Financial Problems: Season’s Republic Inc. has a bond outstanding.

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Season’s Republic Inc. has a bond outstanding. This bond has a 9.5% coupon paid semiannually, and is selling in the market for $913.00 with 6 years remaining to maturity. What is the bond’s YTM?

a. 10.92%
b. 11.55%
c. 11.73%
d. 11.80%

YTM = 11.55%

XYZ Promotions Corporation has a bond outstanding with a market price of $1,136.00. The bond has 4.5 years to maturity, pays interest semiannually, and has a yield to maturity of 9.47%. What is the bond’s coupon rate?

a. 13.70%
b. 13.62%
c. 13.25%
d. 13.02%

PMT $66.26
Coupon Rate 13.25%

“Use the following information to answer this question and the next question.
The Bozo Company has an 8% coupon bond outstanding. The bond makes semiannual coupon payments and has 12 years remaining to maturity. Its market price is $846.64. It is issuing a new 20-year bond to finance a factory to make new Bozos. The new bond will make annual coupon payments. ”

What is the yield to maturity of the Bozo Company’s existing bonds?

a. 9.50%
b. 10.00%
c. 10.25%
d. 10.50%

Rate 10.25%

What coupon rate should be set for the new bonds of the Bozo Company for these bonds to sell at par?

a. 9.50%
b. 10.00%
c. 10.25%
d. 10.50%

The XYZ Company bond has a bond outstanding that has 10 years remaining to maturity. The bond has a coupon rate of 10.50 percent, paid quarterly. If the yield to maturity is 12.0 percent, what is the market value of this bond?

a. $915.25
b. $913.32
c. $1.092.18
d. $1.000.00

MV $913.32

Use the following information to answer this question and question 7. Bonds of RAR Foods are selling in the market for $854.66. These bonds carry a 9 percent coupon paid semiannually, and have 15 years remaining to maturity. What is the bond’s yield to maturity?

a. 10.62%
b. 11.00%
c. 9.25%
d. 10.00%

YTM = 11.00%

What is the capital gain yield assuming that the interest rates will remain constant over the year?

a. 0.68%
b. 0.17%
c. 0.00%
d. 0.48%

Price in 1 Yr $858.79
Capital Gain 0.48%

Use the following information to answer this question and question 9. Bonds of Orange Computers and Peach Computers are identical in all respect, including risk class. The only difference is that they have different coupon. Orange Computer bond has a semiannual coupon of $47.50 and Peach Computers bond has a semiannual coupon of $40.00. Both bonds have 8 years to maturity. The Orange Computer bond is selling in the market for $1,151.18.

What is the yield to maturity of Orange Computers bond?

a. 7.50%
b. 9.00%
c. 8.50%
d. 7.00%

YTM = 7.00%

What is the price of Peach Computers bond?

a. $1.060.47
b. $1.052.82
c. $818.59
d. $1.037.86

PV $1.060.47

Desi Inc. has a bond outstanding with 8 percent coupon, paid semiannually, and 15 years to maturity. The market price of the bond is $1,091.96. If due to changes in market condition the market required rate of return suddenly increases by 2%, what will be the percent change in the market price of the bond?

a. 15.88%
b. –18.88%
c. –15.88%
d. 62.48%

Current YTM 7.00%
New Price $918.56
Change -15.88%

Banana Company just paid a dividend of $5 per share. If dividends have a growth rate of 5 percent and you require 12 percent return, what is the value of the stock?

a. 71.42
b. 41.67
c. 43.75
d. 75
e. 105

Value 75

Slow decline Company just paid a dividend of $2.50 per share. If dividends have been declining at a constant rate of 2 percent and you require 10 percent return, what is the value of the stock?

a. 20.42
b. 31.88
c. 34.17
d. 17.5
e. 15

Value 20.41666667

If the dividend yield on Weildone, Inc. common stock is 8 percent and its expected constant growth rate is 5percent, what is the required rate of return?

a. 5.00%
b. 8.00%
c. 3.00%
d. 13.00%
e. Not enough information

Dolce, Deluca, and Benz Inc. will pay a dividend of $6 for each of the next 3 years, $7 for each of the years 4-7, and $9 for the years 8-10. Thereafter, the company will pay no dividends. If you require 16 percent rate of return on investments in this risk class, how much is this stock worth to you?

a. 29.01
b. 33.18
c. 46.21
d. 57
e. 73

Value 33.17602689

Duane Lee Inc. will pay a dividend of $5 each year for the next 10 years. Thereafter, it will pay no dividends. If you require 12 percent rate of return, how much is this stock worth to you?

a. 28.25
b. 33.18
c. 46.21
d. 57
e. 73

Value 28.25111514

Two companies, A and B, are in the same risk class. Company A pays a constant dividend of $4 per year and is selling in the market for $35 per share. Company B just paid a dividend of $3.25 per share. If its dividends are growing at a constant rate of 8 percent per year, what is the market price of B?

a. 35
b. 33.18
c. 57.21
d. 94.79
e. 102.37

Required Ret 11.43%
Price 102.375

Hatstand and Bandstand Inc. stock is selling for $38. Th company has been maintaining a constant growth rate of dividends of 5 percent. If the required rate of return for this company is 14 percent, what was the most recent dividend paid by the company?

a. 2.9
b. 3.06
c. 3.26
d. 3.42
e. 4.11

Dividend = 3.257142857

Sanding and Bending Inc. will pay no dividends for the next seven years. In the Year 8, it will pay a dividend of $6 and maintain a constant growth of 6 percent thereafter. If the required rate of return is 12 percent, what is the value of the stock?

a. 100
b. 97.18
c. 57.21
d. 45.23
e. 40.39

Price at Yr 7 = 100
Value 45.23492153

“Use the following information to answer this and the next question.
Dividends of Super Drug, Inc. will grow at 25 percent a year for the next 3 years, 18 percent a year for years 4-6, and at a constant rate of 5 percent thereafter. The company just paid a dividend of $1.50 and you require a 15% rate of return from stocks with this risk level. ”

What is the dividend at the end of year 5?

a. 2.34
b. 2.93
c. 3.46
d. 4.08

Dividend = 4.079296875

How much is this stock worth to you?

a. 21.85
b. 33.27
c. 50.54
d. 11.41
e. 16.45

Use the following information for this and the next question. Bean Pharmaceuticals has 1,000,000 shares of common stock with a market price of $35 per share, 225,000 shares of preferred stock with a market price of $98 per share, and 10,000 bonds outstanding which are selling in the market at 97.25 percent of par. The company needs new capital of $12 million to expand its asset base. It has calculated that the after-tax cost of new equity is 12.50% and the cost of new preferred stock is 9.4%. The company’s bonds are yielding 8% in the market. Corporate tax rate is 34%.

What percent of the new expansion funds must be in the form of equity?

a. 14.50%
b. 33.00%
c. 52.40%
d. 100.00%

What is the weighted average cost of capital?

a. 11.30%
b. 10.80%
c. 10.40%
d. 9.70%

Hi-Octane Oil Company has a debt-equity ratio of 0.25. The company uses no preferred stock in its capital structure. If the cost of equity is 14.4% and the after-tax cost of debt is 6.2%, what is the company’s weighted average cost of capital?

a. 6.2
b. 8.25%
c. 12.35%
d. 12.76%
e. 14.40%

Use the following information answer questions 4 to 10. The Golden Baked Goods (GBG) is expecting a jump in sales and needs to add $2 million in assets. Its current balance sheet is:

Its current operations are expected to add $500,000 to retained earnings during the coming year. Its current debt, originally issued at par, has a 6% coupon rate, maturity of 10 years, market price of $864.10, and pays interest semiannually. The current preferred stock (30,000 shares outstanding) carries a dividend of $6.00 per share and is selling in the market at $81.50 per share. GB’s common stock (220,000 shares outstanding) is selling in the market at $45 per share. The company just paid a common stock dividend of $2.50 per share. The dividends are expected to grow at 4% per year for the foreseeable future. GBG’s overall tax rate is 35%. GBG can sell new common stock at current market price with a flotation cost of 5%, new preferred stock with a dividend of $6/share to net $80 per share, and new semiannual coupon bonds (Par value $1,000) with 20 year maturity and a 9.5% coupon to net $957.10. Assume that the current market-based capital structure is optimal.

What percent of new financing must come from equity funds?

a. 29.58%
b. 13.95%
c. 56.48%
d. 100.00%

What is the after-tax cost of debt?

a. 4.87%
b. 6.50%
c. 7.50%
d. 9.78%
e. 10.00%

What is the after-tax cost of preferred stock?

a. 4.87%
b. 6.50%
c. 7.50%
d. 9.78%
e. 10.00%

What is the after-tax cost of retained earnings?

a. 6.50%
b. 8.58%
c. 9.78%
d. 9.95%
e. 10.08%

What is the after-tax cost of new equity?

a. 6.50%
b. 8.58%
c. 9.78%
d. 9.95%
e. 10.08%

What is the average after-tax cost of all equity funds?

a. 6.50%
b. 8.58%
c. 9.78%
d. 9.95%
e. 10.08%

What is GBG’s weighted average cost of capital?

a. 6.50%
b. 8.58%
c. 9.78%
d. 9.95%
e. 10.08%

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Perfect Solution: The Hasting Company Began Operations On January 1, 2003 And Uses The FIFO Method In Costing Its Raw Material Inventory

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FINANCE –EXAM 3

1.    The Hasting Company began operations on January 1, 2003 and uses the FIFO method in costing its raw material inventory. An analyst is wondering what net income would have been if the company had consistently followed LIFO (instead of FIFO) from the beginning, 1/1/2003. He has the following information available to him:

What would net income have been in 2004 if Hastings had used LIFO since 1/1/2003?

 

[removed]$ 110,000

[removed]$ 150,000

[removed]$ 170,000

[removed]$ 230,000

 

 

2.    A customer is currently suing a company. A reasonable estimate can be made of the costs that would result from a ruling unfavorable to the company, and the amount involved is material. The company’s managers, lawyers, and auditors agree that there is only a remote likelihood of an unfavorable ruling. This contingency:

[removed]Should be disclosed in a footnote.

[removed]Should be disclosed as a parenthetical comment in the balance sheet.

[removed]Need not to be disclosed.

[removed]Should be disclosed by an appropriation of retained earnings.

 

 

3.    The ABC Company operates a catering service specializing in business luncheons for large corporations. ABC requires customers to place their orders 2 weeks in advance of the scheduled events. ABC bills its customers on the tenth day of the month following the date of service and requires that payment be made within 30 days of the billing date. Collections from customers have never been an issue in the past. ABC should recognize revenue from its catering services at the date when a:

[removed]Customer places an order.

[removed]Luncheon is served.

[removed]Billing is mailed.

[removed]Customer’s payment is received.

 

4.    On June 30, 2001, Cole Inc., exchanged 3,000 shares of Stone Corp. $30 par value common stock for a patent owned by Gore Co.. The Stone stock was acquired in 1999 at a cost of $80,000. At the exchange date, Stone common stock had a fair value of $45 per share, and the patent had a net carrying value of $160,000 on Gore’s books. Cole should record the patent at:

[removed]$80,000

[removed]$90,000

[removed]$135,000

[removed]$160,000

 

5.    On June 30, 2001, Cole Inc., exchanged 3,000 shares of Stone Corp. $30 par value common stock for a patent owned by Gore Co.. The Stone stock was acquired in 1999 at a cost of $80,000. At the exchange date, Stone common stock had a fair value of $45 per share, and the patent had a net carrying value of $160,000 on Gore’s books. Cole should record the patent at:

[removed]$80,000

[removed]$90,000

[removed]$135,000

[removed]$160,000

 

6.    On January 1, 1997, Phillips, Inc. leased a new machine from U.S. Leasing. The specific information on the lease is as follows:

On January 1, 1997, Phillips, Inc. should record a lease liability of:

[removed]$275,000

[removed]$359,464

[removed]$0

[removed]$250,000

 

 

 

 

 

 

 

 

 

7.    FRC Inc. acquired Marketing Inc on 1/1/2004. Marketing Inc. has 10,000 shares outstanding. Each share in Marketing Inc. was exchanged for half a share in FRC, Inc. Shares of FRC Inc., were trading at $100 per share at the date of the announcement of the transaction. Marketing Inc, had the following assets and liabilities that were assumed by FRC Inc.

The amount of Goodwill recognized by FRC, Inc. on January 1, 2004 is:

[removed]$400,000

[removed]$360,000

[removed]$495,000

[removed]$455,000

8.    ABC expenses stock options as required by GAAP. On January 1,2005, ABC granted 50 key executives 100 options each. Each option entitled the option holder to purchase 1 share of ABC common stock at $60 per share. The options will vest on January 1st 2008.

On the grant date, January 1st, 2005, the stock was quoted on the stock exchange at $63 per share. The fair value of the options on the grant date was estimated at $15 per option. The amounts of compensation expense ABC should recognize with respect to the options during 2005, 2006, and 2007 are:

[removed]1.

[removed]2.

[removed]3.

[removed]4.

 

9.    Which of the following situations will not cause a deferred income tax amount to be recorded?

[removed]An expense that is recognized in 2005 for income tax purposes and in 2006 for financial statement purposes.

[removed]Interest income from municipal bonds that is recognized in 2005 for financial statement purposes but is tax exempt for income tax purposes.

[removed]A revenue is recognized in 2005 for income tax purposes and in 2006 for financial statement purposes.

[removed]None of the above situations would cause a deferred income tax amount.

 

10.  In periods with rising prices and increasing quantities of inventories, which of the following relationships among inventory valuation methods is generally correct:

[removed]FIFO has a higher inventory balance and a lower net income than LIFO.

[removed]FIFO has a higher inventory balance and a higher net income than LIFO.

[removed]LIFO has a higher inventory balance and a higher net income than FIFO.

[removed]LIFO has a higher inventory balance and a lower net income than FIFO.

 

 

 

 

 

 

 

 

 

 

11.  Denny Co. sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to Unearned Service Revenues. This account had a balance of $900,000 at December 31, 2001 before year-end adjustment. Service contracts still outstanding at December 31, 2001 expire as follows:

 

What amount should be reported as Unearned Service Revenues in Denny’s December 31, 2001 balance sheet?

[removed]$900,000

[removed]$600,000

[removed]$1,500,000

[removed]$300,000

 

 

12.  ABC signed a 5-year operating lease agreement whereby WXY Rentals will provide a truck which cost WXY $20,000. The lease payments are $2,500, payable at the end of each year. The truck will revert to WXY at the end of five years. The truck has a 10-year useful life. At the inception of the lease, ABC should:

[removed]make no journal entry

[removed]record rental expense of $2,500 for the first year’s rental

[removed]record the lease asset and a corresponding liability, at its current market value

[removed]record the lease asset and a corresponding liability, at the present value of the five equal annual lease payments.

 

 

 

13.  Merry Co. purchased a machine costing $125,000 for its manufacturing operations and paid shipping costs of $20,000. Merry spent an additional $10,000 testing and preparing the machine for use. What amount should Merry record as the cost of the machine?

[removed]$155,000

[removed]$145,000

[removed]$135,000

[removed]$125,000

 

14.  Ignoring any related tax implications, what is the effect on a company’s balance sheet when depreciation expense is recognized?

[removed]This transaction affects only the income statement, so no change on the balance sheet will occur.

[removed]Total assets and total stockholder’s equity will decrease by the same amount.

[removed]There will be no change in the total assets, liabilities and stockholders equity accounts.

[removed]Total liabilities will increase and total stockholder’s equity will decrease by the same amount.

 

15.  The Hastco Company had the following balances in their stockholders’ equity accounts as of December 31, 2000:

Paid-in Capital: $53,000

Retained Earnings: $31,000

During the year ended December 31, 2000, The Hastco Company generated $36,000 in net income, and declared and paid $16,000 in Dividends. The ending balance in the retained earnings account at December 31, 1999 was:

[removed]$11,000

[removed]$37,000

[removed]$5,000

[removed]$61,000

16.  All of the following would qualify a lease as a capital lease except:

[removed]The lease term is 80% of the asset’s estimated useful life.

[removed]The lease agreement contains a bargain purchase option.

[removed]The present value of the lease payments equals 70% of the fair market value of the leased asset.

[removed]Title to the leased asset transfers to the lessee at the end of the lease term.

 

17.  Which of the following is/are criteria for recognizing revenue from a sale?

[removed]Title and risks of ownership have been exchanged.

[removed]The company is reasonably assured of collecting the receivable.

[removed]The customer has, in turn, sold the product to its own customer.

[removed]Both title and risks of ownership have been exchanged and the company is reasonably assured of collecting the receivable.

 

18.  Use the following information to answer the next two questions.

Downey Company bought a delivery truck for $62,000 on January 1, 2005. They installed a rear hydraulic lift for $8,000 and paid sales tax of $3,000. In addition, Downey paid $2,400 for a one-year insurance policy. They estimate the useful life of the truck to be 10 years and its residual value to be $8,000.

If Downey uses the straight-line method of depreciation, what is the depreciation expense for 2006 and book value at the end of 2006?

[removed]$7,300 and $58,400

[removed]$6,500 and $60,000

[removed]$6,790 and $62,320

[removed]$6,500 and $66,500

 

 

19. Downey Company bought a delivery truck for $62,000 on January 1, 2005. They installed a rear hydraulic lift for $8,000 and paid sales tax of $3,000. In addition, Downey paid $2,400 for a one-year insurance policy. They estimate the useful life of the truck to be 10 years and its residual value to be $8,000.

If Downey uses the double declining-balance method, how much is the truck’s depreciation expense for2006?

[removed]$11,680

[removed]$12,144

[removed]$10,400

[removed]$11,760

 

20.  For accounting purposes, goodwill

[removed]is recorded whenever a company achieves a level of net income that exceeds the industry average.

[removed]is recorded when a company purchases another business.

[removed]is expensed in the period it is recorded because benefits from goodwill are difficult to identify.

[removed]is never recorded

 

21.  Goodwill should

[removed]be written off as soon as possible against retained earnings.

[removed]absent impairment, not be written off because it has an indefinite life.

[removed]written off as soon as possible as an expense.

[removed]amortized over a maximum of forty years.

 

 

 

22.  Freeman, Inc., reported net income of $40,000 for 2005. However, the company’s income tax return excluded a revenue item of $3,000 (reported on the income statement) because under the tax laws the $3,000 would not be reported for tax purposes until 2006. Assuming a 30% income tax rate, this situation would cause a 2005 deferred tax amount of

[removed]$3,000 asset.

[removed]$3,000 liability

[removed]$ 900 asset.

[removed]$ 900 liability.

 

 

23.  Before closing entries were recorded at the end of the accounting period (December 31, 2005), the following data were taken from the accounts of Buynow Corporation:

The total amount of owners’ equity that should be reported on the balance sheet dated December 31, 2005, after all the closing entries, is

[removed]$ 338,000.

[removed]$128,000.

[removed]$300,000.

[removed]$304,000.

 

 

 

 

24. The major accounting difference between interest incurred during a period and cash dividends declared during the same period is:

[removed]Interest decreases retained earnings while dividend declared increases retained earnings

[removed]Interest reduces net income while dividends declared do not affect net income

[removed]Interest does not affect net income while dividends reduce net income

[removed]There is no major difference. Both are treated identically for accounting purposes.

 

 

25.  In December, a Global Grocer customer pays in time and receives a 2% discounts for prompt payment. The customer had purchased goods worth $500. Which of the possible answers below correctly states the journal entries to record the payment and the discount taken. Previously, Global Grocer had established an allowance for prompt payment discounts.

[removed]Debit Accounts receivable ($500); Credit Cash ($490); credit allowance for discounts ($10).

[removed]Debit Cash ($500); Credit Accounts receivable ($500).

[removed]Debit Cash ($490); Debit Allowance for sales discounts ($10); Credit Accounts receivable ($500)

[removed]None of the above

 

 

 

 

 

 

 

 

 

 

 

26.  Here is International Corp.’s income statement for the month of December.

What is the company’s December EBITDA to total interest coverage ratio?

[removed]6.5x

[removed]18.5x

[removed]14.5x

[removed]20.2x

 

 

27.  The following financial ratios are for Average Corp. and Superior Corp., two hardware stores.

 

Which of the following statements is inconsistent with the above ratios?

[removed]Superior Corp has a higher return on equity primarily because it has a significantly higher net income margin

[removed]Average Corp. on a relative basis uses significantly more debt financing than Superior Corp.

[removed]Average Corp. utilizes its assets more effectively than Superior Corp.

[removed]Superior Corp. generates more income per dollar of sales than Average Corp.

 

 

 

28.On June 30, 2000, Microsoft Corporation was holding $4.8 billion of cash that it had collected from customers in advance for future software licenses and the future delivery of other products and services. In its financial statements, Microsoft classified and recorded this amount as:

[removed]part of revenue on its income statement.

[removed]the asset Accounts Receivable on its balance sheet.

[removed]the liability Unearned Revenue on its balance sheet.

[removed]an expense on its income statement.

 

29.  Which statement is false?

[removed]An unrealized gain or loss on hold-to-maturity marketable securities is recognized in income.

[removed]An unrealized gain or loss on trading securities is recognized in income.

[removed]An unrealized gain or loss on a company’s common stock held by the owners’ of the company is not recognized by the company.

[removed]An unrealized gain or loss on available-for-sale marketable securities is not recognized in income.

 

 

30.  International, Inc. established an allowance for bad debts at the end of October. In November, International wrote off a $500 account receivable because payment was considered to be remote. What would be the effect of the $500 account receivable write-off on International’s November financial statements?

[removed]Assets would decrease, liabilities would remain constant and retained earning would decrease.

[removed]Assets would remain constant; liabilities would increase and retained earnings would decrease.

[removed]No change would be made in total assets, liabilities or shareholder’s equity.

[removed]Assets would decrease, liabilities would decrease and retained earnings would remain constant.

Week 8 Final Project; ownload and submit the completed mini-Business Plan 

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This week you’ll have to take the pricing of your product as compared to competitors and begin to build some financials, using the tables in the mini-Business Plan. This week complete Section 4 Financial Plan. You may view the grading rubric by clicking on Grades and Progress in the navigation menu, locating the assignment, and selecting View Rubric. Find more information helpful to this exercise via your Gitman text; Chapters 5, 14 & 16; especially Chapter 5. You will also need to update and finalize your Executive summary.*The four financial pieces of information that you will need to include with your mini-Business Plan are the following:

  • Sunk costs – a cost that you will incur in starting this business that you will not be able to recover. This sheet is NOT part of your plan template.
  • Balance sheet day one – any assets, liabilities, and owners’ equity you will have on the day you start your business. What will be in that office the day you start, and how will it get there? There is a template for this
  • Projected income statement 3 years out. A realistic ramp-up of revenue with an understanding of the costs related to selling this product or service, and your overhead expenses. These are your fixed and variable costs. You will need to know then for the final item.  There is a template for this in your plan. Do not worry about the cash flow document for now.
  • Break-even estimate – some calculation or table which shows that you know realistically how long it will take (and how much money you will need) until your sales volume matches your fixed and variable costs. This is NOT included in your plan template. A fairly simple explanation can be found HERE. Read down through the page and see examples of how to calculate your Break Even.

*Along with all of the above, you will need to have some Financial assumptions. You will need to determine your threshold of sales, and how quickly you will ramp up. As you ramp up sales, your customer acquisition costs or marketing costs will increase. In your assumptions, you can give some guidance as to what your percentages on the cost of goods sold may be. You can make assumptions about how and from whom you will borrow money. You’re still going to need to have enough cash on hand to be able to make it until you have enough money coming in that you can cover not only the variable cost for each additional product but also your fixed costs, which will be your lights and heat and other monthly expenses. This is why there is a cash-flow document in your plan template.  This is not required since it is a bit complicated.  But you may try to complete it.*This final week you will also need to update and finalize the Executive summary section, drawing content from the other parts of your mini-Business Plan. Then download and submit the completed mini-Business Plan to the link above. Your instructor is available to help you answer any questions that you may have.

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Basic Economic Concepts; What is economics and how do economic concepts apply to your life?

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What is economics and how do economic concepts apply to your life? With the complexities of technology and the current global economy, it may be helpful to consider a simplified and hypothetical scenario of an ancient family of potters who lived in a remote area. While the family was skilled and efficient, they only needed a certain number of pots but still needed clothing, shelter, food, and more. After struggling to tend to their farm and being unable to sell any more pots in their area, the family moved to a village that was in need of pottery. In this village, the family no longer had to tend to the farm, build and renovate their home, or make clothing. By focusing on their skills, they were able to trade their pottery with other families who were skilled in those other areas. By collaborating with traveling merchants, the family was able to manufacture more pottery that was sold across the lands and brought wealth to the potter family.

For this Assignment, you will explain basic economic concepts, such as how scarcity and incentives affect economic decisions, how marginal analysis affects allocation of time and resources, how the production possibilities frontier for countries can be impacted by opportunity costs, and if absolute advantage and specialization create opportunities for gains from trade.

Submit your responses to the following prompts.

  • Provide an example of a scarce resource and a free resource. What are the key differences between the two? What can cause a free resource to become a scarce resource? Your response should be at least 75 words (1 paragraph) in length.
  • Economists argue there is “no such thing as a free lunch,” yet you’ve just had lunch with a friend who paid for it. Are the economists incorrect? Explain using basic principles of economics. Your response should be at least 75 words (1 paragraph) in length.
  • A manager notices the company’s sales personnel are offering its customers deals that, while increasing revenues, are lowering profits. After reviewing the company’s compensation plan, the manager finds bonuses are based on sales revenue. Explain the sales personnel’s behavior using the economic principle that “people respond to incentives” and recommend a change to the compensation plan to correct this problem. Your response should be at least 75 words (1 paragraph) in length.

Note: For each prompt, be sure to reference at least one scholarly source to support your answer.

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Opportunity Costs; When you were considering your purchases, what trade-offs did you think about?

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Think about any significant purchases you have made that have required compromise on your part—perhaps a car, a house, a set of furniture, a new computer or other electronic device, or even your decision to pursue a college education. When you were considering your purchases, what trade-offs did you think about? In other words, what were the compromises or sacrifices you had to make in order to acquire the thing you wanted to purchase? How did the trade-offs influence your choices?

To prepare for this Discussion:

  • Choose a recent purchase of yours to consider for your initial response to this Discussion prompt. Try to use an example in which the compromises were either clearly worth it—or clearly not worth it. Consider your reasons for making the purchase and how you weighed the pros and cons of your decision.
  • Review the Academic Writing Expectations for 1000-Level Courses, provided in this week’s Learning Resources.

By Day 3

Post a 150- to 225-word (2- to 3-paragraph) explanation of what the opportunity costs of your purchase were. In the end, was it worth it? Why or why not? To support your response, be sure to reference at least one properly cited scholarly source.

Read some of your colleagues’ postings.

By Day 5

Respond with at least 75 words (1 paragraph) each to two or more of your colleagues’ postings by comparing or contrasting the consumption decision (i.e., the decision to make the purchase) you and your colleague described. For example, did you and your colleague face similar or different opportunity costs? How did factors such as income, family, and job situations affect opportunity costs and decision making?

FINANCE Case 13- Mid-Atlantic Specialty , Inc.;Compare the stand-alonerisk/return of each of the five investment alternatives listedin

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CASE13QUESTIONS

 

 

MID-ATLANTICSPECIALTY,INC.

 

FinancialRisk

 

 

 

1.   Comparethe stand-alonerisk/returnofeachofthe fiveinvestmentalternativeslistedinExhibit13.1.

 

2.   MSIisconsideringtwoinvestmentstrategies:

-50percentinProjectAand50percentinProjectB(PortfolioA/B) or

-50percentinProjectAand50percentintheS&P500Fund(PortfolioA/S&P). Comparethe riskofthetwoportfolios.Whydoestheriskdiffer?

 

3. a.

 

 

 

b.

 Comparethe corporateriskofProjectsAandB.(Hint:UsetheexpectedreturnsinExhibit13.1to createagraphwithcorporatecharacteristiclinesforProjectsAand B.Regressionlinescanbe createdusingthe=INTERCEPTand=SLOPEfunctionsinExcel.TheXY(Scatter)chartinExcelis recommended.)

Whatwouldhappento theoverallriskofMSIifitinvestsinProjectA?ProjectB?
 

4.

  

a.

 

 

b. c.

  

Comparethe marketriskofa1-yearT-Bill,ProjectA,ProjectB,andequityinMSI.(Hint:Usethe historicalreturnsinExhibit13.2tocreateagraphwith marketcharacteristiclinesfora1-yearT-Bill, ProjectA,ProjectB,andequityinMSI.)

Whatwouldhappento theoverallriskofawell-diversifiedportfoliowithaninvestmentina1-Year

T-Bill?ProjectA?ProjectB?EquityinMSI?

Whatdoesthedistancebetweenthemarketcharacteristicslineand theexpected returnofan investmentindicate?
 

5.

  

a.

 

 

 

 

 

b.

  

Ifyouwereanindividualinvestorwithawell-diversifiedportfolio,whichinvestment(s)inExhibit13.1 wouldyoubuy?Why?(Inreality,MSIisanot-for-profitcorporation,soitwouldbeimpossible tobuy anequityinterestin thefirm.Forthisquestion,assumethatMSIisan investor-ownedcompany.) (Hint:constructaSecurityMarketLinegraphandplottheexpected returnofeachinvestmenton

thegraph.)

WhatdoesthedistancebetweentheSMLandtheexpectedreturnofaninvestmentindicate?
 

6.

  

a. b.

 

c.

  

Isthereturnontheone-yearT-billriskfree?

SupposeMSIwantstoconstructaportfolioofstocksthathasanexpectedreturnequaltotherisk- freerate.Issuchaportfoliopossible?Issuchaportfoliolikely?

Supposethatyouchoosetoholdasinglestockinvestmentinisolation.Would youbecompensated foralloftheriskthatyouassume?Explain.

 

7.   Inyouropinion,whatarethreekeylearningpointsfromthiscase?

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Applying The Supply And Demand Model

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The supply and demand model forms the basis of much microeconomic analysis. It combines information about buyers’ preferences for purchasing products or services with information about the sellers’ willingness to supply them. In market-based economies, it is the interaction between buyers and sellers, as illustrated in the demand and supply model, that determines equilibrium prices and output.

For this Assignment, you will apply the concepts of the supply and demand model by explaining aspects of buyer behavior, seller behavior, shifts and movements along the demand curve, and market equilibrium. You will also calculate the cross elasticity of demand and describe the effects of government intervention in markets.

To prepare for this Assignment:

  • Review this week’s Learning Resources.
  • Refer to the Week 1 Optional Resources on graphing if you need additional support to complete this Assignment.
  • Refer to the Academic Writing Expectations for 1000-Level Courses as you compose your Assignment.

By Day 7

Submit your responses to the following prompts.

  • Over the past 10–20 years, the use of landline phones has fallen while the use of cell phones and smartphones has increased. Explain how changes in consumer tastes and preferences are affecting the demand functions for each product. Draw graphs for each of the two products (landlines and cell phones/smartphones) illustrating what has happened to the demand curve for each one. Your response should be at least 75 words (1 paragraph) in length; include graphs to support your explanations.
  • Explain why the law of demand is not violated when you observe the quantity demanded of ice cream cones at your local park is lower in December than in July even though the price is higher in July than it is in December. Your response should be at least 75 words (1 paragraph) in length.
  • This week, Super-Save Supermarket lowered the price of apples from $1 to 90 cents per pound. The quantity of apples sold last week was 200 pounds. This week, the quantity sold was 250 pounds. Calculate the price elasticity of demand. Is it elastic, inelastic, or unitary elastic? What happens to total revenue? Your response should be at least 75 words (1 paragraph) in length.
  • Using the information given in the previous question, assume that last week Super-Save Supermarket sold 150 pounds of bananas and this week it sold 120 pounds of bananas. Are bananas and apples complements or substitutes? What is the cross elasticity of demand? Explain your answer. Your response should be at least 75 words (1 paragraph) in length.
  • Farmer Brown plants both soybeans and corn. If the price of soybeans increases and the price of corn remains the same, what do you expect to happen to the amount of acreage that he devotes to planting each crop? How does your answer help to explain the law of supply? Does the supply curve of corn or soybeans shift? Use graphs to illustrate your answer. Your response should be at least 75–150 words (1–2 paragraphs) in length, including graphs with explanations.
  • Amy’s Diner and Joe’s Burger Stop are located in the same neighborhood. Both have similar menus that include hamburgers, french fries, and soft drinks. Assume Amy’s supplier raises the price of hamburger meat, while Joe’s does not. Using the supply and demand model, graphically show and provide a written explanation for each of the following:
    • The equilibrium price and quantity of hamburgers Amy sold
    • The equilibrium price and quantity of french fries Amy sold
    • The equilibrium price and quantity of hamburgers Joe sold
    • The equilibrium price and quantity of soft drinks Joe sold
    • Your response should be at least 150–225 words (2–3 paragraphs) in length, including graphs.
  • In the United States, price floors are commonly used to support farmers, such as for dairy products. Assume several U.S. trading partners impose tariffs on dairy products exported from the United States. The tariffs are effective and are reducing dairy exports from the United States and have pushed the domestic equilibrium price of milk below the price floor.

    Using a supply and demand model, illustrate what happens to the U.S. domestic price of milk, quantity of milk sold in the United States, and any surplus or shortage of milk. Be sure to support your graph with a written explanation.

    Your response should be at least 75–150 words (1–2 paragraphs) in length, including the graph and explanation.

Liberty University BUSI 530 Homework 2

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Construct a balance sheet for Sophie’s Sofas given the following data. (Be sure to list the assets and liabilities in order of their liquidity.)

 

 
  Cash balances = $ 14,500
  Inventory of sofas = $ 245,000
  Store and property = $ 145,000
  Accounts receivable = $ 26,500
  Accounts payable = $ 21,500
  Long-term debt = $ 215,000

 

 

Using Table 3.7, calculate the marginal and average tax rates for a single taxpayer with the following incomes: (Do not round intermediate calculations. Round “Average tax rate” to 2 decimal places.)

 

The year-end 2010 balance sheet of Brandex Inc. listed common stock and other paid-in capital at $2,500,000 and retained earnings at $4,800,000. The next year, retained earnings were listed at $5,100,000. The firm’s net income in 2011 was $1,040,000. There were no stock repurchases during the year. What were the dividends paid by the firm in 2011?

 

 

You have set up your tax preparation firm as an incorporated business. You took $76,000 from the firm as your salary. The firm’s taxable income for the year (net of your salary) was $18,000. Assume you pay personal taxes as an unmarried taxpayer. Use the tax rates presented in Table 3-5 and Table 3-7.

 

How much taxes must be paid to the federal government, including both your personal taxes and the firm’s taxes?

 

By how much will you reduce the total tax bill by reducing your salary to $56,000, thereby leaving the firm with taxable income of $38,000?

 

The founder of Alchemy Products, Inc., discovered a way to turn lead into gold and patented this new technology. He then formed a corporation and invested $600,000 in setting up a production plant. He believes that he could sell his patent for $25 million.

 

a. What are the book value and market value of the firm? (Enter your answers in dollars not in millions.)

 

b. If there are 1 million shares of stock in the new corporation, what would be the price per share and the book value per share? (Round your answers to 2 decimal places.)

 

 

Sheryl’s Shipping had sales last year of $19,500. The cost of goods sold was $8,400, general and administrative expenses were $2,900, interest expenses were $2,400, and depreciation was $2,900. The firm’s tax rate is 30%.

 

a. What are earnings before interest and taxes?

b. What is net income?

What is cash flow from operations?
Ponzi Products produced 98 chain letter kits this quarter, resulting in a total cash outlay of $12 per unit. It will sell 49 of the kits next quarter at a price of $13, and the other 49 kits in two quarters at a price of $14. It takes a full quarter for it to collect its bills from its customers. (Ignore possible sales in earlier or later quarters and assume all positive cash flow is distributed as expenses or earnings to shareholders.)

 

a. Prepare an income statement for Ponzi for today and for each of the next three quarters. Ignore taxes.(Leave no cells blank – be certain to enter “0” wherever required.)

 

 

b. What are the cash flows for the company today and in each of the next three quarters? (Leave no cells blank – be certain to enter “0” wherever required. Negative amounts should be indicated by a minus sign.)

 

 
c. What is Ponzi’s net working capital in each quarter? (Leave no cells blank – be certain to enter “0” wherever required.)

 
During the last year of operations, accounts receivable increased by $10,500, accounts payable increased by $5,500, and inventories decreased by $2,500. What is the total impact of these changes on the difference between profits and cash flow? (Input the amount as a positive value.)

 

 
Butterfly Tractors had $22.50 million in sales last year. Cost of goods sold was $9.70 million, depreciation expense was $3.70 million, interest payment on outstanding debt was $2.70 million, and the firm’s tax rate was 30%.

 

a. What was the firm’s net income and net cash flow? (Enter your answers in millions rounded to 2 decimal places.)

b.

What would happen to net income and cash flow if depreciation were increased by $2.70 million? (Input all amounts as positive values. Enter your answers in millions rounded to 2 decimal places.)

 
d. What would be the impact on net income and cash flow if the firm’s interest expense were $2.70 million higher. (Input all amounts as positive values. Enter your answers in millions rounded to 2 decimal places.)
Candy Canes, Inc., spends $145,000 to buy sugar and peppermint in April. It produces its candy and sells it to distributors in May for $200,000, but it does not receive payment until June. For each month, find the firm’s sales, net income, and net cash flow. (Leave no cells blank – be certain to enter “0” wherever required. Negative amounts should be indicated by a minus sign. Omit the “$” sign in your responses.)

 
The table below contains data on Fincorp, Inc., the balance sheet items correspond to values at year-end of 2010 and 2011, while the income statement items correspond to revenues or expenses during the year ending in either 2010 or 2011. All values are in thousands of dollars.

 

2010 2011
  Revenue $3,800 $3,900
  Cost of goods sold 1,500 1,600
  Depreciation 480 500
  Inventories 360 470
  Administrative expenses 480 530
  Interest expense 130 130
  Federal and state taxes* 380 400
  Accounts payable 360 470
  Accounts receivable 472 570
  Net fixed assets† 4,800 5,580
  Long-term debt 1,800 2,200
  Notes payable 1,060 720
  Dividends paid 370 370
  Cash and marketable securities 780 280

 

* Taxes are paid in their entirety in the year that the tax obligation is incurred.
† Net fixed assets are fixed assets net of accumulated depreciation since the asset was installed.

 

Suppose that Fincorp has 500,000 shares outstanding. What were earnings per share? (Round your answers to 2 decimal places.)

 

The table below contains data on Fincorp, Inc., the balance sheet items correspond to values at year-end of 2010 and 2011, while the income statement items correspond to revenues or expenses during the year ending in either 2010 or 2011. All values are in thousands of dollars.

 

2010 2011
  Revenue $3,400 $3,500
  Cost of goods sold 1,300 1,400
  Depreciation 440 460
  Inventories 380 510
  Administrative expenses 440 490
  Interest expense 90 90
  Federal and state taxes* 340 360
  Accounts payable 380 510
  Accounts receivable 496 610
  Net fixed assets† 4,400 5,140
  Long-term debt 1,400 1,800
  Notes payable 1,080 760
  Dividends paid 290 290
  Cash and marketable securities 740 240

 

* Taxes are paid in their entirety in the year that the tax obligation is incurred.
† Net fixed assets are fixed assets net of accumulated depreciation since the asset was installed.

 

What was the firm’s average tax bracket for each year? (Round your answers to 2 decimal places.)

 

Here are simplified financial statements of Phone Corporation from a recent year:

 

INCOME STATEMENT
(Figures in millions of dollars)
  Net sales 13,200
  Cost of goods sold 4,110
  Other expenses 4,072
  Depreciation 2,548
  Earnings before interest and taxes (EBIT) 2,470
  Interest expense 690
  Income before tax 1,780
  Taxes (at 35%) 623
  Net income 1,157
  Dividends 866

 

BALANCE SHEET
(Figures in millions of dollars)
End of Year Start of Year
  Assets
     Cash and marketable securities 90 159
     Receivables 2,432 2,510
     Inventories 192 243
     Other current assets 872 937
        Total current assets 3,586 3,849
     Net property, plant, and equipment 19,983 19,925
     Other long-term assets 4,226 3,780
        Total assets 27,795 27,554
  Liabilities and shareholders’ equity
     Payables 2,574 3,050
     Short-term debt 1,424 1,578
     Other current liabilities 816 792
        Total current liabilities 4,814 5,420
     Long-term debt and leases 6,769 6,654
     Other long-term liabilities 6,188 6,159
     Shareholders’ equity 10,024 9,321
        Total liabilities and shareholders’ equity 27,795 27,554

 

Calculate the following financial ratios: (Use 365 days in a year. Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

 
Here are simplified financial statements of Phone Corporation from a recent year:

 

INCOME STATEMENT
(Figures in millions of dollars)
  Net sales 13,000
  Cost of goods sold 3,960
  Other expenses 4,037
  Depreciation 2,458
  Earnings before interest and taxes (EBIT) 2,545
  Interest expense 675
  Income before tax 1,870
  Taxes (at 30%) 561
  Net income 1,309
  Dividends 856

 

BALANCE SHEET
(Figures in millions of dollars)
End of Year Start of Year
  Assets
     Cash and marketable securities 87 156
     Receivables 2,282 2,450
     Inventories 177 228
     Other current assets 857 922
        Total current assets 3,403 3,756
     Net property, plant, and equipment 19,953 19,895
     Other long-term assets 4,196 3,750
        Total assets 27,552 27,401
  Liabilities and shareholders’ equity
     Payables 2,544 3,020
     Short-term debt 1,409 1,563
     Other current liabilities 801 777
        Total current liabilities 4,754 5,360
     Long-term debt and leases 7,516 7,191
     Other long-term liabilities 6,158 6,129
     Shareholders’ equity 9,124 8,721
        Total liabilities and shareholders’ equity 27,552 27,401

 

Phone Corp.’s stock price was $82 at the end of the year. There were 203 million shares outstanding.

 

a. What was the company’s market capitalization and market value added? (Enter your answers in billions rounded to 2 decimal places.)
Consider the following information:

 

  Davis
Chili’s		 Bagwell Company
  Return on equity (ROE) 15.50% 10.40%
  Plowback ratio 0.48 0.83
  Sustainable growth 7.00% 8.20%

 

a. What would the sustainable growth rate be if Davis Chili’s plowback ratio rose to the same value as Bagwell Company? (Round your answer to 2 decimal places.)
What would the sustainable growth rate be if Davis Chili’s return on equity were only 14.5%? (Round your answer to 2 decimal places.)

 
Chik’s Chickens has average accounts receivable of $5,533. Sales for the year were $9,000. What is its average collection period? (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 2 decimal places.)

 
Salad Daze maintains an inventory of produce worth $540. Its total bill for produce over the course of the year was $78,000. How old on average is the lettuce it serves its customers? (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 2 decimal places.)

 
Assume a firm’s inventory level of $14,000 represents 38 days’ sales. What is the inventory turnover ratio?(Use 365 days in a year. Do not round intermediate calculations. Round your answer to 2 decimal places.)

 
Lever Age pays a(n) 8% rate of interest on $10.3 million of outstanding debt with face value $10.3 million. The firm’s EBIT was $1.3 million.

What is times interest earned? (Round your answer to 2 decimal places.)

 

 

If depreciation is $230,000, what is cash coverage? (Round your answer to 2 decimal places.)

 

 

If the firm must retire $330,000 of debt for the sinking fund each year, what is its “fixed-payment cash-coverage ratio” (the ratio of cash flow to interest plus other fixed debt payments)? (Round your answer to 2 decimal places.)

 

Keller Cosmetics maintains an operating profit margin of 4.1% and asset turnover ratio of 2.1.

 

a. What is its ROA? (Round your answer to 2 decimal places.)

 
If its debt-equity ratio is 1, its interest payments and taxes are each $7,100, and EBIT is $21,900, what is its ROE? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 
Torrid Romance Publishers has total receivables of $3,180, which represents 20 days’ sales. Total assets are $77,380. The firm’s operating profit margin is 6.2%. Find the firm’s asset turnover ratio and ROA. (Use 365 days in a year. Do not round intermediate calculations. Round your answers to 2 decimal places.)

 
A firm has a long-term debt-equity ratio of 0.5. Shareholders’ equity is $1.07 million. Current assets are $256,500, and the current ratio is 1.9. The only current liabilities are notes payable. What is the total debt ratio? (Round your answer to 2 decimal places.)

 
A firm has a debt-to-equity ratio of 0.69 and a market-to-book ratio of 3.0. What is the ratio of the book value of debt to the market value of equity? (Round your answer to 2 decimal places.)

 
In the past year, TVG had revenues of $3.06 million, cost of goods sold of $2.56 million, and depreciation expense of $156,560. The firm has a single issue of debt outstanding with book value of $1.06 million on which it pays an interest rate of 8%. What is the firm’s times interest earned ratio? (Round your answer to 2 decimal places.)

(Excel_prof)Case Study_Shelby Shelves: The problem details are listed on the first tab while the supporting calculations are on the second tab.

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This is a case study due July 24th at 10am (EST)

 

The problem details are listed on the first tab while the supporting calculations are on the second tab.

 

Must be well organized, show all steps and follow the directions in full. (see below)

 

For this problem you will submit the final product which will be an Excel spreadsheet used to create the model and either a Word document or a Power Point presentation.  The final project will be graded not only on the accuracy of the quantitative solutions, but also the analytical approach used and the presentation of the results.  Keep in mind that this course is designed for individuals interested in Business Management.  As such, the final presentation should be appropriate for a presentation in a professional setting.  It will be necessary to clearly explain the case study and present the results in a professional, yet easily understood manner.

 

The presentation should clearly state the objective, the constraints in obtaining that objective, the factors that can be varied, the sensitivity of the model to the variable factors, and the potential weakness of the conclusions.

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Structural Configurations For Organizations

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Assignment 1:—Structural Configurations for Organizations

Henry Mintzberg (1980) introduced a new way to explain structural configurations by “clustering various functions into groupings and showing their relative size and clout in response to different missions and external challenges” (Bolman & Deal, 2009, p. 78). Other authors offer different ways of looking at this topic.

Using the University online library resources, locate a minimum of four different scholarly sources that offer different approaches on structural configurations for organizations.

Complete the following:

  • Pick two extra approaches, one of those being Sally Helgesen’s (1995) “The Web of Inclusion.”
  • From the manager’s standpoint, examine the different approaches and provide the pros and cons of each one of them when compared to Mintzberg’s proposal.

Write your initial response in a minimum of 400 words. Apply APA standards to citation of sources.

By Thursday, January 9, 2014, post your responses to the appropriate Discussion Area.

Bolman, L., & Deal, T. (2009). Reframing organizations: Artistry, choice, and leadership(4th ed.). Jossey-Bass.

Helgesen, S. (1995). The Web of Inclusion: A New Architecture for Building Great Organizations. New York: Currency/Doubleday.

Mintzberg, H. (1980). Structure in 5’s: A synthesis of the research on organization design.Management Science, 26(3), 322–341.

Assignment 2: Home Depot Analysis

For this assignment, you will review an article describing a situation in which a business leader used a management approach that proved to be unsuccessful. You will write an analysis that covers the requirements listed in the directions below.

Directions:

Review the following:

Using the University online library resources, locate at least 2 different scholarly sources on the topic.

Write a paper that covers the following:

  1. Explain what led to an unsuccessful outcome at Home Depot.
  2. Analyze the Home Depot scenario utilizing the four-frame model (i.e., Structure, HR, Political, and Symbolic).
  3. Explain which frames were more useful in your analysis and justify your reasoning.
  4. Explain an experience you have faced in your own career that is similar to the situation presented in this case. Analyze the approach taken and assess its success.

Write a 2–3-page paper in Word format. Utilize at least two scholarly sources in support. Your paper should be written in a clear, concise, and organized manner; demonstrate ethical scholarship in accurate representation and attribution of sources; and display accurate spelling, grammar, and punctuation.

By Sunday, January 12, 2014, deliver your assignment to the M2: Assignment 2 Dropbox.

 

 

 

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