Mega Company believes the price of oil will increase in the coming months. Therefore, it decides to purchase call options on oil as a price-risk-hedging device to hedge the expected increase in prices on an anticipated purchase of oil.

On November 30, 20X1, Mega purchases call options for 10,000 barrels of oil at $31 per barrel at a premium of $2 per barrel with a March 1, 20X2, call date. The following is the pricing information for the term of the call:

The information for the change in the fair value of the options follows:

On March 1, 20X2, Mega sells the options at their value on that date and acquires 10,000 barrels of oil at the spot price. On June 1, 20X2, Mega sells the oil for $35 per barrel.

Required:
a. Prepare the journal entry required on November 30, 20X1, to record the purchase of the call options. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

b. Prepare the adjusting journal entry required on December 31, 20X1, to record the change in time and intrinsic value of the options. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

c. Prepare the entries required on March 1, 20X2, to record the expiration of the time value of the options, the sale of the options, and the purchase of the 10,000 barrels of oil. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

d. Prepare the entries required on June 1, 20X2, to record the sale of the oil and any other entries required as a result of the option. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

[Income and Cross Price Elasticity of Demand]

(a) Given Q = 700?2P+0.02Y, where P = 25, and Y = 5000. Find (a) the price elasticity of demand and (b) the income elasticity of demand. (b) Given Q1 = 100?P1 +0.75P2 ?0.25P3 +0.0075Y. At P1 = 10, P2 = 20,P3 = 40 and Y = 10000, Q1 = 170. The cross price elasticity of demand for good 1 when price of good 2 is changing is given by

?12 = ?Q1 ?P2 × P2 Q1 .

The cross price elasticity of demand for good 1 when price of good 3 ?13 is defined in similar manner. Find th cross price elasticities of demand for good 1. (c) Given Q1 = 50?4P1 ?3P2 +2P3 +0.001Y. At P1 = 5, P2 = 7,P3 = 3 and Y = 11000, Q1 = 26. (i) Find cross price elasticities of demand for good 1, (ii) the income elasticity of demand, (iii) Are good 1 and good 2 substitutes or complements? (iv) Are good 1 and good 3 substitutes or complements? (v) Determine the effect on Q1 of a 10 percent price increase for each of the other goods individually

Q_D=8000-2P_X+0.4I+2P_Y-4P_Z

Where

Q_D = quantity demanded of good X

P_X = price of good X

I = consumer income, in thousands

P_Y = price of good Y

P_Z = price of good Z

a. Based on the demand curve above, is X a normal or an inferior good?

b. Based on the demand curve above, what is the relationship between good X and good Y?

c. Based on the demand curve above, what is the relationship between good X and good Z?

d. What is the equation of the demand curve if consumer incomes are $75,000, the price of good Y is $105, and the price of good Z is $80? Be careful - remember that the income in the equation is in "thousands".

e. What are the intercepts and slope of your demand curve? You do not need to draw the demand curve. Just indicate the price intercept and the quantity intercept and the slope, but show your calculations!!

f. If the price of good X is $100, what is the quantity demanded? Show your calculations!

g. Now suppose the price of good Y rises to $150. What would happen to your demand curve? What are the price intercept, quantity intercept and slope? Show your calculations!

Savanna Co. - Investments

1. Assuming all three investments are considered Trading Securities, compute the balance sheet value for Savanna's investment on 12/31/2017 2017.

2. Assuming all three investments are considered Trading Securities, compute the income statement effect for Savanna's investment in 2017.

3. Would your answer in 1) or 2) have been different if all three investments were considered available for sale securities in 2017? If so, what would Savanna have reported differently?

4. If Peyton Co. had repurchased 200 shares of its own stock (but none from Savanna) 0n 01/01/2017, would Savanna have accounted for this investment differently than it would have had Peyton not made the repurchases? If so, what additional information would Savanna need to account for this investment?

The following information is obtained from Rapid Corporation’s financial records:

                                                            Units               Unit Cost                    Total Cost

Jan. 1   Beginning inventory               100                     $10                          $ 1,000

Mar. 1 Purchased                                400                     $12                          $ 4,800

Mar. 5 Sold                                         (250)                 

May 2 Purchased                                100                     $15                          $ 1,500

Aug. 1 Sold                                         (150)

Oct. 3 Purchased                                100                     $25                         $ 2,500

Dec 31 Ending inventory                    300                       ?                                 ?

            (Per physical count)

Required:

1.       Calculate the cost of the ending inventory, under the assumption that the company uses a perpetual inventory system and the moving-average method for costing inventory.    (Calculate the unit price to two decimal places).

2. Calculate the cost of the ending inventory, under the assumption that the company uses a periodic inventory system and the FIFO method for costing inventory.

(3)       Using the answer to part (2):

1. Prepare the necessary year-end adjusting entries (you should have two entries) to account for the fact that the ending inventory had a total Market Value of $4,000. The company uses the allowance (indirect) method to apply the Lower of Cost and NRV model and the opening inventory had a NRV of $1,200.

2. Prepare an income statement for the company for the year ended December 31, 2019 assuming a selling price of $30 per unit and operating expenses of $4,500. Remember to use proper financial statement format!

Can you do in excel please and show the formulas

Lunar Motivation Corporation

Income Statement ($ in millions)

                                                                                    2019               

                                                Sales                          8000                           

                                                 Cost of Goods           -5600

                                                 SGA                           -1500

                                                 Interest                        -100

                                                 EBT                              800

                                                 Taxes (40%)               -320

                                                 Net income                   480

                                                 Dividends                    -100

                                                 Retained earnings        380

                                                                                    ====

Lunar Motivation Corporation

Balance Sheet

                                               2019                                                                          2019               

  Cash                                         10                                     Accounts payable        300

  Accounts receivables             400                                     Notes payable              300

  Inventory                                560                                     Current liabilities          600

  Short term Investments            30                                     Long-term debt          1000

  Current assets                     1000                                     Common stock             400

  Net plant & equip.                3000                                     Retained earnings      2000

  Total assets                         4000                                     Total liab. & equity     4000

                                              =====                                                                      =====                             

You have forecasted Lunar Motivation Corporation (LMC) free cash flow in 2020 to be $50.51 million, $450 million in 2021, 500 million in 2022, and 550 million in 2023.  After 2023, free cash flow will grow at a constant rate of 7 percent per year forever.  The company has a 14% WACC and 100 million shares of common stock. Please provide an estimate of the items below, including the stock price, using the free cash flow model.   Show your calculations to the right.  

Value of Operations             ______

Total Corporate Value          ______

Value of Equity                      ______

Estimated Stock Price          ______

Can you do in excel please and show the formulas

The publisher of an online newspaper knows that there are two types of customers. ‘students’ and ‘non-students’. Although they cannot distinguish what type of buyer is actually making a purchase of a subscription, they know the demand curves for each type of buyer. These are given by the following:

Students: p = 80 - q
Non students: p = 100 - q
where is q is the number of articles that are purchased. Assume that the marginal cost of supplying articles equals zero.
a. What is the maximum willingness to pay for 80 articles for the students?
b. What is the maximum willingness to pay for 80 articles for non students?
c. Assuming that buyers purchase the subscription that gives them the maximum consumer surplus, and they only purchase one subscription, what will student buyers and non-student buyers do if faced with the following choices:
Basic: 80 articles at $32 per month.
Premium: 100 articles at $50 per month
d. Assuming that buyers purchase the subscription that gives them the maximum consumer surplus, and they only purchase one subscription, what will student buyers and non-student buyers do if faced with the following choices:
Basic: 80 articles at $32 per month.
Premium: 100 articles at $35 per month

e. What is the highest price that can be charged for the premium version so that the non- students purchase this rather than the basic subscription, given the price of the basic is $32.

f. What is this pricing behaviour called?

Ichabod runs a clothing store in London. He recently purchased 1000 dress shirts that had a manufacturer’s list price of $35. On each shirt there was a trade discount of 10%, 8% and 6% from the manufacturer. Ichabod’s store has operating expenses that are 35% of the selling price and rate of markup is 60% on selling price.  

a) He sold 400 shirts at the regular selling price. What was the total revenue from the first 400 shirts sold?

b) During a sale, Ichabod offered a markdown of 20% and sold another 250 shirts. What was the total revenue from the 250 shirts sold?

c) Ichabod sold another 200 shirts at the break-even price. What was the total revenue from the 200 shirts sold at the break-even price?

d) What was the rate of markdown from the regular price of the shirts to the break-even price of the shirts?

Please show all work with correct formulas

1.For a linear demand curve that is downward sloping, the marginal revenue curve

Select one:

a. will be to the left of the demand curve and twice as steep.

b. will be to the right of the demand curve and twice as steep.

c. will be to the left of the demand curve and half as steep.

d. will be the same as the demand curve.

2.The demand curve that a monopolist faces is:

Select one:

a. not affected by changes in the prices of other goods.

b. the market demand curve.

c. the same as the demand curve that faces a perfectly competitive firm.

d. generally flatter than the demand curve that faces a perfectly competitive firm.

3.

The Herfindahl-Hirschman (HH) Index is used to

Select one:

a. measure the degree of market concentration in an industry.

b. None of the above

c. measure the degree of nonprice competition.

d. measure the extent of price leadership.

4.

The kinked demand curve model best reflects

Select one:

a. mutual interdependence among sellers.

b. price rigidities in oligopolistic markets.

c. a game theory approach to price-output decisions.

d. All of the above

5.

When a monopolist sells two units of output its total revenues are $100. When the monopolist sells three units of output its total revenues are $120. When the monopolist sells three units of output, the price per unit is:

Select one:

a. $33.33.

b. $6.67.

c. $40.

d. $20.

6.

When a monopolist sells two units of output its total revenues are $100. When the monopolist sells three units of output, its price per unit is $35. The monopolist's marginal revenue from selling the third unit of output is:

Select one:

a. $105.

b. $35.

c. $5.

d. $33.33.