Real Estate Finance:

A proposed investment will return a seven-year income stream with first year income of $1,750,000 growing at 6% per year.

There is no terminal value.

What is the IRR on the investment if that income stream is purchased for $6,500,000? (Assume annual compounding.)

Suppose the government borrows $20 billion more next year than this year.

a. Use a supply-and-demand diagram to analyse this policy. Does the interest rate rise or fall? (5%)

b. What happens to investment? To private saving? To public saving? To national saving? Compare the size of the changes to the $20 billion of extra government borrowing. (5%)

c. Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future. What does this belief do to private saving and the supply of loanable funds today? Does it increase or decrease the effects that you discussed in parts (a) and (b)? (5%)

Sage Inc. experienced the following transactions for Year 1, its first year of operations:

1. Issued common stock for $120,000 cash.
2. Purchased $200,000 of merchandise on account.
3. Sold merchandise that cost $154,000 for $306,000 on account.
4. Collected $274,000 cash from accounts receivable.
5. Paid $180,000 on accounts payable.
6. Paid $56,000 of salaries expense for the year.
7. Paid other operating expenses of $72,000.
8. Sage adjusted the accounts using the following information from an accounts receivable aging schedule:

c. What is the net realizable value of the accounts receivable at December 31, Year 1?

Roth Inc. experienced the following transactions for Year 1, its first year of operations:

1. Issued common stock for $80,000 cash.
2. Purchased $245,000 of merchandise on account.
3. Sold merchandise that cost $166,000 for $330,000 on account.
4. Collected $276,000 cash from accounts receivable.
5. Paid $230,000 on accounts payable.
6. Paid $54,000 of salaries expense for the year.
7. Paid other operating expenses of $43,000.
8. Roth adjusted the accounts using the following information from an accounts receivable aging schedule:

Required
a. Record the above transactions in general journal form and post to T-accounts. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

You are in charge of the year-end inventory count for OMG Luggage’s December 31, 2017 year-end. OMG Luggage is known for its crazy luggage colours and designs. Assume the company uses a perpetual inventory system. Determine whether to include or exclude the following items.

a. On December 25, 2017, OMG Luggage purchased neon green luggage, FOB shipping from Baggage Co. The order had a purchase price of $2,500, shipping charges of $400, import duties of $300, and shipping insurance of $133. The products have not yet arrived at OMG Luggage, but Baggage Co. confirmed that the company shipped the order on December 27, 2017.
b. On December 31, 2017, OMG Luggage shipped leopard print luggage to a customer for a retail price of $777. This luggage had a cost of $500 and was shipped FOB destination. The shipping charges of $55 were paid by the appropriate party. Assume the products are delivered to customer in first week of January.
c. During the year, OMG luggage shipped inventory with a cost of $5,000 to a retailer on consignment. On December 31, 2017, the consignment store had sold $3,000 of the inventory and had paid OMG Luggage for the inventory sold.
d. On December 30, 2017, OMG Luggage sold yellow luggage to a customer with a price of $2,222 and a cost of $1,111. The customer paid for the luggage and arranged to pick up the inventory in person on January 4, 2018. As the inventory was still at the warehouse on December 31, 2017, the staff included this inventory in the final inventory listing.

On July 1, Year 1, Danzer Industries Inc. issued $26,600,000 of 10-year, 10% bonds at a market (effective) interest rate of 11%, receiving cash of $25,010,623. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.

Required:

You purchase a brand-new property that had an NOI of $12 million last year (year 0). NOI is expected to grow at 5% a year. In order to maintain this growth, you hire a management team to manage the property and they charge 3% of NOI per annum. The risk-free rate is 1%. 1. You go to bank ABC to take out an amortized loan. The going-in cap rate for the property is 6%. They are willing to lend you 75% of the fair market value of the property. The term of the loan is 25 years, the interest rate = 4% above the risk-free rate. What is the maximum amount of debt you can take? 2. Assume you take the maximum amount of debt that bank ABC offered. Your accountant deems that 30% of the property value is attributed to land while 70% is to the building. The building will depreciate for 39 years. Show the value of the building, the land, and annual depreciation. 3. Prepare a 10 year pro forma for the property, ending with ATCFs. Include the following assumptions: a. Tax rate is 30% b. Recapture tax rate is 20% c. Capital gain tax rate is 15% d. Going-out cap rate at the end of 10 years is 8% 4. Calculate the NPV (discount rate = 9%) and IRR of the property.

Consider two bonds, a 3-year bond paying an annual coupon of 6.50% and a 10-year bond also with an annual coupon of 6.50%. Both currently sell at a face value of $1,000. Now suppose interest rates rise to 9%. a. What is the new price of the 3-year bonds? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the new price of the 10-year bonds? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Assume Maple Corp. has just completed the third year of its existence (year 3). The table below indicates Maple’s ending book inventory for each year and the additional §263A costs it was required to include in its ending inventory. Maple immediately expensed these costs for book purposes. In year 2, Maple sold all of its year 1 ending inventory, and in year 3 it sold all of its year 2 ending inventory. Year 1 Year 2 Year 3 Ending book inventory $ 3,180,000 $ 3,725,000 $ 3,014,000 Additional § 263A costs 34,000 85,750 41,500 Ending tax inventory $ 3,214,000 $ 3,810,750 $ 3,055,500 Required: What book-tax difference associated with its inventory did Maple report in year 1? Was the difference favorable or unfavorable? Was it permanent or temporary? What book-tax difference associated with its inventory did Maple report in year 2? Was the difference favorable or unfavorable? Was it permanent or temporary? What book-tax difference associated with its inventory did Maple report in year 3? Was the difference favorable or unfavorable? Was it permanent or temporary?