Copperhead Resources Corp. is a Wyoming natural resources company. The managers are considering buying the rights to property that has strong potential for copper production from an open pit mine. Managers project the following net cash flows ($ millions):

Year 1: $0

Year 2: $0

Year 3: $12

Year 4: $30

Year 5: $35

Year 6: $18

After year 6, the copper mine will be played out and not profitable to continue mining.

Based on the risk of this project, the managers believe that an appropriate annual discount rate is 11%. What is the value of this project, based on this discount rate?

Express your answer in $ millions to 3 decimal places. (For example, type “10” for “$10 million” or “$10,000,000”; or 11.253 for “$11.253 million” or “$11,253,000”.)

Analysts on Wall Street get paid enormous amounts of money to leave their current firm and bring their clients and business with them to a new firm. The bonus structure for bringing new business to a firm was spread over 6 years. The average analyst was paid $16 million immediately to leave their old firm, $6.5 million at the end of year 1, $7 million at the end of year 2, $8.5 million at the end of year 3, $9 million at the end of year 4, $9 million at the end of year 5, and $11.5 million at the end of year 6. If the appropriate interest rate is 8% APR, what is the value of the deal today? Assume all payments other than the first $16 million are paid at the end of the year.

a. $38,754,932.47

b. $54,754,932.47

c. $49,209,439.75

d. $22,754,932.47

A company has a fiscal year-end of December 31: (1) on October 1, $14,000 was paid for a one-year fire insurance policy; (2) on June 30 the company lent its chief financial officer $12,000; principal and interest at 6% are due in one year; and (3) equipment costing $62,000 was purchased at the beginning of the year for cash.

Prepare journal entries for each of the above transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

1. On October 1, $14,000 was paid for a one-year fire insurance policy.

2. On June 30 the company lent its chief financial officer $12,000; principal and interest at 6% are due in one year.

3. Equipment costing $62,000 was purchased at the beginning of the year for cash.

Five years ago, Mr. K, who runs a restaurant, purchased a nearby site to expand the parking lot for the convenience of customers. For this purpose, 250 million won was loaned from a commercial bank under the condition of repayment of the same amount each year from a floating-rate mortgage product whose repayment interest rate fluctuates every year, and all of it has been repaid over the past five years. At this time, interest rates for five years changed to 5% in the first year, 7.5% in the second year, 10% in the third year, 12.5% in the fourth year and 15% in the fifth year, respectively.

(1) What is the annual real interest rate on this loan?

(2) What is the total interest paid by Mr. D for five years?

For each of the following four separate finance leases scenarios, determine the lease payment that the lessee should use to determine the appropriate lease classification.

a. Lease payments are $3,000 per month plus 5% of lessee net sales. Lessee sales for year one are estimated to be $100,000.

b. Lease payments are computed as the greater of (a) 5% of lessee net sales or (b) $3,000. Lessee sales for year one are estimated to be $100,000.

c. Annual lease payments are 10% of lessee annual sales, with no fixed portion. Lessee sales for year one are estimated to be $100,000.

d. Lease payments total $5,000 in year one and increase each year based on the annual increase in the CPI at the end of the preceding year. The CPI at the end of the current year is expected to be 2%.

Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost is $300,000. If the equipment is purchased, the following earnings before depreciation and taxes will be generated for the next six years. Use Table 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

The firm is in a 25 percent tax bracket and has a 11 percent cost of capital.

a. Calculate the net present value.

b. Under the net present value method, should Oregon Forest Products purchase the equipment asset?

Assume that TarMart purchased equipment at the beginning of fiscal year 2016 for $480,000 cash.  The equipment had an estimated useful life of 8 years and a residual value of $30,000.  

1.         What would depreciation expense be for year 3 under the straight-line method?

2.         What would depreciation expense be for year 3 under the double-declining balance method?

3.         What is the first year in which depreciation expense under the straight-line method is higher than under the declining balance method?

4.         Assume TarMart uses the straight-line depreciation method for its equipment.  Also assume that at fiscal year-end 2020, TarMart sold the equipment purchased at the beginning of fiscal year 2016 for $200,000 cash.  Prepare the journal entry to record the sale of the equipment at year-end 2020.

Bobby's sandwiches started business by acquiring $24,700 cash from the issue of common stock on January 1, Year 1. The cash acquired was immediately used to purchase equipment for $24,700 that had a $3,900 salvage value and an expected useful life of four years. The equipment was used to produce the following revenue stream (assume that all revenue transactions are for cash). At the beginning of the fifth year, the equipment was sold for $4,480 cash. Bobby uses straight-line depreciation.

Required
Prepare income statements, statements of changes in stockholders’ equity, balance sheets, and statements of cash flows for each of the five years. Present the statements in the form of a vertical statements model.