Prime Mortgage Company sanctions a loan application for a 30 year mortgage loan for
US$100,000. The interest rate on the loan is 12% per annum and the borrower is required to
make equated monthly payments to repay the loan in 30 years (360 months). If the market
rate of interest goes down to 9% per annum, is the loan still worth US$100,000? Why? Why
not? (5 points)

b) If the corn farmer in the example above harvests 60,000 bushels, what amount will he
receive? What if he had not hedged his position? If the corn farmer in the example is able to
harvest only 40,000 bushels and the price per bushel rises to US$3.90 due to short supply of
corn, will his exposure be completely hedged? Why? Why not? Support your answer with
calculations. (5 points)

Pete's Construction acquired new equipment, paid $50,000 down, and signed a 5%, $200,000 note payable. Both the principal and one-year's interest is due one year from the date of purchase. The cost to install the equipment was $4,000; the cost to test it before placing it on-line was $2,000.

Pete's Construction spent $20,000 to train employees on the above new equipment.
Materials, labour and overhead amounted to $400,000 for the construction of a building started and completed in the current year. The building was worth $600,000 at completion and will house the office operations for the company. Total interest cost recognized during the year was $50,000; $35,000 of that amount qualifies to be capitalized to this building. The land on which the building was constructed cost $100,000, also purchased this year.

A second tract of land was acquired as a building site, for $45,000. A second building on this land also was started during the year but not completed. $5,000 was spent for surveying this second land parcel; $30,000 was spent to excavate the foundation of the building; and $8,000 was spent to clear oak trees on the property.

Pete's Construction was assessed $12,000 by the county for sewers and other infrastructure costs for the site of the completed building.

Because there was so much work involved with this project, Pete took his staff out for a celebration lunch for a cost od $1,000.

Required
From the following transaction information for Pete's Construction Inc. for the current year, determine the ending balances for all property, plant and equipment accounts (including construction in progress). Show how you arrived at your answer for each. Ignore amortization, assume there were no beginning balances, and there is no need to show subsidiary accounts or include discussion.

V. Rahr and Sons is a Fort Worth brewery founded by Fritz Rahr, a Neeley undergraduate and MBA. Currently the company makes Rahr Blonde Lager, Rahr’s Red, and Ugly Pug brews. They are considering a new beer, Frog Princess, with which to celebrate their ties to TCU. The project includes an initial outlay of $750,000 for the purchase of capital equipment that will be depreciated straight line to zero over six years.

Sales are expected to be $400,000 in years 1-3 and $600,000 in years 4-6. Production costs during years 1-6 are as follows: fixed costs (not including depreciation) are expected to be $150,000 per year; variable costs per year will be 40% of sales. The project will require an initial investment in NWC of 200,000 in year 0.

Beyond year six, the company expects that sales and unlevered net income in year seven will be 4% higher than that in year 6, and will continue growing at 4% per year infinitely. Additionally, in year 7 and beyond, new capital expenditures net of depreciation, and increases in NWC, combined, will be 6% of sales. Assume the marginal tax rate is 21%. The appropriate discount rate is 8%.

What is the NPV of the project? What is the IRR? Should the project be undertaken?

V. Rahr and Sons is a Fort Worth brewery founded by Fritz Rahr, a Neeley undergraduate and MBA. Currently the company makes Rahr Blonde Lager, Rahr’s Red, and Ugly Pug brews. They are considering a new beer, Frog Princess, with which to celebrate their ties to TCU. The project includes an initial outlay of $750,000 for the purchase of capital equipment that will be depreciated straight line to zero over six years.

Sales are expected to be $400,000 in years 1-3 and $600,000 in years 4-6. Production costs during years 1-6 are as follows: fixed costs (not including depreciation) are expected to be $150,000 per year; variable costs per year will be 40% of sales. The project will require an initial investment in NWC of 200,000 in year 0.

Beyond year six, the company expects that sales and unlevered net income in year seven will be 4% higher than that in year 6, and will continue growing at 4% per year infinitely. Additionally, in year 7 and beyond, new capital expenditures net of depreciation, and increases in NWC, combined, will be 6% of sales. Assume the marginal tax rate is 21%. The appropriate discount rate is 8%.

What is the NPV of the project? What is the IRR? Should the project be undertaken?

On January 1, 2017, Doone Corporation acquired 60 percent of the outstanding voting stock of Rockne Company for $528,000 consideration. At the acquisition date, the fair value of the 40 percent noncontrolling interest was $352,000 and Rockne's assets and liabilities had a collective net fair value of $880,000. Doone uses the equity method in its internal records to account for its investment in Rockne. Rockne reports net income of $330,000 in 2018. Since being acquired, Rockne has regularly supplied inventory to Doone at 25 percent more than cost. Sales to Doone amounted to $390,000 in 2017 and $490,000 in 2018. Approximately 35 percent of the inventory purchased during any one year is not used until the following year.

1. What is the noncontrolling interest's share of Rockne's 2018 income?
2. Prepare Doone's 2018 consolidation entries required by the intra-entity inventory transfers.

On January 1, 2017, Doone Corporation acquired 60 percent of the outstanding voting stock of Rockne Company for $600,000 consideration. At the acquisition date, the fair value of the 40 percent noncontrolling interest was $400,000 and Rockne's assets and liabilities had a collective net fair value of $1,000,000. Doone uses the equity method in its internal records to account for its investment in Rockne. Rockne reports net income of $390,000 in 2018. Since being acquired, Rockne has regularly supplied inventory to Doone at 25 percent more than cost. Sales to Doone amounted to $450,000 in 2017 and $550,000 in 2018. Approximately 35 percent of the inventory purchased during any one year is not used until the following year.

1. What is the noncontrolling interest's share of Rockne's 2018 income?
2. Prepare Doone's 2018 consolidation entries required by the intra-entity inventory transfers.

Make the following journal entries in good form.

1. On January 1, 2020, Entity A sold common stock for $30,000 to investors.

2. On January 3, 2020, Entity A performed services for Entity B for $1,500 on account.

3. On January 5, 2020, Entity A performed services for Entity C for $750 and Entity C paid.

4. On January 7, 2020, Entity A purchased a new computer (office equipment) from Best Buy for $500, paying $100 down, the rest on account.

5. On January 20, Entity B paid Entity A in full (see item 2).

6. On January 30, Entity A paid Best Buy for the computer (see item 4).

7. On January 31, Entity A received its utility bill for $150 and paid it.

1. What is the nominal GDP in 2019?

2. What is the nominal GDP in 2020?

3. Assuming 2019 is the base year, calculate the price index for 2020. ROUNDING UP TO TWO DECIMAL POINTS. For Example, 2.136986 is rounded up to 2.14.

4. What is the real GDP in 2020?

5. What is the real rate of growth of GDP from 2019 to 2020?

6.  Assuming the marginal propensity to consume (MPC) is 0.60 and the equilibrium GDP (Ye) is $5,000, calculate government multiplier. following:

In 2020 the United States will use some $10 trillion of manufactured goods as measured by the price level as it will be in 2020—producing $9 trillion and paying for the extra $1 trillion by exporting services. Let’s use that as our unit of the quantity of manufactures—$1 worth at 2020 prices is equal to one unit of manufactured goods. And let’s set our index of the price of manufactured goods in 2000 equal to 1.

Suppose the supply curve for manufactured goods has constant-returns-to-scale, with no producer having (much of) an opportunity cost advantage over any other.

Suppose the demand curve for manufactured goods is a straight line linear function such that an increase in the price from its 2000 value of 1 to a value of 2 would lead to a reduction in the quantity demanded by $1 trillion.

What will be the equilibrium price of manufactures in 2020?