In 2018, North Company rented a villa for three years and received a total of $60,000. The rent is earned equally over the period 2018-2020. For tax purposes, North should report the full $60,000 on 2018 tax return form. By year end, the company reported an income tax expense of $22,000 and income tax payable of $37,000. In 2019, the company terminated a maintenance contract and agreed to pay $10,000 per year for 2019-2021. The total termination amount is fully deducted for financial reporting purposes and deducted as paid for tax purposes. The pretax financial income for 2019 is $90,000. The tax rates are 30% for 2018 and 35% for 2019. By end of 2019, the government announced the change of tax rate for future periods. a. Prepare the journal entry to record income taxes for 2019. b. Which approach have you applied in answering part (a)? what are the main objectives of this approach?

In 2018, North Company rented a villa for three years and received a total of $60,000. The rent is earned equally over the period 2018-2020. For tax purposes, North should report the full $60,000 on 2018 tax return form. By year end, the company reported an income tax expense of $22,000 and income tax payable of $37,000.
In 2019, the company terminated a maintenance contract and agreed to pay $10,000 per year for 2019-2021. The total termination amount is fully deducted for financial reporting purposes and deducted as paid for tax purposes. The pretax financial income for 2019 is $90,000. The tax rates are 30% for 2018 and 35% for 2019. By end of 2019, the government announced the change of tax rate for future periods.
a. Prepare the journal entry to record income taxes for 2019.

b. Which approach have you applied in answering part (a)? what are the main objectives of this approach?

Mazoon Electric Company is responsible for supplying and upkeep of the distribution of electric power in South Al Batinah region. The company is planning to upgrade the distribution system which will reduce line losses, failure occurrences and increased revenue. This up gradation will cost the company OMR 250,000. Information on the expected revenues and costs for coming years is tabulated below:

Assume that annual interest rate is 8% per annum and compounded annually.

a) Draw a cash flow diagram for the information given above.

b) Compute the Net Present Worth of the future cash flows.

c) Compute the Future Worth at the end of 2026 of cash flows.

You work for a chemical company and have been tasked with synthesizing acetylsalicylic acid. Currently, your R&D group can achieve a 62% yield for acetylsalicylic acid using salicylic acid and acetic anhydride. Your R&D group has been sent 2.84 U.S. tons of salicylic acid and 209 gallons of acetic anhydride. How much acetylsalicylic acid (in kg) can actually be produced by your group?

1 kg = 2.205 lbs

1 gal = 3.79L

Write answer to four significant figures.

Foreign Exchange Risk and the Cost of Borrowing Swiss Francs. The chapter demonstrated that a firm borrowing in a foreign currency could potentially end up paying a very different effective rate of interest than what it expected. Using the same baseline values of a debt principal of SF1.5 million, a one year period, an initial spot rate of SF1.5000/$, a 5.000% cost of debt, and a 34% tax rate, what is the effective cost of debt for one year for a U.S. dollar-based company if the exchange rate at the end of the period was:

SF1.5000/$

SF1.4400/$

SF1.3860/$

SF1.6240/$

Lakonishok Equipment has an investment opportunity in Europe. The project costs €11 million and is expected to produce cash flows of €3.6 million in year 1, €4.3 million in year 2, and €2.5 million in year 3. The current spot exchange rate is $1.25/€; the current risk-free rate in the United States is 4 percent, compared to that in Europe of 4.5 percent. The appropriate discount rate for the project is estimated to be 9 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €7.9 million. What is the NPV of the project?

Lakonishok Equipment has an investment opportunity in Europe. The project costs €10 million and is expected to produce cash flows of €1.0 million in Year 1, €1.4 million in Year 2, and €2.5 million in Year 3. The current spot exchange rate is $1.25/€; and the current risk-free rate in the United States is 1.8 percent, compared to that in Europe of 1.0 percent. The appropriate discount rate for the project is estimated to be 10 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €8.0 million. What is the NPV of the project?

Ten-year zero coupon bonds issued by the U.S. Treasury have a face value of $1,000 and interest is compounded semiannually. If similar bonds in the market yield 7.8 percent, what is the value of these bonds? (Round answer to 2 decimal places, e.g. 15.25.)

Cullumber Real Estate Company management is planning to fund a development project by issuing 10-year zero coupon bonds with a face value of $1,000. Assuming semiannual compounding, what will be the price of these bonds if the appropriate discount rate is 11.2 percent? (Round answer to 2 decimal places, e.g. 15.25.)

Pick 3 and answer

If you were evaluating an investment opportunity, which technique would you use and why?

When evaluating investments, you can get data from engineering, marketing, and sometimes accounting. Do you think any of these organizations have internal biases? If so, as a member of the finance department, how would you deal with them?

You have just discovered that your boss favors payback in evaluating investments. Should you try to talk him out of it or should you go along with his/her desires?

You are comptroller for your company. The CEO is a savvy individual with great instincts for the business. She strongly favors an investment that is only marginally acceptable at best. She has asked you to put together a justification for it. What will you do?

Last year your company financed its investments by selling shares of common stock. This year the plan is to use debt. The after-tax cost of debt is 5%, the cost of equity is 12% and the weighted average cost of capital is 9.5%. The first investment for this year is an expansion project. What cost of capital will you use and why?