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 $ 2,870,000 $ 3,242,500 $ 2,517,500 Additional §263A costs 55,000 74,250 56,250 Ending tax inventory $ 2,925,000 $ 3,316,750 $ 2,573,750 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?

PROJECT CASH FLOW

Colsen Communications is trying to estimate the first-year 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 10%.

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

1. What is the project's 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 $0.5 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 project's cash flow would now be $ .
4. 
   
5. Ignore part b. If the tax rate dropped to 35%, how would that change your answer to part a? Round your answer to the nearest dollar.
   The firm's project's cash flow would (increase or decrease) by $ ?

The balance sheet data below for Randolph Company for two recent years.

Required:

a. Using horizontal analysis, show the percentage change for each balance sheet item using Year 1 as a base year. If required, round percentage to one decimal place. If required, use the minus sign to indicate decreases in amounts and percents (negative values).

1. Randolph Company
   Comparative Balance Sheet
   December 31, Year 2 and Year 1
   Assets	Year 2	Year 1	Increase/Decrease Amount	Increase/Decrease Percentage
   Current assets	$445	$280	$	%
   Plant assets	680	520		%
   Total assets	$1,125	$800	$	%
   Liabilities & stockholders' equity
   Current liabilities	$285	$120	$	%
   Long-term debt	255	160		%
   Common stock	325	320		%
   Retained earnings	260	200		%
   Total liabilities and stockholders' equity	$1,125	$800	$	%

   b. Using vertical analysis, prepare a comparative balance sheet. If required, round your answers to one decimal place.

   Randolph Company
   Comparative Balance Sheet
   December 31, Year 2 and Year 1
   Assets	Year 2 Amount	Year 2 Percent	Year 1 Amount	Year 1 Percent
   Current assets	$445	%	$280	%
   Plant assets	680	%	520	%
   Total assets	$1,125	%	$800	%
   Liabilities & stockholders' equity
   Current liabilities	$285	%	$120	%
   Long-term debt	255	%	160	%
   Common stock	325	%	320	%
   Retained earnings	260	%	200	%
   Total liabilities and stockholders' equity	$1,125	%	$800	%

The following data were extracted from the income statement of Martin Solutions, Inc.:

Required:

Assume a 365-day year.

Determine for each year:

a. Inventory turnover. Round your answers to one decimal place.

b. Number of days' sales in inventory. Round your final answer to one decimal place.

2. 2. A firm has the following three projections of revenue estimates:

Current Year1 Year 2 Year 3

Revenue $1,500 $1,650 $1,815 $2,000

EAT $95 $106 $117 $130

The company also receives a royalty net after taxes of $10 million per year. It is expected that the cash flows equal to depreciation will have to be reinvested to keep the firm operating. Further, capital expenditures equal to 60 percent of the net cash flow will need to be invested to keep the firm growing. Other items on the balance sheet remain unchanged. The CFO believes that it will just forecast for the first three years and then simply assume a 6 percent annual growth rate after the third year.

T-bills yield 8 percent and the market return is 13 percent. The company’s beta using Hamada equation is 1.2. What is the value of the company or what would you pay for the firm if you were interested in it.

Canyon Tours showed the following components of working capital last year: Beginning End of Year Accounts receivable $ 25,600 $ 23,800 Inventory 12,800 14,100 Accounts payable 15,300 18,100 a. What was the change in net working capital during the year? (A negative amount should be indicated by a minus sign.) b. If sales were $36,800 and costs were $24,800, what was cash flow for the year? Ignore taxes.

On July 1, Year 1, Livingston Corporation, a wholesaler of manufacturing equipment, issued $3,000,000 of 6-year, 9% bonds at a market (effective) interest rate of 10%, receiving cash of $2,867,050. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.

Required:

1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, Year 1. For a compound transaction, if an amount box does not require an entry, leave it blank.

2. Journalize the entries to record the following: For a compound transaction, if an amount box does not require an entry, leave it blank. Round your answer to the nearest dollar.

a. The first semiannual interest payment on December 31, Year 1, and the amortization of the bond discount, using the straight-line method.

b. The interest payment on June 30, Year 2, and the amortization of the bond discount, using the straight-line method.

3. Determine the total interest expense for Year 1. Round to the nearest dollar.
$

4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest?
Yes

5. Compute the price of $2,867,050 received for the bonds by using Table 1, Table 2, Table 3 and Table 4. (Round to the nearest dollar.) Your total may vary slightly from the price given due to rounding differences.

Today, the one-year U.S. interest rate is 2%, while the one-year interest rate in Mexico is 8%. The spot rate of the Mexico peso (MXP) is $.06 The one-year forward rate of the MXP exhibits a 10% discount. Determine the yield (percentage return on investment) to an investor from Mexico who engages in covered interest arbitrage.

PROJECT CASH FLOW

Colsen Communications is trying to estimate the first-year 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 13%.

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

1. What is the project's 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 $1.5 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 project's cash flow 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 project's cash flow would -Select- increase or decrease

by $