Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:

Variable costs per unit:

Manufacturing:

Direct materials $ 29

Direct labor $ 11

Variable manufacturing overhead $ 3

Variable selling and administrative $ 2

Fixed costs per year:

Fixed manufacturing overhead $ 400,000

Fixed selling and administrative expenses $ 90,000

During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $82 per unit.

Required:

1. Assume the company uses variable costing: a. Compute the unit product cost for Year 1 and Year 2.

b. Prepare an income statement for Year 1 and Year 2.

2. Assume the company uses absorption costing: a. Compute the unit product cost for Year 1 and Year 2.

b. Prepare an income statement for Year 1 and Year 2.

3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1.

Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:

During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $57 per unit.

Required:

1. Assume the company uses variable costing:

a. Compute the unit product cost for Year 1 and Year 2.

b. Prepare an income statement for Year 1 and Year 2.

2. Assume the company uses absorption costing:

a. Compute the unit product cost for Year 1 and Year 2.

b. Prepare an income statement for Year 1 and Year 2.

3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1.

Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: Variable costs per unit: Manufacturing: Direct materials $ 28 Direct labor $ 14 Variable manufacturing overhead $ 2 Variable selling and administrative $ 1 Fixed costs per year: Fixed manufacturing overhead $ 320,000 Fixed selling and administrative expenses $ 50,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $84 per unit. Required: 1. Assume the company uses variable costing: a. Compute the unit product cost for Year 1 and Year 2. b. Prepare an income statement for Year 1 and Year 2. 2. Assume the company uses absorption costing: a. Compute the unit product cost for Year 1 and Year 2. b. Prepare an income statement for Year 1 and Year 2. 3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1.

5. Pure expectations theory

The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates.

Based on the pure expectations theory, is the following statement true or false?

The pure expectations theory assumes that a one-year bond purchased today will have the same return as a one-year bond purchased five years from now.

False

True

The yield on a one-year Treasury security is 4.4600%, and the two-year Treasury security has a 6.6900% yield. Assuming that the pure expectations theory is correct, what is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.)

10.2231%

11.3889%

8.9676%

7.6225%

Recall that on a one-year Treasury security the yield is 4.4600% and 6.6900% on a two-year Treasury security. Suppose the one-year security does not have a maturity risk premium, but the two-year security does and it is 0.2%. What is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.)

7.2755%

8.5594%

10.8704%

9.7577%

Suppose the yield on a two-year Treasury security is 5.83%, and the yield on a five-year Treasury security is 6.20%. Assuming that the pure expectations theory is correct, what is the market’s estimate of the three-year Treasury rate two years from now? (Note: Do not round your intermediate calculations.)

6.61%

7.10%

6.45%

5.46%

The managers of Classic Autos Incorporated plan to manufacture classic Thunderbirds​ (1957 replicas). The necessary foundry equipment will cost a total of ​$3,900,000 and will be depreciated using a​ five-year MACRS​ life, LOADING... . The sales manager has an estimate for the sale of the classic Thunderbirds. The annual sales volume will be as​ follows: Year​ one:  230 Year​ four:  370 Year​ two:  270 Year​ five:  310 Year​ three:  340 If the sales price is ​$26,000 per​ car, variable costs are ​$18,000 per​ car, and fixed costs are ​$1,200,000 ​annually, what is the annual operating cash flow if the tax rate is 30​%? The equipment is sold for salvage for ​$500,000 at the end of year five. Net working capital increases by ​$500,000 at the beginning of the project​ (year 0) and is reduced back to its original level in the final year. Find the internal rate of return for the project using the incremental cash flows. ​First, what is the annual operating cash flow of the project for year​ 1?

MACRS Fixed Annual Expense Percentages by Recovery Class       

20a- US Robotics is evaluating a new product line. The CFO asks for an estimate of number of years to recover the initial investment, ignoring the time value of money. You realize that this is the payback period. The estimated cash flows from the new product line appear below. (Answer in years, round to 2 places)

Year 0 cash flow = -79,000
Year 1 cash flow = -35,000
Year 2 cash flow = 30,000
Year 3 cash flow = 38,000
Year 4 cash flow = 44,000
Year 5 cash flow = 28,000
Year 6 cash flow = 44,000
Year 7 cash flow = 22,000

Answer:

20b- Your firm is evaluating a capital budgeting project. The estimated cash flows appear below. The board of directors wants to know the expected impact on shareholder wealth. Knowing that the estimated impact on shareholder wealth equates to net present value (NPV), you use your handy calculator to compute the value. What is the project's NPV? Assume that the cash flows occur at the end of each year. The discount rate (i.e., required rate of return, hurdle rate) is 17.6%. (Round to nearest penny)

Answer:

1).A project requires an initial investment of $973,000. The projects generates cash flows of $250,000 in year 1, $300,000 in year 2, $300,000 in year 3, $400,000 in year 4 and $400,000 in year 5. If the required rate of return for the project is 12 percent, the payback period is ____________ and the discounted payback period is _______________.

A).3.7 years; 4.5 years B).2.8 years; 3.9 years C). 2.8 years; 4.2 years D).3.3 years; 3.9 years E).3.3 years; 4.2 years

2).A project requires an initial investment of $2,640,000. The projects generates cash flows of $750,000 in year 1, $800,000 in year 2, $800,000 in year 3, $800,000 in year 4 and $800,000 in year 5. If the required rate of return for the project is 12 percent, calculate the net present value (NPV) of the project.

A).$231,622 B).$311,852 C).$1,310,000 D).$84,109 E).$199,178

3).Project A requires an initial investment (today) of $560,000 and generates cash flows of $170,000 a year for each of the next four years. Project B requires an investment of $710,000 today and generates cash flows of $220,000 in year 1, $220,000 in year 2, $250,000 in year 3, and $250,000 in year 4. The two projects are mutually exclusive and the required return for each project is 13 percent.

Which of the two projects, if any, should be accepted?

A).Accept both projects B).Accept project A and reject project B C).Reject both projects D).Accept project B and reject project A

The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates.

Based on the pure expectations theory, is the following statement true or false?

The pure expectations theory assumes that a one-year bond purchased today will have the same return as a one-year bond purchased five years from now.

1. False
2. True

The yield on a one-year Treasury security is 5.3800%, and the two-year Treasury security has a 7.2630% yield. Assuming that the pure expectations theory is correct, what is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.)

1. 11.6581%
2. 9.1796%
3. 7.8027%
4. 10.4647%

Recall that on a one-year Treasury security the yield is 5.3800% and 7.2630% on a two-year Treasury security. Suppose the one-year security does not have a maturity risk premium, but the two-year security does and it is 0.15%. What is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.)

1. 7.5433%
2. 8.8745%
3. 10.1169%
4. 11.2706%

Suppose the yield on a two-year Treasury security is 5.83%, and the yield on a five-year Treasury security is 6.20%. Assuming that the pure expectations theory is correct, what is the market’s estimate of the three-year Treasury rate two years from now? (Note: Do not round your intermediate calculations.)

1. 6.61%
2. 6.45%
3. 7.10%
4. 5.46%

I have a 5,200 square foot tenant space that I am trying to lease at one of our centers. Three tenants have expressed an interest in leasing the space. Two of the tenants require some upfront money from us to move in, while the third tenant does not. This third tenant, however, will not pay as much in rent as the other two. Details on the projected rents from the tenants and the amounts we are to invest upfront are shown below. Using any one of the 3 primary capital budgeting analysis methods (NPV, IRR and/or MIRR) you feel is best and most appropriate, evaluate the three tenants and tell me which of the three tenants I should pursue. My cost of capital is 9.0%.

Tenant 1 - Fivebucks Coffee and Tea Cost of Capital: 9.0% Initial upfront cost: ($100,000) Year 1 rents: $90,000 Year 2 rents: $95,000 Year 3 rents: $100,000 Year 4 rents: $105,000 Year 5 rents: $110,000