Metlock Company sells goods to Bonita Company during 2017. It offers Bonita the following rebates based on total sales to Bonita. If total sales to Bonita are 9,500 units, it will grant a rebate of 2%. If it sells up to 20,500 units, it will grant a rebate of 5%. If it sells up to 27,400 units, it will grant a rebate of 6%. In the first quarter of the year, Metlock sells 11,300 units to Bonita at a sales price of $113,000. Metlock, based on past experience, has sold over 42,700 units to Bonita, and these sales normally take place in the third quarter of the year.

What amount of revenue should Metlock report for the sale of the 11,300 units in the first quarter of the year.

Bryna wants to buy a car that is available at two dealerships. The price of the car is the same at both dealerships. Best Buggies would let her make quarterly payments of $2,240 for 5 years at a quarterly interest rate of 3.72 percent. Her first payment to Best Buggies would be due in 3 months. If California Cars would let her make equal monthly payments of $935 for 4 years and if her first payment to California Cars would be today, then what is the monthly interest rate that Bryna would be charged by California Cars? Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098.

Question 6

In a homogeneous product duopoly, each firm has constant marginal cost equal to 10.  The market inverse demand curve is p = 250 – 2Q  where Q = q₁ + q₂ is the sum of the outputs of firms 1 and 2, and p  is the price of the good. Marginal and average cost for each firm is 10.  

(a) What are the Cournot and Bertrand equilibrium quantities and prices in this market?  In a two period version of the model in which each firm can observe the other’s behaviour in the first period, will the firms collude?

(b) Find the outcome for the Stackelberg model, assuming firm 1 is the “leader” (i.e., moves first) and firm 2 is the “follower” (i.e., moves second).

In a homogeneous product duopoly, each firm has constant marginal cost equal to 10.  The market inverse demand curve is p = 250 – 2Q  where Q = q₁ + q₂ is the sum of the outputs of firms 1 and 2, and p  is the price of the good. Marginal and average cost for each firm is 10.  

(a) What are the Cournot and Bertrand equilibrium quantities and prices in this market?  In a two period version of the model in which each firm can observe the other’s behaviour in the first period, will the firms collude?

(b) Find the outcome for the Stackelberg model, assuming firm 1 is the “leader” (i.e., moves first) and firm 2 is the “follower” (i.e., moves second).

For your main Discussion post, share your understanding of bonds as a form of financing a corporation. Discuss how the price of a bond is determined and provide an example of each of the following:

•              A bond issued at a premium,

•              A bond issued at par,

•              A bond issued at a discount.

Additionally, provide the journal entry that would be made to record each of your bond examples as well as the first journal entry that would be made to amortize each of the bond’s premium and discount. What would be the Net Bond Value after the first amortization entry for each of your example bonds? In your main post, also comment on the circumstances upon which a bond may be callable and when a bond may be convertible.

A prospective investor is evaluating the share of a company. He is considering three scenarios. Under the first scenario the company will maintain to pay its current dividend per share without any increase or decrease. Another possibility is that the dividend will grow at an annual rate of 6% in perpetuity. Yet another scenario is that the dividend will grow at a high rate of 12% for the first 3 years; a medium rate of 7% for the next 3 years and thereafter, at a constant rate of 4% perpetually. The last year's dividend per share was 3 and the current market price of the share is 80. If the investor's required rate of return is 10%, calculate the value of the share under each of the assumptions. Should the share be purchased?

A company issues $4,000,000 of 6%, 15-year bonds dated January 1, 201, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $3,456,448.

1. Prepare the January 1, 2017, journal entry to record the bonds' issuance.

2. For each semiannual period, compute the (a) cash payment, (b) the straight line amortization, and (c) bond interest expense.

3. Determine the total bond interest expense to be recognized over the bonds life.

4. Prepare the first two years of an amortization table using the straightline method.

5. Prepare the journal entries to record the first two interest payments.

Use this information for Kellman Company to answer the questions that follow.

The balance sheets at the end of each of the first two years of operations indicate the following:

Kellman Company Year 2 Year 1

Total current assets $600,000 $560,000

Total investments 60,000 40,000

Total property, plant, and equipment 900,000 700,000

Total current liabilities 125,000 65,000

Total long-term liabilities 350,000 250,000

Preferred 9% stock, $100 par 100,000 100,000

Common stock, $10 par 600,000 600,000

Paid-in capital in excess of par—Common stock 75,000 75,000

Retained earnings 310,000 210,000

Using the balance sheets for Kellman Company, if net income is $150,000 and interest expense is $20,000 for Year 2, what is the return on total assets for the year?

a. 10.4% b. 11.9% c. 10.5% d. 8.4%

2. Using the balance sheets for Kellman Company, if net income is $150,000 and interest expense is $20,000 for Year 2, what is the return on stockholders' equity for Year 2?

a. 6.9% b. 14.5% c. 16.04% d. 13.8%

3. Using the balance sheets for Kellman Company, if net income is $250,000 and interest expense is $30,000 for Year 2, what are the earnings per share on common stock for Year 2? a. $4.16 b. $4.32 c. $4.02 d. $2.49

4. Using the balance sheets for Kellman Company, if net income is $250,000 and interest expense is $20,000 for Year 2, and the market price of common shares is $30, what is the price-earnings ratio on common stock for Year 2? (Round intermediate calculation to two decimal places and final answers to one decimal place.)

Coleman Technologies Inc. Cost of Capital Coleman Technologies is considering a major expansion program that has been proposed by the company’s information technology group. Before proceeding with the expansion, the company must estimate its cost of capital. Assume that you are an assistant to Jerry Lehman, the financial vice president. Your first task is to estimate Coleman’s cost of capital. Lehman has provided you with the following data, which he believes may be relevant to your task:

1. The firm’s tax rate is 40%.

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

3. The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $111.10.

4. Coleman’s common stock is currently selling for $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 T 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 risk premium of 4%.

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

Questions:

a. What is your final estimate on the cost of common equity?

b. Explain in words why common stock has a higher cost than cost of equity.

c. If Cole estimates its cost of common stock to have a 15% flotation cost, using the DCF approach what will be the cost of new issuances of common stock?

Thank you!