Sumeet has a 19 year annuity that pays at the end of each year. The first payment is $6000 and the payments grow by R = 7% per year. Interest rates are r = 4% annually.

a) How much is Sumeet's annuity worth?

Consider the following two options:

Option A: An annuity with the same number of payments, only each payment is twice the payment of his current annuity.

Option B: An annuity where the initial payment is the same as his current annuity, the growth rate of the payments is the same, but he gets twice as many payments.

b) Without doing the computation, which do you think he would prefer? (No marks for this question, so feel free to take your best guess.)

c) Calculate the value of option A.

d) Calculate the value of option B.

e) What would your answer be if r = R?

Following are the data for Larson Co. for the year ending December 31 Year 2, and the preceding year ended December 31 Year 1 and the indirect method of reporting cash flows from operating activities. In addition to the balance sheet data, assume that:

The only entries in the retained earnings account were net income of $51,000 and cash dividends declared of $13,000.

Between last year and this year, the CPI in Blueland rose from 100 to 108 and the CPI in Redland rose from 100 to 104. Blueland’s currency unit, the blue, was worth $0.90 (U.S.) last year and is worth $0.80 (U.S.) this year. Redland’s currency unit, the red, was worth $0.45 (U.S.) last year and is worth $0.40 (U.S.) this year. Consider Blueland as the home country.

a. Calculate Blueland’s nominal exchange rate with Redland last year.

Instructions: Enter your response rounded to one decimal place.

red/blue.


b. Calculate Blueland’s nominal exchange rate with Redland this year.

Instructions: Enter your response rounded to one decimal place.

red/blue.


c. Calculate the percentage change in Blueland’s nominal exchange rate from last year to this year.

Instructions: Enter your response as an integer value. Be certain to enter "0" if required.

%.


d. Calculate Blueland’s real exchange rate with Redland last year.

Instructions: Enter your response rounded to one decimal place.

red/blue.


e. Calculate Blueland’s real exchange rate with Redland this year.

Instructions: Enter your response rounded to three decimal places.

red/blue.


f. Calculate the percentage change in Blueland’s real exchange rate with Redland.

Instructions: Enter your response rounded to three decimal places.

1.

Starbucks had a FCFE/share at the end of last year of $2.72. For this year, growth is expected to be -9.89%, for years 2 and 3 growth is expected to be 9.95, and then 1.13 thereafter. If the correct cost of equity is 4.63, what is the current price?

2.

Starbucks' FCFF (free cash flow to the firm) is $2.54/share. Using the Gordon Growth model with FCFF, find the value of the firm given constant growth of 1.98%, a weight in equity of 89.0%, cost of equity of 7.91%, after-tax cost of debt of 5.10%.

Find the forecast for all the four quarters for the year 9 & 10.

I plan to spend $5,000 in a year. If the interest rate is 5% per year, how much should I save today?

The following transactions apply to Jova Company for Year 1, the first year of operation:

Issued $19,000 of common stock for cash.

Recognized $219,000 of service revenue earned on account.

Collected $171,900 from accounts receivable.

Paid $134,000 cash for operating expenses.

Adjusted the accounts to recognize uncollectible accounts expense. Jova uses the allowance method of accounting for uncollectible accounts and estimates that uncollectible accounts expense will be 1 percent of sales on account.

The following transactions apply to Jova for Year 2:

Recognized $329,000 of service revenue on account.

Collected $344,000 from accounts receivable.

Determined that $2,600 of the accounts receivable were uncollectible and wrote them off.

Collected $1,700 of an account that had previously been written off.

Paid $214,000 cash for operating expenses.

Adjusted the accounts to recognize uncollectible accounts expense for Year 2. Jova estimates uncollectible accounts expense will be 0.5 percent of sales on account.

Complete the following requirements for Year 1 and Year 2. Complete all requirements for Year 1 prior to beginning the requirements for Year 2.

Effects of transaction on financial statement

General Journal

Income Statement

Statement of Changes in Stockholders' Equity

Balance Sheet

Statement of Cash Flows

Closing entries

Use the straight-line method to compute the depreciation expense for Year 1 and Year 2

Blue Elk Manufacturing reported sales of $743,000 at the end of last year; but this year, sales are expected to grow by 6%. Blue Elkexpects to maintain its current profit margin of 22% and dividend payout ratio of 20%. The firm’s total assets equaled $500,000 and were operated at full capacity. Blue Elk’s balance sheet shows the following current liabilities: accounts payable of $80,000, notes payable of $35,000, and accrued liabilities of $60,000. Based on the AFN (Additional Funds Needed) equation, what is the firm’s AFN for the coming year?

a. -$105,313

b. -$117,014

c. -$152,118

d. -$140,417

A negatively-signed AFN value represents:

a surplus of internally generated funds that can be invested in physical or financial assets or paid out as additional dividends.

a point at which the funds generated within the firm equal the demands for funds to finance the firm’s future expected sales requirements.

a shortage of internally generated funds that must be raised outside the company to finance the company’s forecasted future growth.

Because of its excess funds, Blue Elk is thinking about raising its dividend payout ratio to satisfy shareholders. What percentage of its earnings can Blue Elk pay to shareholders without needing to raise any external capital? (Hint: What can Blue Elk increase its dividend payout ratio to before the AFN becomes positive?)

a. 87.5%

b. 78.8%

c. 61.2%

d. 74.4%

In the current year, John gives $140,000 of land to John, Jr. In the current year, John's wife gives $170,000 of land to Andy and $52,000 cash to John, Jr. Assume the couple elects gifts splitting for the current year and the current year is 2016. What are the couple's taxable gifts? How would your answer to Part a change if John's wife gave the $52,000 of cash to Larry (instead of to John, Jr.)

A project has a forecasted cash flow of $126 in year 1 and $137 in year 2. The interest rate is 5%, the estimated risk premium on the market is 11.5%, and the project has a beta of 0.66. If you use a constant risk-adjusted discount rate, answer the following: a. What is the PV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the certainty-equivalent cash flow in year 1 and year 2? (Do not round intermediate calculations. Round your answers to 2 decimal places.) c. What is the ratio of the certainty-equivalent cash flows to the expected cash flows in years 1 and 2? (Do not round intermediate calculations. Round your answers to 2 decimal places.)