1.

Bond Investment Transactions

Journalize the entries to record the following selected bond investment transactions for Starks Products:

For a compound transaction, if an amount box does not require an entry, leave it blank.

a. Purchased for cash $90,000 of Iceline, Inc. 8% bonds at 100 plus accrued interest of $1,200, paying interest semiannually.

b. Received first semiannual interest payment.

c. Sold $60,000 of the bonds at 103 plus accrued interest of $680.

2.

Stock Investment Transactions

On September 12, 2,700 shares of Aspen Company are acquired at a price of $32.00 per share plus a $135 brokerage commission. On October 15, a $0.80-per-share dividend was received on the Aspen Company stock. On November 10, 1,080.00 shares of the Aspen Company stock were sold for $27 per share less a $54 brokerage commission.

When required, round final answers to the nearest dollar. For a compound transaction, if an amount box does not require an entry, leave it blank.

Prepare the journal entries for the original purchase, the dividend, and the sale under the cost method.

Marigold Corporation was organized on January 1, 2017. It is authorized to issue 10,300 shares of 8%, $100 par value preferred stock, and 518,000 shares of no-par common stock with a stated value of $1 per share. The following stock transactions were completed during the first year.

Prepare the journal entries to record the above transactions. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Presented below is information related to Sunland Company.

1. On July 6, Sunland Company acquired the plant assets of Doonesbury Company, which had discontinued operations. The appraised value of the property is:

Sunland Company gave 12,000 shares of its $100 par value common stock in exchange. The stock had a market price of $168 per share on the date of the purchase of the property.

2. Sunland Company expended the following amounts in cash between July 6 and December 15, the date when it first occupied the building. (Prepare consolidated entry for all transactions below.)

3. On December 20, the company paid cash for equipment, $286,000, subject to a 2% cash discount, and freight on equipment of $11,550.

Prepare entries on the books of Sunland Company for these transactions. (Round intermediate calculations to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places e.g. 58,971. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

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1. On July 6, Windsor Company acquired the plant assets of Doonesbury Company, which had discontinued operations. The appraised value of the property is:

Windsor Company gave 12,500 shares of its $100 par value common stock in exchange. The stock had a market price of $168 per share on the date of the purchase of the property.

2. Windsor Company expended the following amounts in cash between July 6 and December 15, the date when it first occupied the building. (Prepare consolidated entry for all transactions below.)

3. On December 20, the company paid cash for equipment, $390,000, subject to a 2% cash discount, and freight on equipment of $15,750.

Prepare entries on the books of Windsor Company for these transactions. (Round intermediate calculations to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places e.g. 58,971. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

A joint venture formed by South-East Investment Company (SEI) and North-West Property Limited (NWP) is going to bid for a site that could be developed into an office building, providing a rentable area of 70,000 square foot. SEI will contribute 90% of the equity capital and NWP the remaining 10%. According to some estimates, it is believed that the chance to receive average rents of $100 per square foot is 60% and the chance to receive $60 per square foot is 40%, in the first year after construction. Assume operating expenses are always equal to 40 percent of the rent received. The joint venture expects the rent will grow at 3 percent indefinitely and it requires a 12 percent return on the investment. The office building would cost $500 per square foot to build, and it takes a year’s time to finish the construction.

(a) Find the expected net operating income (NOI) from the office building and also the capitalization rate.

(b) Base on the Traditional Approach, what are the expected value of the office building and the land value under the above assumptions?

(c) Suppose that the land price asked by the government is $3,000,000. Base on your answer in part (b), would the joint venture’s office project be feasible?

(d) Discuss one advantage of forming a joint venture.

(e) Find the land value again by using the Real Option Approach.

(f) Discuss and explain two factors that may increase NOI.

In 2018, Elizabeth and some of her friends invested money to start a company named FRIENDZ Corporation. The following transactions occurred during 2018.

Jan 1                         The corporate charter authorized 70,000 shares of 5%, $100 par value cumulative preferred stock and unlimited shares of $10 par value common stock.

Jan 6                         Issued 200,000 common shares at $16 per share to Elizabeth and other investors

Jan 7                         Issued another 500 common shares to Elizabeth in exchange for her services in organizing the corporation.

Jan 12                       The stockholders agreed that the services were worth $8,000.

Jan 14                       Issued 10,000 common shares in exchange for equipment. The fair market value of the equipment could not be readily determined, but the market price of the common stock on this date was $16 per share.

Nov 15                     The first annual cash dividend on preferred stock was declared

Dec 20                    Paid the dividends declared on preferred stock

Dec 31                      Estimated income tax expense of $38,000. However, the actual amount of income tax due for this period based on tax laws is determined to be $34,000.

FRIENDZ Corporation generated a $125,000 net income (after income tax) during the year. The company uses the retained earnings account to record dividends.

a) Prepare the journal entries to record the above transactions in 2018.

In this project, you will collect data from real world to construct a multiple regression model. The resulting model will be used for a prediction purpose. For example, suppose you are interested in “sales price of houses”. In a multiple regression model, this is called a “response variable”. There are many important factors that affect the prices of houses.

Those factors include size (square feet), number of bedrooms, number of baths, age of the house, distance to a major grocery store. The factors (or variables) which are used for a multiple regression model are called “explanatory variables” (or “independent variables”). Good choice of explanatory variables is one of the most important steps to construct a good multiple regression model. www.zillow.com, One of the most recognized realtor website in United States, provides predicted prices (“zestimate”) of houses. Now the goal of the project is to construct your own prediction model of house prices. The first step of the project is to decide which explanatory variables you will use. In this project, please find at least four explanatory variables.

Next step is data collection. You are required to collect at least 100 observations (samples). Otherwise, you will not get full credits. Each observation must include sales value and all the values of explanatory variables of your choice. For example, if your explanatory variables are size, number of beds, number of baths, and age of houses, then the data set must be of the following form

ABC, Inc. is looking at raising additional capital for the future project. The project is expected to provide a return on investment of 13%. In order for ABC, Inc. to determine whether this project is worth investing in, it must first determine the cost of capital it will use to finance the project. a. The firm's current stock price is $45 and it has 4 million shares of stock outstanding. The firm also has $30 million of preferred stock and $70 million of debt. Calculate the weights of each capital component. b. The firm is looking at issuing a new 30-year bond that pays an annual coupon of 8% with a flotation cost of 2%. The bond is expected to sell at its par value of $1000. The firm's tax rate is 40%. Calculate the ATrd. c. The firm will have to pay the underwriter a 10% flotation cost for the new equity it will raise. The firm just paid out a dividend of $4.22 with an expected growth rate of 4.5%. Calculate the re d. The firm expects its preferred stocks to sell for $112.55. The par value of the preferred stock will be $100 with a 12% annual dividend. The flotation cost will be paid to the underwriter will be 4%. Calculate the rps. e. Assume that the firm's current market value is their target capital structure, what is the firm's WACC? f. Should the firm take on this investment based on the cost of the capital that it will use to fund the project? Why?

“BLACKFRIDAY” company is planning an expansion of its existing production capacity. The firm hired you as a consultant for the expansion project. Since you are a savvy project manager, you first decided to estimate the firm’s cost of capital based on the available data.

Data:

• Tax Rate: 40%
• Bond: Coupon rate 12%, Maturity Years 15, Present value $1150
• Preferred Stock: Dividend rate 10%, Par Value $100, Present Value $111 Common Stock: Market price $50, D₀=$4.20, Dividend growth 5%, Beta 1.2, Treasury Bond yield 7%, Market risk premium 6%. When the firm uses Bond-yield+Premium method, the risk premium is 4%.
• Capital structure of ABC is as follows;
  • Debt 30%, Common Equity 60%, Preferred Stock 10%

Next, you asked your assistant “Mr.COUPON” to give his opinion on the following burning questions;

1. What is your final Cost of Equity?
2. Do you agree that the cost of new equity is cheaper than the cost of retained earnings? Why?
3. What is flotation cost and how do you adjust it?
4. If the flotation cost of new stock issue is 10%, what is the estimated cost of equity considering the 10% flotation cost under DCF method you calculated in question iv above? (cost of equity using discounted cashflow technique is 15.50%)