Fernando Designs is considering a project that has the following cash flow and WACC data. What is the project's regular payback?

WACC: 10.00 %

Year 0 cash flows: -$1,000

Year 1 cash flows: $300

Year 2 cash flows: $500

Year 3 cash flows: $900

5. A project requires an investment of $100m in two years. It is expected to yield $25m after the third year, $25m after the fourth year; in the fifth year it will yield $7m, which will grow at 1% per year over the next five years. What is the project’s NPV at a cost of capital of 15%?

Firm C has Total Assets of $ 4,000,000. The firm’s Owners Equity at the beginning of the year was $2,800,000. The firm’s Net Income for the year was $ 400,000 and Dividends totaled $ 200,000… There was no Owners Investment for the year. Assuming that this information was for year ended 12/31/2007, please present the firm’s Statement of Owners Equity.

At your favorite bond store, you see the following prices: (a) One-year $100 zero selling for $95.2381 (b) Two-year 8% coupon $1000 par bond selling for $1000

(1) Assume that the pure expectations theory for the term structure of interest rates holds, no liquidity premium exists, and the bonds are equally risky. What is the imply one-year rate one years from now? (20 points; use exact formula for all questions)

(2) If there is a liquidity premium of 0.5% for the two-year long rate (i2t), what is the imply one-year rate one years from now? (10 points)

(3) If your company plans to issue two-year coupon bonds but the current one-year rate suddenly increase to 10% and the two-year long rate becomes 9%, what coupon rate that you need to set to sell the bonds at par? (30 points)

The following transactions occurred during the first year of operations for Cougar Corp. for each transaction prepare the year-end adjusting journal entry. Note: these ARE adjusting entries.

a. Cougar Corp. purchased $4,300 in supplies during the year. A count at the end of the year showed that $650 of the supplies are still on hand.

b. Cougar Corp. needs to record depreciation for its Vehicles. The depreciation amount is $4,100.

c. Cougar Corp. owes its employees $5,700 for work performed this year. Cougar Corp. plans to pay the $5,700 in the first week of the next year.

d. Cougar Corp. collected cash of $12,000 from a customer earlier in the year and recorded it properly. $9,500 of the work was performed before year-end and no revenue entries have been recorded yet for this work.

e. Cougar Corp. paid $4,800 on October 1 for 4-months of rent. Since October 1, no entries have been made.

Question 2

Marie started trading as a hairdresseron 1 January 2016. He makes up accounts to 30 Julyeach year. The profits were calculated as:

Period to 31 July 2016                        £18,000

Year to 31 July 2017                           £40,000

Year to 31 July 2018                           £47,500

Year to 31 July 2019                           £48,000                                                          

1. In which tax year did she start trading?
2. Calculate her taxable profits in his first tax year of trading and state the basis period.
3. Calculate her taxable profits in his second tax year of trading and state the basis period.
4. Calculate her taxable profits in his third tax year of trading and state the basis period.                                                                                            
5. Calculate her overlap profits and explain what relief, if any, is available for them.                                                                                                               
6. Describe threeof the ‘badges of trade’ that HMRC will use to determine whether an activity should be classed as trading.                                                                                                                                                                                      

Double checking my answers.....

Question 1

You have $1,000,000 of available capital and the following independent investment opportunities of equal risk.

Project A: Cost = $500,000 and NPV = $60,000

Project B: Cost = $1,000,001 and NPV = $135,000

Project C: Cost = $750,000 and NPV = $90,000

Project D: Cost = $260,000 and NPV = $35,000

Which should be rejected?

Answers;

Projects A, C & D

Projects A, B & D

Projects B & C

Projects A & B

I chose Projects A, C & D

Question 2

How long should you keep the following company?

WACC = 8%

CF Year 0 = $1,500,000

Salvage = $1,500,000

CF Year 1 = $750,000

Salvage = $1,250,000

CF Year 2 = $600,000

Salvage = $425,000

CF Year 3 = $800,000

Salvage = $0.00

Answers:

Year 1

Year 2

Year 3

I chose Year 1