The adjacent table contains the details of four bonds currently traded in the market. Using this information calculate the no arbitrage price of a 3 year 8% annual coupon bond.

You are the CFO of MacroWare Company. Your company’s stock is traded in the NYSE. Your company wants to invest in a telecommunication technology. You were told by the operation and marketing departments that the project is very promising. You are considering the finance department’s suggestion to issue stocks to finance the project.

As a leader of the company, your objective is supposed to _____.  

a. maximize the company’s earnings

b. maximize the company’s earnings per share c. maximize the company’s stock value per share d. maximize social well-being  

You are supposed to act for the best interest of _____.

a. managers  

b. board of directors  

c. existing shareholders

d. potential or future shareholders

The NYSE is a/an _____, in which _____ make a market.

a. OTC market, brokers

b. OTC market, specialists

c. organized exchange, brokers

d. organized exchange, specialists

If you agree with the finance department’s suggestion to issue stocks to raise funds, the stocks will be issued in the _____.  

a. organized exchange

b. secondary market

c. OTC market   

d. IPO market

The current stock price is directly affected by _____.  

a. investors’ anticipation of the company’s future performance (or profitability)

b. the company’s past performance

c. neither a nor b

If the news about the project is announced to the public, the stock price would ____.  

a. increase   

b. decrease

c. unchanged

If you agree with the finance department’s suggestion to issue additional shares to raise funds, shares should be issued _____.  

a. before the announcement of the news about the project   

b. after the announcement of the news about the project

c. either before or after the announcement, the timing doesn’t matter.

If your company also has enough retained earnings to finance the project and at the same time it is able to issue corporate bonds to raise funds, you would like to use _____ to finance the project investment.  

a. retained earnings  

b. bond issues

c. stock issues   

d. there is no difference among the above three.

In the following years, you project generates substantial profits and you want to reward shareholders by paying out some retained earnings. You can reward them by the following three means: cash dividends, stock dividends, stock repurchases. How do cash dividends, stock dividends and stock repurchases affect the stock price respectively?  

a. increase, increase, decrease

b. decrease, increase, increase   

c. decrease, decrease, increase

d. decrease, decrease, decrease  

You are considering how to reward shareholders, cash dividends, stock dividends, or stock repurchases. We know that in terms of tax for the company, these three ways are the same—none of them affect the company-level tax. In terms of tax for shareholders, which of the followings is the worst choice?  

a. cash dividends

b. stock dividends

c. stock repurchases

d. there is no difference between them

Eliseth Ltd is a public company whose shares are traded on the ASX. A former executive was formally accused of fraud last month. This executive used his influence with three major suppliers to increase the price of the inventories’ contracts for the last three years. Eliseth identified those contracts and estimated a loss around AUD 5 billion which this amount was paid by Eliseth in the past three years. The inventory was recorded at cost. Using the appropriate accounting standard and the new conceptual framework issued by IASB in 2018 respond:

What would you recommend Eliseth to do? You must provide the basis of your recommendation.

M.K. Gallant is president of Kranbrack Corporation, a company whose stock is traded on a national exchange. In a meeting with investment analysts at the beginning of the year, Gallant had predicted that the company’s earnings would grow by 20% this year. Unfortunately, sales have been less than expected for the year, and Gallant concluded with two weeks of the end of the fiscal year that it would impossible to ultimately report an increase in earning as large as predicted unless some drastic action was taken. Accordingly, Gallant has ordered that wherever possible, expenditures should be postponed to the new year – including canceling or postponing orders with suppliers, delaying planned maintenance and training, and cutting back on end-of-the-year advertising and travel. Additionally, Gallant ordered the company’s controller to carefully scrutinize all costs that are currently classified as period costs and reclassify as many as possible as product costs. The company is expected to have substantial inventories of work in process and finished goods at the end of the year.

1. Identify at least two viable alternative courses of action that you might take to address this ethical issue.

2. Make and justify recommendations for successful resolution of the ethical dilemma.  

UltraMX Corp., an all equity exchange traded company, is planning to invest in a project as follows:

• Initial investment = $100 million.
• The project is financed with debt and equity in same proportion (i.e., one part of debt to one part of equity).
• Expected cash flows after tax = $10 million in perpetuity.
• Tax rate = 25%
• Cost of debt after tax of project (4%)
• Equity beta of project = 1.5
• UltraMX beta = 0.8
• Market risk premium (MRP) =6%.
• Risk-free rate = 3%.

Based on above information, answer the following questions:

1. Calculate the appropriate discount rate (cost of capital) for UltraMX project.

2. Determine whether UltraMX should accept or reject the project using NPV and IRR, respectively.

3. Assume the current market value of the firm is $500 million and markets are efficient in the semi-strong form:

1) what would happen to the value of the firm after announcing the project?

2) what would be the percent change in the share price of UltraMX after announcing the project?

3) what would be the fair value of UltraMX after announcing the project?

Lant Company has provided the following information:

• Cash sales totaled $220,000.
• Credit sales totaled $482,000.
• Cash collections from customers for services yet to be provided totaled $82,000.
• A $18,000 loss from the sale of property and equipment occurred.
• Interest income was $8,000.
• Interest expense was $18,200.
• Supplies expense was $320,000.
• Rent expense for the store was $32,000.
• Wages expense was $42,000.
• Other operating expenses totaled $72,000.
• Unearned revenue was $4,900.

What is the amount of Lant’s income before income taxes?

Multiple Choice

A)$207,800

B)$218,000

C)$382,000

D)$289,800

Horizon Inc. sells prepaid telephone cards to customers. Horizon then pays the telecommunications company, V-Mobile, for the actual use of its telephone lines related to the prepaid telephone cards. Assume that Horizon sells $6,000 of prepaid cards in January 2020. It then pays V-Mobile based on usage, which turns out to be 60% in February and 40% in March. The total payment by Horizon for V-Mobile lines over the 2 months is $4,000.

A. Prepare the journal entries necessary for January and February

B. Compute the revenue, costs and net income Horizon will report in January, February, and March

Simulation Case Study:
Phoenix Boutique Hotel Group

Phoenix Boutique Hotel Group (PBHG) was founded in 2007 by Bree Bristowe. Having worked for several luxury resorts, Bristowe decided to pursue her dream of owning and operating a boutique hotel. Her hotel, which she called PHX, was located in an area that included several high-end resorts and business hotels. PHX filled a niche market for “modern travelers looking for excellent service and contemporary design without the frills.” Since opening PHX, Bristowe has invested, purchased, or renovated three other small hotels in the Phoenix metropolitan area: Canyon Inn PHX, PHX B&B, and The PHX Bungalows.

One of the customer service enhancements Bristowe has implemented is a centralized, toll-free reservation system. Although many customers book specific hotels online, the phone reservation system enables PBHG to find the best reservation match at all properties. It has been an excellent option for those customers who have preferences regarding the type of room, amenity options, and the best price across the four hotel locations.

Currently, three agents are on staff for the 6 a.m. to 2 p.m. call shift. The time between calls during this shift is represented in Table 1. The time to process reservation requests during this shift is in Table 2.

Table 1: Incoming Call Distribution

Table 2: Service Time Distribution

Bristowe wants to ensure customers are not on hold for longer than 2 minutes. She is debating hiring additional staff for this shift based on the available data. Additionally, Bristowe and PBHG will soon be featured in a national travel magazine with a circulation of over a million subscriptions. Bristowe is worried that the current operators may not be able to handle the increase in reservations. The projected increase for call distribution is represented in Table 3.

Table 3: Incoming Call Distribution

Bristowe has asked for your advice in evaluating the current phone reservation system. Create a simulation model to investigate her concerns. Make recommendations about the reservation agents.

1. When will a court pierce the corporate veil?
a. When there may have been a defect in the incorporation process.

b. When there is domination of the corporation by one or more of its shareholders

c. When the domination of the corporation results in an improper purpose

d.Whenever there a single-shareholder-owned or closely held corporation which did not file an annual statement with the Secretary of State.

2. Which of the following is reported on Form 8-K?

a.audited financial statements

b.the resignation of a director over a policy dispute

c.unaudited financial statements

d.All of these are correct.

3. Which of the following statements are True about the Securities Exchange Act of 1934?

a. It regulates short-swing profits in order to stop speculative insider trading.

b.It requires initial disclosures from issuers of securities.

c.Rule 10b-5 of the Securities And Exchange Act of 1934 applies to securities that do not have to be registered.

d.It is a blue-sky law.

4. If a person accepts the benefits of an unauthorized transaction, or fails to repudiate it, then he is bound by the act as if he had originally authorized it.

True

False

5. Lina was fired from Minnie's Mart because she was stealing from the cash register. A police report was filed. A prospective employer called Minnie's Mart for a reference and was told that Lina was fired for stealing. Minnie's Mart has defamed Lina.

True

False

6. Overall, directors of large publicly traded corporations get paid very little for the amount of work they perform.

True

False