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?

The following data set provides information on the lottery sales, proceeds, and prizes by year in Iowa.

FY

Sales

Proceeds

Prizes

1992

$166,311,122

$45,678,558

$92,939,035

1993

$207,192,724

$56,092,638

$116,820,274

1994

$206,941,796

$56,654,308

$116,502,450

1995

$207,648,303

$58,159,175

$112,563,375

1996

$190,004,182

$51,337,907

$102,820,278

1997

$173,655,030

$43,282,909

$96,897,120

1998

$173,876,206

$42,947,928

$96,374,445

1999

$184,065,581

$45,782,809

$101,981,094

2000

$178,205,366

$44,769,519

$98,392,253

2001

$174,943,317

$44,250,798

$96,712,105

2002

$181,305,805

$48,165,186

$99,996,233

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Create a graph using the sales and year. What approximate range of sales would you expect for the year 2017?

Select the correct answer below:

Between 250 and 300 million dollars

Between 300 and 375 million dollars

Between 375 and 400 million dollars

Between 500 and 550 million dollars

A project cost $650 and has cash flows of $150 for the first year, $100 for the second year, and $80 in each of the subsequent years. What is the payback period of the project?

If a project requires $10 million investment at year 0, and creates a stream of annual payoffs that grow at 2% per year forever: the first payoff of $1 million arrives in year 1, the payoff in year 2 is $1.02 million (that is, it grows by 2%), and so on. Assume that the cost of capital is 10% per year, and that you face no financial constraint.

a. (5 pt) What is the NPV of the project? Would you accept the project based on NPV rule?

b. (5 pt) Based on IRR rule, would you accept the project? You need to show your calculation.

c. (5 pt) If the required payback period is 5 years, would you accept the project based on the payback rule? Again, you need to show your work (calculations, explanations).

d. (5 pt) If the required payback period is 5 years, would you accept the project based on the discounted payback rule? Show your work (calculations, explanations).

A stock is currently trading at $100. Consider a European call option with 1 year to maturity
and strike price $105. The continuously compounded risk-free interest rate is 10% per annum.
The option currently trade at $7.5 Calculate the implied volatility.

14. John deposits $500 at the beginning of each year for 2 years into a fund that earns 8% annual effective. Half of the interest is reinvested at 10% annual effective and the remaining half is reinvested in John's pocket which will earn 0% interest. Calculate the accumulated value in all accounts after 10 years has passed.

Ward Corp. is expected to have an EBIT of $2,100,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $169,000, $93,000, and $119,000, respectively. All are expected to grow at 18 percent per year for four years. The company currently has $15,000,000 in debt and 840,000 shares outstanding. At Year 5, you believe that the company's sales will be $16,300,000 and the appropriate price–sales ratio is 2.4. The company’s WACC is 8.4 percent and the tax rate is 40 percent.

What is the price per share of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Share price            $

Case Study - Cholera A 25 year old woman is brought into a clinic in Bangladesh during the monsoon season. She is almost comatose, her pulse is weak and she is experiencing tachycardia. She has severe diarrhea, and is producing watery stool at a rate of 950 ml/hr. Her skin appears shriveled, and when a fold of skin is pinched it remains so for several minutes. Microscopic examination of the patient’s stool reveals the presence of a large number of Vibrio cholerae bacteria. The patient cannot drink, so intravenous isotonic NaCl is administered. When the patient is conscious, she is given an oral rehydration solution to drink. It contains NaCl, KCl, NaHCO3 and glucose. After 5 days she is sufficiently recovered to leave the hospital.

1. How did she most likely encounter the bacteria?

2. Why does she exhibit weak pulse and tachycardia? Why is she almost comatose?

3. How did the cholera toxin enter the cells and how did it affect intracellular signal transduction pathways and membrane transport.

4. How do intravenous fluids immediately improve the patient’s condition? Why isotonic NaCl?

5. What is the rationale for the ingredients in the oral rehydration solution?

6. Why does the patient recover in 5 days with this treatment and without antibiotics?