Nike was sued by Adidas for infringing on their patent for running shoes. The CEO of Nike is confident that they will win the case, but the firm is spending $1 million per year on this litigation and it will go on for 4 more years. The interest rate is 5%. Suppose Nike wants to stop dealing with the distraction, how much would Nike have to pay an external firm to take full responsibility of the case? Assume that Nike’s legal department is as equally productive as an outside firm and that the market for outside legal help is perfectly competitive. Also assume that the payment for legal services will be made at the beginning of each year.

Interest rates are 7% in the U.S. Foreign interest rates are 10%. If you expect the foreign currency to depreciate 5%, where are you better off investing?

A U.S. firm has a future receivable (cash inflow) denominated in Euros. The U.S. firm faces foreign exchange risk in the form of the Euro _____________ between now and the time the U.S. firm receives Euros.

In the current international trade environment, countries are increasingly taking steps to strengthen their home currency so as to maximize purchasing power.

A U.S. firm has a receivable of €100,000 in one year. Forward rate quotes are $1.1850/€ bid and $1.1875/€ ask. If the U.S. firm hedges with a forward, what is the guaranteed amount of USD the U.S. firm will get from the receivable?

True or false. Firms hedge because exchange rates are hard to predict and the firm may want to eliminate the risk associated with these unpredictable exchange rate moves.

Baylor Bank believes the New Zealand dollar will depreciate over the next 6 months from $.41/NZ$ to $.38/NZ$. The following 6-month interest rates apply: (the rates are periodic rates so you do not need to adjust them at all – we do not need to multiply by 180/360 or anything like that)

       Currency                    Lending Rate               Borrowing Rate

       Dollars    3.0% 3.25%

       New Zealand dollar (NZ$)    4.0% 4.25%

Baylor Bank has the capacity to borrow either NZ$10 million or $5 million. If Baylor Bank’s forecast if correct, what will its U.S. dollar profit be from speculation over the 6-month period?

Suppose a U.S. firm issues a bond denominated in a foreign currency at a 2% lower interest rate than they could issue in the U.S. Over time, the foreign currency depreciates 2% against the U.S. dollar. The U.S. firm’s dollar-denominated equivalent cost of funding for this foreign issue is?

Assume a Japanese firm invoices exports to the U.S. dollars. Assume that the forward rate and spot rate of the Japanese yen and equal. If the Japanese firm expects the yen to____ against the dollar, it would likely wish to hedge. It could hedge by____ yen forward.

Suppose you have the following exchange rate: $1.155/C$ and euro 0.7294/$. Compute the cross exchange rate with the Canadian dollar as the terms currency and the Euro as the vase currency.

Interest rates are 2% in the U.S. and 5% in Mexico. Joe carry trader borrows $10,000,000 to execute a carry trade. At the start, the exchange rate is MXN9.5411/$. After one year, the exchange rate is MXN9.7144/$.

Jack's construction Co. has 80,000 bonds outstanding that are selling at par value. Bonds with similar characteristics are yielding 8.5%. The company alson has 4 million shares of common stock outstanding. the stock has a beta of 1.1 and sells for $40 a share. The U.S. Treasury bill is yielding 4% and the market risk premium is 8%. Jack's tax rate is 35%. What is Jack's weighted average cost of capital?

Which of following is/are correct regarding stocks? Choose all correct answers.

a. An already public company issuing more shares to raise capital is referred to as an SEO.
b. Stocks are generally riskier than bonds.
c. Bondholders are the residual claimants of corporations' cash flows.
d. Average dividend payout ratio of U.S. companies has been increasing over time.
e. Stock splits reduce corporations' market capitalization.

FASB and IASB recently delayed the effective date of their revenue standard.

1. What new information is available regarding FASB's and/or IASB's progress toward addressing the underlying reason that prompted the delay?

2.How prevalent is sustainability reporting in (a) the U.S. and (b) globally? In citing specific statistics, indicate the size of the company to which the information pertains.

3. What standards or guidelines should accounting professionals involved in sustainability reporting be familiar with?

HepTones, Inc., is a U.S. based firm that designs and manufactures high-end stereo speakers. They have been successfully manufacturing and selling their speakers in the U.S. for the last five years. Although they are still somewhat small, their U.S. sales have been growing at a rate of 20% annually and HepTones has achieved an excellent reputation for providing high-quality products at reasonable prices. Based on their success in the U.S., HepTones would like to expand their production and sales to Asia. Since their speakers are heavy, bulky, and somewhat delicate, exporting U.S.-made speakers to Europe appears to be too expensive and risky.

HepTones’ Chief Financial Officer, Brenda Mendez, and her staff have been evaluating several potential production locations in Asia. Based on Ms. Mendez’ staff’s initial assessments, Ms. Mendez has narrowed the decision to one potential location—Delhi, India. Her decision was based on several criteria. First, average income in India has been growing rapidly in recent decades, and a viable market for HepTones’ products is emerging. Second, although there have been ups and downs, India has progressively implemented western-style economic, political, and business principles. Third, India’s labor force is well-educated and still relatively inexpensive compared to other Asian countries. Finally, transportation links between India and other Asian countries are also expanding rapidly, which bodes well for future exports to other Asian countries. Ms. Mendez has tasked you, as a financial analyst for HepTones, with preparing a more-extensive capital budgeting forecast for establishing a subsidiary in the Delhi location. She would like your recommendation as to whether the location is financially feasible and whether the locational decision is sensitive to any particular factors. She has asked you to use a 10-year forecasting horizon. Several departments at HepTones have provided you with the following information for your analysis:

• The building and equipment needed for production in Delhi can be acquired at a a cost of 600 million rupee. The equipment is valued at 300 million rupee and will be depreciated using straight-line depreciation, which implies 30 million of depreciation per year for 10 years.
• Estimated sales in the first year are 30,000 pairs of speakers at a per-unit price of 45,000 rupee. Unit sales are projected to increase at 20 percent per year in following years.
• The variable costs needed manufacture the speakers are estimated to be 40,000 per pair in the first year of production.
• Fixed operating expenses, such as administrative salaries will be 25 million rupee in the first year of operations.
• The Indian government will impose a 25 percent tax on income, and a 10 percent withholding tax on any funds remitted to the U.S. Any earnings remitted to the U.S. will not be taxed further.
• The Indian government has agreed to buy HepTones’ Indian subsidiary after 10 years for about 700 million rupee, after considering any capital gains.
• The current exchange rate for the Indian rupee is $0.015. The rupee is expected to depreciate by an average of 2 percent per year for the next 10 years.
• Average annual inflation in India is expected to be 10 percent. Revenues, variable costs, and fixed costs are expected to change by the same rate as annual inflation.

HepTones’ currently uses a 20 percent rate of return to evaluate potential investment projects in the U.S. It has decided to use a 25 percent rate of return to evaluate the Indian project. All excess funds generated by the Indian subsidiary will be remitted back to the U.S. Do your analysis in the tab called Baseline Scenario. After you have completed your analysis answer to the following question: Based on the information provided in the case, should HepTones proceed with the project? Why or why not? Please record your answer in the appropriate box in the tab called Questions. Ms. Mendez is somewhat concerned about the project made by the marketing department that unit sales will increase at a 20 percent annual rate. She is interested in knowing what annual rate of increase in sales would make the net present value (NPV) equal to zero. Anything less than this “break-even” rate of increase would mean the project is not financially feasible.To answer her question, make a copy of the Baseline Scenario worksheet. Rename it Sensitivity Analysis. Vary the sales rate increase until the NPV is approximately zero, and then answer this question: What annual rate of increase in sales will yield an NPV of zero? Please record your answer in the appropriate box in the tab called Questions.

Carla Corporation has one temporary difference at the end of 2020 that will reverse and cause taxable amounts of $57,000 in 2021, $61,800 in 2022, and $67,300 in 2023. Carla’s pretax financial income for 2020 is $286,600, and the tax rate is 30% for all years. There are no deferred taxes at the beginning of 2020.

Compute taxable income and income taxes payable for 2020.

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020

Prepare the income tax expense section of the income statement for 2020, beginning with the line “Income before income taxes.”.

On January 1, 2020, The Fio Corporation purchased a machine for $600,000. The corporation estimated a 5-year useful life (or 300,000 units of useful life) and $60,000 residual/salvage value.

45000 Units were produced in 2020.

6 points:

Complete the following table using the indicated depreciation method and year for each row of the table.

4 points:

What would the journal entry be if the straight-line method was used and the machine was sold on 12/31/2020 for $500,000?

Pronghorn Co. provides the following information about its postretirement benefit plan for the year 2020.

Prepare a worksheet inserting January 1, 2020, balances, showing December 31, 2020, balances, and the journal entry recording postretirement benefit expense. (Enter all amounts as positive.)