Question 1
1. During your audit of Raceway.com, Inc., you conclude that there is a possibility that inventory is materially overstated. The client refuses to allow you to expand the scope of your audit sufficiently to verify whether the balance is actually misstated. 2. You complete the audit of Munich Department Store, and in your opinion, the financial statements are fairly presented. On the last day of the audit, you discover that one of your supervisors assigned to the audit has a material investment in Munich. 3. Auto Delivery Company has a fleet of several delivery trucks. In the past, Auto Delivery had followed the policy of purchasing all equipment. In the current year, they decided to lease the trucks. The method of accounting for the trucks is therefore changed to lease capitalization. This change in policy is fully disclosed in footnotes. 4. You are auditing Deep Clean Services for the first time. Deep Clean has been in business for several years but over the last two years has struggled to stay afloat given the economic conditions. Based on your audit work, you have substantial doubt that Deep Clean will be in business by the end of its next fiscal year. 5. One of your audit clients has a material investment in a privately-held biosciences company. Your audit firm engaged a business valuation specialist to assist in evaluating the client?s estimation of the investment?s fair value. You conclude that the valuation specialist?s work provides sufficient appropriate audit evidence. 6. Four weeks after the year-end date, a major customer of Prince Construction Co. declared bankruptcy. Because the customer had confirmed the balance due to Prince at the balance sheet date, management refuses to charge off the account or otherwise disclose the information. The receivable represents approximately 10% of accounts receivable and 20% of net earnings before taxes. For each situation, do the following: a. Identify which of the conditions requiring a modification of or a deviation from an unqualified standard report is applicable. b. State the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. Given your answers in parts a and b, state the type of audit report that should be issued. If you have not decided on one level of materiality in part b, state the appropriate report for each alternative materiality level.
Question 2
Solve the following 1. You have an opportunity to buy a $1,000 bond which matures in 10 years. The bond pays $30 every six months. The current market interest rate is 8%. What is the most you would be willing to pay for this bond? 2. In January, 1998, Harold Black bought 100 shares of Country Homes for $37.50 per share. He sold them in January, 2008 for a total of $9,715.02. Calculate Harold's annual rate of return. 3. Samuel Johnson invested in gold U.S. coins ten years ago, paying $216.53 for one-ounce gold "double eagle" coins. He could sell these coins for $734 today. What was his annual rate of return for this investment? 4. Gary Kiraly wants to buy a new Italian sports car in three years. The vehicle is expected to cost $80,000 at that time. If Gary should be so lucky as to find an investment yielding 12% over that three-year period, how much would he have to invest now in order to accumulate $80,000 at the end of the three years? 5. Mr. Sullivan is borrowing $2 million to expand his business. The loan will be for ten years at 12% and will be repaid in equal quarterly installments. What will the quarterly payments be? 6. Marcia Stubern is planning for her golden years. She will retire in 20 years, at which time she plans to begin withdrawing $60,000 annually. She is expected to live for 20 years following her retirement. Her financial advisor thinks she can earn 9% annually. How much does she need to invest each year to prepare for her financial needs after her retirement? 7. Sara Shouppe has invested $100,000 in an account at her local bank. The bank will pay her a constant amount each year for 6 years, starting one year from today, and the account's balance will be 0 at the end of the sixth year. If the bank has promised Ms. Shouppe a 10% return, how much will they have to pay him each year? 8. The Swell Computer Company has developed a new line of desktop computers. It is estimated that the cash returns generated by the new product line will be $800,000 per year for the next five years, and then $500,000 per year for 3 years after that (the cash returns occur at the end of each year). At a 9% interest rate, what is the present value of these cash returns? 9. Kimberly Ford invested $10,000 10 years ago at 16 percent, compounded quarterly. How much has she accumulated? 10. Sponge Bob will receive a payment of $5,000 per year for 7 years beginning three years from today. At a discount rate of 9 percent, what is the present value of this deferred annuity? 11. Fullerton Company's bonds are currently selling for $1,157.75 per $1000 par-value bond. The bonds have a 10% coupon rate and will mature in 10 years. What is the approximate yield to maturity? 12. Madison Corporation has a $1000 par value bond outstanding paying annual interest of 7%. The bond matures in 20 years. If the present yield to maturity for this bond is 9%, calculate the current price of the bond using annual compounding. Use annual analysis. 13. Washington Corporation has a $1000 par value bond outstanding paying annual interest of 8%. The bond matures in 20 years. If the present yield to maturity for this bond is 10%, calculate the current price of the bond. Use annual analysis 14. The preferred stock of Gapers Inc. pays an annual dividend of $6.50. What is the price of the preferred stock if the required return is: a) 6% b) 8% c) 10% 15. The preferred stock of Lewis-Schultz Enterprises pays an annual dividend of $6.00. What is the required return if the market value of the preferred stock: a) $60 b) $70 c) $80 16. State Street Corp. will pay a dividend on common stock of $4.80 per share at the end of the year. The required return on common stock (Ke) is 13.2%. The firm has a constant growth rate of 7.2%. Compute the current price of the stock (Po). 17. Simon Fixtures Corp. is expected to pay $2.00 per share in dividends at the end of the next 12 months. The growth rate in dividends is expected to be constant at 8% per year. If the stock is selling for $50 per share, what is the required rate of return?
Question 3
Mid-term Test - FIN 610 Instructions: Please use the attached excels worksheet for answers: I. II. III. Enter your Name on the top of the sheet for appropriate credit. Provide answers in TAB ?Answer Sheet? Show detail work for each problem in TAB ?Problem Worksheet? 1. A firm has a debt-equity ratio of .40. What is the total debt ratio? A. .29 B. .33 C. .67 D. 1.40 E. 1.50 2. The percentage of sales method: A. requires that all accounts grow at the same rate. B. separates accounts that vary with sales and those that do not vary with sales. C. allows the analyst to calculate how much financing the firm will need to support the predicted sales level. D. Both A and B. E. Both B and C. 3. Le Place has sales of $439,000, depreciation of $32,000, and net working capital of $56,000. The firm has a tax rate of 34% and a profit margin of 6%. The firm has no interest expense. What is the amount of the operating cash flow? A. $49,384 B. $52,616 C. $54,980 D. $58,340 E. $114,340 4. You buy an annuity which will pay you $12,000 a year for ten years. The payments are paid on the first day of each year. What is the value of this annuity today at a 7% discount rate? A. $84,282.98 B. $87,138.04 C. $90,182.79 D. $96,191.91 E. $116,916.21 5. Based on the profitability index (PI) rule, should a project with the following cash flows be accepted if the discount rate is 8%? Why or why not? A. yes; because the PI is 1.008. B. yes; because the PI is .992. C. yes; because the PI is .999. D. no; because the PI is 1.008. E. no; because the PI is .992. 6. A project will produce an operating cash flow of $7,300 a year for three years. The initial cash investment in the project will be $11,600. The net after-tax salvage value is estimated at $3,500 and will be received during the last year of the project's life. What is the net present value of the project if the required rate of return is 11%? A. $8,798.29 B. $9,896.87 C. $10,072.72 D. $13,353.41 E. $20,398.29 7. A project has earnings before interest and taxes of $5,750, fixed costs of $50,000, a selling price of $13 a unit, and a sales quantity of 11,500 units. Depreciation is $7,500. What is the variable cost per unit? A. $6.75 B. $7.00 C. $7.25 D. $7.50 E. $7.75 8. A project has a contribution margin of $5, projected fixed costs of $12,000, a projected variable cost per unit of $12, and a projected present value break-even point of 5,000 units. What is the operating cash flow at this level of output? A. $1,000 B. $12,000 C. $13,000 D. $68,000 E. $73,000 9. The relationship between nominal rates, real rates, and inflation is known as the: A. Miller and Modigliani theorem. B. Fisher effect. C. Gordon growth model. D. term structure of interest rates. E. interest rate risk premium. 10. Party Time, Inc. has a 6% coupon bond that matures in 11 years. The bond pays interest semiannually. What is the market price of a $1,000 face value bond if the yield to maturity is 12.9%? A. $434.59 B. $580.86 C. $600.34 D. $605.92 E. $947.87,Mid-term Test - FIN 610 Instructions: Please use the attached excels worksheet for answers: I. II. III. Enter your Name on the top of the sheet for appropriate credit. Provide answers in TAB ?Answer Sheet? Show detail work for each problem in TAB ?Problem Worksheet? 1. A firm has a debt-equity ratio of .40. What is the total debt ratio? A. .29 B. .33 C. .67 D. 1.40 E. 1.50 2. The percentage of sales method: A. requires that all accounts grow at the same rate. B. separates accounts that vary with sales and those that do not vary with sales. C. allows the analyst to calculate how much financing the firm will need to support the predicted sales level. D. Both A and B. E. Both B and C. 3. Le Place has sales of $439,000, depreciation of $32,000, and net working capital of $56,000. The firm has a tax rate of 34% and a profit margin of 6%. The firm has no interest expense. What is the amount of the operating cash flow? A. $49,384 B. $52,616 C. $54,980 D. $58,340 E. $114,340 4. You buy an annuity which will pay you $12,000 a year for ten years. The payments are paid on the first day of each year. What is the value of this annuity today at a 7% discount rate? A. $84,282.98 B. $87,138.04 C. $90,182.79 D. $96,191.91 E. $116,916.21 5. Based on the profitability index (PI) rule, should a project with the following cash flows be accepted if the discount rate is 8%? Why or why not? A. yes; because the PI is 1.008. B. yes; because the PI is .992. C. yes; because the PI is .999. D. no; because the PI is 1.008. E. no; because the PI is .992. 6. A project will produce an operating cash flow of $7,300 a year for three years. The initial cash investment in the project will be $11,600. The net after-tax salvage value is estimated at $3,500 and will be received during the last year of the project's life. What is the net present value of the project if the required rate of return is 11%? A. $8,798.29 B. $9,896.87 C. $10,072.72 D. $13,353.41 E. $20,398.29 7. A project has earnings before interest and taxes of $5,750, fixed costs of $50,000, a selling price of $13 a unit, and a sales quantity of 11,500 units. Depreciation is $7,500. What is the variable cost per unit? A. $6.75 B. $7.00 C. $7.25 D. $7.50 E. $7.75 8. A project has a contribution margin of $5, projected fixed costs of $12,000, a projected variable cost per unit of $12, and a projected present value break-even point of 5,000 units. What is the operating cash flow at this level of output? A. $1,000 B. $12,000 C. $13,000 D. $68,000 E. $73,000 9. The relationship between nominal rates, real rates, and inflation is known as the: A. Miller and Modigliani theorem. B. Fisher effect. C. Gordon growth model. D. term structure of interest rates. E. interest rate risk premium. 10. Party Time, Inc. has a 6% coupon bond that matures in 11 years. The bond pays interest semiannually. What is the market price of a $1,000 face value bond if the yield to maturity is 12.9%? A. $434.59 B. $580.86 C. $600.34 D. $605.92 E. $947.87,this is the work sheet where we suppose to submit our answer, thank you so much miss rachel,this is the work sheet where we suppose to submit our answer, thank you so much miss rachel
Question 4
A, B and C share profit and losses equally Basis FMV Cash $21,000 $21,000 Accounts receivable $0 $24,000 Equipment $45,000 $60,000 Building $12,000 $42,000 Land $9,000 $36,000 Goodwill 0 $117,000 $87,000 $300,000 Current Liabilities $45,000 A $14,000 B $14,000 C $14,000 $87,000 D entered the above partnership and received a 20% interest in capital and profits and losses. a. What should be D?s capital contribution based on the fair market value of the assets and the amount of the liabilities? b. Assume that D became a member of the partnership following his capital contribution and then the partnership collected the $24,000 in accounts receivable. What should be done in regard to the income from these accounts receivable? c. Assume D did not enter the partnership. C left the partnership and received the land, building and $7,000 cash in liquidation of his interest in the partnership. i. What is C?s recognized gain and the character of that gain? Show your calculations. ii. What is C?s total basis in the land and building? Show your calculations. d. Assume D did not enter the partnership but the partnership changed the P&L ratios, increasing C?s share to 50%, and reducing A?s share from 1/3rd to 1/6th. What are the immediate tax consequences to the partners of the change in the P&L ratios on A and C?
Question 5
This is a book problem, whereas the answer is provided below, however I don't understand what they are using to calculate the proposed line (see below)? 11.11 10.97 10.83 10.63 10.33 How is the formula changing to get the proposed line. HERE IS THE QUESTION: #4 Suppose Congress was to reduce the top capital gains tax rate, tcg, to 10% from 15%. How would this affect the required pretax corporate return, R*c, calculate in the final line of Table 4.4? That is, recalculate the required pretax corporate return for the holding periods and parameter values as listed for the 2003 line in Table 4.4 (see attaches) I need to uderstand this today, because it will help me solve other chapter work. Send me the excel worsheet if necessary or just what the formula needs to look like in excel, for each. I have attached a copy of the book table and question, too! But I want to understand how it's being calculated How is the proposed line was calculated? HERE IS THE PROVIDED ANSWER The last line (as all other lines in table 4.4) was derived as follows: First solve for the required after-corporate tax ? but before shareholder-level tax ? rate of return r*c r*c = {[(1+ rp)n-tcg]/(1- tcg)}1/n ? 1 (4.6) where rp is the after-tax rate of return to the partnership form, n is the holding period, and tcg is the personal tax rate on capital gains. Having defined r*c, we can now express easily the required before-tax return on projects undertaken by corporations, R*c, since it must solve: R*c(1 ? tc) = r*c (4.10) Thus R*c = r*c/(1 ? tc). Note that we could also, given r*c, solve for ts = 1 ? rp/r*c, and then solved for R*C using R*c(1 ? tc)(1 ? ts) = rp implying R*c = Rp(1 ? tp)/[(1 ? tc)(1 ? ts)] Armed with these relations we can quickly calculate R*c by hand or in a spreadsheet. Required R*c for n-yearholding period tc tp tcg Rp 1 5 10 20 50 Current .35 .35 .15 10.00 11.76 11.53 11.30 10.98 10.51 Proposed .35 .35 .10 10.00 11.11 10.97 10.83 10.63 10.33 As expected, decreasing the personal capital gains tax rate decreases the effective shareholder-level tax thus reducing the pretax return required by corporations to be competitive with partnerships.,Here is how the question looks, I sent the Table already,Here is the answer I need to understand how to calculate the last line,Rachel, if you can get the response to me sooner, I would be helpful, as I already have the answer, just need to understand the concept. i'll be studying in a couple of hours and it would be helpful,oh ok, I'll check back after my coffee
