The registrar of a law school has compiled the following statistics on the progress of the school's students working toward the LLB degree: Of the first-year students in a particular year, 80% successfully complete their course of studies and move on to the second year, whereas 20% drop out of the program; of the second-year students in a particular year, 92% go on to the third year, whereas 8% drop out of the program; of the third-year students in a particular year, 98% go on to graduate at the end of the year, whereas 2% drop out of the program.

(a) Construct the transition matrix associated with the Markov process. (Label your matrix using this order: Drop out, Graduate, First-Year, Second-Year, Third-Year)

(b) Find the steady-state matrix. (Round your answers to four decimal places.)

(c) Determine the probability that a beginning law student enrolled in the program will go on to graduate. (Round your answer to four decimal places.)

On January 1 of year 1, Arthur and Aretha Franklin purchased a home for $2.83 million by paying 330,000 down and borrowing the remaining $2.50 million with a 8.8 percent loan secured by the home. The Franklins paid interest only on the loan for year 1 and year 2 (unless stated otherwise).

a. What is the amount of interest expense the Franklins may deduct in year 2 assuming year 1 is 2017?

b. What is the amount of interest expense the Franklins may deduct in year 2 assuming year 1 is 2018?

c. Assume that year 1 is 2018 and that in year 2, the Franklins pay off the entire loan but at the beginning of year 3, they borrow $420,000 secured by the home at a 9 percent rate. They make interest-only payments on the loan during the year. What amount of interest expense may the Franklins deduct in year 3 on this loan? (Assume the Franklins do not use the loan proceeds to improve the home.)

Mr. D works full-time as a systems analyst for a consulting firm. In addition, he sells plants that he raises himself in a greenhouse attached to his residence. During the past 5 years, the results from raising and selling the plants have been as follows: Year Net Profit (Loss) from Scenario 1:

2. Please create a scenario (Scenario 2) where the cumulative profits in years 1-4 are still $300 but the taxpayer would be in a better position regarding year 5 losses.

Consdier an adjustable rate mortagage (ARM) loan for 650,000. The interest rate is indexed to the 10-year Treasury yield. The loan has a margin 2.75%, first-year teaser rate of 2.75%, an annual rate cap of 2% and a lifetime rate cap of 5%. The loan requires monthly payments for 25 years. Assume that 10-year Treasury yields are as shown blow.

10-yr treasury yield at first anniversary date (end of year 1) 3.5%

10-yr treasury yield at the end of second year 4.25%

a) What is the debt service payment amount during the first year of the loan, and the loan balance at the end of this first year?

b) What is the contract rate on the loan for the second year?

c) What is the debt service payment during the second year and the loan balance at the end of the year?

d) What are the contract rate, monthly payment and end-of-year loan balance for year 3?

DEF Manufacturing Company has considered investing in two independent projects, which both will result in a cost of $1,500,000. Each project is expected to last 6 years. Project A ‘s annual cash flows are listed as follows: Year 1: $265,000; Year 2: $265,000; Year 3: $265,000 Year 4: $525,000; Year 5: $449,000; Year 6: $820,000. Project B annual cash flows are listed as follows: Year 1: $220,000; Year 2: $449,000; Year 3: $525,000; Year 4: $765,000; Year 5: $765,000; Year 6: $765,000. DEF’s cost of capital is 12%.

A) Calculate each project’s NPV.

B) Compute each project’s IRR.

C) Calculate Payback Period for both projects

D) As the financial analyst evaluating this project, would you accept/reject one or accept or reject

both? Would your answer change if the projects were mutually exclusive?

In this problem you will calculate the CPI for the average urban consumer and for Jane using the prices for year 1 and year 2. The basket numbers represent the percentage of each dollar that is devoted to each good (written in decimal form). Assume year 1 is the base year. Round to two decimal places.

For the average person, the cost of the basket in year 1 is $ __ and the cost of the basket in year 2 is $ __ .

For the average person, the CPI in year 1 is __ and the CPI in year 2 is __ .

For the Jane, the cost of the basket in year 1 is $ __ and the cost of the basket in year 2 is $ __ .

For the Jane, the CPI in year 1 is __ and the CPI in year 2 is __ .

The following transactions pertain to Accounting Solutions Inc. Assume the transactions for the purchase of the computer and any capital improvements occur on January 1 each year. Year 1 Acquired $70,000 cash from the issue of common stock. Purchased a computer system for $22,800. It has an estimated useful life of five years and a $2,520 salvage value. Paid $1,900 sales tax on the computer system. Collected $34,590 in fees from clients. Paid $1,050 in fees for routine maintenance to service the computers. Recorded double-declining-balance depreciation on the computer system for Year 1. Year 2 Paid $960 for repairs to the computer system. Bought off-site backup services to maintain the computer system, $1,160. Collected $37,590 in fees from clients. Paid $910 in fees to service the computers. Recorded double-declining-balance depreciation for Year 2. Year 3 Paid $2,700 to upgrade the computer system, which extended the total life of the system to six years. The salvage value did not change. Paid $830 in fees to service the computers. Collected $37,890 in fees from clients. Recorded double-declining-balance depreciation for Year 3. Required a. Record the above transactions in a horizontal statements model. b-1. Prepare income statements for Year 1, Year 2, and Year 3. b-2. Prepare statements of changes in stockholders' equity for Year 1, Year 2, and Year 3. b-3. Prepare balance sheets for Year 1, Year 2, and Year 3. b-4. Prepare statements of cash flows for Year 1, Year 2, and Year 3.

Cash Receipts Budget and Accounts Receivable Aging Schedule

Shalimar Company manufactures and sells industrial products. For next year, Shalimar has budgeted the following sales:

In Shalimar’s experience, 10 percent of sales are paid in cash. Of the sales on account, 65 percent are collected in the quarter of sale, 25 percent are collected in the quarter following the sale, and 7 percent are collected in the second quarter after the sale. The remaining 3 percent are never collected. Total sales for the third quarter of the current year are $5,740,000 and for the fourth quarter of the current year are $7,680,000.

Required:

1. Calculate cash sales and credit sales expected in the last two quarters of the current year, and in each quarter of next year.

2. Construct a cash receipts budget for Shalimar Company for each quarter of the next year, showing the cash sales and the cash collections from credit sales. If an amount is zero, enter "0".

3. What if the recession led Shalimar’s top management to assume that in the next year 10 percent of credit sales would never be collected? The expected payment percentages in the quarter of sale and the quarter after sale are assumed to be the same. How would that affect cash received in each quarter? Construct a revised cash budget using the new assumption.

Cornerstone Exercise 8.11 (Algorithmic) Cash Receipts Budget and Accounts Receivable Aging Schedule Shalimar Company manufactures and sells industrial products. For next year, Shalimar has budgeted the following sales: Quarter 1 $4,700,000 Quarter 2 5,230,000 Quarter 3 6,680,000 Quarter 4 8,590,000 In Shalimar’s experience, 10 percent of sales are paid in cash. Of the sales on account, 65 percent are collected in the quarter of sale, 25 percent are collected in the quarter following the sale, and 7 percent are collected in the second quarter after the sale. The remaining 3 percent are never collected. Total sales for the third quarter of the current year are $5,710,000 and for the fourth quarter of the current year are $7,170,000. Required: 1. Calculate cash sales and credit sales expected in the last two quarters of the current year, and in each quarter of next year. Quarter Cash Sales Credit Sales 3, current year $ $ 4, current year 1, next year 2, next year 3, next year 4, next year 2. Construct a cash receipts budget for Shalimar Company for each quarter of the next year, showing the cash sales and the cash collections from credit sales. If an amount is zero, enter "0". Shalimar Company Cash Receipts Budget For the Coming Year Quarter 1 Quarter 2 Quarter 3 Quarter 4 Cash sales $ $ $ $ Received on account from: Quarter 3, current year Quarter 4, current year Quarter 1, next year Quarter 2, next year Quarter 3, next year Quarter 4, next year Total cash receipts $ $ $ $ 3. What if the recession led Shalimar’s top management to assume that in the next year 10 percent of credit sales would never be collected? The expected payment percentages in the quarter of sale and the quarter after sale are assumed to be the same. How would that affect cash received in each quarter? Construct a revised cash budget using the new assumption. Shalimar Company Cash Receipts Budget For the Coming Year Quarter 1 Quarter 2 Quarter 3 Quarter 4 Cash sales $ $ $ $ Received on account from: Quarter 4, current year Quarter 1, next year Quarter 2, next year Quarter 3, next year Quarter 4, next year Total cash receipts $ $ $ $

Cash Receipts Budget and Accounts Receivable Aging Schedule

Shalimar Company manufactures and sells industrial products. For next year, Shalimar has budgeted the following sales:

In Shalimar’s experience, 10 percent of sales are paid in cash. Of the sales on account, 65 percent are collected in the quarter of sale, 25 percent are collected in the quarter following the sale, and 7 percent are collected in the second quarter after the sale. The remaining 3 percent are never collected. Total sales for the third quarter of the current year are $5,240,000 and for the fourth quarter of the current year are $7,670,000.

Required:

1. Calculate cash sales and credit sales expected in the last two quarters of the current year, and in each quarter of next year.

2. Construct a cash receipts budget for Shalimar Company for each quarter of the next year, showing the cash sales and the cash collections from credit sales. If an amount is zero, enter "0".

3. What if the recession led Shalimar’s top management to assume that in the next year 10 percent of credit sales would never be collected? The expected payment percentages in the quarter of sale and the quarter after sale are assumed to be the same. How would that affect cash received in each quarter? Construct a revised cash budget using the new assumption.