Hallstead Jewelers; Income Statements for Years Ended January 31 (thousands of dollars) 2003 2004 2006 Sales $8,583 $8,102 $10,711 Cost of goods sold 4,326 4,132 5,570 Gross margin $4,257 $3,970 $ 5,141 Expenses Selling expense Salaries 2,021 2,081 3,215 Commissions 429 405 536 Advertising 254 250 257 Administrative expenses 418 425 435 Rent 420 420 840 Depreciation 84 84 142 Miscellaneous expenses 53 93 122 Total expenses $3,679 $3,758 $ 5,547 Net income $ 578 $ 212 $ (406)

1. Exhibit 1 shows the Income Statements for the years ending January 31^st, 2003, 2004 and 2006 using absorption costing. Generate Income Statements using Variable Costing. Assume that cost of goods sold and commissions are variable.

When performing calculations in the following problems, use the numbers in the table as-is. I.e., do NOT convert 8.5985 to 8.5985% (or 0.085985). Just use plain 8.5985.

1. Compute the Sortino Ratio of the portfolio using a minimal acceptable return of R M A = 3 . To calculate DDp :

1. Compute R p − R M A each year.
2. n = number of years R p − R M A < 0 .
3. DD p = square root of 1/ n− 1 ∑ ( R p − R M A )^2 for the years when R p − R M A < 0

Lister Inc. is a small, publicly traded data processing company that has $200 million in debt outstanding, in both book value and market value terms. The book value of equity in the company is $400 million and there are 40 million shares outstanding, trading at $20/share. The current levered beta for the company is 1.15 and the company’s pre-tax cost of borrowing is 5%. The current risk-free rate in US $ is 3%, the equity risk premium is 5% and the marginal tax rate is 40%.

1. Estimate the current cost of capital for the company.

2. Now assume that the company plans to triple its debt to capital ratio (through a recapitalization), which will raise the pre-tax cost of debt to 8%. If the expected pre-tax operating income of the firm is $36 million, estimate the new cost of capital.

1. Lister Inc. is a small, publicly traded data processing company that has $200 million in debt outstanding, in both book value and market value terms. The book value of equity in the company is $400 million and there are 40 million shares outstanding, trading at $20/share. The current levered beta for the company is 1.15 and the company’s pre-tax cost of borrowing is 5%. The current risk-free rate in US $ is 3%, the equity risk premium is 5% and the marginal tax rate is 40%.

1. Estimate the current cost of capital for the company.

2. Now assume that the company plans to triple its debt to capital ratio (through a recapitalization), which will raise the pre-tax cost of debt to 8%. If the expected pre-tax operating income of the firm is $36 million, estimate the new cost of capital.

Use the following information to answer the next two questions:

On January 2, 2004, Shady Corp. acquired equipment for $110,000. The estimated life of the equipment is 5 years, the estimated residual value is $10,000 and Shady Corp. uses the straight-line method for computing depreciation expense. On June 30^th of 2006 (2 and ½ years after acquiring the asset), Shady Corp sold the equipment for $50,000.

What two journals entries were made on June 30^th, 2006, on the date the asset was sold? directly below.

1. The first (adjusting) entry recorded on June 30th, 2006 was:

Provide answer towards the bottom of the answer sheet

2. The second entry to record the equipment sale on June 30th, 2006 was:

            Provide answer towards the bottom of the answer sheet

1. Given the function M(t) = 2t3 - 3t2 - 36t, find the critical values and determine, using both the second derivative test and a sign chart, the nature of these values.
2. A projectile is launched with a velocity of 22 m/s at 50° to the ground. Determine its horizontal and vertical velocities.
3. Two trains start from the same point at the same time, one going east at a rate of 40 km/h and the other going south at 60 km/h, as shown in the diagram at right. Find the rate at which they are separating after 1 h of travel.
4. A professional basketball team plays in a stadium that holds 23,000 spectators. With ticket prices at $60, the average attendance had been 18,000. When ticket prices were lowered to $55, the average attendance rose to 20,000. Based on this pattern, how should ticket prices be set to maximize ticket revenue?
5. Corey is asked to find the maximum value of a function. Not having a complete understanding of the process, Corey decides to find the derivative of the function, set it equal to zero, and solve. The resulting value, Corey reasons, will yield the maximum point. Explain fully why Corey's method is flawed.
6. A 5,000 m_ rectangular area of a field is to be enclosed by a fence, with a moveable inner fence built across the narrow part of the field, as shown.The perimeter fence costs $10/m and the inner fence costs $4/m. Determine the dimensions of the field to minimize the cost.
7. The following table displays the number of HIV diagnoses per year in a particular country.
Year 1997 1998 1999 2000 2001 2002 2003 2004 2005
Diagnoses 2512 2343 2230 2113 2178 2495 2496 2538 2518
a. Using Curve Expert or another curve modelling program, determine an equation that can be used to model this data.
b. Using this model, estimate the number of diagnoses in 1996 and in 2006.
c. At what rate would the number of diagnoses be changing in 2006?
d. Halfway through 2006, the number of new HIV diagnoses was found to be 1232. Assuming this rate stays fairly constant for the remainder of the year, does this new information change the modelling equation? If so, how would this change your answer to part (c)? If you were an advocate for furthering HIV and AIDS research and treatment programs, would you be encouraged or discouraged by these results?

Suppose you are given the following end of year stock price data for Random Inc. stock. Assume the returns are normally distributed, calculate the probability that an investor will lose more than -3% in a year, Prob(Ret<-3%). (Enter percentages as decimals and round to 4 decimals). Year Price 2005 43.65 2006 44.01 2007 45.77 2008 53.04 2009 45.67 2010 59.05 2011 46.88 2012 49.24 2013 43.99 2014 42.67 2015 48.14

Suppose you are given the following end of year stock price data for Random Inc. stock. Assume the returns are normally distributed, calculate the probability that an investor will lose more than -3% in a year, Prob(Ret<-3%). (Enter percentages as decimals and round to 4 decimals). Year Price 2005 43.65 2006 44.01 2007 45.77 2008 53.04 2009 45.67 2010 59.05 2011 46.88 2012 49.24 2013 43.99 2014 42.67 2015 48.14

4. a. From a business perspective, what is debt and what is equity? What are two key differences between debt and equity? During the covid-19 shutdown is it better for me to have a business financed by debt or by equity? Explain your answer.

b. For a large publicly traded company, please explain how the firm can get equity financing (one method) and one way that the firm can get debt financing.

1) The worksheet Engines in the HW8 data workbook on Moodle describe a suppliers shipments of engines per year to their customers from 1999 through 2018.

a) Use simple regression with Shipments as the independent or Y variable and Year as the dependent or X variable to fit the data. Determine MAE, MSE and MAPE for the simple regression model. Construct a chart that has the observed data and the fit line by Year. Use the simple regression model to predict Shipments for years 2019 and 2020.

b) Use a three time period Moving Average to fit the rate data. Determine MAE, MSE and MAPE for the Moving Average model. Construct a chart that has the observed data and the fit line by Year. Use the Moving Average model to predict Shipments for years 2019 and 2020.

c) Use exponential smoothing with a smoothing constant of 0.15 to fit the data. Determine MAE, MSE and MAPE for the exponential smoothing model. Use the model to forecast Shipments for years 2019 and 2020.

d) Short answer. Which of the three above forecasting models (simple regression, moving average and exponential smoothing) would you use to model the data and why would you use that model.