Assume that the real risk-free rate of return, r*, is 1%, and it will remain at that level far into the future. Also assume that maturity risk premium on Treasury bonds increase from zero for bonds that mature in one year or less to a maximum of 2%, and MRP increases by 0.2% for each year to maturity that is greater than one year – that is, MRP equals 0.2% for two-year bond, 0.4% for a three-year bond, and so forth. Following are the expected inflation rates for the next five years:

Compute the interest rate for 1, 2, 3, and 4-year bond.

If inflation is expected to equal 3% every year after 2021, what should the interest rate be for 5- through 20-year bond?

Draw a graph of the yield curve.

Use the data below to answer the question parts (a) and (b). This data is for forecasting fure sale consdiering additive seasonality approach and answer related questions.

SHOW EACH CALCULATION STEP AND DESCRIBE IT

ROUND answers to 2 decimal points.

PART a) What is the seasonality index for second season (Q2) ?

Part b)   

Assume that we run the regression for the deseasonalized data after calculating seasonality index . We find that regression line slope is 0.4 , and intercept is 2.8. By considering the slope and intercept, what is your final forecast for second season of 2020 by considering both trend and seasonality?

This data is for forecasting future sale considering additive seasonality approach and answer related questions.

PART a) What is the seasonality index for second season (Q2) ?

Part b)   

Assume that we run the regression for the deseasonalized data after calculating seasonality index . We find that regression line slope is 0.4 , and intercept is 2.8. By considering the slope and intercept, what is your final forecast for second season of 2020 by considering both trend and seasonality?

Part c)

Slope = 0.4, intercept =2.8 for deseasonalized data, what is the absolute error of second season of 2018?

PT. ABC predicts its future dividend profile as follows:
Year Dividend (Rp)
2017 30
2018 10
2019 20
2020 30
2021 35
2022 40
After 2022, ABC assumes constant dividend growth based on 8 percent return on equity (ROE), and 1
0 percent dividend payout ratio. Currently, ABC’s market beta is 1.2 and its market risk premium is 1
0 percent. Meanwhile, the spot price of LQ45 is Rp88, the 6-month LQ45 futures theoretical price is
Rp90.6155, and LQ45 yields 2 percent dividend. Estimate:
(a) Risk free rate (5);
(b) ABC discount rate (5);
(c) ABC intrinsic value in 2018 (10)
Please pick only one correct answer to each sub questions.

MAJOR CASE STUDY

You have commenced work at Alfred’s Accountants, and Alfred has given you a series of tasks to perform.

The first task is as follows:

Alfred hands you a pre-adjustment trial balance of an organisation known as Radcliffe Rifles and a series of notes about Radcliffe Rifles. He then asks you to undertake a series of tasks:

RADCLIFFE RIFLES

Pre-Adjustment Trial Balance as at 30 June 2020

The following transactions have not yet been entered in the accounts.

• Depreciation of equipment is to be charged at the rate of 1% per annum on cost.
• Prepaid Rent expired during the period $5600.
• A customer paid a deposit of $5000, inventory will be delivered on 5 July 2020.
• Wages owing at 30 June 2020 were $850.
• Accounts payable paid $12500.
• Prepaid annual insurance $1200, policy commencing from 1 July 2020.
• Accounts receivable collected 7500.
• On 30 June 2020 office supplies on hand $400.
• Radcliffe Rifles rented out the basement of the premises for $2000 per month. The tenant has not yet paid the June rent.
• Bad debt written off $500.

Task 1.

Required:

Mr Alfred instructs you to prepare the journal entries necessary to record above transactions in the General Journal as at 30 June 2020. Narrations are not required.   

Task 2

Required:

Mr Alfred instructs you to prepare an Income Statement for the 6 months ending 30 June 2020.

Task 3

Required:

Mr Alfred instructs you to prepare a fully classified Balance Sheet (using a narrative or T form) as at 30 June 2020. (Note: must use a standard Balance Sheet format with appropriate headings)

On January 1, 2020, Aumont Company sold 12% bonds having a maturity value of $500,000 for $537,907, which provides the bondholders with a 10% yield. The bonds are dated January 1, 2020, and mature January 1, 2025, with interest payable December 31 of each year. Aumont Company allocates interest and unamortized discount or premium on the effective-interest basis. Prepare the journal entry at the date of the bond issuance. (Round answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

a.Prepare the journal entry at the date of the bond issuance

b.Prepare a schedule of interest expense and bond amortization for 2020–2022.

c.Prepare the journal entry to record the interest payment and the amortization for 2020.

d.Prepare the journal entry to record the interest payment and the amortization for 2022.

Prepare the journal entry at the date of the bond issuance. (Round answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Prepare a schedule of interest expense and bond amortization for 2020–2022. (Round answer to 0 decimal places, e.g. 38,548.)

Prepare the journal entry to record the interest payment and the amortization for 2020. (Round answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Prepare the journal entry to record the interest payment and the amortization for 2022. (Round answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

2. (i) Your stockbroker told you about buying stocks on margin last year. You were NOT sure if it is a good investment decision to buy stocks on borrowed funds at the time. You decided to give using margin a try anyway. Your stockbroker bought 100 shares of ABC Corp. on margin for $65 a share. The margin requirement was 60 percent with an interest rate of 6.5 percent on borrowed funds, and commissions on the purchase and sale were 2%. One year after you invested in the stock ABC corp. paid annual dividend of $2 a share and the price of the stock rose to $110 in one year. (12 points)

​

a. What is the percentage earned on the investment if the stock is bought for cash (i.e., the investor did not use margin)?

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b. What is the percentage earned on the investment if the stock is bought on margin?

2 (ii). An investor sells 100 shares short at $22. The sale requires a margin deposit equal to 60 percent of the proceeds of the sale. (8 points)

1. If the investor closes the position at $30, what was the percentage earned or lost on the investment?

2. If the position had been closed when the price of the stock was $17, what would have been the percent earned or lost on the position?

Weihu Corporation is considering building a new factory to manufacture bicycles. Weihu has already spent 300,000 in the R&D expense. The new factory will cost $1,500,000. The expected number of bikes produced and sold is 4000 for the first year, 5000 for the second year and 5500 for the third year. The sales price is $250 per bike in the first year in nominal terms. This price is expected to grow at 3% per year in real terms. The variable costs per bike are $120 in the first year in nominal terms. These costs are expected to increase at 2.5% per year in real terms. The factory requires temporary additional personnel, which will result in additional labor costs of $50,000 per year (in nominal terms), which remains constant in real terms. All costs and sales are incurred at the end of each year. Additional net working capital requirements at the beginning of each year are 15% of expected sales for that same year. The market value of the factory after three years is $1,300,000 in real terms. The asset class is closed upon selling the factory. The CCA rate is 4%, the tax rate is 35%, the expected inflation rate is 2.5% and the required rate of return is 10% in real terms. Calculate the project’s NPV.

For all the following, consider the company, XYZ Inc.

a.         It’s preferred stock pays a dividend of $1.00. If you require a return of 10 percent, what is the most you would pay for their preferred stock today?

b.         Preferred stock is ok, but you really want common stock because of the growth potential. Consider that XYZ just paid a regular dividend of $4. If the required return on equity is 20 percent, what is the most you’d pay for their common stock if you expect the dividend to grow at 10 percent per year?  

c.         After the market closed today, XYZ announced that it will reduce its dividend next year by 75% and by 50% the following year (based on the $4 just paid). Growth is expected to bounce back 50% in the third year, then resume its 10% annual growth rate indefinitely. What is the most you would pay for XYZ common stock when the market opens tomorrow morning?

d.         Closely examine the model you are using to calculate the stock value. List five (5) major factors that the company can control that directly influence the value of its stock in this model. That is, as CEO what can you control?