The owners of a small manufacturing concern have hired a manager to run the company with the expectation that (s)he will buy the company after five years. The goal of the owners in making this hire is to find the appropriate manager that will increase profits substantially. Compensation of the new manager is a flat salary plus 50% of first $200,000 of profit, and then 5% of profit over $200,000. Purchase price for the company is set as 4.5 times net earnings (profit), computed as average annual profitability (prior to calculation of the managers bonus) over the next five years.

(a) Does the bonus structure for the manager provide the manager with the appropriate incentive to increase profits beyond the first $200,000 ? Explain briefly.

(b) Is it a good idea to link the purchase price of the company to the earnings (profit) of the company. Given this linkage, what do you think the manager will try to do?

(c) Does this contract align the incentives of the new manager with the (current)goals of the owners?

Jo has preferences described by the utility function, U = c0.5r0.5. Where c denotes her consumption of carrots in ounces and r denotes her consumption of red meat in ounces. She faces two constraints,

1) she has an income of 1000 and the price of c is 10, while the price of r is 20.

2) due to health concerns, the government does not allow anybody to consume more than 80 ounces of r.

a) write down the Lagrangian and derive the first order and complementary slackness conditions. Use  as the Lagrange multiplier for constraint 1 and  as the Lagrange multiplier for constraint 2. (For simplicity, you can ignore non-negativity constraints for c and r).

b) you believe that at the optimum, the first constraint is binding and second constraint is slack. You find that c = 50 and r = 25. What else needs to be checked to verify that this is indeed the solution? Carry this(these) step(s) out.

A professional football team is preparing its budget for the next year. One component of the budget is the revenue that they can expect from ticket sales. The home venue, Dylan Stadium, has five different seating zones with different prices. Key information is given below. The demands are all assumed to be normally distributed. Seating Zone Seats Available Ticket Price Mean Demand Standard Deviation

seat zones - Seat availability - Ticket Price - Mean demand - standard deviation.

First Level Sideline 15,000 $100.00 14,500 750

Second Level 5,000 $90.00 4,750    500

First Level End Zone 10,000 $80.00 9,000 1,250

Third Level Sideline 21,000 $70.00 17,000 2,500

Third Level End Zone 14,000 $60.00 8,000 3,000

Determine the distribution of total revenue under these assumptions using an Excel data table with 50 simulated trials. Summarize your results with a histogram.

A company borrowed at 4.63%compounded semi-annually to purchase​ equipment, agreeing to make payments of ​$2,140 at the end of every three months for 13 payments.

​(a) What is the equivalent cash price of the​ equipment?

​(b) How much will be owed at the end of two ​years?

​(c) How much of the principal will be repaid within the first two ​years?​

(d) How much interest is paid during the first two ​years?

​(a) The cash price of the equipment is $.

​(Round the final answer to the nearest cent as needed. Round all intermediate values to six decimal places as​ needed.)

​(b) The amount owed at the end of two years is $.

​(Round the final answer to the nearest cent as needed. Round all intermediate values to six decimal places as​ needed.)

​(c) The amount of principal repaid is ​$.

​(Round the final answer to the nearest cent as needed. Round all intermediate values to six decimal places as​ needed.)

​(d) The interest paid is

​$

During its first year of operations, Drone Zone Corporation (DZC) bought goods from a manufacturer on account at a cost of $63,000. DZC returned $9,300 of this merchandise to the manufacturer for credit on its account. DZC then sold $51,000 of the remaining goods at a selling price of $77,600. DZC records sales returns as they occur and then records estimated additional returns at year-end. During the year, customers returned goods that had been sold at a price of $8,100. These goods were in perfect condition, so they were put back into DZC’s inventory at their cost of $5,300. At year-end, DZC estimated $10,310 of current year merchandise sales would be returned to DZC in the following year; DZC estimates $6,600 as its cost of this merchandise.

Prepare journal entries to record DZC’s transactions and estimates, assuming DZC uses a perpetual inventory system. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Chad Funk is a hair stylist who opened a business selling hair products. He imports products from around the world and sells to salons in Canada.

Oct. 1 Purchased $1,400 of hair spray from Orbit Pro; terms 3/10, n/30, FOB shipping point. The appropriate party paid the shipping cost of $200.
      5 Sold shampoo costing $420 to Barber & Co. for a price of $600 with terms of 2/10, n/30, FOB shipping point. The appropriate party paid the shipping cost of $80.
        7 Returned $500 of inventory to Orbit Pro due to an error in the Oct. 1 order.
      10 Paid Orbit Pro for the purchase on October 1.
      14 Barber & Co. returned $100 of inventory from the sale on Oct. 5. The inventory had a cost of $70.
    22 Received the payment from Barber & Co. on the October 5 sale.
      23 Purchased $2,000 of hair conditioner from Keratin Hair; terms 2/10, n/30, FOB shipping point. The appropriate party paid the shipping cost of $300.
      25 Sold hair gel to Styling Room for an invoice price of $1,000, terms 2/10, n/30, FOB destination. The hair gel had a cost of $700. The appropriate party paid the shipping cost of $150.
      26 Paid for the purchase on October 23.
      31 Received the payment from Styling Room on the October 25 sale.

Required:
Record the journal entries for the month of October. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Journal entry descriptions are provided already in the journal entry worksheet.)  

Assume that you were recently hired as assistant to Jerry Lehman, financial VP of Coleman Technologies. Your first task is to estimate Coleman’s cost of capital. Lehman has provided you with the following data, which he believes is relevant to your task:

The firm’s marginal tax rate is 40%.

The current price of Coleman’s 12 % coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. New bonds would be privately placed with no flotation cost.

The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $113.10. Coleman would incur flotation costs of $2 per share on a new issue.

Coleman’s common stock is currently selling at $50 per share. Its last dividend (D₀) was $4.19, and dividends are expected to grow at a constant rate of 5% in the foreseeable future. Coleman’s beta is 1.2, the yield on Treasury bonds is 7%, and the market risk premium is estimated to be 6%. For the bond-yield-plus-risk-premium approach, the firm uses a four-percentage point risk premium.

Up to $300,000 of new common stock can be sold at a flotation cost of 15%. Above $300,000, the flotation cost would rise to 25%.

Coleman’s target capital structure is 30 %long-term debt, 10% preferred stock, and 60% common equity.

The firm is forecasting retained earnings of $300,000 for the coming year.

Question: What is Coleman’s cost for up to $300,000 of newly issued common stock, r_e1? What happens to the cost of equity if Coleman sells more than $300,000 of new common stock?

During the last few years, Jana Industries has been too constrained by the high cost
of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Jana’s cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task:

•                   ●  The firm’s tax rate is 25%. 


●  The current price of Jana’s 12% coupon, semiannual payment, noncallable bonds with 
15 years remaining to maturity is $1,153.72. There are 70,000 bonds. Jana does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost.

●  The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual pre- 
ferred stock is $116.95. There are 200,000 outstanding shares. Jana would incur flota- 
tion costs equal to 5% of the proceeds on a new issue. 


●  Jana’s common stock is currently selling at $50 per share. There are 3 million outstanding 
common shares. Its last dividend (D0) was $3.12, and dividends are expected to grow at a constant rate of 5.8% in the foreseeable future. Jana’s beta is 1.2, the yield on T-bonds is 5.6%, and the market risk premium is estimated to be 6%. For the own-bond-yield-plus- judgmental-risk-premium approach, the firm uses a 3.2% risk premium. 
To help you structure the task, Leigh Jones has asked you to answer the following questions: 


1. What is your final estimate for the cost of equity, rs? 


Estimated loan payment per month $350

Fuel costs per flight $100

Full-time scheduler salary $2,500 per month

Boat crew per flight $30

$500 per month dock fee and use of a small office on a pier

Calculate the Year 2 break-even quantity, break-even sales, and contribution margin ratio. Explain how the values were determined.

Determine the number of flights (units) needed to retain a profit of $10,000 in Year 3, assuming the company does allow for referrals.

Recommend if the bank should issue the loan.

Nathan purchased a 5-year Treasury bond with a coupon rate of j2 = 3.50% p.a.
and a face value of $100 that matures at par. Coupons can be reinvested at
j2 = 3.2% p.a. for the first four and a half years.
a. [2 marks] Calculate Nathan’s purchase price for this bond at a yield
rate of j2 = 3.1% p.a. (rounded to three decimal places).
b. [4 marks] Assume that Nathan held this bond to maturity to earn a
total realised compound yield of j2 = 3.13% p.a. Based on your result
from part a, calculate the reinvestment rate for the last half year. Give
your answer in j2 form, rounded to two decimal places.
c. [3 marks] Assume that Nathan held this bond for 2 years and sold it for
a yield of j2 = 3.8% p.a. Based on your result from part a, calculate the
holding period yield in j2 form, rounded to two decimal places. Include
in your answer a cash flow diagram, drawn from Nathan’s perspective,
that models the purchase and sale of the bond.
d. [2 marks] Without any further calculations, explain how the holding
period yield will change if the sale yield is lower than j2 = 3.8% p.a.
e. [4 marks] Assume that this bond is subject to a 30% tax on interest and
capital gains. Recalculate the price Nathan paid (in part a) if the net
yield rate is j2 = 3% p.a. and all tax payments (interest tax payments
and capital gains tax payment) are delayed by one year from when
taxable cash flows occur. Round your result to three decimal places.
Accompany your answer with a cash flow diagram, from Nathan’s perspective,
that models this scenario.