Question 1
1-Which of the following statement is correct: a- If the new debt, is used to refund old debt, the correct discount rate to use in the refunding analysis is the before tax cost of new debt. b- The key benefits associated with refunding debt are the reduction in the firm?s debt ratio and the creation of more reserve borrowing capacity. c- The mechanics of finding NPV of a refunding decision are fairly straightforward. However, the decision of when to refund is not always clear because it requires forecast of future interest rates. d- If a firm with positive NPV refunding project delays refund and interest rates rise, the firm can still obtain the entire NPV by locking in a low coupon rate when the rates are low, even though is actually refunds the debt after rate has risen. e- Suppose a firm is considering refunding and interest rates rise during time when the analysis is being done. The rise in rates would tend to lower the expected price of the new bonds, which would make them cheaper to the firm and thus increase the expected interest savings. 2-Which of the following is generally not true and an advantage of going public: a- Facilitates stockholders diversification b- Increase the liquidity of the firm stock c- Makes it easier to obtain new equity capital d- Establish a market value for the firm e- Makes it easier for owner managers to engage in profitable self dealings 3- Firms use defensive tactics to fight off undesired mergers. These tactics do not include: a- Raising antitrust issues b- Getting a white squire to purchase stock in the firm c- Getting white knights to bid for the firm d- Repurchasing their own stock e- Changing the bylaws to eliminate supermajority voting requirements 4- Which of the statement about valuing a firm using APV approach is most correct? a- The horizon value is calculated by discounting the cash flows beyond the horizon date and any tax savings at the levered cost of equity b- The horizon value is calculated by discounting the free cash flows beyond the horizon date and any tax savings at the cost of debt c- The horizon value is calculated by discounting the expected earnings at the WACC d- The horizon value is calculated by discounting the free cash flows beyond the horizon date and any tax savings at the WACC e- The horizon value must always be more than 20 years in the future 5- Which is statement is not correct a- When a corporation shares are owned by a few individuals who own most of the stock or are part of the firm?s management we say the firm is closely or privately owned b- Going public establishes a firm?s true intrinsic value and ensures that a liquid market will always exist for the firm?s shares. c- Publicly owned company have sold shares to investors who are not associated with management and they must register with and report a regulatory agency such as the SEC d- When stock in a closely held corporation is offered to the public for the first time the transaction is called going public and the market for such stock is called the new issue market e- It is possible for a firm to go public and yet not raise any additional new capital 6- Euro.Corp. is financing an ongoing construction project. The firm will need $ 5000,000 of new capital during each of the next 3 years. The firm has a choice of issuing new debt or equity each year as the funds are needed, or issue only debt now and equity later. Its target capital structure is 40% debt and 60% equity and it wants to be at that structure 3 years, when the project has been completed. Debt flotation cost for a single debt issue would be 1.6% or the gross debt proceeds. Yearly flotation costs for 3 separate issue of debt would be 3.0% of the gross amount. Ignoring time value effects, how much would the firm save by raising all of the debt now, in a single issue, rather than in 3 separate issues. a- $79,425 b- $83,606 c- $88,006 d- $92,406 e- $97,027
Question 2
Question 1 10 marks Golden Corporation predicts its net earnings in the upcoming year will be $5 million. There are 1,000,000 common shares outstanding. Golden currently has long term debt of $68 million and total common equity of $102 million. a. Assuming that Golden Corporation reinvests all profits, what is the maximum amount of investment funds that will be available without raising new funds through the issue of new common shares? Golden will maintain its ratio of long-term debt to equity. (4 marks) b. Suppose that Golden Corporation uses a residual dividend policy and that planned capital expenditures are $7 million. Based on this information and the previous answer what is the predicted dividend per share? If you could not solve the previous answer assume that it was $10 million. (4 marks) c. If Golden decides not to make any capital outlays for the coming year, what will be the dividend under the residual dividend policy? What will new borrowing be? (2 marks) Question 2 20 marks The president of Heather?s of New Glasgow, a national food retailer, has asked you to answer a letter from a major shareholder about Heather?s dividend policy. The shareholder has asked for an estimate of the dividend that Heather?s is likely to pay next year. You gather the following information: ? Heather?s follows a residual dividend policy ? The total capital budget for next year is likely to be one of three amounts depending on the results of capital budgeting studies that are still under review. The three possible capital budgets are $3 million, $4 million and $5 million. ? The forecasted level of reinvested profits next year is $3.5 million ? The optimal capital structure is a debt 30% and common equity 70% 1. Briefly describe what is meant by a residual dividend policy. (2 marks) 2. Compute the amount of the dividend (or the amount of new common share financing needed) and the dividend payout ratio for each of the three capital expenditure amounts ($3, $4 and $5 million). (10 marks) 3. Differentiate between a constant payout ratio dividend and a regular dividend policy. (2 marks) 4. Why do some corporations issue stock dividends? What is a stock dividend? (3 marks) 5. Why do some corporations repurchase shares instead of issuing dividends? (3 marks)
Question 3
1. T F A temporary difference is the difference between the tax basis of an asset or liability and its reported amount in the financial statements that will result in taxable amounts or deductible amounts in future years. 2. T F A deferred tax liability is the deferred tax consequences attributable to temporary taxable differences. 3. T F Temporary differences are those that will eventually be reversed, even if it takes 20 years. 4. T F Municipal bonds that are tax-exempt are an example of a permanent difference. 5. T F A permanent difference is one that will take more than 25 years to correct or reverse. 6. T F A deferral that will result in a reduction in taxes is known as a deferred tax benefit. 7. T F One objective of accounting for income tax is to recognize the amount of taxes payable or refundable for the current year. 8. T F When you know of a change in tax rates, you should make a change in the deferred taxes in the year you become aware of the change. 9. The term ?NOL? means a. Not On Loan b. Net Operating Loss c. Never Operating Longer d. No Onions Left 10. T F When you have a NOL you can use the amount to reduce the amount of taxes owed for a given period. 11. T F The amount that can be reduced can either be carried back 5 years or forward 10 years. 12. T F A deferred tax occurs when you have a difference between the amount owed on the financial statements from the amount shown as being owed on the tax return. 13. T F A deferred tax asset is due to the increase in taxes payable in future years. 14. T F A deferred tax liability does not have to be related to a transaction that has already occurred. 15. T F A deferred tax asset will only result from a transaction that will occur in the future,Thank you!!! Please explain the question if answer is fault. :)
Question 4
Write a paper on one of the major topics listed below and incorporate at least five other related empirical studies of your choice: ? Research the topic of cost allocation and theory . When writing your paper, be sure to answer the following questions, in addition to providing any other information you wish to include. What is cost allocation? Search and discuss two common allocations found in the auto industry. When is it beneficial to use cost allocations? How can a firm determine if it is useful or not Write a paper on one of the major topics listed below and incorporate at least five (5) other related empirical studies of your choice: The purpose of this Research Paper is for you to culminate the learning achieved in the course by describing your understanding and application of knowledge in the field of accounting. The paper must: ? Identify the main issues in the chosen area. ? Contain and reference new learning that has occurred. DBA 8552, Management Accounting and Control Systems 3 ? Build upon class activities or incidents that facilitated learning and understanding. ? Present specific current and/or future applications and relevance to the typical workplace. The Research Paper should also focus on real life, real time application of topics covered in this course; the uses you have seen and the uses you can envision. The Research Paper: ? Must be eight - to ten - double - spaced pages in length (not including the t itle page, table of contents and references page). ? Must include a cover page that includes: o Student?s name o Course name and number o Title of paper o Instructor?s name o Date submitted ? Must address the topic of the paper with critical thought. ? Must use at least f ive empirical studies as references. Format your Research Paper using APA style. Use your own words, and include citations and references as needed to avoid plagiarism.
Question 5
PR 5-5A Sales-related and purchase-related transactions The following were selected from among the transactions completed by Southmont Company during April of the current year: Apr. 3. Purchased merchandise on account from Mandell Co., list price $30,000, trade discount 40%, terms FOB destination, 2/10, n/30. 4. Sold merchandise for cash, $12,800. The cost of the merchandise sold was $7,600. 5. Purchased merchandise on account from Quinn Co., $18,750, terms FOB shipping point, 2/10, n/30, with prepaid transportation costs of $715 added to the invoice. 6. Returned $3,500 of merchandise purchased on April 3 from Mandell Co. 11. Sold merchandise on account to Campo Co., list price $6,000, trade discount 20%, terms 1/10, n/30. The cost of the merchandise sold was $3,200. 13. Paid Mandell Co. on account for purchase of April 3, less return of April 6 and discount. 14. Sold merchandise on VISA, $52,700. The cost of the merchandise sold was $31,500. 15. Paid Quinn Co. on account for purchase of April 5, less discount. Apr. 21. Received cash on account from sale of April 11 to Campo Co., less discount. 24. Sold merchandise on account to Elkins Co., $8,150, terms 1/10, n/30. The cost of the merchandise sold was $4,500. 28. Paid VISA service fee of $1,500. 30. Received merchandise returned by Elkins Co. from sale on April 24, $1,200. The cost of the returned merchandise was $900. Instructions Journalize the transactions.
