Puma Technologies' shares are currently traded in the NYSE. Analysts following the company forecast the dividends next year as follows: + Scenario 1: with probability 0.4, dividends in year 1 is expected to be $0.5 per share. + Scenario 2: with probability 0.6, dividends in year 1 is expected to be $0.1 per share. With this forecast, the dividends are expected to grow at a rate of 10% for year 2 and stabilize at a constant growth rate of 4% thereafter (i.e., year 3 moving forward). With your understanding of the company, you require a discount rate of 15% for all of the future cash flows. NOTE: Round up the answers to two decimal points. Provide all of your derivation steps and formulas in each part.

a. (1 pts) Taking into account the probability in each scenario, calculate the expected dividends in year 1.

b. (2 pts) Calculate the expected dividends in year 2 and year 3.

c. (2 pts) Calculate the expected share price in year 2.

d. (2 pts) How much would you be willing to pay for a share of Puma Technologies today in year 0?

Whispering Winds Deck System Corporation is a public company whose shares are actively traded on the Toronto Stock Exchange. The following transactions occurred in 2020:

(a)

Prepare the general journal entries to record the transactions. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275. Do not round intermediate calculations.)

Tea Ltd is a public company whose common shares are traded in the stock market. Tea recently issued various financial instruments to the public, as described below.

(a) 7% convertible bonds with a face value of $1,000 and maturity date on December 31, 2027. Each bond can be converted into whatever number of Tea’s common shares such that the value of the common shares which the holder receives from conversion is equal to $1,500.   

2. 5% convertible, cumulative, redeemable preference shares. Each preference share can be converted into 5 of Tea’s common shares at the conversion price of $10 per common share. The conversion period is from January 1, 2022 to June 30, 2026. At the date of issue of the convertible preference shares, Tea’s common shares were traded at $50 per share.

If the preference shares are not converted by June 30, 2026, it will be mandatorily redeemed on July 1, 2026 at the redemption price of $300 per share.   

3. 2% perpetual bonds (bonds with no maturity date which pay a stream of interest forever as long as the issuer still exists). The bonds entitle the holders to a 2% interest to be paid annually in arrears on December 31. In addition, the holders can receive the repayment of principal when the issuer (Tea) liquidates in the future.   

Required: Discuss the classification of the financial instruments above.

-What kind of financial information is a publically traded company required to provide to its stockholders? Which financial statement do you think provides the best information for investors?

-Differentiate (compare) among the information that is provided in each of the following financial statements: (1) balance sheet, (2) income statement, and (3) statement of cash flows.

-Discuss some of the limitations associated with performing ratio (financial statement) analysis. What is the most important ingredient (input) in completing ratio analysis? Explain why.

-Robust Robots (RR) recently issued 100,000 shares of common stock at $7 per share. The stock has a par value equal to $3 per share. What amount of the $700,000 that RR raised should be reported in the “common stock at par” account, and what amount should be reported in the “Paid-in capital” account?

-Crooked Golf's 2014 income statement shows that net income was $90,000, depreciation was $25,000, and taxes were $60,000. What was Crooked Golf's net cash flow in 2014?

-HighTech Wireless just published its 2014 income statement, which shows net income equal to $240,000. The statement also shows that operating expenses were $500,000 before including depreciation, depreciation was $100,000, and the tax rate was 40 percent. If HighTech has no debt, what were its sales revenues in 2014? What was its 2014 net cash flow?

-Credit Card of America (CCA) has a current ratio of 3.5 and a quick ratio of 3.0. If its total current assets equal $73,500, what are CCA's (a) current liabilities and (b) inventory?

-At the end of the year, Wrinkle Free Laundry (WFL) had $150,000 in total assets. (a) If WFL's total assets turnover was 2.0, what were its sales revenues? (b) If WFL's return on assets was 6 percent, what were its net income and net profit margin?

-The balance sheet for Panoramic Open Pictures (POP) shows $300,000 in total assets and $200,000 in total liabilities. POP's return on assets (ROA) is 5 percent. Compute POP's (a) net income for the year and (b) its return on equity (ROE). POP has no preferred stock.

-Legacy Cleaning has a debt ratio equal to 40 percent, total assets equal to $750,000, return on assets (ROA) at 6 percent, and total assets turnover of 3.0. (a) If it has no preferred stock, what amount of common equity does Legacy have? (b) What is Legacy's net profit margin?

Discuss the advantages and disadvantages of exchange-traded funds versus open-end mutual funds. Include a discussion of the clients most suitable for these types of investments. In response to peers, discuss further the comparison of exchange-traded funds and open-end mutual funds.

Beta company makes and sells wadgets. Before the start of 2018, Alpha budgeted to produce and sell 24,000 wadgets. However, the company actually ended up producing and selling 27,400 wadgets in 2018. Beta budgeted to sell each wadget for $18, but the actual average selling price for each wadget was $21.50. For variable costs, beta budgeted that each wadget would use $3 of direct material costs, but the actual direct material cost was $2.50 per wadget. Please answer the following questions:

1. What will total sales be in the Flex Budget? (do not use commas)

Use the same information as in Question 1

2. What will total direct material costs be in the Flex Budget?

Use the same information as in Question 1

3. What is the revenue variance (or in other words, the flex budget variance for revenue)? (enter the number itself, not the F or U)

4. For the revenue variance you found in Question 3, was the variance Favorable or Unfavorable?

Y

ou have recently been hired by Layton Motors, Inc. (LMI), in its relatively new treasury management department. LMI was founded eight years ago by Rachel Layton. Rachel found a method to manufacture a cheaper battery that will hold a larger charge, giving a car powered by the battery a range of 700 miles before requiring a recharge. The cars manufactured by LMI are midsized and carry a price that allows the company to compete with other mainstream auto manufacturers. The company is privately owned by Rachel and her family, and it had sales of $197 million last year.

LMI primarily sells to customers who buy the cars online, although it does have a limited number of company-owned dealerships. The customer selects any customization and makes a deposit of 20 percent of the purchase price. After the order is taken, the car is made to order, typically within 45 days. LMI's growth to date has come from its profits. When the company had sufficient capital, it would expand production. Relatively little formal analysis has been used in its capital budgeting process. Rachel has just read about capital budgeting techniques and has come to you for help. For starters, the company has never attempted to determine its cost of capital, and Rachel would like you to perform the analysis. Because the company is privately owned, it is difficult to determine the cost of equity for the company. Rachel wants you to use the pure play approach to estimate the cost of capital for LMI, and she has chosen Tesla Motors as a representative company. The following questions will lead you through the steps to calculate this estimate.

QUESTIONS

Most publicly traded corporations are required to submit quarterly (10Q) and annual reports (10K) to the SEC detailing the financial operations of the company over the past quarter or year, respectively. These corporate filings are available on the SEC website at www.sec.gov. Go to the SEC website, follow the “Search EDGAR for Company Filings” link, and search for SEC filings made by Tesla Motors (TSLA). Find the most recent 10Q or 10K, and download the form. Look on the balance sheet to find the book value of debt and the book value of equity.

To estimate the cost of equity for TSLA, go to finance.yahoo.com and enter the ticker symbol TSLA. Follow the links to answer the following questions: What is the most recent stock price listed for TSLA? What is the market value of equity, or market capitalization? How many shares of stock does TSLA have outstanding? What is the most recent annual dividend? Can you use the dividend discount model in this case? What is the beta for TSLA? Now go back to finance.yahoo.com and follow the “Bonds” link. What is the yield on three-month Treasury bills? Using the historical market risk premium, what is the cost of equity for TSLA using CAPM?

You now need to calculate the cost of debt for TSLA. Go to finra-markets.morningstar.com/BondCenter/, enter TSLA as the company, and find the yield to maturity for each of TSLA's bonds. What is the weighted average cost of debt for TSLA using the book value weights and using the market value weights? Does it make a difference in this case if you use book value weights or market value weights?

You now have all the necessary information to calculate the weighted average cost of capital for TSLA. Calculate this using book value weights and market value weights, assuming TSLA has a 35 percent marginal tax rate. Which number is more relevant?

You used TSLA as a pure play company to estimate the cost of capital for LMI. Are there any potential problems with this approach in this situation?

1. How do barriers to entry benefit a monopoly?

2. What benefit does society derive by allowing some monopolies to be created?

3. Why might an airline company (assuming it is a monopoly) charge different fares to different groups of customers?

Suppose the average size of a new house built in a certain county in 2006 was 2,273 square feet. A random sample of 30 new homes built in this county was selected in 2010. The average square footage was 2,185 with a sample standard deviation of 229 square feet.

a. Determine the null and alternative hypotheses. Choose the correct answer below.

A.

H0​: μ=2,273 and H1​:μ≠2,273

B.

H0​: μ≥2,273 and H1​: μ<2,273

C.

H0​: μ=2,273 and H1​: μ>2,273

D.

H0​: μ≠2,273 and H1​: μ=2,273

Determine the critical​ value(s).

The critical​ value(s) is(are) ____

​(Round to three decimal places as needed. Use a comma to separate answers as​ needed.)

Determine the test​ statistic,

t Subscript x overbartx.

t Subscript x overbartx = _____

​(Round to two decimal places as​ needed.)

What conclusion should be​ drawn? Choose the correct answer below.

A. Reject the null hypothesis. The data do not provide sufficient evidence to conclude that the average house size has changed since 2006.

B. Do not reject the null hypothesis. The data do not provide sufficient evidence to conclude that the average house size has changed since 2006.

C. Do not reject the null hypothesis. The data provide sufficient evidence to conclude that the average house size has changed since 2006.

D. Reject the null hypothesis. The data provide sufficient evidence to conclude that the average house size has changed since 2006.

b. Use technology to determine the​ p-value for this test. What is the​ p-value?

​p-value = _____

​(Round to three decimal places as​ needed.)

Problem 8-27 Cash Collections; Cash Disbursements; Budgeted Balance Sheet [LO8-2, LO8-3, LO8-4, LO8-10]

Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30th. The following information is available

Budgeting Assumptions:

1. 60% of sales are cash sales and 40% of sales are credit sales. Twenty percent of all credit sales are collected in the month of sale and the remaining 80% are collected in the month subsequent to the sale.

2. Budgeted sales for July are $222,000.

3. 10% of merchandise inventory purchases are paid in cash at the time of the purchase. The remaining 90% of purchases are credit purchases. All purchases on credit are paid in the month subsequent to the purchase. The accounts payable at March 31 will be paid in April.

4. Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold.

5. Depreciation expense is $1,300 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.

Required:

1. Calculate the expected cash collections for April, May, and June.

2. Calculate the budgeted merchandise purchases for April, May, and June.

3. Calculate the expected cash disbursements for merchandise purchases for April, May, and June.

4. Prepare a budgeted balance sheet at June 30th. (Hint: You need to calculate the cash paid for selling and administrative expenses during April, May, and June to determine the cash balance in your June 30th balance sheet.)