Q.1. A ) ALEX’s BAXTER Corporation (ABC) is in its first year of operations. Using the information below, prepare a year-end income statement and balance sheet for the business (Remember to increase/reduce equity by the amount of income/loss).

1. Through 2020, ABC purchased 5,000 bandanas at an average cost of $2 per bandana. ALEX marked-up her bandanas to 2.5 times purchase price and sold all items in the same year. On December 31st, Alex had $5,950 cash in her corporate bank account and no remaining inventory, so she ordered 2,000 bandanas at a cost of $2.10 each (they were delivered to her the same day and she paid cash).

2. Alex is paid a monthly salary of $1,000 from ABC. Also, she rents a sales booth on weekends, so she can sell bandanas in person (in addition to online). The booth costs her $500 per month.

3. At the start of the year, Alex invested $5,000 into her business (100 common shares). She also obtained a bank loan of $5,000 (ABC has only paid an annual interest of 5%). Other than the bank loan and a $4,200 accounts payable balance, ABC holds no debts.

4. At the start of the year, Alex purchased furniture for $3,000 (expected life of 15 years with no salvage value) and sewing equipment for $2,000 (expected life of 10 years with no salvage value). Both assets are depreciated using the straight-line method.

B.

b) In 2021, Alex plans to double her salary and spend $2,500 on marketing. She projects her cost to rise to $2.25 per bandana, but she expects to sell twice as many units as last year, at a price of $6 apiece. Assuming the other expenses remain constant, what does ABC’s second year look like? Write a short essay on what Alex should expect and give her appropriate business advice (You may use the projections below as part of your analysis).

During the last few years, Jana Industries has been too constrained by the high cost
of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Jana’s cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task:

•                   ●  The firm’s tax rate is 25%. 


●  The current price of Jana’s 12% coupon, semiannual payment, noncallable bonds with 
15 years remaining to maturity is $1,153.72. There are 70,000 bonds. Jana does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost.

●  The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual pre- 
ferred stock is $116.95. There are 200,000 outstanding shares. Jana would incur flota- 
tion costs equal to 5% of the proceeds on a new issue. 


●  Jana’s common stock is currently selling at $50 per share. There are 3 million outstanding 
common shares. Its last dividend (D0) was $3.12, and dividends are expected to grow at a constant rate of 5.8% in the foreseeable future. Jana’s beta is 1.2, the yield on T-bonds is 5.6%, and the market risk premium is estimated to be 6%. For the own-bond-yield-plus- judgmental-risk-premium approach, the firm uses a 3.2% risk premium. 
To help you structure the task, Leigh Jones has asked you to answer the following questions: 


2. Suppose the firm has historically earned 15% on equity (ROE) and has paid out 62% of earnings, and suppose investors expect similar values to obtain in the future. How could you use this information to estimate the future dividend growth rate, and what growth rate would you get? Is this consistent with the 5.8% growth rate given earlier?

Subject : Corporate Finance

One question with part questions. solutions must delineate how you reach the final answer.

Q1.

Vacant land has been zoned for either a condominium (10,000 sqft) or a single-family home (6,000 sqft). The construction cost of the condominium is $100 per sqft while that of the family home is $120 per sqft. There are two possible market states next year which determine the sales prices of the condominium and the family homes as follows:

? Good state: the condominium and the family home are sold at $230 per sqft and $300 per sqft, respectively.

? Bad state: the condominium and the family home are sold at $140 per sqft and $200 per sqft, respectively.

The current price of a comparable condominium is $180 per sqft and that of a com- parable family home is $225 per sqft. First-year rental rates (paid at the end of the year) on the comparable condos and homes are 20% and 10% of the current sales prices, respectively. Answer the following questions.

Respond to (a) through (g).

1. (a) Calculate the cash flows that a condominium and a family firm generates (i.e., the sum of the sales price and the rental revenue) in each state next year, respectively.

2. (b) What is the implied risk-free rate? (Hint: Construct a mimicking portfolio of a risk free asset using the cash flows from a condominium and a family home.)

3. (c) Suppose that you can build a condominium or a family home immediately. What is the value of the lot if you decide to build a condominium now?

4. (d) What is the value of the lot if you instead decide to build a family home now?

5. (e) Now suppose that you wait one year (i.e., until the realization of the states) before building a condominium or a family firm. Which building will you construct in each state?

6. (f) What is the value of the lot if you wait one year as above?

7. (g) Given all your answers (a)–(f), what is the best building alternative?

please help me with the part questions (a) thru (g)....need to prepare for the final next month so i need answers for practice questions for the final....

During the last few years, Jana Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Jana’s cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task:

The firm’s tax rate is 40%. The current price of Jana’s 12% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Jana does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $116.95. Jana would incur flotation costs equal to 5% of the proceeds on a new issue. Jana’s common stock is currently selling at $50 per share. Its last dividend D0 was $3.12, and dividends are expected to grow at a constant rate of 5.8% in the foreseeable future. Jana’s beta is 1.2, the yield on T-bonds is 5.6%, and the market risk premium is estimated to be 6%. For the own-bond-yield-plus-judgmental-risk-premium approach, the firm uses a 3.2% risk premium. Jana’s target capital structure is 30% long-term debt, 10% preferred stock, and 60% common equity.

Question 0:

(1) Jana estimates that if it issues new common stock, the flotation cost will be 15%. Jana incorporates the flotation costs into the dividend growth approach. What is the estimated cost of newly issued common stock, taking into account the flotation cost?

(2) Jana issues 30-year debt with a par value of $1,000 and a coupon rate of 10%, paid annually. If flotation costs are 2%, what is the after-tax cost of debt for the new bond issue?

Value of returns to the supplier on 08 May 2019. (2 marks) 1.1.2 Quantity, unit price and total value of closing inventory on 31 May 2019. (3 marks) 1.1.3 Total value of the issues to production during May 2019. (5 marks) (Note: A table may be prepared for the transactions but the answers to the questions stated above must appear after the table. Where applicable, round off the weighted average cost per unit to the nearest cent.) INFORMATION The following transactions of Edblow Limited, which uses the weighted average cost method of inventory valuation, took place during May 2019 in respect of a component used in a project: May 01 Inventory of component 180 units @ R20 per unit 05 Issued to production 160 units 06 Purchased from a supplier 480 units @R22 per unit 08 Returned 100 incorrectly supplied components to the supplier (see 06 May) ? 12 Issued to production 300 units 24 Purchased from supplier 100 units @ R25 per unit 31 Issued to production 80 units

c) Consider a city which is locate on a long (10 km.) thin island. It has a population density of 100 people per km. which is the same everywhere in the city. Each person drinks exactly 1 cup of coffee per day and are willing to pay $5 per cup. The average cost of selling coffee is simple: the minimum average cost is $2 per cup if it sells 200 cups per day and the average cost rises by 10 cents for every 10 cups more or less than this amount (i.e. one each side of the minimum, the AC curve is a straight line where, for example, the average cost of selling a cup of coffee would equal $3 if it sold 100 cups per day and the average cost would be $4 if it sold 400 cups per day.

            i) How many sellers would there be in this city, in equilibrium?

            ii) Where the sellers would locate in equilibrium? For a marginal consumer in that equilibrium, how much benefit do they enjoy, in dollar terms relative to the situation of having only one store in town and the price did not change from that in a)?

Question 3

A union can influence the demand for labor by:

requiring union fees.

raising union fees.

effective advertising that convinces customers to buy the "union label."

all of these.

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Question 4

The supply curve that monopsonists face is different from the supply curves that firms in competitive labor markets face because with a monopsony,

d and e.

the supply curve of labor is relatively flat.

offering a wage lower than the market wage means having no workers.

the employer faces the market supply curve.

the firm does not take the wage as given.

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Question 8

Marginal revenue product of labor measures the extra revenue generated to the firm from the employment of an additional worker.

True

False

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Question 11

Suppose there are 100 identical firms producing package delivery services. One of the firms finds that when it has to pay a wage rate of $7, it hires 20 delivery people. The firm charges an average price of $10 to deliver a package. From this information, we know that the package delivery industry is hiring a total of:

100 workers.

200 workers.

700 workers.

2,000 workers.

10,000 workers.

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Ocean Park and Disneyland are the two theme parks in Hong Kong. They deemed to be so different in their theme and attractions that they are not substitutes to one another.

The two theme parks have their 1-day ticket prices revised upward in 2019 as in the following:

(6) From the ticket prices now available (see above table) at Ocean Park, it seems that uniform pricing, i.e. charging a single price to all is not ideal. Basing on the economic concepts/theories that you have learnt in the course (only highschool econ) , what do you think the rationale behind,

1. From the standpoint of Ocean Park
2. In the aspect of economic efficiency (use a diagram to show the point)                                                                             (8%)

The federal agency responsible for covering the cost of dental care for low-income seniors has set a rate of $100 for various dental treatments. In addition to these seniors, dentists have patients who pay for their dental services. The demand curve for each dentist is shown below.

Each dentist also has a cost schedule, as shown below.

-If each dentist in this system works on a profit-maximizing basis, how many treatments will be provided to both the paying patients and to the federally funded seniors? (Show your work by tabulating appropriate columns for TR and TC, as well as for MR and MC.)

-What would the number of paying patients and federally funded seniors be if the federal funding agency raised its rate to $120 per treatment? (Show all your work.)

Problem 3-12

Suppose that you sell short 250 shares of Xtel, currently selling for $100 per share, and give your broker $15,000 to establish your margin account.

a. If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Xtel stock is selling at: (i) $115; (ii) $100; (iii) $95? Assume that Xtel pays no dividends. (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.)

b. If the maintenance margin is 25%, how high can Xtel’s price rise before you get a margin call? (Round your answer to 2 decimal places.)

c. Redo parts (a) and (b), but now assume that Xtel also has paid a year-end dividend of $1 per share. The prices in part (a) should be interpreted as ex-dividend, that is, prices after the dividend has been paid. (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.)