A company issues $896,000 of 5-year, 5% bonds on January 1, 2021. The bonds pay interest annually.

1) Calculate the issue price of the bonds using a market rate of 4%

2) Record the bond issue

3) Prepare an effective interest amortization table for the bonds

4) Prepare the journal entries to record the first three interest payments. Ignore any year-end accruals of interest

5) Assuming the company has an October 31 year end, prepare the adjusting entry for interest on October 31, 2021.

Please answer all of the questions.

Spider-Man and Spider-Woman are planning to have children in the near future. Spider-Man is able to spin webs (S) and cling to walls (C), whereas Spider-Woman can spin webs but cannot cling to walls. If both of these traits are inherited in a dominant manner (i.e., the dominant trait will always mask the recessive trait), Spider-Man is heterozygous for each trait, and Spider-Woman is heterozygous for the web-spinning trait...

What would be the phenotypic ratio of the F₁ generation? Please note that: "S" = ability to spin webs; "NS" = cannot spin webs; "C" = ability to cling to walls; and "NC" = cannot cling to walls.

In humans, the ability to roll one's tongue is a dominant trait (R). A woman who can roll her tongue is married to a man who cannot roll his tongue. The couple's daughter, Nia, can roll her tongue, but their son, Michael, cannot.

What is the genotype of the mother?

In humans, the ability to roll one's tongue is a dominant trait (R). A woman who can roll her tongue is married to a man who cannot roll his tongue. The couple's daughter, Nia, can roll her tongue, but their son, Michael, cannot.

What is the genotype of the father?

In humans, the ability to roll one's tongue is a dominant trait (R). A woman who can roll her tongue is married to a man who cannot roll his tongue. The couple's daughter, Nia, can roll her tongue, but their son, Michael, cannot.

What gametes does the mother produce?

In humans, the ability to roll one's tongue is a dominant trait (R). A woman who can roll her tongue is married to a man who cannot roll his tongue. The couple's daughter, Nia, can roll her tongue, but their son, Michael, cannot.

What gametes does the father produce?

In humans, the ability to roll one's tongue is a dominant trait (R). A woman who can roll her tongue is married to a man who cannot roll his tongue. The couple's daughter, Nia, can roll her tongue, but their son, Michael, cannot.

If Nia were to (one day) marry a man who was heterozygous for the tongue-rolling trait, what percentage of their children would be able to roll their tongues?

In humans, the ability to roll one's tongue is a dominant trait (R). A woman who can roll her tongue is married to a man who cannot roll his tongue. The couple's daughter, Nia, can roll her tongue, but their son, Michael, cannot.

Imagine, for a moment, that the mother and father separate, and the mother decides to remarry. If her second husband is homozygous dominant for the tongue-rolling gene, what is the likelihood that their children (if they choose to have any) will be able to roll their tongues?

In humans, the ability to roll one's tongue is a dominant trait (R). A woman who can roll her tongue is married to a man who cannot roll his tongue. The couple's daughter, Nia, can roll her tongue, but their son, Michael, cannot.

Imagine, for a moment, that the mother and father separate, and the mother decides to remarry. If her second husband is homozygous dominant for the tongue-rolling gene, what would be the genotypic ratioof their offspring (i.e., the F₁ generation)?

Characteristics (or traits) of an organism, such as those described in the examples above, are said to be heritable. In this context, the term "heritable" means...

CASE:

Atlantic Airlines Case Atlantic Airlines issued $100 million in bonds in 2008. Because of the firm's low credit rating (B3), the bonds were considered junk bonds. At the time of the issue, the 20 year bonds were paying a yield of 12 percent. Investor Tom Phillips thought the yield on the bonds was particularly attractive and called his broker, roger Brown, to ask for more information on the debt issue. Tom currently held Treasury bonds paying four (4) percent interest and corporate bonds yielding six (6) percent. He wondered why the debt issue of Atlantic Airlines was paying twice that of his other corporate bonds and eight (8) percent more than Treasury securities. His broker, Roger Brown has been a financial consultant with Merrill Lynch for 10 years and was frequently asked such questions about yield. He explained to Tom that the bonds were not considered investment grade because of the industry they were in. Bonds of airlines are considered inherently risky because of exposure to volatile energy prices and the high debt level that many airlines carry. He further explained that they frequently were labeled ""junk bonds"" because their rating did not fall into the four highest categories of ratings by the bond rating agencies of Moody's and Standard and Poor's. Questions from Tom Phillips This explanation did not deter Tom from showing continued interest. In fact, he could hardly wait to get his hands on the 12 percent yielding securities. First, he asked Roger, What is the true risk and is it worth taking? Roger explained there was a higher risk of default on junk bonds. It sometimes ran as high as 2-3 percent during severe economic downturns (compared to.5 percent for more conventional issues). Roger also indicated that although the yield at the time of issue appeared high, it could go considerably higher should conditions worsen in the airline industry. This would take place if the price of oil moved sharply upward or people began flying less due to a downturn in the economy. Roger explained that if the yield (required return) on bonds of this nature went up, the price of the bonds would go down and could potentially wipe out the high interest payment advantage.

QUESTIONS

Please share formula examples that was used in Excel.

Problem Set 6 – Atlantic Airlines

Read “Case 15 – Atlantic Airlines” and answer the following questions for the case. For these problems,

assume there are 18 years left on the bonds and the year is 2010. The bond amount is $100 million.

1. Assume the year is 2010 and there are 18 years left on the bonds that are paying a yield of 12%

annually. What is the interest payment each year?

2. What is the present value of the interest payments if the bond yield is 12% and if the current yield to

maturity on such bonds is 9%?

3. What does the present value of the interest payments represent?

4. Assume that Roger is correct and that the higher risk of default on junk bonds and conditions in the

airline industry causes the market for the bonds to go to a yield of 15%. What is the new price of the

bonds paying a yield of 12% annually?

5. What does a credit rating of B3 mean? What ratings are higher than B3? Here are some sources to help

you answer these questions:

http://www.investopedia.com/terms/b/bondrating.asp;

http://www.investopedia.com/terms/b/b3-b.asp

6. Assume that you are Tom’s financial advisor. What would you recommend that Tom do?

American Airlines. (AA) is an airline that operates direct, daily flights between Los Angeles (LAX) and London Heathrow (LHR) airports. AA offers only business-class tickets and service on all of its flights. On the LAX-LHR route, AA flies Airbus 320 plane configured to have a capacity of 100 business-class seats.

AA sells tickets on LAX-LHR route at $3000 and offers a generous, 90% “last-minute cancellation” policy. In particular, under such policy, a customer may cancel her flight up to 30 minutes before the departure time and receive back 90% of the $3000 fare she paid. As a result, AA is able to sell many more tickets than its plane capacity. The downside is that customers who purchased tickets may not all show up for the flight.

To better manage the profitability of its LAX-LHR route in the presence of last-minute cancellations, AA uses “overbooking,” that involves selling more tickets than 100 seats on its plane. In particular, AA would like to compare two overbooking options: 1) selling T=110 tickets, and 2) selling T=115 tickets. AA is confident that, given the moderate business-class fare it charges and a generous cancellation policy it offers, it can always sell those numbers of tickets.

The sequence of events in the presence of overbooking is as follows:

·Tickets are sold to T potential passengers at the price of $3000 each

·At about 30 minutes prior to departure, the number of customers who actually show up for the flight, A, is revealed (0≤A≤T) and the refund of $2700 is paid to each of T-A customers who did not show up

·If A≤ 100, the plane takes off with A customers on board

·If A>100, the airline asks for A-100 volunteers to release their seats and to accept alternative flight arrangements, for additional compensation. As a result of this process, the airline pays to each of A-100 volunteers the compensation of $5000, and the plane takes off with 100 customers on board.

Thus, the revenue that AA earns for a particular flight depends on the values of T and A, and consists of three components: the initial revenue from selling tickets minus the refund, if any, paid for last-minute cancellations, and minus the additional compensation, if any, paid to customers asked to release their seats.

1) Suppose that AA decides to use Option 1 (i.e., sell T=110) tickets, and the number of customers who show up for the flight is 100. What is the revenue that AA will earn for this flight, in $? Round your answer to the closest integer value.

2) Suppose that AA decides to use Option 2 (i.e., sell T=115) tickets, and the number of customers who show up for the flight is 105. What is the revenue that AA will earn for this flight, in $? Round your answer to the closest integer value.

3) Zero Management is a business analyst working for AA who was assigned a task of comparing the two overbooking options described above. Zero has decided to design a simulation model that assumes that each of T customers who bought tickets has a probability of 0.9 of actually showing up for the flight, and that each customer makes a decision to show up for the flight independently of other customers. A statistician working for AA explained to Zero that, under these assumptions, the number of customers who actually show up for the flight, A, is a binomial random variable that can take integer values 0,1,2,… T, and that has the expected value of 0.9*T.

Suppose that the AA decides to use Option 1 (T=110). Let A be the number of customers who actually show up for the flight under this option. The algebraic expression for the revenue that AA earns for this flight, in $, is

a)   330,000 – 2,700*(100-A) – 5,000*IF(A<100, 0, A-100)

b)  330,000 – 2,700*(110-A) – 5,000*IF(A<110, 0, A-110)

c)   330,000 – 2,700*(110-A) – 5,000*IF(A<100, 0, A-100)

d)  330,000 – 2,700*(100-A) – 5,000*IF(A<110, 0, A-110)

4) Consider Option 1 (T=110). If it is possible for A to take integer values 0,1,2,…,110, what is the maximum possible revenue, in $, that AA can earn for a flight? Choose the closest value.

a)   330,000

b)  303,000

c)   300,000

d)  280,000

e)   270,600

5) Consider Option 1 (T=110). If it is possible for A to take integer values 0,1,2,…,110, what is the minimum possible revenue that AA can earn for a flight? Choose the closest value.

a)   303,000

b)  280,000

c)   270,600

d)  33,000

e)   0

Prompt:

Using the following assumptions, create the project budget.

Note that this is a two - year budget, so you will need to show both years. Also, calculate the initial ROI for this project.

You do not have to consider the time value of money In this problem.

§

§

Assume that Blazer reevaluates the sales potential of this project, and

realizes that it will likely only sell half as many new units per year

than it initially expected when it first started thinking about this

project.

Would you recommend that Blazer proceed with the project or

not?

Explain your answer.

o

Requirements:

Present the budget in a table or spreadsheet. Show enough detail so that it is clear how your numbers were derived. Write your answer to the last question in sentences with a full explanation.

Blazer Corporation is considering a training project for its employees. This will be a two - year project with expected

cost savings each year. Calculate the break-even point of sales units in year 1 and year 2.

The project will involve purchasing new tablet devices for customer

service personnel. Of course, the personnel receiving the tables will need to learn how to use the new software. The staff will also be taught new customer service skills and sales skills in an effort to upsell the customers and create more sales income in the future.

1.

There are 22 customer service representatives on staff.

2.

The tablets will cost $475 per device. The tablets will last for 2 years or more. Annual insurance on the devices will be $25 per device. There will be no price increase in

the insurance for Year 2.

3.

The new customer service software subscription will cost $55.00 per year

per device. There will be no price increase in Year 2.

4.

The initial training cost on the new software will be $2,750 for all 22 of

the customer service representatives. In Year 2, there will be a refresher

course for new representatives, and that course will cost $100 per

participant. Blazer estimates that it will have a 50% turnover in its

customer service representatives for Year 2.

5.

The customer service skills seminar will have the following costs. Except

for the assessments, these costs will only be incurred in the first year.

a.

Seminar speaker: $2,000.00

b.

Books and materials: $975.00

c.

Lunch for participants: $15.00 per participant

d.

Assessment cost per participant: $50.00. Assessments will be

conducted on all customer service staff in Year 1 and all new staff

in Year 2.

6.

Blazer expects to sell an additional 2,750 of its product in Year 1 because

of this program. Blazer has a profit margin of $10 on each unit it sells.

22 Blazer expects to realize an additional 3,750 units of sales in Year 2 with

the same profit margin.

7.

Ignore the time value of money in this budget.

Hi, i recently posted the question. I wanna get an alternative way to solve the case. Please kindly help. Thanks.

Claxton Drywall Comes to the Rescue

A law firm is expanding rapidly and must move to new office space. business is good, and the firm is encouraged to purchase an entire building for $10 million. the building offers first-class office space, is conveniently located near their most important corporate clients, and provides space for future expansion. The firm is considering how to pay for it.

Claxton Drywall, a consultant, encourages the firm not to buy the building but to sign a long-term lease for the building instead. "With lease financing, you'll save $10 million. You won't have to put up any equity investment", Drywall explains.

The senior law partner asks about the terms of the lease. "I've taken the liberty to check", Drywall says. "The lease will provide 100% financing. It will commit you to 20 fixed annual payments of $950,000, with the first payment due immediately."

"The initial payment of $950,000 sounds like a down payment to me", the senior partner observes sourly.

"Good point", Drywall ways amiably, "but you'll still save $9,050,000 up front. You can earn a handsome rate of return on that money. For example, I understand you are considering branch offices in London and Brussels. The $9 million would pay the costs of setting up the new offices, and the cash flows from the new offices should more than cover the lease payments. And there's no financial risk-the cash flows from the expansion will cover the lease payments with a safety cushion. There's no reason for you or your partners to worry or to demand a higher-than-normal rate of return".

Questions:

Suppose the present value of the building equals its purchase price of $10 million. Assume that the law firm can finance the offices in London and Brussels from operating cash flow, with cash left over for the lease payments. The firm will not default on the lease payments. For simplicity you can ignore taxes.

1. If the law firm takes the lease, it will invest $950,000 an in effect borrow $9,050,000, repaid by 19 installments of $950,000. What is the interest rate of return on this disguised loan?

2. The law firm could finance 80% of the purchase price with a conventional mortgage at a 7% interest rate. Is the conventional mortgage better than the lease?

3. Construct a simple numerical example to convince Drywall that the lease would expose the law firm to financial risk. Hint : What is the rate of return on the firm's equity investment in the office building if a recession arrives and the market value of the (leased) office building falls to $9 million after one year? What is the rate of return with the conventional mortgage financing? With all-equity financing?

4. Do the investments in London and Brussels have anything to do with the decision to finance the office building? Explain briefly.

A law firm is expanding rapidly and must move to new office space. Business is good, and the firm is encouraged to purchase an entire building for £10 million. The building offers first-class office space, is conveniently located near their most important corporate clients, and provides space for future expansion. The firm is considering how to pay for it. David Rooney, a consultant, encourages the firm not to buy the building but to sign a long- term lease instead. “With lease financing, you’ll save £10 million. You won’t have to put up any equity investment,” Rooney explains. The senior law partner asks about the terms of the lease. “I’ve already checked that,” Rooney says. “The lease will provide 100% financing. It will commit you to 20 fixed annual payments of £950,000, with the first payment due immediately.” “The initial payment of £950,000 sounds like a down payment to me,” the senior partner observes sourly. “Good point,” Rooney says amiably, “but you’ll still save £9,050,000 up front. You can earn a good rate of return on that money. For example, I understand you are considering branch offices in London and Beijing. The £9 million would pay the costs of setting up the new offices, and the cash flows from the new offices should more than cover the lease payments. And there is no financial risk—the cash flows from the expansion will cover the lease payments with a safety cushion. There is no reason for you or your partners to worry or to demand a higher-than-normal rate of return.”

Requirement: Suppose the present value of the building equals its purchase price of £10 million. Assume that the law firm can finance the offices in London and Beijing from operating cash flow, with cash left over used for the lease payments. The firm will not default on the lease payments. For simplicity, you may ignore taxes.

(a)If the law firm takes the lease, it will invest £950,000 and in effect borrow £9,050,000, repaid by 19 instalments of £950,000. What is the interest rate on this disguised loan? [20 marks]

(b)The law firm could finance 80% of the purchase price with a conventional mortgage at a 7% interest rate. Is the conventional mortgage better than the lease? Provide supporting calculations and discussion. [20 marks]

(c)Construct a simple numerical example to convince Rooney that the lease would expose the law firm to financial risk. You may wish to consider what is the rate of return on the firm’s equity investment in the office building if a recession arrives and the market value of the (leased) office building falls to £9 million after one year?; what is the rate of return with conventional mortgage financing?; with all-equity financing? [15 marks]

(d)Do the investments in London and Beijing have anything to do with the decision to finance the office building? Explain briefly. [10 marks]

Creative Computing sells a tablet computer called the Protab. The $920 sales price of a Protab Package includes the following:

One Protab computer.

A 6-month limited warranty. This warranty guarantees that Creative will cover any costs that arise due to repairs or replacements associated with defective products for up to six months.

A coupon to purchase a Creative Probook e-book reader for $400, a price that represents a 50% discount from the regular Probook price of $800. It is expected that 25% of the discount coupons will be utilized.

A coupon to purchase a one-year extended warranty for $45. Customers can buy the extended warranty for $45 at other times as well. Creative estimates that 30% of customers will purchase an extended warranty.

Creative does not sell the Protab without the limited warranty, option to purchase a Probook, and the option to purchase an extended warranty, but estimates that if it did so, a Protab alone would sell for $900.

All Protab sales are made in cash.

Required:
1. & 2. Indicated below whether each item is a separate performance obligation and allocate the transaction price of 90,000 Protab Packages to the separate performance obligations in the contract.
3. Prepare a journal entry to record sales of 90,000 Protab Packages (ignore any sales of extended warranties).

Indicated below whether each item is a separate performance obligation and allocate the transaction price of 90,000 Protab Packages to the separate performance obligations in the contract.

Prepare a journal entry to record sales of 90,000 Protab Packages (ignore any sales of extended warranties). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Journal entry worksheet

Note: Enter debits before credits.

Creative Computing sells a tablet computer called the Protab. The $830 sales price of a Protab Package includes the following:

• One Protab computer.
• A 6-month limited warranty. This warranty guarantees that Creative will cover any costs that arise due to repairs or replacements associated with defective products for up to six months.
• A coupon to purchase a Creative Probook e-book reader for $360, a price that represents a 50% discount from the regular Probook price of $720. It is expected that 25% of the discount coupons will be utilized.
• A coupon to purchase a one-year extended warranty for $55. Customers can buy the extended warranty for $55 at other times as well. Creative estimates that 40% of customers will purchase an extended warranty.
• Creative does not sell the Protab without the limited warranty, option to purchase a Probook, and the option to purchase an extended warranty, but estimates that if it did so, a Protab alone would sell for $810.

All Protab sales are made in cash.

Required:
1. & 2. Indicated below whether each item is a separate performance obligation and allocate the transaction price of 90,000 Protab Packages to the separate performance obligations in the contract.
3. Prepare a journal entry to record sales of 90,000 Protab Packages (ignore any sales of extended warranties).

Indicated below whether each item is a separate performance obligation and allocate the transaction price of 90,000 Protab Packages to the separate performance obligations in the contract.

part 1 & 2

Prepare a journal entry to record sales of 90,000 Protab Packages (ignore any sales of extended warranties). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

part 3

Question 1(a) “Chain Saw”AL and Sunbeam (1995-1998)AL Dunlop was proud of the fact that he was at the bottom of his West Point class (he did graduate). Afrightening thought worthy of Dr.Strangelove is that as an officer he was assigned to a missile silo and the missiles were armed with nuclear weapons.He was chosen to turn around Scott Paper company. Within six months he had dismissed 11,200 employees including 50 percent of all managers and 70 percent of all corporate staff and paid off a significant amount of Scott’s long term debt. He then sold the company to Kimberly-Clark making over $100 million from his stock options.In the spring of 1995 AL Dunlop gave a talk at the Johnson School in Professor Bierman’s finance course. He received a standing ovation for his talk which stressed that managers should increase shareholder value.That night there was a dinner in his honour at Renees attended by Charles Elson (law school professor and friend of AL), Bob Gibbons, Jerry Hass and Hal Bierman(the last three wereJohnson School professors). It was a dinner from hell. Dunlop insisted on using profanity continuously and incorrectly and insulting each of the professors in sequence. Attempts at peace making were turned into profane tirades. He was actually an unintelligent, dislikeable and uninformed man. The next day a group of students came to Professor Bierman’s office and advocatedALDunlop for Dean of the School. Bierman suggested that they approach the tenth person they met incollegetown and offer the job to that person since he would perform better.July 18, 1996 Dunlop (now 59) was made Chairman of the Board of the Sunbeam Corporation, a company in need of help. On July 17, the stock price was $12.25. By July 19, the stock reached a price of $19.50. This wasthe biggest gain prompted by a chief executive announcement in the history of theNew York Stock Exchange. Professor Bierman took it as a matter of honour to sell the stock short.

Sunbeam paid Dunlop a salary of $1 million a year,2.5 million options to buy at $12.25 and one million shares of restricted stock(worth $18 million). The total package has a value in excess of $38 million.By August 8, he had dismissed the president of Sunbeam’s household products group, the chief financial officer, the chief operating officer North America, and the vice president of strategic planning for North America. Sunbeam had 60 staff people at its Fort Lauderdale headquarters. The market expected headcount reductions. Dunlop sent the following press release “I set as an initial goal the quick appointment of a highly focused management team to provide leadership in the transition to the Sunbeam Corporation”. He also stated “if you can’t rum a company around in a year, you can’t do it at all”.In November 1996, Dunlop announced a major restructuring.Headcount will be reduced by 50% to 6,000. Some of the reductions willbe the result of divestitures. In January 1997, Sunbeam sold its clock, timers, and thermometer units to CIT Group Holdings for $8 million (the units generated $20 million in annual revenues). By the first quarter of 1997, Sunbeam had a positive (but small) profit, Sales were almost as high as in 1995 but not as high as the first halfof 1996.But some critics pointed out that there were last minute sales drives in the first quarter of 1997, including deliveries when the orders had been cancelled because of failure to deliver in time.Dunlop said “we are definitely on schedule and we will probably deliver better results than we expected “.The stock price broke through $30.Professor Bierman sold short more shares.By December 1997,the stock price reached $41.Professor Biermancovered his short position having lost all faith in the efficiency of the stock market.by the end of 1997,the stock reacheda high of $50 7/16 and the company reported net earnings of $109.4 million ($1.41 per share) for the year.In the fall of 1997, Dunlop hired Morgan Stanley to sell Sunbeam. The $50 stock price precluded any bids. Dunlop decided if he could not sell then he would buy. In March1998, Sunbeam purchased Coleman Corporation for $2.2 billion and Signature Brands and First Alert for $425 million. Now Sunbeam had over $2 billion of in debt and itsnet worth was a negative $600 million.

By June 8, 1998, the business press wondered whether Dunlop had manufactured Sunbeam’s 1997 earnings by accelerating the bookings of sales and various accounting tricks .one author estimated the inflation in profits to be $120 million. This estimate was probably too low.On Saturday, June 13, 1998, AlbertJ. Dunlop was fired by Sunbeam. The motion to remove Dunlop was made by Charles Elson, Dunlop’s good friend and staunch alley in the pursuit of shareholders rights. Elson was an honourable person who voted on behalf of Sunbeam’s shareholders and against his friend. Sunbeam’s stock had fallen to $18.0625 on Friday, June 12. The stock continued to fall to $11.25 by June 29. The stock price decline continued with the stock price falling below ten in July (Biermann was right, if poorer).On April 22, 1999, Sunbeam reported a loss of $898 million for 1998. Its warehouses were full of finished goods inventories. The stock sold for $5.375. Finally, AL Dunlop announced that he was ready to another corporation.Required:(i)ALDunlop was a great success at Scott Paper selling out to Kimberly-Clark at a fine profit. Why was he a failure at Sunbeam?(ii)With hindsight we know AL at Sunbeam was a disaster. What hints were there that maybe he was not going to be a success at Sunbeam?(iii)What generalizationsare there?(iv)Sunbeam reported $109.4 million of income for the year 1997. What accounting related actions could Sunbeam have taken that would inflate 1997 income?(v)What real actions in 1996 and 1997 would tend to increase income? Which of these actions are desirable?(vi)As a consultant hired in 1996 would you doas Dunlop wants you to do or would you do what you think is best for Sunbeam? Assume Dunlop’s actions will harm Sunbeam’s stockholders and employees.