1. The Richardson Oil Company is considering issuing additional debt. They wish to use the yield on their existing debt as a guide to the cost of new debt. They currently have a zero-coupon bond outstanding that has five years to maturity and a current market price of 74⁶₈, or $747.50 per $1,000 par value. Use the Approximate Approach

a. If Richardson’s marginal tax rate is 20%, what is the cost of debt?

b. If Richardson’s marginal tax rate is 30%, what is the cost of debt?

X Co. currently sells 400,000 bottles of perfume each year. Each bottle costs P.84 to produce & sells for P1.00. Fixed costs are P28,000 per year. The firm has annual interest expense of P6,000, preferred stock dividends of P2,000 per year before tax.

a. The degree of operating leverage for X Co. is

2. The degree of financial leverage for X Co. is

The PerottiPharma Company is investigating the relationship between advertising expenditures and the sales of some over-the-counter (OTC) drugs. The following data represents a sample of 10 common OTC drugs. Note that AD = Advertising dollars in millions and S = Sales in millions $.

1. What is the equation of the regression line?
2. State the hypotheses to test for the significance of the regression equation.
3. Is there a significant relationship between dependent and independent variables at alpha=0.05? Why or why not?
4. Interpret the slope of the regression line in the context of the problem.
5. Find the coefficient of determination and interpret its meaning in the context of the problem.
6. Create a 95% prediction interval for Sales if Advertising dollars = $50 million and interpret its meaning.

Exercise 7-28 (Algo) Receivables; transaction analysis [LO7-3, 7-5, 7-6, 7-7, 7-8]

Weldon Corporation’s fiscal year ends December 31. The following is a list of transactions involving receivables that occurred during 2021:

• 1

  Accounts receivable of $3,100 were written off as uncollectible. The company uses the allowance method.

• 2

  Loaned an officer of the company $39,000 and received a note requiring principal and interest at 8% to be paid on March 30, 2022.

• 3

  Record the accrued interest revenue on the discounted note.

• 4

  Record the cash received on the discounted note.

• 5

  Sold merchandise to the Blankenship Company for $26,000. Terms of the sale are 3/10, n/30. Weldon uses the gross method to account for cash discounts.

• 6

  The Blankenship Company paid its account in full.

• 7

  Sold stock with a book value of $6,400 and accepted a $7,400 noninterest-bearing note with a discount rate of 9% due on February 28, 2022.

• 8

  To record the accrual of interest earned on note receivable.

• 9

  To record the accrual of bad debt expense.

An article in the journal PLOS ONE describes a study in which the oviposition preferences of Tecia solanivora, the Central American potato tuberworm or Guatemalan potato moth, are compared across different varieties of Solanum tuberosum (potato).

Suppose that Paul, a plant pathologist, collects a sample of 194 potato plants. Paul records the total number of T. solanivora eggs laid on and around each plant. The egg counts are provided in the data file.

CrunchIt!    CSV   Excel   JMP   Mac Text    Minitab   PC Text   R   SPSS   TI Calc  

Let ? be a random variable taking on values equal to the number of eggs laid on or around each plant.

Compute   x¯ , the mean number of eggs laid on or around each plant. Report your answer to at least two decimal places of precision.

x¯=

eggs

Compute  s , the sample standard deviation of the number of eggs laid on or around each plant. Report your answer to at least three decimal places of precision.

s=

eggs

"EGGCNT"
6
3
3
10
1
80
9
5
5
39
2
0
64
31
21
23
9
17
6
20
2
7
5
30
29
6
52
5
4
1
47
8
15
43
3
23
2
5
54
22
13
12
20
4
2
4
13
75
28
13
72
78
5
78
58
63
60
22
16
48
3
2
81
6
18
1
60
40
15
9
11
39
0
14
2
49
4
52
1
4
0
45
10
0
3
7
3
53
4
0
5
16
20
2
0
0
0
27
1
0
28
1
9
0
0
0
10
0
2
0
31
1
0
10
8
2
10
0
39
42
33
3
2
0
0
0
0
0
7
6
0
2
26
7
32
8
32
1
11
2
1
3
1
0
26
8
0
7
2
1
0
23
0
3
98
3
3
3
0
13
0
2
12
0
10
18
24
115
10
10
0
0
0
2
28
2
0
27
0
3
0
8
0
7
27
29
3
0
70
9
7
17
15
2

Question -2

A state government wants to construct an International Airport. The proposed Airport would be completed in three phases (spread over 10 years) and operations would start after completion of the first phase in next three years. Expected cost of the first phase is Rs 5500 crores. You have been hired by the State Government to consult them on various stages of the bidding process to select an agency/developer that would build, own, operate, and transfer the airport. Please briefly enumerate all the stages of choosing such an agency/bidder right from the very beginning to the finalization of bid process. Also tell the salient features of all the stages enumerated by you.                                                                           

Question -3

Assume that you are heading the HR department in your company. Please enlist any four labour laws you comply with. Please also explain the salient features such as returns submitted, coverage, compliance, benefit details, and authorities concerned (these are indicative only; please mention any specific feature you want to mention) for each law.

Question-4

Please fill in the blanks in the following table. Also mention how you have arrived at a particular result.                                                                                                  

[1] Currency unit is US Dollars

[2] The reference year for our purpose

1. Libby Co. is an unlevered firm. Investors currently expect a 12.75% return on the company’s equity. The company is subject to a 24% corporate tax rate.

1. If earnings before taxes are expected to be $15.85m per year forever, calculate the total value of this company.

Now suppose this company wants to shift its capital structure to add debt. It wants to issue $31.5 million of perpetual debt at a cost of 5.5%.

2. Use the FTE method to calculate the value of the company’s equity after the recapitalization.
3. What is the total value of the company after the recapitalization?
4. Using MMII with taxes, what should be the total value of the company after issuing the debt?
5. What is the debt-equity ratio of this company after the recapitalization?

Suppose the levered company is looking to invest in a new project. The project costs $27 million and will be financed at the debt-equity ratio you calculated in d. The project generates EBIT of $5.9 million in perpetuity.

6. Would you advise Libby to invest in this project? (Hint: use the FTE method…be sure to show how much borrowing you will do and what annual interest costs will be).

Calculate the Cash Flow from Operating Activities for 2018

  NPV=