Details

• Current exchange rate is $1.18/€.
• Forward rate is $1.192/€.
• Expected final sales volume is 30,000. Worst case scenario is volume of 20,000. Best
  case scenario is volume of 40,000.
• Cost per student is €2500.
• Option premium is 1.2% of USD strike price.
• Option strike price is $1.176/€

Q. As the CFO, you decided to hedge using option contracts. Assuming expected final sales volume is 30,000, what are your total benefit/cost and the percentage benefit/cost from hedging (compared to no hedging)

a) if the exchange rate remains at $1.18/€?

b) if the exchange rate will be $1.35/€?

c) if the exchange rate will be $0.95/€?

The Evanec Company's next expected dividend, D1, is $2.65; its growth rate is 5%; and its common stock now sells for $35.00. New stock (external equity) can be sold to net $31.50 per share.

What is Evanec's cost of retained earnings, rs? Do not round intermediate calculations. Round your answer to two decimal places.

rs=_____%

What is Evanec's percentage flotation cost, F? Round your answer to two decimal places.

F=____%

What is Evanec's cost of new common stock, re? Do not round intermediate calculations. Round your answer to two decimal places.

re=___%

WACC Comparables - 2 If it were unlevered, the overall firm beta for Wild Widgets Inc. (WWI) would be 0.9. WWI has a target debt/equity ratio of 1. The expected return on the market is 0.15, and Treasury bills are currently selling to yield 0.03. WWI one-year bonds (with a face value of $1,000) carry an annual coupon of 9% and are selling for $958. The corporate tax rate is 35%.(Round your answers to 2 decimal places before the percentage sign. (e.g., 10.23%)) a. WWI’s before-tax cost of debt is %. b. WWI’s cost of equity is %. c. WWI’s weighted average cost of capital is %.

The Evanec Company's next expected dividend, D₁, is $3.05; its growth rate is 7%; and its common stock now sells for $39.00. New stock (external equity) can be sold to net $31.20 per share.

1. What is Evanec's cost of retained earnings, r_s? Do not round intermediate calculations. Round your answer to two decimal places.

   r_s = %

2. What is Evanec's percentage flotation cost, F? Round your answer to two decimal places.

   F = %

3. What is Evanec's cost of new common stock, r_e? Do not round intermediate calculations. Round your answer to two decimal places.

   r_e = %

1. Horizontal Analysis of the Income Statement

   Income statement data for Boone Company for two recent years ended December 31, are as follows:

   	Current Year			Previous Year
   Sales	$533,400			$420,000
   Cost of goods sold	434,000			350,000
   Gross profit	$99,400			$70,000
   Selling expenses	$29,250			$25,000
   Administrative expenses	26,250			21,000
   Total operating expenses	$55,500			$46,000
   Income before income tax	$43,900			$24,000
   Income tax expenses	17,600			9,600
   Net income	$26,300			$14,400

   a. Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. If required, round to one decimal place.

   Boone Company
   Comparative Income Statement
   For the Years Ended December 31
   	Current year Amount	Previous year Amount	Increase (Decrease) Amount	Increase (Decrease) Percent
   Sales	$533,400	$420,000	$	%
   Cost of goods sold	434,000	350,000		%
   Gross profit	$99,400	$70,000	$	%
   Selling expenses	29,250	25,000		%
   Administrative expenses	26,250	21,000		%
   Total operating expenses	$55,500	$46,000	$	%
   Income before income tax	$43,900	$24,000	$	%
   Income tax expense	17,600	9,600		%
   Net income	$26,300	$14,400	$	%

   Feedback

   a. Show the difference in each line item amount as either an increase or a decrease. Divide each difference by the base year amount for that item to obtain the horizontal percentage.

   Learning Objective 2

   b. The net income for Boone Company increased by 82.6% between years. This increase was the combined result of an increase

   • increase
   • decrease
   in sales of 27% and higher
   • higher
   • lower
   percentage increase
   • increase
   • decrease
   in cost of goods sold. The cost of goods sold increased at a slower
   • slower
   • faster
   rate than the increase in sales, thus causing the percentage increase in gross profit to be greater
   • greater
   • less
   than the percentage increase in sales.

   Feedback

   b. Review the relationship the accounts have and the effect the differences show about the business.

   Learning Objective 2

   Feedback

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Q-Constructions has tasked you to investigate the number of construction projects per year for which the company would need to break-even and make a profit of $500,000 per year. The average price of a building contract is $700,000 per project. The following are the fixed and variable costs of Q-Constructions in Table 2:

Table 2: Associated Costs of Q-Constructions

Use this information above to complete the requested analyses below.

1. (5 marks) Calculate:
   1. The break-even number of projects needed by the company.
   2. The income made by the company at break-even.

Show all working out including the modelling and solution steps.

2. (3 marks) Q-Constructions is interested in making a profit per year to ensure the company has a positive financial outlook and new ventures can be done in the future. Calculate how many projects per year need to be completed to make a profit of $500,000 per year.
3. (6 marks) Q-Constructions workers’ have approached the building union and been informed they could be paid a higher salary and want their salaries to be determined based on a percentage of the project price. The company has reviewed their historical records on the number of projects per year and has made the decision to respect the workers’ demands and notice that the company would maintain a positive financial outlook if they set their break-even target at 4 projects per year. Determine the new salary percentage for the onsite workers’ on a project price based on the company’s average project price and associated costs in Table 2.

4. (3 marks) Based on the new on-site workers’ cost per project from part (c), calculate the new number of projects that need to be completed to maintain a profit of $500,000 per year.
5. (3 marks) Due to the change in the on-site workers’ salaries, what is the effect on contribution margin in relation to the variable cost? Explain the effect of this change on the break-even number in part (a).  

Hint! Your discussion should focus on the impact made by the contribution margin. You can show the calculation of the contribution margin to support your discussion, but no other calculations should be used.

6. (4 marks) In Excel, produce a break-even graph for Q-Constructions and include it here – you will also include a copy in the infographic where requested.

There will be 3 lines on the Q-Constructions Break-Even graph: one for total revenue for Q-Constructions and two representing the original total cost and the new total cost for Q- Constructions.

On the graph, identify the general regions corresponding to profits and losses. The units along the x-axis will be the number of projects. The units along the y-axis gives the revenue in dollars.

Excel Instructions:

1. Create a column called Number of Projects and enter values from 0 to 20 in single unit increments for Q-Constructions analysis. This column plays the role of ‘x’ in break-even calculations.

2. Create four more columns: Total Original Cost, Total New Cost, Total Revenue, Total Profit and add your initials to these column names. In each of these columns, enter appropriate formulae in EXCEL to obtain the total cost and total revenue corresponding to each value in the Number of Projects column.

3. Highlight all the columns and go to Insert  Charts Scatter to obtain a graph. Label the graph appropriately (i.e. title, axis labels, legend) and ensure the chart title includes your network ID (the part of your email address before @ e.g. [email protected] has the network ID jbloggs).

TOTAL 24 MARKS

1. Problem 10-07 (Algorithmic)

   Aggie Power Generation supplies electrical power to residential customers for many U.S. cities. Its main power generation plants are located in Los Angeles, Tulsa, and Seattle. The following table shows Aggie Power Generation's major residential markets, the annual demand in each market (in megawatts or MWs), and the cost to supply electricity to each market from each power generation plant (prices are in $/MW).

   Distribution Costs
   City	Los Angeles	Tulsa	Seattle	Demand (MWs)
   Seattle	$364.25	$601.75	$67.38	958.00
   Portland	$367.25	$604.75	$189.13	842.25
   San Francisco	$166.13	$463.00	$284.88	2363.00
   Boise	$341.25	$460.00	$281.88	578.75
   Reno	$241.50	$479.00	$360.25	954.00
   Bozeman	$428.63	$428.63	$309.88	506.15
   Laramie	$367.25	$426.63	$367.25	1198.50
   Park City	$375.25	$375.25	$494.00	622.25
   Flagstaff	$238.13	$535.00	$653.75	1178.19
   Durango	$363.25	$303.88	$600.75	1472.25

   1. If there are no restrictions on the amount of power that can be supplied by any of the power plants, what is the optimal solution to this problem? Which cities should be supplied by which power plants? What is the total annual power distribution cost for this solution? If required, round your answers to two decimal places.
      
      The optimal solution is to produce  MWs in Los Angeles,  MWs in Tulsa, and  MWs in Seattle. The total distribution cost of this solution is $  .
      
   2. If at most 4000 MWs of power can be supplied by any one of the power plants, what is the optimal solution? What is the annual increase in power distribution cost that results from adding these constraints to the original formulation? If required, round your answers to two decimal places.
      
      The optimal solution is to produce  MWs in Los Angeles,  MWs in Tulsa, and  MWs in Seattle. The total distribution cost of this solution is $  . The increase in cost associated with the additional constraints is $  .

At the beginning of year X1, a company received a 20% grant towards the cost of a new machine of RM20 million. The asset has an expected life of five with no residual value. Required: Show the extract of the statement of financial position for the years ended 31 December X1 and X2 using both the deferred income and writing off against asset methods. Ceria Bhd obtained a significant amount of grant to the government to build hotels to keep up the demand for rooms generated by the Visit Malaysia programmes. The grant received was RM50 million with the understanding that the hotel built should not cost less than RM400 million. Required: Discuss how the above scenario will be treated in the financial statements of Ceria Bhd. Mahmud acquired a plant at a gross cost of RM1.6 million on 1 October X2. The plant has an estimated life of ten years with its residual value equals to 10% of its gross cost. Mahmud uses a straight line depreciation method. At the time of its purchase,Mahmud received a government grant of 30% of its cost price. One of the terms of the grant is that if the company retains the plant for five years or more, then there is no repayment liability. If the company sells the plant within one year it has to repay 75% of the cost. This amount decreases by 20% in succeeding years. Ceria has no intention of disposing of the plant within five years. Its policy for capital based government grants is to treat them as deferred credit and and release them to income over the life of the asset to which they relate. Required: Discuss whether the company’s policy for treatment of government grant meets definition of a liability MASB Conceptual Framework. Prepare the extract of Ceria’s financial statements for the year ended 30 March X3 in respect of the plant and the grant. (i) applying the company's policy (ii) in compliance with the definition of liability in the Conceptual Framework.

Unadjusted Trial Balance of Rauf Heavy Construction Machineries is provided below;

Additional information to apply adjustments for the period are as following;

1. Office Supplies left unused Rs 735.
2. Prepaid Insurance was paid as of 1^st September 2019, and covers 1 year of insurance.
3. Lose Tools and spares amounting Rs 11,265 were consumed during the period.
4. Fuel and Lubricants available on hand as of 31^st Dec 2019 were of Rs 4,585
5. The depreciation on fixed assets is to applied on the following schedule
   1. Computer and Equipment Rs 500
   2. Furniture and Fixture Rs 600
   3. Construction machinery and vehicles Rs 29,500
6. Interest on loan is due @ 12% for the year.
7. Received a utility bill of Rs 250 for the month of December, the due date of payment is 12^th January 2020, this is not yet recorded by the accountant.
8. Unearned customer deposits include Rs 3,377 that has now been earned in December 2019.
9. The company has supplied construction machinery to Shabir Builder (Pvt) Ltd on contract starting from 15^th November on Rental agreement of Rs 5 per day, all amount will be paid at maturity of term as of 16^th February 2020. The amount for current portion revenue need to be adjusted

Requirement:

1. Pass adjusting entries in General Journal,
2. Post entries to T-accounts,
3. Prepare adjusted trial balance

1:

WV Construction has two divisions: Remodeling and New Home Construction. Each division has an on-site supervisor who is paid a salary of $78,000 annually and one salaried estimator who is paid $44,000 annually. The corporate office has two office administrative assistants who are paid salaries of $48,000 and $36,000 annually. The president's salary is $150,000. How much of these salaries are common fixed expenses?

Multiple Choice

• $84,000

• $234,000

• $150,000

• $298,000

__________________________

2:

Corporation X sold 25,000 units of product last year. The contribution margin per unit was $2, and fixed expenses totaled $40,000 for the year. This year fixed expenses are expected to increase to $45,000, but the contribution margin per unit will remain unchanged at $2. How many units must be sold this year to earn the same net operating income as was earned last year?

Multiple Choice

• 27,500

• 22,500

• 2,500

• 35,000

_________________________________

3:

A partial listing of costs incurred at Archut Corporation during September appears below:

The total of the manufacturing overhead costs listed above for September is:

Multiple Choice

• $30,000

• $50,000

• $292,000

• $586,000

________________________________

4:

At an activity level of 9,500 machine-hours in a month, Falks Corporation’s total variable production engineering cost is $779,950 and its total fixed production engineering cost is $200,970. What would be the total production engineering cost per machine-hour, both fixed and variable, at an activity level of 9,900 machine-hours in a month? Assume that this level of activity is within the relevant range. (Round intermediate calculations to 2 decimal places.)

Multiple Choice

• $103.25

• $99.08

• $102.40

• $99.40

_________________________

5:

Aaron Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

The total contribution margin for the month under variable costing is:

Multiple Choice

• $145,540

• $126,390

• $76,090

• $79,590

___________________________

6:

Dake Corporation's relevant range of activity is 2,800 units to 6,000 units. When it produces and sells 4,400 units, its average costs per unit are as follows:

If 3,400 units are produced, the total amount of indirect manufacturing cost incurred is closest to:

Multiple Choice

• $16,780

• $14,280

• $5,780

• $11,000