1. A statistics professor classifies his students according to their grade point average (GPA) and their class rank. GPA is on a 0.0 – 4.0 scale, and class rank is defined as the lower class (year 1 and year 2) and the upper class (year 3 and year 4). One student is selected at random.
| GPA | ||||
| Under 20 | 2.0 -3.0 | over 3.0 | ||
| Lower Class (Year 1 and 2) | 0.05 | 0.20 | 0.10 | 0.35 |
| Upper Class (Year 3 and 4) | 0.10 | 0.35 | 0.20 | 0.65 |
| 0.15 | 0.55 | 0.30 | 1 | |
a. Given that the student selected is in the upper class (year 3 and 4), what is the probability that her GPA over 3.0?
b. What is the probability that the student is in the upper class (year 3 and 4) or having a GPA over 3.0?
c. Are being in the upper class (year 3 and 4) and having a GPA over 3.0 independent? Prove statistically.
d. Are being in the upper class (year 3 and 4) and having a GPA over 3.0 mutually exclusive? Prove statistically.
In: Statistics and Probability
Exercise 1-2 Accrual accounting [LO1-2]
Listed below are several transactions that took place during the
second and third years of operations for RPG Company.
| Year 2 | Year 3 | |||||
| Amounts billed to customers for services rendered | $ | 450,000 | $ | 550,000 | ||
| Cash collected from credit customers | 360,000 | 500,000 | ||||
| Cash disbursements: | ||||||
| Payment of rent | 90,000 | 0 | ||||
| Salaries paid to employees for services rendered during the year | 150,000 | 170,000 | ||||
| Travel and entertainment | 40,000 | 50,000 | ||||
| Advertising | 20,000 | 45,000 | ||||
In addition, you learn that the company incurred advertising costs
of $35,000 in year 2, owed the advertising agency $6,000 at the end
of year 1, and there were no liabilities at the end of year 3.
Also, there were no anticipated bad debts on receivables, and the
rent payment was for a two-year period, year 2 and year 3.
Required:
1. Calculate accrual net income for both
years.
2. Determine the amount due the advertising agency
that would be shown as a liability on RPG’s balance sheet at the
end of year 2.
In: Accounting
Down Under Boomerang, Inc., is considering a new three-year
expansion project that requires an initial fixed asset investment
of $2.61 million. The fixed asset will be depreciated straight-line
to zero over its three-year tax life, after which time it will be
worthless. The project is estimated to generate $2,050,000 in
annual sales, with costs of $745,000. The project requires an
initial investment in net working capital of $270,000, and the
fixed asset will have a market value of $275,000 at the end of the
project. If the tax rate is 30 percent, what is the project’s Year
0 net cash flow? Year 1? Year 2? Year 3? (Do not round
intermediate calculations. Enter your answers in dollars, not
millions of dollars, e.g., 1,234,567. A negative answer should be
indicated by a minus sign.)
| Cash Flow | |
| Year 0 | $ |
| Year 1 | $ |
| Year 2 | $ |
| Year 3 | $ |
If the required return is 15 percent, what is the project's NPV?
(Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)
NPV $
In: Finance
The White Flour company is considering expanding its operations into computer-based basketball games. The managers feel that there is a 3-year life associated with the project, and it will initially involve an investment of $100,000. It also believes that there is a 60% chance of success and a cash flow of $100,000 in year 1 and a 40% chance of failure and a $10,000 cash flow in year 1. If the project fails in year 1, there is a 60% chance that it will produce cash flows of only $10,000 in years 2 and 3. There is also a 40% chance that it will really fail and Sega will earn nothing in year 2 and get out of this line of business, with the project terminating and no cash flow occurring in year 3. If conversely, this project succeeds in the first year, then cash flows in the second year are expected to be $200,000, $175,000, or $150,000 with probabilities of 30%, 50%, and 20%, respectively. Finally, the cash flows in the third and final year of operation are expected to be either $30,000 more or $20,000 less than they were in year 2, with an equal chance of occurrence.
a. Construct a probability tree representing the possible outcomes.
b. Determine the joint probability of each possible sequence of events.
In: Finance
7A) Quad Enterprises is considering a new three-year expansion
project that requires an initial fixed asset investment of $2.9
million. The fixed asset will be depreciated straight-line to zero
over its three-year tax life, after which time it will be
worthless. The project is estimated to generate $2,190,000 in
annual sales, with costs of $815,000. If the tax rate is 35
percent, what is the OCF for this project? Suppose the required
return on the project is 12 percent. What is the project's
NPV?
7B. In the previous problem, suppose the project requires an
initial investment in net working capital of $300,000, and the
fixed asset will have a market value of $210,000 at the end of the
project. What is the project's Year 0 net cash flow? Year 1? Year
2? Year 3? What is the new NPV?
7C. Suppose the fixed asset actually falls into the three-year
MACRS class. All the other facts are the same. What is the
project's Year 1 net cash flow now? Year 2? Year 3? What is the new
NPV?
Please answer with Excel formulas included.
In: Finance
1.You have been following a stock for 4 months and the following is its past return
Year 1: 5%
Year 2: 16%
Year 3: -1%
Year 4: -2%
What is the expected return based on historical data?
2.You have been following a stock for 3 months and the following is its past return
Year 1: 7%
Year 2: 14%
Year 3: 7%
What is the standard deviation of the stock based on the historical data?
3.Your investment has a 30% chance of earning a 9% rate of return, a 40% chance of earning a 21% rate of return and a 30% chance of earning -3%. What is the standard deviation on this investment?
4.You calculated that the average return of your portfolio is 7% and the standard deviation is 23%, what is the value at risk (VaR) at 5% for your portfolio?
5.The returns of a mutual fund manager for the past 3 years are the following:
Year 1: 7%
Year 2: 11%
Year 3: -2%
What is the geometric average return of the fund for the past three years?
In: Finance
|
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.73 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,090,000 in annual sales, with costs of $785,000. The project requires an initial investment in net working capital of $310,000, and the fixed asset will have a market value of $215,000 at the end of the project. If the tax rate is 30 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations. Enter your answers in dollars, not millions of dollars, e.g. 1,234,567. Negative amounts should be indicated by a minus sign.) |
| Years | Cash Flow |
| Year 0 | $ -3040000 |
| Year 1 | $ 1186500 |
| Year 2 | $ 1186500 |
| Year 3 | $ ? |
|
If the required return is 13 percent, what is the project's NPV? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) |
| NPV | $ ? |
In: Finance
|
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.73 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,090,000 in annual sales, with costs of $785,000. The project requires an initial investment in net working capital of $310,000, and the fixed asset will have a market value of $215,000 at the end of the project. If the tax rate is 30 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations. Enter your answers in dollars, not millions of dollars, e.g. 1,234,567. Negative amounts should be indicated by a minus sign.) |
| Years | Cash Flow |
| Year 0 | $ -3040000 |
| Year 1 | $ 1186500 |
| Year 2 | $ 1186500 |
| Year 3 | $ ? |
|
If the required return is 13 percent, what is the project's NPV? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) |
| NPV | $ ? |
In: Finance
|
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.32 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1.735 million in annual sales, with costs of $650,000. The project requires an initial investment in net working capital of $250,000, and the fixed asset will have a market value of $180,000 at the end of the project. The tax rate is 21 percent. |
| a. | What is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations. Enter your answers in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.) |
| b. |
If the required return is 12 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Year 0: _____ Year 1: _____ Year 2: _____ Year 3: _____ NPV: ______ |
In: Finance
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.31 million. The fixed asset will be depreciated straight- line to zero over its three-year tax life. The project is estimated to generate $1,725,000 in annual sales, with costs of $635,000. The project requires an initial investment in net working capital of $280,000, and the fixed asset will have a market value of $225,000 at the end of the project.
a. If the tax rate is 23 percent, what is the project's Year O net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.)
b. If the required return is 11 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
a. Year 0 cash flow =
Year 1 cash flow =
Year 2 cash flow =
Year 3 cash flow =
b. NPV =
In: Finance