Question 1
4-6A (Ch. 4) (Cash budget) The Sharpe Corporation?s projected sales for the first eight months of 2004 are as follows: January $ 90,000 February 120,000 March 135,000 April 240,000 May $300,000 June 270,000 July 225,000 August 150,000 Of Sharpe?s sales, 10 percent is for cash, another 60 percent is collected in the month following sale, and 30 percent is collected in the second month following sale. November and December sales for 2003 were $220,000 and $175,000, respectively. Sharpe purchases its raw materials two months in advance of its sales equal to 60 percent of their final sales price. The supplier is paid one month after it makes delivery. For example, purchases for April sales are made in February and payment is made in March. In addition, Sharpe pays $10,000 per month for rent and $20,000 each month for other expenditures. Tax prepayments of $22,500 are made each quarter, beginning in March. The company?s cash balance at December 31, 2003, was $22,000; a minimum balance of $15,000 must be maintained at all times. Assume that any short-term financing needed to maintain the cash balance is paid off in the month following the month of financing if sufficient funds are available. Interest on short-term loans (12 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. Thus, if in the month of April the firm expects to have a need for an additional $60,500, these funds would be borrowed at the beginning of April with interest of $605 (.12 ? 1/12 ? $60,500) owed for April and paid at the beginning of May. a) Prepare a cash budget for Sharpe covering the first seven months of 2004. b- Sharpe has $200,000 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have ample cash to repay the notes? 5-1A (Compound interest) To what amount will the following investments accumulate? 1. $500 to grow to $1,039.50 if invested at 5 percent compounded annually 2. $35 to grow to $53.87 if invested at 9 percent compounded annually 3. $100 to grow to $298.60 if invested at 20 percent compounded annually 4. $53 to grow to $78.76 if invested at 2 percent compounded annually 5-4A (Present value) What is the present value of the following future amounts? b- $300 to be received 5 years from now discounted back to the present at 5 percent c-$1,000 to be received 8 years from now discounted back to the present at 3 percent d- $1,000 to be received 8 years from now discounted back to the present at 20 percent 5-6A (Present value of an annuity) What is the present value of the following annuities? a-$2,500 a year for 10 years discounted back to the present at 7 percent b-$70 a year for 3 years discounted back to the present at 3 percent c-$280 a year for 7 years discounted back to the present at 6 percent d-$500 a year for 10 years discounted back to the present at 10 percent
Question 2
Complete exercises 6-2, 6-7,6-18 6-2 Determine the due date and the amount of interest due at maturity on the following notes: Date of Note Face Amount Interest Rate Term of Note a. October 1 $10,500 8% 60 days b. August 30 18,000 10 120 days c. May 30 12,000 12 90 days d. March 6 15,000 9 60 days e. May 23 9,000 10 60 days 6-7 Fonda Bikes Co. is a wholesaler of motorcycle supplies. An aging of the company?s accounts receivable on December 31, 2010, and a historical analysis of the percentage of uncollectible accounts in each age category are as follows: Age Interval Balance Percent Uncollectible Not past due $567,000 ?% 1?30 days past due 58,000 3 31?60 days past due 29,000 7 61?90 days past due 20,500 15 91?180 days past due 15,000 40 Over 180 days past due 10,500 75 $700,000 6-18 On the basis of the following data, determine the value of the inventory at the lower of cost or market. Assemble the data in the form illustrated in Exhibit 9. Commodity Inventory Quantity Unit Cost Price Unit Market Price Aquarius 20 $ 80 $ 92 Capricorn 50 70 65 Leo 8 300 280 Scorpio 30 40 30 Taurus 100 90 94
Question 3
See attached files. 4-32 Father, Inc., buys 80 percent of the outstanding common stock of Sam Corporation on January 1, 2009, for $680,000 cash. At the acquisition date, Sam's total fair value was assessed at $850,000 although Sam's book value was only $600,000. Also, several individual items on Sam's financial records had fair values that differed from their book values as follows: Book Value Fair Value Land????????????????? 60,000 225,000 Building and equipment (10-year remaining life) ?? 275,000 250,000 Copyright (20-year life)????????. 100,000 200,000 Notes payable (due in 8 years)???? (130,000) (120,000) For internal reporting purposes, Father, Inc., employs the equity method to account for this investment. The following account balances are for the year ending December 31, 2009, for both companies. Using the acquisition method, determine consolidated balances for this business combination (through either individual computations or the use of a worksheet). Father Sam Revenues???????????????. (1,360,000) (540,000) Cost of Goods sold??????????. 700,000 385,000 Depreciation expense????????.. 260,000 10,000 Amortization expense????????.. -0- 5,000 Interest expense???????????.. 44,000 5,000 Equity in income of Sam???????. (105,000) -0- Net income?????????? (461,000) (135,000) Retained earnings, 1/1/09?????? (1,265,000) (440,000) Net income (above)?????????. (461,000) (135,000) Dividends paid????????????. 260,000 65,000 Retained earnings, 12/31/09???? (1,466,000) (510,000) Current assets????????????.. 965,000 528,000 Investment in Sam??????????? 733,000 -0- Land???????????????????.. 292,000 60,000 Buildings and Equipment (Net)???.. 877,000 265,000 Copyright???????????????.. -0- 95,000 Total assets?????????? 2,867,000 948,000 Accounts payable??????????? (191,000) (148,00) Notes payable????????????.. (460,000) (130,000) Common stock???????????.. (300,000) (100,000) Additional Paid-in-capital??????? (450,000) (60,000) Retained earnings (above)??????? (1,466,000) (510,000) Total liabilities and equities? (2,867,000) (948,000)
Question 4
1.Describe the current economic and financial condition we are facing today. How will the current economic and financial condition impact the future growth of the businesses? If you were raising funds from outside (today) to support the growth of a company, why would you use warrants in debt financing. Explain how your financing strategy will increase the wealth of the stockholders. 2.What is bankruptcy? What is the difference between liquidation and reorganization? What is the main benefit of reorganization. 3.What is a merger? How does a merger differ from other forms of acquisition. 4.Explain how differing inflation rates between two countries affect their exchange rates over the long-term. 5. AAA Corporation is evaluating whether to lease or purchase equipment. Its tax rate is 30 percent. If the company purchases the equipment for $1,000,000, it will depreciate it over 5 years, using straight-line depreciation. If the company enters into a 5-year lease, the lease payment is $210,000 per year, payable at the beginning of each year. If the company purchases the equipment it will borrow from its bank at an interest rate of 10 percent. a. Calculate the cost of purchasing the equipment. 6. BBB Corporation issued bonds with detachable warrants several years ago. Each warrant allows the holder to purchase one share of stock at $30 per share. The stock has a beta of 1.6. a Calculate the exercise value of the warrants if the price of the underlying stock is $40. b. How much would an investor likely be willing to pay for the warrant over and above its exercise value ? Why? c. Would the investor likely be willing to pay more or less for the warrant if the stock had a beta of 1.0? Why? 7.The CCC Corporation plans to issue $10,000,000 of 20-year bonds next June. The company's current cost of debt is 12 percent. However, the firm's financial manager is concerned that interest rates will increase in coming months, and has decided to take a short position in U. S. government t-bond futures. The following settle data are available for t-bond futures. Delivery Month Settle (1) (5) Dec 99-17 Mar 98-01 June 97-12 a. Calculate the current value of the futures position. b. Calculate the implied interest rate based on the current value of the futures position. 8. DDD is being liquidated under Chapter 7 of the Bankruptcy Act. Its current balance sheet is shown below. Fixed assets are sold for $25,000,000 and current assets are sold for $18,000,000. All fixed assets are pledged as collateral for mortgage bonds. Subordinated debentures are subordinate only to notes payable. Trustee costs are $500,000. No employee is owed over $2,000. Before Before Default Balance Sheet Default Current Assets 26,000,000 Accounts payable 4,000,000 Net fixed assets 50,000,000 Accrued taxes 90,000 Accrued wages 250,000 Notes payable 1,650,000 Total current liabilities 5,990,000 First-mortgage bonds 18,000,000 Second-mortgage bonds 20,000,000 Debentures 15,000,000 Subordinated debentures 14,000,000 Common stock 2,500,000 Retained earnings 510,000 Total assets 76,000,000 Total claims 76,000,000 a. How much will SHs receive? b. How much will mortgage bondholders receive? c. How much will priority creditors receive? 9. Shown below are exchange rates for several currencies. The rates are shown as indirect rates from the standpoint of a U.S. company. Euro Swiss Franc Mexican Peso Spot rate 0.90 1.70 11.00 30-day forward rate 0.92 1.80 10.95 60-day forward rate 0.93 1.85 10.70 a. Is the euro appreciating or depreciating against the U.S. dollar? Why? b. Is the Swiss franc appreciating or depreciating against the U.S. dollar? Why? c. Is the Mexican peso appreciating or depreciating against the U.S. dollar? Why?
Question 5
Please answer all of the following problems by typing the numerical solution into the spaces provided beneath each question. attach an Excel file ? 1. An investment will require a $1.0 million cash outlay. It will generate perpetual net cash inflows of $115,000 a year. Investors could earn 9 percent elsewhere by taking the same risk. Will this investment generate an economic profit? For Example: Answer the economic profit is $xxx,xxx. 2. A new capital investment that will cost $2.5 million and will generate perpetual net cash flows of $400,000 a year. Investors could expect to earn 8 percent elsewhere while taking the same risk. Will this investment generate an economic profit? 3. During and economic downturn, we can acquire another company by purchasing its stock for $6 billion. The company is earning $700 million a year, which is available for dividends, and that level of income is expected to continue whether the company remains independent or we acquire it. If we acquire the company, though, we can use a joint sales force to reduce cost and thus increase our income by $300 million a year indefinitely. The acquisition candidate has approximately the same risk as our company, and because our industry is cyclical, our investors require an 8 percent return. Is the investment attractive? 4. If an investment is expected to return of 5 percent in the future, a $53,000 investment will grow to how much in 22 years? 5. You purchased your house 5 years ago for $110,000 and based on recent appraisals it can be sold today for $141,000. What effective annual rate of return did you earn? 6. To buy a retirement home, you will need $525,000 in 18 years. If funds can be invested at an effective return of 6 percent a year, how much must you invest today to have the desire amount? 7. You decide to max-out your annual investment into your Individual Retirement Account and invest $6,000 at the end of each year for the next 17 years. At the end of this investment period, you will have how much if you earn an effective annual return of 6 percent? 8. Suppose you decide to invest $6,000 in an Individual Retirement Account at the beginning of each year for 19 years. If a 6 percent return is earned, you will have how much at the end of the investment period? 9. You want $750,000 to upgrade your store in 8 years. The treasurer wants to make equal payments at the end of each year into a fund for the purpose of accumulating this amount. If the fund can earn an effective annual return of 5 percent, how much must the company invest at the end of each year? 10. You borrowed $547,000 for the purchase of your new home. This loan carries an annual percentage rate of 4.85 percent. It will be paid off through equal monthly payments including both principal and interest, over a 30-year period. What is the monthly payment required? 11. A credit card company runs an ad quoting a nominal interest rate of 32 percent on charges. What is the effective interest rate if interest is compounded monthly? 12. Published salary surveys indicate that Chartered Financial Analyst earn $65,000 more per year than their non-chartered counterparts. Over 100,000 people are taking this three year series of exams this year. If this charter raises your average salary by $65,000 (per year) over your 25-year working life and money costs you 6 percent, how much is this certification worth today? (Assume year-end cash flows.) 13. You plan to retire in 35 years and can invest to earn 7 percent. You estimate that you will need $85,000 at the end of each year for an estimated 25 years after retirement, and you expect to earn 5 percent during those retirement years. How much do you need to set aside at the end of each year to accumulate the money necessary for your retirement? (Assume year-end cash flows.) 14. If an MBA cost $35,000 and money can be invested to earn 7 percent, how much does the annual salary for a person holding a masters degree have to exceed that of other college graduates for the masters degree to be financially feasible? (Assume a 35-year working life.) 15. Assume that you can receive $25,000 per year forever and that your cost of money is 7%. What is this opportunity worth today? 16. Assume that you can receive $42,000 per year forever and this cash flow will grow at 4% forever. With a cost of money of 8 percent, what is this opportunity worth today? Please answer the questions below the spaces provided. Thank you and Good Luck. 1. What are agency problems? and between what two stakeholders do agency problem typically occur? 2. Can a business have a positive accounting profit and a negative economic profit? Please explain. 3. What is competitive advantage and why is it important? 4. What level of profits can you earn in a perfectly competitive market and what drives markets towards perfect competition over the long run?,The following two questions should be added to the previous: 11. Why is the maximization (or increasing wealth) the overriding goal for the corporation and how are the conflicting goals of other stakeholders settled? 12. Using Southwest Airlines as an example, please identify the largest potential threat, the strategy employed, and what types of capital budgeting projects would be used to operational its strategy.,The questions 1-10 should be answered using an excel spreadsheet. There is no attachment.
