In: Economics
Question 2
Mark Limited is an investment company that purchases buildings and
holds them for a, number
of purposes, such as resale, leasing and its own use.
On 1 January 2019, Mark Limited purchased an old building, Mark
Towers, for N$300 000.
Conveyancer’s fees amounted to N$20 000
• This building is situated in an isolated part of Durban (South
Africa) and there is no
development anywhere nearby. At the time of purchase, there had
been no property
transactions in this area for many years and the possibility of
leasing the building to tenants
was remote.
• During November 2019, development began of a new industrial park
in the area. As a
result, the building was able to be leased to tenants involved in
the development of the
industrial park. Due to the influx of people of people into the
area, the directors decided to
paint one side of the buildings with the corporate logo of Mark
Limited.
• This building has never had an air-conditioning system. After
numerous complaints from
tenants about not being able to tolerate the Durban heat, Mark
Limited decided to upgrade
the building by installing a ducted air-conditioning system on 1
December 2019.
The cost of installation included the following:
- Adjustments to the structure of the building 30 000
- Painting 50 000
- Air-conditioning system 200 000
- Installation costs 50 000
The ducted air-conditioning system has a 10 year life and a nil
residual value
• As a result of the new industrial park, there was suddenly a
demand for properties in the
area. As a result, the fair value of Mark Towers was able to be
determined on 31 December
2019 at N$420 000. Mark Limited would like to measure this
investment property at fair
value now that fair values have become available.
• The building has a 10 year useful life and an estimated residual
value of N$50 000
Mark Limited also holds other investment property, which is
measured under the fair value model.
The fair value of this other investment property is as
follows:
• 1 January 2019 N$ 1 000 000
• 31 December 2019 N$ 1 250 000
In: Accounting
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In: Accounting
Please answer the following questions:
Q5 Material purchases on account would most likely be included in which budget?
a. Direct labor budget
b. Selling and administrative budget
c. Cash budget
d. None of the above
Q6 Out of the Park socks produce socks for sports fans. The socks come in two sizes: Medium and Large. Out of the Park anticipates the following sales volumes and prices for the coming period:
|
Size |
Sales Volume |
Selling Price |
|
Medium |
8,000 socks |
$4.00 each |
|
Large |
10,000 socks |
$5.00 each |
What is the budgeted level of revenue for the coming period?
a. $50,000
b. $72,000
c. $82,000
d. $90,000
Q7 Out of the Park is projecting the following sales for January and February. Their policy is to maintain ending inventories at 5% of what is expected for the next month.
|
Expected Sales |
||
|
Style |
January |
February |
|
Medium |
1,000 units |
1,800 units |
|
Large |
1,200 units |
2,000 units |
What is the budgeted level of production for both styles for January?
a. Medium: 1,040; Large: 1,240
b. Medium: 2,040; Large: 1,310
c. Medium: 2,240; Large: 1,440
d. None of the above
Q8 Olu’s African Sculptures is preparing their budgeted financial statements for the coming year, and has accumulated the following data:
|
Beginning-of-period balances: |
|
|
Cash: |
$65,000 |
|
Accounts Receivable: |
$40,000 |
|
Raw Materials Inventory: |
$30,000 |
|
Work in Process Inventory: |
$150,000 |
|
Finished Goods Inventory: |
$30,000 |
|
Equipment (historical value): |
$275,000 |
|
Accumulated Depreciation: |
$125,000 |
|
Accounts Payable: |
$45,000 |
|
Estimates for end-of-period balances: |
|
|
Accounts Receivable: |
$20,000 |
|
Raw Materials Inventory: |
$12,500 |
|
Work in Process Inventory: |
$90,000 |
|
Finished Goods Inventory: |
$8,000 |
|
Accumulated Depreciation: |
$115,000 |
|
Accounts Payable: |
$27,000 |
|
Budgeted activity levels for the period: |
|
|
Sales (# units at a sales price of $205/unit): |
20,000 units |
|
Purchases of Direct Materials: |
$290,000 |
|
Direct Labor Wages: |
$170,000 |
|
Manufacturing Overhead: |
$210,000 |
|
Selling and Administrative Expenses: |
$775,000 |
What is the budgeted cash received from customers?
a. $4,100,000
b. $4,120,000
c. $4,220,000
d. $4,320,000
In: Accounting
Here is the information that William has accumulated so far:
The Capital Budgeting Projects
He must choose one of the four capital budgeting projects listed below:
Table 1
|
t |
A |
B |
C |
D |
|
0 |
(19,000,000) |
(20,000,000) |
(18,900,000) |
(19,500,000) |
|
1 |
5,200,000 |
5,700,000 |
6,080,000 |
6,600,000 |
|
2 |
8,300,000 |
8,000,000 |
6,080,000 |
8,100,000 |
|
3 |
6,100,000 |
6,300,000 |
6,080,000 |
6,100,000 |
|
4 |
6,100,000 |
4,400,000 |
6,080,000 |
6,100,000 |
|
Risk |
High |
Average |
Low |
Average |
Table 1 shows the expected after-tax operating cash flows for each project. All projects are expected to have a 4 year life. The projects differ in size (the cost of the initial investment), and their cash flow patterns are different. They also differ in risk as indicated in the above table.
The capital budget is $22 million and the projects are mutually exclusive.
Capital Structures
Grand Island Hotel has the following capital structure, which is considered to be optimal:
|
Debt |
45% |
|
Preferred Equity |
5% |
|
Common Equity |
50% |
|
100% |
Cost of Capital
William knows that in order to evaluate the projects he will have to determine the cost of capital for each of them. He has been given the following data, which he believes will be relevant to his task.
(1)The firm’s tax rate is 38%.
(2) Grand Island Hotel has issued a 9% semi-annual coupon bond with 15 years term to maturity. The current trading price is $960.
(3) The firm has issued some preferred stock which pays an annual 8.5% dividend of $100 par value, and the current market price is $98.
(4) The firm’s stock is currently selling for $88 per share. Its last dividend (D0) was $4.5, and dividends are expected to grow at a constant rate of 7.5%. The current risk free return offered by Treasury security is 2.5%, and the market portfolio’s return is 8%. Grand Island Hotel has a beta of 2.1. For the bond-yield-plus-risk-premium approach, the firm uses a risk premium of 3.9%.
(5) The firm adjusts its project WACC for risk by adding 1.8% to the overall WACC for high-risk projects and subtracting 2% for low-risk projects.
William knows that Grand Island Hotel executives have favored IRR in the past for making their capital budgeting decisions. His professor at Seattle U. said NPV was better than IRR. His textbook says that MIRR is also better than IRR. He is the new kid on the block and must be prepared to defend his recommendations.
First, however, William must finish the analysis and write his report. To help begin, he has formulated the following questions:
(1) What is the estimated cost of common equity using the CAPM approach?
(2) What is the estimated cost of common equity using the DCF approach?
(3) What is the estimated cost of common equity using the bond-yield-plus-risk-premium approach?
(4) What is the final estimate for rs?
Table 2
|
A |
B |
C |
D |
|
|
WACC |
||||
|
NPV |
||||
|
IRR |
||||
|
MIRR |
In: Finance
Write a function that takes a list of integers as input and returns a list with only the even numbers in descending order (Largest to smallest)
Example: Input list: [1,6,3,8,2,5] List returned: [8, 6, 2]
Do not use any special or built in functions like append, reverse etc.
In: Computer Science
In a one-period binomial model with h= 1, the current price of a non-dividend paying stock is 50, u= 1.2, d= 0.8, and the continuous interest rate is 2%. Consider a call option on the stock with strike K= 50. What position in the stock (i.e. long or short and how many) is there in a replicating portfolio of this call option?
In: Finance
A $5,000 bond with a coupon rate of 6.4% paid semi-annually has four years to maturity and a yield to maturity of 6.2%. If interest rates fall and the yield to maturity decreases by 0.8%, what will happen to the price of the bond?
| a. |
Fall by $40.49. |
|
| b. |
Rise by $142.78. |
|
| c. |
Rise by $84.46. |
|
| d. |
Fall by $98.64. |
|
| e. |
None of the answers are correct. |
In: Finance
Suppose in a closed economy, the government lowers taxes by 100 billion. If the marginal propensity to consume is 0.8 and the government purchases remain unchanged, what happens to the following? That is, do they rise or fall? By how much?
a. Public saving.
b. Disposable income.
c. Household consumption.
d. Private saving.
e. National saving.
f. Investment.
In: Economics
An anthracite coal has the following composition: C = 84.7 N = 1.5 A= 5.8 H = 2.9 S =0.8 W = 2.7 O = 1.6 Calculate for complete combustion per pound of coal: a)Theoretical weight of oxygen required, b) Actual air needed if 35 % in excess, can you use more or less oxygen
In: Mechanical Engineering