A generous university benefactor has agreed to donate a large amount of money for student scholarships (A+ Guaranteed)

A generous university benefactor has agreed to donate a large amount of money for student scholarships. The money can be provided in one lump sum of $12 million in Year 0 (the current year), or in parts, in which $7 million can be provided at the end of Year 1, and another $7 million can be provided at the end of Year 2.

Describe your answer for each item below in complete sentences, whenever it is necessary. Show all of your calculations and processes for the following points:

a. Assuming the opportunity interest rate is 8%, what is the present value of the second alternative mentioned above? Which of the two alternatives should be chosen and why?

b. How would your decision change if the opportunity interest rate is 12%?

c. Provide a description of a scenario where this kind of decision between two types of payment streams applies in the “real-world” business setting.

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The San Diego LLC is considering a three-year project, Project A, involving an initial investment of $80 million (A+ Guaranteed)

Problem 2: The San Diego LLC is considering a three-year project, Project A, involving an initial investment of $80 million and the following cash inflows and probabilities:

 

Year 0

Year 1

Year 2

Year 3

Probability

Cash Flow

($ mil.)

Probability

Cash Flow

($mil.)

Probability

Cash Flow

($ mil.)

0.2

50

0.1

60

0.3

70

0.3

40

0.2

50

0.4

60

0.4

30

0.3

40

0.1

50

0.1

20

0.4

30

0.2

40

Initial Investment

$80 mil.

Discount Rate

8%

Describe your answer for each question in complete sentences, whenever it is necessary. Show all of your calculations and processes for the following points:

 

a. Describe and calculate Project A’s expected net present value (ENPV) and standard deviation (SD), assuming the discount rate (or risk-free interest rate) to be 8%. What is the decision rule in terms of ENPV? What will be San Diego LLC’s decision regarding this project? Describe your answer.

b. The company is also considering another three-year project, Project B, which has an ENPV of $32 million and standard deviation of $10.5 million. Project A and B are mutually exclusive. Which of the two projects would you prefer if you do not consider the risk factor? Explain.

c. Describe the coefficient of variation (CV) and the standard deviation (SD) in connection with risk attitudes and decision making. If you now also consider your risk-aversion attitude, as the CEO of the San Diego LLC will you make a different decision between Project A and Project B? Why or why not?

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P4-5B Lee Choi opened Choi’s Window Washing, Inc. on July 1, 2008

P4-5B Lee Choi opened Choi’s Window Washing, Inc. on July 1, 2008. During July the following transactions were completed.
July 1 Issued $12,000 of common stock for $12,000 cash.
1 Purchased used truck for $6,000, paying $3,000 cash and the balance on account.
3 Purchased cleaning supplies for $1,300 on account.
5 Paid $2,400 cash on one-year insurance policy effective July 1.
12 Billed customers $2,500 for cleaning services.
18 Paid $1,000 cash on amount owed on truck and $800 on amount owed on cleaning supplies.
20 Paid $1,200 cash for employee salaries.
21 Collected $1,400 cash from customers billed on July 12.
25 Billed customers $5,000 for cleaning services.
31 Paid gas and oil for month on truck $200.
31 Declared and paid $900 cash dividend.

The chart of accounts for Choi’s Window Washing contains the following accounts: No. 101 Cash, No. 112 Accounts Receivable, No. 128 Cleaning Supplies, No. 130 Prepaid Insurance, No. 157 Equipment, No. 158 Accumulated Depreciation—Equipment, No. 201 Accounts Payable, No. 212 Salaries Payable, No. 311 Common Stock, No. 320 Retained Earnings, No. 332 Dividends, No. 350 Income Summary,No. 400 Service Revenue,No. 633 Gas & Oil Expense,No. 634 Cleaning Supplies Expense,No. 711 Depreciation Expense,No. 722 Insurance Expense, and No. 726 Salaries Expense.

Instructions
(a) Journalize and post the July transactions. Use page J1 for the journal and the three-column form of account.
(b) Prepare a trial balance at July 31 on a worksheet.
(c) Enter the following adjustments on the worksheet and complete the worksheet.
(1) Services provided but unbilled and uncollected at July 31 were $1,500.
(2) Depreciation on equipment for the month was $300.
(3) One-twelfth of the insurance expired.
(4) An inventory count shows $400 of cleaning supplies on hand at July 31.
(5) Accrued but unpaid employee salaries were $600.
(d) Prepare the income statement and a retained earnings statement for July and a classified balance sheet at July 31.
(e) Journalize and post adjusting entries. Use page J2 for the journal.
(f) Journalize and post closing entries and complete the closing process. Use page J3 for the journal.
(g) Prepare a post-closing trial balance at July 31.

Check:
(b) Trial balance $22,000
(c) Adjusted trial balance $24,400
(d) Net income $5,600; Total assets $19,800
(g) Post-closing trial balance $20,100

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CP26 You would like to start a business manufacturing a unique model of bicycle helmet

CP26 You would like to start a business manufacturing a unique model of bicycle helmet. In preparation for an interview with the bank to discuss your financing needs, you develop answers to the following questions. A number of assumptions are required; clearly note all assumptions that you make.
a) Identify the types of costs that would likely be involved in making this product.
b) Set up five columns as indicated.
Product Costs
Item Direct Materials Direct Labor Manufacturing Overhead Period Costs
Classify the costs you identified in (a) into the manufacturing cost classifications of product costs (direct materials, direct labor, and manufacturing overhead) and period costs.
c) Assign hypothetical monthly dollar figures to the costs you identified in (a) and (b).
d) Assume you have no raw materials or work in process beginning or ending inventories. Prepare a projected cost of goods manufactured schedule for the first month of operations.
e) Project the number of helmets you expect to produce the first month of operations. Compute the cost to produce one bicycle helmet. Review the result to ensure it is reasonable; if not, return to part © and adjust the monthly dollar figures you assigned accordingly.
f) What type of cost accounting system will you likely use – job order or process costing?
g) Explain how you would assign costs in either job order or process costing system you plan to use.
h) Classify your costs as either variable or fixed costs. For simplicity, assign all costs to either variable or fixed, assuming there are no mixed costs, using the format shown.
Item Variable Costs Fixed Costs Total Costs
i) Compute the unit variable cost, using the production number you determined in (e).
j) Project the number of helmets you anticipate selling the first month of operations. Set a unit selling price, and compute both the contribution margin per unit and the contribution margin ratio.
k) Determine your break-even point in dollars and in units.
l) Prepare projected operating budgets (sales, production, direct materials, direct labor, manufacturing overhead, selling and administrative expense, and income statement). You will need to make assumptions for each of the following:
Direct materials budget: Quantity of direct materials required to produce one helmet; cost per unit of quantity; desired ending direct materials (assume none).
Direct Labor budget: Direct labor time required per helmet; direct labor cost per hour.
Budgeted income statement: Income tax expense is 45% of income from operations.
m) Prepare a cash budget for the month. Assume the percentage of sales that will be collected from customers is 75%, and the percentage of direct materials that will be paid in the current month is 75%.
n) Determine a relevant range of activity, using the number of helmets produced as your activity index. Recast your manufacturing overhead budget into a flexible monthly budget for two additional activity levels.
o) Identify one potential cause of materials, direct labor, and manufacturing overhead variances for your product.
p) Assume that you wish to purchase production equipment that costs $720,000. Determine the cash payback period, utilizing the monthly cash flow that you computed in part (m) multiplied by 12 months (for simplicity).
q) Identify any nonfinancial factors that should be considered before commencing your business venture.

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(Interest Rate Sensitivity) An investor purchased the following 5 bonds.

(Interest Rate Sensitivity) An investor purchased the following 5 bonds. Each bond had a par value of $1,000 and 8 % yield to maturity on the purchase day. Immediately after the investor purchased them, interest rates fell and each then had a new YTM of 7% . What is the percentage change in price for each bond after the decline in interest rates? Fill in the following table:

Price @ 8% Price 7% Percentage change
10-yr,10% annual coupon
10-year zero
5-year zero
30-year zero
$100 perpetuity

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On October 1, Keisha King organized Real Answers, a new consulting firm

On October 1, Keisha King organized Real Answers, a new consulting firm. On October 31, the company’srecords show the following items and amounts. Use this information to prepare an October income statement for the business.

Cash . . . . . . . . . . . . . . . . . . $11,500    Cash dividends . . . . . . . . . . . . . . $ 2,000
Accounts receivable . . . . . . . 12,000     Consulting fees earned . . . . . . . . 14,000
Office supplies . . . . . . . . . . . 24,437     Rent expense . . . . . . . . . . . . . . . 2,520
Land . . . . . . . . . . . . . . . . . . . 46,000   Salaries expense . . . . . . . . . . . . . 5,600
Office equipment . . . . . . . . . 18,000     Telephone expense . . . . . . . . . . . 760
Accounts payable . . . . . . . . . 25,037    Miscellaneous expenses . . . . . . . 580
Common stock . . . . . . . . . . . 84,360

Check Net income, $4,540

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Coley Co. issued $30 million face amount of 9%, 10-year bonds on June 1, 2009

Coley Co. issued $30 million face amount of 9%, 10-year bonds on June 1, 2009. The bonds pay interest on an annual basis on May 31, each year.

a.) Assume that the market interest rates were slightly higher than 9% when the bonds were sold. Would the proceeds from the bond issue have been more than, less than, or equal to the face amount? Explain.

b.) Independent of your answer to part A, assume that the proceeds were $26,640,000. Use the horizontal model to show the effect of issuing the bonds.

c.) Calculate the interest expense that Coley Co. will show with the respect to these bonds in its income statement for the fiscal year ended September 30,2009, assuming that the discount rate of $360,000 is amortized on a straight-line basis.

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Shares in Raven Products are selling for $78 per share (A+)

Shares in Raven Products are selling for $78 per share. There are 1 million shares outstanding. What will be the share price in each of the following situations? Ignore taxes.

Required:

a. The stock splits six for five.

b. The company pays a 20% stock dividend.

c. The company repurchases 100,000 shares.

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Santana Rey of Business Solutions is evaluating her inventory to determine whether it must be adjusted based on lower of cost or market rules (A+)

Santana Rey of Business Solutions is evaluating her inventory to determine whether it must be adjusted based on lower of cost or market rules. Business Solutions has three different types of software in its inventory and the following information is available for each.

Per Unit

Inventory Items Units Cost Market

Office productivity 8 $81 $79

Desktop publishing 7 108 105

Accounting 8 95 101

Required:

1(a). Compute the lower of cost or market for ending inventory assuming Rey applies the lower of cost or market rule to inventory as a whole. (

1(b). Must Rey adjust the reported inventory value?

2(a). Compute the lower of cost or market rule to each product in inventory.

2(b). Must Rey adjust the reported inventory value?

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Ripken Company’s ending inventory includes the following items (A+)

Ripken Company’s ending inventory includes the following items.

Per Unit

Product Units Cost Market

Helmets 41 $63 $59

Bats 34 81 113

Shoes 55 100 104

Uniforms 59 45 45

Required:

Compute the lower of cost or market for ending inventory applied separately to each product.

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