Calculate the present worth of all costs for a newly acquired machine with an initial cost of $28,000, no trade-in value, a life of 14 years, and an annual operating cost of $17,000 for the first 5 years, increasing by 10% per year thereafter. Use an interest rate of 10% per year.

The present worth of all costs for a newly acquired machine is determined to be

Which samples do you think are non-biased samples of the population of all students at a college/four‐year university? If it is a biased sample, is there a different population for which you believe the sample could be considered a non-biased sample?

1. A random sample of 100 students from the registrar's student list
2. A random sample of 100 students in the library on a Thursday night
3. A random sample of 100 students in the student center on a Friday night
4. A random sample of 100 students at a basketball game on a Tuesday night
5. A random sample of 10 students from 10 randomly chosen dorms on campus
6. A random sample of 100 students from cars registered on campus

The dean of the College of Business at the University of La Verne has observed for several years and found that the probability distribution of the salary of the alumni’s first job after graduation is normal. The college collected information from 121 alumni and finds that the mean of their salary is $60k. Assuming a 95% confidence level, please do the following 1. Suppose the standard deviation of the collected data from 121 alumni is $3k. Can we conclude that the true mean of alumni salary is different from $58k

(a) What are the null and alternate hypotheses?

(b) Decide on the test statistic and calculate the value of the test statistic (hint: write the equation and calculate the statistic.

(c) Please make the conclusion.

Flounder Corp.’s income statement for the year ended December 31, 2020, had the following condensed information:

There were no purchases or sales of trading (FV-NI) investments during 2020.

Flounder’s statement of financial position included the following comparative data at December 31:

Prepare the operating activities section of the statement of cash flows using the direct method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

eTextbook and Media

Assistance Used

Assume that Flounder Corp.’s current cash debt coverage ratio in 2019 was 4.5. Calculate the company’s current cash debt coverage ratio in 2020. (Round answer to 1 decimal places, e.g. 7.5.)

Mattel, a major US toy manufacturer, virtually gave away The learning company (TLC), a maker of software for toy, to rid itself of a disatrous acquisition. Mattel, which had paid $3.5 billion for TLC, sold the unit to affiliate to Cores Technology Group for rights to a share of future profits. Was this a related or unrelated diversification for Mattel? Explain your answer.? How might your answer to the first question have influenced the outcome?

When did company paid insurance start in the US?

3. XYZ Inc. a US based company expects to receive 10 million euros in each of the next 10 years. At the same time the company needs to obtain 2 million Mexican pesos in each of the next 10 years. The euro exchange rate is presently valued at $1.48 and is expected to depreciate by 3 percent each year over time. The peso is valued at $0.11 and is expected to depreciate by 2.5 percent each year over time. Do you think that the exchange rate movements will have a favorable or unfavorable effect on XYZ Inc. Justify your answer with appropriate example.

1.         Caterpillar, Inc., a US corporation, has sold some heavy machinery to an Italian company for 10,000,000 euros, with the payment to be received in six months. Because this is a sizable contract for the firm and because the contract is in euros rather than dollars, as the Lead Risk Analyst in Caterpillar’s heavy machinery division, you need to make a recommendation to the Treasurer regarding how Caterpillar should hedge the risk arising from this transaction exposure. You have gathered the following information.

• The spot exchange rate is $1.1000/€ (i.e., 1 euro = 1.1000 US dollars)
• The six month forward rate is $1.1050/€
• Caterpillar’s cost of capital is 10% per annum.
• The euro 6-month borrowing rate is 4% per year (or 2% for 6 months)
• The euro 6-month lending rate is 2% per year (or 1% for 6 months)
• The US dollar 6-month borrowing rate is 5% per year (or 2.5% for 6 months)
• The US dollar 6-month lending rate is 3% per year (or 1.5% for 6 months)
• The premium on 6 month put options on the euro with strike rate $1.10 is 2.5%.

You need to compare the hedging alternatives in order to make a recommendation. To that end, you are required to compute the net receipts in dollars of each hedging alternative. The phrase “net receipts in dollars” refers to the (actual or deemed) net cash inflow in dollars in six months time.

a) Suppose that Caterpillar chooses to hedge its transaction exposure using a forward contract. Will Caterpillar sell or buy euros forward? What will be the net receipts in dollars? In other words, what is the amount Caterpillar will receive in dollars in six months time? (2 points)

b) Suppose Caterpillar chooses a money market hedge. What are the transactions that the firm will need to undertake to implement this hedge, and what will be the net receipts in dollars using this hedge? (3 points)

c) Suppose Caterpillar decides to hedge using a put option.

(i) Suppose that the spot rate in 6 months is $1.15 per euro. Will the option be exercised? What will be the net receipts in dollars? (2 points)

(ii) Suppose that spot rate in 6 months is $1.05 per euro. Will the option be exercised? What will be the net receipts in dollars? (2 points)

d) Suppose that you strongly expect the euro to depreciate. In that case, which of the hedging alternatives would you recommend? Briefly justify your recommendation (2 points)

e) Suppose that you strongly expect the euro to appreciate. In that case, which of the hedging alternatives would you recommend? Briefly justify your recommendation (2 points)

f) By how much does the euro need to appreciate to make the put option at least as good an alternative (in retrospect) as the forward contract? In other words, by how much does the euro need to go up in value against the dollar in order for the net cash inflow from the put option to equal the cash inflow from the forward contract? Support your answer with calculations. (2 points)

Caterpillar, Inc., a US corporation, has sold some heavy machinery to an Italian company for 10,000,000 euros, with the payment to be received in six months. Because this is a sizable contract for the firm and because the contract is in euros rather than dollars, as the Lead Risk Analyst in Caterpillar’s heavy machinery division, you need to make a recommendation to the Treasurer regarding how Caterpillar should hedge the risk arising from this transaction exposure. You have gathered the following information. • The spot exchange rate is $1.1000/€ (i.e., 1 euro = 1.1000 US dollars) • The six month forward rate is $1.1050/€ • Caterpillar’s cost of capital is 10% per annum. • The euro 6-month borrowing rate is 4% per year (or 2% for 6 months) • The euro 6-month lending rate is 2% per year (or 1% for 6 months) • The US dollar 6-month borrowing rate is 5% per year (or 2.5% for 6 months) • The US dollar 6-month lending rate is 3% per year (or 1.5% for 6 months) • The premium on 6 month put options on the euro with strike rate $1.10 is 2.5%. You need to compare the hedging alternatives in order to make a recommendation. To that end, you are required to compute the net receipts in dollars of each hedging alternative. The phrase “net receipts in dollars” refers to the (actual or deemed) net cash inflow in dollars in six months time.

a) Suppose that Caterpillar chooses to hedge its transaction exposure using a forward contract. Will Caterpillar sell or buy euros forward? What will be the net receipts in dollars? In other words, what is the amount Caterpillar will receive in dollars in six months time?

b) Suppose Caterpillar chooses a money market hedge. What are the transactions that the firm will need to undertake to implement this hedge, and what will be the net receipts in dollars using this hedge?

c) Suppose Caterpillar decides to hedge using a put option. (i) Suppose that the spot rate in 6 months is $1.15 per euro. Will the option be exercised? What will be the net receipts in dollars? (ii) Suppose that spot rate in 6 months is $1.05 per euro. Will the option be exercised? What will be the net receipts in dollars?

d) Suppose that you strongly expect the euro to depreciate. In that case, which of the hedging alternatives would you recommend? Briefly justify your recommendation

e) Suppose that you strongly expect the euro to appreciate. In that case, which of the hedging alternatives would you recommend? Briefly justify your recommendation

f) By how much does the euro need to appreciate to make the put option at least as good an alternative (in retrospect) as the forward contract? In other words, by how much does the euro need to go up in value against the dollar in order for the net cash inflow from the put option to equal the cash inflow from the forward contract? Support your answer with calculations.

New Assignment 7

USE US GAAP

A) Company A has the following income statement information for the years 2015-2017:

                                                2015 Income           2016 Income           2017 Income

                                                Statement as           Statement as              Statement

                                                   Reported                   Reported                   Totals     

Sales 10,000,000               12,500,000               17,000,000

Cost of Goods Sold           6,200,000                7,250,000                10,260,000

Gross Profit 3,800,000                5,250,000                6,740,000

Operating Expenses          2,100,000                2,835,000                3,219,000

Income from

   Operations 1,700,000                2,415,000                3,521,000

Non-Operating Items           (220,000)                   (171,000)                  (249,000)

Income from

   Continuing Operations 1,480,000                2,244,000                3,272,000

Income Tax Expense 370,000                     561,000                     818,000

Net Income                            1,110,000               1,683,000                2,454,000

During 2017, Company A changed its inventory method from weighted-average to FIFO. This change brought Hogan’s accounting into line with other companies in the industry and was approved by their auditor. Company A will continue to use the weighted-average method for tax purposes. Cost of Goods Sold under FIFO would have been $5,800,000 for 2015 and $6,900,000 for 2016.

For years prior to 2015, the change would have increased income from continuing operations by a total of $3,200,000. Company A is a calendar year company. Assume a tax rate of 25% for all years.

Required: Prepare in good form the complete 2017 Income Statement showing 2015 and 2016 Income Statements for comparative purposes. Additionally, prepare the retained earnings portion of the Statement of Stockholder’s equity for these comparative statements. (The retained earnings balance on January 1, 2015 was $3,654,000) Assume Company A declared and paid $100,000 of cash dividends each year 2015-2017.

Part B. ABC Co. decided on March 3, 2017 to dispose of their Widget Segment. The sale of the segment was completed on November 13, 2017. The disposal of this segment qualifies as a discontinued operation. Income Statement data for ABC for calendar years 2015-2017 are as follows:

                                                               2017                           2016                           2015   

Sales                                                  $3,000,000               $2,700,000               $2,500,000

Cost of goods sold 1,800,000                1,593,000                1,525,000

Operating expenses                          700,000                     680,000                     650,000

These amounts include the operating results for the Widget Segment through its disposal on November 13, 2017. Income Statement data for the Widget Segment separately for 2015-2017 are as follows:

                                                               2017                           2016                           2015   

Sales $450,000                   $600,000                   $700,000

Cost of goods sold 315,000                   408,000                   455,000

Operating expenses                     120,000                   150,000                   130,000

The book value of the assets and liabilities of Widget on November 13, 2017 was 4,800,000. The sales price was 6,210,000. ABC has a tax rate of 28% for 2015 & 2016 and a rate of 25% for 2017.

Additionally, ABC had 800,000 shares of common stock outstanding for the entire three-year period. There was no preferred stock outstanding during any of the years. ABC did have 300,000 stock options with an exercise price of $10 outstanding all three years. The average market price of ABC stock was $12 on 12/31/15, $15 on 12/31/16, and $20 on 12/31/17.

Required: Prepare, in good form, complete comparative Income Statements for ABC for the years 2015-2017 including required earnings per share information.