ZAR

Quoted spot selling price for October futures                 $1.7420 per ZAR

a) calculate the number of futures contracts you will buy or sell.

b) show how you can hedge against currency risk using the futures market hedge, assuming that in October 2006, you can close or cancel a short position at a price of $1.6890 per ZAR and a long position at a price of $1.6600 per ZAR and the forecast spot rate for October turned out to be the actual spot rate in October.

Adger Corporation is a service company that measures its output based on the number of customers served. The company provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results for May as shown below:

When preparing its planning budget the company estimated that it would serve 35 customers per month; however, during May the company actually served 40 customers.

Foundational 9-1

Required:

1. What amount of revenue would be included in Adger’s flexible budget for May?

2. What amount of employee salaries and wages would be included in Adger’s flexible budget for May?

3. What amount of travel expenses would be included in Adger’s flexible budget for May?

4. What amount of other expenses would be included in Adger’s flexible budget for May?

5. What net operating income would appear in Adger’s flexible budget for May?

6. What is Adger’s revenue variance for May? (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.)

7. What is Adger’s employee salaries and wages spending variance for May? (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.)

8. What is Adger’s travel expenses spending variance for May? (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.)

9. What is Adger’s other expenses spending variance for May? (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.)

10. What amount of revenue would be included in Adger’s planning budget for May?

11. What amount of employee salaries and wages would be included in Adger’s planning budget for May?

12. What amount of travel expenses would be included in Adger’s planning budget for May?

13. What amount of other expenses would be included in Adger’s planning budget for May?

14. What activity variance would Adger report in May with respect to its revenue? (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.)

15. What activity variances would Adger report with respect to each of its expenses for May? (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.)

Adger Corporation is a service company that measures its output based on the number of customers served. The company provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results for May as shown below:

When preparing its planning budget the company estimated that it would serve 35 customers per month; however, during May the company actually served 40 customers.

1. What amount of revenue would be included in Adger’s flexible budget for May?

2. What amount of employee salaries and wages would be included in Adger’s flexible budget for May?

3. What amount of travel expenses would be included in Adger’s flexible budget for May?

4. What amount of other expenses would be included in Adger’s flexible budget for May?

5. What net operating income would appear in Adger’s flexible budget for May?

6. What is Adger’s revenue variance for May? (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.)

7. What is Adger’s employee salaries and wages spending variance for May? (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.)

8. What is Adger’s travel expenses spending variance for May? (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.)

9. What is Adger’s other expenses spending variance for May? (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.)

10. What amount of revenue would be included in Adger’s planning budget for May?

11. What amount of employee salaries and wages would be included in Adger’s planning budget for May?

12. What amount of travel expenses would be included in Adger’s planning budget for May?

13. What amount of other expenses would be included in Adger’s planning budget for May?

14. What activity variance would Adger report in May with respect to its revenue? (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.)

15. What activity variances would Adger report with respect to each of its expenses for May? (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.)

15. What activity variances would Adger report with respect to each of its expenses for May? (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.)

Bond Redemption

St. Wyncomb Co. issued 10 percent, $420,000 face value bonds with a 20 year maturity at 96 on Jnuary 1, 2002. The bonds are callable at 104 after one year. St. Wyncomb Co. decided to call the bonds after interest rates dropped on December 31. 2004. To finance the retirement, St. Wyncomb issued 8 percent, $440,000 face value bonds with a 20 year maturity at 102 on December 31, 2004.

1. Prepare an amortization schedule for the first three years for the original bonds, and the first two years of the new bonds.

2. Prepare the journal entries to recorn the following.

a. Issue of original bonds.

b. Annual interest payment in the year of the redemption, 2004 for the original bonds.

c. Isue of new bonds.

d. Redemption of original bonds.

e. First annual interest payment for the new bonds.

3. Prepare a T-Account for the dincount accond for the original bonds.

****Please show work so I can follow along****