Suppose the pure expectations theory of the term structure is correct. You can buy a 2-year discount bond with face value of $1500 for $1360.54. You plan to sell it next year for a price you expect will be $1456.31. a. what is the annual rate of return on 2-year bonds? Explain. b. What is the rate of return on 1-year discount bonds you expect? will it hold next year? explain. c. What is the rate of return on 1-year discount bonds today? why? d. Suppose that, contrary to what you found in part c., the current one-year rate was .04 (4%). Explain what forces would move it to the level you found in part c. (Hint: are there arbitrage opportunities?)

Jaide and Jim plan to send their daughter Sarah (currently 7-year old) to university at the age of 18 for a 4-year undergraduate program in Ontario Tech. University. They intend to invest ANNUALLY in a GIC account, which pays 3.5% interest per year. That is, the first annual deposit occurs today (i.e. 7th birthday) until she turns 17. The university tuition currently is $8,000 per year. It is estimated that the tuitions grow at the inflation rate (2% per year). Tuitions will be paid at the beginning of each year (i.e. when Sarah is 18,19,20, and 21). Assume there is no tax to be paid on the account upon withdrawal. How much should the parents save each year to be able to fully fund their daughter’s university tuition expenses?

Consider the following US treasury rate table expressed in percentage.

What is the the yield to maturity of a 2 year 5% bond with annual payments? (Hint: Use the General Formula to find the price first, then compute the yield to maturity)

Tao Wang is considering leasing space for five years for his Chinese Buffet food establishment. He has three lease options as follows:

1. Fixed lease options:

Pay $5,000 per month for sixty months beginning on the first day of the five-year lease.

Pay $55,000 per year on the first day of each year for five years.

2. Mixed lease option: Pay $25,000 on the first day of each year and 3 percent of annual sales on the last day of each year for five years. The forecasted annual sales are $1,400,000 for the first year, and sales are expected to increase by 5 percent each year.

Assume Tao’s cost of capital is 10 percent.

Determine the Mixed Lease Option

Scenario 2: A firm is considering which of two devices to install to reduce costs. Both devices have a useful live of 5 years and zero salvage value. The firm has a MARR of 12% per year and a reinvestment rate of 10% per year.

Device A costs $10,000 dollars and is expected to save $3,000 annually.

Device B costs $13,500 and will provide cost savings of $3,000 the first year, $3,500 the second year, $4,000 the third year, $4,500 the fourth year, and $5,000 the fifth year.

2A. Which device is the challenger? 2B. Use the defender-challenger approach to calculate the incremental external rate of return for Scenario 2. If the incremental external rate of return is 11.75%, which device would you recommend?

Your client, a publically-traded company, in 2019 acquires $2.5 million of fixed assets. All of these assets are 5 year class MACRS property. The first three years of MACRS depreciation are: First Year $625,000; Second Year 750,000; Third Year $450,000. For book purposes, the company uses a 10 year useful life, straight-line depreciation with no salvage value. Obviously, these assets will create a DTL. How should the DTL be presented for these assets at the end of year 2? Ignore partial year depreciation and assume a 21% tax rate.
a. $105, 000 Long-Term; $78,750 Short-Term
b. $78,750 Long-Term $105,000 Short-Term
c. $183,750 Long-Term
d. None of the above

"Consider two mutually exclusive projects that will be conducted for a total of 6 years. Project A lasts 3 years (so it will need to be repeated 1 time) and has the following cash flow: Year 0 -$18,000; Year 1 $20,000; Year 2 $16,000; Year 3 $18,000. Project B lasts 2 years (so it will need to be repeated 2 times) and has the following cash flow: Year 0 -$17,000; Year 1 $15,000; Year 2 $22,000. Assume both projects can be repeated with the identical cash flows. The interest rate is 16%. Provide the Net Present Worth for 6 YEARS of the project that you should select. If neither project should be selected, enter 0."

A machine can be purchased for $160,000 and used for five years, yielding the following net incomes. In projecting net incomes, straight-line depreciation is applied, using a five-year life and a zero salvage value.

Compute the machine’s payback period (ignore taxes). (Round your intermediate calculations to 3 decimal places and round payback period answer to 3 decimal places.)

Year       Net Income        Depreciation      Net Cash Flow   Cumulative Cash Flow   

0                                              (160,000)             $(160,000)          

1              $10,700                                                                

2              26,700                                  

3              57,000                                  

4              40,100                                  

5              106,800                                                

Payback period =                             

Clair Walsh wishes to purchase​ a(n) $630,000 house. She has accumulated a $110,000 down​ payment, but she wishes to borrow $520,000 on a 25​-year mortgage. For​ simplicity, assume annual mortgage payments occur at the end of each year and there are no loan fees.

Bensen Company started business by acquiring $26,300 cash from the issue of common stock on January 1, Year 1. The cash acquired was immediately used to purchase equipment for $26,300 that had a $3,900 salvage value and an expected useful life of four years. The equipment was used to produce the following revenue stream (assume that all revenue transactions are for cash). At the beginning of the fifth year, the equipment was sold for $4,330 cash. Bensen uses straight-line depreciation. Year 1 Year 2 Year 3 Year 4 Year 5 Revenue $ 7,640 $ 8,140 $ 8,340 $ 7,140 $ 0 Required Prepare income statements, statements of changes in stockholders’ equity, balance sheets, and statements of cash flows for each of the five years.