A company is considering a 5-year project that opens a new product line and requires an initial outlay of $84,000. The assumed selling price is $99 per unit, and the variable cost is $55 per unit. Fixed costs not including depreciation are $21,000 per year. Assume depreciation is calculated using stright-line down to zero salvage value. If the required rate of return is 11% per year, what is the financial break-even point? (Answer to the nearest whole unit.)

Northern Illinois Manufacturing is preparing its budget for the coming year. The first step is to plan for the first quarter of the coming year. Northern Illinois gathered the following information from the managers.

Sales:

Northern Illinois wants to keep 10% of the next month’s unit sales in ending inventory. All sales are on account. 85% of the Accounts Receivable are collected in the month of sale and 15% of the Accounts Receivable are collected in the month after sale. Accounts receivable on December 31 totaled 183,780.

Direct Materials:

The product uses metal, plastic, and rubber. In total, each unit requires 2 pounds of material at an average cost of 0.75 per pound.

Northern Illinois likes to keep 5% of the materials needed for the next month in its ending inventory. Payment for materials is made within 15 days. 50% is paid in the month of purchase and 50% is paid in the month after purchase. Accounts Payable on December 31 totaled $120,595. Raw materials on December 31 totaled 11,295 pounds.

Direct Labor:

Labor requires 12 minutes per unit for completion and is paid at a rate of $18 per hour.

Manufacturing Overhead:

Selling and Administrative Expenses:

Variable selling and administrative cost per unit is $1.60.

Other Information:

The cash balance on December 31 totaled $100,500, but management has decided that it wants to maintain a cash balance of at least $800,000 beginning January 31. Dividends are paid each month at the rate of $2.50 per share for 5,000 shares outstanding. The company has an open line of credit with the First National Bank. The terms of the agreement requires borrowing to be in $1,000 increments at 8% interest. Northern Illinois borrows on the first day of the month and repays on the last day of the month. Reserve repayment, if required, until Northern Illinois can pay the entire amount. A $500,000 equipment purchase is planned for February.

Instructions (Do all parts):

Note: All budgets and schedules should be prepared by month for the first quarter (January, February, and March). Round all figures to the nearest dollar. For labor hours round to whole hours. ALL IN EXCEL

e. Prepare a manufacturing overhead budget.

f. Prepare a selling and administrative budget.

g. Prepare a schedule for expected cash collections from customers.

h. Prepare a schedule for expected payments for materials purchases.

i. Prepare a cash budget.

An insurance company must make payments to a customer of $8 million in one year and $4 million in four years. The yield curve is flat at 9%.

a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase?

b. What must be the face value and market value of that zero-coupon bond?

You are the director of admission office. Your job every year is to decide the number of offer letters to issue to undergraduate degree applicants. For the academic year 2016/2017, the school has a capacity to enroll 7,200 undergraduate students, but the school is so popular that you received more than 20,000 applications. However, you know from past year records many students not only got offer from UBC but also from other good schools in Canada and the US. The yield rate for the school is far less than 100% (the ‘yield rate’ refers to the proportion of students accept the school offers among all the students to whom UBC issue the offer letters). Assume the school has spent large amount of sunk cost in its undergraduate program for a designed capacity to enroll 7,200 students, such as upgrading classrooms, expanding residential houses, hiring additional teaching instructors and administration staff. (a) Will you issue more than 7,200 offer letters for 2016/2017 academic year? (b) What is the trade-off between issuing more than 7,200 offer letters and issuing exactly 7,200 offer letters?(c) How to determine the optimal number of offer letters to issue? What information do you need, and how to get such information?

Pearl Corp. is expected to have an EBIT of $2,400,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $105,000, and $145,000, respectively. All are expected to grow at 20 percent per year for four years. The company currently has $12,500,000 in debt and 1,050,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.5 percent indefinitely. The company’s WACC is 8.9 percent and the tax rate is 21 percent. What is the price per share of the company's stock?

At the age of 55, you want to buy a twenty year-annuity that makes payments of $2,500 per month, earning a monthly rate of 1%. Right now, you’ve got $10,000 to invest to save up and buy that annuity. What is the yearly interest rate you would need to earn to achieve your goal?

Please explain the answer, preferably using Excel

Proposal 1

Pay the family of Boone $300,000 a year for the next 20 years, and $500,000 a year for the remaining 20 years.

Proposal 2

Pay the family a lump sum payment of $5 million today.

Proposal 3

Pay the family of Boone a relatively small amount of $50,000 a year for the next 40 years, but also guarantee them a final payment of $75 million at the end of 40 years.

In order to analyze the present value of these three proposals, attorney Knox Hollister called on a financial expert to do the analysis. You will aid in the process.

Required

1. Assume a discount rate of 6 percent is used, which of the three projects has the highest present value?

In analyzing the first proposal, take the present value of the

20-year $300,000 annuity. Then take the present value of

the deferred annuity of $500,000 that will run from the 21st through the 40th year. The answer you get for the second annuity will represent the value at the beginning of the 21st year (the same as the end of the 20th year). You will need to discount this lump sum value back for 20 years as a single amount to get its present value. You then add together the present value of the first and second annuity.

The second and third proposals are straightforward and require no further explanation.

2. Now assume that a discount rate of 11 percent is used instead of

6 percent. Which of the three alternatives provides the highest present value?

3. Explain why the change in outcome takes place between question 1 and question 2.

4. If Knox Hollister thinks additional punitive damages are likely to be $4 million in a jury trial, should he be more likely to settle out-of-court or go before the jury?

The following information is available from the accounting records of DeWitt Engineering Ltd. for the year ended June 30, 2021:

Instructions
Prepare a combined Statement of Income and Comprehensive Income for the year ended June 30, 2021. The company has a 30% income tax rate and records gains and losses on equity investments as other comprehensive income.

Suppose that 1/2 of all cars sold at a Nissan dealer in a given year are Altimas, 1/3 are Maximas, and the rest are Sentras. Suppose that 3/4 of the Altimas, 1/2 of the Maximas, and 1/2 of the Sentras have a moon roof. Answer the following questions. For each question, first decide whether the probability is a conditional probability or not.

1. What is the probability a randomly selected car has a moon roof?

2. What is the probability that a randomly selected car has a moon roof given it is a Sentra?

3. What is the probability a randomly selected car is a Maxima if it has a moon roof?