XYZ Company reports the following initial balance and subsequent purchase of inventory. Assume that 2,000 units were sold during the year. Compute the costs of goods sold and balance of inventory for the year on the year-end balance sheet under the weighted average inventory costing methods. Inventory balance at beginning of year 1,400 units @ $150 each 210,000 inventory purchased during the year 800 units @ $180 each 144,000 Cost of goods available for sale during the year 2,200 units 354,000

A. 321,818; 32,182

B. 318,000; 36,000

C. 324,000; 30,000

D. 300,000; 54,000

F Corporation purchased equipment for $450,000. Residual value at the end of the estimated 6 years or 150,000 hours service life is expected to be $60,000.

Using Straight-line depreciation, determine:

1. Book value at the end of year 3      $_____

Using  180% declining balance depreciation, determine:

2. Depreciation expense for year 2     $_____
3. Depreciation expense for year 3     $_____

Using Activity based depreciation, determine:

4. Depreciation expense for year 3    $____
5. Book value at the end of year 3      $____

ADM Co. is planning to purchase a new bottle-corking line for $200,000. The machine falls under the 3-year MACRS category. ADM’s CFO estimates that the company’s EBDT for the next four years will be as follows:

Year 1: $100,000

Year 2: $115,000

Year 3: $95,000

Year 4: $55,000

ADM’s cost of capital is 12% and the company is in the 25% tax bracket.

Hint: determine the annual depreciation, then calculate the cash flow for each year, then determine the PV of the cash flows.

1. What is the proposed investment project’s NPV
2. Should ADM invest in the bottle-corking line?

Answer:

(a) $

(b)

You are offered a one-year forward rate in two-years of 2.5% (i.e. you can enter into a contract today to lock in a 2.5% return on a one-year security purchased in two years). Based on the current yield curve, the implied forward rate on a one-year Treasury security purchased in two years should be 1.85%.

How can you profit from this opportunity? Be specific (i.e. at what rates will you borrow; in which security (ies) would you invest?

Interest Rate Parity  

One year rates are:

US: 2%

EUR: 1.5%

GBP: 3%

The EURUSD rate is 1.10.

The GBPUSD rate is 1.18.

1. What should the 1 year EURUSD forward rate be?

2. What should the 1 year GBPUSD forward rate be?

3. What should the 1 year EURGBP forward rate be?

4. If the 1 year EURUSD forward rate is 1.15, describe the steps needed to earn a riskless profit.

5. If the 1 year GBPUSD forward rate is 1.15, describe the steps needed to earn a riskless profit.

1. Point-of-Sale System: We have two companies that can implement a point-of-sale system. Both with cost $200,000 to implement. Company A says we will receive the following returns on our investment: Year 1: $85,000; Year 2: $25,000; Year 3: $30,000; Years 4–10: $10,000. Company B says we will receive the following returns on our investment: Year 1: $30,000; Year 2: $25,000; Year 3: $85,000; Years 4–10: $10,000. Using the payback method, which company should we use and Why?

solo corp. is evaluating a project with the following cash flows: Year 0 cash flow 29,900 year 1 cash flow 12,100 year 2 cash flow 14,800 year 3 cash flow 16,700 year four cash flow 13,800 year 5 cash flow 10,300. the company uses a discount rate of 11 percent and a reinvestment rate of 8 percent on all of its projects. a calculate the MIRR of the roject using the discouonting approach b. calculate the MIRR of the project using the reinvestment approach. c. calculate the MIRR of the project using the combination approach.

Projecting revenues, cost of goods sold, and inventory

use the following data for Walgreens in years 11 and 12 to project revenues, cost of goods sold, and inventory for year +1. Assume that Walgreen's year +1 revenue growth rate, gross profit margin and inventory turnover will be identical to year 12. Project the average inventory balance in year+1 and use it to compute the implied ending inventory balance.

Walgreens (data in millions) Year 11 Year 12

Sales revenues $53,762 $59,034

Cost of goods sold $38,518 $42,391

Ending inventory $ 6,791 $ 7,249

A wine lover has decided to start a winery. The initial investment will be $5 million on Day 1. The winery will require an additional $1 million dollars investment at very beginning Year 1. The vines will mature over five years. Beginning at the end of year 6, the winery is expected to produce net cash inflows of $2 million, 4 mil in year 7, 6 mil in year 8, 8 mil in year 9 and 10 mil in year 10. What is the NPV, IRR, and Payback (non- discounted and discounted) assuming a discount rate of 15 percent?

The City of San Antonio is considering various options for providing water in its 50-year plan, including desalting. One brackish aquifer is expected to yield desalted water that will generate revenue of $4.1 million per year for the first 5 years, after which less production will decrease revenue by 10% per year each year. If the aquifer will be totally depleted in 23 years, what is the present worth of the desalting option revenue at an interest rate of 5% per year?

The present worth of the desalting option revenue at an interest rate of 5% per year is determined to be $