Question 1
Please answer the questions below with the correct answer. 1. During 2012, FedCom was affected by a strike that caused a disruption in operations and the subsequent suspension of dividends to stockholders. The company doesn?t plan on paying dividends until the year 2016, at which time an annual dividend of $3.50 will be declared. For 2017 and 2018, the dividend is expected to increase by 10%. For the years 2019 and beyond, the dividend growth rate is expected to be a constant 5%. The required rate of return for FedCom is 11%. Find the value of FedCom common shares today (2013). Answer $43.98 $51.59 $58.33 $85.69 2. Had FedCom not suffered financially during the last 2 years, last year?s 2012 dividend of $3.50 would have been paid, with an assumed constant growth rate of 6% annually and a rate of return of 11%. If there were no strike, what would today?s (2013) price be? Answer $55.03 $58.33 $70.00 $78.65 3. A bond has a call provision. The call provision allows the _____ to _____ the bonds before maturity. Answer trustee; buy back investor; sell back investor; call in issuer; call in 4. Debt ratings issued by companies such as Moody?s and Standard and Poor?s depend on: Answer the probability of default and protection given in indenture is case of default. how large the company is and the number of restrictive covenants. the size of the fee paid by the issuer and their industry. none of the above. 5. You bought Northeast Utilities last year at $32.87 per share. This year, the company paid dividends of $2.41 per share, and the price at the end of the year was $29.09. What is the rate of return on this investment? Answer $31.50 -$1.37 21.3% -4.2% 6. If a bond has a price of $1100 and a yield to maturity of 10%, then _______. Answer its current yield must be less than 10% its coupon rate must be greater than 10% its capital gains yield must be greater than zero a and b none of the above 7. A security ___. Answer is undervalued in the opinion of an investor if the intrinsic value is greater than the current price is undervalued in the opinion of an investor if the intrinsic value is less than the current price will have the same intrinsic value and market price even if markets are inefficient will provide the opportunity for excess profits if markets are efficient 8. Target-Mart is planning a new store in Greenwich. The company will lease the needed space for 9 years. Equipment and fixtures for the store will cost $500,000 and will be depreciated totally using the straight-line depreciation method. In addition, inventories valued at $50,000 will also be needed to stock the store at the current time (before opening). Sales are expected to be $1.5 million each year. Operating expenses, ignoring depreciation, will be $750,000 each year. The firm will liquidate the inventory at the end of the 9-year period. The corporate tax rate is 34%. The WACC for Target-Mart is 13.75%. What is the IRR of this project? Answer 102.7% 45.9% 62.6% 93.2% 9. Target-Mart is planning a new store in Greenwich. The company will lease the needed space for 9 years. Equipment and fixtures for the store will cost $500,000 and will be depreciated totally using the straight-line depreciation method. In addition, inventories valued at $50,000 will also be needed to stock the store at the current time (before opening). Sales are expected to be $1.5 million each year. Operating expenses, ignoring depreciation, will be $750,000 each year. The firm will liquidate the inventory at the end of the 9-year period. The corporate tax rate is 34%. The WACC for Target-Mart is 13.75%. What is the NPV of this project? Answer $2,151,238 $2,030,850 $878,360 $2,220,650 10. You are considering two bonds. Bond A has a 9% annual coupon while Bond B has a 6% annual coupon. Both bonds have a 7% yield to maturity, and the YTM is expected to remain constant. Which of the following statements is CORRECT? Answer The price of Bond A will decrease over time, but the price of Bond B will increase over time. The price of Bond B will decrease over time, but the price of Bond A will increase over time. The prices of both bonds will remain unchanged. The prices of both bonds will increase over time, but the price of Bond A will increase by more. 11. Thompson Hauling Co. anticipates dividend growth rates of 25%, 15% and 10% over the next three years, and a 6% long-term growth rate beyond that. Its current dividend is $1.80 per share. Thompson has a beta of 1.1, the market risk premium is 7 percent and the risk-free rate is 4.5 percent. What is the current price of Thompson? Answer $48.66 $40.53 $42.80 $30.77 12. Cape Cod Canning Co. has a new automated production line it is considering. The project has a cost of $675,000 and is expected to provide after-tax cash flows of $126,250 for 9 years. Management has found that the cost of capital is 9.5 percent. What is the project?s IRR? Answer 12.9% 7.8% 9.5% 11.9% 13. ABC, Inc. bonds have a par value of $1,000 and will mature in 13 years. The bonds have an 8% coupon and interest is paid semi-annually. The current price of the bonds is $938.47. What is the yield to maturity on each bond? Answer 4.4% 10% 8.8% 8% 14. Which of the following items should be included with estimating cash flows for projects? Answer interest expense sunk cost principal payment on debt opportunity cost 15. The Federal Reserve recently shifted its monetary policy, causing Lasik Vision's WACC to change. Lasik had recently analyzed the project whose cash flows are shown below. However, the CFO wants to reconsider this and all other proposed projects in view of the Fed action. How much did the changed WACC cause the forecasted NPV to change? Assume that the Fed action does not affect the cash flows, and note that a project's projected NPV can be negative, in which case it should be rejected. New WACC: 7.00% Old WACC: 10.00% 16. A firm is considering the purchase of an asset whose risk is greater than the current risk of the firm, based on any method for assessing risk. In evaluating this asset, the decision maker should Answer Increase the NPV of the asset to reflect the greater risk Reject the asset, since its acceptance would increase the risk of the firm Ignore the risk differential if the asset to be accepted would comprise only a small fraction of the total assets of the firm Increase the cost of capital used to evaluate the project to reflect the higher risk of the project 17. Which of the following statements is CORRECT? Answer The internal rate of return method (IRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects. The discounted payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects. The net present value method (NPV) is generally regarded by academics as being the best single method for evaluating capital budgeting projects. The modified internal rate of return method (MIRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects. 18. The basic characteristics of relevant project flows include all of the following except ________. Answer cash flows incremental flows financing flows after-tax flows 19. Project EXPAND will result in an increase of 5,000 units per year at a sale price of $10 each (assume 0% inflation). The additional sales will generate additional operating expenditures of $7 per unit plus $3,000 in fixed operating costs. In addition, the firm will see an increase in depreciation expense of $12,000 per year. The firm anticipates it will remain at the current marginal rate of 40%. What is the incremental net cash flow? Answer $25,000 $12,000 -$10,000 $9,000 none of the above 20. Under which of the following conditions will the IRR of a project be equal to the WACC? Answer when the payback is equal to the MIRR when the profitability index is equal to the WACC when the NPV is equal to zero when the payback is equal to the IRR 21. O'Brien Ltd.'s outstanding bonds have a $1,000 par value, and they mature in 25 years. Their nominal yield to maturity is 9.25%, they pay interest semiannually, and they sell at a price of $850. What is the bond's nominal (annual) coupon interest rate? Answer 6.27% 6.60% 7.32% 7.70% 22. Wachowicz Corporation issued 15-year, noncallable, 7.5% annual coupon bonds at their par value of $1,000 one year ago. Today, the market interest rate on these bonds is 5.5%. What is the current price of the bonds, given that they now have 14 years to maturity? Answer $1,191.79 $1,162.00 $1.104.62 $1,132.95 Year: 0 1 2 3 Cash flows: -$1,000 $500 $520 $540 Answer $72.27 $79.68 $83.66 $87.85 23. The preemptive right is important to shareholders because it ___ Answer Allows managers to buy additional shares below the current market price. Will result in higher dividends per share. Protects bondholders, and thus enables the firm to issue debt with a relatively low interest rate. Protects the current shareholders against a dilution of their ownership interests. 24. If D0 = $2.25, g (which is constant) = 3.5%, and P0 = $50, what is the stock?s expected dividend yield for the coming year? Answer 4.42% 4.66% 4.89% 5.13% 25. The Wei Company's last dividend was $1.75. The dividend growth rate is expected to be constant at 1.50% for 2 years, after which dividends are expected to grow at a rate of 8.00% forever. Wei?s required return (rs) is 12.00%. What is Wei's current stock price? Answer $41.83 $43.08 $44.38 $47.08 26. Mihov Inc. hired you as a consultant to help estimate its cost of capital. You have been provided with the following data. (1): rd = yield on the firm?s bonds = 7.00% and the risk premium over its own debt cost = 4.00%. (2) rRF = 5.00%, RPM = 6.00%, and b = 1.25. (3) D1 = $1.20; P0 = $35.00 and g = 8.00% (constant). You were asked to estimate the cost of equity based on the three most commonly used methods and then to indicate the difference between the highest and lowest of these estimates. What is that difference? Answer 1.13% 1.50% 2.34% 2.58% 27. Roxie Epoxy?s balance sheet shows a total of $50 million long-term debt with a coupon rate of 8.00% and a yield to maturity of 7.00%. This debt currently has a market value of $55 million. The balance sheet also shows that that the company has 20 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $65 million. The current stock price is $8.25 per share; stockholders' required return, rs, is 10.00%; and the firm's tax rate is 40%. Based on market value weights, and assuming the firm is currently at its target capital structure, what WACC should Roxie use to evaluate capital budgeting projects? Answer 7.56% 7.88% 8.21% 8.55% 28. You were hired as a consultant to Kroncke Company, whose target capital structure is 40% debt, 10% preferred, and 50% common equity. The after-tax cost of debt is 6.00%, the cost of preferred is 7.50%, and the cost of retained earnings is 13.25%. The firm will not be issuing any new stock. What is its WACC? Answer 9.48% 9.78% 10.38% 10.68%
Question 2
*Look at .Doc attachment Near the end of 2011, the management of Simid Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2011. SIMID SPORTS COMPANY Estimated Balance Sheet December 31, 2011 Assets Cash $ 35,500 Accounts receivable 520,000 Inventory 150,000 Total current assets 705,500 Equipment $ 536,000 Less accumulated depreciation 67,000 469,000 Total assets $ 1,174,500 Liabilities and Equity Accounts payable $ 355,000 Bank loan payable 14,000 Taxes payable (due 3/15/2012) 90,000 Total liabilities $ 459,000 Common stock 470,000 Retained earnings 245,500 Total stockholders? equity 715,500 Total liabilities and equity $ 1,174,500 To prepare a master budget for January, February, and March of 2012, management gathers the following information. a. Simid Sports? single product is purchased for $30 per unit and resold for $57 per unit. The expected inventory level of 5,000 units on December 31, 2011, is more than management?s desired level for 2012, which is 20% of the next month?s expected sales (in units). Expected sales are: January, 7,500 units; February, 9,250 units; March, 10,750 units; and April, 9,500 units. b. Cash sales and credit sales represent 30% and 70%, respectively, of total sales. Of the credit sales, 70% is collected in the first month after the month of sale and 30% in the second month after the month of sale. For the December 31, 2011, accounts receivable balance, $125,000 is collected in January and the remaining $395,000 is collected in February. c. Merchandise purchases are paid for as follows: 20% in the first month after the month of purchase and 80% in the second month after the month of purchase. For the December 31, 2011, accounts payable balance, $80,000 is paid in January and the remaining $275,000 is paid in February. d. Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $90,000 per year. e. General and administrative salaries are $132,000 per year. Maintenance expense equals $2,000 per month and is paid in cash. f. Equipment reported in the December 31, 2011, balance sheet was purchased in January 2011. It is being depreciated over eight years under the straight-line method with no salvage value. The following amounts for new equipment purchases are planned in the coming quarter: January, $38,000; February, $97,000; and March, $29,500. This equipment will be depreciated under the straight-line method over eight years with no salvage value. A full month?s depreciation is taken for the month in which equipment is purchased. g. The company plans to acquire land at the end of March at a cost of $180,000, which will be paid with cash on the last day of the month. h. Simid Sports has a working arrangement with its bank to obtain additional loans as needed. The interest rate is 12% per year, and interest is paid at each month-end based on the beginning balance. Partial or full payments on these loans can be made on the last day of the month. The company has agreed to maintain a minimum ending cash balance of $50,610 in each month. i. The income tax rate for the company is 30%. Income taxes on the first quarter?s income will not be paid until April 15. Required: Prepare a master budget for each of the first three months of 2012; include the following component budgets: 8. 1. Monthly sales budgets. (Omit the "$" sign in your response.) SIMID SPORTS CO. Sales Budget January, February, and March 2012 Budgeted Units Budgeted Unit Price Budgeted Total Dollars January 2012 $ $ February 2012 March 2012 Total for the first quarter $ 9. 2. Monthly merchandise purchases budgets. (Units to be deducted should be indicated with a minus sign. Omit the "$" & "%" signs in your response.) SIMID SPORTS CO. Merchandise Purchases Budget January, February, and March 2012 January February March Total % % % $ $ $ $ $ $ $ $ 10. 3. Monthly selling expense budgets. (Omit the "$" & "%" signs in your response.) SIMID SPORTS CO. Selling Expense Budget January, February, and March 2012 January February March Total $ $ $ % % % $ Total selling expenses $ $ $ $ 11. 4. Monthly general and administrative expense budgets. (Do not round your intermediate calculations. Round your final answers to the nearest whole dollar. Omit the "$" sign in your response.) SIMID SPORTS CO. General and Administrative Expense Budget January, February, and March 2012 January February March Total $ $ $ $ Total expenses $ $ $ $ 12. 5. Monthly capital expenditures budgets. (Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive values. Omit the "$" sign in your response.) SIMID SPORTS CO. Capital Expenditures Budget January, February, and March 2012 January February March $ $ $ Total $ $ $ 13. 6. Monthly cash budgets. (Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive values except negative preliminary cash balance and repayment of loan to bank which should be indicated by a minus sign. Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.) SIMID SPORTS CO. Cash Budget January, February, and March 2012 January February March $ $ $ Total cash available Cash disbursements Total cash disbursements $ $ $ $ $ $ 14. 7. Budgeted income statement for the entire first quarter (not for each month). (Round your answers to the nearest dollar amount. Input all amounts as positive values. Omit the "$" sign in your response.) SIMID SPORTS CO. Budgeted Income Statement For Three Months Ended March 31, 2012 $ Operating expenses $ $ 15. 8. Budgeted balance sheet as of March 31, 2012. (Be sure to list the assets in order of their liquidity. Round your answers to the nearest dollar amount. Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive values. Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.) SIMID SPORTS CO. Budgeted Balance Sheet March 31, 2012 Assets $ Total Current Assets $ Total Assets $ Liabilities and Equity $ Total Liabilities $ Total Stockholders' Equity Total Liabilities & Equity $
Question 3
The Complete Accounting Cycle The post-closing trial balance of Joan Robin Editing as of December 31, 2009 is shown below. JOAN ROBIN EDITING Trial Balance December 31, 2009 Account Title Debit Credit Cash $ 1,850 Accounts Receivable 980 Prepaid Rent 480 Office Supplies Inventory 520 Office Equipment 10,700 Accumulated Depreciation ? Office Equipment $ 3,200 Accounts Payable 240 Salaries Payable 250 J. Robin, Capital ______ 10,840 Totals $14,530 $14,530 Transactions completed during 2010 are shown here. 1. Editing fees were $25, 100 in cash and $5,350 on account for the year. 2. Collections on accounts receivable were $5,650 for the year. 3. Prepaid rent in the amount of $4,180. 4. Office supplies were purchased amounting to $100 in cash and $125 on account. 5. Salaries amounted to $9,230 for the year, $250 of which was accrued from 2009. 6. Utilities expense of $2,290 was paid in cash. 7. Advertising of $1,025 was purchased on credit. 8. Accounts payable of $260 were paid. 9. Joan Robin withdrew $6,200. The following information should be used for making adjusting entries. (a) Depreciation on the office equipment is $780. (b) $2,610 of prepaid rent has expired by December 31. (c) Office supplies of $470 were used during the year. (d) Salaries earned but not paid were $345 on December 31. Required: A. Open T accounts for each of the accounts listed below. Insert beginning balances from the post-closing trial balance. 100 Cash 200 Accounts Payable 101 Accounts Receivable 201 Salaries Payable 102 Prepaid Rent 300 J. Robin, Capital 103 Office Supplies Inventory 301 J. Robin, Drawing 104 Office Equipment 350 Income Summary 105 Accumulated Depreciation-Office Equipment 400 Editing Fees 500 Salaries Expense 503 Depreciation Expense 501 Utilities Expense 504 Rent Expense 502 Advertising Expense 505 Office Supplies Expense B. Prepare journal entries to record the transactions completed in 2010. C. Post the entries to the T accounts. D. Prepare a 10-column worksheet. E. Prepare an income statement, a statement of changes in owner?s equity, and an unclassified balance sheet. F. Journalize and post the adjusting entries. G. Journalize and post the closing entries. H. Prepare a post-closing trial balance,Thanks for accepting my assignment would you be finished by the deadline,Hi good night thanks for the response but for the first transaction in 2010 for editing fees the figure is 25,100 and not $100 this was indicated by the tutor. can you please make the necessary adjustments an resend the file please
Question 4
In the month of March, New Day Spa services 558 clients at an average price of $250. During the month, fixed costs were $35,700 and variable costs were 70% of sales. Determine the contribution margin in dollars, per unit, and as a ratio. Contribution margin in dollars $ Contribution margin per unit $ Contribution margin ratio % Using the contribution margin technique, compute the break-even point in dollars and in units. Break-even point in dollars $ Break-even point in units In the month of March, New Day Spa services 558 clients at an average price of $250. During the month, fixed costs were $35,700 and variable costs were 70% of sales. Determine the contribution margin in dollars, per unit, and as a ratio. Contribution margin in dollars $ Contribution margin per unit $ Contribution margin ratio % Using the contribution margin technique, compute the break-even point in dollars and in units. Break-even point in dollars $ Break-even point in units In the month of March, New Day Spa services 558 clients at an average price of $250. During the month, fixed costs were $35,700 and variable costs were 70% of sales. Determine the contribution margin in dollars, per unit, and as a ratio. Using the contribution margin technique, compute the break-even point in dollars and in units.
Question 5
Assignment: ? Assignment #3 ? California Clinics (due no later than February 9) California Clinics, an investor-owned chain of ambulatory care clinics, just paid a dividend of $2 per share. The firm?s dividend is expected to grow at a constant rate of 5% per year, and investors require a 15 % rate of return on the stock. You are to write a 3-5 page report that answers the following: 1. What is the stock?s value? 2. Suppose the riskiness of the stock decreases, which causes the required rate of return to fall to 13%. Under these conditions, what is the stock?s value? 3. Return to the original 15% required rate of return and assume a dividend growth rate estimate increase to 7% per year, what is the stock value? 4. Explain how each of the four (4) fundamental factors that affect the supply and demand for investment capital, and hence, interest rates, (namely productive opportunities, time preferences for consumption, risk, and inflation) affects the cost of money. 5. Why is risk aversion so important to financial decision making? 6. Explain the three (3) techniques for solving time value problems. The format of the report is to be as follows: o Typed, double spaced, Times New Roman font (size 12), one-inch margins on all sides, APA format. o Type the question followed by your answer to the question. o In addition to the 3-5 pages required, a title page is to be included. The title page is to contain the title of the assignment, your name, the instructor?s name, the course title, and the date. NOTE: You will be graded on the quality of your answers, the logic/organization of the report, your language skills, and your writing skills. The assignment will be graded using the following rubric: Outcomes Assessed ? Develop a competence in making financial decisions using net present value, pertinent financial ratios, and break-even analysis. ? Describe the overall planning process and the key components of the financial plan. ? Explain why time value analysis is so important to health care financial management. ? Evaluate the financial statements and the financial position of health care institutions. ? Use technology and information resources to research issues in health financial management. Grading Rubric for Assignment #3 - California Clinics Criteria 0 Unacceptable 20 Developing 30 Competent 40 Exemplary 1. Calculate a stock?s value at a constant growth rate of 5% and 15% required rate of return. Did not attempt or calculated stock?s value at required rates with less than 70% accuracy and little of the appropriate information was identified. Calculated stock?s value at required rates with 70 to 79% accuracy and some of the appropriate information was identified. Calculated stock?s value at required rates with 80 to 89% accuracy and most of the appropriate information was identified. Calculated stock?s value at required rates with 90 to 100% accuracy and all appropriate information was identified. 2. Calculate a stock?s value at a constant growth rate of 5% and 13% required rate of return. Did not attempt or calculated stock?s value at required rates with less than 70% accuracy and little of the appropriate information was identified. Calculated stock?s value at required rates with 70 to 79% accuracy and some of the appropriate information was identified. Calculated stock?s value at required rates with 80 to 89% accuracy and most of the appropriate information was identified. Calculated stock?s value at required rates with 90 to 100% accuracy and all appropriate information was identified. 3. Calculate a stock?s value at a constant growth rate of 7% and 15% required rate of return. Did not attempt or calculated stock?s value at required rates with less than 70% accuracy and little of the appropriate information was identified. Calculated stock?s value at required rates with 70 to 79% accuracy and some of the appropriate information was identified. Calculated stock?s value at required rates with 80 to 89% accuracy and most of the appropriate information was identified. Calculated stock?s value at required rates with 90 to 100% accuracy and all appropriate information was identified. ? 4. Explain how each of the four (4) fundamental factors that affect the supply and demand for investment capital, and hence, interest rates, (namely productive opportunities, time preferences for consumption, risk, and inflation) affects the cost of money. Did not attempt or explained the fundamental factors that affect the supply and demand for investment capital, and hence, interest rates, (namely productive opportunities, time preferences for consumption, risk, and inflation) affects the cost of money with less than 70% accuracy and completeness; omitted major points and/or included irrelevant points Explained some of the fundamental factors that affect the supply and demand for investment capital, and hence, interest rates, (namely productive opportunities, time preferences for consumption, risk, and inflation) affects the cost of money with 70 to 79% accuracy and completeness Explained most of the fundamental factors that affect the supply and demand for investment capital, and hence, interest rates, (namely productive opportunities, time preferences for consumption, risk, and inflation) affects the cost of money with 80 to 89% accuracy and completeness Explained all four (4) fundamental factors that affect the supply and demand for investment capital, and hence, interest rates, (namely productive opportunities, time preferences for consumption, risk, and inflation) affects the cost of money with 90-100% accuracy and completeness 5. Explain why risk aversion is so important to financial decision making Did not attempt or explained reasons risk aversion is important to financial decision making with less than 70% accuracy and completeness Explained some reasons risk aversion is important to financial decision making with 70 to 79% accuracy and completeness Explained most reasons risk aversion is important to financial decision making with 80 to 89% accuracy and completeness Explained all key reasons risk aversion is important to financial decision making with 90-100% accuracy and completeness 6. Explain the three (3) techniques for solving time value problems. Did not attempt or explained three (3) techniques for solving time value problems with less than 70% accuracy and completeness; omitted major points and/or included irrelevant points Explained some of three (3) techniques for solving time value problems with 70 to 79% accuracy and completeness Explained most of three (3) techniques for solving time value problems with 80 to 89% accuracy and completeness Explained all three (3) techniques for solving time value problems with 90-100% accuracy and completeness 7. Clarity Did not complete the assignment or explanations are unclear and not organized. (Major issues) Explanations generally unclear and not well organized. (Many issues) Explanations generally clear and/or organized. (Minor issues) Explanations very clear and well organized. (Added helpful details.) 8. Writing ? Grammar, sentence structure, paragraph structure, spelling, punctuation, APA usage. Did not complete the assignment or had 8 or more different errors in grammar, sentence structure, paragraph structure, spelling, punctuation or APA usage. (Major issues) Had 6 - 7 different errors in grammar, sentence structure, paragraph structure, spelling, punctuation or APA usage. (Many issues) Had 4 - 5 different errors in grammar, sentence structure, paragraph structure, spelling, punctuation or APA usage. (Minor issues) Had 0 - 3 different errors in grammar, sentence structure, paragraph structure, spelling, punctuation or APA usage. ?
