Answer the following conceptual questions related to the estimation of WACC components.

a. Should the weights used to calculate the WACC be based on book values, market values, or something else? Explain.

b. If the company’s bond are publicly trading, how would you compute the pre-tax cost of debt? Explain first assuming that there is low chance of default and then assuming there is a high chance of default and hence expected loss.

c. Another approach to estimating cost of equity is the dividend growth approach. You need to have information regarding 3 inputs if you want to use this model – current price, current dividends, and the dividend growth rate. What are three ways to estimate the expected dividend growth rate?

Identify the level of measurement of each of the following variables: a)The amount of resistance a suspect displays toward the police, measured as not resistant, somewhat resistant, or very resistant B)The number of times someone has shoplifted in her or his life C)The number of times someone has shoplifted, measured as 0–2, 3–5, or 6 or more D)The type of attorney a criminal defendant has at trial, measured as privately retained or publicly funded E)In a sample of juvenile delinquents, whether or not those juveniles have substance abuse disorders F)Prosecutors’ charging decisions, measured as filed charges and did not file charges G)In a sample of offenders sentenced to prison, the number of days in their sentences

Consider the applications for home mortgages data in the file of P12_04.xlsx. Use multiple regression to develop an equation that can be used to predict future applications for home mortgages (hint: use dummy variables for the quarters and create a time variable for the quarter numbers)

Ivanhoe Company sells one product. Presented below is information for January for Ivanhoe Company.

Ivanhoe uses the FIFO cost flow assumption. All purchases and sales are on account.

1. Assume Ivanhoe uses a periodic system. Prepare all necessary journal entries, including the end-of-month closing entry to record cost of goods sold. A physical count indicates that the ending inventory for January is 111 units.

2. Compute gross profit using the periodic system.

3.Assume Ivanhoe uses a perpetual system. Prepare all necessary journal entries.

4. Compute gross profit using the perpetual system.

Revised Problem 5-65

Fresno Fiber Optics, Inc. manufactures fiber optic cables for the computer and telecommunications industries. At the request of the company VP of marketing, the cost management staff has recently completed a customer profitability study. The following activity-based costing information was the basis for the analysis.

The following additional information has been completed for Fresno Fiber Optics for two of its customers, Trace Telecom and Caltrex Computer, for the most recent year.

5. The Claron Corporation’s main competitor, Brighton company, just filed for bankruptcy, presenting a potential opportunity for an increase in customers and revenue at Claron. As a result, several of Brighton’s salespeople have contacted George Wills, Claron’s vice president of sales, inquiring about employment at Claron. Currently Wills has no openings on his 10-person salesforce. However, he does not want to dismiss the Brighton reps, some of whom are top performers that might be able to enhance Brighton’s revenue stream that has been falling for the past year.

            After speaking to his CEO about adding a position to his salesforce, Wills was given permission to do so as long as the new salesperson made more of his salary in commissions than base salary. Wills, however would like to add three of Brighton’s salespeople. Currently there are four salespeople on Wills’s staff that outperform the other six, who are approximately equal in talent. Yet, Wills is hard-pressed to identify a clear laggard whom he would dismiss in favor of the competition’s salespeople. Wills is also concerned that he could disrupt the team chemistry he has worked hard to build the past two years by firing some of his current salespeople and hiring those from Brighton. However, he does not know if he can pass up this opportunity to upgrade his salesforce.

            How should Wills approach this dilemma? Should he hire the new reps and deal with the ramifications of letting two of his people go, or can he afford to pass on the new reps altogether?

The radius of the wheel on a bike is 27 inches. If the wheel is revolving at 144 revolutions per minute, what is the linear speed of the bike, in miles per hour? Round your answer to the nearest tenth, and do not include units in your answer.