After years of playing the lottery, you just won $10,000,000. Now, you have to figure out how you want it paid to you. You can take a lump sum now before tax, (yes, Uncle Sam will eventually get his part), or you can take annual payments at the end of each year (also before tax). The interest rate is 4% and if you do take the payments, they will be paid over 20 years.


1) What is the lump sum payment that you would receive today?


2) How much would you have received in total at the end of the 20 years if you took the payments?

You are a consultant to a mid-sized manufacturing corporation that is considering an investment project. The project requires an initial investment of $100 million and will generate an after tax cash of $20 million in the first year and the cash flow will increase 5% thereafter every year (Please note that this is a constant growing cash flow).The project’s beta is 1.5. Assuming that rf=5% and E ( rM ) = 12%, Please answer the following questions.

What is the net present value of the project ?
What is the highest possible discount rate for the project before its NPV becomes negative ?
What is the highest possible beta estimate for the project before its NPV becomes negative ?

You are a consultant to a mid-sized manufacturing corporation that is considering an investment project. The project requires an initial investment of $100 million and will generate an after tax cash of $20 million in the first year and the cash flow will increase 5% thereafter every year (Please note that this is a constant growing cash flow).The project’s beta is 1.5. Assuming that rf=5% and E ( rM ) = 12%, Please answer the following questions.

What is the net present value of the project ?
What is the highest possible discount rate for the project before its NPV becomes negative ?
What is the highest possible beta estimate for the project before its NPV becomes negative ?

On 1/1/19, Athlon Company acquired 100% of Opteron Corporation's common stock for $150,000. At the date of acquisition, Operon's common stock was $50,000 and the retained earnings were $60,000. The difference between Opteron's book value and fair value at the date of acquisition was attributable to depreciable fixed assets that had a continuing life of another 10 years.

For 2009, Opteron reported net income of $50,000 and dividends of $45,000.

In 2010, net income of $25,000 and dividends of $30,000 were reported.

In 2011, net income of $10,000 and dividends of $15,000 were reported.

A) How much investment income would Athlon Company report in 2010 under the equity method?

B) What is the investment account balance on Athlon Company's books for its investment in Opteron corporation as of 12/31/11 under the equity method

C) How much investment income would Athlon Company Report in 2011 from its investment in Opteron under the Cost Method?

MSG is a manufacture company which produce automobile. At the beginning of 2010, MSG leases ten automobile to FD under a six-year non-cancellable lease agreement. Information about the lease and the automobile is:
1. Equal annual payments that are due on January 1 each year provide MSG 7% return on net investment (present value factor for 6 periods at 7% is 5.1002).
2. Titles to the automobile pass to FD at the end of the lease.
3. The fair value of each automobile is $35,000. The cost of each car to MSG is $32,000. Each car has an expected useful life of 8 years. No residual value guarantee.
4. Collectability of the lease payments is probable.

a)What type of lease is this for the lessor? Explain.
b)Calculate the annual lease payment for company.
c)Prepare a lease amortization table with dates for MSG for the first three years.
d)Find out the journal entries for the lessor in 2010 to record the lease agreement, the receipt of the lease rentals, and the recognition of revenue.

In 2010 you bought 12 initial public offerings (IPOs) of common equity of which there were 22 in total. You held each of these for approximately one month and then sold them. The 22 IPOs were all for oil- and gas-exploration companies. You submitted a purchase order for approximately $1000 of equity for each one. With 10 of these, no shares were allocated to you. With five of the 12 offerings that were purchased, fewer than the requested number of shares were allocated.

The year 2010 was very good for oil- and gas-exploration companies. For the 22 IPOs the shares were selling on average for 80 percent above the offering price within a month. Yet, you looked at your performance record and found the $8,400 invested in 12 companies had grown to only $10,100, a return of only about 20 percent. (Commissions were negligible). Did you have bad luck or should you have expected to do worse than the average IPO investor? Explain.

Question #1

A) The government of Canada has collected data on the prevalence of 5 chronic diseases over time. The data of the 5 diseases was collected in percent prevalence of Canadians over age 20, over the years 2008, 2010, 2012, 2014. A psychologist is interested in knowing if prevalence rates of the diseases change over time. To examine this, they use a one-way repeated measures ANOVA. Sphericity is assumed.

N=5, K=4

B) Calculate eta squared (effect size) for the result in part A. (Act like f is significant even if it’s not)

C) Whether your omnibus test is significant or not significant, perform 2 different appropriate pos-hoc tests. (Act like f is significant even if it’s not)

The table below shows the life expectancy for an individual born in the United States in certain years.

1. Find the estimated life expectancy for an individual born in 1973

2. Use the two points in part (e) to plot the least squares line on your graph from part (b).

3. Are there any outliers in the data?Yes, 1930 and 2010 are outliers.Yes, 1930 and 1950 are outliers.     Yes, 1950 is an outlier.No, there are no outliers

4. Using the least squares line, find the estimated life expectancy for an individual born in 1870. (Round your answer to one decimal place.)
Does the least squares line give an accurate estimate for that year? Explain why or why not. Yes, because the estimate is over 50 years.No, because 1870 is outside the domain of the least squares line.    

Berkshire Hathaway's 13-F filing for the third quarter of 2010 reported that Warren Buffett had reduced his stake in Nike, Inc. by $224 million, bringing his holding to 7.62 percent of the 480 million outstanding shares. Nike reported a core return on net operating assets (core RNOA) of 32.7 percent in its annual report for the year ended May, 2010. A summary of it balance sheet at fiscal year end follows:

Net operating assets $5,318 million

Net financial assets 4,436

Common equity $9,754 million

In mid-July, at the time that the annual report was published, Nike's shares traded at $68 each. By the end of September, the price had risen to $81.

Calculate the expected return form buying at the market price in mid-July with a forecast that Nike can grow residual operating income at 4 % per year. Now make the same calculation for the Setember price. Do you see why Buffett may have sold?