Triad Corporation has established a joint venture with Tobacco Road Construction, Inc., to build a toll road in North Carolina. The initial investment in paving equipment is $80.6 million. The equipment will be fully depreciated using the straight-line method over its economic life of five years. Earnings before interest, taxes, and depreciation collected from the toll road are projected to be $12.7 million per annum for 20 years starting from the end of the first year. The corporate tax rate is 40 percent. The required rate of return for the project under all-equity financing is 13 percent. The pretax cost of debt for the joint partnership is 9.1 percent. To encourage investment in the country’s infrastructure, the U.S. government will subsidize the project with a $25.6 million, 15-year loan at an interest rate of 5.6 percent per year. All principal will be repaid in one balloon payment at the end of Year 15.

What is the adjusted present value of this project? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Problem 21-2 (Essay)

Cleveland Inc. leased a new crane to Abriendo Construction under a 5-year noncancelable contract starting January 1, 2017. Terms of the lease require payments of $33,000 each January 1, starting January 1, 2017. Cleveland will pay insurance, taxes, and maintenance charges on the crane, which has an estimated life of 12 years, a fair value of $240,000, and a cost to Cleveland of $240,000. The estimated fair value of the crane is expected to be $45,000 at the end of the lease term. No bargain-purchase or -renewal options are included in the contract. Both Cleveland and Abriendo adjust and close books annually at December 31. Collectibility of the lease payments is reasonably certain, and no uncertainties exist relative to unreimbursable lessor costs. Abriendo’s incremental borrowing rate is 10%, and Cleveland’s implicit interest rate of 9% is known to Abriendo.

1. Identify the type of lease involved and give reasons for your classification. Discuss the accounting treatment that should be applied by both the lessee and the lessor.

2. Discuss what should be presented in the balance sheet, the income statement, and the related notes of both the lessee and the lessor at December 31, 2017.

Triad Corporation has established a joint venture with Tobacco Road Construction, Inc., to build a toll road in North Carolina. The initial investment in paving equipment is $81.8 million. The equipment will be fully depreciated using the straight-line method over its economic life of five years. Earnings before interest, taxes, and depreciation collected from the toll road are projected to be $13.9 million per annum for 20 years starting from the end of the first year. The corporate tax rate is 34 percent. The required rate of return for the project under all-equity financing is 15 percent. The pretax cost of debt for the joint partnership is 10.3 percent. To encourage investment in the country’s infrastructure, the U.S. government will subsidize the project with a $26.8 million, 15-year loan at an interest rate of 6.8 percent per year. All principal will be repaid in one balloon payment at the end of Year 15. The company issued subsidized debt instead of issuing debt at the terms it normally would. Assume the face amount and maturity of the debt issue are the same. Calculate the gain or loss from subsidized debt.

Please do not use excel or copy

Estimate the present market value of a 10-unit apartment house given the following information pertaining to the property.

Each apartment has 1000 square feet of living area, 3 bedrooms, and kitchen appliances. Tenants pay their own utilities. The value of the land is $250,000. The estimate replacement value is $100 per square foot for this type of construction. Total operating expenses insurance and property taxes for the year, $25,000. The rental income, $6000 month/allow 5% for vacancy and non-payment. Management fees are 6% of total rents collected. The building is 20 years old and has an estimate future useful life of 20 more years. A first mortgage is available at 6% for 75% of the purchase price. Equity will be used as the other 25% of the purchase price and the owner requires a return of 12% on the equity investment.

Compute the following:

A) Net income before capitalization

B) Capitalization rate adjusted for recapture

C) Estimated value of this property using the income approach

D) Estimated value using the replacement cost approach

Show all work.

Roads Ltd is a construction company that builds roads and related civil projects. The company recently faced increased calls from investors to pay dividends due to the perceived lack of new profitable projects in a low growth economy. The company has, in spite of weak business sentiment, maintained a stable profit margin. At a recent meeting, the board resolved to adopt a residual approach to dividend payments. You have been tasked with recommending the dividend that should be paid at the end of the 2018 financial year. The company expects to have earnings available to common shareholders of R 60 million and it will have five million shares in issue at the end of the financial year. Its project schedule for the next financial year is as follows: Project A B C D IRR 18% 15% 14% 11% Cost (Rm) 20 15 21 16 The company has a WACC of 8% and a target debt ratio of 60%. Required: Determine the amount of earnings available to common shareholders that could be paid out as a divided according to the residual policy. Create a brief report for the board showing the projects that would be undertaken and also determine the dividend that could be paid.

16. Each of the following is an example of an asset's involuntary conversion except

A) a condemnation of property.

B) a theft of the asset.

C) the sale of a fully depreciated asset.

D) a fire damaging an asset.

17. During self-construction of an asset by Samuelson Company, the following were among the costs incurred:

Fixed overhead for the year

Portion of $1,000,000 fixed overhead that be allocated to asset if it were normal

Variable overhead attributable to self con

What amount of overhead should be included in the cost of the self-constructed asset?

A) $90,000

B) $ -0-

C) $140,000

D) $50,000

18. The major difference between the service life of an asset and its physical life is that

A) service life refers to the length of time an asset is of use to its original owner, while physical life refers to how long the asset will be used by all owners.

B) physical life is always longer than service life.

C) service life refers to the time an asset will be used by a company and physical life refers to how long the asset will last.

D) physical life is the life of an asset without consideration of salvage value and service life requires the use of salvage value.

A construction project has indirect costs totaling $40,000 per week. Major activities of the project, their expected time, and crashing costs per week are:

What would be your recommended lowest cost duration for this project? Show your work. For each step specify what activity is crashed and show why.

Star Industries owns and operates landfills for several municipalities throughout the Midwestern part of the U.S. Star typically contracts with the municipality to provide landfill services for a period of 20 years. The firm then constructs a lined landfill​ (required by federal​ law) that has capacity for five years. The

​$9million expenditure required to construct the new landfill results in negative cash flows at the end of years​ 5, 10, and 15. This change in sign on the stream of cash flows over the​ 20-year contract period introduces the potential for multiple​ IRRs, so​ Star's management has decided to use the MIRR to evaluate new landfill investment contracts. The annual cash inflows to Star begin in year 1 and extend through year 20 are estimated to equal $4.1 million​ (this does not reflect the cost of constructing the landfills every five​ years). Star uses a

10.2% discount rate to evaluate its new​ projects, so it plans to discount all the construction costs every five years back to year 0 using this rate before calculating the MIRR.

a.  What are the​ project's NPV,​ IRR, and​ MIRR?

b.  Is this a good investment opportunity for Star​ Industries? Why or why​ not?

1. Which of the following statements is NOT true about the Revenue Management?
a. Revenue management is based on setting and updating prices.
b. Revenue management is originated in the airline industry.
c. Through revenue management, the firms can allocate their capacity to different fare classes over time in order to maximize revenue.
d. Revenue management focuses on shaping demand via controlling supply under the limited capacity.

2. According to the Littlewood’s Rule, which of the following does NOT generate pressure to increase the booking limit?
a. Increase in the full-fare price
b. Increase in the discount-fare price
c. Increase in the plane capacity
d. Decrease in the average full-fare demand

3. A hotel has 200 rooms and the historical show rate is 90%. What will be the (closest) optimal overbooking level given by the deterministic overbooking heuristic?
a. 222
b. 180
c. 200
d. None of the above
e. 220