Capital Co. is currently issuing both 20-year and 30-year bonds at par. The bonds pay 7 percent annual interest and have face values of $1,000. You decide to purchase one of each of these bonds and hold them for ten years. Assume that the yield to maturity on each of these bonds is 9.6 percent ten years from now.

-determine the percent price appreciation on the 20-year bond and percent price appreciation on the 30-year bond.   Which bond has a higher interest rate risk?

Last year Carson Industries issued a 10-year, 12% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,060 and it sells for $1,300.

1. What is the bond's nominal yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places.
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   What is the bond's nominal yield to call? Do not round intermediate calculations. Round your answer to two decimal places.
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   Would an investor be more likely to earn the YTM or the YTC?
   -Select-Since the coupon rate on the bond has declined, the bond is not likely to be called.Since the YTM is above the YTC, the bond is likely to be called.Since the YTC is above the YTM, the bond is likely to be called.Since the YTM is above the YTC, the bond is not likely to be called.Since the YTC is above the YTM, the bond is not likely to be called.
   
2. What is the current yield? (Hint: Refer to Footnote 7 for the definition of the current yield and to Table 7.1.) Round your answer to two decimal places.
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   Is this yield affected by whether the bond is likely to be called?
   1. If the bond is called, the current yield and the capital gains yield will remain the same.
   2. If the bond is called, the capital gains yield will remain the same but the current yield will be different.
   3. If the bond is called, the current yield and the capital gains yield will both be different.
   4. If the bond is called, the current yield and the capital gains yield will remain the same but the coupon rate will be different.
   5. If the bond is called, the current yield will remain the same but the capital gains yield will be different.
   
   -Select-
   
3. What is the expected capital gains (or loss) yield for the coming year? Use amounts calculated in above requirements for calcuation, if reqired. Round your answer to two decimal places. Enter a loss percentage, if any, with a minus sign.
   %

Roger Company completed the following transactions during Year 1. Roger’s fiscal year ends on December 31.

Requirements:

1)Prepare journal entries for each of these transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2)Prepare the adjusting entries required on December 31. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

3) Show how all of the liabilities arising from these transactions are reported on the balance sheet at December 31.

10.Calculating Salvage ValueAn asset used in a 4-year project falls in the 5-year MACRS class for tax purposes. The asset has an acquisition cost of $7.6 million and will be sold for $1.4 million at the end of the project. If the tax rate is 21 percent, what is the aftertax salvage value of the asset?

11.Calculating NPVThurston Petroleum is considering a new project that complements its existing business. The machine required for the project costs $4.1 million. The marketing department predicts that sales related to the project will be $2.35 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its 4-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. The company also needs to add net working capital of $150,000 immediately. The additional net working capital will be recovered in full at the end of the project’s life. The corporate tax rate is 25 percent and the required return for the project is 13 percent. Should the company proceed with the project?

Forten Company, a merchandiser, recently completed its calendar-year 2015 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses. The company's income statement and balance sheets follow. FORTEN COMPANY Comparative Balance Sheets December 31, 2015 and 2014 2015 2014 Assets Cash $ 97,680 $ 74,000 Accounts receivable 65,860 57,000 Inventory 276,000 252,000 Prepaid expenses 1,250 1,700 Total current assets 440,790 384,700 Equipment 158,050 107,000 Accum. depreciation—Equipment (42,375) (52,000) Total assets $ 556,465 $ 439,700 Liabilities and Equity Accounts payable $ 97,000 $ 114,000 Short-term notes payable 10,000 8,000 Total current liabilities 107,000 122,000 Long-term notes payable 64,165 48,500 Total liabilities 171,165 170,500 Equity Common stock, $5 par value 162,750 150,000 Paid-in capital in excess of par, common stock 38,250 0 Retained earnings 184,300 119,200 Total liabilities and equity $ 556,465 $ 439,700 FORTEN COMPANY Income Statement For Year Ended December 31, 2015 Sales $ 585,000 Cost of goods sold 284,000 Gross profit 301,000 Operating expenses Depreciation expense $ 20,000 Other expenses 132,400 152,400 Other gains (losses) Loss on sale of equipment (5,250) Income before taxes 143,350 Income taxes expense 24,250 Net income $ 119,100 Additional Information on Year 2015 Transactions a. The loss on the cash sale of equipment was $5,250 (details in b). b. Sold equipment costing $48,115, with accumulated depreciation of $29,625, for $13,240 cash. c. Purchased equipment costing $99,165 by paying $30,000 cash and signing a long-term note payable for the balance. d. Borrowed $2,000 cash by signing a short-term note payable. e. Paid $53,500 cash to reduce the long-term notes payable. f. Issued 2,550 shares of common stock for $20 cash per share. g. Declared and paid cash dividends of $54,000. Required: Prepare a complete statement of cash flows; report its operating activities according to the direct method. (Amounts to be deducted should be indicated with a minus sign.)

Ch12 exerc #5

b

Exercise 2: The one-year risk-free rate is i1 = 5% and the two-year risk-free rate is i2 = 5%. The probability of default for the first year is (1 − p1) = 10%. The marginal probability of default for the second year is (1 − p2) = 20%.

a) Calculate the two-year cumulative probability of default (1 − Cp2).
b) Calculate the one year corporate interest rate k1 and the corporate forward rate for the second year c2.
c) Calculate the annual interest rate for a two-year loan k2.

he following information indicates percentage returns for stocks L and M over a 6-year period:

In combining [L−M] in a single portfolio, stock M would receive 60% of capital funds.

Furthermore, the information below reflects percentage returns for assets F, G, and H over a 4-year period, with asset F being the base instrument:

Using these assets, you have a choice of either combining [F−G] or [F−H] in a single portfolio, on an equally-weighted basis.

Required: Calculate the absolute percentage difference in the coefficient of variation (CV) between the stock portfolio [L−M] and the portfolio which outlines the optimal combination of assets.

Answer% Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places (for example: 28.31%).

Forten Company, a merchandiser, recently completed its calendar-year 2017 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses. The company’s income statement and balance sheets follow. FORTEN COMPANY Comparative Balance Sheets December 31, 2017 and 2016 2017 2016 Assets Cash $ 78,400 $ 92,500 Accounts receivable 94,460 69,625 Inventory 304,156 270,800 Prepaid expenses 1,400 2,275 Total current assets 478,416 435,200 Equipment 138,500 127,000 Accum. depreciation—Equipment (46,125 ) (55,500 ) Total assets $ 570,791 $ 506,700 Liabilities and Equity Accounts payable $ 72,141 $ 143,175 Short-term notes payable 15,700 9,800 Total current liabilities 87,841 152,975 Long-term notes payable 55,500 67,750 Total liabilities 143,341 220,725 Equity Common stock, $5 par value 200,750 169,250 Paid-in capital in excess of par, common stock 56,500 0 Retained earnings 170,200 116,725 Total liabilities and equity $ 570,791 $ 506,700 FORTEN COMPANY Income Statement For Year Ended December 31, 2017 Sales $ 677,500 Cost of goods sold 304,000 Gross profit 373,500 Operating expenses Depreciation expense $ 39,750 Other expenses 151,400 191,150 Other gains (losses) Loss on sale of equipment (24,125 ) Income before taxes 158,225 Income taxes expense 50,850 Net income $ 107,375 Additional Information on Year 2017 Transactions The loss on the cash sale of equipment was $24,125 (details in b). Sold equipment costing $103,875, with accumulated depreciation of $49,125, for $30,625 cash. Purchased equipment costing $115,375 by paying $68,000 cash and signing a long-term note payable for the balance. Borrowed $5,900 cash by signing a short-term note payable. Paid $59,625 cash to reduce the long-term notes payable. Issued 4,400 shares of common stock for $20 cash per share. Declared and paid cash dividends of $53,900. Problem 16-3A Indirect: Statement of cash flows LO A1, P1, P2, P3 Required: 1. Prepare a complete statement of cash flows; report its operating activities using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

33. During Year 1, JR Company completed the transactions listed below. JR's fiscal year ends on December 31. Prepare journal entries to record each of the transactions. Note that the adjusting entries required on December 31 will be prepared in the following equation (so don't include the end-of-year adjusting entries here). 20 points

A. On January 1, owners invested $10,000 in the business in exchange for 10,000 shares of common stock with a par value of $0.01 per share.

B. On April 1, the company purchased equipment for $12,000. They paid half in cash and agreed to pay the rest in one year.

C. On July, the company received a loan of $20,000, due in 1 year, with an annual interest rate of 10%.

D. On October 20, a customer made an advance deposit of $1,500 for services to be provided later

E. On November 1, the company paid $3,000 for a 3 year insurance policy

34. Using the necessary information from the prior question, prepare the adjusting entries for JR company required on December 31, Year 1. 20 points

F. The company uses the straight-line depreciation method. It estimated that the equipment in transaction B will have a salvage value of $1,000 and a useful life of 5 years. With respect to equipment, provide the adjusting entry required at the end of Year 1.

G. With respect to the loan in transaction C, provide the adjusting entry required at the end of Year 1.

H. Services worth $500 have been provided to the customer in transaction D. provide the adjusting entry required at the end of Year 1.

I. With respect to the insurance policy in transaction E, provide the adjusting entry required at the end of Year 1.