14-15

Problem 14-15 Part 2

2. You decide next to assess the company’s stock market performance. Assume that Lydex’s stock price at the end of this year is $98 per share and that at the end of last year it was $66. For both this year and last year, compute: (Round your "Percentage" answers to 1 decimal place and other intermediate and final answers to 2 decimal places.)

a. The earnings per share.

b. The dividend yield ratio.

c. The dividend payout ratio.

d. The price-earnings ratio.

e. The book value per share of common stock.

An 85-year-old woman named Harriet, passes away. Her will, executed 1 year prior to her death, directs that her entire estate should pass to the home-health care worker who assisted her the last two years of her life. Harriet's two sons were very disappointed that they were excluded from the will. Is this a case of undue influence, such that the sons could successfully contest the will and receive the estate's assets? Please provide detained explain detailed explanation.

Storm, Inc. purchased the following available-for-sale securities during Year 1, its first year of operations:

The market price per share for the available-for-sale security portfolio on December 31, Year 1, was as follows:

Required:

Camille Sikorski was divorced last year. She currently provides a home for her 15-year-old daughter Kaly. Kaly lived in Camille’s home for the entire year, and Camille paid for all the costs of maintaining the home. She received a salary of $107,500 and contributed $6,400 of it to a qualified retirement account (a for AGI deduction). She also received $16,500 of alimony from her former husband. Finally, Camille paid $17,400 of expenditures that qualified as itemized deductions. Use 2018 standard deduction rates.

b.  What would Camille’s taxable income be if she incurred $12,950 of itemized deductions instead of $17,400?

c. Assume the original facts but now suppose Camille’s daughter, Kaly, is 25 years old and a full-time student. Kaly’s gross income for the year was $7,400. Kaly provided $4,440 of her own support, and Camille provided $7,400 of support. What is Camille’s taxable income?

12-3
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.

Additional Information on Year 2017 Transactions

1. The loss on the cash sale of equipment was $5,125 (details in b).
2. Sold equipment costing $46,875, with accumulated depreciation of $30,125, for $11,625 cash.
3. Purchased equipment costing $96,375 by paying $30,000 cash and signing a long-term note payable for the balance.
4. Borrowed $4,000 cash by signing a short-term note payable.
5. Paid $50,125 cash to reduce the long-term notes payable.
6. Issued 2,500 shares of common stock for $20 cash per share.
7. Declared and paid cash dividends of $50,100.

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.)

Additional Information on Year 2017 Transactions

1. Net income was $114,975.
2. Accounts receivable increased.
3. Inventory increased.
4. Prepaid expenses decreased.
5. Accounts payable decreased.
6. Depreciation expense was $20,750.
7. Sold equipment costing $46,875, with accumulated depreciation of $30,125, for $11,625 cash. This yielded a loss of $5,125.
8. Purchased equipment costing $96,375 by paying $30,000 cash and (i.) by signing a long-term note payable for the balance.
9. Borrowed $4,000 cash by signing a short-term note payable.
10. Paid $50,125 cash to reduce the long-term notes payable.
11. Issued 2,500 shares of common stock for $20 cash per share.
12. Declared and paid cash dividends of $50,100.

Additional Information on Year 2017 Transactions

1. The loss on the cash sale of equipment was $5,125 (details in b).
2. Sold equipment costing $46,875, with accumulated depreciation of $30,125, for $11,625 cash.
3. Purchased equipment costing $96,375 by paying $30,000 cash and signing a long-term note payable for the balance.
4. Borrowed $4,000 cash by signing a short-term note payable.
5. Paid $50,125 cash to reduce the long-term notes payable.
6. Issued 2,500 shares of common stock for $20 cash per share.
7. Declared and paid cash dividends of $50,100.

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.)

  
Required:
Prepare a complete statement of cash flows using a spreadsheet; report its operating activities using the indirect method. (Enter all amounts as positive values.)
  

Evergreen Corporation (calendar-year-end) acquired the following assets during the current year: (ignore §179 expense and bonus depreciation for this problem): (Use MACRS Table 1 and Table 2.)

2018

*The delivery truck is not a luxury automobile

a. What is the allowable MACRS depreciation on Evergreen’s property in the current year assuming Evergreen does not elect §179 expense and elects out of bonus depreciation? (Round your intermediate calculations to the nearest whole dollar amount.)

b. What would be the allowable MACRS depreciation on Evergreen’s property in the current year if Evergreen does not elect out of bonus depreciation?

If you operated for 325 days/year, assuming 50 burgers sold/day; VC = $3.50; FC = $65.3K/year; and SP = $7.00, your total cost per burger would be?

Select one:

a. $7.09

b. $7.15

c. $7.52

Consider the following US government (risk-free) bonds:

Bond A: 2-year note issued one year ago with a coupon rate of 5%

Bond B: 3-year note issued two years ago with a coupon rate of 5%

The price of the first bond is 100 and the price of the second bond is 101. For simplicity, assume that investors do not face margin requirements or interest payments to short-sell assets.

a. Assume there are no transaction costs. Establish an arbitrage trade to profit from the pricing of these bonds. What would be the profit in USD per pair of bonds traded?

b. Assume that transaction costs are 1% of the face value of the bond per transaction. Selling and buying a bond are two separate transactions. What is the net gain/loss of implementing the strategy from the previous question?

c. The US government issues a one-year bond that makes semi-annual coupons with one year maturity and $100 face value. Under the absence of arbitrage assumption, what would be the price of this bond if:

i. Bond A is correctly priced and Bond B is incorrectly priced?

ii. Bond B is correctly priced and Bond A is incorrectly priced?

12-3

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.

Additional Information on Year 2017 Transactions

1. The loss on the cash sale of equipment was $5,125 (details in b).
2. Sold equipment costing $46,875, with accumulated depreciation of $30,125, for $11,625 cash.
3. Purchased equipment costing $96,375 by paying $30,000 cash and signing a long-term note payable for the balance.
4. Borrowed $4,000 cash by signing a short-term note payable.
5. Paid $50,125 cash to reduce the long-term notes payable.
6. Issued 2,500 shares of common stock for $20 cash per share.
7. Declared and paid cash dividends of $50,100.

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.)

FORTEN COMPANYStatement of Cash FlowsFor Year Ended December 31, 2017Cash flows from operating activitiesNet income$114,975Adjustments to reconcile net income to net cash provided by operations:Accounts payable decrease20,750Accounts receivable increase5,125Cash paid for dividendsCash borrowed on short-term note$140,850Cash flows from investing activities0Cash flows from financing activities:0Net increase (decrease) in cash$140,850Cash balance at beginning of yearCash balance at end of year$140,850

1. One year ago Lerner and Luckmann Co. issued 15-year, noncallable, 6.3% annual coupon bonds at their par value of $1,000. Today, the market interest rate on these bonds is 5.5%. What is the current price of the bonds, given that they now have 14 years to maturity?

2.

CMS Corporation's balance sheet as of today is as follows:

The bonds have an 4.1% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt?

Select the correct answer.

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