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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14-16 5

Required:

1. Present the balance sheet in common-size format.

2. Present the income statement in common-size format down through net income.

Interest rates on 4-year Treasury securities are currently 6.3%, while 6-year Treasury securities yield 7.15%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places.,,,

Given the following information:

Year 1 Free cash flow: 40 million

Year 2 Free cash flow 90 m

Year 3 Free cash flow 100 m

After year 3, expected FCF growth is expected to be 4%

The cost of capital is 9%

Short term investments = 50 million

Debt is currently 25 million

Preferred stock = 5 million

There are 20 million outstanding stock shares.

1. Calculate the intrinsic stock price.

2. If the current stock price was $100.00, would you buy the stock? Why/WHY NOT:

BOND YIELDS

Last year Carson Industries issued a 10-year, 13% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,065 and it sells for $1,270.

1. What is the bond's nominal yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places.
   %
   
   What is the bond's nominal yield to call? Do not round intermediate calculations. Round your answer to two decimal places.
   %
   
   Would an investor be more likely to earn the YTM or the YTC?
   -Select-Since the YTC is above the YTM, the bond is not likely to be called.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.Item 3
   
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.
   %
   
   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-IIIIIIIVVItem 5
   
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.
   %
   
   Is this yield dependent on whether the bond is expected to be called?
   1. If the bond is not expected to be called, the appropriate expected total return is the YTC.
   2. If the bond is expected to be called, the appropriate expected total return will not change.
   3. The expected capital gains (or loss) yield for the coming year depends on whether or not the bond is expected to be called.
   4. The expected capital gains (or loss) yield for the coming year does not depend on whether or not the bond is expected to be called.
   5. If the bond is expected to be called, the appropriate expected total return is the YTM.

a. What are the incremental earnings for this project for years 1 and​ 2?​ (Note: Assume any incremental cost of goods sold is included as part of operating​ expenses.)

b. What are the free cash flows for this project for years 1 and​ 2?

Sales 3 million dollars per year Cost of goods 1.7 million dollars per year Cash Expenses 725 thousand dollars per year Depreciation Expense 125 thousand dollars per year Cash on the balance sheet 150 thousand dollars Receivables on the balance sheet 75 thousand dollars Inventory on the balance sheet 300 thousand dollars Fixed asset net of depreciation on the balance sheet 450 thousand dollars Total Current Liabilities on the balance sheet 175 thousand dollars Total Long Term Debt on the balance sheet 600 thousand dollars Your required return if you invest in this business is 20 percent. This is the figure you will use to calculate the present value of EBITDA. You will also buy the receivables and inventory from the current owner. But you will not buy the cash on the balance sheet. You will assume all current liabilities and all total long-term debt of the business. Assignment: 1. Create an income statement (down to EBIT) and a balance sheet using the data provided above. The balance sheet should include total assets and total liabilities and equity. Use the format for these statements that is shown in the example within the week four online lecture A Simple Way to Value a Business. (15 points) 2. Calculate EBITDA for this business. (5 points) 3. Calculate the business value for this business using the formula in the week four online lecture A Simple Way to Value a Business. There is an example in this lecture that should be carefully studied. (10 points) Clearly identify each problem with the number 1, 2, or 3 associated with it. This makes it possible to grade your problems. Please submit your work as an excel file.