The net income reported on the income statement for the current year was $323,000. Depreciation recorded on equipment and a building amounted to $90,060 for the year. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:

Required:

A U.S. company has a ¥750 million payable due in one year to a bank in Japan. The current spot rate S($/¥) = $0.0086/¥ and the one-year forward rate F360($/¥) = $0.0092/¥. The annual interest rate is 3 percent in Japan and 6 percent in the United States.

a. How to implement a hedge using a forward contract? Compute the guaranteed dollar payment in one year using the forward hedge.

b. How to implement a money market hedge? Compute the guaranteed dollar payment in one year using money market hedge.

c. If the U.S company decides to hedge using call option on yen, what would be the dollar payment in one year? Assume that the spot exchange rate S($/¥) = $0.0092/¥ in one year. Also suppose that a one-year call option on yen has an exercise price of $0.0086/¥ and a premium of $0.00012/¥.

A stock is expected to pay the following dividends: $1.0 in 1 year, $1.5 in 2 years, and $2.0 in 3 years, followed by growth in the dividend of 5% per year forever after that point. The stock's required return is 12%. The stock's current price (Price at year 0) should be $____________.

Imagine you are a first year graduate student at an institution in the US. You have decided to hold a "friendsgiving" feast the weekend before Thanksgiving, including some of your classmates and friends from other departments. One of your guests, who is studying physics, asks you what the biological differences between "dark" meat and "white" meat are. Identify three differences between dark and white meat, and explain the biological significance or implication of each in 1 sentence.

1. At the beginning of its fiscal year 2019, an analyst made the following forecast for KMG, Inc. (in millions of dollars):

Suppose these numbers were given to you at the end of 2018, as forecasts, when the book value per share was $8.75, as indicated and market price of the stock was $10.50 per share. Use a required return of 9 percent for calculations below. You have to fill in the table below to show your working process.

a. Calculate residual earnings (RE) and return of common equity (ROCE) for each year, 2019–2023.                                                                                                                                       

                           [5 marks]

b. Value the firm at the end of 2018 under the assumption that the ROCE in 2023 will continue at the same level subsequently.                                                                         

[3 mark]

c. Based on your estimate, should investors buy the share of this company?    

[2 mark]

At the end of its fiscal year 2019, an analyst made the following forecast for ABC, Inc. (in millions of dollars):

ABC has a net debt of $823. Assume that free cash flow will grow at 4 percent per year after 2023. ABC had 300 million shares outstanding at the end of 2019, trading at $75 per share. Using a required return of 10 percent, calculate the following for ABC at the end of 2019 (You have to fill in the table below to show your working process):

1. The enterprise value                                                                          

[5 marks]

2. Equity value                                                                                       

[2 marks]

3. Equity value per share                                                                                   

[2 marks]

4. Based on your estimate, should investors buy the share of this company?

[1 mark]

You are set to receive an annual payment of $11,800 per year for the next 14 years. Assume the interest rate is 6.7 percent. How much more are the payments worth if they are received at the beginning of the year rather than the end of the year?

a. $6820.28

b. $6600.28

c. $6270.26

d. $7392.31

e. $7040.29

Begining of year 1

The firm purchased 30% of C Corp. for $700,000. At the time C. Corp. reported assets with a net book value of $2,000,000. The firm accounts for the securities using the equity method. The $100,000 excess of the implied fair value over book value is attributable to intangible assets that are amortized over 5 years.

Pre tax accounting income for year 1: $900,000

C corp income(100%) : $300,000

C corp dividend(100%): $120,000

Pre tax accoutning income for year 2: $1,200,000

C corp income (100%): $500,000

C corp dividend(100%): $140,000

Tax rate 30%.

Taxable income? Deferred tax liability? Deferred liability?

Inventory Valuation under Absorption Costing and Variable Costing

At the end of the first year of operations, 4,100 units remained in the finished goods inventory. The unit manufacturing costs during the year were as follows:

Determine the cost of the finished goods inventory reported on the balance sheet under (a) the absorption costing concept and (b) the variable costing concept.

Acme Co. is considering a four-year project that will require an initial investment of $12,000. The base-case cash flows for this project are projected to be $12,000 per year. The best-case cash flows are projected to be $19,000 per year, and the worst-case cash flows are projected to be –$3,000 per year. The company’s analysts have estimated that there is a 50% probability that the project will generate the base-case cash flows. The analysts also think that there is a 25% probability of the project generating the best-case cash flows and a 25% probability of the project generating the worst-case cash flows.

What would be the expected net present value (NPV) of this project if the project’s cost of capital is 14%?

$15,424

$17,138

$17,995

$16,281

Acme now wants to take into account its ability to abandon the project at the end of year 2 if the project ends up generating the worst-case scenario cash flows. If it decides to abandon the project at the end of year 2, the company will receive a one-time net cash inflow of $3,000 (at the end of year 2). The $3,000 the company receives at the end of year 2 is the difference between the cash the company receives from selling off the project’s assets and the company’s –$3,000 cash outflow from operations. Additionally, if it abandons the project, the company will have no cash flows in years 3 and 4 of the project.

Using the information in the preceding problem, find the expected NPV of this project when taking the abandonment option into account.

$22,128

$21,166

$20,204

$19,242

What is the value of the option to abandon the project?   

1473

2209

2104

1578

1683