Summit Energy is an alternative energy producer. Your hedge fund is interested in investing into the company. As an analyst, you need to estimate firm value and its price per share using the NPV method and report it to the energy portfolio manager. So far you’ve partially forecasted its earnings for 2020-2022 (numbers are in millions).
| Actual earnings | Forecasted earnings | |||||
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |
| Revenues | 25,137 | 25,650 | 24,368 | 25,220 | 26,481 | 26,746 |
| Cost of goods sold | 18,375 | 17,894 | 19,750 | 21,230 | 20,381 | 19,973 |
| Gross Profit | 6,762 | 7,756 | 4,618 | 3,990 | 6,101 | 6,773 |
| SG&A | 2,235 | 2,110 | 2,050 | 2,200 | 2,200 | 2,200 |
| Depreciation | 2,000 | 2,000 | 2,000 | 2,000 | 2,000 | 2,000 |
| EBIT | ||||||
| Tax expense (25%) | ||||||
| Net income | ||||||
Assume that annual net working capital represents 10% of revenues. In 2021 Summit plans to purchase new equipment for its new generation of wind mills for $200 million. No other purchases are planned in 2020 or 2022.
Please enter the answer in the following format: XX (no decimals)
A. If Summit has 50 million shares outstanding and $200 million of debt, what is its estimated price per share?
B. If Summit’s stock is currently trading for $500, should your fund invest in the company?
In: Accounting
Question 1
Sandhill Company has the following securities in its portfolio on December 31, 2020. None of these investments are accounted for under the equity method.
|
Investments |
Cost |
Fair Value |
||
| 1,500 shares of Gordon, Inc., Common | $75,700 | $71,000 | ||
| 5,000 shares of Wallace Corp., Common | 185,100 | 180,200 | ||
| 400 shares of Martin, Inc., Preferred | 61,900 | 63,700 | ||
| $322,700 | $314,900 |
All of the securities were purchased in 2020.
In 2021, Sandhill completed the following securities
transactions.
| March 1 | Sold the 1,500 shares of Gordon, Inc., Common, @ $45 less fees of $1,200. | |
| April 1 | Bought 700 shares of Earnhart Corp., Common, @ $75 plus fees of $1,300. |
Sandhill’s portfolio of equity securities appeared as follows on
December 31, 2021.
|
Investments |
Cost |
Fair Value |
||
| 5,000 shares of Wallace Corp., Common | $185,100 | $180,200 | ||
| 700 shares of Earnhart Corp., Common | 53,800 | 50,100 | ||
| 400 shares of Martin, Inc., Preferred | 61,900 | 60,100 | ||
| $300,800 | $290,400 |
Prepare the general journal entries for Sandhill Company for:
| (a) | The 2020 adjusting entry. | |
| (b) | The sale of the Gordon stock. | |
| (c) | The purchase of the Earnhart stock. | |
| (d) | The 2021 adjusting entry for the trading portfolio. |
(Credit account titles are automatically indented when
amount is entered. Do not indent manually. If no entry is required,
select "No Entry" for the account titles and enter 0 for the
amounts.)
|
No. |
Account Titles and Explanation |
Debit |
Credit |
|
(a) |
|||
|
(b) |
|||
|
(c) |
|||
|
(d) |
|||
In: Accounting
A study of North York University students showed the mean age of
all students in the first year of university to be 19.6 years old
with a standard deviation of 1.06 years. A randomly selected
subgroup of these first-year students also averaged 19.4 years in
age with a standard deviation 1.05 years.
a) Are the numbers 19.6 and 1.06 statistics or parameters?
Explain.
b) Are the numbers 19.4 and 1.05 statistics or parameters? Explain.
c) Select any correct pair of labels and values below:
In: Statistics and Probability
Delta Machine Company purchased a computerized assembly machine for $135,000 on January 1, 2018. Delta Machine Company estimated that the machine would have a life of four years and a $25,000 salvage value. Delta Machine Company uses the straight-line method to compute depreciation expense. At the beginning of year 3 (2020) Delta discovered that the machine was quickly becoming obsolete and would have little value at the end of its useful life. Consequently, Delta Machine Company revised the estimated salvage to only $5,000. It did not change the estimated useful life of the machine. Compute the depreciation expense for each of the four years.
In: Accounting
On January 1, 2019, JP Chemical Company purchases $10,000 of 6% bonds in American Airline at a price of 95. JP Chemical Company intends to hold the bonds until the maturity date on January 1, 2029. The interest dates are January 1 and July 1. JP Chemical Company amortizes any discount or premium using the straight-line method. The fiscal year end of JP Chemical Company is December 31.
Required:
Prepare the journal entries on:
1. January 1, 2019
2. July 1, 2019
3. December 31, 2019
4. January 1, 2020
Explanations are required.
In: Accounting
Stelling Corporation had the following transactions during 2020. Identify whether each transaction should be considered a cash flow from operating, investing, or financing activities, or whether the transaction is a significant non-cash activity.
| 1. |
Issued $120,000 worth of preferred shares in exchange for land |
| 2. |
Exchanged a vehicle worth $30,000 for computer system worth $30,000 |
| 3. |
Received a cash dividend of $40,000. - if ASPE Received a cash dividend of $40,000. - if IFRS |
| 4. | Paid $12,000 due to suppliers for goods and services |
| 5. | Purchased shares in another company as a long-term investment for $50,000 cash |
| 6. | Paid $135,000 in salaries and wages |
| 7. | Collected $30,000 from customers that had purchased on account |
| 8. | Issued preferred shares for $75,000 cash |
| 9. | Sold a long-term investment with a cost of $80,000 for $80,000 cash |
| 10. | Collected $90,000 cash from customers for goods sold |
In: Accounting
In: Accounting
Looking at statistics to estimate parameters (Variability not considered)
Suppose the city interview 100, randomly selected, bicyclists that were involved in accidents that were on roadways without bike lanes and 100 bicyclists that were involved in accidents that were on roadways with bike lanes. They found that from the accidents on roadways without bike lanes 27% of the accidents resulted in a trip to the ER, of the accidents on roadways with bike lanes 13% of the accidents resulted in a trip to the ER.
1. Using only the statistics above does there appear to be much difference in the parameters of interest?
2. What do we call the change in the statistic from sample to sample?
3. Next suppose that the city took 30 random samples, each of size 100 of bicyclists that were involved in accidents that were on roadways without bike lanes. From each sample they calculated a statistic. They create a sampling distribution using the statistics. Where do we expect the sampling distribution to be centered (i.e. the mean)? Hint: You will describe the value using words not numbers.
In: Statistics and Probability
Ivanhoe Co. provides music lessons to many clients across the city. The following information is available to be used in recording annual adjusting entries at the company’s September 30, 2021, year-end: 1. On October 1, 2020, the company had a balance of $1,990 in its supplies account. Additional supplies were purchased during the year totalling $1,790. The supplies inventory on September 30, 2021, amounts to $800. 2. On November 1, 2020, Ivanhoe purchased a one-year insurance policy for $3,120. 3. On January 2, 2021, a client paid $1,560 for six months of lessons starting April 2, 2021. 4. On February 1, 2021, Ivanhoe purchased a grand piano (to be used in music lessons) for $25,200. The piano’s estimated useful life is 12 years. 5. On May 1, 2021, Ivanhoe borrowed $29,400 from the bank and signed a 10-month, 8% note payable. Interest and principal are to be paid at maturity. 6. On August 1, 2021, Ivanhoe signed a contract with a neighbourhood school to provide weekly piano lessons to some of its students for a fee of $1,760 per month. The contract called for lessons to start on September 1, 2021. The school has not yet been sent an invoice for the month of September. 7. On August 15, 2021, the company paid $10,080 to Pinnacle Holdings to rent additional studio space for nine months starting September 1. Ivanhoe recorded the full payment as Prepaid Rent. 8. Ivanhoe’s instructors have earned salaries of $3,370 for the last week of September 2021. This amount will be paid to the instructors on the next payday: October 6, 2021. 9. Music lessons were provided to a local church group for $1,260 on September 30, 2021. Ivanhoe has not yet invoiced the group or recorded the transaction. 10. In early October 2021, Ivanhoe received an invoice for $910 from the utility company for September utilities. The amount has not yet been recorded or paid. Prepare the adjusting journal entries.
In: Accounting
You got a new job as a university professor and want to settle down at East Lansing. You found a nice house which is selling for $500,000. You decided to pay a down payment of 10% (no closing cost), and borrow rest of the amount from the bank. This is a fixed payment loan that lasts for 10 years with annual payments. Interest rate is 6%.
Build the amortization table in Excel and show all the numbers.
In: Finance