You observe the following term structure of interest rates (zero-coupon yields, also called "spot rates"). The spot rates are annual rates that are semi-annually compounded.

Compute the six-month forward curve, i.e. compute f(0,0.5,1.0), f(0,1.0,1.5), f(0,1.5,2.0), f(0,2.0,2.5), and f(0,2.5,3.0). Round to six digits after the decimal. Enter percentages in decimal form, i.e. enter 2.1234% as 0.021234.

In all the following questions, enter percentages in decimal form, i.e. enter 2.1234% as 0.021234. Assume semi-annual compounding.

Compute the one-year forward rate in six months, i.e. compute f(0,0.5,1.5)

Compute the one-year forward rate in one year, i.e. compute f(0,1.0,2.0)

Compute the one-year forward rate in two years, i.e. compute f(0,2.0,3.0)

Compute the 1.5-year forward rate in six months, i.e. compute f(0,0.5,2.0)

Compute the 1.5-year forward rate in one-year, i.e. compute f(0,1.0,2.5)

Compute the 1.5-year forward rate in 1.5-years, i.e. compute f(0,1.5,3.0)

Compute the two-year forward rate in six-months, i.e. compute f(0,0.5,2.5)

Compute the two-year forward rate in one-year, i.e. compute f(0,1.0,3.0)

Compute the 2.5-year forward rate in six-months, i.e. compute f(0,0.5,3.0)

1. Performed counseling services for $29,200 cash.
2. On February 1, Year 1, paid $20,400 cash to rent office space for the coming year.
3. Adjusted the accounts to reflect the amount of rent used during the year.

  
Required
Based on this information alone:
a. Record the events in general ledger accounts under an accounting equation.
b. Prepare an income statement, balance sheet, and statement of cash flows for the Year 1 accounting period.
c. Ignoring all other future events, what is the amount of rent expense that would be recognized in Year 2?

Prepare a balance sheet for the Year 1 accounting period. (Do not round intermediate calculations.)

• Prepare a statement of cash flows for the Year 1 accounting period. (Amounts to be deducted should be indicated with a minus sign.)

  	LIFE, INC. Statement of Cash Flows For the Year Ended December 31, Year 1 Cash flows from operating activities: Net cash flow from operating activities $0 Cash flows from investing activities Cash flows from financing activities Net change in cash 0 Ending cash balance $0

• Ignoring all other future events, what is the amount of rent expense that would be recognized in Year 2? (Do not round intermediate calculations.)

  	Rent expense to be recognized in Year 2

Steven Pinker is a 48-year-old bank manager. His wife Carol, 43 years old, works part-time at a daycare. They have three children, 19-year-old Sam, 16-year-old Sarah and 14-year-old Michael. All three children live with them. Steven's only income during the year was $115,000 from employment, Carol earned $12,000 from the daycare, Sam earned $10,000 from his job at Starbucks and Sarah earned $4,000 working part-time at McDonald's. Carol's 72-year-old mother, Ethel, also lives with the family. Ethel had an income of $18,000 during the year, entirely from CPP and OAS. Ethel had one of her legs amputated due to complications from diabetes during the year. It is the opinion of her doctor that she now qualifies for the disability tax credit. During the year Steven spent $13,000 on installing a wheelchair ramp at the back door and a walk-in bathtub in Ethel's bathroom. During the year Steven donated $4,000 to various registered charities. Steven also contributed $1,000 to the Green Party of Canada. Steven paid $10,400 intuition during the year for Sam to attend University full time. During the year, Steven spent the following amounts on medical costs for each family member: Steven $620 Carol 450 Sam 960 Sarah 1,750 Michael 920 Ethel 2,680 Calculate the maximum federal tax credits available to Steven Pinker. Show all calculations.

Problem 7-19A Determination of account balances and preparation of journal entries-percent of receivables allowance method of accounting for uncollectible accounts LO 7-2

The following information is available for Quality Book Sales’ sales on account and accounts receivable:

After several collection attempts, Quality Book Sales wrote off $3,050 of accounts that could not be collected. Quality Book Sales estimates that 4 percent of the ending accounts receivable balance will be uncollectible.

Required
a. Compute the following amounts:

1. (1) Using the allowance method, the amount of uncollectible accounts expense for Year 2.
2. (2) Net realizable value of receivables at the end of Year 2.

amount of uncollectible accounts

net realizable value

b. Record the general journal entries to:

1. (1) Record sales on account for Year 2.
2. (2) Record cash collections from accounts receivable for Year 2.
3. (3) Write off the accounts that are not collectible.
4. (4) Record the estimated uncollectible accounts expense for Year 2. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
5. Record sales on account for Year 2.
6. Record cash collections from accounts receivable for Year 2.
7. record the entry for uncollectible accounts written off
8. Record the estimated uncollectible accounts expense for Year 2.

On October 1, Year 6, Wheeling Company contracted to sell merchandise to a customer in Switzerland at a selling price of CHF422,000. The contract called for the merchandise to be delivered to the customer on January 31, Year 7, with payment due on delivery. On October 1, Year 6, Wheeling arranged a forward contract to deliver CHF422,000 on January 31, Year 7, at a rate of CHF1 = $1.23. Wheeling's’s year-end is December 31.

The merchandise was delivered on January 31, Year 7, and CHF422,000 were received and delivered to the bank.

Exchange rates were as follows:

**For contracts expiring on January 31, Year 7.

Required:

(a) Prepare the journal entries (using net method) that Wheeling should make to record the events described assuming that the forward contract is designated as a cash flow hedge. For Exchange Gains/Losses - OCI account, just use OCI, and the credit or debit will determine if it is a gain/loss

(b) Prepare a partial trial balance of the accounts used as at December 31, Year 6

(c) Prepare the journal entries (using net method) that Wheeling should make to record the events described, assuming that the forward contract is designated as a fair value hedge.

(d) Prepare a partial trial balance of the accounts used as at December 31, Year 6.

On October 1, Year 6, Wheeling Company contracted to sell merchandise to a customer in Switzerland at a selling price of CHF422,000. The contract called for the merchandise to be delivered to the customer on January 31, Year 7, with payment due on delivery. On October 1, Year 6, Wheeling arranged a forward contract to deliver CHF422,000 on January 31, Year 7, at a rate of CHF1 = $1.23. Wheeling's’s year-end is December 31.

The merchandise was delivered on January 31, Year 7, and CHF422,000 were received and delivered to the bank.

Exchange rates were as follows:

**For contracts expiring on January 31, Year 7.

Required:

(a) Prepare the journal entries (using net method) that Wheeling should make to record the events described assuming that the forward contract is designated as a cash flow hedge. For Exchange Gains/Losses - OCI account, just use OCI, and the credit or debit will determine if it is a gain/loss

(b) Prepare a partial trial balance of the accounts used as at December 31, Year 6.

(c) Prepare the journal entries (using net method) that Wheeling should make to record the events described, assuming that the forward contract is designated as a fair value hedge.

(d) Prepare a partial trial balance of the accounts used as at December 31, Year 6.

1. Home Co, a US company making small kitchen appliances, imports plastics from Mexico. Home Co makes an order for next year for plastics, for which it will have to make a payment of MXN150 mn in 1 year. Casa’s finance manager is worried about Mexican Pesos (MXP) because it can be very volatile due to problems in the economy, so he decides to hedge the payable.

He talks to the banks and collects the following information on potential hedging possibilities:

1-year borrowing rate in US$= 3%

1-year deposit rate in US$=1%

1-year borrowing rate in MXN=6%

1-year deposit rate in MXN=4%

Spot rate of MXN= $0.045

1-year forward rate of USMXN=$0.05

Future spot rate of MXN (1-year later)= $0.03 with 70% probability

Future spot rate of MXN (1-year later)=$0.04 with 20% probability

Future spot rate of MXN (1-year later)=$0.05 with 10% probability

Strike price of a 1-year call option = $0.04, premium = $0.005 (per dollar)

Strike price of a 1-year put option = $0.05 , premium= $0.005 (per dollar)

1. By using the relevant information above, calculate the cost of hedging for each of the 3 methods (forward hedge, money market hedge or option hedge) to Casa Co. Which one should the company use, why? (15 points)
2. Would Casa be better off if it did not make the hedge? (5 points)

Kemmerer Pen, a manufacturer of stationary, is considering a new investment that
requires the use of an existing warehouse, which the firm acquired four years ago for $2
million but is currently redundant (unused).
• The warehouse’s market rental price is $200,000 (pre-tax) per year at year zero.
• Rental price for the warehouse will increase at a growth rate of 5% from year 1 to
year 5.
• In addition to using the warehouse, the project requires an up-front investment into
machines and other equipment of $6 million. This investment can be fully
depreciated straight-line over the next six years for tax purposes with a salvage
value of 0.
• However, the company expects to terminate the project at the end of five years and
to sell the machines and equipment for $1.5 million.
• The project requires an initial investment (incur at Year 0) into net working capital
equal to 5% of predicted first-year sales. Subsequently, net working capital is 5%
of the predicted sales over the following year but will be fully recovered at the
end of year 5.
• Sales of pens are expected to be $5 million in the first year and to stay stable for
five years. Total manufacturing costs and operating expenses (excluding
depreciation) are 60% of sales. And profits are taxed at 30%.

a) What are the free cash flows of the project from Year 0 to Year 5 respectively? (6
marks). If the cost of capital is 10%, what is the NPV of the project?

b) If a borrowing interest payment of $600,000 for this project is made per year
during the investing period, will it change Kemmerer Pen’s investment decision?

KK Enterprises is evaluating a project with the following characteristics:

1. Fixed capital investment is $2,000,000.
2. The project has an expected six-year life.
3. The initial investment in net working capital is $200,000. At the end of each year, net working capital must be increased so that the cumulative investment in net working capital is one-sixth of the next year’s projected sales.
4. The fixed capital is depreciated 30 percent in year 1, 35 percent in year 2, 20 percent in year 3, 10 percent in year 4, 5 percent in year 5, and 0 percent in year 6.
5. Sales are $1,200,000 in year 1. They grow at a 25 percent annual rate for the next two years, and then grow at a 10 percent annual rate for the last three years.
6. Fixed cash operating expenses are $150,000 for years 1–3 and $130,000 for years 4–6.
7. Variable cash operating expenses are 40 percent of sales in year 1, 39 percent of sales in year 2, and 38 percent in years 3–6.
8. KK’s marginal tax rate is 30 percent.
9. KK will sell its fixed capital investments for $150,000 when the project terminates and recapture its cumulative investment in net working capital. Income taxes will be paid on any gains.
10. The project’s required rate of return is 12 percent.
11. If taxable income on the project is negative in any year, the loss will offset gains elsewhere in the corporation, resulting in a tax savings.

REQUIRED:

1. Determine whether this is a profitable investment using
   1. NPV
   2. IRR

On January 1, Boston Company completed the following transactions (use a 7% annual interest rate for all transactions): (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) Promised to pay a fixed amount of $7,200 at the end of each year for seven years and a one-time payment of $117,400 at the end of the 7th year. Established a plant remodeling fund of $491,800 to be available at the end of Year 8. A single sum that will grow to $491,800 will be deposited on January 1 of this year. Agreed to pay a severance package to a discharged employee. The company will pay $76,200 at the end of the first year, $113,700 at the end of the second year, and $151,200 at the end of the third year. Purchased a $176,000 machine on January 1 of this year for $35,200 cash. A five-year note is signed for the balance. The note will be paid in five equal year-end payments starting on December 31 of this year.

a.) In transaction (a), determine the present value of the debt. (Round your answer to nearest whole dollar.)

b.) In transaction (b), what single sum amount must the company deposit on January 1 of this year? (Round your answer to nearest whole dollar.)

What is the total amount of interest revenue that will be earned? (Round your answer to nearest whole dollar.)

c.) In transaction (c), determine the present value of this obligation.

d.) In transaction (d), what is the amount of each of the equal annual payments that will be paid on the note?

What is the total amount of interest expense that will be incurred?

Thank you in advance!