## You have \$10,000 to invest in a stock portfolio

4. Portfolio Expected Return. You have \$10,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 14 percent and Stock Y with an expected return of 11 percent. If your goal is to create a portfolio with an expected return of 12.4 percent, how much money will you invest in Stock X? In Stock Y?

7. Calculating Returns and Standard Deviations. Based on the following information, calculate the expected return and standard deviation for the two stocks.

17. Using CAPM. A stock has a beta of 1.15 and an expected return of 10.4 percent. A risk-free asset currently earns 3.8 percent.

a. What is the expected return on a portfolio that is equally invested in the two assets?

b. If a portfolio of the two assets has a beta of .7, what are the portfolio weights?

c. If a portfolio of the two assets has an expected return of 9 percent, what is its beta?

d. If a portfolio of the two assets has a beta of 2.3, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Explain.

29. SML Suppose you observe the following situation:

a. Calculate the expected return on each stock.

b. Assuming the capital asset pricing model holds and stock A’s beta is greater than stock B’s beta by .25, what is the expected market risk premium?

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## Wilson Corporation (not real) has a targeted capital structure

Scenario: Wilson Corporation (not real) has a targeted capital structure of 40% long term debt and 60% common stock. The debt is yielding 6% and the corporate tax rate is 35%. The common stock is trading at \$50 per share and next year’s dividend is \$2.50 per share that is growing by 4% per year.

Calculate the company’s weighted average cost of capital. Use the dividend discount model.  Show calculations in Microsoft® Word.
• The company’s CEO has stated if the company increases the amount of long term debt so the capital structure will be 60% debt and 40% equity, this will lower its WACC. Explain and defend why you agree or disagree. Report how would you advise the CEO.

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## GrowMaster Products, a rapidly growing distributor of home gardening

GrowMaster Products, a rapidly growing distributor of home gardening equipment, is formulating its plans for the coming year. Carol Jones, the firm’s marketing director, has completed the following sales forecast.

Month        Sales        Month        Sales
January        \$909,900        July        \$1,507,400
February    \$1,007,900        August        \$1,507,400
March        \$909,900        September    \$1,606,300
April        \$1,156,800        October        \$1,606,300
May        \$1,259,900        November    \$1,507,400
June        \$1,405,100        December    \$1,706,700

Phillip Smith, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash flow projection. He has gathered the following information.

● All sales are made on credit.
● GrowMaster’s excellent record in accounts receivable collection is expected to continue, with 60 percent of billings collected in the month after sale and the remaining 40 percent collected two months after the sale.
● Cost of goods sold, GrowMaster’s largest expense, is estimated to equal 40 percent of sales dollars. Seventy percent of inventory is purchased one month prior to sale and 30 percent during the month of sale. For example, in April, 30 percent of April cost of goods sold is purchased and 70 percent of May cost of goods sold is purchased.
● All purchases are made on account. Historically, 75 percent of accounts payable have been paid during the month of purchase, and the remaining 25 percent in the month following purchase.
● Hourly wages and fringe benefits, estimated at 30 percent of the current month’s sales, are paid in the month incurred.
● General and administrative expenses are projected to be \$1,567,400 for the year. A breakdown of the expenses follows. All expenditures are paid monthly throughout the year, with the exception of property taxes, which are paid in four equal installments at the end of each quarter.

Salaries and fringe benefits   \$320,300
Advertising            378,100
Property taxes            141,100
Insurance            197,600
Utilities            181,200
Depreciation            349,100
Total        \$1,567,400

● Operating income for the first quarter of the coming year is projected to be \$322,300. GrowMaster is subject to a 40 percent tax rate. The company pays 100 percent of its estimated taxes in the month following the end of each quarter.
● GrowMaster maintains a minimum cash balance of \$50,000. If the cash balance is less than \$50,000 at the end of the month, the company borrows against its 12 percent line of credit in order to maintain the balance. All borrowings are made at the beginning of the month, and all repayments are made at the end of the month (in increments of \$1,000). Accrued interest is paid in full with each principal repayment. The projected cash balance on April 1 is \$56,600.

A. Prepare the cash receipts budget for the second quarter. (Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.)

B. Prepare the purchases budget for the second quarter. (Round answers to 0 decimal places, e.g. 5,275. Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.)

C. Prepare the cash payments budget for the second quarter. (Round answers to 0 decimal places, e.g. 5,275. Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.)

Here’s the SOLUTION

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## Piscataway Plastics Company manufactures a highly specialized plastic

Piscataway Plastics Company manufactures a highly specialized plastic that is used extensively in the automobile industry. The following data have been compiled for the month of June. Conversion activity occurs uniformly throughout the production process.

Work in process, June 1—50,000 units:

Direct material: 100% complete cost of …………. \$120,000

Conversion: 40% complete, cost of ………………..34,400

Balance in work in process, June 1 ………………\$154,400

Units started during June …………………….. 200,000

Units completed during June and transferred out to finished-goods inventory ….. 190,000

Work in process, June 30:

Direct material: 100% complete

Conversion: 60% complete

Costs incurred during June:

Direct material ……………………………. \$492,500

Conversion costs:

Direct labor ……………………………… \$ 87,450

Applied manufacturing overhead ………………. 262,350

Total conversion costs …………………….. \$349,800

Required: Prepare schedules to accomplish each of the following process-costing steps for the month of June. Use the weighted-average method of process costing.

1. Analysis of physical flow of units.

2. Calculation of equivalent units.

3. Computation of unit costs.

4. Analysis of total costs.

Here’s the SOLUTION

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## Suppose the market demand and supply functions are QD

Suppose the market demand and supply functions are QD = 220 – 1.6P and QS = 4P – 116. You have just graduated and moved to this city; as a new MBA and an entrepreneur, you are considering entering the market for this product.

Q) You’ve researched and found that most firms in the market currently experience costs such that TC = 30 + 65Q – 14Q2 + 2.4Q3. Determine whether or not you should enter this market.

a. Firms are profitable when P exceeds MC; this only occurs at very low levels of output for my firm and thus I should not enter.

b. Plugging the market equilibrium quantity into this total cost function results in huge costs for my firm, so I should not enter.

c. Where the current equilibrium P = ATC, that price exceeds the marginal cost so I would be profitable upon entering.

d. Using the P=MC rule, the equilibrium price is above ATC at the best quantity, so entering would be profitable.

Q) Due to unforeseen delays, you don’t enter the market. However, a year later the market supply has changed to QS = 4P – 60. Are you surprised at this shift in supply?

a. Yes; the earlier profits should have caused mergers among firms, reducing the number of suppliers and thus supply itself (curve should shift left), though the new supply curve has actually increased (shifted right).

b. No; the profit that was earned under the old supply curve would attract new entrepreneurs, shifting supply to the right (which is what this new supply curve did).

c. No; the losses incurred in the previous question suggest that some firms would exit. This exit would shift supply left, which is what the new supply equation did.

d. Yes; the losses earned earlier should have reduced supply whereas this new equation shows an increase in supply.

Q) Given the new supply conditions (QS = 4P – 60), determine whether or not you should enter the market.

a. Yes; the new equilibrium price is now between AVC and ATC, so firms (including my new one) will choose to stay open.

b. No; the new equilibrium price is below AVC so if I entered I would have to immediately shut down.

c. Yes; even though the new equilibrium price is below ATC, the time lag would allow our firm to continue charging the old (and profitable) equilibrium price during the short run.

d. No; the new equilibrium price is below ATC (though above AVC) at the optimal quantity. If I entered I’d immediately suffer losses.

Here’s the SOLUTION

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## The following balances are Suzie and Jarrett’s Nugget Co

The following balances are Suzie and Jarrett’s Nugget Co., as of December 31, 2015:

Cash 108,000

Accounts Receivable 40,000

Allowance for Doubtful Accts 2,000

Inventory 60,000 (3Nuggets)

Prepaid Rent 3,000

Equipment 200,000

Accumulated Depreciation 60,000

Security Deposit 10,000

Account Payable 80,000

Wages Payable 5,000

Interest Payable 5,000

Taxes Payable 8,000

Note Payable 100,000

Common Stocks (\$1 par) 6,000

Retained Earning 101,000

For 2016:

Received all beginning accounts receivable and paid all beginning accounts payable.

Bought five Nuggets at \$25,000 each, 20% down, rest next year.

Sold six Nuggets, \$50,000 each, 60% down, 40% next year.

Paid cash wages of \$40,000 and at the end of the year owed employees \$2,000.

Paid utilities of \$12,000 and advertising of \$10,000.

On June 30th, they paid the annual payment of \$10,000 principal plus interest on the Note Payable. The note was taken out on June 30th of the previous year. (Can you figure out the Interest rate?)

On August 1, purchased a new wagon for delivery of the Nuggets for \$20,000.

On December 1, they declared and paid a dividend of \$5,000.

On December 31, the company purchased a piece of land by issuing a note for \$80,000. The note is payable in five years. The interest at 12% is payable annually on December 31 of each year starting in 2017.

During the year they paid \$8,000 in rent (rent is \$1,000 per month)

The company uses the FIFO inventory flow assumption.

The depreciation for the year was \$30,000.

The company estimates that 4% of its accounts receivable will never be collected. During the year the company wrote off \$1,500 in bad accounts.

The tax rate is 30%. During the year the company paid all of last year’s taxes and 50% of 2016 taxes.

PREPARE JOURNAL ENTRY AND FINANCIAL STATEMENTS FOR THE YEAR 2016.

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## Magilla Compressor Company manufactures specialty industrial equipment

Magilla Compressor Company manufactures specialty industrial equipment. Its customer, Gorilla, order a specialty compressor for its Chicago manufacturing complex. The contract calls for Magilla to manufacture the compressor according to specification and to install it at the Chicago complex. The terms of the contract require Gorilla to pay the full contract price of \$30,000,000 within 10 days after the installation is completed. The cost of manufacturing the equipment is \$22 million. Magilla has a policy of installing its products for its customers free of charge (in other words, the contract price would be \$30,000,000 even if Magilla did not do the installation). The fair value of the installation service is \$300,000.

Magilla delivered the compressor to the Chicago facility on March 31, 2017. Installation was completed on April 11, 2017. Payment was received by Magilla on April 20, 2017.

Please prepare the appropriate entries for Magilla on the following dates:

1. March 31, 2017

2. April 11, 2017

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## During 2017, Continental Steel Company reported a net operating loss

During 2017, Continental Steel Company reported a net operating loss of \$150 million for financial accounting and income tax purposes. The tax rate in 2017 is 35%. Taxable income, tax rates, and taxes paid in previous years was as follows:

Taxable income             Tax rate                Taxes paid

2015                 \$10 million                 35%                  \$3.5 million

2016                 100 million                35%                  \$35 million

Management has decided that it is more likely than not that 50% of any loss carry forward will expire unutilized.

Based on the above, please answer the following questions:

1. Prepare the necessary entries in 2017 to account for the income taxes.

Assume that accounting and taxable income for 2018 is actually \$100 million, the tax rate remains 35%, and all the loss carryforward can be used.

2. Prepare the necessary accounting entries in 2018 to account for the income taxes.

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## IT/200 Digital Skills for the 21st Century

IT/200 Digital Skills for the 21st Century

Practice With Productivity Tools: Work with a friend or family test out features such as sharing a screen, sharing documents, and communicate live.

Which product(s) did you test?
What do you like and dislike about it?
What are some issues that can occur?
How can you use this in your professional life?

Web-Based Presentation Tool: Identify three to five important features of web-based collaborative presentation tools. Based on these characteristics, compare two web-based presentation tools and share your thoughts. Consider including the following thoughts in your response.

Which features did you focus your quest?
Which tool offered the most features?
Which browsers are compatible?
Which tool has more useful features?
Which tool can you see yourself using in current and future courses?
Which tool can you see yourself using in current or future employment?

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## GOVT 220 Course Project: Rough Draft Instructions

GOVT 220 Course Project: Rough Draft Instructions

You will begin the task of creating a correctional facility that will be presented via PowerPoint. The presentation must have at least 5 slides, and it will provide a snapshot of the correctional facility that will be further developed for the Course Project: Final.

The following must be included in the Rough Draft via PowerPoint slides:

· Type of facility that will be constructed

· Identification of possible programs that will be implemented in the facility

· Approximation of the total budget for the operation of the facility

· Identification of at least 2 sources that will be used for the Course Project: Final

· At least 5 slides, including the title slide

Here’s the SOLUTION

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