Could you answer Question 3, and the information about question 1 has been given.

Question 1

Bill has bought a new home in Canberra. He borrowed $600000 at a rate of 3.5% p.a., which is to be repaid in annual instalments over a thirty year period. The first instalment is due on 19 March 2020.

What are Bill’s annual repayments? the annual repayment is  $32622.8

Question 3

The recently released recommendations of the Banking Royal Commission (the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry) include the elimination of commission pay- ments to mortgage brokers.

Returning to the details of question 1 above: Theresa was Bill’s mortgage broker. Bill’s bank will pay her commission amounts of $1 000 annually from 19 March 2020 through to 19 March 2049 (inclusive).

If we view the bank’s mortgage business as making neither a profit nor a loss, then (in the absence of any internal capital transfers) Theresa’s com- mission payments have to effectively come from Bill.

a. As at 19 March 2019, what is the total value of Theresa’s commission (use a valuation interest rate of 3.5% p.a.)?

If the value of Theresa’s commission comes from Bill, then the total amount of Bill’s loan is $600 000 plus your answer to part a above. But Bill’s pay- ments are only of an amount calculated by you in question 1 above. This suggests that the effective interest rate the bank requires on its funds is not the 3.5% p.a. that it communicates publicly.

b. Is the effective interest rate that bank requires on its funds higher or lower than the 3.5% p.a. that it communicates publicly? Why?

c. Calculate the effective interest rate discussed in part b above. Carefully explain how you reached your answer.

d. If Bill had been offered the effective rate discussed in part b above, by how much would his annual payments increase or decrease?

We assume that our wages will increase as we gain experience and become more valuable to our employers. Wages also increase because of inflation. By examining a sample of employees at a given point in time, we can look at part of the picture. How does length of service (LOS) relate to wages? The data here (data426.dat) (see below) is the LOS in months and wages for 60 women who work in Indiana banks. Wages are yearly total income divided by the number of weeks worked. We have multiplied wages by a constant for reasons of confidentiality.

(a) Plot wages versus LOS. Consider the relationship and whether or not linear regression might be appropriate. (Do this on paper. Your instructor may ask you to turn in this graph.)

(b) Find the least-squares line. Summarize the significance test for the slope. What do you conclude?

Wages = _________ + __________ LOS

t = _________

P = _________

(c) State carefully what the slope tells you about the relationship between wages and length of service. This answer has not been graded yet.

(d) Give a 95% confidence interval for the slope.

(______ , _______)

worker  wages   los     size
1       55.0977 28      Large
2       60.3942 54      Small
3       55.5375 35      Small
4       48.6244 27      Small
5       56.5636 188     Large
6       38.237  156     Small
7       43.5632 30      Large
8       42.7156 61      Large
9       39.143  65      Large
10      46.1205 23      Small
11      49.5348 68      Large
12      63.0939 76      Small
13      37.3613 57      Small
14      86.4907 44      Large
15      62.1521 103     Large
16      49.2244 51      Large
17      61.2332 63      Large
18      38.775  14      Small
19      47.1923 127     Large
20      38.5997 39      Large
21      38.8533 105     Large
22      46.0433 164     Small
23      64.581  70      Large
24      41.4075 17      Small
25      55.9129 143     Large
26      47.352  107     Small
27      43.1829 22      Small
28      51.886  197     Large
29      51.3497 46      Large
30      60.591  40      Large
31      55.6434 77      Small
32      37.9994 34      Large
33      50.3993 85      Large
34      39.2409 88      Small
35      51.1068 118     Large
36      44.8436 58      Large
37      39.4066 78      Large
38      64.675  47      Small
39      59.4471 142     Large
40      70.2038 93      Small
41      47.4302 168     Small
42      44.8665 33      Small
43      39.4258 27      Large
44      71.8007 69      Small
45      38.5246 46      Large
46      71.9274 68      Small
47      51.5816 22      Large
48      65.4135 18      Large
49      64.9034 76      Small
50      73.0817 97      Large
51      45.4468 35      Large
52      44.2239 56      Large
53      68.4574 87      Large
54      37.7713 60      Small
55      46.0706 86      Small
56      45.3591 62      Large
57      53.7606 21      Small
58      104.9657        74      Large
59      40.4731 71      Small
60      60.6301 97      Large

There are many corporations, and most of them have a relatively small group of shareholders. These are considered to be privately held entities, and it is difficult to obtain much financial information about them. There are also many large “public” companies, and their shares of stock are readily traded on organized stock market exchanges. In the USA, such companies must regularly file financial reports and other documents with the Securities and Exchange Commission (SEC). You can go to the SEC website (www.sec.gov) and access filings for public companies.
(a) Go to the SEC website, and probe until you find the section that includes filings. You might find it helpful to work through the related tutorial on the site.
(b) Find the filings from the SEC website for one of your “favorite” public companies.
(c) The annual report that must be filed with the SEC is known as a “10K.” Locate the 10K for your target company, and find the balance sheet and income statement (note that the statement of retained earnings illustrated in the textbook is likely replaced by a more comprehensive statement of stockholders’ equity). What are the revenues, income, assets and liabilities of your target company?

1. Athens Book Nook is experiencing flat sales growth and seeks to grow the business. A proposed project will add a coffee shop to the store. The goal is to create extra book sales by bringing more customers into the store.

The cost of the coffee shop investment will be $250,000 today. The store estimates that the cash flows from ONLY the coffee shop will be $30,000 per year (after-tax cash flows) over a 11-year project period.

The owners of the store estimate that the new coffee area will bring in an additional 200 customers per week. (52 weeks per year) For these new customers, 40% will purchase books and magazines. The average purchase by a customer is $25.00 for books and magazines. The after-tax operating margin for the store is 15%. These cash flows are valued on an annual basis.

The cost of capital for the store is 12% APR, while the marginal tax rate is 34%.  

What is the NPV of the coffee shop project?

2. A company just purchased a new manufacturing machine at a cost of $280,000 today. The machine will require an immediate expense of $20,000 for installation and delivery. The company will depreciate the machine using a 5-year MACRS schedule. What will the depreciation be for this machine in the first year?

Division Y has asked Division X of the same company to supply it with 7,000 units of part L763 this year to use in one of its products. Division Y has received a bid from an outside supplier for the parts at a price of $43 per unit. Division X has the capacity to produce 28,000 units of part L763 per year. Division X expects to sell 25,200 units of part L763 to outside customers this year at a price of $46.00 per unit. To fill the order from Division Y, Division X would have to cut back its sales to outside customers. Division X produces part L763 at a variable cost of $35 per unit. The cost of packing and shipping the parts for outside customers is $2 per unit. These packing and shipping costs would not have to be incurred on sales of the parts to Division Y.

Required:

a. What is the range of transfer prices within which both the Divisions' profits would increase as a result of agreeing to the transfer of 7,000 parts this year from Division X to Division Y? (Round your final answers to 2 decimal places.)

b. Is it in the best interests of the overall company for this transfer to take place?

• Yes

• No

The company provides some details for the period 2020 for preparing necessary budgets:

(a) Sales Details

The Company estimates that it can get maximum profits if it charges $ 200 (selling price) for one of its products. The marketing manager of the company had indicated that at $ 200 selling price, the company would be able to sell 1,000 units in the first quarter of 2020. The company also expects that sales would go up by 100 units over previous quarter sales (like 1000, 1100 and so on….) Selling price is expected to be same throughout the year.

(b) Inventory details

Alwyn Industries maintains at the end of each quarter an inventory of 10% of the next quarter’s sales. This allows the company to better meet its customers’ needs in case the customers experience a sudden surge in demand. The opening inventory for first quarter 2020 has been estimated to be 200 units

(c) Divisional Performance

Alwyn Industries has to divisions (A & B) working within the company. The CEO of the company is wondering whether divisional performance evaluation will be fruitful for them since the company has two divisions operating with certain targets. The head of those divisions report the following results for the quarter ending 2019, which is given below:

Question : Evaluate the divisional performance (A & B) using ROI for the quarter ending 2019 stating which product is better and why

1. You are trying to determine the WACC for White Sox. It has the following characteristics. (12 points)

1. Discount rate of 10%.   The company had pre-tax net income of $50mm last year and paid taxes of $10mm.
2. White Sox has $900mm of total liabilities, $100mm of accounts payable, and $650mm of debt.
3. The company has 120mm shares authorized, 17mm shares issued, and 7mm shares of treasury stock.   The stock traded at $65 per share two years ago and now trades at $97.87 per share.
4. A 10-year senior bond was issued 1 year ago. It is priced at 97 today. The coupon rate is 6% paid semi-annually. Use the YTM on this bond as a proxy for the pre-tax cost of total debt.
5. The company pays a dividend of $.75 per share per quarter. Twelve years ago, the dividend was $0.30 per share. The ten-year treasury rate is 2%. The company’s Beta is 1.5 and the market return for equities is 8%.

17. XYZ LIMITED

Other relevant information:

Risk-free rate of return                   2%

Average return on the market        8%

Taxation rate                                 30%

XYZ Ltd.’s shares are currently being traded at £3.75 and it has an equity beta of 1.3.

XYZ Ltd.'s bank loan costs 8% per annum pre-tax, it is secured by a fixed charge on XYZ Ltd's Head Office. It is due to be repaid in five years' time.

The 7% bonds of the company are trading on an ex interest basis at £92.60 per £100 bond. It is secured by a general floating charge on XYZ Ltd's assets.

1. Using the market values as weights, calculate the weighted average cost of capital of XYZ Limited.

2. Discuss the differences in the cost of the different long-term finance used by XYZ Limited.

3.Discuss why using market value weighted average cost of capital is preferred to book value cost of capital when making investment decisions

Go to finance.yahoo

1.  and Type in Search Finance box: General Motors… and see that while you do the typing Yahoo provides you with a list of suggested companies with similar names… Please note that the same company may be listed in different stock exchanges and countries with the same or similar names. Please select from the list General Motors Company listed in NYSE with the ticker symbol of GM.

3.    Once you have the information on GM, please make a note of GM’s beta coefficient.

4.    Do the same for Boeing, Amazon, Exxon-Mobil Corporation, Expedia, and GE.

5.    For all 6 companies, you looked at above, make a table showing the name, ticker symbol, beta coefficient, where is it traded, stock price, and the EPS. Date your table as the information you obtained is time-specific.

6.    Explain each company's risk position using their beta coefficients with one line. Which one is the riskiest and which one is the least risky?

7.    How is it possible that we can talk about the risk without standard deviation information for the companies?

8.    Make a portfolio assuming you have $80,000 and decided to invest $20,000 on General Motors, $30,000 on Amazon, $10,000 on Boeing, $7,500 on Exxon Mobil, $2,500 on Expedia, and the rest on GE. Compute the portfolio beta.

9.    Assume that, one month later, you sold your GM stocks with a 10% gain. Assume also that you allocated the proceeds from the sale on GE and Expedia equally. What is the new portfolio beta?

On January 1,20X6 ,the company sold for 1,800 a piece of equipment costing 3,900. At the date of sale of the equipment had accumulated depreciaition of 2,400. The company recorded the cash received as other revenue in 20X6. Also, the company continued to record depreciation for this equipment in both 20X6 and 20X7 at the rate of 10% of cost.

Recording correcting entries on Dec31,20X7

Case 1: When the company has not yet closed the 20X7 books.

Case 2: When the company has closed the 20X7 books.