Personal Budget

At the beginning of the school year, Priscilla Wescott decided to prepare a cash budget for the months of September, October, November, and December. The budget must plan for enough cash on December 31 to pay the spring semester tuition, which is the same as the fall tuition. The following information relates to the budget:

a. Prepare a cash budget for September, October, November, and December. Enter all amounts as positive values except cash decrease which should be indicated with a minus sign.

b. Are the four monthly budgets that are presented prepared as static budgets or flexible budgets?

c. What are the budget implications for Priscilla Wescott?

Priscilla can see that her present plan   sufficient cash. If Priscilla did not budget but went ahead with the original plan, she would be $   at the end of December, with no time left to adjust.

Bruin Inc. will have earnings of $15 million next year and is projected to grow at a constant rate of 6 percent forever. All earnings are paid out as dividends to shareholders.

The company plans to launch a new project three years from now that will cost $10 million. The project will increase the firm's annual earnings by a constant $8.3 million every year forever starting one year later (i.e. 4 years from now).

What is the market value of the company stock? The discount rate is 16 percent.

Select one:

a. $192 million

b. $65 million

c. $121 million

d. $27 million

e. $177 million

Discount Amortization

On the first day of the fiscal year, a company issues a $3,000,000, 11%, five-year bond that pays semiannual interest of $165,000 ($3,000,000 × 11% × ½), receiving cash of $2,889,599.

Journalize the first interest payment and the amortization of the related bond discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

A 10-year zero coupon bonds was issued with a yield to maturity of 5% You are an investor with a one-year holding period with an ordinary income tax of 40% and capital gain tax of 20%. Assume in one year the interest rate remains the same. Determine:

1. 1. The current price of the bond
2. 2. The price of the bond at the end of the year
3. 3. The after tax holding period return

Domino Corporation is considering a 3-year project with an initial cost of $470,000. The project will not directly produce any sales but will reduce operating costs by $143,000 a year. The equipment is classified as MACRS 7-year property. The MACRS table values are .1429, .2449, .1749, .1249, .0893, .0892, .0893, and .0446 for Years 1 to 8, respectively. At the end of the project, the equipment will be sold for an estimated $223,000. The tax rate is 25 percent and the required return is 12 percent. An extra $30,000 of inventory will be required for the life of the project. What is the total cash flow for Year 3? (Hint: remember to recover NWC investment when project ends)

$240,719.50

$264,384.00

$295,764.50

$331,087.30

$376,433.50

In order to estimate the mean 30-year fixed mortgage rate for a home loan in the United States, a random sample of 24 recent loans is taken. The average calculated from this sample is 6.80%. It can be assumed that 30-year fixed mortgage rates are normally distributed with a population standard deviation of 0.5%. Compute 95% and 99% confidence intervals for the population mean 30-year fixed mortgage rate. (Round intermediate calculations to at least 4 decimal places. Round "z" value to 3 decimal places and final answers to 2 decimal places. Enter your answers as percentages, not decimals.)

Confidence Level Confidence to Interval

95%.   ________% to  _______%

99%. ________% to  _______%

1. You are trying to decide between investing $3,000 or $4,000 at the beginning of each year for the next 20 years into a retirement account yielding 11%. After 20 years, how much extra money would you have in your account if you invested $4,000 annually versus $3,000 annually?--------------------------------------------------------------------------------------------------
2. If 4 years of college tuition cost $15,000 in 2015 what did a college education cost in 1990 if tuition increased at 7% per year between 1990 and 2015? -------------------------------------------------------------------------------------------------------------
3. If you invest $1,500 at the beginning of each year into an account which averages a return of 12%, approximately how long will it take to accumulate $50,000 in the account?

Personal Budget

At the beginning of the school year, Priscilla Wescott decided to prepare a cash budget for the months of September, October, November, and December. The budget must plan for enough cash on December 31 to pay the spring semester tuition, which is the same as the fall tuition. The following information relates to the budget:

a. Prepare a cash budget for September, October, November, and December. Enter all amounts as positive values except cash decrease which should be indicated with a minus sign.

b. Are the four monthly budgets that are presented prepared as static budgets or flexible budgets?

c. What are the budget implications for Priscilla Wescott?

Priscilla can see that her present plan sufficient cash. If Priscilla did not budget but went ahead with the original plan, she would be $ at the end of December, with no time left to adjust.

Q1. This year, the standard deviation of revenues is higher in our industry. This indicates competitors’ revenues has become more similar to each other. True or False?

Q2.

68% of these firms have ROAs that range between .23 – .04 and .23 + .04

Where is the number .23 coming from? It’s just the mean ROA in our example. Why am I subtracting .04 from or adding .04 to the mean? It is because the first rule says “1 standard deviation”. Therefore, I translate the above information as follows:

Approximately (      ) firms have ROAs between ( ) and (   ).

Q3.  95% of these firms have ROAs that range between .23 – .08 and .23 + .08

Where is the number .23 coming from? It’s just the mean ROA in our example. Why am I subtracting .08 from or adding .8 to the mean? It is because the first rule says “2 standard deviations”. Since one standard deviation is .04, two standard deviations will be .04+.04 = .08. Therefore, I translate the above information as follows:

Approximately, (       ) firms have ROAs between (   ) and ( ).

Q4. 99.7% of these firms have ROAs that range between .23 – .12 and .23 + .12

Where is the number .23 coming from? It’s just the mean ROA in our example. Why am I subtracting .12 from or adding .12 to the mean? It is because the first rule says “3 standard deviations”. Since one standard deviation is .04, three standard deviations will be .04+.04+.04 = .12 Therefore, I translate the above information as follows:

Approximately, (     ) firms have ROAs between ( ) and (   ).

Q5.

In a sample of firms, 1^st quartile of their ROAs is 0.05 and 3^rd quartile is 0.37. Which of the following is(are) outlier(s)?

                                                -1.44      -0.88       -0.15       0.09        0.37       0.59     1.28      1.78      2.95

Answer:

Q1 = (   )          Q3=(    )       IQR = ( ) - (   )= ( )

Lower boundary = ( ) – 3 x ( )= (   )

Upper boundary = ( ) + 3 x (   )=   ( )

Therefore, any number below (   ) or above ( ) will be considered as outliers. In the above case, outlier(s) is(are) (            )

Compute the depreciation and book value each year of a machine that costs $67,000 to purchase and $3,000 to install with an 8-year life. Use the double declining balance method with switching to straight line depreciation. (a) Fill out the following table, assuming a $1,000 salvage value. (b) What would be D7 if the salvage value was $18,000?