Keener Company has had 900 shares of 6%, $100 par preferred stock and 42,000 shares of $5 stated value common stock outstanding for the last 3 years. During that period, dividends paid totaled $3,900, $22,500, and $27,600 for each year, respectively. Required: Compute the amount of dividends that Keener must have paid to preferred shareholders and common shareholders in each of the 3 years, given the following 3 independent assumptions:

1. Preferred stock is nonparticipating and noncumulative.

Keener Company
Schedule of Dividends

Preferred Common Total
Year 1 Year 2 Year 3

2. Preferred stock is nonparticipating and cumulative.

Keener Company
Schedule of Dividends

Preferred Common Total
Year 1 Year 2 Year 3

3. Preferred stock is fully participating and cumulative.

Keener Company
Schedule of Dividends

Preferred Common Total
Year 1 Year 2 Year 3

Assume that a taxpayer can choose when he is to receive $10,000 of fully taxable income. If the taxpayer receives the income at the end of Year 1, he will receive exactly $10,000. If he delays receipt of the income until the end of Year 2, the amount will grow to $11,000. If the taxpayer takes the money at the end of Year 1, he can invest the proceeds and earn a pretax return of 10 percent over the next year.

1. If the taxpayer faces a marginal tax rate of 31 percent in both Year 1 and Year 2, when should he elect to receive the income?

2. At what pretax rate of return will the taxpayer be indifferent to taking the money in Year 1 and Year 2?

3. If the taxpayer’s marginal tax rate increases to 35 percent in Year 2, when should he elect to receive the income?

4. What would the tax rate need to be in Year 2 to make the taxpayer indifferent to the alternatives?

Consider that Luxio has identified the following two mutually exclusive projects:

Cash Flow (A)

Year 0.........-34000

Year 1..........16500

Year 2.........14000

Year 3.........10000

Year 4..........6000

Cash Flow (B)

Year 0........-$34,000

Year 1...........5,000

Year 2.........10,000

Year 3........18,000

Year 4........19,000

The required return is 11%.

Question: Over what range of discount rates would the company choose project A? Explain.

P.S. I have calculated the IRR and NPV for 11% required return.

Project A: IRR= 16.60% NPV= $   3,491.88

Project B: IRR= 15.72% NPV= $   4,298.06

I have also calculated the crossover rate at which the company will be indifferent between the two projects: 13.75%.

I'm having a hard time explaining why the company will choose project A if the discount rate is above 13.75?

XYZ company is considering investing in Project Q or Project U. Project Q generates the following cash flows: year “zero” = 281 dollars (outflow); year 1 = 211 dollars (inflow); year 2 = 330 dollars (inflow); year 3 = 318 dollars (inflow); year 4 = 196 dollars (inflow). Project U generates the following cash flows: year “zero” = 230 dollars (outflow); year 1 = 150 dollars (inflow); year 2 = 105 dollars (inflow); year 3 = 201 dollars (inflow); year 4 = 110 dollars (inflow). The MARR is 6%. Compute the External Rate of Return (ERR) of the BEST project. (note1: if your answer is 10.25% then write 10.25 as your answer, not 0.1025) (note2: round your answer to two decimal places, and do not include spaces, currency signs, plus or minus signs, or commas)

The Lee & Pearson Company is considering an expansion of its production facilities which will permit the firm to build and sell a new line of cell phones. The project requires a $10,000,000 capital investment and is expected to have a three-year economic life.

Other relevant information is:

• At the end of the project, the equipment can be sold for $300,000.
• The firm’s WACC is estimated at 8%.
• Incremental sales are projected to be $12,000,000 per year
• Annual costs (excluding depreciation) are estimated to be $3,000,000.
• The project requires a $2,000,000 initial investment in net operating working capital.
• The expected tax rate is 33%.

The MACRS depreciation schedule in the list below will be used.

• YEAR 1 = 0.4445
• YEAR 2 = 0.3333
• YEAR 3 = 0.1481
• YEAR 4 = 0.0741

A) What is the project cash flow for year 0

B) What is the project cash flow for year 1

C) What is the project cash flow for year 2

D) What is the project cash flow for year 3

Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $3 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,180,000 in annual sales, with costs of $875,000. The project requires an initial investment in net working capital of $400,000, and the fixed asset will have a market value of $260,000 at the end of the project. If the tax rate is 30 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations. Enter your answers in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.)
  

If the required return is 9 percent, what is the project's NPV?

Net Present Value Analysis:

You have found a residential complex that has been vacated. It will cost you $5m. You decide that it will cost you $1m to repair and will take one year (payable end of year 1). At the end of year 1 you will have the complex half full giving a positive cash flow of $500,000 p.a. from year 2 (receivable from the end of year 2). And after one more year it will be full, giving you a positive cash flow of $1m p.a. from year 3 (receivable from the end of year 3 onwards). The lease expires (therefore project ends) in 10 years. Lease cost is $100,000 p.a. (payable at the end of each year).
All amounts are payable / receivable at the end of each year.
The relevant interest rate is 7% p.a.
Draw a NPV time line and put the numbers on the time line?

It's leased.

1. Determine the proper tax year for gross income inclusion in each of the following cases

1. A cash basis landlord makes new tenants pay first and last month’s rent at the start of the lease.  How does the landlord report these items?

2. Purple Corporation, an exterminating company, is a calendar year taxpayer.  It contracts to provide service to homeowners once a month under a one- two- or three-year contact.  For financial reporting purposes, Purple reports the income ratably over the months of the contract. On April 1 of the current year, the company sold a customer a one-year contract for $120.  How much of the $120 is taxable in current and subsequent year if the company is an accrual basis taxpayer? If the $120 is payment on a two-year contract, how much is taxed in the year of the contract is sold and in the following years?  If the $120 is payment on a three-year contract, how much is taxed in the year the contract is sold and in the following years? (10 points)

You are evaluating a project for The Tiff-any golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Tiff-any to be $410 per unit and sales volume to be 1,200 units in year 1; 1,325 units in year 2; and 1,000 units in year 3. The project has a 3-year life. Variable costs amount to $230 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $162,000 in assets, which will be depreciated straight-line to zero over the 3-year project life. The actual market value of these assets at the end of year 3 is expected to be $34,000. NWC requirements at the beginning of each year will be approximately 30 percent of the projected sales during the coming year. The tax rate is 30 percent and the required return on the project is 12 percent.

What is the operating cash flow for the project in year 2?