PlumYum Inc, a dried fruit producer in Massachusetts is investigating the feasibility introducing a new product: dried strawberry! The company has given you, the financial adviser for the company, the following information:   

• The estimated unit sales are 15000 packs in the first year, and 25000 packs in the second year.
• The project will end at the end of the second year.
• Each package will sell for $15 in the first year. When the competition catches up after two years, you anticipate that the price will drop to $12 for the second year.     
• The variable cost per unit is $4, and total fixed costs are $8,000 per year.   
• The equipment required to begin production is $300,000 and qualifies as seven-year MACRS property with depreciation rate of 14.29% in the first year, 24.49% in the second year, and 17.49% in the third year.     
• The equipment will be worth about 75 percent of its cost in three years and the relevant tax rate is 15 percent.
• The project will require $25,000 in net working capital at the start. Subsequently, total net working capital at the end of each year will be about 20 percent of sales for that year.

1. Find the book value of the fixed asset at the end of year 2.

2. What is the after-tax salvage value of the fixed asset at the end of the project?

3. What is the Operating Cash Flow in year 2?

4. What is the cash flow from changes in Net Working Capital in year 2, including those resulting from liquidating the NWC at the end of the project?

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 4.2300%, and the two-year Treasury security has a 5.7105% 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.)

7.212%

6.1302%

8.2217%

9.1592%

Recall that on a one-year Treasury security the yield is 4.2300% and 5.7105% 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.)

7.8751%

6.908%

5.8718%

8.7732%

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%

6.53%

7.10%

6.45%

... Reconciliations required to yield government-wide financial statements from fund financial statements and preparation of financial statements                                                   
The City of Jackson Hole is preparing its government-wide financial statements for the year. Its accountant must prepare a number of journal entries to recognize assets and liabilities previously omitted from the fund financial statements and to recognize revenues and expenses for the year under accrual accounting that were not recognized under the current financial resources measurement focus and the modified accrual basis of accounting used to prepare the Statement of Revenues, Expenditures, and Changes in Fund Balances for its funds.

a. Prepare the journal entries for the required reconciliations to recognize the following in the government-wide financial statements (all amounts in $1,000s):

1. Recognize Capital Assets of $968,320 as of the beginning of the year.
2. Record Depreciation Expense of $48,416 for the year and reverse Expenditures of $58,099 for Capital Outlays during the year.
3. Recognize $7,000 of Bonds Payable as of the beginning of the year.
4. Reverse Other Financing Sources of $2,000 and Expenditures—Debt Payments of $700 relating to increases and decreases in the bond liability during the year.
5. Reverse Deferred Revenue of $132,600 as of the beginning of the year.
6. Reverse $6,630 of Deferred Revenue recognized during the year.
7. Recognize Compensated Absences of $19,366 as of the beginning of the year and an increase in that liability of $968 during the year.
8. Recognize $20 of Accrued Interest Payable as of the beginning of the year and an increase in that liability of $33 during the year.
9. Recognize a liability of $26,629 relating to the City’s landfill as of the beginning of the year. The estimate for this liability did not change during the year.

1) What is the price of the following bonds? The bond will expire in 8 years, pay a 6% coupon, pay interest semi-annually, pay $1,000 when it expires, and you need a 5% return.

2) What is the maturity rate of the following bonds? The price of the bond is $985.00, the 14-year period is $1,000, the coupon rate is 4%, half-year payment.

3) You have a $500 investment. You have two options how to invest. Choosing "A" will allow you to invest 8% annually for two years. Choosing "B" will allow you to invest 7% in the first year and then reinvest your earnings for a year. What kind of rate of return do you need to earn in the second year of choosing "B" to expect you to receive the same return as choosing "A"?

4) Calculate the deadline for the following U.S. Treasury bills. Although the bill was originally issued for a period of five years, it currently has a two-year period. Bills pay interest semi-annually for a coupon rate of 3.00%. The market requires a yield of 2.40% of the bill.

5) Your bank plans to provide the customer with a loan of $15,000. The customer will have three instalments. Your bank will charge a 7% annual interest rate on the loan. What is the starting time of this loan?

6) You expect that the actual rate of return in the United States will reach 4% next year and the inflation rate will reach 2%. Based on the Fisher effect, what is the U.S. expected nominal interest rate for a one-year risk-free guarantee?

7) The one-year U.S. treasury bond's nominal interest rate is 3.04%. If the expected inflation rate for the next year is 1.4%, what is the expected actual economic rate of return based on the Fisher effect?

8) The yield curve of the internal I-region shows that the 1-year, 2-year, 1-year, 3-year and 4-year securities are 5%, 6%, 6.5% and 6.75%, respectively. Using PET, calculate: A) Expected annual rate for one year B) Expected two-year rate for one year C) Expected three-year rate for one year D) Two-year expected rate for two years

With the stock market reflecting extreme volatility during the past few weeks, some individuals are becoming concerned about their equity portfolio’s and are either considering selling their stocks or have already done so. Many investors are looking for stability and believe the bond market is a safe haven for their money.

Using the following information, please compute the investment performance and end of period asset value for the following “realistic” scenario.

A $100,000 investment in a 15 year, AA-rated corporate bond with a 5 percent coupon. Please calculate the annual interest income that you would receive each year, along with the value that you will receive when your bond matures.

The 15-year average return for the S&P 500 from January 1973 to December 2016 (29 separate 15 year periods) was as high as a 20% average annual return and as low as a 3.7% average annual return. Additionally, the average dividend yield for the S&P is 4.11% and the average annual dividend growth rate is 6.11%.

Using this information, please compare the investment in the 5% 15 year corporate bond with a $100,000 investment in a stock with a 3.7% dividend yield (10 percent less than the S&P 500 average yield) and a 3% dividend growth rate (50 percent of the S&P 500 dividend growth rate).

The annual investment returns are as follows: Year 1  (13.40%)        Year 2 (23.37%)       Year 3   26.38%    Year 4   8.99%     Year 5  3.00%              Year 6  13.62%           Year 7   3.53%      Year 8  (38.49%) Year 9  23.45%            Year 10  12.78%       Year 11  0.00          Year 12  13.41%   Year 13  29.60%          Year 14  11.39%       Year 15  (0.73%)

The bond interest payment of 5 percent is paid annually and not reinvested. To compare accurately with the bond investment, the stock dividend will not be reinvested, but paid annually as well.

Please calculate the value of the stock account at the end of each year and the dividend income from the stock on an annual basis.

Once you have performed the calculations, please let me know if you prefer to invest in a 5% corporate bond for 15 years or the stock and why.

High-Low Method, Scatterplot, Regression

Weber Valley Regional Hospital has collected data on all of its activities for the past 16 months. Data for cardiac nursing care follow:

Required:

In the computations below, use intercepts rounded to the nearest whole number and use X variable coefficients rounded to 2 decimal places.

1. Using the high-low method, calculate the variable rate per hour and the fixed cost for the nursing care activity. Enter negative answers with a minus sign.

2. Run a regression on the data, using hours of nursing care as the independent variable. Predict cost for the cardiac nursing care for September Year 2 if 1,400 hours of nursing care are forecast. If required, round your answer to the nearest dollar.

Y = $___________

3. Upon looking into the events that happened at the end of Year 1, you find that the cardiology ward bought a cardiac-monitoring machine for the nursing station. Administrators also decided to add a new supervisory position for the evening shift. Monthly depreciation on the monitor and the salary of the new supervisor together total $10,000. Now, run two regression equations, one for the observations from Year 1 and the second using only the observations for the eight months in Year 2. What is your predicted cost of the cardiac nursing care activity for September Year 2 if 1,400 hours of nursing care are forecast? When required, round your answer to two decimal places.

Y = $__________

Calculate the Profitability Index and the Net Present Value of the following project:

Year 0 Investment 75,000

Year 1 Income 25,000 PI ______________

Year 2 Income 35,000

Year 3 Investment 10,000 NPV ____________

Year 4 Income 40,000

Discount Rate 9% Go or No Go?

Common stock in the amount of $ 23,000 was issued and dividends of $ 6,600 were paid during the year. What is the amount of net income for the year?

Find the present value of a 20 year annuity due where payments are $1, 000 at the beginning of the first year, third year, etc. and payments are $1, 500 at the beginning of the second year, fourth year, etc. Here effective annual interest is 5%. Hint: Draw a time diagram!!!

A+T Williamson Company is making adjusting entries for the year ended December 31 of the current year. In developing information for the adjusting entries, the accountant learned the following:

1. A two-year insurance premium of $5,280 was paid on October 1 of the current year for coverage beginning on that date. The bookkeeper debited the full amount to Prepaid Insurance on October 1.
2. At December 31 of the current year, the following data relating to Shipping Supplies were obtained from the records and supporting documents.