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

Dain’s Diamond Bit Drilling purchased the following assets this year.

Assume its taxable income for the year was $75,500 for purposes of computing the §179 expense (assume no bonus depreciation). (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.)

a. What is the maximum amount of §179 expense Dain's may deduct for the year?

b. What is Dain’s maximum depreciation deduction for the year (including §179 expense)?

c. If the January drill bits’ original basis was $2,520,000, what is the maximum amount of §179 expense Dain's may deduct for the year?

d. If the January drill bits’ original basis was $17,690,000, what is the maximum amount of §179 expense Dain's may deduct for the year?

Develop a simulation model for a 3-year financial analysis of total profit based on the following data and information.

Sales volume in the first year is estimated to be 100,000 units and is projected to grow at a rate that is normally distributed with a mean of 7% per year and a standard deviation of 4%. The selling price is $10, and the price increase is normally distributed with a mean of $0.50 and standard deviation of $0.05 each year. Per-unit variable costs are $3, and annual fixed costs are $200,000. Per-unit costs are expected to in- crease by an amount normally distributed with a mean of 5% per year and standard deviation of 2%. Fixed costs are expected to increase following a normal disribution with a mean of 10% per year and standard de- viation of 3%. Based on 10,000 simulation trials, find the average 3-year cumulative profit.

Generate and explain a trend chart showing net profit by year.

THANK YOU!

(Present value value of an annunity) What is the presnt value of the following annuities ?

a. $2,400 a year for 8 years discounted back to the presnet at 9 percent.

b. $90 a year for 5 years discounted back to the present at 8 percent.

c. 270$ a year for 12 years discounted back to the present at 12 percent.

d. 450$ a year for 6 years discounted back to the present at 5 percent

A.) What is the present value at $2,400 a year for 8 years discounted back to the present a 9 percent? $() round to nearest cent

B.)What is the present value at $90 a year for 5 years discounted back to the present at 8 perecent ? $() round to nearest cent

C.) What is the present value at $270 a year for 12 years discounted back to the present at 12 percent? () round to nearest cent

D.)What is presnt value at $450 a year for 6 years discounted back to the present at 5 perecent ? () round to nearest cent

A prospective MBA student earns $50,000 per year in her current job and expects that amount to increase by 12% per year. She is considering leaving her job to attend business school for two years at a cost of $45,000 per year. She has been told that her starting salary after business school is likely to be $85,000 and that amount will increase by 15% per year. Consider a time horizon of 10 years, use a discount rate of 11%, and ignore all considerations not explicitly mentioned here. Assume all cash flows occur at the start of each year (i.e., immediate, one year from now, two years from now,..., nine years from now). Also assume that the choice can be implemented immediately so that for the MBA alternative the current year is the first year of business school. What is the net present value of the more attractive choice?