LG

Following is the seven-year forecast for LG: (all amounts in $000)

Beginning after year 2026 the annual growth in EBIT is expected to be 1.5%, a rate that is projected to be constant over LG remaining life as an enterprise.   Beginning in 2026 LG capital expenditures and depreciation are expected to offset each other (capex - depreciation = 0) and year to year changes in working capital are expected to be zero (working capital levels remain constant year over year). For discounting purposes consider 2020 as year 1.

Assume a tax rate is 21% and a cost of capital of 7.75%

Calculate the fair market value (NPV) for LG. Assume that the Net Present Value of LG free cash flow for the period 2020 - 2026 is $3000

Crane Limited purchased a machine on account on April 1, 2021, at an invoice price of $325,020. On April 2, it paid $1,820 for delivery of the machine. A one-year, $3,940 insurance policy on the machine was purchased on April 5. On April 19, Crane paid $8,150 for installation and testing of the machine. The machine was ready for use on April 30. Crane estimates the machine’s useful life will be five years or 6,326 units with a residual value of $81,460. Assume the machine produces the following numbers of units each year: 999 units in 2021; 1,507 units in 2022; 1,436 units in 2023; 1,364 units in 2024; and 1,020 units in 2025. Crane has a December 31 year end.

Cost of the machine -334990

Calculate the annual depreciation and total depreciation over the asset’s life using: (Round the depreciation cost per unit to 2 decimal places. Round answers to 0 decimal places, e.g. 5,275.)

Use Double-diminishing-balance method

1. You moved to the United States in 2017 and became a US citizen in early 2019. You have two adult children. Your son is a citizen and resident of Japan. Your daughter is a citizen and resident of Canada. Both children are in need of immediate cash. You own 100% of the stock and serve as President of a very profitable family business which operates as a C-corp. In order to put immediate cash in your childrens’ hands you decide to transfer a 10% ownership interest in the family business to each of your children and declare a substantial dividend. At the same time, you require both children to sign an agreement that they will make a gift of their 10% ownership interest back to you at a time to be selected independently by each child, as long as the gift to you is completed by no later than December 31, 2025. Would you expect the Internal Revenue Service to challenge the validity of the original gift from you to the children? Name and describe as many as possible of the tools (or weapons) you think the IRS might use to challenge the validity of the gifts to your children?

At January 1, 2018, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $29,000 beginning January 1, 2018, the beginning of the lease, and at each December 31 thereafter through 2025. The equipment was acquired recently by Crescent at a cost of $216,000 (its fair value) and was expected to have a useful life of 12 years with no salvage value at the end of its life. (Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $76,131.). Both (a) the present value of the lease payments and (b) the present value of the residual value (i.e., the residual asset) are included in the lease receivable because the two amounts combine to allow the lessor to recover its net investment. Crescent seeks a 10% return on its lease investments. By this arrangement, the lease is deemed to be a finance lease. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1).

What is the effect on earnings for the lessor?

If $300 is invested at a 4% interest rate, how much compound interest will be earned in 4 years?

(Round to the nearest cent and do not enter the dollar sign)

Exactly how many quarters will it take to double:

$40 at 1% per quarter

(Round to two decimal places)

You have set up an investment that pays 5% compounded quarterly but requires deposits of $1,000 at the beginning of each quarter period for 4 years. How much will you have in the account in 4 years?

The account will be worth $ in 4 years?  (Round to 2 decimal places.)

In class and in the videos, I described how bureaucracy is used to promote stability in organizations such as the Roman Catholic Church and the U.S. Marines. Explain the elements of bureaucracy that also help McDonalds make the Big Mac and the Quarter Pounder with Cheese taste and look the same all over the U.S.

Identify whether there is likely an increase or decrease in measured Australian GDP in the following scenarios, and discuss whether GDP is a ‘good’ measure of progress in each case:

(i) a large increase in the proportion of young people volunteering (i.e. spending quality time, unpaid) with the elderly;

(ii) a sharp rise in traffic congestion and the frequency of vehicle accidents.