Sales $ 471,000 $ 416,000 Cost of goods sold 330,000 268,000 Gross profit $ 141,000 $ 148,000 Operating expenses 130,000 116,000 Net income $ 11,000 $ 32,000 a. Prepare common size income statements for Price Company, a sole proprietorship, for the two years shown as above by converting the dollar amounts into percentages. For each year, sales will appear as 100 percent and other items will be expressed as a percentage of sales. (Income taxes are not involved as the business is not incorporated.) b. State whether the changes from year 1 to year 2 are favorable or unfavorable.

Consider the following information for two all-equity firms, A and B:

Firm A is acquiring Firm B by exchanging 25 of its shares for all shares in B

16. What is the equivalent cash cost of the merger if the merged firm is worth $11,000?     

____

1. $2,000
2. $2,200
3. $2,400
4. $2,800

17. What is Firm A’s new P/E ratio after merger?

____

A) 8.76

B) 8.00

C) 7.86

D) 6.78

Firms A & B have no debt. Both have invested capital of $5,000,000 and 200,000 shares outstanding. Both firms have a ROIC of 12% and a WACC of 12%. Firm A pays out 100% of earnings as dividends and Firm B pays out 40% of its earnings as dividends.  

What will be the share price of each firm at the end of two years?

Will shareholders of Firms A & B earn the same or different rates of return after selling their shares at end of year two assuming both firms continue to operate as they have and there are no changes in expectations. Explain your logic.

Suppose 180-day interest rates are 6.5% per annum in the US and 3.5% per annum in France, and that the spot exchange rate is $1.1500/€. The 180-day forward price is $1.1400/€.   

a. Do these prices and rates suggest an arbitrage opportunity? (show why or why not – provide a numerical justification for your answer and explain what that numerical justification means)? (5 points)

b. If there is an arbitrage opportunity, include all of the necessary transactions and cash flows to exploit the opportunity (assume you start your strategy by borrowing 100 units of a currency) (8 points)

Henry is planning to purchase a Treasury bond with a coupon rate of 2.22% and face value of $100. The maturity date of the bond is 15 May 2033.

(c) If Henry purchased this bond on 4 May 2018, what is his purchase price (rounded to four decimal places)? Assume a yield rate of 1.84% p.a. compounded half-yearly. Henry needs to pay 28.3% on coupon payment and capital gain as tax payment. Assume that all tax payments are paid immediately.

Select one:

a. 96.8161

b. 105.9890

c. 95.8030

d. 76.0108

Ayayai Manufacturing has an annual capacity of 80,900 units per year. Currently, the company is making and selling 78,300 units a year. The normal sales price is $100 per unit, variable costs are $65 per unit, and total fixed expenses are $2,000,000. An out-of-state distributor has offered to buy 6,000 units at $70 per unit. Ayayai's cost structure should not change as a result of this special order. By how much will Ayayai's income change if the company accepts this order?

will her income increase or decrease? by how much?

Suppose a stock is currently priced at $100 a share, and in one period it will either increase or decrease by 10% (to $110 or $90). The stock does not pay dividends. The riskless rate for borrowing and lending over the period is 4 percent. There exist exchange-traded European call and put options on the stock with one period to expiration.

e) How would you answers above change if the if the riskless interest rate remained 4%, but the stock prices became more volatile, and in one period the stock price will either increase or decrease by 15% (to $115 or $85).? EXPLAIN. (4 points)

Franklin Sports received a special order for 1,000 units of its bicycles at a selling price of $250 per bike. Franklin has enough extra capacity to accept the order. No additional selling costs will be incurred. Unit costs to make and sell this product are as follows: direct materials, $100; direct labor, $70; variable manufacturing overhead, $10; fixed manufacturing overhead, $15, and variable selling costs, $3. A special machine would have to be purchased for $5,000 to fulfill this order. What should be the amount of total relevant costs for this special order?

Senator Bernie Sanders has introduced a “Medicare for all” bill in the U.S. Senate. Under his plan, government would pay 100% of the healthcare of all citizens in the U.S. This would effectively reduce the out-of-pocket price that people pay to zero. How would this plan differ from the current structure of Medicare? How would the Sanders bill create a “moral hazard” and affect the way people behave in the market for medical care services if it was passed by Congress and signed by the president? Would you support this type of health care plan? Why or why not?

Data for Hermann Corporation are shown below

Per Unit Percent of Sales

Selling price $ 80 100 %

Variable expenses 44 55

Contribution margin $ 36 45 %

Fixed expenses are $76,000 per month and the company is selling 2,500 units per month.

2-a. Refer to the original data. How much will net operating income increase (decrease) per month if the company uses higher-quality components that increase the variable expense by $4 per unit and increase unit sales by 20%.

2-b. Should the higher-quality components be used?