Consider the following stock information (price and number of shares outstanding):

1. Based on the information given, for a price-weighted index of the three stocks calculate:

1.1. the rate of return for the first period (t=0 to t=1). Interpret your answer.

1.2. the value of the divisor in the second period (t=1 to t=2). Assume that Stock G had a 4-1 split and stock Q has a 5-1 split, both during this period just before the market opens in t=2. Interpret your answer.

1.3. the rate of return for the second period (t=1 to t=2). Interpret your answer.

2. Based on the information given for the three stocks, calculate the first-period rates of return (from t=0 to t=1) on

2.1. a market-value-weighted index. Interpret your answer.

2.2. an equally-weighted index. Explain any differences with 1.1. and 2.1.

A monopolist in the natural gas ma rket can produce at a constan t average (and marginal) cost of AC = MC = $5 . It faces a market demand curve given by Q = 53 ? P . a. Find the profit-maximizing price and quantity for this monopolist. What are its profits? b. Suppose a second firm enters the market. Let Q 1 be the output of the first firm and Q 2 be the output of the second. Ma rket demand is now given by Q 1 + Q 2 = 53 ? P . Assuming that this second firm has the same costs as the first, write th e profits of each firm as functions of Q 1 and Q 2 . c. Suppose (as in the Cournot model) that each firm chooses its pr ofit-maximizing level of natural gas output based on the assumption that its competitor’ s output is fixed. Find each firm’s “reaction curve” (i.e., the rule that gives its desired output in terms of its competitor’s output). d. Calculate the Cournot equilibri um (i.e., the values of Q1 and Q 2 for which each firm is doing as well as it can given its competitor’s output). What ar e the resulting market price and profits of each firm?

Alicia (first time home buyer) is looking to buy one bed-room condo, and she needs your advice on the maximum price she can afford to offer for her condo purchase when she buys one. She plans to use her savings to pay for the down payment at 20% of purchase amount, and she will get a mortgage for the remaining. The following info is available:

• Mortgage interest rate: 2.40% compounded semi-annually (25-year mortgage amortization with fixed rate for 5 years with same monthly mortgage payment)

• Alicia’s annual income is CAD 90,000. • Alicia qualifies for Gross Debt Ratio (GDS) of 35%, and with this GDS ratio she can afford CAD 2,250 for her monthly mortgage payment.

• Financial institutions use stress test rate of 4.94% to qualify for maximum mortgage loan one can borrow.

1. What maximum price Alicia can afford to offer for her condo purchase, assuming there is no stress test.

2. If Alicia buys a condo with her maximum amount calculated in 1, what would be the total interest for the first year?

3. Do you think stress test is helpful for Alicia? Explain.

If there are two companies making the same model of cellphones. Assuming the demand for the cellphones produced by Company 1 is D1, and the demand for the cellphones produced by Comp nay 2 is D2, are described by the following two functions:
D1=200-P1-(P1-P)
D2=170-P2-(P2-P)
where P is the average price over the prices of the two companies, i.e., P=[P1+P2]/2. Each company has the cost of C1=C2=10 for producing one cellphone. Suppose each company can only choose one of the three prices {40, 70, 90} for sale.

(1] Compute the profits of each company under all sale price combinations and make the payoff matrix for the two companies. [Hint: the total profits = the demand for the cellphones * the profit of one cellphone after sale. You can type the pay off table for each company as a matrix in the ansering box such that the first row and first column present strategies.]

(2] Find the Nash equilibrium of this game. What are the profits at this equilibrium? Explain your reason clearly.

(3) If the cost for Company 2 changed as C2=20, would the Nash equilibrium change? Why?

Key West Hospital is considering investing in a new CT scanner which has improved images and requires less use of contrast media for some scans.

The cost of the machine is $1.5 million and it will require $300,000 of renovation and installation cost.

The machine is capable of doing 1700 scans per year, but it is estimated that the first year demand will be about 1,300 scans.

The market suggest that volume will grow about 8% per year until capacity is reached.

Taking into consideration all payers, the average net revenue per scan is $900, but because of pressure in the market that rate will not change in the forseeable future.

It will take two technicians to run the machine (regardless of volume) at an average cost including benefits of $75,000 (for each tech) per year. Compensation is expected to inflate at 3% per year.

Supplies are expected to be about $300 per scan, with an annual inflation expectation of 2.0%.

The machine will have a full warranty for the first year, but will then require a maintenance contract for years 2-5. The price of the maintenance contract will be 2% of the purchase price, paid annually.

Expected life of item is 5 years, with a $25,000 salvage value

Corporate cost of capital 11.5%

Question: Calculate the NPV, IRR and MIRR for a 5 year projection

Bearcreek Mines paid $433,000 for the right to extract ore from a 450,000-ton mineral deposit. In addition to the purchase price, Bearcreek Mines paid a $155 filing fee to the county recorder, a $2,800 license fee to the state of Utah, and $95,045 for a geologic survey. Because the company purchased the rights to the minerals only, it expects this mineral rights asset to have a residual value of zero when it is fully depleted. During the first year of production, Bearcreek Mines removed 75,000 tons of ore, of which it sold 72,000 tons. Make journal entries to record

(a) Purchase of the mineral rights,

(b) Payment of fees and other costs,

(c) Depletion for first-year production,

(d) Cost of the ore sold. Round depletion per unit to the closest cent.

ou plan to purchase a $170,000 house using a 30-year mortgage obtained from your local credit union. The mortgage rate offered to you is 6.25 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate your monthly payments on this mortgage. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) Monthly payment $ b. Construct the amortization schedule for the first six payments. (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16)) Amortization Schedule for first 6 payments (months) Month Beginning Loan Balance Payment Interest Principal Ending Loan Balance 1 $ $ $ $ $ 2 3 4 5 6

Exercise 4-2

On January 1, 2012, Fromer issued $3,000,000 of 12-year, 7 percent bonds. Interest is paid semi-annually on June 30 and December 31. The issue price was $2,592,000.
1.   Prepare the January 1, 2012, journal entry that records the bond issue.

2.   Compute the following for each semi-annual period:
a.   Cash payment.
b.   Straight-line discount amortization.
c.   Interest expense.

3.   Determine the total interest expense recognized over the life of the bonds.

4.   Prepare the first two years of an amortization table (use the straight-line method).

[Create your amortization table here.]

5.   For distinguished performance, prepare journal entries for the first two interest payments.

The five bidders in the Dutch auction through a black-box tender within four business days were A (who tendered for 25,000 shares at $90 each on 6 May 2019), B (who tendered for 45,000 shares at $92 each on 7 May 2019), C (who tendered for 20,000 shares at $89 each on 9 May 2019), D (who tendered for 40,000 shares at $89 each on 9 May 2019), and E (who tendered for 30,000 shares at $89 each on 8 May 2019). The number of shares being auctioned was 130,000.

1. What was the price paid by bidders on 10 May 2019?
2. How many shares did each bidder receive on 10 May 2019, in a first come first served basis and next in a fair manner?

TR issues 6.9%, 5-year bonds with a total face amount of $1,000,000. The market interest rate for bonds of similar risk and maturity is 6.8%. Interest is paid semi-annually. DO NOT ROUND YOUR ANSWERS UNTIL YOU FULLY COMPLETE THE PROBLEM SET (input your answers after you’ve completed the entire problem).

4.    $___________ (rounded to nearest dollar). What is the issue price of the bond?      

5.    $___________ (rounded to nearest dollar). When the company records the first interest payment, how much will the company record for interest expense?                                                                                                                                                                                                                                                                               

6.    $___________ (rounded to nearest dollar). What is the bond liability (carrying amount) after the first interest payment?                                                                                                                                                                          

7.            $___________ (rounded to nearest dollar). When the company records the second interest payment, how much will the company record for interest expense?