Equipment maintenance costs for manufacturing explosion-proof pressure switches are projected to be $125,000 in year one and increase by 2.5% each year through year five. What is the equivalent annual worth of the maintenance costs at an interest rate of 10% per year, compounded MONTHLY?

Please do not use excel and show formulas.

Pera inc does not currently pay dividends. The company will start with an annual dividend of $13 at the end of year 4 and will pay the same amount each year until year 8. Thereafter, it will increase the dividends by 2% per year forever. If the required rate of return on this stock is 8%, what is the price of this stock today?

Sadik Industries must install $1 million of new machinery in its Texas plant. It can obtain a 6-year bank loan for 100% of the cost at a 14% interest rate with equal payments at the end of each year. Sadik’s tax rate is 40%. The equipment falls in the MACRS 3-year class.

Alternatively, a Texas investment banking firm that represents a group of investors can arrange a guideline lease calling for payments of $320,000 at the end of each year for 3 years. Under the proposed lease terms, the Sadik must pay for insurance, property taxes, and maintenance.

Sadik must use the equipment if it is to continue in business, so it will almost certainly want to acquire the property at the end of the lease. If it does, then under the lease terms it can purchase the machinery at its fair market value at Year 3. The best estimate of this market value is $210,000, but it could be much higher or lower under certain circumstances. If purchased at Year 3, the used equipment would fall into the MACRS 3-year class. Sadik would actually be able to make the purchase on the last day of the year (i.e., slightly before Year 3), so Sadik would get to take the first depreciation expense at Year 3 (the remaining depreciation expenses would be from Year 4 through Year 6). On the time line, Sadik would show the cost of purchasing the used equipment at Year 3 and its depreciation expenses starting at Year 3.

To assist management in making the proper lease-versus-buy decision, you are asked to answer the following questions:

What is the net advantage of leasing? Should Sadik take the lease? (Round your answer to the nearest dollar.) Explain.
Net advantage to leasing   $
Since the cost of leasing the machinery is -Select-lessgreaterItem 2 than the cost of owning it, the firm should -Select-leasebuyItem 3 the equipment.

Consider the $210,000 estimated residual value. How high could the residual value get before the net advantage of leasing falls to zero? (Round your answer to the nearest dollar.)
  $

Problem 19-05
Lease versus Buy

Sadik Industries must install $1 million of new machinery in its Texas plant. It can obtain a 6-year bank loan for 100% of the cost at a 15% interest rate with equal payments at the end of each year. Sadik’s tax rate is 33%. The equipment falls in the MACRS 3-year class.

Alternatively, a Texas investment banking firm that represents a group of investors can arrange a guideline lease calling for payments of $320,000 at the end of each year for 3 years. Under the proposed lease terms, the Sadik must pay for insurance, property taxes, and maintenance.

Sadik must use the equipment if it is to continue in business, so it will almost certainly want to acquire the property at the end of the lease. If it does, then under the lease terms it can purchase the machinery at its fair market value at Year 3. The best estimate of this market value is $190,000, but it could be much higher or lower under certain circumstances. If purchased at Year 3, the used equipment would fall into the MACRS 3-year class. Sadik would actually be able to make the purchase on the last day of the year (i.e., slightly before Year 3), so Sadik would get to take the first depreciation expense at Year 3 (the remaining depreciation expenses would be from Year 4 through Year 6). On the time line, Sadik would show the cost of purchasing the used equipment at Year 3 and its depreciation expenses starting at Year 3.

To assist management in making the proper lease-versus-buy decision, you are asked to answer the following questions:

1. What is the net advantage of leasing? Should Sadik take the lease? (Round your answer to the nearest dollar.) Explain.
   Net advantage to leasing ?
   Since the cost of leasing the machinery is -Select-lessgreaterItem 2 than the cost of owning it, the firm should -Select-leasebuyItem 3 the equipment.
   
2. Consider the $190,000 estimated residual value. How high could the residual value get before the net advantage of leasing falls to zero? (Round your answer to the nearest dollar.)

Entries for Bonds Payable, including bond redemption

*Please find Year 3 - Loss of redemption on bonds and discount on bonds payable*

The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year:

Required:

1. Journalize the entries to record the foregoing transactions. If an amount box does not require an entry, leave it blank or enter "0". When required, round your answers to the nearest dollar.

2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2.

a. Year 1   $

b. Year 2   $

3. Determine the carrying amount of the bonds as of December 31, Year 2.
$

I)

Initial Investment Outlay:

Dunder Mifflin is considering opening a Philadelphia branch for the next five years to augment

its existing facilities in Scranton, PA. After five years, they will close the Philadelphia branch

and seek regional alternatives.

A financial analyst has estimated the following costs:

A) $100,000 market analysis (already conducted)

B) $1,000,000 purchase of distribution center

C) $250,000 fixtures and installation of equipment

II)

Changes in Net Working Capital

The managers of the Scranton branch estimated that the new branch will have the following

working capital requirements:

A) $10,000 in initial cash buffers

B) $25,000 in initial inventories

III)

Operating Cash Flows

Financial analysts have estimated the following for the Philadelphia branch:

A) The annual sales are estimated to be:

Year 1 # of reams: 200,000 price per ream: $4

Year 2 # of reams: 200,000 price per ream: $4.50

Year 3 # of reams: 200,000 price per ream: $5

Year 4 # of reams: 250,000 price per ream: $5.50

Year 5 # of reams: 300,000 price per ream: $6

B) Variable costs of $2.50 per ream

C) Fixed overhead costs of $75,000 to pay employee salaries and utilities

The managers have decided that the new equipment (being largely industrial) should be

depreciated according to the 7-year MACRS schedule. Assume taxes are 34%.

7-year

MACRs

Year 1 Depr%: 14.29

Year 2 Depr%: 24.49

Year 3 Depr%: 17.49

Year 4 Depr%: 12.49

Year 5 Depr%: 8.93

Year 6 Depr%: 8.93

Year 7 Depr%: 8.93

Year 8 Depr%: 4.45

IV)

Terminal Cash Flows

Financial analysts have estimated that the Philadelphia branch can be sold at the conclusion of

the five-year project for $500,000.

Based on this information, answer the following questions:

1) Should Dunder Mifflin go through with the expansion to Philadelphia if the relevant

discount rate is 10%?

2) What is the NPV of the expansion project? IRR?

3) What is the Payback of the expansion project? If the required payback is 4 years, what is

the decision on this project?

4) At what rate would they be indifferent to undertaking the project?

Please answer the 3 question below about the Miller Corporation

Miller Corporation ‐ Year 20X3  During the year, you paid the amounts owed for Motorcycles at the end of year 20X2 and collected all  the amounts owed by customers for 20X2.  You purchased 25 more Motorcycles for $6,000 each and at  the same terms as in 20X2.  During the year, you sold 22 Motorcycles for $11,000 each at the same  terms as 20X2.  You paid the money owed to suppliers (Accounts Payable) at the beginning of the year  and collected all money due you at the beginning of the year (Accounts Receivable).  You use the FIFO  inventory system.     On January 1, 20X3, you purchased furniture and fixtures for $55,000.  You put $15,000 down and  financed the remaining amount at 10%.  You will make annual payments on December 31st for four years  that include the interest accrued to date plus $10,000 on the principal each year.  You estimate that you  will use them for 10 years and then they will be worth $5,000.      On June 30th, you paid $3,600 for a two‐year insurance policy; office expenses of $12,000; $4,500 for  advertising in The Post; utilities of $6,000; and Supplies of $1,500.  You also paid $26,000 for 13 months  of rent.  You paid your worker $18,000 (includes amount owed from prior year) and owed her $2,000  more at the end of the year.      On December 31st, you paid the first payment on the furniture and fixtures loan.  Paid Uncle Mike his  interest and paid the principal balance owed on December 31st.    This year you declared and paid a dividend of $4,000 to your shareholders.  On October 1st you issued 30  shares of common stock for $3,000.      You paid the 20X2 taxes.  The 20X3 taxes will be paid in 20X4.  The tax rate is 21%.      Prepare the Journal Entries (including the closing entry), T‐accounts, and all four Financial Statements  (in good form).      Miller Corporation ‐ Year 20X4  During the year, you bought 31 more Motorcycles for $6,500 each and sold 29 for $12,000 each, same  terms as last year.  You paid the money owed to suppliers (Accounts Payable) at the beginning of the  year and collected all money due you at the beginning of the year (Accounts Receivable).      On January 1st, you purchased a delivery truck for $41,000.  You made a down payment of $10,000 and  financed the balance at 7%.  You will make four equal payments that include interest @ 7%.  You make  the first payment on December 31st of this year.  You estimate the truck will last about 6 years and then  be worth $5,000.     
You paid your worker $17,000 (includes amount owed from prior year) and owed her $2,000 more at  

One part of financial analysis is analyzing the same company over many years using a trend analysis. Using the information you prepared for Assignment #3 (the Accounting Cycle Problem) for Miller Corp., answer the following questions:

Assignment 3 Answer below:

Miller Corporation has shown good financial performance year on year basis. In third year of operations, the company has generated net income $28,835 and gross profit is $114,000. The revenue of the company is $242,000 during third year of operations. The gross profit margin of the company is 47.10% and net profit margin is 11.92%. The revenue of the company is growing year on year basis, but the net profit margin and gross margin have slightly reduced in third year. The company should try to improve its gross profit margin and net profit margin to grow at speedy rate.

The company has generated $40,656 from operations which has been utilized for investing and financing activities. The net changes in cash flows have slightly reduced which shows that the company has utilized its cash balance $10,944 to pay finance obligations during the third year of operations. The total assets of the company are $345,732 as on year 20X3 and the assets partly financed from liability and equity i.e. $152,165 from liability and $193,567 from equity. It shows that the majority assets are financed from equity and the company has reduced its debt obligations during the year.

During fourth year of operations, the revenue, gross profit and net profit of the company are $348,000, $162,000 and $56,114 respectively. The gross margin of the company is 46.55% and net profit margin is 16.12%. The gross margin I fourth year is equivalent to third year of operations and the net profit margin o the company has increase in comparison to third operations and the net profit margin of the company has increased in comparison to third year. It shows that the company has improved its profitability and has utilized its resources more effectively and efficiently. The company has generated $64,060 from operations and the amount has been utilized for investing activities. Further the total asset base of the company has also increased, and the financial position and financial performance of the company has improved year on year basis which is a healthy indicator for the company.

1. How is Miller’s liquidity trending from one year to the next?

2. How is Miller’s solvency trending from one year to the next?

3. How has Miller’s asset base changed over time? Will this allow the company to meet consumer demand for their product? Why or why not?

Perth International Co., an Australian multinational company, forecasts 66 million Australian dollars (A$) earnings next year (i.e., year-one). It expects 52 million Chinese yuan (CNY), 49 million Indian rupees (INR) and 35 million Malaysian ringgit (MYR) proceeds of its three subsidiaries in year-one. It also forecasts the year-one exchange rates A$0.3274/CNY, A$0.0441/INR and A$0.6657/MYR.

Calculate the total Australian dollar (A$) cash flow for year-one

Banko Inc. manufactures sporting goods. The following information applies to a machine purchased on January 1, Year 1: Purchase price $ 91,000 Delivery cost $ 5,000 Installation charge $ 3,000 Estimated life 5 years Estimated units 160,000 Salvage estimate $ 3,000 During Year 1, the machine produced 56,000 units and during Year 2, it produced 58,000 units. Required Determine the amount of depreciation expense for Year 1 and Year 2 using each of the following methods:

You are choosing between two projects. The cash flows for the projects are given in the following table​ ($ million):

a. What are the IRRs of the two​ projects?

b. If your discount rate is 5.4%​, what are the NPVs of the two​ projects?

c. Why do IRR and NPV rank the two projects​ differently?