A project has fixed costs of $2,400 per year, depreciation charges of $300 a year, annual revenue of $21,600, and variable costs equal to two-thirds of revenues.

a. If sales increase by 19%, what will be the percentage increase in pretax profits?

b. What is the degree of operating leverage of this project?

2. B. Prepare a retained earnings statement for the year ended December 31, Year 1. • Refer to the Chart of Accounts for exact wording of account titles. • Refer to the Labels and Amount Descriptions for exact wording of text entries. • You will need to enter the word “Less” or “Add” as necessary.

Income Statement data:

Advertising expense $150,000

Cost of merchandise sold 3,700,000

Delivery expense 30,000

Depreciation expense-office buildings and equipment 30,000

Depreciation expense-store buildings and equipment 100,000

Dividend revenue 4,500 Gain on sale of investments 4,980

Income from Pinkberry Co. investment 76,800

Income tax expense 140,500

Interest expense 21,000

Interest revenue 2,720

Miscellaneous administrative expense 7,500

Miscellaneous selling expense 14,000

Office rent expense 50,000

Office salaries expense 170,000

Office supplies expense 10,000

Sales 5,254,000

Sales commissions 185,000

Sales salaries expense 385,000

Store supplies expense 21,000

Retained earnings and balance sheet data:

Accounts payable $194,300

Accounts receivable 545,000

Accumulated depreciation—office buildings and equipment 1,580,000

Accumulated depreciation—store buildings and equipment 4,126,000

Allowance for doubtful accounts

8,450 Available-for-sale investments (at cost) 260,130

Bonds payable, 5%, due 20Y2 500,000

Cash 246,000

Common stock, $20 par (400,000 shares authorized; 100,000 shares issued, 94,600 outstanding) 2,000,000

Dividends:

Cash dividends for common stock 155,120

Cash dividends for preferred stock 100,000

Goodwill 500,000 Income tax payable 44,000

Interest receivable 1,125

Investment in Pinkberry Co. stock (equity method) 1,009,300

Investment in Dream Inc. bonds (long term) 90,000

Merchandise inventory (December 31, Year 1), at lower of cost (FIFO) or market 778,000

Office buildings and equipment 4,320,000

Paid-in capital from sale of treasury stock 13,000

Excess of issue price over par:

-Common 886,800

-Preferred 150,000

Preferred 5% stock, $80 par (30,000 shares authorized; 20,000 shares issued) 1,600,000

Premium on bonds payable 19,000

Prepaid expenses 27,400

Retained earnings, January 1, Year 1 9,319,725

Store buildings and equipment 12,560,000

Treasury stock (5,400 shares of common stock at cost of $33 per share) 178,200

Unrealized gain (loss) on available-for-sale investments (6,500)

Valuation allowance for available-for-sale investments (6,500)

Year (year) 2013 2014
Sales (Sales) $ 740 $ 782
Cost of Goods and
Services)
430 455
Interest Payment (Interest) 33 30
Dividends 16 17
Depreciation 250 215
Cash (Cash) 70 76
Accounts Receivable 563 502
Current Liabilities 390 405
Inventory 662 640
Long-Term Debt 340 410
Net Fixed Assets 1,680 1,425
Common Stock 700 235
Tax Rate 35% 30%
(1) How much net working capital has increased or decreased between 2013 and 2014?
(2) What is the net capital spending in 2014?
(3) What is the operating cash flow in 2014?
(4) What is the total cash flow of the enterprise in 2014?

On January 1, Year 1, a lessee signed a five-year equipment lease with annual payments of $100,000 beginning December 31, Year 1. The lessee treated this transaction as a capital lease. The five lease payments have a present value of $379,000 at January 1, Year 1, based on interest of 10%. What amount should the lessee report as interest expense for the year ended December 31, Year 1?

Suppose that the 2-year and 2.5-year zero rates with continuous compounding are 2.6% and 3.0%, respectively. (a) What is the forward rate for the six-month period beginning in 2 years (2R2.5) (from Year 2 to Year 2.5) with continuous compounding? (b) What is the forward rate for the six-month period beginning in 2 years (2R2.5) (from Year 2 to Year 2.5) with semiannual compounding? (c) What is the (Year 0) value of an FRA that promises to pay the lender 4.5% (compounded semiannually) on a principal of $2 million for the six-month period starting in 2 years (from Year 2 to Year 2.5)?

Please give me the process, thank you!

Consider a one-year call option and a one-year put option on the same stock, both with an exercise price $100. If the risk-free rate is 5%, the current stock price is $103, and the put option sells for $7.50.

1. According to the put-call parity, what should be the price of the call option?

2. To your amazement, the call option is actually traded at $15. If the call option fairly priced, overvalued, or undervalued? What would you do to exploit this mispricing? Formulate your strategy and work out the payoff worksheet. What would be your arbitrage profit when the future stock price is equal to $0, $100, and $200?

Colsen Communications is trying to estimate the first-year net operating cash flow (at Year 1) for a proposed project. The financial staff has collected the following information on the project:

The company has a 40% tax rate, and its WACC is 11%.

Write out your answers completely. For example, 13 million should be entered as 13,000,000.

1. What is the project's operating cash flow for the first year (t = 1)? Round your answer to the nearest dollar.
   $  
2. 
   
3. If this project would cannibalize other projects by $2 million of cash flow before taxes per year, how would this change your answer to part a? Round your answer to the nearest dollar.
   The firm's OCF would now be $  
4. 
   
5. Ignore Part b. If the tax rate dropped to 30%, how would that change your answer to part a? Round your answer to the nearest dollar.
   The firm's operating cash flow would -Select-increasedecreaseItem 3 by $  

The following transactions were completed by Hobson Inc., whose fiscal year is the calendar year: 2010 July 1. Issued $18,000,000 of five-year, 10% callable bonds dated July 1, 2010, at an effective rate of 12%, receiving cash of $16,675,184. Interest is payable semiannually on December 31 and June 30. Oct. 1. Borrowed $400,000 as a 10-year, 7% installment note from Marble Bank. The note requires annual payments of $56,951, with the first payment occurring on September 30, 2011. Dec. 31. Accrued $7,000 of interest on the installment note. The interest is payable on the date of the next installment note payment. 31. Paid the semiannual interest on the bonds. 31. Recorded bond discount amortization of $132,482, which was determined using the straight-line method. 31. Closed the interest expense account. 2011 June 30. Paid the semiannual interest on the bonds. Sept. 30. Paid the annual payment on the note, which consisted of interest of $28,000 and principal of $28,951. Dec. 31. Accrued $6,493 of interest on the installment note. The interest is payable on the date of the next installment note payment. 31. Paid the semiannual interest on the bonds. 31. Recorded bond discount amortization of $264,964, which was determined using the straight-line method. 31. Closed the interest expense account. 2012 June 30. Recorded the redemption of the bonds, which were called at 97. The balance in the bond discount account is $794,888 after payment of interest and amortization of discount have been recorded. (Record the redemption only.) Sept. 30. Paid the second annual payment on the note, which consisted of interest of $25,973 and principal of $30,978. Instructions 1. Journalize the entries to record the foregoing transactions. 2. Indicate the amount of the interest expense in (a) 2010 and (b) 2011. 3. Determine the carrying amount of the bonds as of December 31, 2011.

A student at a four-year college claims that average enrollment at four-year colleges is higher than at two-year colleges in the United States. Two surveys are conducted. Of the 35 two-year colleges surveyed, the average enrollment was 5068 with a standard deviation of 4777. Of the 35 four-year colleges surveyed, the average enrollment was 5466 with a standard deviation of 8191.† Conduct a hypothesis test at the 5% level. NOTE: If you are using a Student's t-distribution for the problem, including for paired data, you may assume that the underlying population is normally distributed. (In general, you must first prove that assumption, though.)

A) State the distribution to use for the test. (Enter your answer in the form zor t_dfwhere dfis the degrees of freedom. Round your answer to two decimal places.)

B) Sketch a picture of this situation. Label and scale the horizontal axis and shade the region(s) corresponding to the p-value. (Upload your file below.)

You are making a decision to purchase either a 6-year corporate bond or a 6-year municipal bond. The corporate bond is a 11% annual coupon bond with a par value of $1,000. It is currently yielding 12%. The municipal bond has an 9.5% annual coupon and a par value of $1,000. It is currently yielding 7.5%. Which of the two bonds would be more beneficial to you? Assume that your marginal tax rate is 37%.