Ghost, Inc., has no debt outstanding and a total market value of $200,000. Earnings before interest and taxes, EBIT, are projected to be $26,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 12 percent higher. If there is a recession, then EBIT will be 25 percent lower. The company is considering a $65,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 10,000 shares outstanding. Ignore taxes for this problem.

a-1. Calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

a-2. Calculate the percentage changes in EPS when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

b-1. Calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes through with recapitalization. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

b-2. Given the recapitalization, calculate the percentage changes in EPS when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

a-1.Recession EPS

Normal EPS

Expansion EPS

a-2.Recession percentage change in EPS%

Expansion percentage change in EPS%

b-1.Recession EPS

Normal EPS

b-2.Expansion EPS

Recession percentage change in EPS%

Expansion percentage change in EPS%

Munoz Company produces commercial gardening equipment. Since production is highly automated, the company allocates its overhead costs to product lines using activity-based costing. The costs and cost drivers associated with the four overhead activity cost pools follow:

Production of 860 sets of cutting shears, one of the company’s 20 products, took 250 labor hours and 9 setups and consumed 20 percent of the product-sustaining activities.

Required

1. Had the company used labor hours as a company wide allocation base, how much overhead would it have allocated to the cutting shears?

2. How much overhead is allocated to the cutting shears using activity-based costing?

3. Compute the overhead cost per unit for cutting shears first using activity-based costing and then using direct labor hours for allocation if 860 units are produced. If direct product costs are $120 and the product is priced at 30 percent above cost for what price would the product sell under each allocation system?

Compute the overhead cost per unit for cutting shears first using activity-based costing and then using direct labor hours for allocation if 860 units are produced. If direct product costs are $120 and the product is priced at 30 percent above cost for what price would the product sell under each allocation system? (Round intermediate calculations and final answers to 2 decimal places.)

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5. Present value

To find the present value of a cash flow expected to be paid or received in the future, you will   the future value cash flow by (1 + I)NN.

What is the value today of a $12,000 cash flow expected to be received eight years from now based on an annual interest rate of 6%?

$9,411

$6,023

$11,670

$7,529

Your broker called earlier today and offered you the opportunity to invest in a security. As a friend, she suggested that you compare the current, or present value, cost of the security and the discounted value of its expected future cash flows before deciding whether or not to invest. The decision rule that should be used to decide whether or not to invest should be:

Everything else being equal, you should invest if the discounted value of the security’s expected future cash flows is greater than or equal to the current cost of the security.

Everything else being equal, you should invest if the present value of the security’s expected future cash flows is less than the current cost of the security.

Everything else being equal, you should invest if the current cost of the security is greater than the present value of the security’s expected future cash flows.

Now that you’ve thought about the decision rule that should be applied to your decision, apply it to the following security offered by your broker:

Jing Associates, LLC, a large law firm in Denver, is building a new office complex. To pay for the construction, Jing Associates is selling a security that will pay the investor the lump sum of $6,750 in five years. The current market price of the security is $5,896.

Assuming that you can earn an annual return of 3.75% on your next most attractive investment, how much is the security worth to you today?

$7,019

$5,334

$5,615

From strictly a financial perspective, should you invest in the Jing security?

Yes

No

Why or why not?

Because the cost (market value) of the security is greater than the discounted value of the security’s future cash flows.

Because the discounted value of the security’s future cash flows is greater than the cost of the security.

A power plant is planning construction of a new plant to generate electricity four years hence and must decide now between a small, medium, or large-sized plant. The exact size needed is uncertain because future demands can only be estimated. Forecasters have estimated future demands and their likelihoods as follows:

            In the following, all the future costs and earnings have been adjusted to their present worth:

1. The capacity of a small plant would limit its NPV to $60 million regardless of demand. If demand is medium, a small plant can be enlarged a moderate amount at a cost of $20 million. Its NPV would then be $110 million less the cost of $20 million for the expansion. If demand is high, a small plant can be enlarged greatly in size at a cost of $80 million. Its NPV would then be $170 million less the cost of $80 million for the expansion. On the contrary, if demand is high, a small plant can be enlarged a moderate amount to increase its NPV to $140 million less the cost of $40 million for the expansion.
2. A medium-sized plant will have an NPV of $120 million if demand is high or medium and a loss of $5 million if demand is low. If demand is high, a medium-sized plant can be enlarged at a cost of $40 million to generate an additional $80 million in earnings.
3. If a large plant is built and demand is high, the plant’s net present value (NPV) is estimated to be $180 million. If the demand is medium, however, the NPV of a large plant will drop to $100 million. If the demand is low the NPV will be loss of $200 million.

Use decision-tree analysis in MS Excel to determine the size of the power-generating plant the company should build now. (Please show the formulas in the cells)

Questions:

1. What size of the power-generating plant the company should build now?

2. Will the answer be the same if you will change the forecasters estimated demands and their likelihoods to:

Please provide a step by step solution

Key the names in indexing order using the ARMA rules. In the upper right corner of each card, key the corresponding number for each name

1. James R. Larsen
2. Bob O’Donald
3. Helen Vandermallie
4. Martha Odell-Ryan
5. Sister Catherine
6. George Harris, Ph.D.
7. Mrs. Georgia Harris
8. Father Jenkins
9. Ty Chen
10. Martha Odellman
11. Allens Swap Shop
12. J. T. Larson
13. Herbert Vander Mallie
14. George Harris, M.D.
15. Mary Allen’s Beauty Shop
16. Marshall Field & Company
17. Georgia Harris
18. Allens’ Print Shop
19. Trans-Continent Truckers
20. George Harris
21. James Larson
22. Hubert Vander Mallie
23. George E. Harris
24. Cayuga Industries
25. North East Fuel Supply
26. AAA Batteries
27. CHAM Radio
28. Higgins Cleaners
29. Electronics Laboratory, General Electric Company
30. Niagara Office Supply
31. Over-30 Club
32. Prince Arthur’s Hair Styling
33. C & H Television Repair
34. First Baptist Church
35. Hotel Isabella

36.   James Danforth, Jr.
37. Burns Travel Agency
38. Strathcona County Water Department
39. Norton R. Henson
40. Sister Marie O’Doul
41. The Lone Ranger Riding Supplies
42. The Jefferson Party House
43. El Rancho Inn
44. Cecil Young-Jones
45. RCT Manufacturers
46. Administrative Management Society
47. Hotel Baker
48. Triple-Star Enterprises
49. Miss Robert’s Charm School
50. Acadia University, Wolfville, Nova Scotia
51. Bob Guerin
52. William T. Au
53. Thomas Kaplan, M.D.
54. Irene McGregor
55. Arthur P. Van der Linden
56. Ontario Municipal Board
57. John Wilkins Supply Corp.
58. Southwestern Distributors
59. Department of Employment and Immigration
60. Four Corners Answering Service
61. Reliable Answering Service
62. Montgomery Ward & Co.
63. South East Pipeline
64. Webbers’ Home for the Aged
65. People’s Republic of China
66. Prince Albert Printing Co.
67. The Mercantile Bank of Canada
68. Aero Bolt and Screw Co., Montreal
69. Strong Memorial Hospital
70. .Surv-Ur-Self Pastries, Inc

1) Donald rents out his vacation home for nine months and lives in his vacation home for the remainder of the year. His gross rental income for 2017 is $7,200. The expenses attributable to the vacation home for the entire year are as follows:

Real estate taxes $2,000

INterest on mortgage loan 4,000

Utilities 1,200

Repairs/maintenance 600

Depreciation 3,500

What amount would Donald report as net income or loss from the rental of the vacation home?

2) Wilson and Joan, both in their 30s, file a joint income tax return for 2017. Wilson's wages are $15,000 and Joan's wages are $23,000 for the year. Their total adjusted gross income is $38,000, and Joan is covered by a qualified pension plan at work but Wilson is not.

a) What is the maximum amount that Wilson and Joan may each deduct for contributions to thier individual retirement accounts?

Wilson $

Joan $

b) If Joan's wages are $82,000 for 2017, instead of $23,000, and thier adjusted gross income is $97,000, what is the maximum amount that Wilson and Joan may each deduct for contributions to thier individual retirement accounts?

Wilson $

Joan $

3) Hope srpings, a teacher, loaned Hugh Owens, a friend, $20,000 to invest in real estate. Hugh declared bankruptcy in 2017 and cannot repay the $20,000

a) What is the nature of Hope's loss? ( what does it called ?)

b) Assuming Hope has no other captial transactions, is there a limit on the amount she may deduct for 2017?

Explain

4) Dennis, the owner of Dennis Company, incurs the following expenses while away from home on a three-week business trip during 2017:

Air fare from Chicago to Boston $800

Hotel charges 2,200

Meal charges 880

Dry cleaning and laundry 100

Local transportation 55

Business entertainment 250

Business gift to Boston manager 55

in addition to the above expenses, Dennis incurred the following expenses for a weekend sightseeing trip to Washington D.C.:

Transportation to Washington DC $350

Hotel charges 225

Meal charges 105

Calcuate the amount Dennis may deduct for 2017 as travel expenses for the trip

Short Answer Writing Assignment All answers should be complete sentences.

In the Week 2 Lab, you found the mean and the standard deviation for the SLEEP variable for both males and females. Use those values for follow these directions to calculate the numbers again.

(From Week 2 Lab: Calculate descriptive statistics for the variable Sleep by Gender. Sort the data by gender by clicking on Data and then Sort. Copy the Sleep of the males from the data file into the Descriptive Statistics worksheet of the Week 1 Excel file. [Write down the mean and standard deviation.] These are sample data. Then, copy and paste the female data into the Descriptive Statistics workbook and do the same. Keep three decimal places.)

You will also need the number of males and the number of females in the dataset. You can actually count these in the dataset. Then use the Week 5 spreadsheet to calculate the following confidence intervals. The male confidence interval would be one calculation in the spreadsheet and the females would be a second calculation.

1. Give and interpret the 95% confidence intervals for males and a second 95% confidence interval for females on the SLEEP variable. Which is wider and why?

2. Give and interpret the 99% confidence intervals for males and a second 99% confidence interval for females on the SLEEP variable. Which is wider and why? We need to find the confidence interval for the SHOE SIZE variable. To do this, we need to find the mean and standard deviation with the Week 1 spreadsheet. Then we can the Week 5 spreadsheet to find the confidence interval. This does not need to be separated by males and females, rather one interval for the entire data set. First, find the mean and standard deviation by copying the SHOE SIZE variable and pasting it into the Week 1 spreadsheet. Write down the mean and the sample standard deviation as well as the count. Open the Week 5 spreadsheet and type in the values needed in the green cells at the top to find the confidence interval.

3. Give and interpret the 95% confidence interval for the size of students’ shoes. Change the confidence level to 99% to find the 99% confidence interval for the SHOE SIZE variable.

4. Give and interpret the 99% confidence interval for the size of students’ shoes.

5. Compare the 95% and 99% confidence intervals for the size of students’ shoes. Explain the difference between these intervals and why this difference occurs.

6. Find the mean and standard deviation of the DRIVE variable by copying that variable into the Week 1 spreadsheet. Use the Week 4 spreadsheet to determine the percentage of data points from that data set that we would expect to be less than 25. To find the actual percentage in the dataset, sort the DRIVE variable and count how many of the data points are less than 25 out of the total 35 data points. That is the actual percentage. How does this compare with your prediction? Mean: ______________ Standard deviation: ____________________ Predicted percentage: Actual percentage: Comparison ___________________________________________________ ______________________________________________________________

7. What percentage of data would you predict would be between 25 and 50 and what percentage would you predict would be more than 50 miles? Use the Week 4 spreadsheet again to find the percentage of the data set we expect to have values between 25 and 50 as well as for more than 50. Now determine the percentage of data points in the dataset that fall within each of these ranges, using same strategy as above for counting data points in the data set. How do each of these compare with your prediction and why is there a difference? Predicted percentage between 25 and 50: ______________________________ Actual percentage: Predicted percentage more than 50 miles: Actual percentage: ___________________________________________ Comparison ____________________________________________________ _______________________________________________________________ Why? __________________________________________________________ ________________________________________________________________