On the last day of the fiscal year, a co-worker asks you to cut a check for $2,000 as a miscellaneous expense for supplies in order to complete a project for a VIP customer today. You notice the invoice looks a little different from other invoices that are usually processed. You know that by preparing the closing entries tomorrow, the miscellaneous expense will be set to zero for the beginning of the year. Should you write this check today and record the expense or write the check tomorrow? How would the company be affected if the check is written and the invoice ends up being erroneous?

Dollar Return on Foreign Investments -

(A) Over the past year, the dollar has depreciated by about 10 percent against the euro. A year ago you took out a home equity loan in the U.S. at an interest rate of 8 percent and you invested the money in a German mutual fund that paid a 5 percent euro return. What net return did you earn on all of these transactions over the year? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM).

(B) Over the past year, the dollar has appreciated by about 8 percent against the peso. A year ago you borrowed in the U.S. at an interest rate of 4 percent and you invested the money in a Mexican mutual fund that paid a 12 percent peso return. What net return did you earn on all of these transactions over the year? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM).

A stock expects to pay a dividend of $3.72 per share next year. The dividend is expected to grow at 25 percent per year for three years followed by a constant dividend growth rate of 4 percent per year in perpetuity. What is the expected stock price per share 5 years from today, if the required return is 12 percent?

A property is forecasted to generate annual rental income of $110,000 in year Vacancy rate is expected to be 5%, there is also a 5% management fee. Other operating expenses will total $19,000 for year 1. Rent is expected to grow at 8% in years 2 and 3, and other operating expenses are expected to grow at 5% in years 2 and 3. You believe that you can sell the property at the end of year 3 for $1,220,000. Using a required rate of return of 9%, calculate a fair value of the property today (at t=0).

o The initial capital cost will be $500,000 paid at the beginning of year 1 (i.e., immediately). The impact on cottage owners will involve a loss of $50,000 at the end of each year for the first four years (because of the construction activities affecting property values) but cottage owners will benefit by $55,000 per year in perpetuity from the end of year 5 onwards. The benefits from recreational fishing will not start until the end of year 5 and will be $35,000 per year in perpetuity. Development, stocking and management costs of the recreational fishery will start at the beginning of year 3 and continue forever. These costs are $10,000 per year

0. The province is considering a water resource development that will enhance recreational fishing and recreational cottage values (property values).

   1. a) Calculate the net present value using a 5% discount rate. Interpret the result. (15 points)

   2. b) Calculate the gross benefit cost ratio using a discount rate of 5%. Interpret the result. (5 points)

   3. c) Which value best approximates the internal rate of return: 4 %, 5%, 6%, 7%, 8%, or 9%? (Note – you are not being asked to calculate the internal rate of return!) (5 points)

Riley, Incorporated reports the following amounts at the end of the year:

In addition, the company had common stock of $74,000 at the beginning of the year and issued an additional $7,800 during the year. The company also had retained earnings of $27,300 at the beginning of the year and paid dividends of $1,700 during the year. Prepare the income statement, statement of stockholders' equity, and balance sheet.

Ward Corp. is expected to have an EBIT of $2,750,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $182,000, $119,000, and $132,000, respectively. All are expected to grow at 19 percent per year for four years. The company currently has $21,500,000 in debt and 820,000 shares outstanding. At Year 5, you believe that the company's sales will be $17,600,000 and the appropriate price–sales ratio is 2.8. The company’s WACC is 9.3 percent and the tax rate is 35 percent. What is the price per share of the company's stock?

Dollar Return on Foreign Investments -

(A) Over the past year, the dollar has depreciated by about 10 percent against the euro. A year ago you took out a home equity loan in the U.S. at an interest rate of 8 percent and you invested the money in a German mutual fund that paid a 5 percent euro return. What net return did you earn on all of these transactions over the year? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM).

(B) You can borrow or invest in the U.S. at an annual rate of 6 percent. Suppose you logon to your favorite financial website and see that you could borrow or invest in Japan at a 5 percent annual rate. The current exchange rate between the dollar and the yen is $0.01/yen. You can use the futures market to lock it in at an exchange rate for one year from now at $0.0095/yen. Is there a profit opportunity here? Prove it by borrowing (either $1 million or $100 yen) in one country and investing in the other? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM).

Inflation and Exchange Rates -

(C) Suppose gold sells for $1,000 per ounce in the U.S. and it sells for 1,000 Canadian dollars per ounce in Canada. Suppose further, the exchange rate is $1 per Canadian dollar. If U.S. inflation is 6 percent next year, Canadian inflation is 2 percent, and exchange rates do not change, how could you make an arbitrage profit in the gold market? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM).

(D) Suppose U.S. interest rates on a risk-free, one-year bond are 4 percent and European interest rates on a risk-free, one-year bond are 6 percent. Suppose further than inflation is 2 percent in the U.S. and 4 percent in Europe. Assume it takes one year for the exchange rate to adjust to inflation differences. What is the predicted change in the $/euro exchange rate for the next year? Given that, what would the dollar return on a European bond be for this year? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM).

Dollar Return on Foreign Investments -

(A) Over the past year, the dollar has appreciated by about 8 percent against the peso. A year ago you borrowed in the U.S. at an interest rate of 4 percent and you invested the money in a Mexican mutual fund that paid a 12 percent peso return. What net return did you earn on all of these transactions over the year? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM).

(B) Explain the following statement: If inflation differences are the only reason that interest rates are higher in one country than another, it is highly unlikely that arbitrage profits will exist in these countries' financial markets. (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM).

Inflation and Exchange Rates -

(C) Suppose oranges sell for $2 per dozen in the U.S. and they sell for 200 pesos per dozen in Mexico. Suppose further the exchange rate is $0.01 per peso. If U.S. inflation is 2 percent next year, Mexican inflation is 12 percent, and exchange rates do not change, how could you make an arbitrage profit in the orange market? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM).

(D) Suppose U.S. interest rates on a risk-free, one-year bond are 3 percent and Mexican interest rates on a risk-free, one-year bond are 12 percent. Suppose further that inflation is 2 percent in the U.S. and 7 percent in Mexico. Assume it takes one year for the exchange rate to adjust to inflation differences. What is the predicted change in the $/peso exchange rate for the next year? Given that, what would the dollar return on a Mexican bond be for this year? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM).

At December 31 of the current year, Vulcan Company had a balance of $728,000 in its Accounts Receivable account and a credit balance of $6,000 in the Allowance for Doubtful Accounts. The company has aged its accounts as follows:

In the past, the company has experienced losses as follows: 1% of current balances, 5% of balances 0-60 days past due, 15% of balances 61-180 days past due, and 30% of balances over 180 days past due. The company bases its bad debts expense on the aging analysis.

Required:

1. Prepare the adjusting journal entry to record the bad debts expense for the year.
2. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear in the December 31 balance sheet.
3. On January 15 of the subsequent year, Vulcan Company wrote off the account of Moon, $1,385. Give the entry for the write-off.
4. On February 20 of the subsequent year, Vulcan Company collected the $1,385 on the Moon account written off on January 15. Give the entry or entries for the recovery.