Question 1
1. Johnson Company has entered into a lease agreement for equipment which is not cancelable. The details of the lease are as follows: Inception of the lease: Jan 1, 2012, residual value at the end of the lease term is guaranteed at the end of the lease term for $50,000, annual lease payments are $124,798 due at the beginning of each year, starting on Jan 1, 2012. The lease term is 6 years, the economic life of the equipment is 5 years and the fair value of the asset at Jan 1, 2012 is $600,000. The borrowing rate is 6% per year. The lessee uses the straight line method to depreciate the asset. a. Prepare the journal entry to record the lease agreement on Jan 1, 2012 from the lessee?s perspective. b. Record the first payment on Jan 1, 2012 c. Record the second payment on Jan 1, 2013 and any adjusting entries needed on Dec 31, 2013. 2. George Manufacturing manufactures equipment for booths and has leased one to Peterson for a period of 10 years. The equipment has an estimated useful life of 12 years and the normal selling price of the asset is $278,072. The unguaranteed residual value is $20,000. Peterson will make annual payments of $40,000 at the beginning of each year starting on June 1, 2012 and all maintenance and insurance costs. It cost George $180,000 to manufacture the equipment and the borrowing rate is 10%. a. Record the lease agreement from the lessor?s perspective on July 1, 2013. b. Record receipt of the first payment on July 1, 2013 c. Record any adjusting entry at December 31, 2013 d. Record receipt of the second payment on July 1, 2014 and any other entries if needed. 3. On January 1, 2011 Richardson Corp. leased a new machine from Johnson Corp for 3 years which has an expected useful life of 8 years with no salvage value. It is depreciated on a straight line basis. The annual rental payments are $180,000 and start at the beginning of the year. Richardson is required to pay a security deposit of $35,000 at the signing of the lease. a. Record the lease agreement from the lessee?s point of view on Jan 1, 2011. b. Record payment of the security deposit by Richardson and the first payment c. Record the journal entry for initial lease contract from the lessor?s perspective. d. Record the first payment received by the lessor and the security deposit. e. Record any adjusting journal entry needed at December 31, 2011 by the lessee or lessor.
Question 2
APT Security?s sales are expected to increase from R4 m in 2009 to R5m in 2010, or by 25%. Its assets totaled R3 m at the end of 2009. APT is at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2009, current liabilities were R800 000, consisting of R200 000 of accounts payable, R400 000 of notes payable, and R200 000 of accruals. The after-tax profit margin is forecasted to be 5%, and the forecasted payout ratio is 60%. Use this information to answer questions (a), (b) and (c) below. (a) Use the AFN formula to forecast APT Security?s additional funds needed for the coming year. (b) What would be the additional funds needed if APT?s year end 2009 assets had been R3.5 m? Assume that all other numbers are the same. Why is this AFN different from the one you found in (a) above? Is the company?s ?capital intensity? the same or different? (c) Return to the assumption that the company had R3 m in assets at the end of 2009, but now assume that the company pays no dividends. Under these assumptions, what would be the additional funds needed for the coming year? Why is this AFN different from the one you found in (a) above?,1. How did you come out with the Assets of 30,000,000 Increase in assets(30,000,000*25%) according to the information the total assets is 3m 2. Profit after tax(40,00,000x5%)where is this 40,00,000 coming from 3.The increase in sales (50,00,000-40,00,000) coming from Not It look like yuo add 0 on the actual amount i.e 5m you say 50m please assist
Question 3
This question requires you, among other things, to calculate the stock price for Yahoo! Inc. (YHOO); and provide the needed analysis as asked in what follows. Here is what you need to do for this question. Using ?Sources of Financial Data? listed in Course Content[i] obtain the latest financial info/statements for Yahoo! Inc. (ticker YHOO), also identify its peer companies and obtain pricing and financial information for them. After that answer the following questions: Requirements: A. Develop a DCF model using excel to estimate the fair value of the firm?s common shares (use the data at yahoo.com/finance for your baseline year (2010). Don?t forget to include the terminal value (value after the forecast period, defined as 2011-2018) in your estimate. B. For each of the value drivers (i.e., sales growth and profit margin over the forecast period, tax rate, WACC, fixed and working capital investment rates, WACC), identify your sources and assumptions, and show any calculations. This is especially important for the WACC you will use to calculate the NPV, due to the sensitivity of your results to this critical parameter. C. Using comparable ratios of peer companies, estimate the company?s stock price using relative valuation method. List the major assumptions and sources of information that you used in your calculations. How do you know your assumptions are reasonable enough? Explain. D. How do your DCF and relative valuations compare with the company?s prevailing market price? If they are different, can you briefly forward any possible explanations? If they are not different, can you still justify the price that you arrived at? E. On February 1, 2008 Microsoft announced ?that it has made a proposal to the Yahoo! Inc. Board of Directors to acquire all the outstanding shares of Yahoo! common stock for per share consideration of $31 representing a total equity value of approximately $44.6 billion.? What was the outcome of this bid? Specifically, how did the management and the board react? How did this bid affect the company?s strategy and management? If a potential acquirer were interested in Yahoo today, what would your recommendation be on a per share basis? Is a premium justified? Make sure to justify your responses by using the available data/info and carrying out any needed and relevant calculations.,Please help with question. I am not sure how to even start. Thanks!,QN. ?Critics say that because real options don?t expire according to contract as financial options do, managers can?t be counted on to pull the plug on a project (exercise an ?abandonment option?) when they should. Also, projects assume lives of their own, and may not be easy to kill.? Do you agree with the above statements? Explain why yes or why no. To support your answer provide some examples and make sure to draw upon the materials from your textbooks. Qn.This question is based on the ?Behavioral Finance at JP Morgan? (JPM) Case - which is attached along with this exam for your use. In a nutshell and as you will see in a moment, question 1 requires you to develop a mini case that is based on the JPM case. Of course as you will also soon see your job is relatively easy, though it needs a bit of patience and time, because you will have a working model (the JPM case) for developing such a case. The specific questions that I want you to answer for this question are listed in below. After reading and understanding the case, please answer all the following questions. 1. Just list all the key behavioral phenomena discussed or mentioned in the said case. 2. Just list all the key behavioral phenomena that you have learned in this class so far and as covered in your three sets of required readings: Shefrin textbook, Montier textbook, and the required articles. 3. Just list those key behavioral factors that are listed under item 2 in above but not listed under item 1 in above. 4. Rewrite the textual/conceptual (the no-quantitative) portion of the JPM case by discussing all the phenomena you have listed under item 3 in above. In your rewrite, make sure to just briefly explain each phenomenon/factor first, and provide an example or explanation of your own similar to the case?s ?Everyday Examples of --? (those examples are highlighted in yellow in the JPM case in the exhibits part toward the end of the case.) In your rewritten case you may just refer to the specific Exhibits or Figures in the main case instead of recreating those exhibits, figures, etc in your rewrite. 5. Close the rewritten case by adding a conclusion at the end in which you explain how the rewrImagine that Adaptec is contemplating a project that requires a $3.75 billion initial outlay, and features an NPV of $466 million. The firm is all-equity financed, and has $1 billion in cash that it plans to invest in the project. Adaptec?s current market value of equity is $6.68 billion. Adaptec?s investment bankers have advised the firm?s financial managers that they could raise the $2.75 billion by issuing new equity. However, Adaptec has no capacity for debt. If the firm issues new equity, then the new shareholders would come to hold 28.5 percent of the firm, which conditional on adopting the project they estimate to be worth $9.569 billion. The investment bankers have computed the NPV of the project to be about $227 million, not the $466 million computed by Adaptec?s managers. Adaptec?s managers have concluded that their firm is undervalued in the market, and that its intrinsic value would be about $13 billion if it adopts the project. In addition, the managers have concluded that the new shareholders merit 21.2 percent of the firm for their $2.75 billion investment. Nevertheless, the investment bankers have made it clear that unless Adaptec?s managers agree to give up 28.5 percent of their firm, they will not be able to raise the $2.75 billion. Assume that flotation costs are zero. Suppose that Adaptec has no debt capacity and has to rely on external equity. What value of APV would the managers of Adaptec compute if they adopted the project and financed it with equity? itten case can help investment decision making. QN.
Question 4
ALPINE, INC. Income Statement For the year ended June 30, 2012 Sales (40,000 Units at $12) $480,000 Less: Cost of Goods Sold Direct Materials $120,000 Direct Labor 65,600 Manufacturing Overhead 90,000 275,600 Gross Margin 204,400 Less: Operating expenses: Selling expenses: Variable: Sales Commissions $38,400 Shipping 14,000 52,400 Fixed (Advertising, salaries) 110,000 Administrative expenses: Variable (billing, other) 3,200 Fixed (salaries, other) 85,000 250,600 Net Loss $(46,200) All variable expenses in the company vary in terms of units sold, except for sales commissions, which are based on sales dollars. Variable manufacturing overhead is 50 cents per unit. The company?s plant has a capacity of 70,000 units. Management is particularly disappointed with 2012?s operating results. Several possible courses of action are being studied to determine what should be done to make 2012 profitable. REQUIRED: Redo Alpine, Inc.?s 2012 Income Statement in the contribution format. Show both a total column and a per unit column on your statement. 5 pts. _____ In an effort to make 2013 profitable, Micah Patdu, the president is considering two proposals prepared by members of her staff: Jon Michael, the sales manager would like to reduce the unit selling price by 25 percent. He is certain that this would fill the plant to capacity. Mary Wilkinson, the executive vice president would like to increase the unit selling price by 25 percent, increase the sales commissions to 12 percent of sales, and increase advertising by $90,000. Based on experience in another company, she is confident this would trigger a 50 percent increase in unit sales. Prepare two contribution income statements, one showing what profits would be under Jon Michael?s proposal and one showing what profits would be under Mary Wilkinson?s proposal. On each statement, include both total and per unit columns (do not show per unit data for fixed costs) 15 pts. _____ Refer to the original data. Micah Patdu, the president thinks it would be unwise to change the selling price. Instead, she wants to use less costly materials in manufacturing units of product, thereby reducing costs by $1.73 per unit. How many units would have to be sold during 2013 to earn a target profit of $59,000 for the year? 5 pts. _____ Refer to the original data. Alpine, Inc.?s advertising agency thinks that the problem lies in inadequate promotion. By how much can advertising be increased and still allow the company to earn a target return of 4.5 percent on sales of 60,000 units? 5 pts. _____ Refer to the original data. Assume that the company was approached by an overseas distributor who wanted to purchase 15,000 units on a special price basis during June 2012. There would be no sales commission on these units. However, shipping costs would increase by 80 percent per unit, and variable administrative costs would be reduced by 50 percent per unit on these ?special order? units. In addition, Alpine, Inc., would have to pay a foreign import duty of $3,150 on behalf of the overseas distributor in order to get the goods into the country. Given these data, what unit price would have to be quoted on the 15,000 units by Alpine, Inc., to allow the company to earn an ?overall? profit of $18,000 for the year ended June 30, 2012 on total operations? Regular business would not be disturbed by this special order. 10 pts. _____ Participation: 20 pts. _____ These points will be assigned by me and will be based on each team member?s activity on the team discussion board or other means of communication.
Question 5
3. For each of the following, calculate the present value. PRESENT VALUE YEARS INTEREST RATE FUTURE VALUE 9 7% $15,451 6 9% $51,557 21 14% $886,073 27 16% $550,164 21. What is the future value in three years of $1,800 invested in an account with a stated annual interest rate of 10%, C = (1 + r/m)m (M is to the mth power) a) Compounded annually? b) Compounded semiannually? c) Compounded monthly? d) Compounded continuously? e) Why does the future value increase as the compounding period shortens? 49. Suppose you are going to receive $8,000 per year for 10 years. The appropriate interest rate is 9%. a) What is the present value of the payments if they are in the form of an ordinary annuity? What is the present value if the payments are an annuity due? b) Suppose you plan to invest the payments for 10 years. What is the future value if the payments are on ordinary annuity? What if the payments are an annuity due? c) Which has the highest present value, the ordinary annuity or the annuity due? Which has the highest future value? Will this always be true? 7. If treasury bills are currently paying 4.7% and the inflation rate is 2.3%, what is the approximate real rate of interest? The exact real rate? 14. Laurel, Inc., and Hardy Corp. both have 7% coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. The Laurel, Inc., bond has 2 years to maturity, whereas the Hardy Corp. bond has 20 years to maturity. If interest rates suddenly rise by 2%, what is the percentage change in the price of these bonds? If interest rates were to suddenly fall by 2% instead, what would the percentage change in the price of these bonds be then? Illustrate your answers by graphing bond prices versus YTM. What does this problem tell you about the interest rate risk of long-term bonds? I have my answers but am not confident in them so I would like to verify against others. Could you show the steps to help incase I am wrong and can see where I made mistakes. These are practice problems but can be made into final questions down the road so it would be good to know exactly how to do them if I were to see similar problems. Thanks!
