ABC Company has 2 mutually exclusive investment options. Information on the two options is reported below:

Option A Option B

Initial Investment $150,000 $350,000

Year 1 return $45,000 $100,000

Year 2 return $55,000 $110,000

Year 3 return $60,000 $125,000

Year 4 return $70,000 $110,000

Year 5 return $55,000 $75,000

Year 6 return $60,000

Year 7 return $45,000

Calculate the IRR, NPV (assume a 5% discount rate for NPV calculation), Profitability Index and Payback period for both investments and then determine which one you would choose and explain why.

a. Assuming that the expectations hypothesis is valid, compute the expected price of the four-year zero coupon bond shown below at the end of (i) the first year; (ii) the second year; (iii) the third year; (iv) the fourth year. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Beginning of Year Price of Bond

1. 950.90

2. 899.97

3. 877.62

4. 785.26

b. What is the rate of return of the bond in years 1, 2, 3, and 4? Conclude that the expected return equals the forward rate for each year. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Dividends Per Share Seventy-Two Inc., a developer of radiology equipment, has stock outstanding as follows: 70,000 shares of cumulative preferred 3% stock, $20 par and 400,000 shares of $25 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $33,000; second year, $73,000; third year, $90,000; fourth year, $100,000. Determine the dividends per share on each class of stock for each of the four years. Round all answers to two decimal places. If no dividends are paid in a given year, enter "0.00".

for 1st year - 4th year on preferred stock and common stock

A machine costing $212,200 with a four-year life and an estimated $19,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 483,000 units of product during its life. It actually produces the following units: 122,500 in 1st year, 124,200 in 2nd year, 120,100 in 3rd year, 126,200 in 4th year. The total number of units produced by the end of year 4 exceeds the original estimate—this difference was not predicted. (The machine must not be depreciated below its estimated salvage value.)

  
Required:

Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method.

ABC Company has 2 mutually exclusive investment options. Information on the two options is reported below:

Option A Option B

Initial Investment $150,000 $350,000

Year 1 return $45,000 $100,000

Year 2 return $55,000 $110,000

Year 3 return $60,000 $125,000

Year 4 return $70,000 $110,000

Year 5 return $55,000 $75,000

Year 6 return $60,000

Year 7 return $45,000

Calculate the IRR, NPV (assume a 5% discount rate for NPV calculation), Profitability Index and Payback period for both investments and then determine which one you would choose and explain why.

Alpaca Corporation had revenues of $275,000 in its first year of operations. The company has not collected on $19,400 of its sales and still owes $27,500 on $98,500 of merchandise it purchased. The company had no inventory on hand at the end of the year. The company paid $13,200 in salaries. Owners invested $16,500 in the business and $16,500 was borrowed on a five-year note. The company paid $4,200 in interest that was the amount owed for the year, and paid $8,200 for a two-year insurance policy on the first day of business. Alpaca has an effective income tax rate of 40%. (Assume taxes are paid in the same year).

Compute the cash balance at the end of the first year for Alpaca Corporation.

Gadgets&Co sells refrigerators. Any refrigerator that malfunctions within 3 years
of purchase is replaced with a new one for free. Of all refrigerators, 3% fail during
their first year of operation; 5% of the one-year-old refrigerators fail within their
second year of operation, and 7% of the two-year-old refrigerators fail within their
3
rd year of operation.
a) Estimate analytically the fraction of all refrigerators that will have to be
replaced under the 3-year warranty scheme.
b) Construct and execute a simulation model (with 120 pseudo-realities) to
estimate the fraction of all refrigerators that will have to be replaced under
the 3-year warranty scheme. Explain and motivate your approach.

a. Assuming that the expectations hypothesis is valid, compute the price of the four-year bond shown below at the end of (i) the first year; (ii) the second year; (iii) the third year; (iv) the fourth year. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. What is the rate of return of the bond in years 1, 2, 3, and 4? Conclude that the expected return equals the forward rate for each year. (Do not round intermediate calculations. Round your answers to 2 decimal places.) in percentages

The date today is July 31st, 2019. Mary has $5000 and wants to invest for 3 years.

Option 1: Invest in a four-year security maturing on July 1st, 2023 has an interest rate of 8% per year

Option 2: Invest in a three year security maturing on July 31, 2022 has an interest rate of 6%, then on July 31, 2022, invest another two-year security maturing on July 31, 2023.

Based on the unbiased expectations theory, what should be the return of the one-year security beginning July 31, 2022 (at the end of the three year security) and maturing on July 2023 (at the start of the two-year security)?