Elakin Inc., a calendar year taxpayer, paid $1,339,000 for new machinery (seven-year recovery property) placed in service on August 29, 2017. The machinery was Elakin’s only asset purchase during 2017, and Elakin’s taxable income before any Section 179 deduction was $14 million.

1. Compute Elakin’s 2017 cost recovery deduction with respect to the machinery.

1. How would your answer change if the cost of the machinery was $2,150,000 instead of $1,339,000?

1. How would your answer to a. change if Elakin’s taxable income before any Section 179 deduction was $281,400 instead of $14 million?

On January 1, Year 1, Willette Company sold $240,000 of 6% ten-year bonds. Interest is payable semiannually on June 30 and December 31. The bonds were sold for $180,181, priced to yield 10%. Using the straight-line method, what is the amount of interest expense that Willette will report for the six months ended June 30, Year 1?

Assume the following information:

1-year interest rate on U.S. dollars = 11.4%
1-year interest rate on Singapore dollars = 9.1%
Spot rate of Singapore dollar = 0.4 USD/SGD
1-year forward premium on Singapore dollars = 3.79%

Given this information, how much profit can be made with covered interest arbitrage, by borrowing 1 million USD?

Additional Information on Current Year Transactions

1. The loss on the cash sale of equipment was $24,125 (details in b).
2. Sold equipment costing $103,875, with accumulated depreciation of $49,125, for $30,625 cash.
3. Purchased equipment costing $115,375 by paying $68,000 cash and signing a long-term note payable for the balance.
4. Borrowed $5,900 cash by signing a short-term note payable.
5. Paid $59,625 cash to reduce the long-term notes payable.
6. Issued 4,400 shares of common stock for $20 cash per share.
7. Declared and paid cash dividends of $53,900.

Required:
1. Prepare a complete statement of cash flows using the indirect method for the current year. (Amounts to be deducted should be indicated with a minus sign.)

Convers Corporation (calendar-year-end) acquired and placed in service the following assets during the current tax year: Machinery: original basis = $84,000; placed in service on October 25 Computer equipment: original basis = $24,000; placed in service on February 3 Used delivery truck*: original basis = $37,000; placed in service on March 17 Furniture: original basis = $164,000; placed in service on December 22 *The delivery truck is not a luxury automobile. What is the applicable depreciation convention for the assets Convers placed in service this year assuming Convers elects out of bonus depreciation and does not take §179 expense?

6. The one-year risk-free interest rate in Mexico is 8%. The one-year risk-free rate in the U.S. is 3%. Assume that interest rate parity exists. The spot rate of the Mexican peso is $.15.

a. What is the forward rate premium or discount according to the IRP (using the exact formula)?

b. What is the one-year forward rate of the peso based on the answer from part (a)?

c. Based on the international Fisher effect (using the exact formula), what is the expected change in the spot rate over the next year?

d. If the spot rate changes as expected according to the IFE, what will be the spot rate in one year?

e. Compare your answers to (b) and (d) (6 points in total)

71. Last year Dania Corporation's sales were $525 million. If sales grow at 9.8% per year, how large (in millions) will they be 8 years later?

            a.         $1,142.39

            b.         $1,109.12

            c.         $1,364.22

            d.         $1,131.30

            e.         $842.93

72. How much would $1, growing at 13.7% per year, be worth after 75 years?

            a.         $18,248.03

            b.         $15,206.70

            c.         $15,358.76

            d.         $13,533.96

            e.         $18,704.24

73. How much would $100, growing at 5% per year, be worth after 10 years?

            a.         $130.31

            b.         $138.46

            c.         $162.89

            d.         $169.41

            e.         $193.84

74. You deposit $825 today in a savings account that pays 6% interest, compounded annually. How much will your account be worth at the end of 25 years?

            a.         $4,213.54

            b.         $4,001.10

            c.         $3,965.69

            d.         $3,540.79

            e.         $3,257.53

75. You deposit $500 today in a savings account that pays 6% interest, compounded annually. How much will your account be worth at the end of 40 years?

            a.         $6,274.29

            b.         $5,091.43

            c.         $3,857.14

            d.         $5,760.00

            e.         $5,142.86

76. Suppose a State of New York bond will pay $1,000 ten years from now. If the going interest rate on these 10-year bonds is 5.0%, how much is the bond worth today?

            a.         $613.91

            b.         $564.80

            c.         $736.70

            d.         $466.57

            e.         $724.42

77. Suppose a State of California bond will pay $1,000 eight years from now. If the going interest rate on these 8-year bonds is 5.4%, how much is the bond worth today?

            a.         $551.51

            b.         $768.18

            c.         $656.56

            d.         $518.68

            e.         $722.22

78. How much would $20,000 due in 50 years be worth today if the discount rate were 7.5%?

            a.         $618.45

            b.         $656.09

            c.         $451.74

            d.         $537.78

            e.         $661.47

79. How much would $5,000 due in 20 years be worth today if the discount rate were 5.5%?

            a.         $2,004.96

            b.         $1,713.64

            c.         $2,039.24

            d.         $2,073.51

            e.         $1,353.78

80. Suppose a U.S. treasury bond will pay $1,050 five years from now. If the going interest rate on 5-year treasury bonds is 4.25%, how much is the bond worth today?

            a.         $852.72

            b.         $878.31

            c.         $750.40

            d.         $656.60

            e.         $673.65

B. Suppose a 48-year-old salesperson earning $50,000 a year (after taxes) is considering a career move. Specifically, this person – who plans to retire when (s)he turns 62 regardless of job – is thinking about quitting sales work for 2 years to earn an MBA degree. With MBA degree in hand, suppose this person can become an executive and earn $75,000 per year (after taxes). Suppose MBA tuition is $30,000 per year. Suppose the relevant discount rate is 3.5% per year. Based on this information, demonstrate and explain how one could reckon whether or not this change promises to be a good move. You are expected to show how one would set up and perform the calculation(s).

1. Interpret the table trend year by year comparing both company NP before tax?

Convers Corporation (calendar-year-end) acquired and placed in service the following assets during the current tax year: Machinery: original basis = $84,000; placed in service on October 25 Computer equipment: original basis = $24,000; placed in service on February 3 Used delivery truck*: original basis = $37,000; placed in service on March 17 Furniture: original basis = $164,000; placed in service on December 22 *The delivery truck is not a luxury automobile. What is the applicable depreciation convention for the assets Convers placed in service this year assuming Convers elects out of bonus depreciation and does not take §179 expense?

• 200% declining balance

• Mid-quarter convention

• Mid-month convention

• Full-month convention

• Half-year convention