Finance100: Principles Of Finance

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Complete the following homework scenarios:

A local bank reported that it lost $150,000 as the result of an employee fraud. Edward Jasso is not clear on what is meant by an “employee fraud.” Explain the meaning of fraud to Edward and give an example of frauds that might occur at a bank.

_________________________________________________________________________________

  • Bob and Lisa are both married, working adults. They both plan for retirement and consider the $2,000 annual contribution a must.

    First,  consider Lisa’s savings. She began working at age 20 and began making  an annual contribution of $2,000 at the first of the year beginning with  her first year. She makes 13 contributions. She worked until she was 32  and then left full time work to have children and be a stay at home  mom. She left her IRA invested and plans to begin drawing from her IRA  when she is 65.

    Bob started his IRA at age 32. The first 12 years  of his working career, he used his discretionary income to buy a home,  upgrade the family cars, take vacations, and pursue his golfing hobby.  At age 32, he made his first $2,000 contribution to an IRA, and  contributed $2,000 every year up until age 65, a total of 33 years /  contributions. He plans to retire at age 65 and make withdrawals from  his IRA.

    Both IRA accounts grow at a 7% annual rate. Do not consider any tax effect.   

  • Write a two to three (2-3) paragraph summary in which you:

    • Create a chart summarizing the details of the investment for both Bob and Lisa.     
    • Explain the results in terms of time value of money.
      ____________________________________________________________________
      Dear FIN 100,
      The second homework assignment for week-6 deals with a series of time-value-of-money problems.

      For the Lisa scenario there are actual two TVM problems.  The first  section addresses the FVAD.  Not that the present value is zero, and the  payment is made at the beginning of the year.   You will then have to  invest the FVAD amount as a PV for the second scenario.  You should  determine the FV amount at her retirement age of 65 years old.
      For the Bob scenario, you are also find the FVAD.  Bob is making 33 contributions at the beginning of the year.
      Remember  to provide your work in Excel and provide a chart or some summation of  your calculations and time-lines for each person.  Please summarize your  results for both of their retirement accounts.
      You may want to review the TVM links provided on the announcement page.
      You  may also want to review the following links regarding the IRA accounts,  both traditional and Roth IRAs, for your own general knowledge.
      https://www.irs.gov/Retirement-Plans/Traditional-IRAs
      https://www.irs.gov/Retirement-Plans/Roth-IRAs
      https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits

FIN 6301: Financial Management

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PROBLEM SET 4

 

 

 

 

 

1.      Consider Macbeth Spot Removers, a publically traded company with an infinite life span, which faces a range of annual operating incomes as depicted in the table below.  The rate of return on Treasury bonds is 10%.

 

 

 

Data
Number of shares 700      
Price per share $12      
Market value of equity $8400      
  Outcomes
Operating income $500 $1,000 $1,500 $2,000
Earnings per share $0.71                            $1.43                                 $2.14                                   $2.86
Return on equity 5.95%                        11.90%  17.86%  23.81%

 

 

 

 

 

a.      Calculate the earnings per share and return on equity in the table above.

 

                                                              i.      Shown In Table Above

 

 

 

Macbeth Spot Removers issues $2,400 of risk-free debt and uses the proceeds to repurchase 200 shares.

 

 

 

b.      Rework the table above to show how earning per share and equity returns now vary with operating income. Shown In Table Below

 

Data
Number of shares 500      
Price per share $12      
Market value of equity $6000      
  Outcomes
Operating income $500 $1,000 $1,500 $2,000
Interest

Net Income

Earnings per share

 $240

$260

$0.52                        

 $240

$760

$1.52                             

 $240

$1260

$2.52                                 

 $240

$1760

$3.52
Return on equity 4.33%                      12.66%  21%  29.33%

 

 

 

c.       If the beta of Macbeth’s unlevered assets is 0.8 and its debt is risk-free, what would be the beta of the equity after the debt issue?

 

                                                              i.      0.966 or 1.12

 

Ms. Macbeth’s investment bankers have just informed her that the new issue of debt is risky.  Debtholders will demand a return of 12.5%, which is 2.5% above the risk-free interest rate.

 

d.      How does this affect return on assets and return on equity?  Calculate these values. Shown In Table Below

 

Data
Number of shares 500      
Price per share $12      
Market value of equity $6000      
  Outcomes
Operating income $500 $1,000 $1,500 $2,000
Return on Assets 5.95%                            11.9%                               17.86%                                   23.81%
Return on equity 3.33%                      11.67%  20% 28.33%

 

 

 

e.       Suppose that the β of unlevered equity was 0.6.  What will βA, βE, and βD be after the change to the capital structure?

 

                                                              i.      βA = 0.6 or 0.84 βE = 0.74 and βD  = 0.25

 

 

 

 

 

2.      Happy Valet, Inc. has a 14.5% cost of unlevered equity and can issue debt at a rate of 8%.  It faces marginal corporate income tax rate of 40% and has debt and equity assets of 30% and 70%, respectively (calculated using market values).

 

a.      What rate of return do stockholders require on Happy Valet’s levered equity assets?

 

                                                              i.      10.15% or 16.17%

 

b.      What is the firm’s WACC?

 

                                                              i.      11.59% or 12.76%

 

 

 

 

 

3.      Consider the case of Henrietta Ketchup, a budding entrepreneur with two possible investment projects that offer the following payoffs:

 

 

 

  Investment Payoff Probability of Payoff
Project 1 20.4 25.5 1.0
Project 2 20.4 40.8 0.6
    0 0.4

 

 

 

Ms. Ketchup approaches her bank and asks to borrow the present value of $10 (she will fund the rest out of internal funds).

 

a.      Calculate the expected payoffs to the bank and to Ms. Ketchup if the bank lends the present value of $10.  Which project would Ms. Ketchup undertake?

 

a.      Project 1 – 5.1 or 15.5 ; Project 2 – 4 or 18.48 .(Ms. Ketchup);  Project 1 – 10 ; Project 2 – 6.(Bank)   ; Ms. Ketchup would take Project 2 because there is a probability for a higher payoff.

 

b.      Is this the same project that the bank would want Ms. Ketchup to undertake?  Explain why or why not.

 

a.      No the bank would choose project 1 because there is less risk involved and more probability that they can get their money back.

 

c.       What is the maximum amount the bank could lend that would induce Ms. Ketchup to take the bank’s preferred project?

 

a.      $15.30 or $2.54

 

d.      If the bank was to lend the $10, but was acting strategically in its own interest, what interest rate would the bank require on its loan?

 

a.      1.96% or 25.4%

 

 

 

4.      You have the following information about Ledd—a publicly traded (and therefore infinitely lived) company:

 

 

 

Operating income: $20 million

 

Cost of unlevered equity: 10%

 

Risk-free interest rate: 5%

 

Corporate marginal tax rate: 0

 

 

 

a.      If Ledd is financed entirely by equity,

 

                                                              i.      What is the value of the firm?

 

1.      200 million (w/o tax) ; 200 million(with tax)

 

                                                            ii.      What is the return required by stockholders?

 

1.      10% (w/o tax) ;10% (with tax)

 

                                                          iii.      What is the company’s WACC?

 

1.      10% (w/o tax) ; 10% (with tax)

 

b.      Ledd decides to issue bonds with the market value of 40% of total assets, using the proceeds to repurchase equity.  The bonds are considered to be risk-free.

 

                                                              i.      What is the value of Ledd with the new capital structure?

 

1.      200 million (w/o tax);228.8 million (with tax)

 

                                                            ii.      What is the return required by stockholders of the leveraged firm?

 

1.      6% or 13.33% (w/o tax); 13.21%(with tax)

 

                                                          iii.      What is the WACC?

 

1.      8% or 10% (w/o tax); 9.21%(with tax)

 

                                                          iv.      What is the tax shield of debt?

 

1.      0 (w/o tax) ; 28.8 million (with tax)

 

c.       The government implements a marginal corporate tax rate of 36%.

 

                                                              i.      Recalculate your answers to a) and b) in a world with taxes.

 

1.      Shown Above (2nd Answer)

 

Simulation Using Analytic Solver Platform

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Assignments: It is strongly recommended that you create a separate file for each of these problems in order to avoid that the simulation runs interfere with each other. For all problems, run 5000 trials.

 

Solve the following problems in Excel using Excel add-in- ‘analytical solver platform’ (due Thursday, oct 29th)

 

Q. 11. The owner of a ski apparel store in Winter Park, Colorado must make a decision in July regarding the number of ski jackets to order for the following ski season. Each ski jacket costs $54 each and can be sold during the ski season for $145. Any unsold jacket at the end of the season are sold for $45. The demand for jackets is expected to follow a Poisson distribution with an average rate of 80. The store owner can order jackets in lot sizes of 10 units.

a. How many jackets should the store owner order if she wants to maximize her expected profit?

b. What are the best-case and worst-case outcomes the owner may face on this product if she implements your suggestion?

c. How likely is it that the store owner will make at least $7,000 if she implements your suggestion?

d. How likely is it that the store owner will make between $6,000 and $7,000 if she implements your suggestion?

Hints:

a.    Solve as a combination of simulation/optimization. The following functions will help with this problem (you may need others also which you have used before): PsiPoisson (see page 577) Psimin and Psimax (see pages 602-603); Psitarget (see page 596). 17 pts

b.     Solve without an optimization. Instead, build a model and vary the order quantity in between 50, 60, 70, 80, 90, 100, 110  using the PsiSimParam function as discussed in section 12.14.2. Create a table similar to Figure 12.22. Answer all questions and discuss in case you find differences to your solution in part a). 15 pts

 

Q.17. Lynn Price recently completed her MBA and accepted a job with an electronics manufacturing company. Although she lilkes her job, she is also looking forward to retiring one day. To ensure that her retirement is comfortable, she intends to invest $3,000 of her salary into a tax-sheltered retirement fund at the end of each year. Lynn is not certain what rate of return this investment will earn each year, but she expects each year’s rate of return could be modeled appropriately as a normally distributed random variable with a mean of 12.5% and standard deviation of 2%.

a. If Lynn is 30 years old now, how much money should she expect to have in her retirement fund at age 60?

b. Construct a 95% confidence interval for the average amount Lynn will have at age 60.

c. What is the probability that Lynn will have more than $1 million in her retirement fund when she reaches age 60?

d. How much should Lynn invest each year if she wants there to be a 90% chance of having at least $1 million in her retirement fund at age 60?

e. Suppose Lynn contributes $3,000 annually to her retirement fund for eight years and then terminates her annual contributions. How much of her salary would she have contributed to this retirement plan and how much money could she expect to have accumulated at age 60?

f. Now suppose that Lynn contributes nothing to her retirement fund for eight years and then begins contributing $3,000 annuallly until age 60. How much of her salary would she have contributed to this retirement plan, and how much money could she expect to have accumulated at age 60?

g. What should Lynn (and you) learn from the answers to questions e and f?

Hints:  Part d) is similar to last week – try different values, explain what you did and provide answers. Show a new model for e) and f. 25 pts. For the interest calculation, assume that there is no interest in the first year (when she is 30) just the addition of $3000. Year “60” is the last year where funds and interest are added.

 

 

Note : All solutions need to be done in excel using ‘Analytical solver platform’.

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    simulation.docx

Finance Questions: Cost of Preferred Stock with Flotation Costs

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Cost of Preferred Stock with Flotation Costs
Burnwood Tech plans to issue some $60 par preferred stock with a 6% dividend. A similar stock is selling on the market for $73. Burnwood must pay flotation costs of 7% of the issue price. What is the cost of the preferred stock? Round your answer to two decimal places.
WACC
David Ortiz Motors has a target capital structure of 45% debt and 55% equity. The yield to maturity on the company’s outstanding bonds is 11%, and the company’s tax rate is 40%. Ortiz’s CFO has calculated the company’s WACC as 9.53%. What is the company’s cost of equity capital? Round your answer to two decimal places.
Bond Yield and After-Tax Cost of Debt
A company’s 8% coupon rate, semiannual payment, $1,000 par value bond that matures in 20 years sells at a price of $678.22. The company’s federal-plus-state tax rate is 30%. What is the firm’s after-tax component cost of debt for purposes of calculating the WACC? (Hint: Base your answer on the nominal rate.) Round your answer to two decimal places.
Cost of Equity
Radon Homes’s current EPS is $6.43. It was $3.60 5 years ago. The company pays out 40% of its earnings as dividends, and the stock sells for $34.
1. Calculate the historical growth rate in earnings. (Hint: This is a 5-year growth period.) Round your answer to two decimal places.
%
2. Calculate the next expected dividend per share, D1 (Hint: D0 = 0.40($6.43) = $2.57). Assume that the past growth rate will continue. Round your answer to the nearest cent.
$
3. What is Radon’s cost of equity, rs? Round your answer to two decimal places.
%
Calculation of g and EPS
Spencer Supplies’s stock is currently selling for $60 a share. The firm is expected to earn $5.70 per share this year and to pay a year-end dividend of $2.90.
1. If investors require a 9.5% return, what rate of growth must be expected for Spencer? Round your answer to two decimal places.
%
2. If Spencer reinvests earnings in projects with average returns equal to the stock’s expected rate of return, then what will be next year’s EPS? (Hint: g = ROE × Retention ratio.) Round your answer to the nearest cent.
$

The Cost of Equity and Flotation Costs
Messman Manufacturing will issue common stock to the public for $25. The expected dividend and growth in dividends are $2.75 per share and 6%, respectively. If the flotation cost is 8% of the issue’s gross proceeds, what is the cost of external equity, re? Round your answer to two decimal places.
The Cost of Equity and Flotation Costs
Suppose a company will issue new 25-year debt with a par value of $1,000 and a coupon rate of 8%, paid annually. The tax rate is 40%. If the flotation cost is 3% of the issue proceeds, then what is the after-tax cost of debt? Disregard the tax shield from the amortization of flotation costs. Round your answer to two decimal places.
WACC Estimation
On January 1, the total market value of the Tysseland Company was $60 million. During the year, the company plans to raise and invest $25 million in new projects. The firm’s present market value capital structure, shown below, is considered to be optimal. Assume that there is no short-term debt.
Debt $30,000,000
Common equity 30,000,000
Total capital $60,000,000
New bonds will have an 6% coupon rate, and they will be sold at par. Common stock is currently selling at $30 a share. The stockholders’ required rate of return is estimated to be 12%, consisting of a dividend yield of 4% and an expected constant growth rate of 8%. (The next expected dividend is $1.20, so $1.20/$30 = 4%.) The marginal corporate tax rate is 35%.
1. In order to maintain the present capital structure, how much of the new investment must be financed by common equity? Enter your answer in dollars. For example, $1.2 million should be entered as $1200000.
$
2. Assuming there is sufficient cash flow such that Tysseland can maintain its target capital structure without issuing additional shares of equity, what is its WACC? Round your answer to two decimal places.
Market Value Capital Structure
Suppose the Schoof Company has this book value balance sheet:
Current assets $30,000,000 Current liabilities $10,000,000
Fixed assets 50,000,000 Long-term debt 30,000,000
Common stock
(1 million shares) 1,000,000
Retained earnings 39,000,000
Total assets $80,000,000 Total claims $80,000,000
The current liabilities consist entirely of notes payable to banks, and the interest rate on this debt is 9%, the same as the rate on new bank loans. These bank loans are not used for seasonal financing but instead are part of the company’s permanent capital structure. The long-term debt consists of 30,000 bonds, each with a par value of $1,000, an annual coupon interest rate of 8%, and a 15-year maturity. The going rate of interest on new long-term debt, rd, is 10%, and this is the present yield to maturity on the bonds. The common stock sells at a price of $68 per share. Calculate the firm’s market value capital structure. Round your answers to two decimal places.
Short-term debt $
%

Long-term debt $
%

Common equity $
%

Total capital $

Simple Case Study: University of Neverland to complete the following assignment.

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Use the Case: University of Neverland to complete the following assignment.
The university has traditionally utilized bonds for funding any of its facility projects. Because the university is a non­profit organization, it cannot issue stock as a traditional corporation can. But the university’s president wants to explore all possible funding options, so she wants you to examine the existing information and determine if nonprofits can sell shares in anything to raise money. For example, some lighthouses have sold shares in the lighthouse and have given a beautiful lithographed print to the purchaser as a memento. Likewise, the Green Bay Packers and Boise State have made stock offer­ings.

Please write a thorough response to the university’s president (in the form of a well-organized report) regarding funding for facilities. Your well-organized, articulate report should contain the following items:(5 pts each)

1. The strengths and weaknesses of funding facilities with bonds
2. The strengths and weaknesses of funding with stocks or other forms of private ownership
3. Examples and explanations of other non-profits who have utilized stocks for funding and how successful they have been.
4. Your analysis of the feasibility of bond funding for UNL and how much money you think could be generated through various types of bonds (be sure to consider both general obligation, AND revenue bonds). Your analysis should also explore the various sources of revenue that could be utilized to pay back bonds for college facilities.

 

Please submit in the timelne given with quality.

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    30836e13f4c2b4e7a599eae02d9887cf_9ea7b4ec4d2211497ef16a759be09328_1.pdf

Fill in the blanks with the preterite form of the verbs.

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EscucharRead the statements. Then listen to a short biography of María Muñoz, and indicate whether each statement is cierto or falso.

  1. María Muñoz nació en Madrid.
    •  cierto
    •  falso
  2. Su madre le regaló un cuaderno.
    •  cierto
    •  falso
  3. María estudió computación.
    •  cierto
    •  falso
  4. María se casó después de graduarse.
    •  cierto
    •  falso
  5. María vive en California.
    •  cierto
    •  falso

EmparejarMatch the pictures and descriptions.

  1.  1 2 3 4 5 Ana cumple veintiún años.
  2.  1 2 3 4 5 Saúl abrió una botella de vino tinto.
  3.  1 2 3 4 5 Celebramos el Año Nuevo con champán.
  4.  1 2 3 4 5 La fiesta de cumpleaños de Marisa fue muy divertida.
  5.  1 2 3 4 5 Alberto y sus amigos celebran la Navidad.

¿Qué o cuál?Select the correct option for each question.

  1. ¿ Qué Cuál Cuáles es tu número de teléfono?
  2. ¿ Qué Cuál Cuáles pastel quieres comprar para la fiesta?
  3. ¿ Qué Cuál Cuáles son los colores de la bandera (flag) de México?
  4. ¿ Qué Cuál Cuáles vamos a hacer para el cumpleaños de la abuela?
  5. ¿ Qué Cuál Cuáles es el vino que prefieres?

VerbosFill in the blanks with the preterite form of the verbs.

  1. Yo  (tener) que comprar los boletos de autobús.
  2. Sus amigas le  (decir) que hace las mejores galletas de la ciudad.
  3. Carla y tú  (traer) un regalo para María a la estación de autobuses.
  4. Nosotros no  (saber) qué hacer cuando vimos a Virginia.
  5. Tú  (estar) estudiando en España durante cuatro años.
  6. Los hermanos Salas  (querer) comprar un carro nuevo.
  7. Tú  (poder) terminar la tarea a tiempo.
  8. Lisa no  (saber) lo que pasó en la fiesta.
  9. Marcia y tú  (conocer) a Carolina en ese restaurante.
  10. Ella no  (querer) preparar la ensalada para la cena.
  11. Yo le  (dar) diez dólares a mi sobrinito.

PreposicionesFill in the blanks with the appropriate pronouns and prepositions.

  1. Lorena no quiere ir a la fiesta  (with me).
  2. Ellos tienen que traer el flan  (for him).
  3. Leonardo se va a sentar  (with you, form.).
  4. Sandra se lleva muy bien  (with you, fam.).
  5. Celebré el Año Nuevo  (with her).
  6. Vamos a comprar unos postres  (for you, fam.).

¡Viva la fiesta!Fill in the blanks with words from the box.aniversariobrindaronconcondujohizoparapudieronquisotrajo

  1. Liliana y Patricia prepararon una fiesta de (1)  para sus amigos Victoria y David. Invitaron a todos los amigos de la pareja y, (2)  ellas, lo mejor es que todos (3)  asistir. Liliana(4)  la reservación en un restaurante muy elegante del centro. Patricia (5)  de la casa de Victoria y David al restaurante y llegó (6)  ellos a la mesa donde estaban (were) todos esperando. Victoria (7)  agradecer a sus amigos, pero no pudo porque empezó a llorar (to cry) de alegría. Todos (8)  por la pareja y compartieron los postres y los dulces que el camarero(9)  a la mesa.

LecturaRead the description, then answer the questions.El viernes Mirta hizo una fiesta para celebrar su cumpleaños. Ella cumplió 21 años. Luisa hizo un pastel y un flan. Sandra y Tomás trajeron el champán y los refrescos. Sebastián quiso venir, pero no pudo porque vive en otra ciudad. Así que, Sebastián le pidió a Luisa comprar unos dulces para Mirta y dárselos en la fiesta. Ella se puso muy contenta cuando supo que los dulces venían (came) de Sebastián. Fue una noche muy divertida. Estuvieron bailando y cantando hasta la medianoche.

  1. ¿Cuántos años cumplió Mirta?
    •  veintiuno
    •  veintidós
    •  veintitrés
  2. ¿Qué hizo Luisa?
    •  una ensalada
    •  unos dulces
    •  un pastel y un flan
  3. ¿Quién trajo el champán?
    •  Sandra y Tomás
    •  Mirta y Sebastián
    •  Sandra y Luisa
  4. ¿Fue Sebastián a la fiesta?
    •  sí
    •  no sé
    •  no
  5. ¿Cómo se puso Mirta cuando vio los dulces?
    •  alegre
    •  confundida
    •  preocupada
  6. Mirta y sus amigos bailaron hasta las…
    •  diez.
    •  once.
    •  doce.

Ragan Stock: answer ALL of the questions. The questions are also in the uploaded document. 

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This is due Saturday December 17, 2016 

Please read the attachment as it has everything you will need for this assignment. Please answer ALL of the questions. The questions are also in the uploaded document. 

 

1.     Assuming the company continues its current growth rate, what is the value per share of the company’s stock?

 

2.     Dan has examined the company’s financial statements, as well as examining those of its competitor’s. Although Ragan currently has a technological advantage. Dan’s research indicates that Ragan’s competitors are investigating other methods to improve efficency. Given this, Dan believes that Ragan’s technological advantage will last only for the next five years. After that period, the company’s growth will likely slow to the industry average. Additionally, Dan believes that the required return the company uses is too high. He believes the industry average required return is more appropriate. Under Dan’s assumptions, what is the estimated stock price?

 

 

3.     What is the industry average price –earnings ratio? What is Ragan’s price-earnings ratio? Comment on any differences and explain why they may exist.

 

4.     Assume the company’s growth rate declines to the industry average after five years. What percentage of the stock’s value is attributable to growth opportunities?

 

 

5.     Assume the company’s growth rate slows to the industry average in five years. What future return on equity does this imply?

 

 

6.     Carrington and Genevieve are not sure if they should sell the company. If they do not sell the company outright to East Coast Yachts, they would like to try and increase the value of the company’s stock.  In this case, they want to retain control of the company and do not want to sell stock to outside investors. They also feel that the company’s debt is at a manageable level and do not want to borrow more money. What steps can they take to try and increase the price of the stock? Are there any conditions under which this strategy would not increase the stock price?

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    mini_case__stock_valuation_at_ragan_engines.docx

Week 4 Homework Assignment Solution: Exercises E12-1, E12-5, E12-7, and E12-14

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Exercises E12-1, E12-5, E12-7, and E12-14

 

E 12–1: Securities held-to-maturity; bond investment; effective interest

LO12–1

Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2013. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $200 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fair value of the bonds at December 31, 2013 was $210 million.

 

 

Required:

1.  Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2013.

2. Prepare the journal entry by Tanner-UNF to record interest on December 31, 2013, at the           effective (market) rate.

3. At what amount will Tanner-UNF report its investment in the December 31, 2013, balance sheet? Why?

4. Suppose Moody’s bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2014, for $190 million. Prepare the journal entry to record the sale.

 

 

 

12–5: Various transactions relating to trading securities

LO12–2

Rantzow-Lear Company buys and sells securities expecting to earn profits on short-term differences in price. The company’s fiscal year ends on December 31. The following selected transactions relating to Rantzow-Lear’s TRADING ACCOUNT occurred during December 2013 and the first week of 2014.

 

2013

Dec. 17 Purchased 100,000 Grocers’ Supply Corporation preferred shares for $350,000.

28 Received cash dividends of $2,000 from the Grocers’ Supply Corporation preferred shares.

 

31 Recorded any necessary adjusting entry relating to the Grocers’ Supply Corporation preferred shares. The market price of the stock was $4 per share.

 

2014

Jan.5 Sold the Grocers’ Supply Corporation preferred shares for $395,000.

Required:

1. Prepare the appropriate journal entry for each transaction.

2. Indicate any amounts that Rantzow-Lear Company would report in its 2013 balance sheet and income statement as a result of this investment.

 

 

E 12–7: Securities available-for-sale; adjusting entries

LO12–3

Loreal-American Corporation purchased several marketable securities during 2013. At December 31, 2013, the company had the investments in common stock listed below. None was held at the last reporting date, December 31, 2012, and all are considered securities available-for-sale.

 

 

Required:

1. Prepare the appropriate adjusting entry at December 31, 2013.

2.       What amounts would be reported in the income statement at December 31, 2013, as a result of the adjusting entry?

 

 

 

 

E 12–14: Investment securities and equity method investments compared

LO12–3, LO12–4, LO12–5

As a long-term investment, Painters’ Equipment Company purchased 20% of AMC Supplies Inc.’s 400,000 shares for $480,000 at the beginning of the fiscal year of both companies. On the purchase date, the fair value and book value of AMC’s net assets were equal. During the year, AMC earned net income of $250,000 and distributed cash dividends of 25 cents per share. At year-end, the fair value of the shares is $505,000.

 

 

Required:

1.       Assume no significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year.

 

 

2.       Assume significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year.

FIN 100 WEEK 11 QUIZ: The time between ordering materials and collecting cash from receivables is known as the:

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Question 1 

Assume a firm’s production process requires an average of 80 days to go from raw materials to finished products and another 40 days before the finished goods are sold. If the accounts receivable cycle is 70 days and the accounts payable cycle is 80 days, what would the operating cycle be?

 

110 days

 

130 days

 

190 days

 

270 days

Question 2 

The time between ordering materials and collecting cash from receivables is known as the:

 

operating cycle

 

cash conversion cycle

 

accounts receivable period

 

term payable cycle

Question 3 

The time between when the firm pays its suppliers and when it collects money from its customers is known as the:

 

operating cycle

 

cash conversion cycle

 

accounts receivable period

 

clearing cycle

Question 4 

Which of the following is not an advantage of short-term borrowing?

 

flexibility

 

establishing continuous relationships   with a bank or financial institution

 

frequent renewals

 

lower cost

Question 5 

In June, Erie Plastics had an ending cash balance of $35,000. In July, the firm had total cash receipts of $40,000 and total cash disbursements of $50,000. The minimum cash balance required by the firm is $25,000. At the end of July, Erie Plastics had

 

an excess cash balance of $25,000

 

An excess cash balance of $0

 

required financing of $10,000

 

required financing of $25,000

Question 6 

A compensating balance on a bank loan effectively ____________ the cost of the loan.

 

raises

 

lowers

 

has no effect on

 

has an indeterminate effect on

Question 7 

In order to borrow $100,000 for a 10% loan on discount basis, the firm will actually have to borrow:

 

$110,000

 

$111,111

 

$100,000

 

$90,000

Question 8 

When old short-term debt is replaced by new short-term debt as the old debt comes due, the process is known as:

 

compensating balance

 

rolling the debt

 

fluctuating financing

 

re-terming

Question 9 

Which of the following short-term sources of funds is available only to the financially strongest concerns?

 

trade credit

 

commercial bank loans

 

finance company loans

 

commercial paper

Question 10 

If a firm actually sells its accounts receivable, the process is known as:

 

wholesale financing

 

pledging

 

field crediting

 

factoring

Question 11 

The ratio between the present value of a project’s cash inflows and the present value of its initial investment is called the:

 

MIRR.

 

IRR.

 

PI.

 

NPV.

Question 12 

Internal rate of return (IRR) and net present value (NPV) methods:

 

generally arrive at the same   accept/reject decisions

 

are less sophisticated than the   payback period

 

cannot make use of the same cash   flows

 

can be substituted for by the payback   period

Question 13 

Which of the following is not considered a stage in the capital budgeting process?

 

development

 

production

 

implementation

 

selection

Question 14 

The internal rate of return concept is best explained by which of the following?

 

rate where NPV is equal to zero

 

point where initial investment has   been returned

 

marginal cost of capital

 

average book value

Question 15 

The payback period concept is best explained by which of the following?

 

marginal cost of capital

 

point where initial investment has   been returned

 

rate where NPV is equal to zero

 

accounting rate of return

Question 16 

The cost of debt:

 

is typically higher than the cost of   preferred stock

 

must be adjusted to an after-tax cost

 

is higher than the cost of retained   earnings

 

is the lowest component cost because   corporations can deduct 70 percent of the interest expense

Question 17 

As a general rule, the capital structure that maximizes stock price also:

 

minimizes the weighted average cost   of capital

 

maximizes the weighted average cost   of capital

 

minimizes the required rate of return   on equity

 

maximizes the cost of debt

Question 18 

The after-tax cost of debt for a firm in the 35% tax bracket with a before-tax cost of debt of 6% is:

 

6%

 

2.1%

 

3.9%

 

5.8%

Question 19 

Ningbo Shipping has issued preferred stock at its $125 per share par value. The stock will pay a $15 annual dividend. The cost of issuing and selling the stock was $4 per share. The cost of Ningbo Shipping preferred stock is:

 

7.2%.

 

12.0%.

 

12.4%.

 

15%.

Question 20 

A firm’s mix of debt and equity defines the firm’s:

 

capital structure

 

working capital

 

net working capital

 

degree of operating leverage

Finance100: Principles Of Finance

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Complete the following homework scenarios:

A local bank reported that it lost $150,000 as the result of an employee fraud. Edward Jasso is not clear on what is meant by an “employee fraud.” Explain the meaning of fraud to Edward and give an example of frauds that might occur at a bank.

_________________________________________________________________________________

  • Bob and Lisa are both married, working adults. They both plan for retirement and consider the $2,000 annual contribution a must.

    First,  consider Lisa’s savings. She began working at age 20 and began making  an annual contribution of $2,000 at the first of the year beginning with  her first year. She makes 13 contributions. She worked until she was 32  and then left full time work to have children and be a stay at home  mom. She left her IRA invested and plans to begin drawing from her IRA  when she is 65.

    Bob started his IRA at age 32. The first 12 years  of his working career, he used his discretionary income to buy a home,  upgrade the family cars, take vacations, and pursue his golfing hobby.  At age 32, he made his first $2,000 contribution to an IRA, and  contributed $2,000 every year up until age 65, a total of 33 years /  contributions. He plans to retire at age 65 and make withdrawals from  his IRA.

    Both IRA accounts grow at a 7% annual rate. Do not consider any tax effect.   

  • Write a two to three (2-3) paragraph summary in which you:

    • Create a chart summarizing the details of the investment for both Bob and Lisa.     
    • Explain the results in terms of time value of money.
      ____________________________________________________________________
      Dear FIN 100,
      The second homework assignment for week-6 deals with a series of time-value-of-money problems.

      For the Lisa scenario there are actual two TVM problems.  The first  section addresses the FVAD.  Not that the present value is zero, and the  payment is made at the beginning of the year.   You will then have to  invest the FVAD amount as a PV for the second scenario.  You should  determine the FV amount at her retirement age of 65 years old.
      For the Bob scenario, you are also find the FVAD.  Bob is making 33 contributions at the beginning of the year.
      Remember  to provide your work in Excel and provide a chart or some summation of  your calculations and time-lines for each person.  Please summarize your  results for both of their retirement accounts.
      You may want to review the TVM links provided on the announcement page.
      You  may also want to review the following links regarding the IRA accounts,  both traditional and Roth IRAs, for your own general knowledge.
      https://www.irs.gov/Retirement-Plans/Traditional-IRAs
      https://www.irs.gov/Retirement-Plans/Roth-IRAs
      https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits