In: Finance
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You are evaluating a project for The Ultimate recreational tennis racket, guaranteed to correct that wimpy backhand. You estimate the sales price of The Ultimate to be $340 per unit and sales volume to be 1,000 units in year 1; 1,250 units in year 2; and 1,325 units in year 3. The project has a 3-year life. Variable costs amount to $195 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $147,000 in assets, which will be depreciated straight-line to zero over the 3-year project life. The actual market value of these assets at the end of year 3 is expected to be $29,000. NWC requirements at the beginning of each year will be approximately 20 percent of the projected sales during the coming year. The tax rate is 39 percent and the required return on the project is 11 percent. (Use SL depreciation table) |
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What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your final answers to 2 decimal places.) |
In: Finance
You need to consider two projects which have the following cash flows:
Project A requires an initial investment of $10,000 and will generate net cash flows of $5,000 at the end of year 1, $6,000 at the end of year 2, $7,000 at the end of year 3, and $8,000 at the end of year 4. At the end of year 2, maintenance costs of $8,000 will have to be disbursed.
Project B requires an initial investment of $15,500 and will generate starting at the end of each year, net cash flows of $6,000 per year for 6 years (first cash flow in year 1). It will incur maintenance costs of $8,000 at the end of year 3.
Assume that the required return is 12% per annum for both projects.
i. Draw timeline showing the cash flows of projects A and B?
ii. Find the NPV of projects A and B?
iii. Which project should be chosen if Projects A and B are mutually exclusive? Explain.
iv. Which project should be chosen if the Projects A and B are completely independent? Explain.
v. Based on the cash flows of project A, explain why IRR is not an appropriate evaluation technique for this project?
In: Finance
On April 1, Year 1, Marshall Company purchased a used delivery truck paying $23,000 cash and signing a Note Payable for the $14,000 for the remainder of the purchase cost. The Note Payable's interest rate was 6% and has a due date of April 1, Year 2. On the note's due date, Marshall must pay off the principal and the interest.
On April 1, Year 4, after using the truck for three years, the firm spent $4,500 on the truck. 40% of this amount was to repaint the truck to make its appearance like when purchased and the remainder was to install some navigation system to enable more efficient deliveries.
Marshall's fiscal year ends on December 31.
Q: On April 2, Year 4, what amount would appear in the PPE account as the cost basis of this truck?
Q: How much Interest Expense would appear in Marshall's income statement for the year ended December 31, Year 1?
Q: How much Interest Expense would appear in Marshall's income state for the year ended December 31, Year 2?
In: Accounting
XYZ CORP, AN S CORP WITH ONE SHAREHOLDER, SAM:
YEAR 1:
TAX-EXEMPT INCOME $5,000
ORDINARY INCOME 30,000
YEAR 2:
ORDINARY LOSS ($40,000)
CASH DISTRIBUTIONS 15,000
BEGINNING OF YEAR 1:
XYZ HAS AAA AND OAA OF $0, AND ACCUMULATED E&P OF $6,000.
SAM HAS STOCK BASIS OF $10,000 AND DEBT BASIS OF $12,000 (ON LOAN TO XYZ).
QUESTIONS:
A. WHAT IS SAM’S REPORTABLE ITEMS FROM XYZ FOR YEARS 1 AND 2.
(FILL-IN) Items reported by the shareholder SAM:
Year 1:
Ordinary income $
Tax-exempt income
Year 2:
Ordinary loss allowed
B. WHAT ARE BALANCES IN XYZ ACCOUNTS AND SAM’S STOCK AND DEBT BASES AT END OF EACH YEAR.
(use accounts discussed – rows/columns – balances)
C. WHAT IF DISTRIBUTION IN YEAR 2 IS $35,000 INSTEAD OF $15,000?
(FILL-IN) Items reported by the shareholder:
Year 1:
Year 2:
Dividend income $
Ordinary loss allowed
Remaining loss carries over
(and - use accounts discussed – rows/columns – balances)
In: Accounting
In 2020 Coco Corporation signed a contract to construct a major office building for a developer. The construction is expected to take 3 years. The contract price is $50 million. The actual costs incurred each year, the estimated costs of completing the project as of the end of each year, the progress billings for each year, and the collections of those billings each year are presented in the chart below.
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2020 |
2021 |
2022 |
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Actual costs incurred during each individual year |
$10,000,000 |
15,000,000 |
12,500,000 |
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Estimated costs (in future years) to complete, as of the end of each individual year |
30,000,000 |
14,000,000 |
--- |
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Billings during each individual year |
11,000,000 |
16,500,000 |
22,500,000 |
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Collections during each individual year |
10,275,000 |
15,225,000 |
22,000,000 |
In: Accounting
Holland Inc. has just completed development of a new cell phone. The new product is expected to produce annual revenues of $1,350,000. Producing the cell phone requires an investment in new equipment, costing $1,440,000. The cell phone has a projected life cycle of 5 years. After 5 years, the equipment can be sold for $180,000. Working capital is also expected to increase by $180,000, which Holland will recover by the end of the new product’s life cycle. Annual cash operating expenses are estimated at $810,000. The required rate of return is 8%.
1. Prepare a schedule of the projected annual cash flows.
2. Calculate the NPV using only discount factors listed below:
Discount Factor
Year 0 1.00000
Year 1 0.92593
Year 2 0.85734
Year 3 0.79383
Year 4 0.73503
Year 5 0.68058
3. Calculate the NPV using discount factors listed below:
Discount Factor
Year 0 1.00000
Year 1-4 3.31213
Year 5 0.68058
In: Accounting
Nicole’s Getaway Spa (NGS) purchased a hydrotherapy tub system to add to the wellness programs at NGS. The machine was purchased at the beginning of the year at a cost of $25,000. The estimated useful life was five years and the residual value was $1,000. Assume that the estimated productive life of the machine is 10,000 hours. Expected annual production was year 1, 2,550 hours; year 2, 2,300 hours; year 3, 2,050 hours; year 4, 2,100 hours; and year 5, 1,000 hours. Assume NGS sold the hydrotherapy tub system for $7,500 at the end of year 3.The following amounts were forecast for year 3: Sales Revenues $62,000; Cost of Goods Sold $48,000; Other Operating Expenses $4,800; and Interest Expense $1,000. Create an income statement for year 3 for each of the different depreciation methods, ending at Income before Income Tax Expense. (Don't forget to include a loss or gain on disposal for each method.). (Do not round intermediate calculations. Round your answers to the nearest dollar amount.Forcasted income statement.
In: Accounting
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A 40-year maturity bond has a 8% coupon rate, paid annually. It sells today for $957.42. A 30-year maturity bond has a 7.5% coupon rate, also paid annually. It sells today for $969.50. A bond market analyst forecasts that in five years, 35-year maturity bonds will sell at yields to maturity of 9% and that 25-year maturity bonds will sell at yields of 8.5%. Because the yield curve is upward-sloping, the analyst believes that coupons will be invested in short-term securities at a rate of 7%. |
| a-1. |
Calculate the annual rate of return for the 40-year maturity bond. (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Annual rate of return | % |
| a-2. |
Calculate the annual rate of return for the 30-year maturity bond. (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Annual rate of return | % |
| b. | Which bond offers the higher expected rate of return over the five-year period? | ||||
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In: Finance
In: Finance