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

On August 1 of year 0, Dirksen purchased a machine for $28,500 to use in its business. On December 4 of year 0, Dirksen sold the machine for $24,250. Use MACRS Table. (Loss amounts should be indicated by a minus sign. Do not round percentages used for calculations. Round other intermediate computations to the nearest whole dollar amount. Leave no answer blank. Enter zero if applicable.)

a. What is the amount and character of the gain or loss Dirksen will recognize on the sale?

On the first day of the new year to get her business started, the owner/photographer of Exquisite Portraits Inc. paid $200 for business cards, $1,000 for a listing in Yellow Pages, and $250 for an annual business license. She also leased a professional portrait camera and studio lighting equipment by signing an agreement to pay a monthly lease of $1,000 each month for the next 12 months. This lease is ironclad: She must pay for all 12 months, and she cannot sublease to anyone else. She rents her office and studio for $1,400 per month that must be paid at the beginning of each month. She does not have a lease on the office/studio, so she can vacate the office/studio at the end of any month should she decide to move to a new location or to go out of business. After she opens the office/studio on the first day of each month, her monthly cost of electricity for lighting the office and running her coffee machine is constant at $45 per month, because she always keeps the lights on in the office and drinks the same amount of coffee no matter how many photos she shoots each month. Additional electricity is required for the portrait studio lights, which varies directly with the number of hours the lights are used each month for photo sessions. Last year, before starting this business, the owner of Exquisite Portraits Inc. earned a salary of $5,000 per month working at a bank. Answer the following questions about the costs for Exquisite Portraits Inc.: • What are monthly fixed costs, quasi-fixed costs, and variable costs for Exquisite Portraits Inc.? • If the owner of Exquisite Portraits Inc. wants to close her studio and go out of business at the end of August, identify her sunk costs and avoidable costs. • At the end of August, what role would the sunk costs play in the owner /photographer's decision to go out of business? • In making her decision to start her own business, would her decision have been more or less difficult to make if sunk costs were zero at Exquisite Portraits? Explain and show your numbers

A 5-year bond with a yield of 10% (continuously compounded), with a face value of $100, pays an 10% coupon at the end of each year.

What is the bond’s price?

A 5-year bond with a yield of 10% (continuously compounded) pays an 10% coupon at the end of each year.

What is the bond’s duration?

A 5-year bond with a yield of 10% (continuously compounded),   with a face value of $100, pays an 10% coupon at the end of each year.

Use the duration from the previous question to calculate the effect on the bond’s price of a 0.1% decrease in its yield. What is the new bond price?

(Remember if the yield goes down what happens to the the bond price?)

A 5-year bond with a yield of 10% (continuously compounded) pays an 10% coupon at the end of each year.

Check the results from your previous duration calculation the long way.  Recalculate the bond’s price on the basis of a 9.9% per annum yield and verify that the result is in agreement with your answer to the previous question.

Consider an investment that costs $100,000 and has a cash inflow of $25,000 every year for 5 years. The required return is 9%. What is the net present value of this investment?

A) $ -2,758.72

B) $ -857.65

C) $1217.70

D) $10,525

E) $25,000

1. Consider a 5-year bond with a current yield of 8% and a coupon rate of 10% (compounded yearly). One year from now this bond will have a quoted price which is most likely:

1. Higher
2. Lower
3. The same
4. Possibly higher or lower

5. Calculate the price of a 3-year bond with a face value of $50,000, an annual coupon rate of 8% and an annual market yield of 6%. Coupon payments are made semi-annually.
Select one:
a. $52,673
b. $47,379
c. $54,917
d. $52,709

21.On 3rd June, Treasurer of Australia, Josh Frydenberg announced that Australia is in recession after the economy was badly hit by bushfires and the coronavirus pandemic. According to the Bureau of Statistics, Australia’s GDP figures shrank 0.3% in the March quarter, the first quarter of negative growth in nine years.
To deal with recession, which monetary policy do you think the Reserve Bank of Australia (RBA) will use and why? Based on what you have learned in this unit, what effects will this policy have on cash rate, economic activities and inflation rate?

24.Last year, Cooper Technologies Ltd initiated an ambitious research and development (R&D) project aiming to create a unique technology to boost their competitive advantage against peer firms in the field of geospatial surveying. The R&D project was largely financed by the issuance of corporate bonds worth $350 million. The COVID-19 outbreak has caused severe disruptions to the progress of the project, which hence requires an extra funding of $250 million.
To meet the additional budget requirement, Cooper Technologies Ltd has decided to conduct an equity issuance in the form of a renounceable rights issue to shareholders. The issue price of a new share is at 12.18% discount of the current share price of $20.00.
Required (Please label your answers according to parts):
(a) Given that each right is currently traded at $2.03, what is the pro rata basis of the rights issue offer ? (i.e., how many existing shares does it take to obtain the right to subscribe for a new share ?).
(b) What is the theoretical ex-rights share price of Cooper Technologies Ltd?

Markus Company’s common stock sold for $5.50 per share at the end of this year. The company paid a common stock dividend of $0.77 per share this year. It also provided the following data excerpts from this year’s financial statements:     

4. What is the return on total assets (assuming a 30% tax rate)? (Round percentage answer to 1 decimal place. i.e., 0.123 should be considered as 12.3%)

5. What is the return on equity? (Round your answer to the nearest whole percentage place. i.e., 0.1234 should be considered as 12%.)

6. What is the book value per share at the end of this year? (Round your answer to 2 decimal places.)  

7. What is the amount of working capital and the current ratio at the end of this year? (Round "Current ratio" to 2 decimal places.)      

8. What is the acid-test ratio at the end of this year? (Round your answer to 2 decimal places.)

9. What is the accounts receivable turnover and the average collection period? (Use 365 days in a year. Round your intermediate and final answers to 2 decimal places.)

10. What is the inventory turnover and the average sale period? (Use 365 days in a year. Round your intermediate and final answers to 2 decimal places.

11. What is the company’s operating cycle? (Round your intermediate and final answers to 2 decimal places.)  

12. What is the total asset turnover? (Round your answer to 2 decimal places.)      

13. What is the times interest earned ratio? (Round your answer to 2 decimal place.)

14. What is the debt-to-equity ratio at the end of this year? (Round your answer to 2 decimal places.)      

15. What is the equity multiplier? (Round your answer to 2 decimal places.)